It has been about a month since the last earnings report for Paylocity (PCTY - Free Report) . Shares have added about 0.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Paylocity 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 drivers.
Paylocity Reports Solid Q2 Results
Paylocity 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.
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.
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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 13.15% due to these changes.
At this time, Paylocity has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Paylocity has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.