Summary
Paylocity reported total revenue of $273.0 million for its fiscal 2023 second quarter ended December 31, 2022, up 39% from the prior-year quarter. Gross profit rose 46.1% to $182.9 million, and gross margin expanded to 67.0%, up 3.1 percentage points. Operating income climbed 123.7% to $18.2 million, lifting operating margin to 6.7%, up 2.5 percentage points. Net income was $15.6 million, up 58.3%, and diluted earnings per share came in at $0.28, up $0.11. The company generated operating cash flow of $62.4 million, up 101.3%, while capital expenditures fell 56.0% to $3.2 million. Deferred revenue ended the quarter at $19.7 million, up 111.3%, and remaining performance obligations were $53.9 million, up 24.7%.
The quarter's non-GAAP results were also strong. Non-GAAP operating income was $65.1 million, adjusted EBITDA was $77.4 million, and non-GAAP net income was $63.0 million, or $1.12 per diluted share. Adjusted gross profit was $197.6 million. Management credited the revenue gain to strong sales execution, higher client workforce levels, and rising interest income on funds held for clients. Paylocity has fully integrated Cloudsnap, which it acquired in the prior year, into its suite and is using the low-code integration technology to speed new integrations and use cases. The company said it continues to see strong attach rates in its modern workforce solutions. Paylocity ended the quarter with no long-term debt and had not drawn on its credit facility.
Guidance points to continued momentum. For the fiscal 2023 third quarter, total revenue is expected between $330.5 million and $334.5 million, which represents about 35% growth over fiscal 2022 third quarter total revenue. Adjusted EBITDA for the third quarter is expected between $121.5 million and $124.5 million. For the full fiscal year 2023, total revenue is guided to a range of $1.156 billion to $1.161 billion, about 36% growth over fiscal year 2022 total revenue. Full-year adjusted EBITDA is expected between $358.5 million and $362.5 million. The company noted it cannot reconcile forward-looking adjusted EBITDA to the comparable GAAP measure without unreasonable effort. Management also flagged seasonality, with the fiscal third quarter typically benefiting from W-2 preparation and higher interest income on funds held for clients.
Cash generation improved sharply. For the six months ended December 31, 2022, operating cash flow was $78.8 million, up 193.2%. Capital expenditures for the same six-month period were $6.7 million, down 36.7%. The company said revenue growth in future periods may be affected 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. Other named risks include COVID-19 impacts, cybersecurity threats, competitive pressures, regulatory and judicial uncertainty, and reliance on third-party payroll partners in foreign jurisdictions. Paylocity also expects operating expenses to increase in absolute dollars as it invests in sales, research and development, and infrastructure, though it anticipates long-term margin improvement as the business scales.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $273.0M | $253.3M | +7.8% | $196.0M | +39.3% |
| Gross profit | $182.9M | $168.7M | +8.4% | $125.2M | +46.1% |
| Gross margin | 67.0% | 66.6% | +0.4 pp | 63.9% | +3.1 pp |
| Research & development | $41.0M | $40.1M | +2.3% | $25.3M | +62.3% |
| Sales & marketing | $75.7M | $71.1M | +6.5% | $52.2M | +45.0% |
| General & administrative | $48.0M | $50.5M | -4.9% | $39.6M | +21.3% |
| Total operating expenses | $164.7M | $161.6M | +1.9% | $117.1M | +40.7% |
| Operating income (loss) | $18.2M | $7.1M | +156.8% | $8.1M | +123.7% |
| Operating margin | 6.7% | 2.8% | +3.9 pp | 4.2% | +2.5 pp |
| Net income (loss) | $15.6M | $30.4M | -48.6% | $9.9M | +58.3% |
| Net margin | 5.7% | 12.0% | -6.3 pp | 5.0% | +0.7 pp |
| Diluted EPS | $0.28 | $0.54 | -$0.26 | $0.17 | +$0.11 |
Risks
Interest income on funds held for clients increased 1,564% to $16.6 million for the three months ended December 31, 2022 and represented 6% of total revenues, up from 1% in the prior-year quarter. MD&A attributes the increase to higher interest rates and higher average daily balances, and states future revenue growth may be impacted by a changing interest rate environment.
MD&A states that future revenue growth may be impacted by uncertainties around market and economic conditions, including inflation risk, as well as fluctuations in client employee counts and potential increases in client losses. These factors could affect demand for HCM and payroll solutions and client workforce levels.
Revenue growth has benefited from increases in client workforce levels and strong sales performance. MD&A specifically warns that future revenue growth may be impacted by fluctuations in client employee counts and potential increases in client losses.
For the three months ended December 31, 2022, sales and marketing expenses increased 45%, research and development expenses increased 62%, and general and administrative expenses increased 21%, including higher stock-based compensation. MD&A expects investments to occur in advance of any direct benefit, making it difficult to determine if resources are being allocated effectively and potentially pressuring margins if revenue growth slows.
Net change in client fund obligations was $(922.1) million for the six months ended December 31, 2022 compared with $160.3 million for the prior-year period, contributing to net cash used in financing activities of $993.9 million. MD&A notes that funds held for clients and client fund obligations vary substantially from period to period due to payroll and tax timing.
MD&A states that revenues, gross profits, and interest income on funds held for clients are positively impacted in the fiscal third quarter by W-2 preparation and increased collection of client funds. Historical results for the fiscal third quarter should not be considered a reliable indicator of future results.
Summary, forecast, risks and KPIs are extracted from Paylocity Holding Corp's SEC filings for Q2 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.