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Scaling service: Paycom CEO sees growth after IPO
By: Brian Brus The Journal Record May 29, 2014
OKLAHOMA CITY – In a state where petroleum companies overwhelmingly represent the publicly traded business community, Paycom’s chief executive said he feels at home as the newest member of the club.
“I’m a fan of oil and gas and what the companies have done for the city and the state,” Chad Richison said Thursday. “Many of my friends and family work in that industry. But at the end of the day, whether you’re working for us, or in oil and gas, or in health care, you have to have good people.
“And we find good people here,” he said. “We’re the type of company that brings good people into the state, as well, to not only help us develop software, but to grow the company.”
Oklahoma City-based Paycom, now known as PAYC on the New York Stock Exchange, provides human capital management software solutions. Those solutions are delivered entirely online in what’s sometimes referred to in the industry as software-as-a-service, or SaaS. All the management systems a company might need are integrated in a single, cloud-based database, Richison said. Accurate data produces actionable information, he said.
Among its most notable applications, for example, the company recently released Paycom Survey, a tool that allows the quick creation and analysis of online employee surveys. The product is expected to help employers reduce turnover by measuring worker satisfaction. In another development, by enhancing self-service functions that include mobile devices, the company has been able to increase employee log-in frequency by 170 percent compared with a year earlier.
One of the company’s strengths is that it began in 1998 as a cloud-based provider and hasn’t had to adapt to that technological trend, Richison said.
“It’s part of our DNA, and we’ve been able to continue to develop products within the same database, gaining a huge advantage,” he said. “I don’t know that the industry has changed that much – other than growing much larger – but I think that businesses no longer have the tolerance for complexity in this world of technology. They want something comprehensive that’s easy to use.”
Richison said the company is highly scalable and derives 86 percent of its revenue from businesses that have between 50 and 2,000 employees. The market niche is worth about $23 billion annually, according to International Data Corp.
Paycom went public in April. After a weekend’s delay, the company sold 7.6 million shares of common stock at $15 per share, slightly below an expected range of $18 to $20 per share. Paycom’s total debt at the time was about $86.3 million; proceeds from the IPO and existing cash were used to retire $65 million in outstanding debt.
Company representatives Thursday said no further comments would be made about the IPO.
Because the company’s public offering was so recent, analysts’ feedback has been light, but largely positive. Raimo Lenschow at Barclay’s, for example, initiated coverage this month with a rating of overweight at a $21 price target. Lenschow said Paycom was already disrupting the payroll servicing market with better technology, and he expects the company to grow quickly over the next few years. Lenschow found Paycom’s valuation to be too low compared with its peers.
In mid-May, analysts at JPMorgan Chase & Co. also called Paycom’s stock overweight and set a $19 price target, while analysts at Stifel Nicolaus set a buy rating and a $20 target, and Pacific Crest set an outperform rating and a $18 target.
The company’s numbers have justified the mixed positions. In its first earnings report since going public, Paycom this month reported a profit of $1.1 million for the first quarter, or 2 cents per share, down from $2.6 million, or 5 cents per share, compared with the same period a year earlier. But Paycom’s gross revenue grew to $37 million in the first quarter, a 34-percent increase from $27.6 million last year, while recurring revenue increased 34 percent.
Richison said he’s comfortable with constant evaluation, and that the transition from private to public didn’t affect the company’s corporate culture at all.
“We’ve operated as a very responsible company forever,” he said. “We’re in a very unforgiving business; if you’re only 99.9 percent accurate, you get an F. People expect their money to be in their account on time. They expect their HR information to be accurate. They expect to enroll easily in benefits. … It’s a very high-risk, low-reward service.
“So it has not changed the culture of our company,” Richison said. “It’s been very exciting, but we were already an exciting company on April 14.”
Richison said going public shouldn’t be a goal for every company.
“It’s not something that necessarily creates future value,” he said. “It’s really about being able to continue to innovate your product and being able to expand market share. As a technology company, it’s a little different because it is so growth-driven and based on demand for your software.”
Richison, who was born and raised in Tuttle, said he couldn’t imagine developing a technology company in any other state. Oklahoma has everything Paycom needs, and he’s been impressed with Oklahoma City’s growth. He said policymakers need to continue to support education to produce the creative workforce Paycom needs.
The company’s stock closed up 23 cents at $13.48 Thursday on volume of nearly 65,000 shares. The stock has traded at a high of $17.92.