PCTY · investment memo
Run B, THE MEMO'S PRIMARY RUN: TTM GAAP operating margin 21.30% held flat, less a single 100bp fall in the front end applied to the disclosed $3,230.9m floating client-fund balance (-$32.3m at 100% incremental margin) = 19.42%. Constraint m_EBIT,T 19.42 <= m_gross,T 69.3 SATISFIED. BELOW the trailing actual of 21.29% by 1.87pp, and that is deliberate with a named mechanism, not a confidence discount: the company's own Q4 FY26 guidance already implies float income down 15% year-on-year, and management has guided Adjusted EBITDA EXCLUDING interest income since August 2024 because it does not consider the line durable. Run A (float intact, 21.30%) is recorded as the alternative because it flips the verdict.
Four distinct questions, one field each. A price is not a thesis: the trigger below forces a re-underwrite and freezes further purchases — it is never an automatic sell.
A daily close below $120.02 triggers a mandatory re-underwrite and freezes further purchases. It is not an automatic sell unless a separate fundamental invalidation condition has been breached.
Not stated. This name has no falsifiable invalidation conditions on file, so it cannot be risk-monitored. That is a gap in the research, not a clean bill of health — recorded rather than hidden.
Named cause: a front-end easing cycle that arrives together with a softening labour market. The mechanism is that PCTY's two principal exposures are positively correlated, not offsetting. Rate cuts arrive because employment is weakening. Falling short rates cut float income at 100% margin (−$32.3m per 100bp, unhedged, on an 84%-floating book). The same weakening labour market cuts employees-on-platform — Paylocity bills per employee per month — and lengthens mid-market sales cycles, which is where the ~7% new-logo engine lives. The float exposure is a leveraged bet on the same macro variable a