As 2017 winds down, Paycom Software (NYSE: PAYC) investors find themselves with plenty to celebrate. The company's stock is up around 75% year-to-date, as the rapidly growing payroll and HR software provider appears to be firing on all cylinders. Throughout the year, Paycom has continued to make inroads with smaller companies in its 50-to-2,000-employee niche, mostly at the expense of larger competitors like ADP (NASDAQ: ADP). Here's a look back at the most significant items that caught my eye over the past 12 months.
Mastering the "beat-and-raise" game
In each of the three quarters it's reported this year, Paycom has beaten its own guidance as well as analyst estimates, and then raised its full-year guidance. As the company sells its software on a subscription basis, the vast majority of its revenue is recurring in nature. While that certainly helps give the company good visibility into future quarters, management's track record of under-promising and over-delivering has been impressive nonetheless.
With one quarter remaining to report this year, Paycom's guidance and analyst estimates both call for full-year top-line growth of 31%. Don't be at all surprised if Paycom trounces expectations once again when it next reports.
Image source: Paycom Software.
Impressive margin improvement
As the year began, Paycom warned investors that its adjusted EBITDA margin would take a hit this year as it prioritized top-line growth and made increased investments in R&D and its salesforce.
However, as 2017 played out, its margin hasn't declined at all. Instead, it's heading for an all-time record as its latest guidance implies an adjusted EBITDA margin of roughly 31% for 2017. If Paycom can achieve that, it will have nearly doubled its margin over the past five years. The company should continue to benefit from its increasing scale in the years ahead and has set a long-term adjusted EBITDA margin target of 30% to 33%.
A free cash flow bonanza
Free cash flow represents how much cash a company generates after capital expenditures. This important measure of performance has shown explosive growth over the past several years, and 2017 looks like more of the same.
PAYC Free Cash Flow (Annual) data by YCharts
After turning free-cash-flow-positive in 2013, free cash flow increased from $8 million in 2014 to $55 million in 2016. Since Q4 is yet to be reported, we don't have a 2017 figure yet, but on a trailing-12-month basis, Paycom's free cash flow clocks in at $62 million.