PCTY
$64.90
Paylocity Hldng
($.36)
(.55%)
Earnings Details
3rd Quarter March 2018
Thursday, May 3, 2018 4:30:00 PM
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Summary

Paylocity Sees Revenue Above Estimates

Paylocity Hldng (PCTY) reported 3rd Quarter March 2018 earnings of $0.38 per share on revenue of $113.4 million. The consensus earnings estimate was $0.31 per share on revenue of $110.6 million. Revenue grew 25.6% on a year-over-year basis.

The company said it expects fourth quarter revenue of $92.6 million to $93.6 million. The current consensus revenue estimate is $92.3 million for the quarter ending June 30, 2018.

Paylocity Holding Corp is a provider of cloud-based payroll and human capital management, or HCM, software solutions for medium-sized organizations.

Results
Reported Earnings
$0.38
Earnings Whisper
-
Consensus Estimate
$0.31
Reported Revenue
$113.4 Mil
Revenue Estimate
$110.6 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Paylocity Announces Third Quarter Fiscal Year 2018 Financial Results

ARLINGTON HEIGHTS, Ill., May 03, 2018 (GLOBE NEWSWIRE) -- Paylocity Holding Corporation (NASDAQ:PCTY), a cloud-based provider of payroll and human capital management software solutions, announced today financial results for the third quarter of fiscal year 2018, which ended March 31, 2018.

“We had a strong third quarter with total revenue growth of 26 percent, while also driving improved leverage across all of our key financial metrics,” said Steve Beauchamp, Chief Executive Officer of Paylocity. “The third quarter is traditionally the busiest time of the year for our Operations teams, and I was pleased with our ability to work proactively with our clients to ensure year-end tasks were completed timely and accurately. We also completed the acquisition of third-party benefits administrator BeneFLEX in the quarter, which will allow us to expand our product portfolio and provide additional solutions to our clients, prospects, and the insurance broker community.”

Third Quarter Fiscal 2018 Financial Highlights

Revenue:

  • Total revenue was $113.4 million, an increase of 26% from the third quarter of fiscal year 2017.

  • Total recurring revenue was $108.6 million, representing 96% of total revenue and an increase of 26% from the third quarter of fiscal year 2017.

Operating Income:

  • GAAP operating income was $20.5 million, compared to an operating income of $14.9 million in the third quarter of fiscal year 2017.

  • Non-GAAP operating income was $28.7 million, compared to non-GAAP operating income of $21.7 million in the third quarter of fiscal year 2017.

Net Income:

  • GAAP net income was $39.2 million, which includes a non-cash income tax benefit of $18.5 million, primarily related to the release of substantially all of the valuation allowance against deferred tax assets. This compares to a net income of $14.8 million for the third quarter of fiscal year 2017. Net income per share was $0.71 for the third quarter of fiscal year 2018 based on 55.0 million diluted weighted average common shares outstanding. Net income per share was $0.27 for the third quarter of fiscal year 2017, based on 54.0 million diluted weighted average common shares outstanding.

Adjusted EBITDA:

  • Adjusted EBITDA, a non-GAAP measure, was $35.8 million compared to Adjusted EBITDA of $26.8 million in the third quarter of fiscal year 2017.

Balance Sheet and Cash Flow:

  • Cash and cash equivalents totaled $129.5 million at the end of the quarter.
     
  • Cash flow from operations for the third quarter of fiscal year 2018 was $35.2 million compared to $27.9 million for the third quarter of fiscal year 2017.

A reconciliation of GAAP to non-GAAP financial measures has been provided in this press release, including the accompanying tables. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”

Business Outlook
Based on information available as of May 3, 2018, Paylocity is issuing guidance for the fourth quarter and full fiscal year 2018 as indicated below.

Fourth Quarter 2018:

  • Total revenue is expected to be in the range of $92.6 million to $93.6 million.
  • Adjusted EBITDA is expected to be in the range of $14.0 million to $15.0 million.

Fiscal Year 2018:

  • Total revenue is expected to be in the range of $373.5 million to $374.5 million.
  • Adjusted EBITDA is expected to be in the range of $79.6 million to $80.6 million.

We are unable to reconcile forward-looking non-GAAP financial measures to their directly comparable GAAP financial measures because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort.

Conference Call Details
Paylocity will host a conference call to discuss its third quarter fiscal year 2018 results at 4:00 p.m. Central Time today (5:00 Eastern Time). A live audio webcast of the conference call, together with detailed financial information, can be accessed through the company's Investor Relations Web site at http://www.paylocity.com. Participants who choose to call in to the conference call can do so by dialing (855) 226-3021 or (315) 625-6892, passcode 5298897. A replay of the call will be available and archived via webcast at www.paylocity.com.

About Paylocity
Paylocity is a provider of cloud-based payroll and human capital management, or HCM,
software solutions. Paylocity’s comprehensive and easy-to-use solutions enable its clients to manage their workforces more effectively.  Paylocity’s solutions help drive strategic human capital decision-making and improve employee engagement by enhancing the human resource, payroll and finance capabilities of its clients. For more information, visit www.paylocity.com.

Non-GAAP Financial Measures
The company uses certain non-GAAP financial measures in this release, including Adjusted EBITDA, adjusted gross profit, adjusted recurring gross profit, non-GAAP operating income (loss), non-GAAP sales and marketing, non-GAAP total research and development and non-GAAP general and administrative. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. We define Adjusted EBITDA as net income (loss) before interest expense, income tax expense (benefit), and depreciation and amortization expense, adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, and acquisition-related costs. Adjusted gross profit and adjusted recurring gross profit are adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises and amortization of capitalized internal-use software costs. Non-GAAP operating income (loss) is adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, the amortization of acquired intangibles and acquisition-related costs. Non-GAAP sales and marketing expense is adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises. Non-GAAP total research and development is adjusted for capitalized internal-use software costs and to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises.  Non-GAAP general and administrative expense is adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, the amortization of acquired intangibles and acquisition-related costs. Please note that other companies may define their non-GAAP financial measures differently than we do. Management presents certain non-GAAP financial measures in this release because it considers them to be important supplemental measures of performance. Management uses these non-GAAP financial measures for planning purposes, including analysis of the company's performance against prior periods, the preparation of operating budgets and to determine appropriate levels of operating and capital investments. Management believes that these non-GAAP financial measures provide additional insight for analysts and investors in evaluating the company's financial and operational performance. Management also intends to provide these non-GAAP financial measures as part of the company’s future earnings discussions and, therefore, the inclusion of the non-GAAP financial measures should provide consistency in the company’s financial reporting. Non-GAAP financial measures have limitations as an analytical tool. Investors are encouraged to review the reconciliation of the non-GAAP measures to their most directly comparable GAAP measures provided in this release.

Acquisition-related costs: Includes legal, accounting and other professional fees as well as various other costs directly associated with acquisitions.

Safe Harbor/forward looking statements
This press release contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included herein regarding Paylocity’s future operations, ability to scale its business, future financial position and performance, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” “would,” “seek” and similar expressions (or the negative of these terms) are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about management's estimates regarding future revenues and financial performance and other statements about management’s beliefs, intentions or goals.  Paylocity may not actually achieve the expectations disclosed in the forward-looking statements, and you should not place undue reliance on Paylocity’s forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results or events to differ materially from the expectations disclosed in the forward-looking statements, including, but not limited to, risks related to regulatory, legislative and judicial uncertainty in Paylocity’s markets, including the potential repeal or replacement of the Affordable Care Act; Paylocity’s ability to retain existing clients and to attract new clients to enter into subscriptions for its services; Paylocity’s ability to sell new products and retain subscriptions for its existing products to its new and existing clients; the challenges associated with a growing company’s ability to effectively service clients in a dynamic and competitive market; challenges associated with expanding and evolving a sales organization to effectively address new geographies and products and services; Paylocity’s reliance on and ability to expand its referral network of third parties; difficulties associated with accurately forecasting revenue and appropriately planning expenses; challenges with managing growth effectively; difficulties in forecasting Paylocity’s tax position, including but not limited to the assessment of the need for a valuation allowance against its deferred tax position; potential adverse tax consequences to Paylocity as a result of the recently enacted Federal Tax Cut and Jobs Act; continued acceptance of SaaS as an effective method for delivery of payroll and HCM solutions; Paylocity’s ability to protect and defend its intellectual property; the risk that Paylocity’s security measures are compromised or the unauthorized access to customer data; unexpected events in the market for Paylocity’s solutions; changes in the competitive environment in Paylocity’s industry and the markets in which it operates; adverse changes in general economic or market conditions; changes in the employment rates of Paylocity’s clients and the resultant impact on revenue; and other risks and potential factors that could affect Paylocity’s business and financial results identified in Paylocity’s filings with the Securities and Exchange Commission (the “SEC”), including its 10-K filed with the SEC on August 11, 2017.  Additional information will also be set forth in Paylocity’s future quarterly reports on Form 10-Q, annual reports on Form 10-K and other filings that Paylocity makes with the SEC.  These forward-looking statements represent Paylocity’s expectations as of the date of this press release. Subsequent events may cause these expectations to change, and Paylocity disclaims any obligations to update or alter these forward-looking statements in the future, whether as a result of new information, future events or otherwise.

PAYLOCITY HOLDING CORPORATION
 Unaudited Consolidated Balance Sheets
 (in thousands, except per share data)

  June 30, March 31, 
Assets  2017   2018 
Current assets:     
Cash and cash equivalents $103,468  $129,530 
Accounts receivable, net  2,040   3,384  
Prepaid expenses and other  14,879   16,921  
      
Total current assets before funds held for clients  120,387   149,835  
Funds held for clients  942,459   1,347,522  
      
Total current assets  1,062,846   1,497,357  
Long-term prepaid expenses  1,535   1,022  
Capitalized internal-use software, net  17,394   20,002  
Property and equipment, net  40,756   50,380  
Intangible assets, net  8,907   13,457  
Goodwill  6,003   9,754  
Deferred income tax assets, net     18,906  
Total assets $1,137,441  $1,610,878  
      
Liabilities and Stockholders’ Equity     
Current liabilities:     
Accounts payable $2,046  $2,371  
Accrued expenses  30,301   35,474  
      
Total current liabilities before client fund obligations  32,347   37,845  
Client fund obligations  942,459   1,347,522  
      
Total current liabilities  974,806   1,385,367  
Deferred rent  14,621   20,963  
Deferred income tax liabilities, net  401     
      
Total liabilities $989,828  $1,406,330  
Stockholders’ equity:     
Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding at June 30, 2017 and March 31, 2018  $—   $—  
Common stock, $0.001 par value, 155,000 shares authorized at June 30, 2017 and March 31, 2018; 51,738 shares issued and outstanding at June 30, 2017 and 52,649 shares issued and outstanding at March 31, 2018  52   53  
Additional paid-in capital  192,837   209,791  
Accumulated deficit  (45,276)  (5,125) 
Accumulated other comprehensive loss     (171) 
Total stockholders’ equity $147,613  $204,548  
Total liabilities and stockholders’ equity $1,137,441  $1,610,878  
 

PAYLOCITY HOLDING CORPORATION
Unaudited Consolidated Statements of Operations and Comprehensive Income
 (in thousands, except per share data)

  Three months ended 
March 31,
 Nine months ended 
March 31,
 
   2017   2018   2017   2018  
Revenues:         
Recurring fees $85,314  $105,857  $212,581  $264,443  
Interest income on funds held for clients  1,041   2,719   2,489   6,119  
Total recurring revenues  86,355   108,576   215,070   270,562  
Implementation services and other  3,918   4,831   8,879   10,349  
Total revenues  90,273   113,407   223,949   280,911  
Cost of revenues:         
Recurring revenues  22,436   26,982   62,255   76,711  
Implementation services and other  9,646   11,670   28,569   33,740  
Total cost of revenues  32,082   38,652   90,824   110,451  
Gross profit  58,191   74,755   133,125   170,460  
Operating expenses:         
Sales and marketing  21,242   26,004   56,988   68,782  
Research and development  6,969   9,058   21,492   27,227  
General and administrative  15,100   19,228   43,915   53,338  
Total operating expenses  43,311   54,290   122,395   149,347  
Operating income  14,880   20,465   10,730   21,113  
Other income (expense)  (47)  215   (4)  465  
Income before income taxes  14,833   20,680   10,726   21,578  
Income tax expense (benefit)  32   (18,497)  164   (18,573) 
Net income $14,801  $39,177  $10,562  $40,151  
Other comprehensive loss, net of tax         
Unrealized losses on securities, net of tax     (61)     (171) 
Total other comprehensive loss, net of tax     (61)     (171) 
Comprehensive income $14,801  $39,116  $10,562  $39,980  
          
Net income per share:         
Basic $0.29  $0.74  $0.21  $0.77  
Diluted$0.27 $0.71  $0.20  $0.73 
Weighted-average shares used in computing net income per share:         
Basic  51,447   52,615   51,353   52,334  
Diluted 54,002  55,030   53,987   54,717 

Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises are included in the above line items:

 Three months ended
March 31,
Nine months ended
March 31,
 2017 2018 2017 2018 
Cost of revenue - recurring$514$763$1,719$2,253 
Cost of revenue -  implementation services and other 373 394 1,094 1,228 
Sales and marketing 1,750 1,593 5,044 5,856 
Research and development 831 983 2,608 3,036 
General and administrative 2,950 3,959 8,798 10,820 
Total$6,418$7,692$19,263$23,193 
      

PAYLOCITY HOLDING CORPORATION
Unaudited Consolidated Statements of Cash Flows
 (in thousands)

  Nine Months Ended
March 31,
 
   2017   2018  
Cash flows from operating activities:     
      
Net income $10,562  $40,151  
Adjustments to reconcile net income to net cash provided by operating activities:     
Stock-based compensation expense  18,695   21,891  
Depreciation and amortization expense  14,685   20,640  
Deferred income tax expense (benefit)  127   (18,603) 
Provision for doubtful accounts  47   149  
Net accretion of discounts and amortization of premiums on available-for-sale securities     (234) 
Net realized losses on sales of available-for-sales securities     2  
Loss on disposal of equipment  225   160  
Changes in operating assets and liabilities:     
Accounts receivable  (543)  (1,278) 
Prepaid expenses and other  (1,802)  (1,678) 
Accounts payable  (145)  429  
Accrued expenses  1,484   1,762  
Tenant improvement allowance  -   5,952  
Net cash provided by operating activities  43,335   69,343  
      
Cash flows from investing activities:     
Purchases of available-for-sale securities from funds held for clients     (126,223) 
Proceeds from sales and maturities of available-for-sale securities from funds held for clients     51,292  
Net change in funds held for clients’ cash and cash equivalents  69,281   (328,462) 
Capitalized internal-use software costs  (10,073)  (11,442) 
Purchases of property and equipment  (13,916)  (9,374) 
Lease allowances used for tenant improvements     (7,086) 
Acquisition of business, net of cash acquired     (8,346) 
Net cash provided by (used in) investing activities  45,292   (439,641) 
      
Cash flows from financing activities:     
Net change in client fund obligations  (69,281)  403,375  
Proceeds from employee stock purchase plan  1,823   2,045  
Taxes paid related to net share settlement of equity awards  (6,215)  (9,060) 
Net cash provided by (used in) financing activities  (73,673)  396,360  
Net Change in Cash and Cash Equivalents  14,954   26,062  
Cash and Cash Equivalents—Beginning of Period  86,496   103,468  
Cash and Cash Equivalents—End of Period $101,450  $129,530  
Supplemental Disclosure of Non-Cash Investing and Financing Activities     
Purchase of property and equipment and internal–use software, accrued but not paid $1,714  $2,832  
Supplemental Disclosure of Cash Flow Information     
Cash paid for income taxes, net of refunds $41  $17  
 


Paylocity Holding Corporation 
Reconciliation of GAAP to non-GAAP Financial Measures 
(In thousands except per share data) 
       
 Three months
Ended
March 31,
 Nine months
Ended
March 31,
 
  2017 2018   2017 2018  
Reconciliation from gross profit to adjusted gross profit:      
Gross profit$58,191$74,755  $133,125$170,460  
Amortization of capitalized internal-use software costs 2,573 3,655   6,207 10,358  
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 887 1,157   2,813 3,481  
Adjusted gross profit$61,651$79,567  $142,145$184,299  
       
 Three months
Ended
March 31,
 Nine months
Ended
March 31,
 
  2017 2018   2017 2018  
Reconciliation from total recurring revenues to adjusted recurring gross profit:      
Total recurring revenues$86,355$108,576  $215,070$270,562  
Cost of recurring revenues 22,436 26,982   62,255 76,711  
Recurring gross profit 63,919 81,594   152,815 193,851  
Amortization of capitalized internal-use software costs 2,573 3,655   6,207 10,358  
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 514 763   1,719 2,253  
Adjusted recurring gross profit$67,006$86,012  $160,741$206,462  
       
 Three months
Ended
March 31,
 Nine months
Ended
March 31,
 
  2017 2018   2017 2018  
Reconciliation from operating income to non-GAAP operating income:      
Operating income$14,880$20,465  $10,730$21,113  
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 6,418 7,692   19,263 23,193  
Amortization of acquired intangibles 380 358   1,142 1,076  
Acquisition-related costs - 191   - 191  
Non-GAAP operating income$21,678$28,706  $31,135$45,573  
       
       
 Three months
Ended
March 31,
 Nine months
Ended
March 31,
 
  2017 2018   2017 2018  
Reconciliation from net income to Adjusted EBITDA:      
Net income$14,801$39,177  $10,562$40,151  
Interest expense - -   - -  
Income tax expense (benefit) 32 (18,497)  164 (18,573) 
Depreciation and amortization expense 5,582 7,202   14,685 20,640  
EBITDA 20,415 27,882   25,411 42,218  
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 6,418 7,692   19,263 23,193  
Acquisition-related costs - 191   - 191  
Adjusted EBITDA$26,833$35,765  $44,674$65,602  
       
 Three months
Ended
March 31,
 Nine months
Ended
March 31,
 
  2017 2018   2017 2018  
Reconciliation of non-GAAP Sales and Marketing:      
Sales and Marketing$21,242$26,004  $56,988$68,782  
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 1,750 1,593   5,044 5,856  
Non-GAAP Sales and Marketing$19,492$24,411  $51,944$62,926  
       
 Three months
Ended
March 31,
 Nine months
Ended
March 31,
 
  2017 2018   2017 2018  
Reconciliation of non-GAAP Total Research and Development:      
Research and Development$6,969$9,058  $21,492$27,227  
Capitalized internal-use software costs 3,794 4,296   10,073 11,442  
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 831 983   2,608 3,036  
Non-GAAP Total Research and Development$9,932$12,371  $28,957$35,633  
       
 Three months
Ended
March 31,
 Nine months
Ended
March 31,
 
  2017 2018   2017 2018  
Reconciliation of non-GAAP General and Administrative:      
General and Administrative$15,100$19,228  $43,915$53,338  
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 2,950 3,959   8,798 10,820  
Amortization of acquired intangibles 380 358   1,142 1,076  
Acquisition-related costs - 191   - 191  
Non-GAAP General and Administrative$11,770$14,720  $33,975$41,251  
       

Investor Contact:
Ryan Glenn
Investors@paylocity.com
www.paylocity.com

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Source: Paylocity