Paycom Software, Inc. EBITDA surged on 36.4% and EBITDA Margin increased slightly on 1.5 pp from 34.4% to 35.9%
02/05/2019 • About Paycom Software, Inc. (
$PAYC) • By InTwits
Paycom Software, Inc. reported 2018 financial results today. Here are the key drivers of the company's long term financial model:
- Paycom Software, Inc. is a fast growth stock: 2018 revenue growth was 30.8%, 5 year revenue CAGR was 39.4% at 2018 ROIC 47.5%
- EBITDA Margin is quite volatile: 35.9% in 2018, 34.4% in 2017, 35.1% in 2016, 19.5% in 2015, 15.1% in 2014
- Paycom Software, Inc. has high CAPEX intensity: 5 year average CAPEX/Revenue was 10.9%. At the same time it's in pair with industry average of 13.3%
- CAPEX is quite volatile: $60m in 2018, $59m in 2017, $44m in 2016, $17m in 2015, $14m in 2014
- The company has highly profitable business model: ROIC is 47.5%
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue surged on 30.8%. Revenue growth showed acceleration in 18Q4 - it increased 31.8% YoY. During 2014-2018 Revenue growth topped in 2015 at 48.8% and was decelerating since that time. Revenue growth happened at the same time with EBITDA margin expansion. EBITDA Margin increased slightly on 1.5 pp from 34.4% to 35.9% in 2018. EBITDA Margin stuck to a growing trend at 5.6 pp per annum in the last 5 years.
Gross Margin increased slightly on 0.61 pp from 83.4% to 84.0% in 2018. SG&A as a % of Revenue decreased slightly on 1.7 pp from 44.1% to 42.5% in 2018. SG&A as a % of Revenue stuck to a declining trend at -6.5 pp per annum in the last 5 years. Stock Based Compensation (SBC) as a % of Revenue decreased slightly on 1.9 pp from 8.3% to 6.5% in 2018. SBC as a % of Revenue grew at 1.9 pp per annum in 2014-2018.
Net Income margin decreased on 4.3 pp from 28.5% to 24.2% in 2018. Net Income margin grew at 6.0 pp per annum in the last 5 years. The efficient tax rate was 21.5% in 2018 while the average for the last five years was 19.9%.
Investments (CAPEX, working capital and M&A)
In 2018 the company had CAPEX/Revenue of 10.6%. The company showed CAPEX/Revenue growth of 3.2 pp from 7.4% in 2015 to 10.6% in 2018. It's average level of CAPEX/Revenue for the last three years was 12.5%.
Accounts receivable as a % of Revenue showed almost no change in 2018. Inventories as a % of Revenue showed almost no change at 0.14% in 2018. Accounts payable as a % of Revenue decreased on 2.1 pp from 9.0% to 6.9% in 2018.
Return on investment
The company operates at high and attractive ROIC (47.5%) and ROE (44.5%). ROIC decreased on 3.6 pp from 51.1% to 47.5% in 2018. ROE dropped on 17.6 pp from 62.1% to 44.5% in 2018. During 2014-2018 ROIC topped in 2016 at 75.4% and was declining since that time. During the last 5 years ROE topped in 2016 at 65.6% and was declining since that time.
Leverage (Debt)
Debt level is -0.1x Net Debt / EBITDA and 0.2x Debt / EBITDA. Debt decreased on 2.6% while cash decreased slightly on 0.78%.
Paycom Software, Inc. has good short term financial stability: Interest coverage ratio (ICR) is 226.8x. Paycom Software, Inc. has no short term refinancing risk: cash is higher than short term debt (2,575.7%).
Average interest expence paid by the company was 2.2% in 2018.
Valuation and dividends
The company's trades at EV/EBITDA 48.5x and P/E 72.1x.
Management team
Chad Richison is a Paycom Software, Inc.'s CEO. Chad Richison is a founder and has spent 3 years with the company. CEO total compensation was
$16,938,845 in 2018 which included
$667,133 salary. The company's CFO is Craig E Boelte. Craig E Boelte has 13 years tenure at the company.
17.4% of the company is owned by insiders. Insider ownership didn't change in 2018.
The company has 3,050 employees. The number of employees jumped on 19.7%. Average revenue per employee in 2018 was
$185,684 and it increased on 9.3%.
Financial and operational results
FY ended 12/31/2018
Paycom Software, Inc. ($PAYC) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 150.9 | 224.7 | 329.1 | 433.0 | 566.3 | 30.8% |
| Gross Profit | 123.6 | 189.2 | 275.1 | 361.0 | 475.6 | 31.7% |
| SG&A | 99.0 | 140.4 | 144.5 | 191.1 | 240.5 | 25.9% |
| EBITDA | 22.9 | 43.9 | 115.4 | 149.1 | 203.4 | 36.4% |
| EBIT | 15.7 | 34.4 | 101.7 | 129.7 | 173.7 | 33.9% |
| Interest expence | 3.4 | 1.4 | 1.0 | 0.9 | 0.8 | -15.9% |
| Tax | 4.0 | 12.6 | 30.6 | 4.2 | 37.6 | 786.6% |
| Net Income | 5.7 | 20.9 | 70.4 | 123.5 | 137.1 | 11.0% |
| Stock Based Compensation | 0.7 | 3.0 | 20.7 | 36.1 | 36.6 | 1.4% |
Balance Sheet
|
|---|
| Cash | 25.1 | 50.7 | 60.2 | 46.1 | 45.7 | -0.8% |
| Accounts Receivable | 2.8 | 2.4 | 1.3 | 1.6 | 3.4 | 116.6% |
| Inventory | 0.2 | 1.1 | 0.7 | 1.0 | 0.8 | -18.6% |
| Accounts Payable | 3.0 | 4.9 | 3.7 | 6.5 | 6.3 | -3.1% |
| Short Term Debt | 0.9 | 0.9 | 1.1 | 0.9 | 1.8 | 99.9% |
| Long Term Debt | 26.1 | 24.9 | 28.7 | 34.4 | 32.6 | -5.2% |
Cash flow
|
|---|
| Capex | 14.3 | 16.5 | 43.8 | 59.4 | 59.9 | 0.9% |
Ratios
|
|---|
| Revenue growth | 40.3% | 48.8% | 46.5% | 31.6% | 30.8% | |
| EBITDA growth | 52.8% | 91.8% | 163.1% | 29.2% | 36.4% | |
|
|---|
| Gross Margin | 81.9% | 84.2% | 83.6% | 83.4% | 84.0% | 0.6% |
| EBITDA Margin | 15.1% | 19.5% | 35.1% | 34.4% | 35.9% | 1.5% |
| EBIT Margin | 10.4% | 15.3% | 30.9% | 30.0% | 30.7% | 0.7% |
| SG&A, % of revenue | 65.6% | 62.5% | 43.9% | 44.1% | 42.5% | -1.7% |
| SBC, % of revenue | 0.5% | 1.3% | 6.3% | 8.3% | 6.5% | -1.9% |
| Net Income Margin | 3.8% | 9.3% | 21.4% | 28.5% | 24.2% | -4.3% |
| CAPEX, % of revenue | 9.5% | 7.4% | 13.3% | 13.7% | 10.6% | -3.1% |
|
|---|
| ROIC | 16.7% | 30.5% | 75.4% | 51.1% | 47.5% | -3.6% |
| ROE | 14.3% | 24.3% | 65.6% | 62.1% | 44.5% | -17.6% |
| Net Debt/EBITDA | 0.1x | -0.6x | -0.3x | -0.1x | -0.1x | 0.0x |
| Interest expence / Average debt | 12.7% | 5.4% | 3.7% | 2.8% | 2.2% | -0.6% |
People
|
|---|
| Insider ownership | 17.4% | 17.4% | 17.4% | 17.4% | 17.4% | 0.0% |
| Employees | 1,021 | 1,461 | 2,075 | 2,548 | 3,050 | 19.7% |
| Revenue/Employee, th. $ | 148 | 154 | 159 | 170 | 186 | 9.3% |
Paycom Software, Inc. ($PAYC) key quoterly financial indicators
| mln. $ | 18Q1 | 18Q2 | 18Q3 | 18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 154 | 129 | 133 | 150 | | 28.8% | 31.1% | 31.6% | 31.8% |
| EBITDA | 57 | 50 | 44 | 52 | | 0.5% | 111.7% | 64.9% | 24.5% |
| Net Income | 41 | 36 | 29 | 31 | | 22.2% | 78.5% | 37.6% | -35.7% |
Balance Sheet
|
|---|
| Cash | 68 | 55 | 85 | 46 | | -26.7% | -19.8% | 27.7% | -0.8% |
| Short Term Debt | 1 | 2 | 2 | 2 | | 18.2% | 55.8% | 54.1% | 99.9% |
| Long Term Debt | 34 | 33 | 33 | 33 | | 11.7% | 0.0% | -0.5% | -5.2% |
Ratios
|
|---|
| Gross Margin | 84.7% | 83.7% | 83.4% | 84.0% | | -1.0% | 1.9% | 1.0% | 0.8% |
| EBITDA Margin | 37.1% | 38.6% | 33.3% | 34.7% | | -10.4% | 14.7% | 6.7% | -2.0% |
| Net Income Margin | 26.7% | 27.7% | 21.6% | 20.9% | | -1.5% | 7.4% | 0.9% | -22.0% |
Peers in Application Software
Below you can find Paycom Software, Inc. benchmarking vs. other companies in Application Software industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| nFusz Inc ($FUSZ) | | | | | 433.3% |
| CloudCommerce Inc ($CLWD) | | -38.1% | 247.6% | 40.9% | 301.1% |
| Seven Stars Cloud Group, Inc. ($SSC) | | 134.7% | 663.8% | 310.3% | 161.7% |
| Aurora Mobile Limited ($JG) | | | | 304.9% | 150.8% |
| Intelligent Systems Corporation ($INS) | | 14.2% | 71.0% | 12.2% | 119.0% |
| |
|---|
| Median (151 companies) | -43.3% | 13.5% | 13.6% | 14.8% | 15.2% |
|---|
| Paycom Software, Inc. ($PAYC) | | 48.8% | 46.5% | 31.6% | 30.8% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Skkynet Cloud Systems Inc ($SKKY) | 99.7% | 97.4% | 98.0% | 97.6% | 96.5% |
| hopTo Inc ($HPTO) | 91.8% | 87.8% | 95.9% | 98.2% | 95.4% |
| Aware, Inc. ($AWRE) | 75.4% | 87.2% | 90.3% | 94.6% | 92.3% |
| Alteryx, Inc. ($AYX) | 77.5% | 80.5% | 81.3% | 83.4% | 91.0% |
| Aspen Technology, Inc. ($AZPN) | 86.5% | 88.7% | 89.7% | 90.2% | 89.9% |
| |
|---|
| Median (150 companies) | 62.8% | 61.7% | 63.8% | 64.4% | 65.7% |
|---|
| Paycom Software, Inc. ($PAYC) | 81.9% | 84.2% | 83.6% | 83.4% | 84.0% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Aspen Technology, Inc. ($AZPN) | 34.5% | 42.2% | 46.0% | 45.2% | 43.3% |
| ANSYS, Inc. ($ANSS) | 45.9% | 45.8% | 45.1% | 41.9% | 41.4% |
| j2 Global, Inc. ($JCOM) | 41.6% | 40.6% | 41.7% | 36.5% | 35.7% |
| Adobe Inc. ($ADBE) | 17.5% | 25.9% | 31.2% | 34.2% | 35.3% |
| Intelligent Systems Corporation ($INS) | -51.1% | -54.5% | -5.4% | -12.8% | 33.6% |
| |
|---|
| Median (152 companies) | -10.3% | -10.7% | -5.3% | -4.2% | -3.3% |
|---|
| Paycom Software, Inc. ($PAYC) | 15.1% | 19.5% | 35.1% | 34.4% | 35.9% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| TimefireVR Inc ($TFVR) | 0.0% | 350.5% | 4.3% | | 1,021.9% |
| MGT Capital Investments Inc ($MGTI) | 0.0% | 36.5% | 221.4% | 129.8% | 344.5% |
| Integrated Ventures Inc ($INTV) | | | | | 199.9% |
| ShotSpotter, Inc. ($SSTI) | | 18.3% | 28.9% | 27.1% | 24.3% |
| Ellie Mae, Inc. ($ELLI) | 12.3% | 20.6% | 16.7% | 21.1% | 19.4% |
| |
|---|
| Median (153 companies) | 2.8% | 2.7% | 2.9% | 2.3% | 2.4% |
|---|
| Paycom Software, Inc. ($PAYC) | 9.5% | 7.4% | 13.3% | 13.7% | 10.6% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| InsPro Technologies Corp ($ITCC) | -558.9% | | | | 127.4% |
| Manhattan Associates, Inc. ($MANH) | 64.8% | 78.7% | 99.3% | 102.5% | 80.9% |
| Intuit Inc. ($INTU) | 34.2% | 23.7% | 52.1% | 72.6% | 66.8% |
| Aspen Technology, Inc. ($AZPN) | 133.4% | | | | 58.1% |
| The Trade Desk, Inc. ($TTD) | | 63.3% | 42.1% | 30.0% | 32.2% |
| |
|---|
| Median (179 companies) | -14.4% | -13.1% | -9.8% | -11.8% | -10.4% |
|---|
| Paycom Software, Inc. ($PAYC) | 16.7% | 30.5% | 75.4% | 51.1% | 47.5% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Upland Software, Inc. ($UPLD) | | | 16.4x | 115.6x | 16.7x |
| Nuance Communications, Inc. ($NUAN) | 7.9x | 5.7x | 5.3x | 7.1x | 15.2x |
| Asure Software Inc ($ASUR) | 3.4x | 4.5x | 3.6x | 9.5x | 14.5x |
| SS&C Technologies Holdings, Inc. ($SSNC) | 1.7x | 7.3x | 4.6x | 3.1x | 8.5x |
| Avaya Holdings Corp. ($AVYA) | | | | | 7.4x |
| |
|---|
| Median (69 companies) | -1.4x | -1.0x | -0.9x | -0.9x | -0.7x |
|---|
| Paycom Software, Inc. ($PAYC) | 0.1x | -0.6x | -0.3x | -0.1x | -0.1x |
