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Paycom Software (PAYC) Stock Up on Q1 Earnings Beat

Shares of Paycom Software, Inc. PAYC went up 5.7% in after-hours trading yesterday, after the company reported better-than-expected first-quarter 2016 results. Also, the company provided encouraging second quarter as well as 2016 revenue guidance, which positively impacted the share price.

The company’s adjusted earnings per share (including stock-based compensation) came in at 32 cents per share, which beat the Zacks Consensus Estimate of 20 cents. Also, reported earnings increased from 12 cents earned in the year-ago quarter.

Quarter Details

Paycom Software reported revenues of $90.1 million, which not only increased 63.2% from the year-ago quarter but also came ahead of the Zacks Consensus Estimate of $83 million. The year-over-over increase was driven by robust sales growth coupled with better-than-expected performance in the tax form filing portion of the business.

Moreover, revenues were impacted positively by a 63.6% increase in recurring revenues and a whopping 40.3% increase in implementation and other revenues on a year-over-year basis.

The company’s adjusted gross margin (excluding one-time items but including stock-based compensation) increased 172 basis points (bps) on a year-over-year basis to 86.7%, primarily due to the strong performance of the form filing business and higher revenue base.

Paycom Software’s adjusted operating margin (including stock-based compensation) increased from 20.3% reported in the year-ago quarter to 31.9%, primarily due to lower operating expenses as a percentage of revenues. As a percentage of revenues, expenses decreased to 54.9% during the quarter from 64.7% reported in the year-ago period. 

The company’s adjusted net income (excluding one-time items but including stock-based compensation) came in at $18.6 million, which improved from $6.5 million reported in the year-ago quarter. On a GAAP basis, net income was $18.6 million compared with $5.9 million reported in the year-ago quarter.

Balance Sheet & Cash Flow

Paycom Software exited the first quarter with cash and cash equivalents of $72.1 million compared with $50.7 million in the previous quarter. Receivables were $2.6 million compared with $2.4 million in the previous quarter.

Paycom Software’s balance sheet comprises long-term debt of $24.7 million compared with $24.9 million reported in the previous quarter. The company reported cash flow from operations of $29.9 million during the quarter.

Guidance

For the second quarter of fiscal 2016, Paycom Software expects revenues in a range of $69 million to $71 million. The Zacks Consensus Estimate is pegged at $70 million. Adjusted EBITDA is expected to be approximately in a range of $14 million to $16 million.

Paycom Software raised its fiscal year 2016 guidance. The company now expects revenues in a range of $320 million to $322 million (previous guidance $309 million to $311 million). The Zacks Consensus Estimate is pegged at $311 million. Adjusted EBITDA is expected to be approximately in a range of $73 million to $75 million.

Our Take

Paycom Software reported better-than-expected first-quarter 2016 results, with its top and bottom line surpassing the Zacks Consensus Estimate. The company also provided an encouraging second-quarter and fiscal 2016 revenue guidance. Also, year-over-year comparisons on both counts were favorable.

Revenue growth seems to be steady and was positively impacted by higher recurring revenues and higher traction in cloud-based offerings. Better-than-expected demand for advanced human capital management and payroll software solutions during the reported quarter were the other positives.

We believe that higher adoption of Paycom Software’s Affordable Care Act (“ACA”) dashboard application that tracks employee count, employee status and health care plan affordability will act as a tailwind for the company in the long run. Also, Paycom Software might witness long-term growth by successfully cross-selling newer products to the existing client base, which will boost revenues, going forward.

Nevertheless, competition from companies like Paylocity Holding Corporation PCTY, Intuit Inc. INTU and Paychex, Inc. remains a headwind.

Currently, Paycom Software has a Zacks Rank #3 (Hold). However, a better-ranked stock in the technology space is TiVo Inc. TIVO, carrying a Zacks Rank #1 (Strong Buy).

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PAYCOM SOFTWARE (PAYC): Free Stock Analysis Report
 
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PAYLOCITY HLDG (PCTY): Free Stock Analysis Report
 
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