Paylocity Holding Corp Q1 FY2024 earnings

Paylocity reported fiscal 2024 first quarter results for the period ended September 30, 2023. Total revenue was $317.6 million, up 25.4% from the prior-year quarter. The MD&A attributes the increase to strong sales performance and higher interest income on funds held for clients. Recurring other revenue grew 19% year over year. The company said its differentiated value proposition and modern software continue to resonate in the marketplace. Paylocity also noted that its average client size has continued to be over 140 employees.

Profitability improved on a GAAP basis. Gross profit was $216.1 million, up 28.1%. Gross margin was 68.1%, up 1.4 percentage points. Operating income was $41.2 million, up 481.0%. Operating margin was 13.0%, up 10.2 percentage points. Net income was $34.5 million, up 13.7%. Diluted EPS was $0.61, up 13.0%. Non-GAAP operating income was $86.9 million and Adjusted EBITDA was $104.9 million. Non-GAAP net income was $79.4 million, or $1.40 per diluted share. Adjusted gross profit was $233.1 million. Non-GAAP sales and marketing was $70.5 million, non-GAAP total research and development was $47.7 million, and non-GAAP general and administrative was $32.6 million. The non-GAAP figures exclude stock-based compensation and employer payroll taxes related to stock releases and option exercises, amortization of acquired intangibles, and other items.

Cash flow and backlog metrics were strong. Operating cash flow was $62.1 million, up 279.2%. Capital expenditures were $3.5 million, flat. Free cash flow was $44.5 million versus $3.0 million. Deferred revenue was $24.1 million, up 70.1%. RPO was $72.6 million, up 38.0%. The company had no long-term debt and had not drawn on its credit facility. The credit facility provides for $550.0 million, which may be increased up to $825.0 million. At September 30, 2023, principal commitments included $79.5 million in operating lease obligations, with $10.7 million due in the next twelve months, and $53.4 million in purchase obligations, with $31.8 million due in the next twelve months.

Guidance points to continued growth. For the second quarter of fiscal 2024, total revenue is expected in the range of $322.5 million to $326.5 million, which represents approximately 19% growth over fiscal year 2023 second quarter total revenue. Adjusted EBITDA is expected between $100.0 million and $103.0 million. For the full fiscal year 2024, total revenue is expected in the range of $1.405 billion to $1.410 billion, approximately 20% growth over fiscal year 2023 total revenue. Adjusted EBITDA is expected between $474.0 million and $478.0 million. The company says it cannot reconcile forward-looking non-GAAP Adjusted EBITDA to its directly comparable GAAP measure without unreasonable effort.

Paylocity faces risks tied to general economic conditions, changes in interest rates, reductions in employment, and an increase in business failures. Other risks include retaining existing clients, competition, cybersecurity threats, regulatory uncertainty, and inflation. The MD&A notes that revenue growth in future periods may be impacted by client employee counts, potential increases in client losses, and a changing interest rate environment. Seasonality also matters. The fiscal third quarter typically benefits from W-2 preparation and higher interest income on funds held for clients. In October, Paylocity held its Elevate Client Conference and announced two new product releases, Rewards Recognition and Employee Voice. Rewards Recognition is designed to help clients improve employee retention, while Employee Voice combines AI with a proprietary engagement model. The company also plans to continue investing in sales, research and development, and client service, and it expects these investments to increase costs on an absolute basis while aiming for economies of scale over the long term.