It has been about a month since the last earnings report for Paylocity Holding Corporation (PCTY - Free Report) . Shares have added about 7.4% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is PCTY 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 catalysts.
Paylocity Beats on Q2 Earnings, Raises 2018 Guidance
Paylocity Holding 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.
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.
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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter compared to two lower.
At this time, PCTY has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for growth based on our styles scores.
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, PCTY has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.