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Paylocity (PCTY) Up 14% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Paylocity (PCTY - Free Report) . Shares have added about 14% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Paylocity Third-Quarter Fiscal 2020 Result

Paylocity delivered third-quarter fiscal 2020 non-GAAP earnings of 83 cents per share, outpacing the Zacks Consensus Estimate of 71 cents. The bottom line also came in significantly higher than the year-ago quarter’s 60 cents.

Additionally, Paylocity’s revenues of $172 million improved 23% year over year and also trumped the Zacks Consensus Estimate of $166 million. The top line was driven by a 25% rise in recurring revenues (97% of total revenues), which totaled $167.1 million. However, interest income on funds held for clients declined 26.6% to $4.6 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.

Quarter in Detail

The company’s non-GAAP gross profit came in at $129.9 million, up 23.4% year over year. Non-GAAP gross margin also expanded 20 basis points (bps) year over year to 75.7%, aided by consistent revenue growth and a steady scale in business model.

Adjusted EBITDA increased 24.5% from the year-ago quarter to $68.2 million. Also, adjusted EBITDA margin of 39.8% expanded 50 bps.

Non-GAAP operating income of $58.7 million climbed 26.4% year over year. Moreover, non-GAAP operating margin improved 90 bps to 34.2%.

Paylocity exited the reported quarter with cash, cash equivalents and corporate investments of $180.6 million compared with the  $145.7 million witnessed in the prior quarter. Additionally, as of Mar 31, 2020, the company had no long-term debt and has not withdrawn any amount from its credit facilities.

Cash flow from operations for the fiscal third quarter was $50.7 million compared with the $27.8 million recorded in the prior quarter and $44.9 million in the year-ago period.

Guidance

For the fiscal fourth quarter, Paylocity expects revenues of $121-$131 million, indicating 5% growth from the year-ago reported figure at mid-point. Adjusted EBITDA is projected in the band of $14-$22 million.

However, the company lowered its fiscal 2020 outlook. Paylocity now anticipates revenues in the bracket of $551.7-$561.7 million, down from the $572.5-$573.5 million predicted earlier. The adjusted EBITDA guidance range has been lowered to $143-$151 million from the previous range of $163.5-$165.5 million.

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months. The consensus estimate has shifted -95.54% due to these changes.

VGM Scores

Currently, Paylocity has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, 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.

Outlook

Paylocity has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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