Payroll and human resources software provider, Paylocity (NASDAQ:PCTY) reported results in line with analysts' expectations in Q1 FY2024, with revenue up 25.4% year on year to $317.6 million. However, next quarter's revenue guidance of $324.5 million was less impressive, coming in 1.77% below analysts' estimates. Turning to EPS, Paylocity made a non-GAAP profit of $1.40 per share, improving from its profit of $0.98 per share in the same quarter last year.
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Paylocity (PCTY) Q1 FY2024 Highlights:
- Revenue: $317.6 million vs analyst estimates of $316.3 million (small beat)
- EPS (non-GAAP): $1.40 vs analyst estimates of $1.13 (24.2% beat)
- Revenue Guidance for Q2 2024 is $324.5 million at the midpoint, below analyst estimates of $330.3 million
- The company reconfirmed its revenue guidance for the full year of $1.41 billion at the midpoint
- Free Cash Flow of $44.5 million, down 29.9% from the previous quarter
- Gross Margin (GAAP): 68.1%, up from 66.6% in the same quarter last year
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 SoftwareModern 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 GrowthAs you can see below, Paylocity's revenue growth has been very strong over the last two years, growing from $181.7 million in Q1 FY2022 to $317.6 million this quarter.
This quarter, Paylocity's quarterly revenue was once again up a very solid 25.4% year on year. On top of that, its revenue increased $9.13 million quarter on quarter, a strong improvement from the $31.4 million decrease in Q4 2023. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter's guidance suggests that Paylocity is expecting revenue to grow 18.9% year on year to $324.5 million, slowing down from the 39.3% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 18.7% over the next 12 months before the earnings results announcement.
ProfitabilityWhat 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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 68.1% in Q1.
That means that for every $1 in revenue the company had $0.68 left to spend on developing new products, sales and marketing, and general administrative overhead. Paylocity's gross margin is poor for a SaaS business and we'd like to see it start improving.
Key Takeaways from Paylocity's Q1 Results With a market capitalization of $9.22 billion, Paylocity is among smaller companies, but its $305 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.
Paylocity's revenue guidance underwhelmed. Despite the solid free cash flow this was a mediocre quarter for Paylocity. The company is down 5.41% on the results and currently trades at $162.51 per share.
The author has no position in any of the stocks mentioned in this report.
