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Paylocity (PCTY) Q2 Loss Narrower than Expected, Revenues Top

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Paylocity Holding Corporation (PCTY - Free Report) reported fourth-quarter fiscal 2017 adjusted loss of 6 cents per share which was narrower than the Zacks Consensus Estimate loss of 10 cents per share.

Non-GAAP earnings during the quarter came in at 9 cents per share compared with a loss of 1 cent reported in the year-ago quarter.

Quarter Details

The company’s revenues came in at $76.1 million, reflecting an increase of 27% year over year, and also beat the Zacks Consensus Estimate of $74 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 27% surge in recurring revenues (96% of total revenue) and a 30.6% increase in implementation and other revenues.

The company’s non-GAAP gross profit came in at $47.1 million, up 32.5% year over year. Non-GAAP gross margin expanded 240 basis points (bps) year over year to 61.9%, primarily due to higher revenue base.

Paylocity reported non-GAAP operating income of $5.5 million as compared with a loss of 21k reported in the year-ago quarter. Non-GAAP operating margin during the quarter came in at 7.2%. Non-GAAP operating expenses are pegged at $41.9 million, up 14.5% year over year. As a percentage of revenues non-GAAP operating expenses contracted 600 bps year over year to 55.2%.

Consequently, non-GAAP net income during the quarter was $5.1 million compared with a loss of $0.393 million reported in the year-ago period.

Paylocity exited the quarter with cash and cash equivalents of $86.5 million compared with $101.5 million in the previous quarter. Receivables were $1.7 million compared with $2.2 million in the previous quarter.

Paylocity has no long-term debt. The company generated $62 million of cash flow from operational activities during the 12 months ended Jun 30, 2016.

Guidance

The company provided outlook for the first quarter and fiscal 2018. For first-quarter fiscal 2018, Paylocity expects revenues in the range of $80.3–$81.3 million. The Zacks Consensus Estimate is pegged at $80.3 million. Adjusted EBITDA is projected in the band of $12–$13 million. Non-GAAP earnings per share are anticipated to be in the range of 10–12 cents. The Zacks Consensus Estimate is pegged at a loss of 2 cents.

For fiscal 2018, Paylocity anticipates revenues in the range of $368–$370 million. The Zacks Consensus Estimate is pegged at $369.5 million. Adjusted EBITDA is projected in the range of $71–$72 million. Non-GAAP earnings per share are now expected within 78–80 cents. The Zacks Consensus Estimate stands at 31 cents.

Share Price

In the last one year, shares of Paylocity yielded a negative return of 4.8%, underperforming the industry, which gained 6.8%.

Our Take

Paylocity’s both top line and bottom line for the fourth quarter increased year over year. The company also provided an encouraging guidance for the first 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 - Free Report) , Oracle Corporation (ORCL - Free Report) and SAP SE (SAP - Free Report) 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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