Payc Beats on EPS and Revenue

Record Second Quarter Revenue of $49.0 Million, up 47% year-over-year

Second Quarter GAAP Earnings Per Diluted Share of $0.10

Second Quarter Non-GAAP Earnings Per Diluted Share of $0.10

Non-Gaap beat by $.04 up from $.04 in Q2 2014.

http://seekingalpha.com/pr/14306945-paycom-software-inc-repo…

Andy
Long Payc

7 Likes

I watched this today…and got excited :slight_smile:

PE was 167 before earnings announced today, now Kevin’s sheet is saying 97. still high, but forward PE is 110 (Q3) according to an article I read on ZACKS (for what that’s worth).

thanks for the seekingalpha article, I found this interesting:
“Recurring revenues of $47.8 million represented an increase of 46.4% from the comparable prior year period, and comprised 97.6% of total revenues.”

RECURRING revenues…that’s pretty impressive to me for a software developer. Pretty sticky :slight_smile:

Anyone actually use their product? Or know about their managements alignment with shareholders? I will be listening to and reading this quarters reports.

Robert
no stake in PAYC, yet :wink:

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Hi Robert,
You are right the P/E is very high and is one reason I kept my allocation small. I have an allocation of 2.3% at this time. The recurring revenue is the really nice thing about this company. While anyone can quit at anytime, once you get into the H.R system it is hard to leave. Who wants to have to go through setting up your H.R all over again.

While the P/E is at 97.27 I think the next quarter we will get at least $.11 eps and the Fourth Quarter at $.12. I think this is being conservative because they already have eps of $.10 and since 97.6%, like you said is recurring revenue, I can’t see it being very hard for them to add a penny per quarter onto their earnings. The analyst, by the way, are saying the company will only make $.06 for Q3 and Q4. How did they figure that? So by the end of the year, at todays price of $32.10, the P/E will be 71.33. Still high but a lot better than 167 :).

Andy
Long Payc

2 Likes

Hi Andy,
Thanks for your response. I read the conference call today, sounded pretty good, learned a lot about PAYC, and the analyst covering PAYC seemed pretty stoked.

For instance, from Mark Murphy - JPMorgan:
“we look at the combination of growth and margin that you’re delivering here and it is in absolutely elite territory, no question about it.”

And I am not sure I would bet my money on clients not easily leaving a HCM system. The conference call seemed to reference PAYC getting about 6% of revenues from competitors in the industry, “natural churn from ADP and Paychex and Ceridian and others” - Mark Murphy. My personal opinion, and I base this on the call and the recurring revenue, is that this company actual makes and is able to sell/support a software product that people want (is that called moat?). My sister has been an HR executive for 25 years, and I asked her about PAYC, specifically about the ease of transitioning HCM. When I hear back I’ll let you know. I also did some google research, and there seemed to be some boards/reviews supporting this opinion. I mean, the purpose of automated or SaaS solutions is to make stuff easier, so it would make sense that they would write programs that would ease transitioning to their products.

Good points on the future earnings, and lack of adequate guidance. Do you think they will revise this, and if they do what might happen?

Thanks again,
Robert

2 Likes

For transparency purposes, I will be buying a position in PAYC tomorrow.

Hi Robert,
It will be great to hear what your sister has to say about Payc. Here is a write up I did on Payc that might help you to better understand them.

http://discussion.fool.com/paycomsaas-in-the-cloud-31784652.aspx…

Andy

Good points on the future earnings, and lack of adequate guidance. Do you think they will revise this, and if they do what might happen?

This is only my thoughts Robert, but I think the analyst’s are being lazy. To think that this company would only make $.06 for 3 quarters in a row just seems ludicrous but it does make it easy for Payc to beat. Now this was the first quarter at $.06 and they beat it by $.04. I think as this company grows the analyst should get better at analyzing it and hopefully they will raise their guidance.

Andy

Disclosure: I work in the cyber security industry, doing a lot of the geeky stuff no one wants to understand.

So when I see a cloud based service I get nervous about putting my money into it, because I wouldn’t want my personal/sensitive information there. Especially payroll/human resource type stuff. I emailed the generic investor relationship account yesterday and got a great response to my security related questions. Here are some highlights:

  • Updates/patches are pushed remotely with little to no client interaction (really important because liability probably resides with PAYC, not clients)
  • Certified ISO 27001 security standards, with both internal and 3rd party assessments. Monthly pen tests on website vulnerabilities (they change all the time).
  • They physically host their own infrastructure. I cant tell you how important that is. This is really their business, if their client could write the software and host the content themselves, they would. They CANT, maybe writing software is doable, but hosting is VERY expensive, and PAYC is consolidating this for their clients while ensuring it is secure (as to allowing Rackspace, spideroak, amazon web services, etc. to host it right along with every other company and piece of malware out there). This is part of what I would consider their Moat.
  • They employ defense in depth strategies, verifying IP’s, using A/V, HIPS/NIPS, firewalls, access control lists, active monitoring of logs, restricting/white listing ports and protocols. Pretty much everything I would want my current organization to do that they don’t. Stuff companies like FireEye and SANS tell people to do, mitigation strategies.
  • They build and secure their own apps and libraries. They aren’t reliant on all the insecure code (java, flash, cms, etc.) that malware and exploit kits use. HUGE. Insider threats would be the biggest concern.

If you want more information on this you can find it at:
https://www.paycom.com/PDF/SecurityStandards.pdf

While I don’t want my information in the ‘cloud’ I get the business pressures to put it there. If I had to choose a HCM/ERP to use I would want it to do everything PAYC is doing.

Robert
Long PAYC

21 Likes

Fantastic Robert thanks for the information.

Andy

So it turns out my sister’s company uses Paycom payroll module. She says ADP is terrible, but the biggest in the industry.

Heres what she said about changing payroll companies:
"people HATE changing payroll companies. It is cumbersome and frequent mistakes happen even though they promise it will be “seemless.”

So it looks like you were right Andy and I was wrong about that.

I asked her to let me know if Paycom ever becomes like ADP in tactics/pressure cause their growth will probably slow. But I am not worried about that right now. I am also interested in if she will subscribe to their ACA/newer modules.

I also advised her to buy some of their stock :slight_smile:

Robert
Long PAYC

2 Likes