Paylocity Holding Corp Q3 FY2024 earnings

Paylocity's fiscal third quarter delivered double-digit growth and much stronger profitability. Total revenue for the quarter ended March 31, 2024 was $401.3 million, up 18.1% from the prior-year quarter. Gross profit rose 16.9% to $285.3 million. Operating income climbed 32.2% to $106.3 million. Net income reached $85.3 million, up 48.1%, and diluted EPS was $1.50, up $0.48 or 47.1%. Operating margin expanded to 26.5%, up 2.8 percentage points. Gross margin slipped to 71.1%, down 0.7 percentage points. The quarter's profit growth came alongside continued spending on sales and product development, but operating leverage still improved.

Non-GAAP results also improved. Non-GAAP operating income was $145.9 million, compared with $116.7 million in the prior-year quarter. Adjusted EBITDA was $167.9 million, compared with $130.7 million. Adjusted EBITDA for the first nine months was $385.4 million, compared with $274.6 million. Non-GAAP net income was $126.1 million, or $2.21 per diluted share, compared with $98.5 million, or $1.74 per diluted share. These figures exclude stock-based compensation, employer payroll taxes related to stock releases and option exercises, amortization of acquired intangibles, and other items. The company also reported operating cash flow of $167.5 million for the quarter, up 31.5%, and $304.7 million for the first nine months, up 47.9%. Capital expenditures were $5.6 million for the quarter, up 164.0%, and $11.7 million for the first nine months, up 33.4%.

Deferred revenue at March 31, 2024 was $25.9 million, up 21.0% from the prior-year quarter. Remaining performance obligations were $74.3 million, up 19.3%. Paylocity ended the quarter with no long-term debt and had not drawn on its credit facility. The board approved a $500 million share repurchase program. On the product side, the company announced enhancements to its talent acquisition suite, including AI-driven features intended to help new hires integrate and collaborate. It also placed as an overall leader in 10 product categories in the G2 Spring 2024 Grid Reports. Management called out the fiscal third quarter's typical seasonal lift from W-2 preparation and client fund activity, which increases recurring revenue and interest income on funds held for clients.

Management issued guidance for the fourth quarter and full fiscal year 2024. Fourth-quarter total revenue is expected to grow approximately 13%. Full fiscal year 2024 total revenue is expected to grow approximately 19%. Fourth-quarter Adjusted EBITDA is expected to be $104.1 million to $107.1 million. Full fiscal year 2024 Adjusted EBITDA is expected to be $489.5 million to $492.5 million. The company noted it cannot reconcile forward-looking Adjusted EBITDA to the comparable GAAP measure without unreasonable effort.

The outlook carries familiar risks. Paylocity cited market and economic conditions, fluctuations in client employee counts, elongated sales cycles, client losses, and a changing interest rate environment. Other named risks include cybersecurity threats, evolving cybersecurity regulations, regulatory and judicial uncertainty, and constraints on leveraging AI and machine learning because of current and future laws, regulations, interpretive positions, or standards. The company also depends on its referral network and on third-party payroll partners in foreign jurisdictions for its Blue Marble business. It flagged difficulties in accurately forecasting revenue and planning expenses, challenges with managing growth, and the risk that security measures are compromised or a threat actor gains unauthorized access to customer data. Client agreements are generally cancellable on 60 days' notice or less, although term agreements are generally two years. Fiscal third-quarter results benefit from seasonality, so the company cautioned that historical results for that quarter should not be considered a reliable indicator of future results.