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Paylocity (PCTY) Q1 Earnings & Revenues Top, Raises '18 View

Zacks Equity Research

Paylocity Holding Corporation PCTY reported first-quarter fiscal 2018 non-GAAP earnings of 15 cents per share which surpassed the Zacks Consensus Estimate of 11 cents per share. Non-GAAP earnings also increased from 7 cents reported in the year-ago quarter.

Quarter Details

The company’s revenues came in at $81.5 million, reflecting an increase of 25% year over year, and also marginally beat the Zacks Consensus Estimate of $81 million. The year-over-over increase was driven by new client addition, existing client growth and additions to HCM product suite.

The top line was also backed by a 26% surge in recurring revenues (97% of total revenues) and an 8.6% increase in implementation and other revenues.

The company’s non-GAAP gross profit came in at $51.1 million, up 30.1% year over year. Non-GAAP gross margin expanded 230 basis points (bps) year over year to 62.7%, primarily due to higher revenue base.

Non-GAAP operating expenses are pegged at $43.3 million, up 18.8% year over year. As a percentage of revenues non-GAAP operating expenses contracted 300 bps year over year to 53.1%. This in turn positively impacted the operating results.

Paylocity reported non-GAAP operating income of $8.2 million as compared with $4 million reported in the year-ago quarter. Non-GAAP operating margin during the quarter came in at 10% as compared with 6.2% reported in the year-ago period.

Consequently, non-GAAP net income during the quarter was $8.2 million compared with $3.9 million reported in the year-ago period.

Paylocity exited the quarter with cash and cash equivalents of $103.5 million compared with $86.5 million in the previous quarter. Receivables were $2 million compared with $1.7 million in the previous quarter.

The companyhas no long-term debt. Itgenerated $1.9 million of cash flow from operational activities during the quarter.

Guidance

The company provided outlook for the second quarter and fiscal 2018. For second-quarter fiscal 2018, Paylocity expects revenues in the range of $84.3-$85.3 million. The Zacks Consensus Estimate is pegged at $84.9 million. Adjusted EBITDA is projected in the band of $12.5-$13.5 million. Non-GAAP earnings per share are anticipated to be in the range of 11-13 cents. The Zacks Consensus Estimate is pegged at 12 cents.

The company raised guidance for fiscal 2018. Paylocity now anticipates revenues in the range of $368.5-$370.5 million (previous guidance $368-$370 million). The Zacks Consensus Estimate is pegged at $369.3 million. Adjusted EBITDA is now projected in the range of $74-$75 million (previous guidance $71-$72 million). Non-GAAP earnings per share are now anticipatedwithin 84-85 cents (previous guidance78-80 cents). The Zacks Consensus Estimate is peggedat 81 cents.

Share Price

In the last year, shares of Paylocity yielded a return of 43.1%, outperforming the industry‘s gain of 24.3%.

Our Take

The company reported stellar first-quarter results. Further, it’s both top and bottom line for the quarter increased year over year. The company also provided an encouraging guidance for the second quarter and fiscal 2018.

We remain positive about Paylocity’s regular investments in SaaS technology. Notably, in the last few quarters, clients moving from traditional payroll service providers to the company’s SaaS-based services generated a significant portion of Paylocity’s revenues. Consequently, we believe that regular investments in technological upgrades, along with product innovations, will continue to boost the top line in the long run. Such initiatives are also likely to have positive impact on its forthcoming results.

Furthermore, higher adoption of Paylocity’s ACA dashboard application, which specializes in tracking employee count, employee status and health care plan affordability, will act as a tailwind.

However, competition in the payroll processing sector from new entrants as well as existing players such as Automatic Data Processing, Inc. ADP , Oracle Corporation ORCL and SAP SE SAP remain major headwinds.

Currently, Paylocity carry a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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