Paylocity Announces Second Quarter Fiscal Year 2021 Financial Results

• Q2 2021 Recurring & Other Revenue of $145.4 million, up 14% year-over-year
• Q2 2021 Total Revenue of $146.3 million, up 11% year-over-year

SCHAUMBURG, Ill., Feb. 04, 2021 (GLOBE NEWSWIRE) -- Paylocity Holding Corporation (Nasdaq: PCTY), a leading provider of cloud-based HR and payroll software solutions, today announced financial results for the second quarter of fiscal year 2021, which ended December 31, 2020.

“Despite the challenges of the COVID-19 pandemic, we had a strong second quarter, with 14% growth in recurring & other revenue and 11% total revenue growth. The momentum our sales team developed during the Fall selling season translated into a strong January, and we continue to be pleased with how our team is performing in a virtual selling environment. We also remain excited about our product momentum in delivering the most modern platform.  Our recent acquisition of Samepage, an all-in-one team collaboration solution, is another recent proofpoint,” said Steve Beauchamp, Chief Executive Officer of Paylocity.

Second Quarter Fiscal 2021 Financial Highlights

Revenue:

• Total revenue was $146.3 million, an increase of 11% from the second quarter of fiscal year 2020.
  
  
• Recurring & other revenue was $145.4 million, representing 99% of total revenue and an increase of 14% from the second quarter of fiscal year 2020.

Operating Income:

• GAAP operating income was $6.4 million and Non-GAAP operating income was $25.1 million in the second quarter of fiscal year 2021.
  

Net Income:

• GAAP net income was $9.6 million or $0.17 per share for the three months ended December 31, 2020 based on 56.3 million diluted weighted average common shares outstanding.
  

Adjusted EBITDA:

• Adjusted EBITDA, a non-GAAP measure, was $35.0 million in the second quarter of fiscal year 2021.
  

Balance Sheet and Cash Flow:

• Cash, cash equivalents and invested corporate cash totaled $232.3 million as of the end of the quarter.
  
  
• $100 million outstanding at the end of the quarter under our credit facility.
  
  
• Cash flow from operations for the second quarter of fiscal year 2021 was $21.2 million compared to $27.8 million for the second quarter of fiscal year 2020.
  

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 February 4, 2021, Paylocity is issuing guidance for the third quarter and full fiscal year 2021 as indicated below.

Third Quarter 2021:

• Total revenue is expected to be in the range of $182.5 million to $186.5 million, which represents approximately 6% - 9% growth over fiscal 2020 third quarter revenue.
  
  
• Adjusted EBITDA, a non-GAAP measure, is expected to be in the range of $59.0 million to $62.0 million.

Fiscal Year 2021:

• Total revenue is expected to be in the range of $623.5 million to $628.5 million, which represents approximately 11% - 12% growth over fiscal year 2020 revenue.
  
  
• Adjusted EBITDA, a non-GAAP measure, is expected to be in the range of $152.0 million to $156.0 million.

We are unable to reconcile forward-looking non-GAAP Adjusted EBITDA to its directly comparable GAAP financial measure 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 second quarter fiscal year 2021 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 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 2895946. A replay of the call will be available and archived via webcast at www.paylocity.com.

About Paylocity

Paylocity is a leading provider of cloud-based HR and payroll software solutions headquartered in Schaumburg, IL. Founded in 1997 and publicly traded since 2014, Paylocity offers an intuitive, easy-to-use product suite that helps businesses tackle today’s challenges while moving them toward the promise of tomorrow. Known for its unique culture and consistently recognized as one of the best places to work, Paylocity accompanies its clients on the journey to create great workplaces and help people achieve their best through automation, data-driven insights, and engagement. 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, non-GAAP operating income, non-GAAP net income, non-GAAP net income per share, non-GAAP sales and marketing, non-GAAP total research and development and non-GAAP general and administrative and free cash flow. 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 (benefit), and depreciation and amortization expense, adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises and other items as described later in this release. Adjusted gross profit is 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 is adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, the amortization of acquired intangibles and other items as described later in this release. 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, the amortization of acquired intangibles and other items as described later in this release. Non-GAAP net income and non-GAAP net income per share are adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, the amortization of acquired intangibles and other items as described later in this release, including the income tax effect on these items, the valuation allowance release, excess tax benefit related to employee stock-based compensation payments and the impact of tax reform. 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 and acquisition-related costs. Free cash flow is defined as net cash provided by operating activities less capitalized internal-use software costs, purchase of property and equipment and lease allowances used for tenant improvements. 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, ability to scale its business, 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 the ongoing impact of the novel coronavirus disease (“COVID-19”) on the U.S. economy, including reductions in interest rates, business disruptions, reductions in employment and an increase in business failures that have occurred or may occur in the future; the continuing impact of COVID-19 on Paylocity’s employees and clients and Paylocity’s ability to provide services to its clients and respond to their needs; 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 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; risks related to regulatory, legislative and judicial uncertainty in Paylocity’s markets, including the potential repeal or replacement of the Affordable Care Act; 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 7, 2020. 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, including events relating to the COVID-19 pandemic and its severity, duration and ultimate impact, 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,				December 31,
		2020				2020
Assets
Current assets:
Cash and cash equivalents		$	250,851			$	218,696
Corporate investments			34,556				13,637
Accounts receivable, net			4,923				6,118
Deferred contract costs			32,332				37,447
Prepaid expenses and other			13,188				15,633
Total current assets before funds held for clients			335,850				291,531
Funds held for clients			1,327,304				2,204,286
Total current assets			1,663,154				2,495,817
Capitalized internal-use software, net			36,501				40,623
Property and equipment, net			66,737				64,066
Operating lease right-of-use assets			48,658				45,429
Intangible assets, net			13,360				15,083
Goodwill			21,655				33,184
Long-term deferred contract costs			125,711				144,027
Long‑term prepaid expenses and other			4,917				3,218
Deferred income tax assets			4,955				9,516
Total assets		$	1,985,648			$	2,850,963
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	1,755			$	2,771
Accrued expenses			79,881				64,204
Total current liabilities before client fund obligations			81,636				66,975
Client fund obligations			1,327,304				2,204,286
Total current liabilities			1,408,940				2,271,261
Long-term debt			100,000				100,000
Long-term operating lease liabilities			73,299				69,672
Other long-term liabilities			1,747				1,812
Deferred income tax liabilities			8,754				—
Total liabilities		$	1,592,740			$	2,442,745
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding at June 30, 2020 and December 31, 2020		$	—			$	—
Common stock, $0.001 par value, 155,000 shares authorized at June 30, 2020 and December 31, 2020; 53,792 shares issued and outstanding at June 30, 2020 and 54,370 shares issued and outstanding at December 31, 2020			54				54
Additional paid-in capital			227,907				221,525
Retained earnings			164,272				186,374
Accumulated other comprehensive income			675				265
Total stockholders' equity		$	392,908			$	408,218
Total liabilities and stockholders’ equity		$	1,985,648			$	2,850,963

PAYLOCITY HOLDING CORPORATION Unaudited Consolidated Statements of Operations and Comprehensive Income (in thousands, except per share data)
		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2019				2020				2019				2020
Revenues:
Recurring and other revenue		$	127,980			$	145,393			$	249,853			$	280,268
Interest income on funds held for clients			4,394				936				9,241				1,855
Total revenues			132,374				146,329				259,094				282,123
Cost of revenues			45,424				53,542				88,054				102,922
Gross profit			86,950				92,787				171,040				179,201
Operating expenses:
Sales and marketing			37,293				37,775				74,250				75,449
Research and development			15,410				19,338				29,804				37,985
General and administrative			28,133				29,323				54,872				55,967
Total operating expenses			80,836				86,436				158,926				169,401
Operating income			6,114				6,351				12,114				9,800
Other income (expense)			285				(379	)			759				(636	)
Income before income taxes			6,399				5,972				12,873				9,164
Income tax expense (benefit)			932				(3,670	)			(6,500	)			(12,938	)
Net income		$	5,467			$	9,642			$	19,373			$	22,102
Other comprehensive loss, net of tax			(36	)			(187	)			(32	)			(410	)
Comprehensive income		$	5,431			$	9,455			$	19,341			$	21,692
Net income per share:
Basic		$	0.10			$	0.18			$	0.36			$	0.41
Diluted		$	0.10			$	0.17			$	0.35			$	0.39
Weighted-average shares used in computing net income per share:
Basic			53,542				54,305				53,415				54,160
Diluted			55,826				56,343				55,692				56,122

Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises for each of the three and six months ended December 31 are included in the above line items:

		Three Months Ended December 31,								Six Months Ended December 31,
		2019				2020				2019				2020
Cost of revenues		$	1,465			$	2,002			$	3,197			$	4,405
Sales and marketing			3,393				4,019				7,737				8,367
Research and development			1,783				2,765				3,583				5,616
General and administrative			6,188				8,300				12,341				15,435
Total stock-based compensation expense		$	12,829			$	17,086			$	26,858			$	33,823

PAYLOCITY HOLDING CORPORATION Unaudited Consolidated Statements of Cash Flows (in thousands)
		Six Months Ended
		December 31,
		2019				2020
Cash flows from operating activities:
Net income		$	19,373			$	22,102
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense			24,832				30,936
Depreciation and amortization expense			18,261				21,071
Deferred income tax benefit			(6,500	)			(12,940	)
Provision for credit losses			63				98
Net accretion of discounts and amortization of premiums on available-for-sale securities			(1,052	)			255
Amortization of debt issuance costs			73				83
Other			250				515
Changes in operating assets and liabilities:
Accounts receivable			(53	)			(1,287	)
Deferred contract costs			(22,434	)			(23,431	)
Prepaid expenses and other			773				(3,388	)
Accounts payable			261				1,070
Accrued expenses and other			2,231				(15,412	)
Net cash provided by operating activities			36,078				19,672
Cash flows from investing activities:
Purchases of available-for-sale securities and other			(253,950	)			—
Proceeds from sales and maturities of available-for-sale securities			124,780				58,996
Capitalized internal-use software costs			(12,139	)			(14,832	)
Purchases of property and equipment			(12,398	)			(6,045	)
Acquisition of business, net of cash acquired			—				(14,992	)
Net cash provided by (used in) investing activities			(153,707	)			23,127
Cash flows from financing activities:
Net change in client fund obligations			450,825				876,982
Proceeds from employee stock purchase plan			3,961				6,100
Taxes paid related to net share settlement of equity awards			(25,954	)			(44,749	)
Payment of debt issuance costs			(675	)			(17	)
Net cash provided by financing activities			428,157				838,316
Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents			310,528				881,115
Cash, cash equivalents and funds held for clients' cash and cash equivalents—beginning of period			1,426,143				1,492,133
Cash, cash equivalents and funds held for clients' cash and cash equivalents—end of period		$	1,736,671			$	2,373,248
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Liabilities assumed for acquisition		$	—			$	281
Supplemental Disclosure of Cash Flow Information
Cash paid for interest		$	53			$	584
Cash paid (refunds received) for income taxes		$	19			$	(110	)
Reconciliation of cash, cash equivalents and funds held for clients' cash and cash equivalents to the Unaudited Consolidated Balance Sheets
Cash and cash equivalents		$	75,900			$	218,696
Funds held for clients' cash and cash equivalents			1,660,771				2,154,552
Total cash, cash equivalents and funds held for clients' cash and cash equivalents		$	1,736,671			$	2,373,248

Paylocity Holding Corporation
Reconciliation of GAAP to non-GAAP Financial Measures
(In thousands except per share data)
			Three Months								Six Months
			Ended								Ended
			December 31,								December 31,
		2019				2020				2019				2020
Reconciliation from Gross profit to Adjusted gross profit:
Gross profit		$	86,950			$	92,787			$	171,040			$	179,201
Amortization of capitalized internal-use software costs			4,690				5,882				9,147				11,268
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises			1,465				2,002				3,197				4,405
Adjusted gross profit		$	93,105			$	100,671			$	183,384			$	194,874
			Three Months								Six Months
			Ended								Ended
			December 31,								December 31,
		2019				2020				2019				2020
Reconciliation from Operating income to Non-GAAP operating income:
Operating income		$	6,114			$	6,351			$	12,114			$	9,800
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises			12,829				17,086				26,858				33,823
Amortization of acquired intangibles			562				940				1,125				1,784
Other items (1)			1,606				725				2,562				1,085
Non-GAAP operating income		$	21,111			$	25,102			$	42,659			$	46,492
			Three Months								Six Months
			Ended								Ended
			December 31,								December 31,
		2019				2020				2019				2020
Reconciliation from Net income to Non-GAAP net income:
Net income		$	5,467			$	9,642			$	19,373			$	22,102
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises			12,829				17,086				26,858				33,823
Amortization of acquired intangibles			562				940				1,125				1,784
Other items (1)			1,606				725				2,562				1,085
Income tax effect on adjustments (2)			(423	)			(6,187	)			(9,551	)			(15,387	)
Non-GAAP net income		$	20,041			$	22,206			$	40,367			$	43,407
			Three Months								Six Months
			Ended								Ended
			December 31,								December 31,
		2019				2020				2019				2020
Calculation of Non-GAAP net income per share:
Non-GAAP net income		$	20,041			$	22,206			$	40,367			$	43,407
Diluted weighted-average number of common shares			55,826				56,343				55,692				56,122
Non-GAAP net income per share		$	0.36			$	0.39			$	0.72			$	0.77
			Three Months								Six Months
			Ended								Ended
			December 31,								December 31,
		2019				2020				2019				2020
Reconciliation from Net income to Adjusted EBITDA:
Net income		$	5,467			$	9,642			$	19,373			$	22,102
Interest expense			103				351				188				691
Income tax expense (benefit)			932				(3,670	)			(6,500	)			(12,938	)
Depreciation and amortization expense			9,328				10,836				18,261				21,071
EBITDA			15,830				17,159				31,322				30,926
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises			12,829				17,086				26,858				33,823
Other items (1)			1,606				725				2,562				1,085
Adjusted EBITDA		$	30,265			$	34,970			$	60,742			$	65,834
			Three Months								Six Months
			Ended								Ended
			December 31,								December 31,
		2019				2020				2019				2020
Reconciliation of Non-GAAP Sales and Marketing:
Sales and marketing		$	37,293			$	37,775			$	74,250			$	75,449
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises			3,393				4,019				7,737				8,367
Non-GAAP Sales and Marketing		$	33,900			$	33,756			$	66,513			$	67,082
			Three Months								Six Months
			Ended								Ended
			December 31,								December 31,
		2019				2020				2019				2020
Reconciliation of Non-GAAP Total Research and Development:
Research and Development		$	15,410			$	19,338			$	29,804			$	37,985
Capitalized internal-use software costs			5,425				6,948				12,139				14,832
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises			1,783				2,765				3,583				5,616
Other items (3)			—				230				—				385
Non-GAAP Total Research and Development		$	19,052			$	23,291			$	38,360			$	46,816
			Three Months								Six Months
			Ended								Ended
			December 31,								December 31,
		2019				2020				2019				2020
Reconciliation of Non-GAAP General and Administrative:
General and Administrative		$	28,133			$	29,323			$	54,872			$	55,967
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises			6,188				8,300				12,341				15,435
Amortization of acquired intangibles			562				940				1,125				1,784
Other items (1)			1,606				495				2,562				700
Non-GAAP General and Administrative		$	19,777			$	19,588			$	38,844			$	38,048
(1)  Represents nonrecurring costs including acquisition-related and lease exit costs. Also includes the settlement of a certain legal matter and related litigation costs of $1.6 million and $2.0 million for the three and six months ended December 31, 2019, respectively.
(2) Income tax effect on adjustments: Includes the income tax effect on non-GAAP net income adjustments related to stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, amortization of acquired intangibles and other items.
(3)  Represents certain nonrecurring acquisition-related costs.

CONTACT:
Ryan Glenn
investors@paylocity.com
www.paylocity.com