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Paylocity Announces Second Quarter Fiscal Year 2021 Financial Results

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Paylocity
·19 min read
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  • Q2 2021 Recurring & Other Revenue of $145.4 million, up 14% year-over-year

  • Q2 2021 Total Revenue of $146.3 million, up 11% year-over-year

SCHAUMBURG, Ill., Feb. 04, 2021 (GLOBE NEWSWIRE) -- Paylocity Holding Corporation (Nasdaq: PCTY), a leading provider of cloud-based HR and payroll software solutions, today announced financial results for the second quarter of fiscal year 2021, which ended December 31, 2020.

“Despite the challenges of the COVID-19 pandemic, we had a strong second quarter, with 14% growth in recurring & other revenue and 11% total revenue growth. The momentum our sales team developed during the Fall selling season translated into a strong January, and we continue to be pleased with how our team is performing in a virtual selling environment. We also remain excited about our product momentum in delivering the most modern platform. Our recent acquisition of Samepage, an all-in-one team collaboration solution, is another recent proofpoint,” said Steve Beauchamp, Chief Executive Officer of Paylocity.

Second Quarter Fiscal 2021 Financial Highlights

Revenue:

  • Total revenue was $146.3 million, an increase of 11% from the second quarter of fiscal year 2020.

  • Recurring & other revenue was $145.4 million, representing 99% of total revenue and an increase of 14% from the second quarter of fiscal year 2020.

Operating Income:

  • GAAP operating income was $6.4 million and Non-GAAP operating income was $25.1 million in the second quarter of fiscal year 2021.

Net Income:

  • GAAP net income was $9.6 million or $0.17 per share for the three months ended December 31, 2020 based on 56.3 million diluted weighted average common shares outstanding.

Adjusted EBITDA:

  • Adjusted EBITDA, a non-GAAP measure, was $35.0 million in the second quarter of fiscal year 2021.

Balance Sheet and Cash Flow:

  • Cash, cash equivalents and invested corporate cash totaled $232.3 million as of the end of the quarter.

  • $100 million outstanding at the end of the quarter under our credit facility.

  • Cash flow from operations for the second quarter of fiscal year 2021 was $21.2 million compared to $27.8 million for the second quarter of fiscal year 2020.

A reconciliation of GAAP to non-GAAP financial measures has been provided in this press release, including the accompanying tables. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”

Business Outlook

Based on information available as of February 4, 2021, Paylocity is issuing guidance for the third quarter and full fiscal year 2021 as indicated below.

Third Quarter 2021:

  • Total revenue is expected to be in the range of $182.5 million to $186.5 million, which represents approximately 6% - 9% growth over fiscal 2020 third quarter revenue.

  • Adjusted EBITDA, a non-GAAP measure, is expected to be in the range of $59.0 million to $62.0 million.

Fiscal Year 2021:

  • Total revenue is expected to be in the range of $623.5 million to $628.5 million, which represents approximately 11% - 12% growth over fiscal year 2020 revenue.

  • Adjusted EBITDA, a non-GAAP measure, is expected to be in the range of $152.0 million to $156.0 million.

We are unable to reconcile forward-looking non-GAAP Adjusted EBITDA to its directly comparable GAAP financial measure because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort.

Conference Call Details

Paylocity will host a conference call to discuss its second quarter fiscal year 2021 results at 4:00 p.m. Central Time today (5:00 Eastern Time). A live audio webcast of the conference call, together with detailed financial information, can be accessed through the company's Investor Relations Web site at www.paylocity.com. Participants who choose to call in to the conference call can do so by dialing (855) 226-3021 or (315) 625-6892, passcode 2895946. A replay of the call will be available and archived via webcast at www.paylocity.com.

About Paylocity

Paylocity is a leading provider of cloud-based HR and payroll software solutions headquartered in Schaumburg, IL. Founded in 1997 and publicly traded since 2014, Paylocity offers an intuitive, easy-to-use product suite that helps businesses tackle today’s challenges while moving them toward the promise of tomorrow. Known for its unique culture and consistently recognized as one of the best places to work, Paylocity accompanies its clients on the journey to create great workplaces and help people achieve their best through automation, data-driven insights, and engagement. For more information, visit www.paylocity.com.

Non-GAAP Financial Measures
The company uses certain non-GAAP financial measures in this release, including Adjusted EBITDA, adjusted gross profit, non-GAAP operating income, non-GAAP net income, non-GAAP net income per share, non-GAAP sales and marketing, non-GAAP total research and development and non-GAAP general and administrative and free cash flow. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. We define Adjusted EBITDA as net income (loss) before interest expense, income tax expense (benefit), and depreciation and amortization expense, adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises and other items as described later in this release. Adjusted gross profit is adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises and amortization of capitalized internal-use software costs. Non-GAAP operating income is adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, the amortization of acquired intangibles and other items as described later in this release. Non-GAAP sales and marketing expense is adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises. Non-GAAP general and administrative expense is adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, the amortization of acquired intangibles and other items as described later in this release. Non-GAAP net income and non-GAAP net income per share are adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, the amortization of acquired intangibles and other items as described later in this release, including the income tax effect on these items, the valuation allowance release, excess tax benefit related to employee stock-based compensation payments and the impact of tax reform. Non-GAAP total research and development is adjusted for capitalized internal-use software costs and to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises and acquisition-related costs. Free cash flow is defined as net cash provided by operating activities less capitalized internal-use software costs, purchase of property and equipment and lease allowances used for tenant improvements. Please note that other companies may define their non-GAAP financial measures differently than we do. Management presents certain non-GAAP financial measures in this release because it considers them to be important supplemental measures of performance. Management uses these non-GAAP financial measures for planning purposes, including analysis of the company's performance against prior periods, the preparation of operating budgets and to determine appropriate levels of operating and capital investments. Management believes that these non-GAAP financial measures provide additional insight for analysts and investors in evaluating the company's financial and operational performance. Management also intends to provide these non-GAAP financial measures as part of the company’s future earnings discussions and, therefore, the inclusion of the non-GAAP financial measures should provide consistency in the company’s financial reporting. Non-GAAP financial measures have limitations as an analytical tool. Investors are encouraged to review the reconciliation of the non-GAAP measures to their most directly comparable GAAP measures provided in this release.

Safe Harbor/Forward Looking Statements
This press release contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included herein regarding Paylocity’s future operations, ability to scale its business, future financial position and performance, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” “would,” “seek” and similar expressions (or the negative of these terms) are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about management's estimates regarding future revenues and financial performance and other statements about management’s beliefs, intentions or goals. Paylocity may not actually achieve the expectations disclosed in the forward-looking statements, and you should not place undue reliance on Paylocity’s forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results or events to differ materially from the expectations disclosed in the forward-looking statements, including, but not limited to the ongoing impact of the novel coronavirus disease (“COVID-19”) on the U.S. economy, including reductions in interest rates, business disruptions, reductions in employment and an increase in business failures that have occurred or may occur in the future; the continuing impact of COVID-19 on Paylocity’s employees and clients and Paylocity’s ability to provide services to its clients and respond to their needs; Paylocity’s ability to retain existing clients and to attract new clients to enter into subscriptions for its services; Paylocity’s ability to sell new products and retain subscriptions for its existing products to its new and existing clients; the challenges associated with a growing company’s ability to effectively service clients in a dynamic and competitive market; challenges associated with expanding and evolving a sales organization to effectively address new geographies and products and services; Paylocity’s reliance on and ability to expand its referral network of third parties; difficulties associated with accurately forecasting revenue and appropriately planning expenses; challenges with managing growth effectively; difficulties in forecasting Paylocity’s tax position; risks related to regulatory, legislative and judicial uncertainty in Paylocity’s markets, including the potential repeal or replacement of the Affordable Care Act; continued acceptance of SaaS as an effective method for delivery of payroll and HCM solutions; Paylocity’s ability to protect and defend its intellectual property; the risk that Paylocity’s security measures are compromised or the unauthorized access to customer data; unexpected events in the market for Paylocity’s solutions; changes in the competitive environment in Paylocity’s industry and the markets in which it operates; adverse changes in general economic or market conditions; changes in the employment rates of Paylocity’s clients and the resultant impact on revenue; and other risks and potential factors that could affect Paylocity’s business and financial results identified in Paylocity’s filings with the Securities and Exchange Commission (the “SEC”), including its 10-K filed with the SEC on August 7, 2020. Additional information will also be set forth in Paylocity’s future quarterly reports on Form 10-Q, annual reports on Form 10-K and other filings that Paylocity makes with the SEC. These forward-looking statements represent Paylocity’s expectations as of the date of this press release. Subsequent events, including events relating to the COVID-19 pandemic and its severity, duration and ultimate impact, may cause these expectations to change, and Paylocity disclaims any obligations to update or alter these forward-looking statements in the future, whether as a result of new information, future events or otherwise.

PAYLOCITY HOLDING CORPORATION
Unaudited Consolidated Balance Sheets
(in thousands, except per share data)

June 30,

December 31,

2020

2020

Assets

Current assets:

Cash and cash equivalents

$

250,851

$

218,696

Corporate investments

34,556

13,637

Accounts receivable, net

4,923

6,118

Deferred contract costs

32,332

37,447

Prepaid expenses and other

13,188

15,633

Total current assets before funds held for clients

335,850

291,531

Funds held for clients

1,327,304

2,204,286

Total current assets

1,663,154

2,495,817

Capitalized internal-use software, net

36,501

40,623

Property and equipment, net

66,737

64,066

Operating lease right-of-use assets

48,658

45,429

Intangible assets, net

13,360

15,083

Goodwill

21,655

33,184

Long-term deferred contract costs

125,711

144,027

Long‑term prepaid expenses and other

4,917

3,218

Deferred income tax assets

4,955

9,516

Total assets

$

1,985,648

$

2,850,963

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

1,755

$

2,771

Accrued expenses

79,881

64,204

Total current liabilities before client fund obligations

81,636

66,975

Client fund obligations

1,327,304

2,204,286

Total current liabilities

1,408,940

2,271,261

Long-term debt

100,000

100,000

Long-term operating lease liabilities

73,299

69,672

Other long-term liabilities

1,747

1,812

Deferred income tax liabilities

8,754

Total liabilities

$

1,592,740

$

2,442,745

Stockholders’ equity:

Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding at June 30, 2020 and December 31, 2020

$

$

Common stock, $0.001 par value, 155,000 shares authorized at June 30, 2020 and December 31, 2020; 53,792 shares issued and outstanding at June 30, 2020 and 54,370 shares issued and outstanding at December 31, 2020

54

54

Additional paid-in capital

227,907

221,525

Retained earnings

164,272

186,374

Accumulated other comprehensive income

675

265

Total stockholders' equity

$

392,908

$

408,218

Total liabilities and stockholders’ equity

$

1,985,648

$

2,850,963


PAYLOCITY HOLDING CORPORATION
Unaudited Consolidated Statements of Operations and Comprehensive Income
(in thousands, except per share data)

Three Months Ended

Six Months Ended

December 31,

December 31,

2019

2020

2019

2020

Revenues:

Recurring and other revenue

$

127,980

$

145,393

$

249,853

$

280,268

Interest income on funds held for clients

4,394

936

9,241

1,855

Total revenues

132,374

146,329

259,094

282,123

Cost of revenues

45,424

53,542

88,054

102,922

Gross profit

86,950

92,787

171,040

179,201

Operating expenses:

Sales and marketing

37,293

37,775

74,250

75,449

Research and development

15,410

19,338

29,804

37,985

General and administrative

28,133

29,323

54,872

55,967

Total operating expenses

80,836

86,436

158,926

169,401

Operating income

6,114

6,351

12,114

9,800

Other income (expense)

285

(379

)

759

(636

)

Income before income taxes

6,399

5,972

12,873

9,164

Income tax expense (benefit)

932

(3,670

)

(6,500

)

(12,938

)

Net income

$

5,467

$

9,642

$

19,373

$

22,102

Other comprehensive loss, net of tax

(36

)

(187

)

(32

)

(410

)

Comprehensive income

$

5,431

$

9,455

$

19,341

$

21,692

Net income per share:

Basic

$

0.10

$

0.18

$

0.36

$

0.41

Diluted

$

0.10

$

0.17

$

0.35

$

0.39

Weighted-average shares used in computing net income per share:

Basic

53,542

54,305

53,415

54,160

Diluted

55,826

56,343

55,692

56,122

Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises for each of the three and six months ended December 31 are included in the above line items:

Three Months Ended December 31,

Six Months Ended December 31,

2019

2020

2019

2020

Cost of revenues

$

1,465

$

2,002

$

3,197

$

4,405

Sales and marketing

3,393

4,019

7,737

8,367

Research and development

1,783

2,765

3,583

5,616

General and administrative

6,188

8,300

12,341

15,435

Total stock-based compensation expense

$

12,829

$

17,086

$

26,858

$

33,823


PAYLOCITY HOLDING CORPORATION
Unaudited Consolidated Statements of Cash Flows
(in thousands)

Six Months Ended

December 31,

2019

2020

Cash flows from operating activities:

Net income

$

19,373

$

22,102

Adjustments to reconcile net income to net cash provided by operating activities:

Stock-based compensation expense

24,832

30,936

Depreciation and amortization expense

18,261

21,071

Deferred income tax benefit

(6,500

)

(12,940

)

Provision for credit losses

63

98

Net accretion of discounts and amortization of premiums on available-for-sale securities

(1,052

)

255

Amortization of debt issuance costs

73

83

Other

250

515

Changes in operating assets and liabilities:

Accounts receivable

(53

)

(1,287

)

Deferred contract costs

(22,434

)

(23,431

)

Prepaid expenses and other

773

(3,388

)

Accounts payable

261

1,070

Accrued expenses and other

2,231

(15,412

)

Net cash provided by operating activities

36,078

19,672

Cash flows from investing activities:

Purchases of available-for-sale securities and other

(253,950

)

Proceeds from sales and maturities of available-for-sale securities

124,780

58,996

Capitalized internal-use software costs

(12,139

)

(14,832

)

Purchases of property and equipment

(12,398

)

(6,045

)

Acquisition of business, net of cash acquired

(14,992

)

Net cash provided by (used in) investing activities

(153,707

)

23,127

Cash flows from financing activities:

Net change in client fund obligations

450,825

876,982

Proceeds from employee stock purchase plan

3,961

6,100

Taxes paid related to net share settlement of equity awards

(25,954

)

(44,749

)

Payment of debt issuance costs

(675

)

(17

)

Net cash provided by financing activities

428,157

838,316

Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents

310,528

881,115

Cash, cash equivalents and funds held for clients' cash and cash equivalents—beginning of period

1,426,143

1,492,133

Cash, cash equivalents and funds held for clients' cash and cash equivalents—end of period

$

1,736,671

$

2,373,248

Supplemental Disclosure of Non-Cash Investing and Financing Activities

Liabilities assumed for acquisition

$

$

281

Supplemental Disclosure of Cash Flow Information

Cash paid for interest

$

53

$

584

Cash paid (refunds received) for income taxes

$

19

$

(110

)

Reconciliation of cash, cash equivalents and funds held for clients' cash and cash equivalents to the Unaudited Consolidated Balance Sheets

Cash and cash equivalents

$

75,900

$

218,696

Funds held for clients' cash and cash equivalents

1,660,771

2,154,552

Total cash, cash equivalents and funds held for clients' cash and cash equivalents

$

1,736,671

$

2,373,248


Paylocity Holding Corporation

Reconciliation of GAAP to non-GAAP Financial Measures

(In thousands except per share data)

Three Months

Six Months

Ended

Ended

December 31,

December 31,

2019

2020

2019

2020

Reconciliation from Gross profit to Adjusted gross profit:

Gross profit

$

86,950

$

92,787

$

171,040

$

179,201

Amortization of capitalized internal-use software costs

4,690

5,882

9,147

11,268

Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises

1,465

2,002

3,197

4,405

Adjusted gross profit

$

93,105

$

100,671

$

183,384

$

194,874

Three Months

Six Months

Ended

Ended

December 31,

December 31,

2019

2020

2019

2020

Reconciliation from Operating income to Non-GAAP operating income:

Operating income

$

6,114

$

6,351

$

12,114

$

9,800

Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises

12,829

17,086

26,858

33,823

Amortization of acquired intangibles

562

940

1,125

1,784

Other items (1)

1,606

725

2,562

1,085

Non-GAAP operating income

$

21,111

$

25,102

$

42,659

$

46,492

Three Months

Six Months

Ended

Ended

December 31,

December 31,

2019

2020

2019

2020

Reconciliation from Net income to Non-GAAP net income:

Net income

$

5,467

$

9,642

$

19,373

$

22,102

Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises

12,829

17,086

26,858

33,823

Amortization of acquired intangibles

562

940

1,125

1,784

Other items (1)

1,606

725

2,562

1,085

Income tax effect on adjustments (2)

(423

)

(6,187

)

(9,551

)

(15,387

)

Non-GAAP net income

$

20,041

$

22,206

$

40,367

$

43,407

Three Months

Six Months

Ended

Ended

December 31,

December 31,

2019

2020

2019

2020

Calculation of Non-GAAP net income per share:

Non-GAAP net income

$

20,041

$

22,206

$

40,367

$

43,407

Diluted weighted-average number of common shares

55,826

56,343

55,692

56,122

Non-GAAP net income per share

$

0.36

$

0.39

$

0.72

$

0.77

Three Months

Six Months

Ended

Ended

December 31,

December 31,

2019

2020

2019

2020

Reconciliation from Net income to Adjusted EBITDA:

Net income

$

5,467

$

9,642

$

19,373

$

22,102

Interest expense

103

351

188

691

Income tax expense (benefit)

932

(3,670

)

(6,500

)

(12,938

)

Depreciation and amortization expense

9,328

10,836

18,261

21,071

EBITDA

15,830

17,159

31,322

30,926

Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises

12,829

17,086

26,858

33,823

Other items (1)

1,606

725

2,562

1,085

Adjusted EBITDA

$

30,265

$

34,970

$

60,742

$

65,834

Three Months

Six Months

Ended

Ended

December 31,

December 31,

2019

2020

2019

2020

Reconciliation of Non-GAAP Sales and Marketing:

Sales and marketing

$

37,293

$

37,775

$

74,250

$

75,449

Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises

3,393

4,019

7,737

8,367

Non-GAAP Sales and Marketing

$

33,900

$

33,756

$

66,513

$

67,082

Three Months

Six Months

Ended

Ended

December 31,

December 31,

2019

2020

2019

2020

Reconciliation of Non-GAAP Total Research and Development:

Research and Development

$

15,410

$

19,338

$

29,804

$

37,985

Capitalized internal-use software costs

5,425

6,948

12,139

14,832

Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises

1,783

2,765

3,583

5,616

Other items (3)

230

385

Non-GAAP Total Research and Development

$

19,052

$

23,291

$

38,360

$

46,816

Three Months

Six Months

Ended

Ended

December 31,

December 31,

2019

2020

2019

2020

Reconciliation of Non-GAAP General and Administrative:

General and Administrative

$

28,133

$

29,323

$

54,872

$

55,967

Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises

6,188

8,300

12,341

15,435

Amortization of acquired intangibles

562

940

1,125

1,784

Other items (1)

1,606

495

2,562

700

Non-GAAP General and Administrative

$

19,777

$

19,588

$

38,844

$

38,048

(1) Represents nonrecurring costs including acquisition-related and lease exit costs. Also includes the settlement of a certain legal matter and related litigation costs of $1.6 million and $2.0 million for the three and six months ended December 31, 2019, respectively.

(2) Income tax effect on adjustments: Includes the income tax effect on non-GAAP net income adjustments related to stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, amortization of acquired intangibles and other items.

(3) Represents certain nonrecurring acquisition-related costs.

CONTACT:
Ryan Glenn
investors@paylocity.com
www.paylocity.com