Paycom Software (PAYC -0.88%) reported its third-quarter results on Tuesday. The provider of human capital management software capped off 2018 with quarterly revenue growth of 32%. This matches its highest rate of change during the year. However, a higher tax bill and management's decision to spend lavishly on growth programs caused its profits to take a step back.
Paycom Software fourth-quarter results: The raw numbers
| Metric | Q4 2018 | Q4 2017 | Change (YOY) |
|---|---|---|---|
| Revenue | $150.3 million | $114.0 million | 32% |
| Adjusted EBITDA | $57.5 million | $48.4 million | 19% |
| GAAP net income | $31.4 million | $48.9 million | (36%) |
| Non-GAAP net income | $35.4 million | $53.2 million | (33%) |
| Non-GAAP earnings per share | $0.61 | $0.90 | (32%) |
Data source: Paycom Software. YOY = year over year. Non-GAAP = adjusted.
Image source: Getty Images.
What happened with Paycom Software this quarter?
- Revenue growth of 32% handily outperformed management's guidance.
- Adjusted EBITDA of $57.5 million exceeded the high end of guidance by $6 million.
- Operating expenses grew 38% during the quarter, which is a faster pace of growth than total sales. This was partially attributable to the opening of four new sales office.
- The year-ago period featured a tax benefit of $24.9 million or $0.42 per share. This one-time benefit was a major reason why profits fell year-over-year in spite of the higher sales.
- The company bought back 500,000 shares of stock during the quarter.
- The cash balance at the end of the quarter was $45.7 million.
Turning to the full year, here's how the company's key numbers shook out:
- Revenue rose 31% to $566 million.
- Adjusted gross margin was 85%.
- Adjusted EBITDA jumped 29% to $241 million.
- Non-GAAP net income rose 19% to $157 million, or $2.67 per share.
- Client retention rate increased 100 basis points to 92%.
- 1.1 million shares of stock were repurchased.
Check out the latest Paycom earnings call transcript.
What management had to say
Chad Richison, Paycom's CEO and founder, was pleased with his company's performance during the year. He was quoted in a company press release as saying: "2018 was one of our most successful years as we improved our retention rate and continued to return value to our stockholders through our repurchase program. We believe our impressive results are due in-part to our strategy to promote usage of Paycom software among our clients' employees."
Looking forward
Management expects that the company's strong growth will continue in the current quarter:
| Metric | Q1 2018 Guidance | Q1 2017 Actual | Change at Midpoint |
|---|---|---|---|
| Revenue | $194 million to $196 million | $153.9 million | 27% |
| Adjusted EBITDA | $97 million to $99 million | $80.7 million | 21% |
Data source: Paycom Software.
Continued reinvestment in the business is also expected to drive upbeat results for the full year:
| Metric | 2019 Guidance | 2018 Actual | Change at Midpoint |
|---|---|---|---|
| Revenue | $710 million to $712 million | $566 million | 26% |
| Adjusted EBITDA | $288 million to $290 million | $241 million | 20% |
Data source: Paycom Software.
Given Paycom's established history blowing past its own targets and raising guidance, investors might want to take these numbers with a big grain of sugar.
