A month has gone by since the last earnings report for Paycom Software (PAYC). Shares have added about 12.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Paycom due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Paycom Q3 Earnings and Revenues Surpass Estimates

Paycom Software, Inc. reported better-than-expected third-quarter 2024 results. The online payroll and human resource technology provider reported non-GAAP earnings of $1.67 per share for the third quarter, beating the Zacks Consensus Estimate of $1.62.

However, the bottom line declined 5.6% year over year as the benefits of higher revenues and lower share count were more than offset by increased operating expenses, interest expenses and income taxes.

Paycom reported revenues of $451.9 million, beating the consensus mark of $446.9 million. The top line climbed 11.2% year over year. The figure was also above the high end of management’s guidance of $444-$449 million. The top line benefited from increased sales momentum, international expansion and artificial intelligence (AI) integration in its products.

The stronger-than-expected third-quarter results are likely to give a boost to PAYC stock, which has lagged behind this year’s broader market rally. Shares of Paycom have plunged 16.7% year to date, underperforming the Zacks Internet - Software industry’s growth of 25.7%.

Quarter in Detail

Paycom’s Recurring revenues (representing 98.5% of the total revenues) improved 11.6% to $445 million in the third quarter. Our estimate for the company’s Recurring revenues was pegged at $437.3 million.

The company’s revenues from the Implementation and Other segment declined to $6.9 million from $7.5 million in the year-ago quarter and contributed 1.6% to total sales. Our estimate for the segment’s revenues was pegged at $8.5 million.

Adjusted gross profits increased 8% from the year-ago period to $367.5 million. However, the adjusted gross margin contracted 240 basis points (bps) on a year-over-year basis to 81.3%.

Paycom’s adjusted EBITDA increased 3.4% year over year to $171.3 million. The adjusted EBITDA margin contracted 290 bps to 37.9%.

Balance Sheet & Cash Flow

Paycom exited the third quarter with cash and cash equivalents of $325.8 million compared with $346.5 million recorded in the previous quarter. The company had no debt as of Sept. 30, 2024, as it paid off all its long-term debt at the end of 2023.

In the first three quarters of 2024, PAYC generated an operating cash flow of approximately $373.5 million, paid out $63.7 million in dividends and bought back $122.8 million worth of its common stock.

The company had $1.49 billion remaining under its buyback authorization as of Sept. 30, 2024. Paycom’s board has approved its upcoming quarterly dividend of 37.5 cents per share, payable in the middle of December 2024.

Guidance

For the fourth quarter of 2024, Paycom forecasts revenues in the range of $477-$484 million and expects adjusted EBITDA between $184.5 million and $191.5 million.

For 2024, PAYC now forecasts revenues in the band of $1.866-$1.873 billion compared with the previous guidance of $1.860-$1.875 billion. Paycom now expects its 2024 adjusted EBITDA between $745 million and $752 million, up from the earlier projection of $727-$737 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Paycom has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Paycom has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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