What Happened: Shares of payroll and human resources software provider, Paylocity (NASDAQ:PCTY) jumped 17.3% in the morning session after the company reported first-quarter results with revenue, adjusted EBITDA free cash flow, and EPS exceeding analysts' expectations. It also recorded a big gross margin improvement. Next quarter's revenue guidance came in higher than Wall Street's estimates. However, management observed elongated sales cycles at the high end of the market during the quarter. As a result, the company is focused on driving sales rep and go-to-market productivity.
To return value to shareholders, the Board of Directors has authorized a $500 million share repurchase program. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic.
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What is the market telling us: Paylocity's shares are quite volatile and over the last year have had 9 moves greater than 5%. But moves this big are very rare even for Paylocity and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 12 months ago, when the stock dropped 9.9% on the news that the company reported third-quarter revenue, gross margin, earnings per share, and free cash flow that exceeded analysts' expectations. Additionally, the revenue guidance for the full year was roughly inline with Consensus.
Overall, it was a strong quarter for the company. However, the market was possibly expecting even better results from the company as the stock was down on the results. Another culprit could be fears around AI disrupting the business. In the press release announcing earnings, management highlighted AI Assist, "the HCM industry's first integration of generative AI built upon an with Open AI (the developer of ChatGPT)." The stock move may be signaling that the market views the new product as a defensive move rather than an offensive one.
Paylocity is up 7.7% since the beginning of the year, but at $175.26 per share it is still trading 22.7% below its 52-week high of $226.85 from July 2023. Investors who bought $1,000 worth of Paylocity's shares 5 years ago would now be looking at an investment worth $1,774.