Paycor (NASDAQ:PYCR) Reports Q1 Results

Full Report / December 15, 2021
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Online payroll and human resource software provider Paycor (NASDAQ:PYCR) reported Q1 FY2022 results beating Wall St's expectations, with revenue up 17.2% year on year to $92.7 million. Guidance for next quarter's revenue was $99.5 million at the midpoint, 2.26% above the average of analyst estimates. Paycor made a GAAP loss of $42 million, down on its loss of $17.3 million, in the same quarter last year.

Paycor (PYCR) Q1 FY2022 Highlights:

  • Revenue: $92.7 million vs analyst estimates of $90 million (2.93% beat)
  • EPS (GAAP): -$0.32
  • Revenue guidance for Q2 2022 is $99.5 million at the midpoint, above analyst estimates of $97.2 million
  • The company lifted revenue guidance for the full year, from $398 million to $404 million at the midpoint, a 1.5% increase
  • Free cash flow was negative $18.2 million, compared to negative free cash flow of $16.6 million in previous quarter
  • Gross Margin (GAAP): 50.8%, down from 56.3% same quarter last year

Found in 1990 in Cincinnati, Ohio Paycor (NASDAQ: PYCR), provides software for small businesses to manage their payroll and HR needs in one place.

Human Capital Management (HCM) software is meant to streamline mundane, but vital, business functions like keeping attendance, running payroll, and keeping compliant with shifting Federal and local government taxes and labor laws. For many small and medium sized businesses, these are often handled by their accountant which is an unnecessarily expensive use of resources, or QuickBooks style spreadsheets which don’t have sufficient functionality.

Using a single database or system of records, Paycor is a cost effective solution that allows small and medium businesses to simplify the management of all their HR operations throughout an employee’s lifecycle, from when they first apply for a job, to onboarding and managing performance reviews, all the way through collecting retirement benefits.

What sets Paycor apart from other cloud-based HCM software providers is its go-to-market model of partnering with local benefits brokers who work with small businesses. It has also traditionally avoided large cities in the US, instead focusing on the Midwest and Southeast.

Paycor benefits from the SaaS-ification of businesses, large and small, who much prefer the flexibility of cloud-based, web-browser delivered software paid for on a subscription basis than the hassle and expense of purchasing and managing on-premise enterprise software.

Other providers of HR solutions for small businesses include Paycom (NYSE:PAYC), Paychex (NASDAQ:PAYX), ADP (NASDAQ:ADP), Asure (NYSE:ASUR) and Paylocity (NASDAQ:PCTY).

Sales Growth

As you can see below, Paycor's revenue growth has been measured over the last year, growing from quarterly revenue of $79 million, to $92.7 million.

Paycor Total Revenue

This quarter, Paycor's quarterly revenue was once again up 17.2% year on year. On top of that, revenue increased $4.71 million quarter on quarter, a strong improvement on the $11.8 million decrease in Q4 2021, and a sign of acceleration of growth, which is very nice to see indeed.

Analysts covering the company are expecting the revenues to grow 12.2% over the next twelve months.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Paycor's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 50.8% in Q1.

Paycor Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.50 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and it has dropped significantly from the previous quarter, which is probably the opposite of what shareholders would like it to do.

Key Takeaways from Paycor's Q1 Results

Paycor's revenue guidance for the next quarter looks quite a bit better than what the analysts were expecting. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, revenue growth is overall a bit slower these days. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company currently trades at $29.62 per share.

Is Now The Time?

When considering Paycor, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in case of Paycor we will be cheering from the sidelines. Its revenue growth has been weak. And while its very efficient customer acquisition hints at the potential for strong profitability, the downside is that its gross margins show its business model is much less lucrative than the best software businesses and its growth is coming at a cost of significant cash burn.

Paycor's price to sales ratio based on the next twelve months is 12.0x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, we think there might be better opportunities in the market and at the moment don't see many reasons to get involved.

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