Paycom's stock plunges 32% as payroll company whiffs on earnings outlook

By Emily Bary

Paycom expects 10% to 12% revenue growth in 2024, while analysts were calling for a 21% jump

Paycom Software Inc. shares were set to shed nearly a third of their value, based on Tuesday's after-hours action, as the company, which makes payroll and human-resources software, came up short with its outlook.

The company expects $420 million to $425 million in revenue for the fourth quarter, while analysts were modeling $452 million. Paycom (PAYC) also anticipates adjusted earnings before interest, taxes, depreciation and amortization of $169 million to $174 million for the period, while analysts had been calling for $189 million.

Further, Paycom expects 10% to 12% revenue growth in 2024. Analysts had previously been modeling a 21% rise.

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"Our guidance for the next 15 months assumes the impact from the strategic revenue decisions we are and will be making," Chief Financial Officer Craig Boelte said on the earnings call, calling the initial 2024 expectations "prudent."

He noted that Paycom's Beti payroll product is helping clients achieve the desired return on investment, though it has also "eliminated certain billable items, which is cannibalizing a portion of our services and unscheduled revenues."

Jefferies analyst Samad Samana titled his initial note to clients, "Everyone's Shell-Shocked, Not Just You," though he stuck with a buy rating.

Management "noted new bookings from new customers and gross retention remained healthy, further driving home the point that the sharp slowdown is not due to a material macro deterioration, but rather a company-specific outcome," he wrote following the earnings call.

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For the third quarter, Paycom delivered net income of $75.2 million, or $1.30 a share, compared with $52 million, or 90 cents a share, in the year-earlier period. The company notched adjusted earnings per share of $1.77, ahead of the $1.61 that analysts were projecting.

Paycom's third-quarter revenue clocked in at $406.3 million, above the $334.2 million that the company recorded a year before. The FactSet consensus was for $411.2 million.

"Our third-quarter fundamentals were strong with solid revenue and earnings growth," Chief Executive Chad Richison said in a release.

Shares of other payroll-related software stocks were falling as well in Tuesday's after-hours activity, with Ceridian HCM Holding Inc. (CDAY) off about 7% and Automatic Data Processing Inc. (ADP) down more than 1%. Paylocity Holding Corp.'s stock (PCTY) was off more than 10%.

-Emily Bary

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10-31-23 2033ET

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