Paylocity surges on earnings beat, $600M buyback expansion
HCM software provider raises guidance after topping estimates, repurchasing 3.7M shares since May 2024
Paylocity Holding Corporation shares rallied in Thursday trading after the cloud-based payroll and human capital management provider delivered second-quarter earnings that significantly surpassed Wall Street expectations, bolstered by what management described as a "strong selling season" that prompted a full-year guidance increase.
The Schaumburg, Illinois-based company reported adjusted earnings per share of $1.85 for the fiscal second quarter, beating analyst estimates by $0.25, while revenue climbed 10.4% year-over-year to $416.1 million, exceeding consensus projections of $408.5 million by $7.6 million. Recurring and other revenue, a key metric for subscription-based software companies, increased 11.3% to $387 million.
The company's operational strength extended beyond the top and bottom lines. Paylocity disclosed that it has repurchased $600 million worth of shares, representing 3.7 million shares, since launching its buyback program in May 2024. The company also improved its trailing twelve-month free cash flow margin to 23.6% from 21.0%, demonstrating enhanced capital efficiency even as it invests in growth.
"We are executing well against our priorities and are delivering strong results," the company stated in its earnings announcement, citing robust demand for its integrated payroll and HCM platform tailored to midsize businesses.
The earnings beat comes at a pivotal moment for the HCM software sector, which is experiencing rapid digitization and automation as businesses of all sizes seek to streamline workforce management. The global HR payroll software market is projected to reach $42.78 billion in 2026, growing at a 10.2% compound annual rate, driven by increasing regulatory complexity and demand for cloud-based solutions.
Paylocity, which holds approximately 12.2% market share in the payroll management segment, competes in a crowded field against industry giants including ADP and Workday. While those companies dominate the enterprise market, Paylocity has carved out a niche serving midsize organizations with its user-friendly platform and customer service focus. The company ranked as the ninth-largest HCM software vendor in 2024, positioning it as a significant player in the tier below the market leaders.
Analysts remain broadly positive on the stock. Paylocity currently carries 17 buy ratings and 5 hold ratings from covering analysts, with no sell ratings. The consensus price target of $191.00 represents approximately 50% upside from Thursday's trading levels, reflecting optimism about the company's ability to capitalize on structural tailwinds in the HR technology market.
The company's improved free cash flow generation provides flexibility for continued share repurchases, which have become increasingly important to shareholders amid broader market volatility. With $600 million already deployed to buybacks, the program has reduced the share count by nearly 7% since its inception in May 2024, providing support to earnings per share growth.
Looking ahead, Paylocity's raised full-year guidance suggests confidence in sustained demand for its platform. The company has been integrating AI features into its workflow tools, including predictive staffing alerts and automated HR query responses, aligning with broader industry trends toward more intelligent workforce management solutions.
Investors will be watching for signs that the "strong selling season" referenced by management translates into sustained customer acquisition and retention gains. With the HCM market becoming increasingly competitive as vendors race to embed AI capabilities across their platforms, Paylocity's ability to differentiate through customer service and midmarket focus will be crucial to maintaining its growth trajectory.