Summary
Paylocity closed the third quarter of fiscal 2022 with revenue of $245.97 million, up 32.2% from $186.05 million in the prior-year quarter. That was the third consecutive quarter of growth above 30%, and management credited strong sales execution in its target market along with improved macroeconomic conditions. Nine-month revenue reached $623.70 million, up 33.2% from $468.18 million. The March quarter always carries a seasonal lift from W-2 preparation work for clients, so its growth and margin profile should be read with that in mind.
Profitability moved in two directions. Gross profit rose 32.4% to $170.43 million and gross margin was 69.3%, up a notch from 69.2%. Operating income grew 21.0% to $47.38 million, but operating margin narrowed to 19.3% from 21.0% as costs grew faster than the top line. Sales and marketing expense rose 32%, research and development 39% and general and administrative 44%, with stock-based compensation, 401(k) expense and acquired intangible amortization among the drivers. On a non-GAAP basis, operating income was $75.5 million and Adjusted EBITDA was $85.7 million.
Net income for the quarter was $34.85 million, down 5.4% from $36.83 million a year earlier, and diluted EPS slipped to $0.62 from $0.65. Operating income rose, so the bottom-line decline came from taxes. More stock-based compensation was non-deductible under Section 162(m), which pushed the effective tax rate well above the prior-year level. For the nine months, net income was $75.63 million, up 28.3%, and diluted EPS was $1.34, up 27.6%.
Cash flow held up. Operating cash flow was $78.54 million in the quarter, up 18.8% from $66.09 million, and $105.39 million for the nine months, up 22.9%. Capital expenditures rose 128.8% in the quarter to $4.83 million and 88.3% year to date to $15.36 million as the company kept investing in infrastructure. Deferred revenue of $12.40 million was up 41.1% from a year earlier. Remaining performance obligations of $49.70 million were up just 4.4%, far slower than revenue, which fits a model where most clients can cancel on 60 days' notice or less. The balance sheet stayed clean: no long-term debt, and the $50 million drawn on the credit facility in January 2022 for the Cloudsnap acquisition was repaid during the quarter.
Guidance implies a sequential step down that is mostly seasonal. For the fiscal fourth quarter, revenue is expected in a range of $215.5 million to $219.5 million, about 30% growth over the prior-year fourth quarter, with Adjusted EBITDA of $49.5 million to $52.5 million. For the full fiscal year 2022, revenue is guided to $839.2 million to $843.2 million, roughly 32% growth over fiscal 2021, with Adjusted EBITDA of $228.0 million to $231.0 million. Paylocity does not reconcile forward-looking Adjusted EBITDA to GAAP, citing information that is not available without unreasonable effort.
The risk list is familiar but real. Interest income on funds held for clients was lower again and stays pressured by the low rate environment. Growth depends on client employee counts and retention, and management flagged inflation, potential increases in client losses and a changing interest rate environment as factors that could slow revenue. The fiscal third quarter is seasonally the strongest, so its margins should not be treated as a run rate. Integrating Blue Marble and Cloudsnap, cybersecurity threats and regulatory uncertainty round out the concerns. On the product side, the April release of Community Plus added one-to-one and one-to-many chat, file sharing and automatic addition of employees to team groups.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $246.0M | $196.0M | +25.5% | $186.1M | +32.2% |
| Gross profit | $170.4M | $125.2M | +36.1% | $128.7M | +32.4% |
| Gross margin | 69.3% | 63.9% | +5.4 pp | 69.2% | +0.1 pp |
| Research & development | $25.7M | $25.3M | +1.6% | $18.5M | +39.1% |
| Sales & marketing | $52.8M | $52.2M | +1.0% | $40.1M | +31.7% |
| General & administrative | $44.6M | $39.6M | +12.8% | $31.1M | +43.6% |
| Total operating expenses | $123.1M | $117.1M | +5.1% | $89.6M | +37.4% |
| Operating income (loss) | $47.4M | $8.1M | +482.2% | $39.1M | +21.0% |
| Operating margin | 19.3% | 4.2% | +15.1 pp | 21.0% | -1.8 pp |
| Net income (loss) | $34.8M | $9.9M | +253.7% | $36.8M | -5.4% |
| Net margin | 14.2% | 5.0% | +9.1 pp | 19.8% | -5.6 pp |
| Diluted EPS | $0.62 | $0.17 | +$0.45 | $0.65 | -$0.03 |
Risks
MD&A attributes the 32% year-over-year increase in total revenues for the quarter to improved macroeconomic conditions in the prior-year comparison period, but explicitly warns that future revenue growth may be impacted 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. Because revenue is billed largely on client employee counts, an economic slowdown or client workforce reductions would pressure growth directly.
Interest income on funds held for clients decreased 10% for the quarter and decreased 3% for the nine months ended March 31, 2022, and MD&A states the line continues to be impacted by the low interest rate environment following Federal Reserve rate cuts. A persistently low or volatile rate environment limits this revenue stream even as average daily client fund balances grow.
The effective tax rate rose to 26.0% for the quarter ended March 31, 2022 from 5.4% in the prior-year quarter, primarily due to an increase in non-deductible stock-based compensation under Internal Revenue Code Section 162(m). This contributed to net income falling 5.4% and diluted EPS falling 4.6% in the quarter even as revenue rose 32.2%.
MD&A states investments will occur in advance of any direct benefit, making it difficult to determine whether resources are being allocated effectively, and total operating expenses grew to 50% of total revenues for the quarter from 48%. Operating margin declined 1.8 percentage points in the quarter versus the prior-year quarter and was flat for the year to date, and headcount, 401(k) and stock-based compensation costs rose across every expense line.
Cash used for acquisitions, net of cash acquired, increased to $107.6 million for the nine months ended March 31, 2022 from $15.0 million in the prior-year period, including the Cloudsnap, Inc. acquisition funded in part by a $50.0 million credit facility borrowing, and general and administrative expense included $3.2 million of additional amortization of acquired intangible assets year to date. Integration execution and continued intangible amortization could weigh on margins.
MD&A discloses that operating results fluctuate seasonally and that the fiscal third quarter is positively skewed by W-2 preparation revenue, higher gross profit, and increased collection and subsequent remittance of payroll taxes, so fiscal third quarter results should not be considered a reliable indicator of future results. The $245.97 million of revenue and 69.3% gross margin in the quarter reflect that concentration.
MD&A states that COVID-19 continues to impact the global economy and that the duration, severity and long-term effects on clients and general economic conditions remain uncertain and difficult to predict, with business and financial performance potentially unfavorably impacted in future periods. Easing restrictions also drove increased travel and entertainment spending in sales and marketing.
SaaS KPIs
All quarters →Adjusted EBITDA
Non-GAAP Operating Income
Adjusted Gross Profit
Summary, forecast, risks and KPIs are extracted from Paylocity Holding Corp's SEC filings for Q3 FY2022 (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.