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    PCTY
    Earnings call· Jun 2026(Q4 FY26)

    Paylocity Holding Q4 FY26 earnings call PCTY

    Aug 4, 2026 Source

    Executive summary

    Paylocity Q4 FY26 — Strong Recurring Revenue Growth and AI-Driven Innovation

    Paylocity concluded FY26 with robust recurring revenue growth, driven by strong sales execution, high client retention, and significant product innovation, including the launch of Ignite AI and strategic acquisitions. The company is focused on embedding AI into core workflows and expanding its platform to drive value for clients and increase average revenue per client. Management remains confident in its multi-year growth and margin expansion trajectory, balancing investments in new products and M&A with opportunistic share repurchases.

    Highlights

    5

    • Recurring revenue grew 12.4% in Q4 FY26, exceeding guidance by $11.3 million.

    • Total revenue grew 11% in Q4 FY26, reaching approximately $1.8 billion for FY26.

    • Adjusted EBITDA for Q4 FY26 was $145.5 million, or 32.7% margin, exceeding guidance by $12.9 million.

    • Fiscal '26 free cash flow margin was 24.2%, representing a 24.8% dollar increase from FY25.

    • Client base grew to 44,400 clients in FY26, an increase of approximately 7% from FY25.

    Concerns

    3

    • Fiscal '27 will be a difficult comparison for free cash flow due to one-time tax benefits in fiscal '26.

    • Acquisitions (Grayscale and Aidora) are subscale from a margin standpoint and represent a slight headwind in FY27.

    • Guidance for FY27 assumes flat workforce levels, a slight degradation from recent trends.

    Guidance & targets

    17
    CategoryTargetConfidence
    Q1 FY27 Recurring and other revenue
    $414 million to $419 million
    high materiality
    High
    Q1 FY27 Total revenue
    $439.5 million to $444.5 million
    high materiality
    High
    Q1 FY27 Adjusted EBITDA
    $152 million to $156 million
    high materiality
    High
    Q1 FY27 Adjusted EBITDA (excluding client-held funds interest income)
    $126.5 million to $130.5 million
    medium materiality
    High
    FY27 Recurring and other revenue
    $1.777 billion to $1.792 billion
    high materiality
    High
    FY27 Total revenue
    $1.880 billion to $1.895 billion
    high materiality
    High
    FY27 Adjusted EBITDA
    $690 million to $700 million
    high materiality
    High
    FY27 Adjusted EBITDA (excluding client-held funds interest income)
    $587 million to $597 million
    medium materiality
    High
    FY27 Interest rate cuts assumption
    2 25 basis point cuts
    medium materiality
    High
    FY27 Workforce levels assumption
    flat
    medium materiality
    High
    FY27 Average daily balance of client funds
    $3.4 billion to $3.5 billion
    medium materiality
    High
    FY27 Average annual yield on client funds
    300 basis points
    medium materiality
    High
    Q1 FY27 Average daily balance of client funds
    $3.0 billion
    medium materiality
    High
    Q1 FY27 Average annual yield on client funds
    340 basis points
    medium materiality
    High
    FY27 Adjusted EBITDA margin leverage (excluding client-held funds interest income)
    80 basis points
    medium materiality
    High
    FY27 Deferred contract costs amortization change impact on Adjusted EBITDA margins
    120 to 140 basis points increase
    medium materiality
    High
    FY27 PP&E as % of revenue
    1% to 1.5%
    low materiality
    Medium

    Operational metrics

    35
    Recurring revenue growth
    12.4%
    Q4 FY26

    Exceeded guidance.

    Total revenue growth
    11%
    Q4 FY26

    From the same period last year.

    Adjusted EBITDA margin
    32.7%
    Q4 FY26

    Exceeded the top end of guidance by $12.9 million.

    Recurring revenue growth
    12.2%
    FY26

    For the full fiscal year.

    Total revenue growth
    11%
    FY26

    For the full fiscal year.

    Total revenue
    $1.8 billion
    FY26

    Ended the year with approximately $1.8 billion of revenue.

    Adjusted EBITDA
    $654.9 millionup 12.3% YoY
    FY26

    On a dollar basis from FY25.

    Adjusted EBITDA margin
    37%
    FY26

    For the full fiscal year.

    Adjusted EBITDA margin (excluding client-held funds interest income)
    32.4%up 120 bps YoY
    FY26

    Reflecting operating leverage of 120 basis points versus FY25.

    Free cash flow margin
    24.2%up 24.8% YoY
    FY26

    On a dollar basis from FY25.

    Total R&D investments (non-GAAP combined)
    14.5%up 12.6% YoY
    FY26

    Combines expensed and capitalized R&D. Dollar investment increased by 12.6% in FY26 compared to FY25.

    Sales and marketing expenses (non-GAAP)
    21.9%
    Q4 FY26

    For the fourth quarter.

    Sales and marketing expenses (non-GAAP)
    20.3%
    FY26

    For the full fiscal year.

    G&A costs (non-GAAP)
    8.9%
    FY26

    For the full fiscal year. Focused on driving leverage.

    Gross profit
    $300.4 million
    Q4 FY26

    GAAP gross profit.

    Operating income
    $84.4 million
    Q4 FY26

    GAAP operating income.

    Net income
    $60.3 million
    Q4 FY26

    GAAP net income.

    Gross profit
    $1.2 billion
    FY26

    GAAP gross profit for the full year.

    Operating income
    $386 million
    FY26

    GAAP operating income for the full year.

    Net income
    $269.7 million
    FY26

    GAAP net income for the full year.

    Average daily balance of client funds
    $3.4 billion
    Q4 FY26

    For the fourth quarter.

    Average daily balance of client funds
    $3.3 billion
    FY26

    For the full fiscal year.

    Shares repurchased
    466,000
    Q4 FY26

    In aggregate repurchases during Q4.

    Shares repurchased
    2.8 million
    FY26

    In aggregate repurchases for FY26.

    Diluted share count reduction
    3.1%
    FY26

    Helped drive diluted share count down 3.1% in FY26.

    Remaining share repurchase authorization
    $1.3 billion
    as of June 30, 2026

    Remaining under the existing repurchase program.

    Cash, cash equivalents and invested corporate cash
    $271.9 million
    as of June 30, 2026

    Ended the fiscal year with this balance.

    Credit facility outstanding
    $81.3 million
    as of June 30, 2026

    Outstanding on the credit facility.

    Average revenue per client
    $37,200up 5% YoY
    FY26

    Compared to $35,300 in FY25, an increase of more than 5%.

    Client base
    44,400up 7% YoY
    FY26

    Representing approximately 7% growth from FY25.

    AI interactions
    nearly doublingQoQ
    Q4 FY26

    The number of AI interactions nearly doubling quarter-over-quarter.

    Client workforce levels
    upYoY
    Q4 FY26

    Client workforce levels were up year-over-year in Q4, consistent with prior quarters.

    PP&E purchases
    —
    Q4 FY26

    Notable uptick in PP&E purchases in Q4, due to opportunistically pulling forward spend from H1 FY27 into FY26.

    Deferred contract costs amortization change impact on gross margin
    40%
    FY27

    Approximately 40% of the 120-140 basis point benefit to adjusted EBITDA margins from the useful life change will be seen in gross margin.

    Deferred contract costs amortization change impact on sales and marketing expenses
    60%
    FY27

    Approximately 60% of the 120-140 basis point benefit to adjusted EBITDA margins from the useful life change will be seen in sales and marketing.

    Industry KPIs

    2
    MetricValueDetails
    Retention rateabove 92%%
    Client funds balances yield340 basis pointsbps

    Product announcements

    4
    ProductTypeDetails
    Paylocity Ignite AIlaunch
    Paylocity Retirementlaunch
    Elevate Solutionslaunch
    Grayscale integrationupdate

    Deals & partnerships

    1
    AidoraAcquisition to enhance leave of absence management capabilities.

    Acquisition announced to enhance leave of absence management through a fully automated AI-native system, streamlining the full life cycle from eligibility to payroll coordination and compliance.

    Risks & headwinds

    3
    Fiscal '27 Free Cash Flow ComparisonFY27

    Difficult comparison

    Mitigation: The company has confidence in its ability to further expand free cash flow margin on a multi-year basis.

    Acquisition Margin HeadwindFY27

    Slight headwind

    Mitigation: New products are not expected to be margin dilutive over time, and the company expects to drive great margin out of them.

    Workforce LevelsFY27

    Flat workforce levels assumed

    Mitigation: This is a conservative assumption in guidance, representing a slight degradation from recent trends where client workforce levels were up.

    What to watch in Q1 FY27

    5

    Q1 FY27 Recurring and other revenue growth

    Q1 FY27
    Current12.4% (Q4 FY26)
    Targetapproximately 10% growth

    Why it matters

    This will indicate the continued momentum of the core business and the effectiveness of sales and product strategies.

    For the first quarter of fiscal '27, recurring and other revenue is expected to be in the range of $414 million to $419 million or approximately 10% growth over first quarter fiscal '26 recurring and other revenue.

    Q&A highlights

    5

    What is driving the accelerating subscription revenue growth, and how should we think about unit growth and sales force investment for FY27, including AI efficiencies?

    The accelerating growth is due to solid execution across sales, marketing, and service, coupled with significant product momentum from new launches and acquisitions. FY27 is expected to see a balanced approach between unit growth and ARPU growth, similar to FY26, with continued investment in go-to-market teams focused on productivity.

    “I think you're seeing all the things come together in pretty balanced execution in every area of the business, again, against what I think is a stable backdrop from a demand environment standpoint.”

    asked by Brad Reback · answered by Toby Williams

    2 min read5 chapters

    Detailed Narrative

    01

    AI-Driven Product Innovation and Monetization Strategy

    Paylocity launched Ignite AI, integrating AI directly into core workflows to enhance productivity for HR, finance, and IT teams. Examples include a candidate agent for recruiting and an Answer & Insight Agent for HR/payroll. The company sees these agents as incremental opportunities for direct AI-driven monetization, alongside new AI-native product SKUs from acquisitions like Aidora and Grayscale. The Ignite AI Hub provides clients with visibility and control over AI usage, measuring productivity gains and allowing configuration based on organizational needs.

    02

    Expansion of Product Portfolio and Client Base Growth

    Beyond AI, Paylocity introduced Paylocity Retirement, a new offering for plan administration and employee savings, and Elevate Solutions. These additions, combined with the integration of Grayscale's recruiting automation and Aidora's leave of absence management, broaden the platform and aim to increase average revenue per client (ARPU), which reached $37,200 in FY26, up 5% from FY25. The client base also grew by approximately 7% to 44,400 clients in FY26, demonstrating continued market penetration.

    03

    Strong Sales Execution and Channel Performance

    The company reported solid sales and go-to-market execution in Q4 and FY26, with continued investment in these functions for FY27. The broker channel remained a significant contributor, representing over 25% of new business in FY26, driven by Paylocity's modern platform and non-competitive stance on selling insurance products. This sustained success highlights the effectiveness of Paylocity's partnership approach and product differentiation in the marketplace.

    04

    Financial Performance and Capital Allocation

    Paylocity delivered strong financial results in FY26, with recurring revenue growth of 12.2% and total revenue growth of 11%. Adjusted EBITDA reached $654.9 million (37% margin), and free cash flow margin was 24.2%. The company repurchased approximately 2.8 million shares for $398.1 million in FY26, reducing diluted share count by 3.1%. Management plans to continue opportunistic share repurchases while investing in future growth through M&A and R&D, leveraging its strong cash flows and balance sheet.

    05

    Accounting Change and Margin Outlook

    Effective FY27, Paylocity will amortize deferred contract costs over an 8-year useful life, an increase from the previous 7-year convention. This change is expected to increase adjusted EBITDA margins by approximately 120 to 140 basis points in FY27. While new product investments and recent acquisitions may present some near-term margin headwinds, the company anticipates continued multi-year margin expansion driven by natural scale, automation, and pricing power.

    AI-generated summary of the company’s earnings call. Not investment advice.