Shares of Paycom Software, Inc. PAYC went up 6.9% in after-hours trading yesterday, after the company reported better-than-expected second-quarter fiscal 2015 results. Also, the company provided encouraging third-quarter as well as fiscal 2015 revenue guidance, which positively impacted the share price.
The company’s adjusted earnings per share (excluding one-time items but including stock-based compensation) came in at 10 cents per share, which not only beat the Zacks Consensus Estimate of 6 cents share but also increased from 4 cents reported in the year-ago-quarter.
Quarter Details
Paycom Software reported revenues of $48.9 million, which not only increased 47% from the year-ago quarter but also came ahead of the Zacks Consensus Estimate of $46 million. The year-over-over increase was driven by a shift toward cloud-based offering, which gained traction in the marketplace. Also, new client additions positively impacted quarterly revenues.
Moreover, revenues were impacted positively by a 46.4% increase in recurring revenues and a whopping 80.2% increase in implementation and other revenues on a year-over-year basis.
Notably, annualized new recurring revenue (ANRR) came in at $16.5 million, during the quarter, demonstrating an increase of 43% year over year.
The company’s adjusted gross margin (excluding one-time items but including stock-based compensation) increased 273 basis points (bps) on a year-over-year basis to 83.6%, primarily due to the company’s continued focus on streamlining costs and higher revenue base.
Paycom Software’s adjusted operating margin (excluding one-time items but including stock-based compensation) increased from 9.3% reported in the year-ago quarter to 22.1%, primarily due to lower operating expenses as a percentage of revenues. As a percentage of revenues, expenses decreased to 61.6% during the quarter from 71.6% reported in the year-ago period.
The company’s adjusted net income (excluding one-time items but including stock-based compensation) came in at $6 million or 10 cents per share, which improved from $2 million or 4 cents reported in the year-ago quarter. On a GAAP basis, net income came in at $5.9 million compared with a loss of $0.59 million reported in the year-ago quarter.
Balance Sheet & Cash Flow
Paycom Software exited the second quarter with cash and cash equivalents of $42.7 million compared with $35.7 million in the previous quarter. Receivables were $2.6 million compared with $1.7 million in the previous quarter.
Paycom Software’s balance sheet comprises long-term debt of $20 million compared with $25.7 million reported in the previous quarter. The company reported cash flow from operations of $22.8 million for the six months ended Jun 30, 2015.
Guidance
For the third quarter of fiscal 2015, Paycom Software expects revenues in the range of $51 million to $52 million. The Zacks Consensus Estimate is pegged at $49 million. Adjusted EBITDA is expected to be approximately in the range of $9 million to $10 million.
For fiscal year 2015, Paycom Software expects revenues in the range of $210 million to $212 million. The Zacks Consensus Estimate is pegged at $204 million. Adjusted EBITDA is expected to be approximately in the range of $44 million to $46 million.
Our Take
Paycom Software reported better-than-expected second-quarter fiscal 2015 results and provided an encouraging third-quarter and fiscal 2015 revenue guidance. Also, year-over-year comparisons on both counts were favorable. The results were driven by a shift toward cloud-based offerings and new client additions.
Revenue growth seems to be steady and was positively impacted by higher recurring revenues and higher traction in cloud-based offerings. Better-than-expected demand for advanced human capital management and payroll software solutions during the reported quarter were the other positives.
We believe that higher traction of Paycom Software’s Affordable Care Act (“ACA”) dashboard application that tracks employee count, employee status and health care plan affordability will act as a tailwind for the company in the long run. Also, Paycom Software might witness long-term growth by successfully cross-selling newer products to the existing client base, which will boost revenues, going forward.
Nevertheless, competition from companies like Paylocity Holding Corporation PCTY, Intuit Inc. INTU and Paychex, Inc. PAYX remains a headwind.
Currently, Paycom Software has a Zacks Rank #3 (Hold).
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