Paylocity
Aug 10, 2017
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Paylocity Announces Fourth Quarter and Fiscal Year 2017 Financial Results

ARLINGTON HEIGHTS, Ill., Aug. 10, 2017 (GLOBE NEWSWIRE) -- Paylocity Holding Corporation (Nasdaq:PCTY), a cloud-based provider of payroll and human capital management software solutions, today announced financial results for the fourth quarter and full fiscal year 2017, which ended June 30, 2017.

"We ended with a strong fourth quarter, allowing us to finish the fiscal year with 30% revenue growth while driving leverage across all of our key financial metrics," said Steve Beauchamp, President and Chief Executive Officer of Paylocity. "We also continue to realize the benefits of our sustained R&D investment, having announced several additions to our HCM product suite in fiscal 2017, including Expense, Recruiting and the newly released HR Compliance Dashboard."

Fourth Quarter 2017 Financial Highlights

Revenue:

Operating Income (Loss):

Net Income (Loss):

Adjusted EBITDA:

Fiscal Year 2017 Financial Highlights

Revenue:

Operating Income (Loss):

Net Income (Loss):

Adjusted EBITDA:

Balance Sheet and Cash Flow:

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 August 10, 2017, Paylocity is issuing guidance for the first quarter and full fiscal year 2018 as indicated below.

First Quarter 2018:

Fiscal Year 2018:

We are unable to reconcile these 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 fourth quarter and fiscal year 2017 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 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 46527251. 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 net income (loss), non-GAAP net income (loss) per share, 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, and depreciation and amortization expense, adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises. 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 and the amortization of acquired intangibles. 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 general and administrative expense is adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises and the amortization of acquired intangibles. Non-GAAP net income (loss) and non-GAAP net income (loss) per share are adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises and the amortization of acquired intangibles. Pro forma diluted weighted average number of common shares are adjusted for the weighted average effect of potentially diluted shares. 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. 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.

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, 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, such as ACA Compliance, 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; 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 12, 2016.  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
Consolidated Balance Sheets
(in thousands, except per share data)
   
  As of June 30,
Assets 2016 2017
Current assets:    
Cash and cash equivalents $86,496  $103,468 
Accounts receivable, net 1,681  2,040 
Prepaid expenses and other 7,409  14,879 
     
Total current assets before funds held for clients 95,586  120,387 
Funds held for clients 1,239,622  942,459 
     
Total current assets 1,335,208  1,062,846 
Long-term prepaid expenses 845  1,535 
Capitalized internal-use software, net 11,427  17,394 
Property and equipment, net 26,787  40,756 
Intangible assets, net 10,419  8,907 
Goodwill 6,003  6,003 
     
Total assets $1,390,689  $1,137,441 
     
Liabilities and Stockholders' Equity    
     
Current liabilities:    
     
Accounts payable $1,621  $2,046 
Accrued expenses 24,979  30,301 
     
Total current liabilities before client fund obligations 26,600  32,347 
Client fund obligations 1,239,622  942,459 
     
Total current liabilities 1,266,222  974,806 
Deferred rent 4,646  14,621 
Deferred income tax liabilities, net 249  401 
     
Total liabilities $1,271,117  $989,828 
     
Stockholders' equity    
Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding at June 30, 2016 and 2017 $—  $— 
Common stock, $0.001 par value, 155,000 shares authorized at June 30, 2016 and 2017; 51,132 shares issued and outstanding at June 30, 2016 and 51,738 shares issued and outstanding at June 30, 2017 51  52 
Additional paid-in capital 171,515  192,837 
Accumulated deficit (51,994) (45,276)
Total stockholders' equity $119,572  $147,613 
Total liabilities and stockholders' equity $1,390,689  $1,137,441 
       


PAYLOCITY HOLDING CORPORATION
Consolidated Statements of Operations
(in thousands, except per share data)
     
  For the Three
Months Ended 

June 30,
 For the Years Ended
June 30,
  2016 2017 2016 
 2017
Revenues:          
Recurring fees $57,042  $72,236  $217,416  $284,817
Interest income on funds held for clients  742   1,142   2,688   3,631
Total recurring revenues  57,784   73,378   220,104   288,448
Implementation services and other  2,055   2,683   10,597   11,562
Total revenues  59,839   76,061   230,701   300,010
Cost of revenues:        
Recurring revenues  18,273   23,144   66,131   85,399
Implementation services and other  8,308   10,019   31,954   38,588
Total cost of revenues  26,581   33,163   98,085   123,987
Gross profit  33,258   42,898   132,616   176,023
Operating expenses:        
Sales and marketing  17,361   20,518   61,832   77,506
Research and development  7,749   7,606   26,736   29,098
General and administrative  13,188   18,208   47,598   62,123
Total operating expenses  38,298   46,332   136,166   168,727
Operating income (loss)  (5,040)  (3,434)  (3,550)  7,296
Other income (expense)  (338)  77   (124)  73
Income (loss) before income taxes  (5,378)  (3,357)  (3,674)  7,369
Income tax expense  34   487   177   651
Net income (loss) $(5,412) $(3,844) $(3,851) $6,718
Net income (loss) per share:        
Basic $(0.11) $(0.07) $(0.08) $0.13
Diluted $(0.11) $(0.07) $(0.08) $0.12
Weighted-average shares used in computing net income (loss) per share:        
Basic  51,058   51,602   50,913   51,415
Diluted  51,058   51,602   50,913   54,057
                

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

 For the Three
Months Ended
June 30,
 For the Years Ended
June 30,

 2016 2017 2016 2017
Cost of revenue — recurring$448 $610 $1,765 $2,329
Cost of revenue — implementation services and other297 379 1,202 1,473
Sales and marketing1,207 1,514 4,567 6,558
Research and development714 740 2,942 3,348
General and administrative1,973 5,288 7,723 14,086
Total$4,639 $8,531 $18,199 $27,794
        


PAYLOCITY HOLDING CORPORATION
Consolidated Statements of Cash Flows
(in thousands)
   
  For the Years Ended June 30,
  2016
 2017
Cash flows from operating activities:    
     
Net income (loss) $(3,851) $6,718 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Stock-based compensation expense 17,563  26,734 
Depreciation and amortization expense 13,873  21,027 
Deferred income tax expense 150  152 
Provision for doubtful accounts 159  113 
Loss on disposal of equipment 712  253 
Changes in operating assets and liabilities:    
Accounts receivable (725) (472)
Prepaid expenses and other (3,270) (2,074)
Accounts payable 72  219 
Accrued expenses 8,310  6,465 
Tenant improvement allowance   2,845 
Net cash provided by operating activities 32,993  61,980 
     
Cash flows from investing activities:    
Capitalized internal-use software costs (8,391) (13,641)
Purchases of property and equipment (16,083) (21,338)
Lease allowances used for tenant improvements   (2,845)
Payments for acquisitions (483)  
Net change in funds held for clients (648,403) 297,163 
Net cash provided by (used in) investing activities (673,360) 259,339 
     
Cash flows from financing activities:    
Net change in client funds obligation 648,403  (297,163)
Proceeds from exercise of stock options 137  34 
Proceeds from employee stock purchase plan 2,991  3,677 
Taxes paid related to net share settlement of equity awards (5,926) (11,342)
Excess tax benefits from stock-based compensation   447 
Net cash provided by (used in) financing activities 645,605  (304,347)
Net Change in Cash and Cash Equivalents 5,238  16,972 
Cash and Cash Equivalents—Beginning of Year 81,258  86,496 
Cash and Cash Equivalents—End of Year $86,496  $103,468 
Supplemental Disclosure of Non-Cash Investing and Financing Activities    
Build-out allowances received from landlords $1,888  $— 
Purchase of property and equipment and internal-use software, accrued but not paid $607  $667 
Supplemental Disclosure of Cash Flow Information    
Cash paid for income taxes, net of refunds $3  $28 
       


Paylocity Holding Corporation
Reconciliation of GAAP to non-GAAP Financial Measures
(In thousands except per share data)
        
 Three months
Ended
June 30,
 For the year
Ended
June 30,
 2016 2017 2016 2017
Reconciliation from gross profit to adjusted gross profit:       
Gross profit$33,258  $42,898  $132,616  $176,023
Amortization of capitalized internal-use software costs 1,577   3,240   5,446   9,447
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 745   989   2,967   3,802
Adjusted gross profit$35,580  $47,127  $141,029  $189,272
        
 Three months
Ended
June 30,
 For the year
Ended
June 30,
 2016 2017 2016 2017
Reconciliation from total recurring revenues to adjusted recurring gross profit:       
Total recurring revenues$57,784  $73,378  $220,104  $288,448
Cost of recurring revenues 18,273   23,144   66,131   85,399
Recurring gross profit 39,511   50,234   153,973   203,049
Amortization of capitalized internal-use software costs 1,577   3,240   5,446   9,447
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 448   610   1,765   2,329
Adjusted recurring gross profit$41,536  $54,084  $161,184  $214,825
        
 Three months
Ended
June 30,
 For the year
Ended
June 30,
 2016 2017 2016 2017
Reconciliation from operating income (loss) to non-GAAP operating income (loss):       
Operating income (loss)$(5,040) $(3,434) $(3,550) $7,296
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 4,639   8,531   18,199   27,794
Amortization of acquired intangibles 380   370   1,522   1,512
Non-GAAP operating income (loss)$(21) $5,467  $16,171  $36,602
        
 Three months
Ended
June 30,
 For the year
Ended
June 30,
 2016 2017 2016 2017
Reconciliation from net income (loss) to non-GAAP net income (loss):       
Net income (loss)$(5,412) $(3,844) $(3,851) $6,718
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 4,639   8,531   18,199   27,794
Amortization of acquired intangibles 380   370   1,522   1,512
Non-GAAP net income (loss)$(393) $5,057  $15,870  $36,024
        
 Three months
Ended
June 30,
 For the year
Ended
June 30,
 2016 2017 2016 2017
Calculation of non-GAAP net income (loss) per share:       
Non-GAAP net income (loss)$(393) $5,057  $15,870  $36,024
Diluted weighted-average number of common shares (pro forma for the year ended June 30, 2016 and three months ended June 30, 2017) 51,058   54,537   53,522   54,057
Non-GAAP net income (loss) per share$(0.01) $0.09  $0.30  $0.67
        
 Three months
Ended
June 30,
 For the year
Ended
June 30,
 2016 2017 2016 2017
Reconciliation from diluted weighted-average number of common shares as reported to pro forma diluted weighted average number of common shares       
Diluted weighted-average number of common shares, as reported 51,058   51,602   50,913   54,057
Weighted-average effect of potentially dilutive shares -   2,935   2,609   -
Pro forma diluted weighted-average number of common shares 51,058   54,537   53,522   54,057
        
 Three months
Ended
June 30,
 For the year
Ended
June 30,
 2016 2017 2016 2017
Reconciliation from net income (loss) to Adjusted EBITDA:       
Net income (loss)$(5,412) $(3,844) $(3,851) $6,718
Interest expense -   -   -   -
Income tax expense 34   487   177   651
Depreciation and amortization expense 3,998   6,342   13,873   21,027
EBITDA (1,380)  2,985   10,199   28,396
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 4,639   8,531   18,199   27,794
Adjusted EBITDA$3,259  $11,516 #$28,398  $56,190
        
 Three months
Ended
June 30,
 For the year
Ended
June 30,
 2016 2017 2016 2017
Reconciliation of non-GAAP Sales and Marketing:       
Sales and Marketing$17,361  $20,518  $61,832  $77,506
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 1,207   1,514   4,567   6,558
Non-GAAP Sales and Marketing$16,154  $19,004  $57,265  $70,948
        
 Three months
Ended
June 30,
 For the year
Ended
June 30,
 2016 2017 2016 2017
Reconciliation of non-GAAP Total Research and Development:       
Research and Development$7,749  $7,606  $26,736  $29,098
Capitalized internal-use software costs 2,584   3,568   8,391   13,641
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 714   740   2,942   3,348
Non-GAAP Total Research and Development$9,619  $10,434  $32,185  $39,391
        
 Three months
Ended
June 30,
 For the year
Ended
June 30,
 2016 2017 2016 2017
Reconciliation of non-GAAP General and Administrative:       
General and Administrative$13,188  $18,208  $47,598  $62,123
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 1,973   5,288   7,723   14,086
Amortization of acquired intangibles 380   370   1,522   1,512
Non-GAAP General and Administrative$10,835  $12,550  $38,353  $46,525
        


Investor Contact:
Annemarie Pozo
investors@paylocity.com
224-318-3900