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Paylocity (PCTY) Up 5% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Paylocity (PCTY). Shares have added about 5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Paylocity due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Paylocity Reports Solid Q3 Results

Paylocity delivered third-quarter fiscal 2019 non-GAAP earnings of 60 cents per share, topping the Zacks Consensus Estimate by a penny. The bottom line was also way higher than the year-ago quarter’s 15 cents.

Paylocity’s revenues of $140 million improved 25% year over year and also trumped the Zacks Consensus Estimate of $136 million. New client additions, improved HCM product penetration and a rise in interest income on client funds were key drivers.

Quarter in Detail

Paylocity’s top line was driven by a 25% rise in recurring revenues (98% of total revenues), which totaled $136.2 million. Recurring revenues increased on the back of 22.8% growth in recurring fees and a 127.9% jump in interest income on client funds.

Robust client adoption, including more than 60,000 unique logins, of Paylocity Education and Knowledge launched last November, is a tailwind.

However, Implementation services and other revenues of $3.4 million plunged 30% year over year.

The company’s non-GAAP gross profit came in at $105.3 million, up 32.3% year over year. Non-GAAP gross margin expanded 530 basis points (bps) year over year to 75.5%, aided by consistent revenue growth and a steady scale in business model.

Adjusted EBITDA soared 53.3% from the year-ago quarter to $54.8 million.

Non-GAAP operating income was $46.4 million compared with $28.7 million a year ago.

Balance Sheet and Cash Flow

Paylocity exited the quarter with cash and cash equivalents of $90.9 million compared with $137.2 million in the earlier reported quarter.

During the quarter under review, the company generated operating cash flow of $44.9 million compared with $26 million in the prior quarter.

Guidance

The company provided guidance for the fourth quarter and fiscal 2019. For the fiscal fourth quarter, Paylocity expects revenues in the range of $116.7-$117.7 million, indicating 22% growth from the year-ago reported figure. Adjusted EBITDA is projected in the band of $27.3-$28.3 million.

For fiscal 2019, the company now anticipates revenues in the bracket of $464-$465 million, up from $459-$460 million predicted in the past.

Adjusted EBITDA is forecast within $131.5-$132.5 million, up from the previous outlook of $129-$130 million.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -13.51% due to these changes.

VGM Scores

At this time, Paylocity has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Paylocity has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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