Paylocity
May 4, 2017
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Paylocity Announces Third Quarter Fiscal Year 2017 Financial Results

ARLINGTON HEIGHTS, Ill., May 04, 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 third quarter of fiscal year 2017, which ended March 31, 2017.

"We had a very good third quarter with total revenue growth of 28% while at the same time driving improved leverage across all of our key financial metrics, as we remain committed to scaling the business," said Steve Beauchamp, President and Chief Executive Officer of Paylocity. "I was very pleased with the level of service provided to our clients during the busiest time of the year, as all of our operational teams worked proactively with our clients to ensure year-end tasks were completed timely and accurately."

Third Quarter Fiscal 2017 Financial Highlights

Revenue:

Operating Income:

Net Income:

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 May 4, 2017, Paylocity is issuing guidance for the fourth quarter and full fiscal year 2017 as indicated below.

Fourth Quarter 2017:

Fiscal Year 2017:

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 third quarter 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 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 85103183. 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 for medium-sized organizations. 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 Enhanced, 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
Unaudited Consolidated Balance Sheets
(in thousands, except per share data)
 
  June 30, March 31,
Assets 2016 2017
Current assets:    
Cash and cash equivalents $86,496  $101,450 
Accounts receivable, net 1,681  2,177 
Prepaid expenses and other 7,409  13,094 
     
Total current assets before funds held for clients 95,586  116,721 
Funds held for clients 1,239,622  1,170,341 
     
Total current assets 1,335,208  1,287,062 
Long-term prepaid expenses 845  1,592 
Capitalized internal-use software, net 11,427  16,705 
Property and equipment, net 26,787  34,297 
Intangible assets, net 10,419  9,277 
Goodwill 6,003  6,003 
     
Total assets $1,390,689  $1,354,936 
     
Liabilities and Stockholders' Equity    
Current liabilities:    
Accounts payable $1,621  $1,633 
Accrued expenses 24,979  27,136 
     
Total current liabilities before client fund obligations 26,600  28,769 
Client fund obligations 1,239,622  1,170,341 
     
Total current liabilities 1,266,222  1,199,110 
Deferred rent 4,646  9,601 
Deferred income tax liabilities, net 249  376 
     
Total liabilities $1,271,117  $1,209,087 
Stockholders' equity:    
Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding at June 30, 2016 and March 31, 2017 $—  $— 
Common stock, $0.001 par value, 155,000 shares authorized at June 30, 2016 and March 31, 2017; 51,132 shares issued and outstanding at June 30, 2016 and 51,489 shares issued and outstanding at March 31, 2017 51  51 
Additional paid-in capital 171,515  187,230 
Accumulated deficit (51,994) (41,432)
Total stockholders' equity $119,572  $145,849 
Total liabilities and stockholders' equity $1,390,689  $1,354,936 
       

 

PAYLOCITY HOLDING CORPORATION
Unaudited Consolidated Statements of Operations
(in thousands, except per share data)
 
  Three months ended 
March 31,
 Nine months ended 
March 31,
  2016 2017 2016 2017
Revenues:        
Recurring fees $66,279  $85,314  $160,374 $212,581 
Interest income on funds held for clients 803  1,041  1,946 2,489 
Total recurring revenues 67,082  86,355  162,320 215,070 
Implementation services and other 3,488  3,918  8,542 8,879 
Total revenues 70,570  90,273  170,862 223,949 
Cost of revenues:        
Recurring revenues 18,576  22,436  47,858 62,255 
Implementation services and other 8,633  9,646  23,646 28,569 
Total cost of revenues 27,209  32,082  71,504 90,824 
Gross profit 43,361  58,191  99,358 133,125 
Operating expenses:        
Sales and marketing 17,681  21,242  44,471 56,988 
Research and development 6,759  6,969  18,987 21,492 
General and administrative 12,720  15,100  34,410 43,915 
Total operating expenses 37,160  43,311  97,868 122,395 
Operating income 6,201  14,880  1,490 10,730 
Other income (expense) (83) (47) 214 (4)
Income before income taxes 6,118  14,833  1,704 10,726 
Income tax expense (benefit) (43) 32  143 164 
Net income $6,161  $14,801  $1,561 $10,562 
Net income per share:        
Basic $0.12  $0.29  $0.03 $0.21 
Diluted$0.12 $0.27  $0.03 $0.20 
Weighted-average shares used in computing net income per share:        
Basic 50,962  51,447  50,865 51,353 
Diluted53,424 54,002  53,431 53,987 
          

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,

  2016 2017 2016 2017
Cost of revenue - recurring $459 $514 $1,317 $1,719
Cost of revenue -  implementation services and other 303 373 905 1,094
Sales and marketing 1,205 1,750 3,360 5,044
Research and development 778 831 2,228 2,608
General and administrative 2,029 2,950 5,750 8,798
Total $4,774 $6,418 $13,560 $19,263
         

 

PAYLOCITY HOLDING CORPORATION
Unaudited Consolidated Statements of Cash Flows
(in thousands)
 
  Nine Months Ended
March 31,
  2016 2017
Cash flows from operating activities:    
     
Net income $1,561  $10,562 
Adjustments to reconcile net income to net cash provided by operating activities:    
Stock-based compensation expense 13,212  18,695 
Depreciation and amortization expense 9,875  14,685 
Deferred income tax expense 113  127 
Provision for doubtful accounts 90  47 
Loss on disposal of equipment 301  225 
Changes in operating assets and liabilities:    
Accounts receivable (700) (543)
Prepaid expenses and other (3,069) (1,802)
Accounts payable (606) (145)
Accrued expenses 8,290  1,484 
Net cash provided by operating activities 29,067  43,335 
     
Cash flows from investing activities:    
Capitalized internal-use software costs (5,807) (10,073)
Purchases of property and equipment (11,746) (13,916)
Payments for acquisitions (483)  
Net change in funds held for clients (831,757) 69,281 
Net cash provided by (used in) investing activities (849,793) 45,292 
     
Cash flows from financing activities:    
Net change in client fund obligations 831,757  (69,281)
Proceeds from exercise of stock options 137   
Proceeds from employee stock purchase plan 1,403  1,823 
Taxes paid related to net share settlement of equity awards (4,122) (6,215)
Net cash provided by (used in) financing activities 829,175  (73,673)
Net Change in Cash and Cash Equivalents 8,449  14,954 
Cash and Cash Equivalents—Beginning of Period 81,258  86,496 
Cash and Cash Equivalents—End of Period $89,707  $101,450 
Supplemental Disclosure of Non-Cash Investing and Financing Activities    
Build-out allowances received from landlords $1,888  $— 
Purchase of property and equipment, accrued but not paid $683  $1,714 
Supplemental Disclosure of Cash Flow Information    
Cash paid for income taxes, net of refunds $20  $41 
       


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,
  20162017 20162017
Reconciliation from gross profit to adjusted gross profit:      
Gross profit $43,361 $58,191 $99,358$133,125
Amortization of capitalized internal-use software costs  1,504  2,573  3,869 6,207
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises  762  887  2,222 2,813
Adjusted gross profit $45,627 $61,651 $105,449$142,145
       
  Three months
Ended
March 31,
 Nine months
Ended
March 31,
  20162017 20162017
Reconciliation from total recurring revenues to adjusted recurring gross profit:      
Total recurring revenues $67,082 $86,355 $162,320$215,070
Cost of recurring revenues  18,576  22,436  47,858 62,255
Recurring gross profit  48,506  63,919  114,462 152,815
Amortization of capitalized internal-use software costs  1,504  2,573  3,869 6,207
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises  459  514  1,317 1,719
Adjusted recurring gross profit $50,469 $67,006 $119,648$160,741
       
  Three months
Ended
March 31,
 Nine months
Ended
March 31,
  20162017 20162017
Reconciliation from operating income to non-GAAP operating income:      
Operating income $6,201 $14,880 $1,490$10,730
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises  4,774  6,418  13,560 19,263
Amortization of acquired intangibles  381  380  1,142 1,142
Non-GAAP operating income $11,356 $21,678 $16,192$31,135
       
  Three months
Ended
March 31,
 Nine months
Ended
March 31,
  20162017 20162017
Reconciliation from net income to non-GAAP net income:      
Net income $6,161 $14,801 $1,561$10,562
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises  4,774  6,418  13,560 19,263
Amortization of acquired intangibles  381  380  1,142 1,142
Non-GAAP net income $11,316 $21,599 $16,263$30,967
       
       
  Three months
Ended
March 31,
 Nine months
Ended
March 31,
  20162017 20162017
Calculation of non-GAAP net income per share:      
Non-GAAP net income $11,316 $21,599 $16,263$30,967
Diluted weighted-average number of common shares  53,424  54,002  53,431 53,987
Non-GAAP net income per share $0.21 $0.40 $0.30$0.57
       
  Three months
Ended
March 31,
 Nine months
Ended
March 31,
  20162017 20162017
Reconciliation from net income to Adjusted EBITDA:      
Net income $6,161 $14,801 $1,561$10,562
Interest expense  -  -  - -
Income tax expense (benefit)  (43) 32  143 164
Depreciation and amortization  3,720  5,582  9,875 14,685
EBITDA  9,838  20,415  11,579 25,411
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises  4,774  6,418  13,560 19,263
Adjusted EBITDA $14,612 $26,833 $25,139$44,674
       
  Three months
Ended
March 31,
 Nine months
Ended
March 31,
  20162017 20162017
Reconciliation of non-GAAP Sales and Marketing:      
Sales and Marketing $17,681 $21,242 $44,471$56,988
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises  1,205  1,750  3,360 5,044
Non-GAAP Sales and Marketing $16,476 $19,492 $41,111$51,944
       
  Three months
Ended
March 31,
 Nine months
Ended
March 31,
  20162017 20162017
Reconciliation of non-GAAP Total Research and Development:      
Research and Development $6,759 $6,969 $18,987$21,492
Capitalized internal-use software costs  2,032  3,794  5,807 10,073
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises  778  831  2,228 2,608
Non-GAAP Total Research and Development $8,013 $9,932 $22,566$28,957
       
  Three months
Ended
March 31,
 Nine months
Ended
March 31,
  20162017 20162017
Reconciliation of non-GAAP General and Administrative:      
General and Administrative $12,720 $15,100 $34,410$43,915
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises  2,029  2,950  5,750 8,798
Amortization of acquired intangibles  381  380  1,142 1,142
Non-GAAP General and Administrative $10,310 $11,770 $27,518$33,975
       
Contact:
Annemarie Pozo
investors@paylocity.com
224.318.3900
www.paylocity.com