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May 3, 2018

Paylocity Announces Third Quarter Fiscal Year 2018 Financial Results

ARLINGTON HEIGHTS, Ill., May 03, 2018 (GLOBE NEWSWIRE) -- Paylocity Holding Corporation (NASDAQ:PCTY), a cloud-based provider of payroll and human capital management software solutions, announced today financial results for the third quarter of fiscal year 2018, which ended March 31, 2018.

“We had a strong third quarter with total revenue growth of 26 percent, while also driving improved leverage across all of our key financial metrics,” said Steve Beauchamp, Chief Executive Officer of Paylocity. “The third quarter is traditionally the busiest time of the year for our Operations teams, and I was pleased with our ability to work proactively with our clients to ensure year-end tasks were completed timely and accurately. We also completed the acquisition of third-party benefits administrator BeneFLEX in the quarter, which will allow us to expand our product portfolio and provide additional solutions to our clients, prospects, and the insurance broker community.”

Third Quarter Fiscal 2018 Financial Highlights

Revenue:

  • Total revenue was $113.4 million, an increase of 26% from the third quarter of fiscal year 2017.

  • Total recurring revenue was $108.6 million, representing 96% of total revenue and an increase of 26% from the third quarter of fiscal year 2017.

Operating Income:

  • GAAP operating income was $20.5 million, compared to an operating income of $14.9 million in the third quarter of fiscal year 2017.

  • Non-GAAP operating income was $28.7 million, compared to non-GAAP operating income of $21.7 million in the third quarter of fiscal year 2017.

Net Income:

  • GAAP net income was $39.2 million, which includes a non-cash income tax benefit of $18.5 million, primarily related to the release of substantially all of the valuation allowance against deferred tax assets. This compares to a net income of $14.8 million for the third quarter of fiscal year 2017. Net income per share was $0.71 for the third quarter of fiscal year 2018 based on 55.0 million diluted weighted average common shares outstanding. Net income per share was $0.27 for the third quarter of fiscal year 2017, based on 54.0 million diluted weighted average common shares outstanding.

Adjusted EBITDA:

  • Adjusted EBITDA, a non-GAAP measure, was $35.8 million compared to Adjusted EBITDA of $26.8 million in the third quarter of fiscal year 2017.

Balance Sheet and Cash Flow:

  • Cash and cash equivalents totaled $129.5 million at the end of the quarter.
     
  • Cash flow from operations for the third quarter of fiscal year 2018 was $35.2 million compared to $27.9 million for the third quarter of fiscal year 2017.

A reconciliation of GAAP to non-GAAP financial measures has been provided in this press release, including the accompanying tables. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”

Business Outlook
Based on information available as of May 3, 2018, Paylocity is issuing guidance for the fourth quarter and full fiscal year 2018 as indicated below.

Fourth Quarter 2018:

  • Total revenue is expected to be in the range of $92.6 million to $93.6 million.
  • Adjusted EBITDA is expected to be in the range of $14.0 million to $15.0 million.

Fiscal Year 2018:

  • Total revenue is expected to be in the range of $373.5 million to $374.5 million.
  • Adjusted EBITDA is expected to be in the range of $79.6 million to $80.6 million.

We are unable to reconcile forward-looking non-GAAP financial measures to their directly comparable GAAP financial measures because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort.

Conference Call Details
Paylocity will host a conference call to discuss its third quarter fiscal year 2018 results at 4:00 p.m. Central Time today (5:00 Eastern Time). A live audio webcast of the conference call, together with detailed financial information, can be accessed through the company's Investor Relations Web site at http://www.paylocity.com. Participants who choose to call in to the conference call can do so by dialing (855) 226-3021 or (315) 625-6892, passcode 5298897. A replay of the call will be available and archived via webcast at www.paylocity.com.

About Paylocity
Paylocity is a provider of cloud-based payroll and human capital management, or HCM,
software solutions. Paylocity’s comprehensive and easy-to-use solutions enable its clients to manage their workforces more effectively.  Paylocity’s solutions help drive strategic human capital decision-making and improve employee engagement by enhancing the human resource, payroll and finance capabilities of its clients. For more information, visit www.paylocity.com.

Non-GAAP Financial Measures
The company uses certain non-GAAP financial measures in this release, including Adjusted EBITDA, adjusted gross profit, adjusted recurring gross profit, non-GAAP operating income (loss), non-GAAP sales and marketing, non-GAAP total research and development and non-GAAP general and administrative. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. We define Adjusted EBITDA as net income (loss) before interest expense, income tax expense (benefit), and depreciation and amortization expense, adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, and acquisition-related costs. Adjusted gross profit and adjusted recurring gross profit are adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises and amortization of capitalized internal-use software costs. Non-GAAP operating income (loss) is adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, the amortization of acquired intangibles and acquisition-related costs. Non-GAAP sales and marketing expense is adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises. Non-GAAP total research and development is adjusted for capitalized internal-use software costs and to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises.  Non-GAAP general and administrative expense is adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, the amortization of acquired intangibles and acquisition-related costs. Please note that other companies may define their non-GAAP financial measures differently than we do. Management presents certain non-GAAP financial measures in this release because it considers them to be important supplemental measures of performance. Management uses these non-GAAP financial measures for planning purposes, including analysis of the company's performance against prior periods, the preparation of operating budgets and to determine appropriate levels of operating and capital investments. Management believes that these non-GAAP financial measures provide additional insight for analysts and investors in evaluating the company's financial and operational performance. Management also intends to provide these non-GAAP financial measures as part of the company’s future earnings discussions and, therefore, the inclusion of the non-GAAP financial measures should provide consistency in the company’s financial reporting. Non-GAAP financial measures have limitations as an analytical tool. Investors are encouraged to review the reconciliation of the non-GAAP measures to their most directly comparable GAAP measures provided in this release.

Acquisition-related costs: Includes legal, accounting and other professional fees as well as various other costs directly associated with acquisitions.

Safe Harbor/forward looking statements
This press release contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included herein regarding Paylocity’s future operations, ability to scale its business, future financial position and performance, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” “would,” “seek” and similar expressions (or the negative of these terms) are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about management's estimates regarding future revenues and financial performance and other statements about management’s beliefs, intentions or goals.  Paylocity may not actually achieve the expectations disclosed in the forward-looking statements, and you should not place undue reliance on Paylocity’s forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results or events to differ materially from the expectations disclosed in the forward-looking statements, including, but not limited to, risks related to regulatory, legislative and judicial uncertainty in Paylocity’s markets, including the potential repeal or replacement of the Affordable Care Act; Paylocity’s ability to retain existing clients and to attract new clients to enter into subscriptions for its services; Paylocity’s ability to sell new products and retain subscriptions for its existing products to its new and existing clients; the challenges associated with a growing company’s ability to effectively service clients in a dynamic and competitive market; challenges associated with expanding and evolving a sales organization to effectively address new geographies and products and services; Paylocity’s reliance on and ability to expand its referral network of third parties; difficulties associated with accurately forecasting revenue and appropriately planning expenses; challenges with managing growth effectively; difficulties in forecasting Paylocity’s tax position, including but not limited to the assessment of the need for a valuation allowance against its deferred tax position; potential adverse tax consequences to Paylocity as a result of the recently enacted Federal Tax Cut and Jobs Act; continued acceptance of SaaS as an effective method for delivery of payroll and HCM solutions; Paylocity’s ability to protect and defend its intellectual property; the risk that Paylocity’s security measures are compromised or the unauthorized access to customer data; unexpected events in the market for Paylocity’s solutions; changes in the competitive environment in Paylocity’s industry and the markets in which it operates; adverse changes in general economic or market conditions; changes in the employment rates of Paylocity’s clients and the resultant impact on revenue; and other risks and potential factors that could affect Paylocity’s business and financial results identified in Paylocity’s filings with the Securities and Exchange Commission (the “SEC”), including its 10-K filed with the SEC on August 11, 2017.  Additional information will also be set forth in Paylocity’s future quarterly reports on Form 10-Q, annual reports on Form 10-K and other filings that Paylocity makes with the SEC.  These forward-looking statements represent Paylocity’s expectations as of the date of this press release. Subsequent events may cause these expectations to change, and Paylocity disclaims any obligations to update or alter these forward-looking statements in the future, whether as a result of new information, future events or otherwise.

PAYLOCITY HOLDING CORPORATION
 Unaudited Consolidated Balance Sheets
 (in thousands, except per share data)

    June 30,   March 31,  
Assets     2017       2018  
Current assets:          
Cash and cash equivalents   $103,468     $129,530  
Accounts receivable, net     2,040       3,384    
Prepaid expenses and other     14,879       16,921    
           
Total current assets before funds held for clients     120,387       149,835    
Funds held for clients     942,459       1,347,522    
           
Total current assets     1,062,846       1,497,357    
Long-term prepaid expenses     1,535       1,022    
Capitalized internal-use software, net     17,394       20,002    
Property and equipment, net     40,756       50,380    
Intangible assets, net     8,907       13,457    
Goodwill     6,003       9,754    
Deferred income tax assets, net           18,906    
Total assets   $1,137,441     $1,610,878    
           
Liabilities and Stockholders’ Equity          
Current liabilities:          
Accounts payable   $2,046     $2,371    
Accrued expenses     30,301       35,474    
           
Total current liabilities before client fund obligations     32,347       37,845    
Client fund obligations     942,459       1,347,522    
           
Total current liabilities     974,806       1,385,367    
Deferred rent     14,621       20,963    
Deferred income tax liabilities, net     401          
           
Total liabilities   $989,828     $1,406,330    
Stockholders’ equity:          
Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding at June 30, 2017 and March 31, 2018     $—       $—    
Common stock, $0.001 par value, 155,000 shares authorized at June 30, 2017 and March 31, 2018; 51,738 shares issued and outstanding at June 30, 2017 and 52,649 shares issued and outstanding at March 31, 2018     52       53    
Additional paid-in capital     192,837       209,791    
Accumulated deficit     (45,276 )     (5,125 )  
Accumulated other comprehensive loss           (171 )  
Total stockholders’ equity   $147,613     $204,548    
Total liabilities and stockholders’ equity   $1,137,441     $1,610,878    
 

PAYLOCITY HOLDING CORPORATION
Unaudited Consolidated Statements of Operations and Comprehensive Income
 (in thousands, except per share data)

    Three months ended 
March 31,
  Nine months ended 
March 31,
 
      2017       2018       2017       2018    
Revenues:                  
Recurring fees   $85,314     $105,857     $212,581     $264,443    
Interest income on funds held for clients     1,041       2,719       2,489       6,119    
Total recurring revenues     86,355       108,576       215,070       270,562    
Implementation services and other     3,918       4,831       8,879       10,349    
Total revenues     90,273       113,407       223,949       280,911    
Cost of revenues:                  
Recurring revenues     22,436       26,982       62,255       76,711    
Implementation services and other     9,646       11,670       28,569       33,740    
Total cost of revenues     32,082       38,652       90,824       110,451    
Gross profit     58,191       74,755       133,125       170,460    
Operating expenses:                  
Sales and marketing     21,242       26,004       56,988       68,782    
Research and development     6,969       9,058       21,492       27,227    
General and administrative     15,100       19,228       43,915       53,338    
Total operating expenses     43,311       54,290       122,395       149,347    
Operating income     14,880       20,465       10,730       21,113    
Other income (expense)     (47 )     215       (4 )     465    
Income before income taxes     14,833       20,680       10,726       21,578    
Income tax expense (benefit)     32       (18,497 )     164       (18,573 )  
Net income   $14,801     $39,177     $10,562     $40,151    
Other comprehensive loss, net of tax                  
Unrealized losses on securities, net of tax           (61 )           (171 )  
Total other comprehensive loss, net of tax           (61 )           (171 )  
Comprehensive income   $14,801     $39,116     $10,562     $39,980    
                   
Net income per share:                  
Basic   $0.29     $0.74     $0.21     $0.77    
Diluted $0.27   $0.71     $0.20     $0.73  
Weighted-average shares used in computing net income per share:                  
Basic     51,447       52,615       51,353       52,334    
Diluted   54,002     55,030       53,987       54,717  

Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises are included in the above line items:

  Three months ended
March 31,
Nine months ended
March 31,
  2017   2018   2017   2018  
Cost of revenue - recurring $514 $763 $1,719 $2,253  
Cost of revenue -  implementation services and other   373   394   1,094   1,228  
Sales and marketing   1,750   1,593   5,044   5,856  
Research and development   831   983   2,608   3,036  
General and administrative   2,950   3,959   8,798   10,820  
Total $6,418 $7,692 $19,263 $23,193  
           

PAYLOCITY HOLDING CORPORATION
Unaudited Consolidated Statements of Cash Flows
 (in thousands)

    Nine Months Ended
March 31,
 
      2017       2018    
Cash flows from operating activities:          
           
Net income   $10,562     $40,151    
Adjustments to reconcile net income to net cash provided by operating activities:          
Stock-based compensation expense     18,695       21,891    
Depreciation and amortization expense     14,685       20,640    
Deferred income tax expense (benefit)     127       (18,603 )  
Provision for doubtful accounts     47       149    
Net accretion of discounts and amortization of premiums on available-for-sale securities           (234 )  
Net realized losses on sales of available-for-sales securities           2    
Loss on disposal of equipment     225       160    
Changes in operating assets and liabilities:          
Accounts receivable     (543 )     (1,278 )  
Prepaid expenses and other     (1,802 )     (1,678 )  
Accounts payable     (145 )     429    
Accrued expenses     1,484       1,762    
Tenant improvement allowance     -       5,952    
Net cash provided by operating activities     43,335       69,343    
           
Cash flows from investing activities:          
Purchases of available-for-sale securities from funds held for clients           (126,223 )  
Proceeds from sales and maturities of available-for-sale securities from funds held for clients           51,292    
Net change in funds held for clients’ cash and cash equivalents     69,281       (328,462 )  
Capitalized internal-use software costs     (10,073 )     (11,442 )  
Purchases of property and equipment     (13,916 )     (9,374 )  
Lease allowances used for tenant improvements           (7,086 )  
Acquisition of business, net of cash acquired           (8,346 )  
Net cash provided by (used in) investing activities     45,292       (439,641 )  
           
Cash flows from financing activities:          
Net change in client fund obligations     (69,281 )     403,375    
Proceeds from employee stock purchase plan     1,823       2,045    
Taxes paid related to net share settlement of equity awards     (6,215 )     (9,060 )  
Net cash provided by (used in) financing activities     (73,673 )     396,360    
Net Change in Cash and Cash Equivalents     14,954       26,062    
Cash and Cash Equivalents—Beginning of Period     86,496       103,468    
Cash and Cash Equivalents—End of Period   $101,450     $129,530    
Supplemental Disclosure of Non-Cash Investing and Financing Activities          
Purchase of property and equipment and internal–use software, accrued but not paid   $1,714     $2,832    
Supplemental Disclosure of Cash Flow Information          
Cash paid for income taxes, net of refunds   $41     $17    
 


Paylocity Holding Corporation  
Reconciliation of GAAP to non-GAAP Financial Measures  
(In thousands except per share data)  
             
  Three months
Ended
March 31,
  Nine months
Ended
March 31,
 
    2017   2018       2017   2018    
Reconciliation from gross profit to adjusted gross profit:            
Gross profit $ 58,191 $ 74,755     $ 133,125 $ 170,460    
Amortization of capitalized internal-use software costs   2,573   3,655       6,207   10,358    
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises   887   1,157       2,813   3,481    
Adjusted gross profit $ 61,651 $ 79,567     $ 142,145 $ 184,299    
             
  Three months
Ended
March 31,
  Nine months
Ended
March 31,
 
    2017   2018       2017   2018    
Reconciliation from total recurring revenues to adjusted recurring gross profit:            
Total recurring revenues $ 86,355 $ 108,576     $ 215,070 $ 270,562    
Cost of recurring revenues   22,436   26,982       62,255   76,711    
Recurring gross profit   63,919   81,594       152,815   193,851    
Amortization of capitalized internal-use software costs   2,573   3,655       6,207   10,358    
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises   514   763       1,719   2,253    
Adjusted recurring gross profit $ 67,006 $ 86,012     $ 160,741 $ 206,462    
             
  Three months
Ended
March 31,
  Nine months
Ended
March 31,
 
    2017   2018       2017   2018    
Reconciliation from operating income to non-GAAP operating income:            
Operating income $ 14,880 $ 20,465     $ 10,730 $ 21,113    
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises   6,418   7,692       19,263   23,193    
Amortization of acquired intangibles   380   358       1,142   1,076    
Acquisition-related costs   -   191       -   191    
Non-GAAP operating income $ 21,678 $ 28,706     $ 31,135 $ 45,573    
             
             
  Three months
Ended
March 31,
  Nine months
Ended
March 31,
 
    2017   2018       2017   2018    
Reconciliation from net income to Adjusted EBITDA:            
Net income $ 14,801 $ 39,177     $ 10,562 $ 40,151    
Interest expense   -   -       -   -    
Income tax expense (benefit)   32   (18,497 )     164   (18,573 )  
Depreciation and amortization expense   5,582   7,202       14,685   20,640    
EBITDA   20,415   27,882       25,411   42,218    
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises   6,418   7,692       19,263   23,193    
Acquisition-related costs   -   191       -   191    
Adjusted EBITDA $ 26,833 $ 35,765     $ 44,674 $ 65,602    
             
  Three months
Ended
March 31,
  Nine months
Ended
March 31,
 
    2017   2018       2017   2018    
Reconciliation of non-GAAP Sales and Marketing:            
Sales and Marketing $ 21,242 $ 26,004     $ 56,988 $ 68,782    
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises   1,750   1,593       5,044   5,856    
Non-GAAP Sales and Marketing $ 19,492 $ 24,411     $ 51,944 $ 62,926    
             
  Three months
Ended
March 31,
  Nine months
Ended
March 31,
 
    2017   2018       2017   2018    
Reconciliation of non-GAAP Total Research and Development:            
Research and Development $ 6,969 $ 9,058     $ 21,492 $ 27,227    
Capitalized internal-use software costs   3,794   4,296       10,073   11,442    
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises   831   983       2,608   3,036    
Non-GAAP Total Research and Development $ 9,932 $ 12,371     $ 28,957 $ 35,633    
             
  Three months
Ended
March 31,
  Nine months
Ended
March 31,
 
    2017   2018       2017   2018    
Reconciliation of non-GAAP General and Administrative:            
General and Administrative $ 15,100 $ 19,228     $ 43,915 $ 53,338    
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises   2,950   3,959       8,798   10,820    
Amortization of acquired intangibles   380   358       1,142   1,076    
Acquisition-related costs   -   191       -   191    
Non-GAAP General and Administrative $ 11,770 $ 14,720     $ 33,975 $ 41,251    
             

Investor Contact:
Ryan Glenn
Investors@paylocity.com
www.paylocity.com

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Source: Paylocity