Summary
Paylocity reported fiscal 2023 third-quarter total revenue of $339.9 million, up 38.2% from the prior-year quarter. Gross profit was $244.1 million, up 43.2%. Operating income reached $80.4 million, up 69.7%, and net income was $57.6 million, up 65.3%. Diluted earnings per share were $1.02, up 64.5%. Gross margin was 71.8%, up from the prior-year quarter, and operating margin was 23.7%, up from the prior-year quarter. Operating cash flow was $127.35 million for the quarter, up 62.2%. Capital expenditures were $2.11 million, down 56.4%. Deferred revenue ended at $21.36 million, up 72.2% year over year, and remaining performance obligations were $62.27 million, up 25.3%.
Year to date, revenue was $866.1 million, up 38.9%. Gross profit was $595.8 million, up 43.9%. Operating income was $105.7 million, up 60.7%, and net income was $103.6 million, up 36.9%. Diluted earnings per share were $1.83, up 36.6%. Operating cash flow for the nine months was $206.1 million, up 95.6%. Capital expenditures were $8.77 million, down 42.9%. Gross margin for the nine months was 68.8%, up from the prior-year period, and operating margin was 12.2%, up from the prior-year period.
Non-GAAP measures show similar momentum. Adjusted EBITDA was $130.7 million for the quarter and $274.6 million for the nine months. Non-GAAP operating income was $116.7 million for the quarter. Non-GAAP net income was $98.5 million for the quarter and $216.9 million for the nine months. Non-GAAP net income per share was $1.74 for the quarter and $3.84 for the nine months. Free cash flow for the nine months was $166.6 million. Adjusted gross profit was $258.3 million for the quarter and $638.6 million for the nine months. Those figures exclude stock-based compensation and other items that management treats as non-core. The company says the quarter benefited from its recurring revenue model and high annual revenue retention, though it did not break out a retention rate in this release.
Operational highlights include AI Assist, described as the HCM industry's first integration of generative AI. The product uses an integration with OpenAI, the developer of ChatGPT, and is designed to help clients communicate and engage with employees. Paylocity also placed first overall in G2's Best HR Products list and ranked inside G2's Top 25 Global Software companies. It received Forbes' 2023 Best Employers for Diversity award for the second consecutive year. Management tied the product momentum to its sales message and said the sales team performed well.
Guidance points to slower growth. For the fourth quarter of fiscal 2023, management expects approximately 32% total revenue growth and Adjusted EBITDA of $93.5 million to $96.5 million. For the full fiscal year 2023, it expects approximately 37% total revenue growth and Adjusted EBITDA of $368.1 million to $371.1 million. The company says it cannot reconcile forward-looking Adjusted EBITDA to GAAP without unreasonable effort. It also flagged that its fiscal third quarter is seasonally strong because of W-2 preparation and payroll tax collection, so the reported margin levels may not repeat.
Risks remain. Paylocity cites general economic conditions, changes in interest rates, reductions in employment and business failures. It also points to client retention, sales organization expansion, cybersecurity threats, regulatory uncertainty around artificial intelligence and reliance on third-party payroll partners. The guidance calls for slower growth in the fourth quarter than the company just reported. That deceleration, along with the seasonal patterns, is the main tension in the release.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $339.9M | $273.0M | +24.5% | $246.0M | +38.2% |
| Gross profit | $244.1M | $182.9M | +33.5% | $170.4M | +43.2% |
| Gross margin | 71.8% | 67.0% | +4.8 pp | 69.3% | +2.5 pp |
| Research & development | $42.3M | $41.0M | +3.2% | $25.7M | +64.9% |
| Sales & marketing | $74.1M | $75.7M | -2.2% | $52.8M | +40.4% |
| General & administrative | $47.4M | $48.0M | -1.3% | $44.6M | +6.2% |
| Total operating expenses | $163.8M | $164.7M | -0.6% | $123.1M | +33.1% |
| Operating income (loss) | $80.4M | $18.2M | +341.4% | $47.4M | +69.7% |
| Operating margin | 23.6% | 6.7% | +17.0 pp | 19.3% | +4.4 pp |
| Net income (loss) | $57.6M | $15.6M | +269.3% | $34.8M | +65.3% |
| Net margin | 16.9% | 5.7% | +11.2 pp | 14.2% | +2.8 pp |
| Diluted EPS | $1.02 | $0.28 | +$0.74 | $0.62 | +$0.40 |
Risks
MD&A states that revenue growth in future periods 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. Paylocity's recurring fees are tied to the number of client employees and products purchased, so a softening labor market or client workforce reductions would directly slow recurring revenue, which rose 28% to $314.2 million for the quarter ended March 31, 2023.
Interest income on funds held for clients jumped $24.7 million, or 2,448%, to $25.7 million for the quarter ended March 31, 2023, and accounted for 8% of total revenues versus 0% a year earlier (and 6% of year-to-date revenues). A large slice of the 38% quarterly revenue growth therefore depends on elevated interest rates and high average daily client fund balances, and the filing notes this growth may be impacted by a changing interest rate environment.
The filing states that results fluctuate quarter to quarter and that the fiscal third quarter ending March 31 is seasonally strongest, driven by W-2 preparation fees, peak collection of funds held for clients and seasonal payroll tax timing. Fiscal Q3 operating margin of 23.7% compares with 12.2% for the nine months ended March 31, 2023, and management explicitly warns that fiscal third quarter historical results should not be considered a reliable indicator of future results.
The company relies on agreements with eleven major U.S. banks for ACH and wire transfers supporting client payroll and tax services, and its payroll processing involves moving significant funds between employer accounts, employees and taxing authorities with a timing gap between disbursement and client funds clearing. Operational or counterparty disruption in this fund flow, or the large swing in client fund obligations (financing activities moved from $2,503.5 million provided to $862.0 million used for the nine months ended March 31, 2023), could pressure liquidity.
Operating expense growth is being driven heavily by headcount and equity compensation: research and development expense rose 65% to $42.3 million for the quarter ended March 31, 2023 and sales and marketing rose 40% to $74.1 million, with stock-based compensation a stated driver of the sales and marketing, research and development and general and administrative increases. Continued dependence on equity awards to attract and retain personnel, and the associated non-deductible Section 162(m) compensation and tax settlement costs ($84.2 million of taxes paid on net share settlement for the nine months ended March 31, 2023), represents ongoing cost and margin risk.
SaaS KPIs
All quarters →Adjusted EBITDA
Non-GAAP Operating Income
Adjusted Gross Profit
Recurring Other Revenue
Summary, forecast, risks and KPIs are extracted from Paylocity Holding Corp's SEC filings for Q3 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.