Payroll and human resources software provider, Paylocity (NASDAQ:PCTY) reported results ahead of analyst expectations in the Q1 FY2023 quarter, with revenue up 39.3% year on year to $253.2 million. Guidance for next quarter's revenue was $259 million at the midpoint, which is 1.93% above the analyst consensus. Paylocity made a GAAP profit of $30.3 million, down on its profit of $30.9 million, in the same quarter last year.
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Paylocity (PCTY) Q1 FY2023 Highlights:
- Revenue: $253.2 million vs analyst estimates of $239.7 million (5.65% beat)
- EPS (non-GAAP): $0.98 vs analyst estimates of $0.64 (52.3% beat)
- Revenue guidance for Q2 2023 is $259 million at the midpoint, above analyst estimates of $254 million
- The company lifted revenue guidance for the full year, from $1.08 billion to $1.12 billion at the midpoint, a 3.21% increase
- Free cash flow of $2.98 million, down 93.6% from previous quarter
- Gross Margin (GAAP): 66.6%, up from 65.1% same quarter last year
"Our strong sales momentum continued into the first quarter of fiscal 2023, with recurring and other revenue growth of 36% and total revenue growth of 39%, as our differentiated value proposition of providing the most modern software in the industry continues to resonate in the marketplace. In September we held our annual Elevate Client Conference, where we hosted a record 4,000 clients, prospects, and partners to more than 100 virtual and in-person sessions over the course of two days,” said Steve Beauchamp, Co-Chief Executive Officer of Paylocity.
Founded by payroll software veteran Steve Sarowitz in 1997, Paylocity (NASDAQ:PCTY) is a provider of payroll and human resources software for small and medium-sized enterprises.
HR software benefits from dual trends around costs savings and ease of use. First is the SaaS-ification of businesses, large and small, who much prefer the flexibility of cloud-based, web-browser delivered software paid for on a subscription basis than the hassle and expense of purchasing and managing on-premise enterprise software. Second is the consumerization of business software, whereby multiple standalone processes like payroll processing and compliance are aggregated into a single, easy to use platforms.
Sales Growth
As you can see below, Paylocity's revenue growth has been strong over the last two years, growing from quarterly revenue of $135.7 million in Q1 FY2021, to $253.2 million.
This was a standout quarter for Paylocity, with the quarterly revenue up 39.3% year on year, which is above the trend for the company. On top of that, revenue increased $24.3 million quarter on quarter, a strong improvement on the $17 million decrease in Q4 2022, and a sign of acceleration of growth, which is very nice to see indeed.
Guidance for the next quarter indicates Paylocity is expecting revenue to grow 32.1% year on year to $259 million, in line with the 33.9% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 23.5% over the next twelve months.
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Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Paylocity's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 66.6% in Q1.
That means that for every $1 in revenue the company had $0.66 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and we would like to see it start improving.
Key Takeaways from Paylocity's Q1 Results
With a market capitalization of $11.6 billion, more than $65.4 million in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.
We enjoyed seeing Paylocity’s impressive revenue growth this quarter. And we were also excited to see that guidance outperformed Wall St’s expectations. Overall, we think this was a really good quarter, that should leave shareholders feeling very positive. The company is flat on the results and currently trades at $210.95 per share.
Paylocity may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.