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Paycom Software Targets Larger Customers as Its Sales Growth Accelerates

By Brian Feroldi – Nov 1, 2018 at 11:39AM

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The payroll-processing specialist reported revenue growth of 32% and projected optimism about its future.

Paycom Software (PAYC -0.83%), a software-as-a-service business focused on the needs of human resources departments, reported its third-quarter results on Tuesday. Sales growth accelerated to 32% as the company continues to succeed at winning new business in its core markets. The organic growth has been so strong that management decided to give its sales force the green light to start targeting larger clients. 

Paycom Software third-quarter results: The raw numbers

Metric Q3 2018 Q3 2017 Change (YOY) 
Revenue $133.3 million $101.3 million 32%
Adjusted EBITDA $49.2 million $40.4 million 22%
Non-GAAP net income  $30.6 million $23.2 million  22%
Non-GAAP earnings per share $0.52 $0.39 32%

Data source: Paycom Software. YOY = year over year. Non-GAAP = adjusted.

What happened with Paycom Software this quarter?

  • This marks the third quarter in a row of a sequential acceleration in sales growth. Total revenue of $133.3 million also exceeded the top end of management's guidance.
  • Adjusted EBITDA of $49.2 million was almost $2 million ahead of guidance.
  • Management stated that sales and marketing expenses were higher than normal during the quarter because of a decision to roll out a national advertising campaign. The higher spending rates are expected to persist in the upcoming quarter.
  • The company repurchased 30,000 shares of stock during the period.
  • Cash balance at quarter's end was $85 million and total debt was $34.8 million. 
Woman with paycheck in her hand

Image source: Getty Images.

What management had to say

Paycom CEO and founder Chad Richison made it clear on the call with investors that his company is currently firing on all cylinders: "We had an excellent third quarter. Our momentum continued as companies across a wide range of industries and geographies turn to Paycom to help them achieve success."

Richison also stated that success with smaller businesses has convinced the company to start targeting larger customers:

[W]e are pleased to announce that we are expanding our proactive sales efforts from targeting firms with 50 employees to 2,000 employees to targeting firms with 50 employees to 5,000 employees. We have had great success selling to organizations above the 2,000-employee level, as word-of-mouth about the Paycom solution frequently pulls in larger company leads to our sales group. 

Looking forward

Here's the guidance that management gave for the fourth quarter:

Metric Q4 2018 Guidance Q4 2017 Actual Change at Midpoint
Revenue $142.5 million to $144.5 million $114 million 26%
Adjusted EBITDA $49.5 million to $51.5 million $31.8 million 59%

Data source: Paycom Software.

The continued prosperity also enabled management to raise its full-year guidance range by a few million dollars once again:

Metric 2018 Updated Guidance 2017 Actual Change at Midpoint
Revenue $558.5 million to $560.5 million $433 million 29%
Adjusted EBITDA $233 million to $235 million $137 million 71%

Data source: Paycom Software. 

Overall, Paycom's results continue to prove that the business is having a lot of success with executing against its substantial market opportunity.

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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