Paycom Software (PAYC 3.00%), a software-as-a-service company that focuses on the needs of human resource departments, reported its second-quarter results on Tuesday.
As investors have come to expect, the quarterly numbers were solid. Revenue grew 31%, which exceeded the high end of management's guidance. Adjusted EBITDA jumped 29% and adjusted net income increased 26%. Those are impressive jumps given that management is investing heavily in its commercial team. Based on those strong results, management boosted its guidance for the full year.
Paycom Software's second-quarter results: The raw numbers
| Metric | Q2 2019 | Q2 2018 | Change |
|---|---|---|---|
| Revenue | $169.3 million | $128.8 million | 31% |
| Adjusted EBITDA | $69.4 million | $53.5 million | 29% |
| GAAP net income | $48.8 million | $35.7 million | 37% |
| Adjusted net income | $43.7 million | $34.8 million | 26% |
| Adjusted earnings per share | $0.75 | $0.59 | 26% |
Data source: Paycom Software.
What happened with Paycom Software this quarter?
- Revenue growth of 31% represented a slight sequential acceleration.
- Adjusted EBITDA of $69.4 million was much higher than management's forecast.
- Expenses grew 40%, which outpaced revenue growth. The jump is largely attributable to higher spending on sales, research and development, and corporate overhead.
- The cash balance at the end of Q2 was $94.8 million. No shares were repurchased during the quarter.
Check out the latest Paycom Software earnings call transcript.
Image source: Getty Images.
What management had to say
"Our strong results in the second quarter reflect the powerful impact that innovations like Direct Data Exchange and our employee usage initiatives are having on our growth," CEO Chad Richison was quoted as saying in the company press release.
On the conference call, Richison said that Paycom is experimenting with new sales strategies to meet customers' needs:
We are also innovating our sales strategy as buying habits across the industry continue to change with more companies becoming comfortable buying online. This means we will increasingly employ a combination of traditional sales teams and non-traditional sales teams, such as our inside sales group. We recently brought one of our most successful outside sales managers to lead our inside sales initiative, because we have found that prospective clients are embracing this non-traditional sales model and buying online. We believe this initiative will aid our sales growth and complement our existing sales efforts.
Looking forward
Management shared guidance indicating that the company's strong momentum will continue:
| Metric | Q3 2019 Guidance | Q3 2018 Actual | Change at Midpoint |
|---|---|---|---|
| Revenue | $170 million to $172 million | $133.3 million | 28% |
| Adjusted EBITDA | $61 million to $63 million | $49.2 million | 26% |
Data source: Paycom Software.
Executives also took the opportunity to boost Paycom's full-year guidance yet again:
| Metric | Previous Guidance Range | Updated Guidance Range |
|---|---|---|
| Revenue | $718 million to $720 million | $728 million to $730 million |
| Adjusted EBITDA | $296 million to $298 million | $306 million to $308 million |
Data source: Paycom Software.
Paycom's strong growth rates continue to prove that management's decision to reinvest in the business is paying off.
