Paycor (NASDAQ:PYCR) Beats Q2 Sales Targets

Full Report / February 07, 2024

Online payroll and human resource software provider Paycor (NASDAQ:PYCR) announced better-than-expected results in Q2 FY2024, with revenue up 20.1% year on year to $159.5 million. On the other hand, next quarter's revenue guidance of $186 million was less impressive, coming in 1% below analysts' estimates. It made a non-GAAP profit of $0.11 per share, improving from its profit of $0.08 per share in the same quarter last year.

Paycor (PYCR) Q2 FY2024 Highlights:

  • Revenue: $159.5 million vs analyst estimates of $155.8 million (2.4% beat)
  • EPS (non-GAAP): $0.11 vs analyst estimates of $0.09 (26.8% beat)
  • Revenue Guidance for Q3 2024 is $186 million at the midpoint, below analyst estimates of $187.9 million
  • The company reconfirmed its revenue guidance for the full year of $653 million at the midpoint
  • Free Cash Flow of $12.67 million is up from -$40.01 million in the previous quarter
  • Gross Margin (GAAP): 65.4%, in line with the same quarter last year
  • Market Capitalization: $3.55 billion

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.

HR Software

Modern HR software has two powerful benefits: cost savings and ease of use. For cost savings, businesses large and small much prefer the flexibility of cloud-based, web-browser-delivered software paid for on a subscription basis rather than the hassle and complexity of purchasing and managing on-premise enterprise software. On the usability side, the consumerization of business software creates seamless experiences whereby multiple standalone processes like payroll processing and compliance are aggregated into a single, easy-to-use platform.

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 strong over the last two years, growing from $103.1 million in Q2 FY2022 to $159.5 million this quarter.

Paycor Total Revenue

This quarter, Paycor's quarterly revenue was once again up a very solid 20.1% year on year. On top of that, its revenue increased $15.95 million quarter on quarter, a very strong improvement from the $3.55 million increase in Q1 2024. This is a sign of re-acceleration of growth and great to see.

Next quarter's guidance suggests that Paycor is expecting revenue to grow 15.2% year on year to $186 million, slowing down from the 31.7% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 15.7% over the next 12 months before the earnings results announcement.


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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 65.4% in Q2.

Paycor Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.65 left to spend on developing new products, sales and marketing, and general administrative overhead. While its gross margin has improved significantly since the previous quarter, Paycor's gross margin is still poor for a SaaS business. It's vital that the company continues to improve this key metric.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Paycor's free cash flow came in at $12.67 million in Q2, turning positive over the last year.

Paycor Free Cash Flow

Paycor has generated $15.62 million in free cash flow over the last 12 months, or 2.1% of revenue. This FCF margin stems from its asset-lite business model and enables it to reinvest in its business without depending on the capital markets.

Key Takeaways from Paycor's Q2 Results

It was great to see Paycor improve its gross margin this quarter. We were also glad its revenue outperformed Wall Street's estimates. On the other hand, its revenue guidance for next quarter slightly missed analysts' expectations. Overall, this was a mixed quarter, but the company is staying on target. The stock is flat after reporting and currently trades at $19.59 per share.

Is Now The Time?

Paycor may have had a bad quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for everyone who's making the lives of others easier through technology, but in case of Paycor, we'll be cheering from the sidelines. Although its revenue growth has been solid over the last two years, Wall Street expects growth to deteriorate from here. On top of that, its gross margins show its business model is much less lucrative than the best software businesses.

Paycor's price-to-sales ratio based on the next 12 months is 5.0x, 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, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.

Wall Street analysts covering the company had a one-year price target of $26.44 per share right before these results (compared to the current share price of $19.59).

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