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Paycom Software Starts 2019 Strong, Raises Guidance

By Brian Feroldi – May 1, 2019 at 11:31AM

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The payroll specialist processed another beat-and-raise quarter.

Paycom Software (PAYC 0.59%), a provider of software used by human resource departments, reported its first-quarter results on Tuesday.

Management had previously predicted that the company would post strong top-line gains to start the year. Elevated spending levels were expected to cause profit growth to remain high in absolute terms but lag behind top-line growth. Those predictions largely matched reality, but, as usual, the company was able to exceed its guidance.

Paycom Software first-quarter results: The raw numbers

Metric Q1 2019 Q1 2018 Year-Over-Year Change
Revenue $199.9 million $153.9 million 30%
Adjusted EBITDA $103.3 million $80.7 million 28%
GAAP net income $47.3 million $41.2 million 15%
Non-GAAP net income  $69.3 million $55.8 million  24%
Non-GAAP earnings per share $1.19 $0.96 24%

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

Woman with paycheck in her hand

Image source: Getty Images.

What happened with Paycom Software this quarter?

  • Revenue growth of 30% exceeded guidance.
  • Adjusted EBITDA of $103 million also came in above management's forecast.
  • Expense growth continues to outpace revenue growth, which is acting as a drag on net income. This is partly attributable to breaking ground on a new corporate campus in Texas and new sales office openings throughout the country.
  • Cash balance at the end of the quarter was $91.3 million.

Check out the latest Paycom earnings call transcript.

What management had to say

CEO and founder Chad Richison called the company's first-quarter results "strong" and stated the company is well-positioned to accomplish its full-year goals: "Employee usage of human capital management (HCM) technology is the future of our industry. We believe comprehensive HCM software that is easy to use can lead to higher employee engagement, increased efficiencies, better job satisfaction and higher employee retention."

He also announced the launch of a new product called Direct Data Exchange. This product "measures the efficiency of the data collection process."

Looking forward

Richison's guidance suggested that the company's momentum will carry over into the upcoming quarter. However, continued reinvestment in the business is expected to cause profit growth to lag revenue yet again:

Metric Q2 2019 Guidance Q2 2018 Actual Change at Midpoint
Revenue $162.5 million to $164.5 million $128.8 million 27%
Adjusted EBITDA $62.5 million to $64.5 million $53.5 million 19%

Data source: Paycom Software.

The better-than-expected start to 2019 allowed management to boost its full-year guidance:

Metric Previous Guidance Range Updated Guidance Range
Revenue $710 million to $712 million $718 million to $720 million
Adjusted EBITDA $288 million to $290 million $296 million to $298 million

Data source: Paycom Software. 

Paycom's robust growth shows that its strategy of opening up new sales offices and investing in its product offering continues to pay off for investors.

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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