Paylocity Holding Corp Q2 FY2022 earnings

Paylocity posted total revenue of $196.0 million for its second quarter of fiscal 2022, up 34.0% from the prior-year quarter. The press release notes this was the second consecutive quarter of 34% revenue growth. For the six months ended December 31, 2021, total revenue reached $377.7 million, up 33.9% year over year. Gross profit rose 34.9% to $125.2 million in the quarter, and gross margin was 63.9%, up 0.5 percentage points. Operating income was $8.1 million, up 28.1%, while operating margin slipped to 4.2%, down 0.2 percentage points. Net income was $9.9 million, up 2.2%, and diluted EPS was $0.17, flat with the prior-year quarter. On a year-to-date basis, net income climbed 84.5% to $40.8 million and diluted EPS rose 84.6% to $0.72. Non-GAAP operating income was $36.6 million and Adjusted EBITDA was $46.6 million in the quarter. Non-GAAP adjusted gross profit was $134.7 million, and non-GAAP net income was $36.3 million, or $0.64 per share. The quarter's operating margin came under slight pressure even as gross margin expanded, a mix that reflects higher operating expenses.

Cash flow and capital spending both increased. Operating cash flow was $31.0 million in the second quarter, up 45.9% from the prior-year quarter. Year-to-date operating cash flow was $26.9 million, up 36.5%. Capital expenditures were $7.3 million in the quarter, up 82.7%, and $10.5 million year to date, up 74.2%. Capital expenditures grew faster than revenue, which management links to continued investment in the business and infrastructure. Deferred revenue stood at $9.3 million, up 32.2%. Remaining performance obligations were $43.2 million, up 0.8%, a much slower gain than revenue and deferred revenue. The company reported no long-term debt and had not drawn on its credit facility as of December 31, 2021. In January 2022, Paylocity borrowed $50 million under that facility in connection with the Cloudsnap acquisition.

Operational momentum centered on sales execution and new products. The press release cites record selling season results and momentum across all segments of the target market. Recurring and other revenue accounted for 99% of total revenues during both the three and six months ended December 31, 2020 and 2021, according to the MD&A. Average client size remained over 100 employees. Paylocity completed the acquisition of Cloudsnap in January 2022, a low-code integration automation platform that enables API integrations. Management expects Cloudsnap to help deliver modern integrations and data sharing across HR, finance, benefits, and other systems. The MD&A also flags seasonality: fiscal third quarter results benefit from W-2 preparation, which lifts recurring revenue and gross profit, and from higher collection of funds held for clients. The MD&A states that the company will keep investing in personnel, platform, data centers, and general infrastructure, with many investments occurring ahead of any direct benefit.

Guidance points to another strong quarter and year. For the third quarter of fiscal 2022, total revenue is expected to be $239.0 million to $243.0 million, which represents approximately 30% growth over fiscal 2021 third quarter revenue. Adjusted EBITDA for the third quarter is guided to $77.0 million to $80.0 million. For the full fiscal year 2022, total revenue is expected to be $829.0 million to $834.0 million, approximately 31% growth over fiscal year 2021 revenue. Full-year Adjusted EBITDA is guided to $220.0 million to $224.0 million. Paylocity says it cannot reconcile forward-looking Adjusted EBITDA to GAAP without unreasonable effort. Risks include the ongoing COVID-19 pandemic and its effect on client headcounts, business closures, and delayed sales starts; a continued low interest rate environment; challenges retaining and attracting clients; difficulties integrating acquisitions such as Cloudsnap and Blue Marble; cybersecurity threats; and the task of expanding the sales organization across new geographies and products.