Why Is Paylocity (PCTY) Down 0.1% Since Last Earnings Report?

It has been about a month since the last earnings report for Paylocity (PCTY). Shares have lost about 0.1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Paylocity due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Paylocity Reports Solid Q2 Results

Paylocity Holding delivered second-quarter fiscal 2020 non-GAAP earnings of 36 cents per share, topping the Zacks Consensus Estimate of 29 cents. The bottom line was also way higher than the year-ago quarter’s 23 cents.

Additionally, Paylocity’s revenues of $132 million improved 23% year over year and also trumped the Zacks Consensus Estimate of $130 million.

The company is benefiting from growing adoption of its solutions among clients with less than 50 employees. Moreover, healthy momentum in the company’s core and upper end of the market is a tailwind.

The better-than-expected earnings coupled with a bullish guidance by management for the full year is expected to buoy investor confidence in the stock. Nonetheless, the near-term headwinds to margin given the lower interest rate are a concern.

Quarter in Detail

Paylocity’s top line was driven by a 23% rise in recurring revenues (97% of total revenues), which totaled $132.4 million. However, interest income on funds held for clients declined 1.5% to $4.39 million.

Channel referrals, mainly from brokers and financial advisors, represented more than 25% of new business in the reported quarter.

Partnerships in the technology space with computer software provider Compete and the microsavings tech company EvoShare were noteworthy in the period.

The company’s non-GAAP gross profit came in at $93.1 million, up 24.4% year over year. Non-GAAP gross margin also expanded 50 basis points (bps) year over year to 70.3%, aided by consistent revenue growth and a steady scale in business model.

Adjusted EBITDA increased 16.1% from the year-ago quarter to $30.3 million. Also, adjusted EBITDA margin of 22.9% contracted 140 basis points.

Non-GAAP operating income of $21.1 million soared 19.2% year over year.

Paylocity exited the reported quarter with cash and cash equivalents of $132.5 million compared with $100.5 million in the earlier reported quarter.

Cash flow from operations for the fiscal second quarter was $27.8 million compared with $8.3 million in the year-ago period.

Guidance

For the fiscal third quarter, Paylocity expects revenues in the range of $168.5-$169.5 million, indicating 21% growth from the year-ago reported figure. Adjusted EBITDA is projected in the band of $63.8-$64.8 million.

For fiscal 2020, the company anticipates revenues in the bracket of $572.5-$573.5 million, up from $567-$569 million predicted earlier. Adjusted EBITDA is maintained within $163.5-$165.5 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Paylocity has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Paylocity has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.