Paycom Software (NYSE:PAYC) reported second-quarter results on Tuesday, and they showed that sales growth accelerated modestly during the period to 31%, which easily exceeded the high end of management's guidance range. At the same time, expense growth continued to trail sales growth, which enabled magnified gains on the bottom line. When coupled with stock buybacks, non-GAAP earnings per share jumped 69% in the period.

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Paycom Software second-quarter results: The raw numbers

Metric Q2 2018 Q2 2017 Year-Over-Year Change 
Revenue $128.8 million $98.2 million 31%
Adjusted EBITDA $53.5 million $36.6 million 46%
Non-GAAP net income  $34.8 million $20.5 million  70%
Non-GAAP EPS $0.59 $0.35 69%

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

What happened with Paycom this quarter

  • Sales growth of 31% represented a sequential acceleration and was comfortably above the top end of guidance. 
  • Increased scale led to margin expansion across the income statement.
  • Stock buybacks totaled more than 400,000 shares during the quarter. This repurchase activity caused the company's diluted share count to decline slightly year over year.
  • Two new sales offices were opened during the period. There are now 49 sales office teams.

What management had to say

Paycom CEO and founder Chad Richison kept his commentary focused on the company's strong results: "Paycom continued its momentum, driving strong revenue and profits while also returning solid value to our stockholders with the repurchase of more than 400,000 shares in the second quarter. ... We expanded our sales reach by opening two new offices and also completed construction of a fourth building at our campus headquarters in Oklahoma City."

On the conference call with investors, Richison reaffirmed his belief that the company's human capital management (HCM) software remains in a great competitive position: "We believe our offering remains the best option in the marketplace. We also believe that we are still at the beginning of an HCM transformation through which employers experience greater return on their investment by leveraging HCM technology for their employees."

Looking forward

Management shared guidance with investors that suggests the good times will continue in the third quarter:

Metric Q3 2018 Guidance Q3 2017 Actual Change at Midpoint
Revenue $129 million to $131 million $101.3 million 28%
Adjusted EBITDA $45.5 million to $47.5 million $30.7 million 52%

Data source: Paycom Software.

The broad-based prosperity in the first half of the year also allowed the company to substantially boost its full-year guidance:

Metric 2018 Updated Guidance 2017 Actual Change at Midpoint
Revenue $554 million to $556 million $433 million 28%
Adjusted EBITDA $231 million to $233 million $137 million 69%

Table source: Paycom Software. 

These updated full-year numbers reflect an increase of $9 million to revenue and $11 million to adjusted EBITDA over management's outlook just three months ago.

In total, Paycom's stellar results continue to prove that its HCM solution is being received well by the marketplace.

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