Please ensure Javascript is enabled for purposes of website accessibility

Paycom Software, Inc Kicks Off 2017 on a High Note

By Brian Feroldi – Updated May 4, 2017 at 3:02PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The human capital management specialist once again posted meaningful gains in revenue and profits.

Businesses of all shapes and sizes need help managing their employees. In recent years an ever increasing number of those employers have been switching to Paycom Software's (PAYC 1.20%) solution. Paycom's cloud-based software helps human resources departments with basic tasks such as hiring, training, payroll processing, and more. The company's all-in-one solution has been attracting new customers at a breathtaking rate, which has allowed Paycom's revenue and profits to soar.

Coming into Tuesday's first-quarter earnings report, shareholders wanted to see Paycom meaningfully expand its revenue and profits yet again. Was the company able to live up to those lofty expectations? Let's take a closer look at the company's results to find out.

paycheck and calculator on a table

Image source: Getty Images.

Paycom Software Q1: The raw numbers

MetricQ1 2016Q1 2015Year-Over-Year Change 
Revenue $117.9 million $88.9 million 32.6%
Adjusted EBITDA $46.7 million $33.0 million 41.5%
Non-GAAP net income  $27.7 million $19.5 million  42.7%
Non-GAAP EPS $0.47 $0.33 42.4%

Data source: Paycom Software.

What happened with Paycom this quarter?

  • Recurring revenue increased 33% year over year to $118 million while implementation and other revenue grew 30% to $1.5 million. 
  • Margin expansion drove 42% growth in adjusted EBITDA, which came in at $47 million for the quarter.
  • Non-GAAP net income was $28 million, or $0.43 per diluted share. These figures rose 43% and 42%, respectively, when compared to the year-ago period.
  • Paycom ended the quarter with $93 million in cash on $32 million in debt. 

During its last earnings report, Paycom had forecast that revenue this quarter would land between $114.5 million and $116.5 million while adjusted EBITDA was projected to come in between $42 million and $44 million. Meanwhile, Wall Street had expected Paycom to report $115.8 million in revenue and $0.41 in EPS this quarter. As you can tell, Paycom managed to handily beat all of these expectations.

What management had to say

CEO Chad Richison was thrilled to report that the company's quarterly revenue surpassed the $100 million mark for the first time. He credited the achievement to the company's unique product solution and terrific execution, stating: "We continue to execute at high levels across our organization and as a result we are helping more companies than ever run their businesses more efficiently with our cloud-based payroll and human capital management solution."

On the company's investor call, Richison provided several examples of companies with thousands of employees that decided to switch to Paycom's platform during the quarter. While he didn't call them out by name, the victims of that client-stealing activity are likely to be payroll processing giants such as Automatic Data Processing and Paychex.

Looking forward

Management believes that the company's momentum will continue into the second quarter. As a result, management expects the company to post yet another quarter of strong revenue and profit growth. Specifically, Paycom expects revenue to land between $94.5 million and $96.5 million, the midpoint of which represents 29% growth year over year. Meanwhile, adjusted EBITDA is expected to come in between $22 million and $24 million. The midpoint of this range represents growth of approximately 24%.

The company's strong start to the year also allowed management to raise its full-year guidance. For 2017, the company now expects revenue to grow approximately 30% and come in between $426 million and $428 million. That represents a $4 million bump over its prior outlook. Adjusted EBITDA guidance was also raised by $4 million and the new range is $117 million to $119 million, representing growth of roughly 28% at the midpoint.

The better-than-expected quarterly results and bullish outlook caused Wall Street to bid up Paycom's stock to a fresh all-time high in early morning trading following this release. With Paycom continuing to prove that its business is firing on all cylinders, perhaps that optimism is warranted.

Brian Feroldi owns shares of Paycom Software. The Motley Fool owns shares of and recommends Paycom Software. The Motley Fool recommends Automatic Data Processing. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Paycom Software, Inc. Stock Quote
Paycom Software, Inc.
$324.77 (1.20%) $3.84

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.