Online payroll and human resource software provider Paycom (NYSE:PAYC) announced better-than-expected revenue in Q3 CY2024, with sales up 11.2% year on year to $451.9 million. On the other hand, the company expects next quarter’s revenue to be around $480.5 million, slightly below analysts’ estimates. Its non-GAAP profit of $1.67 per share was also 3.7% above analysts’ consensus estimates.
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Paycom (PAYC) Q3 CY2024 Highlights:
- Revenue: $451.9 million vs analyst estimates of $447.2 million (1.1% beat)
- Adjusted EPS: $1.67 vs analyst estimates of $1.61 (3.7% beat)
- EBITDA: $171.3 million vs analyst estimates of $157.6 million (8.7% beat)
- Revenue Guidance for Q4 CY2024 is $480.5 million at the midpoint, below analyst estimates of $483.1 million
- EBITDA guidance for the full year is $748.5 million at the midpoint, above analyst estimates of $730.5 million
- Gross Margin (GAAP): 80.5%, down from 86.3% in the same quarter last year
- Operating Margin: 23.2%, in line with the same quarter last year
- EBITDA Margin: 37.9%, down from 40.2% in the same quarter last year
- Free Cash Flow Margin: 9.9%, down from 19.8% in the previous quarter
- Billings: $451.8 million at quarter end, up 10.1% year on year
- Market Capitalization: $9.37 billion
“We posted solid third quarter results and continue to make significant progress toward full-solution automation,” said Paycom founder, CEO and chairman, Chad Richison.
Company Overview
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
A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, Paycom grew its sales at a decent 22.5% compounded annual growth rate. This is a useful starting point for our analysis.
This quarter, Paycom reported year-on-year revenue growth of 11.2%, and its $451.9 million of revenue exceeded Wall Street’s estimates by 1.1%. Management is currently guiding for a 10.6% year-on-year increase next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 10.7% over the next 12 months, a deceleration versus the last three years. This projection is still above average for the sector and indicates the market is factoring in some success for its newer products and services.
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Customer Acquisition Efficiency
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
Paycom is extremely efficient at acquiring new customers, and its CAC payback period checked in at 9.8 months this quarter. The company’s efficiency indicates that it has a highly differentiated product offering and strong brand reputation, giving it the freedom to invest resources into new growth initiatives while maintaining optionality. 
Key Takeaways from Paycom’s Q3 Results
We were impressed by how significantly Paycom blew past analysts’ EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance exceeded Wall Street’s estimates. On the other hand, its gross margin declined and its revenue guidance for next quarter missed Wall Street’s estimates. Overall, this quarter was mixed but still had some key positives. The stock traded up 6.2% to $183.01 immediately after reporting.
Paycom had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment.If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.