With an uptick in revenue retention and new products to offer customers, Paycom ( PAYC 3.43% ) posted a strong quarter. In this video clip from “The Earnings Show” on Motley Fool Live, recorded on Feb. 11, Fool contributors Trevor Jennewine and Brian Withers discuss the HR software company’s bright outlook for investors.
Trevor Jennewine: Some highlights with the company’s quarter. They have over 33,875 customers now that’s up 9%. Management noted that that’s about 5% of their total addressable market. There’s still plenty of room for this company to run. Perhaps more impressively, the company’s revenue retention rate ticked up to 94% and that’s up from 93% last year and that’s especially impressive.
This company primarily serves small and medium-sized businesses. They recently expanded their target from enterprises with 5,000 employees up to enterprises with 10,000 employees, but they really started in that small and medium-sized business segment and there is a lot of turnover there. To be keeping 94% revenue retention, that’s a strong number.
During the call, management said that they started to see that number tick up over the last six years or so when they started introducing self-service functionality. One of Paycom’s draws is that there’s a lot of self-service features with the platform so employees can go in and manage their own benefits, request time off, take care of other compliance-related issues using this self-service app. It reduces the burden on HR administrators, they don’t have as much work to do, it helps the company run a little bit more efficiently.
One of the newest products in that same line is BETI. BETI is the industry’s first self-service payroll platform. Employees can actually go in, review their payroll before it’s run. And that really serves two purposes. HR is doing less work upfront and because employees are more likely to catch errors or notice discrepancies than maybe an administrator is. It also helps reduce the number of corrections that need to be made after payroll is processed.
Management noted this product is gaining traction quickly. It actually, was recognized at an HR tech conference as the top HR product of the year. That’s great to see a new product gaining traction quickly. All of Paycom’s customers use their payroll software, so it’s good to see a strong core product there.
Also during the last five months, the company has opened five new sales offices and that’s an important part of the company’s growth strategy. It’s good to see execution on that upfront, but like I mentioned, the company has about 5% of its addressable market right now. There’s lots of room to grow, management continues to plan, to open new sales office. They continue to open new sales offices and that’s going to be a core part of their strategy going forward.
In terms of if I had any concerns about the quarter, maybe the impact of inflation, like I mentioned earlier, the company does work with small and medium-sized businesses and those companies might be a little bit more susceptible to supply chain disruptions, or they might see more of a cutback in consumer spending due to inflation. Because payroll makes some of its money based on a per-person business model, any decrease in hiring could be a headwind for Paycom.
But all things considered, this was a strong quarter, Brian, I think the market agreed, the stock’s risen, it’s added about a billion dollars to its market cap in the last couple of days, still not beating the market over the last 12 months, but I like this company. I think they posted some strong results.
Brian Withers: Just for folks who are wondering about what BETI stands for, it’s better employee transaction interface. Then basically allows employees to do a lot of their own stuff without having to go through an HR professional. The stock has been all over the place and I think a little bit of that is it serves the small business community which is been hit by COVID and the wave of omicron or whatever. I know you’re a shareholder, looking at where the company is today is it a good time to add?
Jennewine: You know what? I’m not going to make any predictions about the next year, but if I look five years, 10 years down the road, I think this company is a market beater over the long term.
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