Shares of Paycom Software, Inc. (NYSE:PAYC) rose more than 2% yesterday, after the company reported better-than-expected third-quarter 2017 results.
The company’s non-GAAP earnings per share came in at 29 cents per share, which beat the Zacks Consensus Estimate of 19 cents. Also, reported earnings increased from 15 cents earned in the year-ago quarter.
Further, shares of Paycom Software have surged a whopping 88.1% in the past one year, outperforming the industry‘s increase of just 23.1%.
Quarter Details
Paycom Software reported revenues of $101.3 million, which increased 30.9% from the year-ago quarter. Revenues also beat the Zacks Consensus Estimate of $100 million. The year-over-over increase can be attributedto the addition of new clients, new business wins and product development initiatives.
Moreover, revenues were impacted positively by 31.2% increase in recurring revenues and approximately 21.9% increase in implementation and other revenues on a year-over-year basis.
The company’s adjusted gross margin increased 100 basis points (bps) on a year-over-year basis to 84%, primarily due to higher revenue base.
Paycom Software’s adjusted EBITDA increased 69% year over year to $30.7 million. Adjusted operating margins during the quarter came in 30.3% as compared with 23.5% reported in the year-ago quarter. As a percentage of revenues, total administration expenses decreased to 58.5% during the quarter from 63.5% reported in the year-ago period.
Non-GAAP net income came in at $16.9 million compared with $8.9 million reported in the year-ago quarter.
Balance Sheet & Cash Flow
Paycom Software exited the third quarter with cash and cash equivalents of $66.6 million compared with $68.1 million in the previous quarter. Receivables were $1.4 million as compared with $1.8 million reported in the previous quarter.
The company’s balance sheet comprises long-term debt of $33.2 million compared with $33.5 million reported in the previous quarter. It reported cash flow from operations of $92.4 million during nine months ended Sep 30, 2017.
During the quarter, Paycom Software repurchased stocks worth $50 million. Moreover, the company authorized an additional share repurchase program, increasing the amount to $75 million.
Guidance
For fourth-quarter fiscal 2017, Paycom Software expects revenues in a range of $111.5-$113.5 million. The Zacks Consensus Estimate is pegged at $113.3 million. Adjusted EBITDA is expected to be approximately in the range of $26-$28 million.
Paycom Software updated fiscal 2017 guidance. The company now anticipates revenues in a range of $430.5-$432.5 million (previously $429.5-$431.5 million). The Zacks Consensus Estimate is pegged at $431.4 million. Adjusted EBITDA is now anticipated to be approximately in a range of $131-$133 million (previously $122.5-$124.5 million).
Our Take
Paycom Software reported stellar third-quarter 2016 results and provided modest fourth-quarter guidance. The company also updated fiscal 2017 revenue guidance. Also, both the top line and the bottom line increased on a year-over-year basis.
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 the 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 in the long run. Further, the company 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 (NASDAQ:PCTY) , Intuit Inc. (NASDAQ:INTU) and Paychex, Inc. (NASDAQ:PAYX) remains a headwind.
Currently, Paycom Software carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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