Paycom Software stock plummeted almost 40% on Wednesday after the human resources and payroll software provider’s third-quarter revenue missed estimates and it provided weak guidance for the fourth quarter, full year, and 2024.
For the quarter ended in September, the company posted earnings per share (EPS) of $1.77 on revenue of $406.3 million, against estimates of EPS of $1.62 on revenue of $411 million.
For 4Q, the company said it expects revenue in the range of $420 million to $425 million, below Street expectations of $452.4 million, and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the range of $169 million to $174 million.
Its full-year revenue expectation of about $1.68 billion also missed Street estimates of $1.72 billion. It expects adjusted EBITDA in the range of $712 million to $717 million.
Paycom management added on its conference call with analysts that it expects revenue growth of 10% to 12% in 2024, marking a sharp slowdown in growth. Analysts had expected 2024 revenue growth of about 20.3%.
“While investors were braced for soft results and guidance, PAYC shocked everyone by providing an initial 2024 outlook for 10% to 12% revenue growth," analysts from Jefferies wrote in a note to clients.
"Management largely attributed the second half weakness and 2024 outlook to cannibalization of services revenue."
CFO Craig Boelte told investors that increased usage of the company's Beti product, which enables clients’ employees to do their own payroll, resulted in lower cross-selling revenues.
“Now that more clients are achieving the ROI (return on investment) that Beti has to offer, it has eliminated certain billable items, which is cannibalizing a portion of our services and unscheduled revenues,” Boelte said.
Paycom shares were down 37.7% at US$152.25 late morning on Wednesday.
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