Paycom Software (NYSE:PAYC) Posts Better-Than-Expected Sales In Q1, Stock Soars

Kayode Omotosho /
2022/05/03 4:29 pm EDT

Online payroll and human resource software provider Paycom (NYSE:PAYC) announced better-than-expected results in the Q1 FY2022 quarter, with revenue up 29.8% year on year to $353.5 million. Guidance for next quarter's revenue was $309 million at the midpoint, 2.53% above the average of analyst estimates. Paycom Software made a GAAP profit of $91.9 million, improving on its profit of $64.6 million, in the same quarter last year.

Is now the time to buy Paycom Software? Access our full analysis of the earnings results here, it's free.

Paycom Software (PAYC) Q1 FY2022 Highlights:

  • Revenue: $353.5 million vs analyst estimates of $343.1 million (3% beat)
  • EPS (non-GAAP): $1.90 vs analyst estimates of $1.75 (8.63% beat)
  • Revenue guidance for Q2 2022 is $309 million at the midpoint, above analyst estimates of $301.3 million
  • The company lifted revenue guidance for the full year, from $1.31 billion to $1.33 billion at the midpoint, a 1.44% increase
  • Free cash flow of $82.7 million, up 48.4% from previous quarter
  • Gross Margin (GAAP): 86.2%, in line with same quarter last year

Founded in 1998 as one of the first online payroll companies. Today, Paycom (NYSE:PAYC) provides software for small and medium-sized businesses (SMBs) to manage their payroll and HR needs in one place.

HR software benefits from dual trends around costs savings and ease of use. First is 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. Second is the consumerization of business software, whereby multiple standalone processes like payroll processing and compliance are aggregated into a single, easy to use platforms.

Sales Growth

As you can see below, Paycom Software's revenue growth has been very strong over the last year, growing from quarterly revenue of $272.1 million, to $353.5 million.

Paycom Software Total Revenue

This quarter, Paycom Software's quarterly revenue was once again up a very solid 29.8% year on year. On top of that, revenue increased $68.5 million quarter on quarter, a very strong improvement on the $28.7 million increase in Q4 2021, which shows re-acceleration of growth, and is great to see.

Guidance for the next quarter indicates Paycom Software is expecting revenue to grow 27.6% year on year to $309 million, slowing down from the 33.3% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 23% over the next twelve months.

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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. Paycom Software'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 86.2% in Q1.

Paycom Software Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.86 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is a great gross margin, that allows companies like Paycom Software to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from Paycom Software's Q1 Results

With a market capitalization of $17.6 billion, more than $360.5 million in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We enjoyed seeing Paycom Software’s improve their gross margin materially this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. Overall, we think this was a really good quarter, that should leave shareholders feeling very positive. The company is up 9.11% on the results and currently trades at $315.44 per share.

Should you invest in Paycom Software right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.