Financial Highlights for the Third Quarter of 2018
Total Revenues of $133.3 million represented a 32% increase compared to total revenues of $101.3 in the same period last year. Recurring revenues of $130.8 million increased 31% from the comparable prior year period and constituted 98% of total revenues.
GAAP Net Income was $28.8 million, or $0.49 per diluted share, compared to GAAP net income of $20.9 million, or $0.35 per diluted share, in the same period last year, as adjusted1.
Adjusted EBITDA2 was $49.2 million, compared to $40.4 million in the same period last year, as adjusted1.
Non-GAAP Net Income2 was $30.6 million, or $0.52 per diluted share, compared to $23.2 million, or $0.39 per diluted share, in the same period last year, as adjusted1.
Cash and Cash Equivalents were $85.0 million as of September 30, 2018.
Total Debt was $34.8 million as of September 30, 2018.
With all the concern of spending slowing from a general economic standpoint, here is another hint on the spending of customers from the CEO.
Brian Jeffrey Schwartz – Oppenheimer & Co. Inc – Analyst
Yes, I guess I’ll squeeze in a follow-up one to you, Chad. Just considering that your customer base is very broad and diverse, can you just share from a big picture view if you see any tailwinds or headwinds from mid-market HCM technology spending in 2019 just based on the pipeline momentum and the conversation that you are having with the customers? Thanks.
Chad Richison – President & Chief Executive Officer
Yeah, I would say if someone’s going to – it’s just going to be a spend for companies, they probably won’t do it and shouldn’t do it regardless of what the other economic environment looks like. For Paycom, we drive ROI. So what someone spends with us, we’re looking to give them back through use cases throughout the software. If you’re asking me what’s the demand out there, I’m not noticing anything that shows a decreasing demand for this type of technology or really automation anywhere within business.
Another topic of interest on the call was the announcement of PayCom now targeting 2000 - 5000 employee companies. Their was some concern from a few analysts but it seems they already have a fair share of customers of that size that came to them. Now they are just allowing there S&M team to target that market.
Just read through their transcript. Some notes:
Very small beat this Q ($3.3M or +2.3%)
Very small raise for year end guidance from $556M on the high end last Q to $560.5M now. That would be +29.4% over FY17.
$85M cash vs $34.8M debt
Gross Margins were down slightly QoQ (83.6% vs 84.1%) and YoY (83.6% vs 83.9%)
Adjusted S&M expenses rose to 26.4% vs 25.8% YoY. The rise was attributed to a national ad campaign that started in Q3 & will see a majority of the cost hit in Q4. They mentioned in the Q&A they had some comfort that they were able to add this campaign while generally being able to hold the same EBITDA margins as last year.
Adjusted admin expenses rose to 53.1% vs 49.0% YoY. There was a spike this Q due to bringing a new building online. They mention this new space is as big as their other three combined. While some of this increase is one-time, they do anticipate some cost increase carrying forward as well.
Adj R&D was 12.1% vs 10.6%. They are continuing to invest in new products/uses based on customer feedback.
They repurchased 30+K shares in Q3 after repurchasing 400K shares in Q2.
As Saul mentioned in his write up, PAYC was named 5th on Fortune’s 100 fastest growing companies for 2018.
As cgall75 mentioned, they have expanded their client focus from 50-2000 employees to 50-5000. A lot of analysts where pressing this point to see if they were changing their target market, but management was firm that’s not the case. They said they’ve often noted landing clients with >2000 employees in the past. They were now simply formalizing it for their sales staff. They implied there would be no change in overall headcount or sales strategy with this announcement.
To my admittedly unpracticed financial report eye and conference call ear, this sounded like a pretty meh quarter. Not great, not bad. Since the stock is down ~4% on a pretty good day for the market, I’m guessing I’m not too far out of line with that take.