What happened
Shares of Paycom Software (PAYC 1.25%) were trading up by 8.6% as of 3:35 p.m. ET Wednesday after the company reported better-than-expected results for the fourth quarter on Tuesday.
Revenue increased by 29% year over year to $285 million, beating the analysts' consensus estimate of $275 million. Management also gave an optimistic outlook for the year ahead.
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So what
CEO Chad Richison credited the company's new automated tool, Beti, for driving its annual revenue retention to a record level in the quarter. "Combining this with the momentum we are seeing and the sales and marketing investments we've made, we believe we are set up to deliver strong, high-margin revenue growth for years to come," Richison said.
It was a strong finish to a strong year. For 2021, revenue increased by 25% to pass the $1 billion mark. But investors should love Paycom's highly profitable business model: Its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin for the year was nearly 40%.
Now what
Paycom is benefiting from the transition to self-service tools in the human resources and payroll management market. It has maintained high revenue retention rates above 90% in recent years, but reached a record 94% in 2021, reflecting tighter customer relationships.
This software-as-a-service provider has opened five new offices in the last five months, and still commands only 5% of its long-term addressable market. Management's 2022 guidance calls for revenue in the $1.314 billion to $1.316 billion range, which would amount to growth of approximately 24%.
Given the opportunities to capture more of its addressable market, Paycom can likely grow at high rates and fuel solid shareholder returns for many years.
