Paylocity (NASDAQ:PCTY) Beats Q1 Sales Targets, Stock Soars

Radek Strnad /
2024/05/02 4:13 pm EDT

Payroll and human resources software provider, Paylocity (NASDAQ:PCTY) reported results ahead of analysts' expectations in Q1 CY2024, with revenue up 18.1% year on year to $401.3 million. Guidance for next quarter's revenue was also better than expected at $349.8 million at the midpoint, 1.2% above analysts' estimates. It made a non-GAAP profit of $2.21 per share, improving from its profit of $1.74 per share in the same quarter last year.

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Paylocity (PCTY) Q1 CY2024 Highlights:

  • Revenue: $401.3 million vs analyst estimates of $397.2 million (1% beat)
  • EPS (non-GAAP): $2.21 vs analyst estimates of $1.98 (11.7% beat)
  • Revenue Guidance for Q2 CY2024 is $349.8 million at the midpoint, above analyst estimates of $345.5 million
  • Gross Margin (GAAP): 71.1%, down from 71.9% in the same quarter last year
  • Free Cash Flow of $147 million, up 157% from the previous quarter
  • Annual Recurring Revenue: $366.8 million at quarter end, up 16.7% year on year
  • Market Capitalization: $8.41 billion

“Our solid results continued into the third quarter of fiscal 2024, with total revenue growth of 18% and recurring & other revenue growth of 17% as our differentiated value proposition of providing the most modern software in the industry continues to resonate in the market. In Q3, we announced a series of enhancements to our talent acquisition suite to help clients more effectively recruit, train, and retain the newest entrants to the workforce, including AI-driven features that will help new hires automatically integrate and collaborate with their teams. This ongoing commitment to product innovation was recently recognized in the market, with Paylocity placing as an overall leader in 10 product categories in the G2 Spring 2024 Grid Reports. Additionally, because of our strong profitability and cash flows, our Board of Directors has approved a $500 million share repurchase program,” said Toby Williams, President and Co-Chief Executive Officer of Paylocity.

Founded by payroll software veteran Steve Sarowitz in 1997, Paylocity (NASDAQ:PCTY) is a provider of payroll and HR software for small and medium-sized enterprises.

HR Software

Modern HR software has two powerful benefits: cost savings and ease of use. For cost savings, businesses large and small much prefer the flexibility of cloud-based, web-browser-delivered software paid for on a subscription basis rather than the hassle and complexity of purchasing and managing on-premise enterprise software. On the usability side, the consumerization of business software creates seamless experiences whereby multiple standalone processes like payroll processing and compliance are aggregated into a single, easy-to-use platform.

Sales Growth

As you can see below, Paylocity's revenue growth has been very strong over the last three years, growing from $186.1 million in Q3 2021 to $401.3 million this quarter.

Paylocity Total Revenue

This quarter, Paylocity's quarterly revenue was once again up 18.1% year on year. We can see that Paylocity's revenue increased by $74.92 million quarter on quarter, which is a solid improvement from the $8.78 million increase in Q4 CY2023. Shareholders should applaud the acceleration of growth.

Next quarter's guidance suggests that Paylocity is expecting revenue to grow 13.4% year on year to $349.8 million, slowing down from the 34.7% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 12.5% over the next 12 months before the earnings results announcement.

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Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Paylocity's free cash flow came in at $147 million in Q1, up 28.6% year on year.

Paylocity Free Cash Flow

Paylocity has generated $297.7 million in free cash flow over the last 12 months, an impressive 22% of revenue. This high FCF margin stems from its asset-lite business model and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a cash cushion.

Key Takeaways from Paylocity's Q1 Results

We were impressed by Paylocity's strong gross margin improvement this quarter. We were also glad next quarter's revenue guidance came in higher than Wall Street's estimates. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The stock is up 8.4% after reporting and currently trades at $162 per share.

Paylocity may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.