Paylocity (PCTY) Q1 Loss Narrows, Revenues Rise 44% Y/Y

Paylocity Holding Corporation (NASDAQ:PCTY) reported better-than-expected results for the first quarter of fiscal 2017. The company incurred adjusted loss (excluding all one-time income and expenses but including stock-based compensation) of 4 cents per share, narrower than the Zacks Consensus Estimate of a loss of 7 cents. Reported loss was also lower than the year-ago quarter figure of 6 cents.

On a GAAP basis, Paylocity posted a loss of 5 cents per share, narrower than the year-ago quarter loss of 7 cents.

Quarter Details

The company’s revenues came in at $65 million, up 44.1% year over year, and beat the Zacks Consensus Estimate of $63 million. The year-over-over increase was driven by solid sales and operational implementation.

The top line was also backed by a 46% surge in recurring revenues and a 7.6% increase in implementation and other revenues.

The company’s gross margin expanded 166 basis points (bps) year over year to 59%. A higher revenue base, along with ACA enhanced product, drove margin expansion.

Paylocity reported operating loss of $2.5 million, lower than a loss of $3.4 million in the year-ago quarter. Consequently, net loss amounted to $2.6 million compared with a loss of $3.4 million in the year-ago period.

Paylocity exited the quarter with cash and cash equivalents of $78 million compared with $86.5 million in the previous quarter. Receivables were $1.76 million compared with $1.68 million at the end of fourth-quarter fiscal 2016.

Paylocity has no long-term debt. The company generated $1.9 million of cash flow from operational activities during the quarter.

Guidance

The company provided outlook for the second quarter and fiscal 2017. For the second quarter of fiscal 2017, Paylocity expects revenues in a range of $66 million to $67 million. The Zacks Consensus Estimate is pegged at $68 million. Adjusted EBITDA is projected to be in the $5–$6 million band. Non-GAAP earnings per share are expected to be within 1–3 cents.

For fiscal 2017, Paylocity anticipates revenues in the range of $296 million to $298 million. The Zacks Consensus Estimate stands at $297 million. Adjusted EBITDA is projected to be in a band of $37.5 million to $39.5 million. Non-GAAP earnings per share are expected within 36–40 cents.

Our Take

We remain positive about Paylocity’s regular investments in SaaS technology. Notably, over the past few quarters, clients moving from traditional payroll service providers to the company’s SaaS-based services generated a significant portion of Paylocity’s revenues. Therefore, we believe that regular investments in technological upgrades, along with product innovations, will continue to boost the company’s top line over the long run. Such initiatives are also likely to have a positive impact on fiscal third-quarter results.

Furthermore, higher adoption of Paylocity’s ACA dashboard application, which specializes in tracking employee count, employee status and health care plan affordability, will act as a tailwind.

However, competition in the payroll processing sector from new entrants as well as existing players such as Automatic Data Processing, Inc. (NASDAQ:ADP) , Oracle Corporation (NYSE:ORCL) and SAP SE (NYSE:SAP) remains a major headwind.

Currently, Paylocity has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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