Sign in

You're signed outSign in or to get full access.

PH

PAYCOR HCM, INC. (PYCR)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 FY2024 revenue was $187.0M (+16% YoY) with GAAP diluted EPS of $0.03 and adjusted operating margin up 130 bps YoY to 25.5% .
  • Recurring revenue grew 14% YoY to $172.0M; excluding form filings, recurring revenue grew 20% YoY, while list PEPM reached $53 (+20% YoY) and talent bundles increased nearly 40% YoY .
  • Guidance: Q4 revenue $160–$162M and adjusted operating income $21–$22M; FY2024 revenue $650–$652M (narrowed vs prior) and adjusted operating income $108–$109M (raised vs prior); interest income guide raised to ~$51M for FY2024 .
  • Stock narrative catalysts: macro-driven negative same‑store sales risk, ERTC headwind elimination, and embedded HCM ramp timing temper near‑term growth; ongoing up‑market success and margin expansion support medium‑term thesis .

What Went Well and What Went Wrong

What Went Well

  • “We delivered another strong quarter as our differentiated HCM solution... continued to resonate” with total revenue +16% YoY and adjusted operating margin +130 bps YoY .
  • Up‑market and enterprise traction: customers with >1,000 employees grew nearly twice overall employee growth; employees on platform >2.6M across ~30,600 customers .
  • Product innovation and AI: launched COR Space and Paycor Skills; list PEPM reached $53 (+20% YoY), and talent bundles grew ~40% YoY .

What Went Wrong

  • Year‑end form filing volumes were “slightly lower than anticipated,” creating a ~3‑point revenue growth headwind; ERTC processing slowed, adding another ~3‑point headwind .
  • Macro pressure: management updated Q4 assumptions to account for potential negative same‑store sales and assumed zero ERTC revenue .
  • Sales force churn required structural changes and moderated headcount growth to low/mid‑teens near‑term; enterprise cycle times elongating modestly versus SMB/mid‑market .

Financial Results

Consolidated Metrics (Quarterly)

MetricQ1 2024Q2 2024Q3 2024
Total Revenues ($USD Millions)$143.588 $159.541 $187.019
Recurring Revenue ($USD Millions)$132.708 $147.232 $171.973
Interest Income on Funds Held ($USD Millions)$10.880 $12.309 $15.046
Gross Profit Margin (%)64.2% 65.4% 68.6%
Adjusted Gross Profit Margin (%)66.3% 67.4% 69.9%
Adjusted Operating Income ($USD Millions)$15.920 $23.297 $47.730
Adjusted Operating Income Margin (%)11.1% 14.6% 25.5%
GAAP Diluted EPS ($USD)$(0.12) $(0.15) $0.03
Adjusted Net Income ($USD Millions)$12.810 $18.669 $37.516
Adjusted Net Income Per Share ($USD)$0.07 $0.11 $0.21

Revenue Composition (Quarterly)

MetricQ1 2024Q2 2024Q3 2024
Recurring & Other Revenue ($USD Millions)$132.708 $147.232 $171.973
Interest Income on Client Funds ($USD Millions)$10.880 $12.309 $15.046
Total Revenues ($USD Millions)$143.588 $159.541 $187.019

KPIs and Operational Metrics

KPIQ1 2024Q2 2024Q3 2024
Employees on Platform (#)>2.5M ~2.6M >2.6M
Customers (#)>30,800 >30,000 ~30,600
Effective PEPM ($USD)>$17 (+6% YoY) >$19 (+7% YoY) nearly $22 (+4% YoY)
List PEPM ($USD)$51 (+21% YoY) $51 (+16% YoY) $53 (+20% YoY)
Talent Bundles Revenue Growth YoY (%)40% —~40%
Embedded HCM Employee Growth Contribution (pts)~1 pt ~2 pts ~2 pts
Same‑Store Sales Contribution (pts)——<0.5 pt

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenues ($USD Millions)Q4 FY2024—$160–$162 New Q4 guide issued
Adjusted Operating Income ($USD Millions)Q4 FY2024—$21–$22 New Q4 guide issued
Total Revenues ($USD Millions)FY2024$650–$656 $650–$652 Narrowed/lowered top end
Adjusted Operating Income ($USD Millions)FY2024$104–$108 $108–$109 Raised
Interest Income ($USD Millions)FY2024$45–$46 ~$51 Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q1)Current Period (Q3)Trend
Embedded HCM partnershipsRobust booking among existing partners; pipeline building; ~1 pt employee growth (Q1); ~2 pts (Q2) Signed three new partners; long cycle; incremental Q4 impact immaterial; ~2 pts employee growth Building, but revenue ramp largely FY2025
Up‑market/enterprise motionCustomers >1,000 employees grew 18%; strong enterprise attach >1,000 employees grew ~2x overall employee growth; list PEPM up; enterprise cycles slightly longer Strengthening, with longer cycles
Sales force capacity/retentionTarget ~20% hiring; tenure driving productivity; brokers ~50% field bookings Headcount growth moderated to low/mid‑teens; churn fix via territory structure; tenure rising Stabilizing, productivity improving
Same‑store sales/macroLabor growth slowing; guidance assumed flat organic employee growth (Q1/Q2) Potential negative same‑store sales; macro caution in Q4 Deteriorating near‑term
ERTC revenue~1 pt FY contribution expected (Q1), shifting between Q3/Q4 last year Slowed faster than anticipated; assume zero in Q4; headwind ~1.5–2 pts FY Fading to negligible
Interest income (client funds float)Guide $45–$46M FY; ~450 bps effective rate (Q2) ~$15M in Q3; guide ~$51M FY Beneficial tailwind
AI/analytics/productLaunched pay benchmarking & labor forecasting (Q2); generative AI assistant (Q1) Introduced COR Space & Paycor Skills; AI excitement; mid‑market customers consume benefits Ongoing innovation

Management Commentary

  • CEO: “We delivered another strong quarter as our differentiated HCM solution that powers people and performance continued to resonate in the market” .
  • CFO: “We are updating guidance to account for potential negative same-store sales growth among existing customers and [assume] no ERTC revenue… even with a tougher macro backdrop” .
  • CEO on enterprise: “We continue to win deals at the upper end of our target segment… talent by and large, pulls us upmarket… [and] our open platform… integrate[s] with other systems” .
  • CFO on embedded HCM: “New embedded partners are not going to add anything incrementally to revenue in [Q4]… long cycle times… additive next year” .
  • CEO on AI: “There’s a lot of excitement… opportunities to continue to enhance insights… develop products faster… provide better service… [mid‑market customers] are seeing the benefits in the product” .

Q&A Highlights

  • Embedded HCM timing and impact: deals are large and take long to form; near‑term revenue minimal, partner onboarding and portfolio migrations stretch timelines; margin accretive over time due to lower sales costs .
  • Sales force and retention: structural job segmentation reversed; early signs of improved retention; moderated hiring to avoid over‑hiring; tenure and productivity trending up .
  • Form filings & ERTC: form filings slightly lower than anticipated; ERTC slowed faster than expected; assume zero ERTC in Q4; full‑year headwind ~1.5–2 pts vs prior ~1 pt .
  • Macro/same‑store: risk of negative same‑store sales across some industries; professional services stronger; food and beverage slowed; micro‑segment marginally declining .
  • Guidance clarifications: Q4 includes macro drag and zero ERTC; FY revenue narrowed; interest income stronger on higher client funds and rates .

Estimates Context

  • S&P Global consensus estimates were unavailable for PYCR due to a Capital IQ mapping error (GetEstimates failed). As a result, we cannot provide a formal “vs. consensus” comparison for Q3 FY2024 or prior two quarters from S&P Global data.

Key Takeaways for Investors

  • Underlying recurring growth remains healthy ex‑form filings (+20% YoY), supported by up‑market wins and product attach; this strengthens medium‑term growth durability as embedded HCM ramps in FY2025 .
  • Near‑term growth headwinds from macro (potential negative same‑store sales) and zero ERTC in Q4 temper outlook, but FY adjusted operating income was raised, and margins continue to expand, evidencing operating leverage .
  • Product innovation (COR Space, Paycor Skills, AI analytics) and high list PEPM ($53) underpin sustained PEPM expansion and cross‑sell opportunity, particularly for talent and workforce bundles .
  • Enterprise momentum and broker channel contributions (historically ~50% of field bookings) increase average deal size and mix, offsetting slower micro‑segment trends; expect modestly longer cycles in enterprise .
  • Float income is a material tailwind (~$51M FY) at current rate environment, supporting investments and margin expansion initiatives .
  • Watch execution on sales org stabilization and embedded partner onboarding; both are critical for sustaining 20%+ recurring growth longer‑term .
  • Absence of S&P consensus data limits formal beat/miss analysis; traders should focus on guidance narrowing (revenue) vs raising (adjusted op income/interest) and macro commentary for near‑term sentiment .

Appendix: Prior Quarter Summaries (for trend reference)

  • Q2 FY2024: Revenue $159.5M (+20% YoY); GAAP diluted EPS $(0.15); adjusted op income $23.3M; raised FY revenue guide to $650–$656M; embedded HCM contribution ~2 pts employee growth; list PEPM $51 (+16% YoY) .
  • Q1 FY2024: Revenue $143.6M (+21% YoY); GAAP diluted EPS $(0.12); adjusted op income $15.9M; FY revenue guide $648–$654M; introduced generative AI analytics assistant; list PEPM $51 (+21% YoY) .