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Paycom Software Starts 2018 Strong, Increases Guidance

By Brian Feroldi – Updated May 2, 2018 at 11:41AM

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Rapid revenue and profit growth continue for the HR software provider.

Paycom Software (PAYC 0.59%) reported its first-quarter results on Tuesday, May 1. The human resource and payroll software provider reported strong top-line growth and took advantage of operating leverage to drive even faster growth on the bottom line. The prosperity allowed management to increase its guidance for the full year.

Paycom Software first-quarter results: The raw numbers

Metric Q1 2018 Q1 2017 Year-Over-Year Change 
Revenue $153.9 million $119.5 million 29%
Adjusted EBITDA $80.7 million $60.3 million 34%
Non-GAAP net income  $55.8 million $35.5 million  57%
Non-GAAP earnings per share $0.95 $0.61 56%

Data source: Paycom Software. Non-GAAP = adjusted.

What happened with Paycom this quarter?

  • Sales growth of 29% was ahead of management's guidance and was driven by new business wins. About 99% of the company's revenue is recurring in nature.
  • Margins improved across the board.
  • The huge jump in net income and EPS was partially attributable to the adoption of a new accounting standard. The bottom line also benefited from a lower corporate tax rate thanks to recent changes to the U.S. tax code.
  • The company repurchased 170,000 shares of stock during the quarter.
  • Paycom ended the quarter with 47 sales offices in operation around the country.
Word payday written on calendar in purple highlighter and circled.

Image source: Getty Images.

What management had to say

Paycom CEO and founder Chad Richison expressed his excitement over his company's ability to maintain its momentum:

We performed well across all aspects of our business, deploying several enhancements to our solution, expanding our sales organization and developing our internal talent to assume even more responsibility and leadership. I am encouraged by our achievements and believe they position us well for success throughout the year.

On the conference call with analysts, Richison expounded on why Paycom continues to win in the marketplace:

Our prospective clients are typically large enough to have significant HCM [human capital management] needs to span multiple areas, including not just payroll but also recruiting, talent management, benefit administration and many others. With the Paycom solution, our clients receive a powerful yet flexible system that provides highly accurate employee data that allows HR executives to obtain actionable insights into their workforce.

Looking forward

Management is optimistic that the company's momentum can continue into the second quarter and is offering investors the following guidance:

Metric Q2 2018 Guidance Q2 2017 Actual Change at Midpoint
Revenue $123 million to $125 million $98.2 million 26%
Adjusted EBITDA $43 million to $45 million $27.8 million 58%

Data source: Paycom Software.

The strong start to the year also allowed management to raise its full-year revenue and adjusted EBITDA guidance by $4 million and $7 million, respectively:

Metric 2018 Updated Guidance 2017 Actual Change at Midpoint
Revenue $545 million to $547 million $433 million 26%
Adjusted EBITDA $213 million to $215 million $137 million 56%

Table source: Paycom Software. 

Overall, Paycom's results clearly show that its all-in-one solution is resonating with businesses everywhere and there is plenty of white space left to conquer.

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

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