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Paylocity (PCTY)) Q2 Earnings Beat Estimates, '19 View Bullish

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Paylocity Holding (PCTY - Free Report) delivered second-quarter fiscal 2019 non-GAAP earnings of 23 cents per share, which topped the Zacks Consensus Estimate by a penny and also surged 43.8% from the year-ago quarter.

Paylocity’s revenues of $107.2 million improved 26% year over year and also trumped the Zacks Consensus Estimate of $105 million.

The better-than-expected earnings coupled with a bullish guidance by the management for the third quarter of fiscal 2019 and full year are expected to buoy investor confidence in the stock.

Notably, shares of Paylocity rose 3.48% at the close of trading session yesterday. The stock has soared 67.4% in the past year, substantially outperforming the industry’s growth of 14.4%.

Quarter in Detail

Paylocity’s top line was driven by a 26% rise in recurring revenues (98% of total revenues), which totaled $104.7 million. Recurring revenues increased on the back of 23.4% growth in recurring fees and 150.4% jump in interest income on client funds, driven by higher balances, solid average interest rates and the part spending of client funds on “high quality available-for-sale securities during the quarter.”

On the conference call, management mentioned that the company is witnessing more success in the under-50 market and seeing more demand for the broader HCM (Human capital management) suite. Significant growth in adoption of HCM products via mobile apps by employees and managers as compared to the online portal is expected to be a key growth catalyst.

However, Implementation services and other revenues of $2.5 million declined 15.9% year over year.

Paylocity Holding Corporation Price, Consensus and EPS Surprise

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


The company’s non-GAAP gross profit came in at $74.9 million, up 39.6% year over year. Non-GAAP gross margin expanded 750 basis points year over year to 69.8%, aided by consistent revenue growth and scale in business model.

Adjusted EBITDA soared 71.2% from the year-ago quarter to $26.1 million.

Non-GAAP operating income was $17.7 million compared with $8.7 million a year ago.

Balance Sheet and Cash Flow

Paylocity exited the quarter with cash and cash equivalents of $137.2 million compared with $63.7 million in the earlier reported quarter.

During the quarter under review, the company generated operating cash flow of $27 million compared with $7.3 million in the prior-year quarter.


The company provided guidance for the third quarter and fiscal 2019. For the fiscal third quarter, Paylocity expects revenues in the range of $135-$136 million, indicating 22% growth year over year. The current Zacks Consensus Estimate is pegged at $134.5 million. Adjusted EBITDA is projected in the band of $52-$53 million.

For fiscal 2019, the company now anticipates revenues in the range of $459-$460 million, up from $453-$455 million predicted in the past. The current Zacks Consensus Estimate stands at $454.5 million.

Adjusted EBITDA is forecast in the range of $129-$130 million, up from the previous guidance of $126.5-$128.5 million.

The company estimates TPA solutions to become more meaningful in the next fiscal year.

Zacks Rank and Stocks to Consider

Paylocity currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader technology sector are Twitter, Inc. (TWTR - Free Report) , MeetMe, Inc. (MEET - Free Report) and Verint Systems Inc. (VRNT - Free Report) , each sporting 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 Twitter, MeetME and Verint is projected at 22%, 20% and 10%, respectively.

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