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Paylocity (PCTY) Beats on Q2 Earnings, Raises 2018 Guidance

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Paylocity Holding (PCTY - Free Report) reported second-quarter fiscal 2018 non-GAAP earnings of 16 cents per share, which surpassed the Zacks Consensus Estimate of 12 cents per share. Non-GAAP earnings also increased from 10 cents reported in the year-ago quarter.

Quarter Details

The company’s revenues came in at $86 million, reflecting an increase of 25% year over year, and also marginally beat the Zacks Consensus Estimate of $85 million. The year-over-over increase was driven by new client additions, existing client growth and additions to HCM product suite, better market penetration as well as an increment in interest income on “funds held for clients”.

The top line was also driven by a 25.7% surge in recurring revenues (96.6% of total revenues) and a 13.7% increase in implementation and other revenues.

The company’s non-GAAP gross profit came in at $5.6 million, up 30.2% year over year. Non-GAAP gross margin expanded 230 basis points (bps) year over year to 62.3%, primarily due to higher revenue base and accelerated market penetration of low implementation cost-based HCM products.

Management stated that the company’s R&D expenditure had been going up but has positively impacted the adoption and usage rate of its platform. Notably, during the quarter, Paylocity witnessed over a million users using the platform in a single month and this marked a new record for the company.

Adjusted EBITDA increased 54.5% from the year-ago quarter to $15.2 million. Management stated that the EBITDA figure was impressive and encouraged it to invest further in sales and marketing initiatives in the second part of fiscal 2018 as well as in 2019.

Consequently, non-GAAP net income during the quarter was $9 million compared with $5.4 million reported in the year-ago period.

Paylocity exited the quarter with cash and cash equivalents of $110 million compared with $103.5 million in the previous quarter. Receivables for the first half of fiscal 2018 were $2.74 million.

The company has no long-term debt. It generated $26 million of cash flow from operational activities during the quarter.

Paylocity Holding Corporation Price, Consensus and EPS Surprise

Paylocity Holding Corporation Price, Consensus and EPS Surprise | Paylocity Holding Corporation Quote

Guidance

The company provided outlook for the third quarter and fiscal 2018. For third-quarter fiscal 2018, Paylocity expects revenues in the range of $110-$111 million. The Zacks Consensus Estimate is pegged at $110.4 million. Adjusted EBITDA is projected in the band of $32.3-$33.3 million. Non-GAAP earnings per share are anticipated to be in the range of 45-47 cents. The Zacks Consensus Estimate is pegged at 45 cents.

The company raised guidance for fiscal 2018. Paylocity now anticipates revenues in the range of $369-$371 million (previous guidance $368.5-$370.5 million). The Zacks Consensus Estimate is pegged at $369.8 million. Adjusted EBITDA is now projected in the range of $76-$77 million (previous guidance $74-$75 million). Non-GAAP earnings per share are now anticipated within 87-89 cents (previous guidance 84-85 cents). The Zacks Consensus Estimate is pegged at 87 cents.

Additionally, management noted that currently, “Paylocity is not a payer of corporate federal income tax”. But the company is continuously reviewing the impact that the new tax reforms might have on financials.

Bottom Line

Paylocity’s second-quarter 2018 results came ahead of management’s expectation on the back of accelerated adoption of the company’s enriched product suite.

Notably, management was particularly optimistic about the way in which its workforce handled increased customer interaction in December and January, pertaining to inquiries related to year-end payrolls and tax filing forms among others.

They were also positive about the investments related to the modernization of the work environment, which is expected to result in employee satisfaction and improve customer experience.

Furthermore, with a host of new features being added to its platform for delivering HR experience that meets the needs of the dynamic industry, management is hopeful about Paylocity maintaining its momentum going ahead.

Zacks Rank and Key Picks

Paylocity carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Micron Technology, Inc. (MU - Free Report) , Lam Research Corporation (LRCX - Free Report) and Twitter, Inc. , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term EPS growth rate for Micron, Lam Research and Twitter are projected to be 10%, 14.9% and 21.5%, respectively.

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