Summary
Paylocity started fiscal 2023 with strong top-line growth. Total revenue was $253.3 million for the first quarter ended September 30, 2022, up 39% from the prior-year quarter. Recurring and other revenue was $245.4 million, an increase of 36% from the prior-year quarter, and it accounted for 97% of total revenue. Interest income on funds held for clients rose 802% to $7.9 million, helped by higher interest rates and higher average daily balances. Management credited strong sales execution and higher client workforce levels, and said average client size remained over 100 employees.
Profitability was mixed. Gross profit rose 42.5% from the prior-year quarter to $168.7 million, and gross margin expanded to 66.6%, up 1.4 percentage points. Operating income fell 30.9% from the prior-year quarter to $7.1 million, and operating margin narrowed to 2.8%, down 2.8 percentage points. Net income was $30.4 million, down 1.9% from the prior-year quarter, and diluted EPS was $0.54, down from the prior-year quarter. Sales and marketing, research and development, and general and administrative expenses all grew faster than revenue, with stock-based compensation a large part of the increase.
Non-GAAP results looked better than the GAAP figures. Adjusted EBITDA, a non-GAAP measure, was $66.6 million, which excludes stock-based compensation expense and related employer payroll taxes, interest, income taxes, depreciation and amortization, and other items. Operating cash flow was $16.4 million, up 496.6% from a negative prior-year quarter. Capital expenditures were $3.4 million, up 7.0% from the prior-year quarter. Deferred revenue was $14.2 million, up 62.8%, and remaining performance obligations were $52.6 million, up 15.6% from the prior-year quarter. In September, the company hosted its annual Elevate Client Conference, drawing a record 4,000 clients, prospects and partners to more than 100 virtual and in-person sessions over two days. Product enhancements highlighted there included a centralized video hub, added communication features in Community, and a dashboard customization tool.
Guidance points to continued growth. For the second quarter of fiscal 2023, Paylocity guided to approximately 32% growth. For the full fiscal year 2023, the company expects approximately 32% growth as well. Adjusted EBITDA guidance is $63.5 million to $66.5 million for the second quarter and $336.0 million to $340.0 million for the full fiscal year. Management said it cannot reconcile forward-looking Adjusted EBITDA to its directly comparable GAAP measure without unreasonable effort.
Risks remain. The company cited general economic conditions, the ongoing impact of COVID-19, changes in interest rates, business disruptions, reductions in employment, and increases in business failures. It also flagged client retention, competition, cybersecurity threats, regulatory uncertainty, reliance on referral networks and third-party payroll partners, and the ability to forecast revenue and manage growth. Seasonality is another factor. The fiscal third quarter typically benefits from W-2 preparation and tax filings, so results in that quarter are not a reliable indicator of future performance. Paylocity held no long-term debt and had not drawn on its credit facility, which was expanded to $550.0 million in August 2022. Cash and cash equivalents totaled $65.5 million as of September 30, 2022. Operating lease obligations were $88.2 million, with $10.7 million due in the next twelve months, and purchase obligations were $39.6 million, with $22.0 million due in the next twelve months. Most client agreements are cancellable on 60 days' notice or less.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $253.3M | $228.9M | +10.6% | $181.7M | +39.4% |
| Gross profit | $168.7M | $151.6M | +11.3% | $118.4M | +42.5% |
| Gross margin | 66.6% | 66.2% | +0.4 pp | 65.2% | +1.4 pp |
| Research & development | $40.1M | $28.9M | +38.8% | $23.1M | +73.7% |
| Sales & marketing | $71.1M | $59.6M | +19.2% | $49.9M | +42.5% |
| General & administrative | $50.5M | $44.2M | +14.1% | $35.2M | +43.3% |
| Total operating expenses | $161.6M | $132.7M | +21.8% | $108.2M | +49.4% |
| Operating income (loss) | $7.1M | $18.8M | -62.3% | $10.3M | -30.9% |
| Operating margin | 2.8% | 8.2% | -5.4 pp | 5.6% | -2.8 pp |
| Net income (loss) | $30.4M | $15.1M | +100.4% | $30.9M | -1.9% |
| Net margin | 12.0% | 6.6% | +5.4 pp | 17.0% | -5.0 pp |
| Diluted EPS | $0.54 | $0.27 | +$0.27 | $0.55 | -$0.01 |
Risks
Management states that revenue growth in future periods may be impacted by fluctuations in client employee counts, potential increases in client losses, a changing interest rate environment, and uncertainties around market and economic conditions including inflation risk. The quarter ended September 30, 2022 relied on these drivers, with total revenues up 39% year over year to $253.3 million.
Interest income on funds held for clients rose 802%, or $7.0 million, to $7.9 million for the quarter ended September 30, 2022 from $0.9 million a year earlier, driven by higher interest rates and higher average daily balances. Recurring and other revenue fell to 97% of total revenues from 100%, so a reversal in rates would remove a disproportionate share of the growth.
Operating income fell 30.9% to $7.09 million for the quarter ended September 30, 2022 and operating margin dropped 2.8 percentage points to 2.8%, even as gross margin rose 1.4 percentage points to 66.6%. Total operating expenses grew 49% to $161.6 million, led by $9.3 million of additional stock-based compensation in general and administrative, $5.1 million in research and development, and $4.4 million in sales and marketing.
Research and development expense increased 74% to $40.1 million for the quarter ended September 30, 2022, and the company expects research and development and sales and marketing expenses to continue increasing in absolute dollars. Management notes that many investments occur in advance of any direct benefit, making it difficult to determine whether resources are being allocated effectively.
Payroll processing requires movement of significant client funds, and the company relies on ACH and wire arrangements with eleven major U.S. banks as well as demand deposit accounts to hold funds for clients. Net change in client fund obligations swung to a $1,688.3 million outflow for the quarter ended September 30, 2022 from a $1,425.8 million inflow a year earlier due to the timing of collections and remittances.
Management warns that results fluctuate seasonally and that the fiscal third quarter is disproportionately strong because of W-2 preparation, higher interest income from increased collection of funds held for clients, and payroll tax collection timing. Historical results for that quarter should not be considered a reliable indicator of future results.
SaaS KPIs
All quarters →Adjusted EBITDA
Non-GAAP Operating Income
Adjusted Gross Profit
Recurring and other revenue
Total Revenue
Summary, forecast, risks and KPIs are extracted from Paylocity Holding Corp's SEC filings for Q1 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.