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Paycom (PAYC) Q2 Earnings and Revenues Surpass Estimates

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Paycom Software (PAYC - Free Report) reported impressive second-quarter 2018 results, surpassing the Zacks Consensus Estimate on both counts. The top and the bottom lines also came ahead of the guided range.
 
The company’s non-GAAP earnings per share came in at 59 cents per share, which beat the Zacks Consensus Estimate of 49 cents. Also, reported earnings increased from the adjusted figure of 26 cents in the year-ago quarter.

Quarter Details
 
Paycom Software reported revenues of $128.8 million, which increased 31% from the year-ago quarter. Revenues also surpassed the Zacks Consensus Estimate of $124 million.

The year-over-over increase can be attributed to new business wins and product development initiatives. Robust adoption of enhanced HCM software solutions is a key driver.
 
Moreover, revenues were impacted positively by a 31% year-over-year increase in recurring revenues, which comprised around 98% of total revenues.

Management believes that Paycom’s mobile app, which meets all the functionality offered by employee self-service desktop application, positions it well for continued growth.

The company also introduced various enhancements to its overall product offering as part of its monthly updates in the second quarter that were rolled out to its entire client base.

Paycom Software, Inc. Price, Consensus and EPS Surprise

Paycom Software, Inc. Price, Consensus and EPS Surprise | Paycom Software, Inc. Quote

Margins
 
Adjusted gross profit increased 32.7% from the year-ago period to $108.3 million. The company’s adjusted gross margin expanded 110 basis points (bps) on a year-over-year basis to 84.1%, primarily due to a higher revenue base.
 
As a percentage of revenues, total adjusted administration expenses and sales and marketing expenses of 47.9% and 23.4% declined 290 and 330 bps, respectively. Paycom Software’s adjusted EBITDA increased 46.2% year over year to $53.5 million.
 
Balance Sheet & Cash Flow

Paycom Software exited the second quarter with cash and cash equivalents of $54.6 million compared with $68.1 million in the previous quarter.

The company’s balance sheet comprises long-term debt of $33.5 million compared with $35.3 million in the previous quarter.

Net cash provided by operating activities in the first six months of 2018 was $100.4 million.

The company repurchased more than 400k shares in the quarter.
 
Guidance
 
For third-quarter 2018, Paycom Software expects revenues in the range of $129-$131 million. Adjusted EBITDA is expected to be in the range of $45.5-$47.5 million.

Gross margin is anticipated to be under pressure due to the timing of new hires.
 
Paycom Software raised its guidance for fiscal 2018. The company now anticipates revenues in the range of $554-$556 million, up from the previous expectation of $545-$547 million. Adjusted EBITDA is expected to be in the range of $231-$233 million, up from previous guidance of $220-$222 million.

The company will be ramping up investments in sales and marketing initiatives as well as in research and development in the second half of the year.

Zacks Rank and Stocks to Consider

Paycom currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader technology sector are YY Inc. (YY - Free Report) , Science Applications (SAIC - Free Report) and Verint Systems (VRNT - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for YY, Science Applications and Verint is projected to be 26.4%, 5% and 10%, respectively.

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