A month has gone by since the last earnings report for Paycom Software (PAYC Quick QuotePAYC - Free Report) . Shares have added about 6.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Paycom due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Paycom Q1 Earnings and Revenues Beat Estimates

Paycom Software recently reported stellar first-quarter 2020 results despite the unexpected rate cuts and spike in unemployment level due to the economic and business disruptions caused by the coronavirus outbreak. Notably, some of the company’s businesses are directly related to the number of headcounts at its client offices.

The company generated revenues of $242.4 million, which increased 21% from the year-earlier period and also outpaced the Zacks Consensus Estimate of $238 million. Further, the company’s first-quarter non-GAAP earnings per share came in at $1.33, which surpassed the Zacks Consensus Estimate of $1.26 and also grew 11.8% year on year.

Robust new business wins and the company’s high-margin recurring revenue business drove results. Recurring revenues of $238.5 million climbed 21% from the prior year, and constituted 98% of total revenues.

The company is benefiting from its differentiated employee strategy, measurement capabilities and comprehensive product offering. Paycom’s differentiated product offering — Direct Data Exchange — for all Paycom Software clients is boosting customer addition. Furthermore, the latest launch of Ask Here and Manager on-the-Go, both focusing on greater employee usage and efficiency, is a tailwind.

Margins

Adjusted gross profit jumped 23.1% from the year-ago period to $213.5 million. Adjusted gross margin expanded 130 basis points (bps) on a year-over-year basis to 88.1% as the company continues benefiting from high-margin recurring revenues and increasing customer-service efficiency.

Paycom Software’s adjusted EBITDA rose 14.1% year over year to $117.9 million. However, adjusted EBITDA margin contracted 300 bps to48.7%.

Balance Sheet & Cash Flow

Paycom Software exited the first quarter with cash and cash equivalents of $181.8 million compared with the $133.7 million recorded in the sequential quarter.

The company’s balance sheet comprises long-term debt of $32.2 million compared with the previous quarter’s $32.6 million.

Cash from operations was $82 million in the first quarter and the company repurchased approximately $8 million worth of its common stocks.

Guidance

Citing economic and business uncertainties of its clients, Paycom withdrew its outlook for full-year 2020.

Previously, the company had projected revenues in the range of $911-$913 million. Adjusted EBITDA was anticipated in the $384-$386 million band and adjusted gross margin in the 85-86% range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -20.61% due to these changes.

VGM Scores

At this time, Paycom has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Paycom has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.