Paycom's Stock Plunges 32% After Earnings Misses

In the aftermath of Paycom Software Inc.'s recent financial report, the company's shares were poised to undergo a significant decline, shedding almost a third of their value in after-hours trading on Tuesday. Paycom, a provider of payroll and human-resources software, failed to meet market expectations in its outlook.

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For the upcoming fourth quarter, Paycom anticipates revenue in the range of $420 million to $425 million, while financial analysts had projected a figure of $452 million. Additionally, Paycom expects its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the same period to fall within the $169 million to $174 million range, which falls short of the analyst consensus of $189 million.

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Looking forward to 2024, Paycom has set expectations for revenue growth in the range of 10% to 12%. However, financial analysts had previously been forecasting a more robust 21% increase in revenue for that year.

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Chief Financial Officer Craig Boelte acknowledged during the earnings call that the provided guidance for the next 15 months factors in the impact of strategic revenue decisions the company is making and will continue to make. He referred to the initial 2024 expectations as "prudent" and noted that Paycom's Beti payroll product is helping clients achieve their desired return on investment. Nonetheless, it has also led to the elimination of certain billable items, which has affected a portion of their services and unscheduled revenues.

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Jefferies analyst Samad Samana, despite the disappointing outlook, maintained a buy rating for Paycom. He emphasized that management highlighted new bookings from new customers and a healthy gross retention rate, indicating that the sharp slowdown is not due to a significant macroeconomic deterioration but rather stems from company-specific factors.

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In terms of the third quarter, Paycom reported net income of $75.2 million, equivalent to $1.30 per share, in comparison to $52 million, or 90 cents per share, during the same period the previous year. The company's adjusted earnings per share reached $1.77, surpassing analysts' projections of $1.61.

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Paycom's third-quarter revenue amounted to $406.3 million, surpassing the $334.2 million recorded in the prior year. However, it fell slightly short of the consensus of $411.2 million.

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Chief Executive Chad Richison expressed satisfaction with the company's strong third-quarter fundamentals, citing solid revenue and earnings growth.

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The impact of Paycom's disappointing performance extended to other payroll-related software stocks, as they also witnessed declines in after-hours trading. Ceridian HCM Holding Inc. saw a drop of about 7%, Automatic Data Processing Inc. fell more than 1%, and Paylocity Holding Corp.'s stock declined by more than 10%.

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