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Summary

  • PCTY plans to raise $100.1 million in its upcoming IPO, by offering 6.7 million shares at an expected range of $14-$16 per share.
  • PCTY is a cloud-based provider of software for payroll and human capital management, facing stiff competition from similar companies, including ADP and PayChex Inc.
  • We are positive on this IPO, given PCTY's impressive revenue yet unsteady quarterly results.

Paylocity Holding Corp. (NASDAQ:PCTY), a cloud-based provider of software for payroll and human capital management, plans to raise $100.1 million in its upcoming IPO on Wednesday.

The Arlington Heights, Illinois-based firm will offer 6.7 million shares, including 25% insider shares, at an expected price range of $14-$16 per share. If the IPO can hit the midpoint of that range at $15 per share, PCTY will command a market value of $765 million.

PCTY filed on January 30, 2014.
Lead Underwriters: BofA Merrill Lynch, Deutsche Bank Securities Inc, William Blair and Co.
Underwriters: JMP Securities LLC, Needham & Company LLC, Raymond James and Associates

Summary
PCTY provides payroll and human capital management (HCM) software solutions, targeted towards organizations with between 20 and 1000 employees. The firm's software platform offers a suite of payroll and HCM applications, including time and labor tracking, benefits, and talent management - all of which use a unified database and provide customers with reporting and analytics.

The platform is accompanied by an integrated implementation and client service organization. PCTY primarily sells its solutions through a direct sales force; the firm served approximately 6,850 clients as of June 30, 2013.

Valuation
PCTY offers the following figures in its S-1 balance sheet for the six months ended December 31, 2013:

Revenue: $46,274,000.000
Net Loss: ($1,556,000.00)
Total Assets: $515,233,000.00
Total Liabilities: $506,459,000.00
Stockholders' Equity: ($27,799,000.00)

PCTY has seen substantially increased revenues over the past three years, with total revenues of $39.5 million, $55.1 million, and $77.3 million in fiscal 2011, 2012, and 2013, respectively. The firm's income has remained fairly stable over the same period, bouncing between small net losses and small net incomes.

Business
The market for software solutions, like those offered by PCTY, is highly fragmented and competitive. PCTY competes with enterprise-focused software firms and other payroll service and HCM solution providers. Major competitors include The Ultimate Software Group Inc. (NASDAQ:ULTI), SAP AG (NYSE:SAP), Oracle Corporation (NYSE:ORCL), Automatic Data Processing Inc (NASDAQ:ADP), Paychex Inc (NASDAQ:PAYX), Cornerstone OnDemand Inc (NASDAQ:CSOD), and Paycom (NYSE:PAYC), which filed for its own $100 million IPO on March 10. Some of these competitors have access to significantly greater financial, technical, and marketing resources than PCTY.

Management
President and CEO Steven R. Beauchamp has been with PCTY since 2007. He previously served as VP of Product Management and as a Corporate Officer with Paychex Inc. and as Vice President of Payroll Operations for Advantage Payroll Services, Inc. Mr. Beauchamp also worked for three years in operations management with ADP Canada. He holds a B.B.A. from Wilfrid Laurier University and an M.B.A. from Queen's University.

Conclusion
We rate this IPO a buy in the proposed price range of $14 to $16. We are hearing the deal in multiple times oversubscribed.

PCTY has certainly proven itself capable of impressive revenue growth, nearly doubling its total revenues from fiscal 2011 to fiscal 2013, while also growing its customer base. Even more impressively, PCTY has achieved these results without the plunge in income that plagues many rapidly-expanding firms.

However, the firm faces substantial competition from software heavy-hitters, like ADP and Paychex.

There may be significant fluctuation in the price of PCTY shares moving forward, due to the unbalanced nature of the firm's quarterly operating results. (The firm's revenues and expenses have historically grown disproportionately during the quarter ending March 31, as many firms prefer to begin using PCTY's services at the beginning of a calendar year.)

Source: Paylocity IPO Could Pay Your Bills With Expected Pop On Wednesday