Paylocity Holding Corp Q1 FY2025 earnings

Paylocity started fiscal 2025 with total revenue of $363.0 million, up 14% from the prior-year quarter. Gross profit was $248.0 million, up 14.7%. Operating income reached $64.1 million, up 55.7%. Net income was $49.6 million, up 43.6%. Diluted EPS came in at $0.88, up $0.27. Gross margin was 68.3%, up 0.3 percentage points. Operating margin was 17.7%, up 4.7 percentage points. The company credited strong sales team performance for the revenue growth. Recurring and other revenue accounted for 92% of total revenues. Paylocity completed the Airbase acquisition on October 1, 2024, adding finance and spend management software. The deal expands the company's total addressable market into the Office of the CFO. Paylocity also announced the upcoming release of Headcount Planning, a product for mapping headcount needs.

Cash generation improved. Operating cash flow was $91.5 million, up 47.2% from the prior-year quarter. Capital expenditures were $2.3 million, down 32.6%. Free cash flow, a non-GAAP measure, was $73.9 million. Deferred revenue was $25.4 million, up 5.2%. Remaining performance obligations were $84.7 million, up 16.7%. On the non-GAAP side, non-GAAP operating income was $104.9 million compared with $86.9 million in the prior-year quarter. Adjusted EBITDA was $129.0 million compared with $104.9 million. Adjusted EBITDA excluding interest income on funds held for clients was $99.2 million compared with $79.0 million. The company borrowed under its credit facility to fund the Airbase acquisition.

Management issued guidance for the second quarter and full fiscal year 2025. For the second quarter, total revenue is expected to be $364.0 million to $369.0 million, about 12% growth over the fiscal 2024 second quarter. Recurring and other revenue is expected to be $337.5 million to $342.5 million, about 14% growth. Adjusted EBITDA is expected to be $116.0 million to $120.0 million. Adjusted EBITDA excluding interest income on funds held for clients is expected to be $89.5 million to $93.5 million. For the full fiscal year 2025, total revenue is expected to be $1.535 billion to $1.550 billion, about 10% growth over fiscal 2024. Recurring and other revenue is expected to be $1.427 billion to $1.442 billion, about 12% growth. Adjusted EBITDA is expected to be $530.0 million to $540.0 million. Adjusted EBITDA excluding interest income on funds held for clients is expected to be $422.0 million to $432.0 million. The company noted it cannot reconcile forward-looking non-GAAP measures to comparable GAAP measures without unreasonable effort.

Risks remain. The MD&A points to uncertainties around market and economic conditions that may affect revenue growth. It cites fluctuations in client employee counts, elongated sales cycles, client losses, and a changing interest rate environment. Paylocity also faces competition, cybersecurity threats, reliance on third-party payroll partners in foreign jurisdictions, and regulatory uncertainty. The company expects operating results to fluctuate from quarter to quarter. Seasonality matters. The fiscal third quarter typically benefits from W-2 preparation and higher interest income on funds held for clients. The company also flagged that many investments occur ahead of any direct benefit, which can make resource allocation hard to judge. Management believes current cash, future cash flow from operations, and access to its credit facility will be sufficient for at least the next 12 months.