Online payroll and human resource software provider Paycom (NYSE:PAYC) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 9.1% year on year to $437.5 million. The company expects next quarter's revenue to be around $446.5 million, in line with analysts' estimates. Its non-GAAP profit of $1.62 per share was flat year on year.
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Paycom (PAYC) Q2 CY2024 Highlights:
- Revenue: $437.5 million vs analyst estimates of $436.4 million (small beat)
- EPS (non-GAAP): $1.62 vs analyst estimates of $1.60 (1.2% beat)
- Revenue Guidance for Q3 CY2024 is $446.5 million at the midpoint, roughly in line with what analysts were expecting
- The company reconfirmed its revenue guidance for the full year of $1.87 billion at the midpoint
- Free Cash Flow of $86.49 million, down 14.3% from the previous quarter
- Billings: $442.8 million at quarter end, up 9.5% year on year
- Market Capitalization: $9.36 billion
“During the second quarter, our outside sales team delivered solid performance with robust new logo adds, as we continue to sell the most automated solution on the market,” said Paycom founder, CEO and chairman, Chad Richison.
Founded in 1998 as one of the first online payroll companies, Paycom (NYSE:PAYC) provides software for small and medium-sized businesses (SMBs) to manage their payroll and HR needs in one place.
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.
Sales Growth
As you can see below, Paycom's revenue growth has been solid over the last three years, growing from $242.1 million in Q2 2021 to $437.5 million this quarter.
Paycom's quarterly revenue was only up 9.1% year on year, which might disappoint some shareholders. On top of that, the company's revenue actually decreased by $62.37 million in Q2 compared to the $65.29 million increase in Q1 CY2024. Regardless, we aren't too concerned because Paycom's sales seem to follow a seasonal pattern and management is guiding for revenue to rebound in the coming quarter.
Next quarter's guidance suggests that Paycom is expecting revenue to grow 9.9% year on year to $446.5 million, slowing down from the 21.6% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 11% over the next 12 months before the earnings results announcement.
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Cash Is King
If you've followed StockStory for a while, you know 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.
Paycom has shown impressive cash profitability, driven by its attractive business model and cost-effective customer acquisition strategy that give it the option to invest in new products and services rather than sales and marketing. The company's free cash flow margin averaged 17.5% over the last year, better than the broader software sector.
Paycom's free cash flow clocked in at $86.49 million in Q2, equivalent to a 19.8% margin. This quarter's result was good as its margin was 4 percentage points higher than in the same quarter last year. Its cash profitability was also above its one-year level, and we hope the company can build on this trend.
Over the next year, analysts predict Paycom's cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 17.5% for the last 12 months will decrease to 16.5%.
Key Takeaways from Paycom's Q2 Results
It was good to see Paycom beat analysts' billings expectations this quarter. On the other hand, its gross margin declined and its revenue guidance for next quarter came in slightly below Wall Street's estimates. Overall, this was a mixed quarter for Paycom. The stock remained flat at $165.99 immediately following the results.
Paycom may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.