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Paylocity (PCTY) Q4 Earnings Surpass Estimates, Improve Y/Y

Zacks Equity Research

Paylocity Holding PCTY delivered fourth-quarter fiscal 2019 non-GAAP earnings of 34 cents per share, topping the Zacks Consensus Estimate of 25 cents. The bottom line was also way higher than the year-ago quarter’s 11 cents.

Additionally, Paylocity’s revenues of $120 million improved 25% year over year and also trumped the Zacks Consensus Estimate of $117 million.

The company is benefiting from the growing adoption of its HCM solutions among clients with less than employees. Moreover, healthy momentum in the company’s core and upper end of the market is also a tailwind.

Further, the release of Learning Management System, which garnered a positive feedback from clients, is encouraging. Also, the addition of on-demand pay to its portfolio is likely to boost client wins going forward.

The better-than-expected earnings coupled with a bullish guidance by the management for the first quarter of fiscal 2020 and the full year are expected to buoy investor confidence in the stock.

Notably, shares of Paylocity have soared 68.4% so far this year, substantially outperforming the industry’s rally of 29.1%.



Quarter in Detail

Paylocity’s top line was driven by a 26% rise in recurring revenues (97% of total revenues), which totaled $116.7 million. Recurring revenues increased on the back of 23.3% growth in recurring fees and a 92.2% jump in interest income on client funds.

However, Implementation services and other revenues of $3.7 million inched up 1.6% year over year.

The company’s non-GAAP gross profit came in at $85.7 million, up 36.3% year over year. Non-GAAP gross margin also expanded 570 basis points (bps) year over year to 71.2%, aided by consistent revenue growth and a steady scale in business model.

Adjusted EBITDA soared 90.3% from the year-ago quarter to $29.9 million. Also, adjusted EBITDA margin of 24.8% expanded 850 basis points.

Non-GAAP operating income was $21.4 million compared with $8.1 million a year ago.

Paylocity exited the quarter with cash and cash equivalents of $132.5 million compared with $90.9 million in the earlier reported quarter.

Paylocity Holding Corporation Price, Consensus and EPS Surprise

Paylocity Holding Corporation Price, Consensus and EPS Surprise

Paylocity Holding Corporation price-consensus-eps-surprise-chart | Paylocity Holding Corporation Quote

Fiscal 2019 Highlights

The company reported revenues of $467.6 million, up 26% year over year.

Recurring revenues (98% of total revenues) comprising recurring fees and interest income on funds held for clients increased 26% year over year to $467.6 million in fiscal 2019.

Recurring fees, attributable to the company's cloud-based payroll and HCM solutions, accounted for 93.4% of total revenues while Interest Income on Funds Held for Clients contributed 4.3%.  Implementation services and other revenues generated 2.3%.

Adjusted EBITDA was $134 million while adjusted EBITDA margin was 28.7%.

Paylocity generated approximately $115 million cash from operating activities in fiscal 2019 compared with $97.9 million in the prior fiscal.

Free cash flow was $76.1 million or 16.3% of revenues for fiscal 2019 compared with $48.8 million or 12.9% of revenues in fiscal 2018. Further, the company achieved its target free cash flow range of 15-20% of revenues.

The company ended the fiscal with 20,200 clients, reflecting a 21% rise from the last fiscal.

Guidance

For the fiscal first quarter, Paylocity expects revenues in the range of $123.5-$124.5 million, indicating 23-24% growth from the year-ago reported figure. This is higher than the current Zacks Consensus Estimate pegged at $122.8 million. Adjusted EBITDA is projected in the band of $28.1-$29.1 million.

For fiscal 2020, the company anticipates revenues in the bracket of $563.5-$565.5 million. The current Zacks Consensus Estimate for the metric stands at $562.5 million.

Adjusted EBITDA is forecast within $161.5-$163.5 million.

Zacks Rank and Other Stocks to Consider

Paylocity currently carries a Zacks Rank #2 (Buy). A few other top-ranked stocks in the broader technology sector are Anixter International AXE, LogMeIn LOGM and Perficient PRFT, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Anixter, LogMeIn and Perficient is currently projected to be 8%, 5% and 10.8%, respectively.

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