Phase Space AI

Financial Model Notes

Paylocity Holding Corporation [PCTY]

Paylocity Holding Corporation [PCTY] — Financial Model Notes

Every figure traced to a primary source. Every derived figure shows its arithmetic. As of 2026-07-28 · CIK 0001591698 · FY ends 30 June

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1. Sources and their vintage

Recency asserted. Latest filing is 82 days old at the time of writing; FY2026 ended 30 June 2026 and has not yet been reported. No stale-data problem of the GOOGL (485 days) or Alcon (filings end 2010) kind.

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2. Quarterly construction — and the fiscal-Q4 derivation

Paylocity's fiscal Q4 (April–June) is not separately tagged in XBRL. Only the annual total appears in the 10-K. Every fiscal-Q4 figure in this memo is derived as FY total − (Q1 + Q2 + Q3). The derivation is shown so it can be checked:

Q4 FY2025 total revenue = FY25 $1,595.221m − (Q1 $362.956m + Q2 $376.980m + Q3 $454.548m) = $400.737m.

TTM total revenue to 31-Mar-2026 = Q4 FY25 $400.737m + Q1 FY26 $408.172m + Q2 FY26 $416.134m + Q3 FY26 $502.286m = $1,727.329m. Identical to the screen's figure — the screen did not skip a quarter here (the failure mode found on other names tonight).

The same derivation applied to RevenueFromContractWithCustomerExcludingAssessedTax gives Q4 FY25 recurring of $369.886m, and therefore TTM recurring of $1,605.654m and TTM float of $121.675m — which reconciles exactly to the company's own disclosed TTM figure of $121.675m in the Q3 FY26 free-cash-flow reconciliation. Independent confirmation of the derivation.

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3. The TTM panel, sixteen quarters

All figures $m. float % = interest income on funds held for clients ÷ total revenue. ex-float op margin = (TTM EBIT − TTM float) ÷ TTM recurring revenue.

Three things to read off this table:

1. Float income peaked in absolute dollars at $126.1m in the December-2024 TTM and has declined in every subsequent quarter. It peaked as a share of revenue at 8.62% in mid-2024.
2. The ex-float operating margin bottomed at 6.57% in the December-2022 TTM and has expanded every quarter since, to 15.33%. That is +8.8pp of genuine, rate-independent operating leverage in thirteen quarters. This is the strongest fact in the file for the bull case.
3. The headline operating margin overstates the operating improvement. From FY22 to today the headline margin rose 9.92% → 21.29% (+11.4pp); ex-float it rose 9.39% → 15.33% (+5.9pp). Just over half the reported margin expansion since FY2022 is interest rates.

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4. Balance sheet at 31 March 2026 — and the custodial distinction

Funds held for clients ($3,838.5m) is a custodial asset almost exactly offset by client fund obligations ($3,833.9m). It is not corporate cash, it is not available to the company, and it must be excluded from net cash, from invested capital and from enterprise value. The $4.5m residual is float in transit, not free capital.

Net cash = $299,728 − $81,250 = $218,478 thousand.

The screen said $298,790 thousand. $299,728 − $298,790 = $938. The LongTermDebtNoncurrent tag in Paylocity's companyfacts has exactly one observation in its entire history: $938 thousand at 30 June 2013. The scanner deducted that and never read the current LongTermDebt of $81,250 thousand. Documented in full in PCTY_Valuation.md §5(a).

Composition of funds held for clients at 31 March 2026 — the rate-exposure driver:

The AFS duration is backed out of the 10-Q's own disclosure: an immediate 100bp rise would reduce the market value of AFS securities by $16.9m; $16.9m ÷ ($607.537m × 0.01) = 2.78 years. The AFS book is corporate bonds ($499.2m), asset-backed ($41.1m), Treasuries ($39.1m) and other ($28.2m).

At 30 June 2025 the split was 77% / 23%, so the book has become more floating over the year, not less.

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5. Scale cross-check

Q3 FY2026: net income $111,250k ÷ 54,274k diluted weighted-average shares = $2.0498 against filed diluted EPS of $2.05. ✓

Share count, three independent sources, all consistent:

Single share class. No dual-class complication, so the SEC-aggregation problem flagged in the brief does not arise here.

Trend: 55,366k (30-Jun-25) → 54,376k (Sep) → 53,873k (Dec) → 53,537k (31-Mar-26). −3.3% in nine months, on $350.0m of repurchase against $115.9m of SBC + related payroll tax.

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6. Cash flow and free cash flow

Float is 28.9% of reported free cash flow. Ex-float FCF grew 42% year-on-year, which is a genuinely good number and again argues that the operating business is improving faster than the headline suggests.

Note on the cash-flow statement's shape. Financing activities include Net change in client fund obligations of +$1,139.1m in 9M FY26. That is client money moving through the balance sheet, not financing. Any model or screen that reads "net cash provided by financing activities $680.5m" as corporate financing will be badly wrong. It is excluded from everything in this memo.

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7. Non-GAAP reconciliation — what is excluded

9M FY2026, from the Q3 release:

FY2025 full-year SBC (cash-flow statement): $142.8m = 9.0% of revenue = 47.0% of GAAP operating income. SBC history: FY22 $96.2m → FY23 $147.3m → FY24 $146.0m → FY25 $142.8m. It has been flat to falling in absolute dollars for three years while revenue grew 87% — SBC intensity is genuinely declining, from 11.3% of revenue in FY22 to 9.0% in FY25.

Every figure Paylocity guides to is struck before SBC. FY26 guidance is Adjusted EBITDA of $638–642m; the comparable GAAP operating income will be roughly $364m. The gap is $275m, and $190m or so of it is stock.

Mitigant, and it is a strong one: the buyback covers SBC 3.0×, and the share count is falling.

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8. Reverse-DCF parameterisation, for reproducibility

python3 ~/.claude/skills/investment-memo/assets/reverse_dcf.py \
    --spot 138.68 --shares 53.544058 --net-cash 218.478 \
    --revenue 1727.329 --years 5 --wacc 0.105 \
    --terminal-margin 0.1942 --exit-multiple 19.6 --solve cagr

Terminal value is 100% of EV by construction — reverse_dcf.py discounts a single terminal EV. Well above the 60% threshold, so the reverse DCF is mandatory as the primary long-horizon output and the forward DCF is supporting evidence only.

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9. Own-multiple history — construction

Built from 2,656 daily closes (2016-01-04 → 2026-07-28) joined to a quarterly TTM fundamentals panel. Each trading day is matched to the most recent TTM panel that was publicly available on that date, using a filing lag of 33 days after each of Q1–Q3 and 38 days after fiscal Q4 — matched to Paylocity's actual 8-K release pattern. EV on each day = close × shares outstanding at the reference quarter − (cash − debt) at that quarter.

The long-window percentiles are reported but must not be used as mean-reversion anchors. They price a business that grew 20–30% with 10% operating margins; today's PCTY grows 11% with 21% margins. See PCTY_Valuation.md §3.2 for the regime-split treatment and the UNIDENTIFIED declaration.

The number worth staring at: EV/EBIT ex-float is 29.3x, not 19.6x. Strip the interest income out of both numerator's earnings base and you are paying 29× for the software business. That is the multiple the operating business actually trades at, and no screen computes it.

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10. Reconciliation of every screen field

Note the last line: the screen record carries data_quality_ok: false and the name was nonetheless carried forward at +12.9pp. Whatever that flag is meant to gate, it did not gate this.