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Paylocity (PCTY) Beats on Q1 Earnings, Raises 2020 Guidance

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Paylocity Holding (PCTY - Free Report) delivered first-quarter fiscal 2020 non-GAAP earnings of 36 cents per share, topping the Zacks Consensus Estimate of 27 cents. The bottom line was also way higher than the year-ago quarter’s 20 cents.

Additionally, Paylocity’s revenues of $126.7 million improved 26% year over year and also trumped the Zacks Consensus Estimate of $117 million.

The company is benefiting from the growing adoption of its solutions among clients with less than 50 employees. Moreover, healthy momentum in the company’s core and upper end of the market is a tailwind.

Further, the release of Learning Management System and Community portal, which garnered a positive feedback from clients, is encouraging. Also, the addition of on-demand pay to its portfolio is likely to boost client wins going forward.

The better-than-expected earnings coupled with a bullish guidance by management for the full year are expected to buoy investor confidence in the stock. Nonetheless, the near-term headwinds to margin given the lower interest rate are a concern.

Quarter in Detail

Paylocity’s top line was driven by a 26% rise in recurring revenues (96% of total revenues), which totaled $121.9 million. Interest income on funds held for clients jumped 38.4% to $4.85 million.

Growing momentum from the company’s new product offerings is reflected in client additions while an increase in average revenue per client is boosting recurring revenues. Further, channel referrals, mainly from benefit brokers and financial advisors, represented more than 25% of new business in the reported quarter.

Partnerships in the technology space with computer software provider Compete and the microsavings tech company EvoShare were noteworthy in the period.

The company’s non-GAAP gross profit came in at $90.3 million, up 28.3% year over year. Non-GAAP gross margin also expanded 120 basis points (bps) year over year to 71.2%, aided by consistent revenue growth and a steady scale in business model.

Adjusted EBITDA surged 30.9% from the year-ago quarter to $30.5 million. Also, adjusted EBITDA margin of 24.1% expanded 100 basis points.

Non-GAAP operating income of $21.5 million soared 40.6% year over year.

Paylocity exited the reported quarter with cash and cash equivalents of $100.5 million compared with $132.5 million in the earlier reported quarter.

Cash flow from operations for the fiscal first quarter was $8.3 million compared with $7.3 million in the year-ago period.

Guidance

For the fiscal second quarter, Paylocity expects revenues in the range of $129.5-$130.5 million, indicating 21-22% growth from the year-ago reported figure. Adjusted EBITDA is projected in the band of $30-$31 million.

For fiscal 2020, the company anticipates revenues in the bracket of $567-$569 million, up from $563.5-$565.5 million predicted earlier. Adjusted EBITDA is forecast within $163.5-$165.5, up from $161.5-$163.5 million envisioned earlier.

Lower interest rate and sluggish macroeconomic issues are a concern. The company’s guidance takes into account the 25 bps rate cut announced by the Fed.

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 Benefitfocus (BNFT - Free Report) , Five9, Inc. (FIVN - Free Report) and Square (SQ - Free Report) , each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Benefitfocus and Square are scheduled to report earnings on Nov 6 while Five9 will announce the same on Nov 5.

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