Summary
Paylocity reported total revenue of $146.3 million for its fiscal 2021 second quarter, up 11% from the prior-year quarter. Recurring and other revenue accounted for nearly all of total revenue, and management said the fall selling season carried into a strong January. The Samepage acquisition, an all-in-one team collaboration tool, added another product proof point. The company still faces a tough interest rate backdrop because interest income on funds held for clients has fallen sharply after Federal Reserve cuts. That decline explains much of the gap between total revenue growth and the subscription growth that management highlighted.
Gross profit was $92.8 million, up 6.7% from the prior-year quarter. Gross margin was 63.4%, down from 65.7%. The margin decline came as cost of revenues rose on higher employee-related costs and internal-use software amortization. Research and development expense increased on additional development personnel. Sales and marketing expense rose only slightly, helped by lower travel and entertainment spending. General and administrative expense grew on higher stock-based compensation.
GAAP operating income was $6.4 million, while non-GAAP operating income was $25.1 million. Adjusted EBITDA was $35.0 million. GAAP net income was $9.6 million, or $0.17 per diluted share. Operating margin was 4.3%, down from 4.6%. The wide gap between GAAP and non-GAAP results reflects stock-based compensation, amortization of acquired intangibles, and other items. Those charges are real costs, even if management excludes them to show core profitability.
Cash generation weakened. Cash flow from operations for the second quarter was $21.2 million, down from $27.8 million in the prior-year quarter. For the first six months, operating cash flow was $19.7 million, down from $36.1 million. Capital expenditures were $4.0 million in the quarter, down 8.4% from $4.4 million. Deferred revenue was $7.1 million, up 3.1%. Remaining performance obligations were $42.9 million, roughly flat. Those metrics suggest near-term billings visibility has not changed much. The company also carries borrowings under its credit facility, which it put in place for added flexibility during the pandemic.
Guidance for the third quarter of fiscal 2021 calls for total revenue growth of approximately 6% to 9% over fiscal 2020 third quarter revenue, with Adjusted EBITDA of $59.0 million to $62.0 million. For the full fiscal year 2021, total revenue growth is guided to approximately 11% to 12% over fiscal 2020 revenue, with Adjusted EBITDA of $152.0 million to $156.0 million. The company cannot reconcile forward-looking Adjusted EBITDA to GAAP without unreasonable effort, so investors get no clean bridge to the comparable GAAP measure.
Risks remain centered on COVID-19. Management said the pandemic continues to hurt client employee counts, business confidence, and the growth of the overall market. The company expects COVID-19 to keep weighing on both recurring revenue growth and interest income in future periods. It also cited risks from client retention, competition, data security, and regulatory uncertainty, including potential changes to the Affordable Care Act. Paylocity's quarter shows the tension clearly: revenue growth is solid, but margin and cash flow pressure are real. The company is investing through the downturn, and that spending supports the product roadmap but weighs on near-term profitability.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $146.3M | $135.8M | +7.8% | $132.4M | +10.5% |
| Gross profit | $92.8M | $86.4M | +7.4% | $87.0M | +6.7% |
| Gross margin | 63.4% | 63.6% | -0.2 pp | 65.7% | -2.3 pp |
| Research & development | $19.3M | $18.6M | +3.7% | $15.4M | +25.5% |
| Sales & marketing | $37.8M | $37.7M | +0.3% | $37.3M | +1.3% |
| General & administrative | $29.3M | $26.6M | +10.1% | $28.1M | +4.2% |
| Total operating expenses | $86.4M | $83.0M | +4.2% | $80.8M | +6.9% |
| Operating income (loss) | $6.4M | $3.4M | +84.1% | $6.1M | +3.9% |
| Operating margin | 4.3% | 2.5% | +1.8 pp | 4.6% | -0.3 pp |
| Net income (loss) | $9.6M | $12.5M | -22.6% | $5.5M | +76.4% |
| Net margin | 6.6% | 9.2% | -2.6 pp | 4.1% | +2.5 pp |
| Diluted EPS | $0.17 | $0.22 | -$0.05 | $0.10 | +$0.07 |
Risks
COVID-19 continues to impact the global economy and the company's clients, causing reduced employee headcount, temporary and permanent business closures, and delayed sales/starts. Management expects COVID-19 to continue to unfavorably impact growth in Recurring and other revenue and Interest income on funds held for clients in future periods.
Total revenue growth during the three and six months ended Dec 31, 2020 was impacted by the ongoing effects of COVID-19, with lower client employee counts partially offsetting incremental revenues from new and existing clients. Management anticipates lower client employee counts, potential increases in client losses, and a decrease in the growth of the overall market.
Interest income on funds held for clients decreased by $3.5 million, or 79%, for the three months ended Dec 31, 2020 and by $7.4 million, or 80%, for the six months ended Dec 31, 2020, primarily due to lower average interest rates after Federal Reserve cuts. A continued low interest rate environment is expected to further pressure this revenue.
Net cash provided by operating activities decreased from $36.1 million for the six months ended Dec 31, 2019 to $19.7 million for the six months ended Dec 31, 2020, primarily due to changes in operating assets and liabilities including higher payout of sales incentives. This decline could limit financial flexibility if sustained.
Gross margin decreased from 66% for the three months ended Dec 31, 2019 to 63% for the three months ended Dec 31, 2020, and from 66% to 64% for the six months, due to higher employee-related costs and increased internal-use software amortization. Continued margin compression could reduce operating leverage.
Summary, forecast, risks and KPIs are extracted from Paylocity Holding Corp's SEC filings for Q2 FY2021 (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.