Paycom Software reported September-quarter earnings and revenue that topped estimates amid a boost from what is known as "float" revenue. But PAYC stock plunged Wednesday amid high expectations.
The maker of workforce-management software reported earnings after the market close on Tuesday.
The Oklahoma City-based company said Paycom earnings in the third quarter were $1.27 a share, up 38% from a year earlier. Revenue rose 30% to $334 million. A year earlier, Paycom earned 92 cents a share on sales of $256.2 million.
Analysts expected Paycom to report earnings of $1.18 a share on sales of $327.5 million for the period ended Sept. 30.
PAYC stock fell 7.7% to close at 316.45 on the stock market today.
"Results posted upside to revenue growth and EBITDA in the quarter, while Q4 growth was guided a solid (3.6%) above the Street, likely supported by favorable float income trends," BMO Capital Markets analyst Daniel Jester said in a note to clients. "Yet the 1.9% revenue upside in the quarter was below average. And, free cash flow optically lagged the margin improvement in EBITDA. Amid high expectations results likely didn't fully top the bar."
Float revenue is interest on funds held for customers.
Paycom Stock: Smaller Beat
Adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, came in at $126 million vs. estimates of $118.2 million.
For the December quarter, Paycom expects revenue of $367 million at the midpoint of its outlook, above analyst estimates for $356.4 million.
"Although the Q3 beat was less than the prior quarter, management raised Q4 guide above consensus, driven by continuing strong new business sales and upside from float revenue with rising interest rates," Mizuho Securities analyst Siti Panigrahi said in a note to clients.
Paycom and other payroll-processing companies are benefiting from higher interest rates, Jefferies analyst Samad Samana said in an interview before the earnings release. To lower inflation, the Federal Reserve has been hiking rates in 2022.
PAYC Stock: Generate Income From Float Revenue
Paycom customers transfer money to Paycom to cover wages usually 24 to 48 hours ahead of payday. For a brief period, Paycom generates interest income from float revenue funds.
Meanwhile, Paylocity Holdings reports third-quarter earnings on Nov. 3.
In addition, Paycom has focuses on small- and medium-size companies. Also, the provider of human resources and payroll-processing software has expanded its direct-sales strategy by adding regional offices.
According to IBD Stock Checkup, PAYC stock owned a Relative Strength Rating of 87 out of a possible 99 heading into the Paycom earnings report.
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