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Paylocity Holding Corp (PCTY)·Q1 2026 Earnings Summary

Executive Summary

  • Q1 FY26 delivered double-digit growth and margin expansion: total revenue $408.2M (+12% YoY) and Recurring & Other revenue $378.9M (+14% YoY); Adjusted EBITDA $146.4M (35.9% margin) and Non-GAAP EPS $1.75 .
  • Results beat Wall Street: revenue $408.2M vs $399.5M consensus*, and Non-GAAP EPS $1.75 vs $1.57 consensus*; guidance was raised for FY26 revenue and Adjusted EBITDA. Bold beat on both top- and bottom-line; narrative tailwinds from AI and Paylocity for Finance traction .
  • FY26 guidance raised: total revenue to $1.715–$1.730B and Adjusted EBITDA to $615–$625M; long-term targets increased (Adjusted EBITDA margin target to 40–45%, FCF margin to 25–30%) .
  • Capital allocation remains shareholder-friendly: repurchased $200M (~1.2M shares, $173.30 avg price) in Q1; $500M repurchased since May 2024 and $500M remaining under authorization .
  • Macro/backdrop stable; management embeds prudent assumptions: flat workforce levels and multiple rate cuts in guidance (puts/ takes to client funds interest income) — a set-up for beat/raise if execution persists .
    Values with asterisk (*) retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • Durable growth with operating leverage: Recurring & Other revenue +14% YoY to $378.9M, total revenue +12% YoY to $408.2M; non-GAAP operating income rose to $121.2M and Adjusted EBITDA to $146.4M. “Fiscal 26 is off to a strong start… differentiated value proposition… continues to resonate” — CEO Toby Williams .
  • AI differentiation driving adoption: Adjusted gross margin improved to 75.1% and AI usage more than doubled with 1.2M+ questions answered by AI Assistant; “next generation… turns everyday questions into instant action” — management at HR Tech .
  • New product momentum and TAM expansion: Early positive response to Paylocity for Finance; broker channel continued to deliver >25% of new business, supporting cross-sell and ARPU expansion .

What Went Wrong

  • GAAP profitability flat-to-down YoY: GAAP net income declined slightly to $48.0M (from $49.6M) with diluted GAAP EPS holding at $0.86; cash from operations decreased to $86.5M vs $91.5M in prior-year Q1 .
  • Interest income headwind trajectory: Interest income on client funds fell slightly YoY to $29.3M; guidance embeds additional rate cuts (December/March/April), tempering this revenue stream .
  • Elevated stock-based comp persists: SBC and related taxes totaled $39.9M in Q1, a drag on GAAP results (though management is targeting SBC at 5% of revenue long-term) .

Financial Results

MetricQ3 2025Q4 2025Q1 2026
Total Revenue ($USD Millions)$454.5 $400.7 $408.2
Recurring & Other Revenue ($USD Millions)$421.1 $369.9 $378.9
Interest Income on Funds Held for Clients ($USD Millions)$33.5 $30.9 $29.3
Gross Profit ($USD Millions)$324.7 $271.9 $279.8
Operating Income ($USD Millions)$127.0 $66.2 $74.2
GAAP Net Income ($USD Millions)$91.5 $48.6 $48.0
Diluted GAAP EPS ($USD)$1.61 $0.86 $0.86
Non-GAAP Net Income per Share ($USD)$2.43 $1.56 $1.75
Adjusted EBITDA ($USD Millions)$197.1 $130.7 $146.4
Adjusted EBITDA ex Interest on Client Funds ($USD Millions)$163.6 $99.9 $117.1
Adjusted Gross Margin (%)——75.1%

Segment revenue composition:

Revenue ComponentQ3 2025Q4 2025Q1 2026
Recurring & Other Revenue ($USD Millions)$421.1 $369.9 $378.9
Interest Income on Funds Held for Clients ($USD Millions)$33.5 $30.9 $29.3
Total Revenue ($USD Millions)$454.5 $400.7 $408.2

Q1 FY26 actuals vs consensus:

MetricConsensus*Actual
Revenue ($USD Millions)399.5*$408.2
Non-GAAP EPS ($USD)1.57*$1.75

Values with asterisk (*) retrieved from S&P Global.

KPIs and balance sheet highlights:

KPI / Balance SheetQ3 2025Q4 2025Q1 2026
Clients (#)41,650 41,650 41,650
ARPU ($USD)$35,300 $35,300 $35,300
Revenue Retention (%)>92% >92% >92%
Avg Daily Client Funds ($USD Billions)$3.10 (Q4 guide) $3.10 ~$2.9
Share Repurchases$150M FY25 $56M Q4 $200M Q1 (1.2M shares, $173.30 avg)
Cash & Cash Equivalents ($USD Millions)$477.8 $398.1 $165.2
Long-term Debt ($USD Millions)$243.8 $162.5 $81.3

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Recurring & Other Revenue ($USD Millions)Q2 FY26—$378.5–$383.5 New
Total Revenue ($USD Millions)Q2 FY26—$405.5–$410.5 New
Adjusted EBITDA ($USD Millions)Q2 FY26—$131.5–$135.5 New
Adjusted EBITDA ex Interest on Client Funds ($USD Millions)Q2 FY26—$104.5–$108.5 New
Recurring & Other Revenue ($USD Billions)FY26$1.597–$1.612 $1.605–$1.620 Raised
Total Revenue ($USD Billions)FY26$1.707–$1.722 $1.715–$1.730 Raised
Adjusted EBITDA ($USD Millions)FY26$608.5–$618.5 $615.0–$625.0 Raised
Adjusted EBITDA ex Interest on Client Funds ($USD Millions)FY26$498.5–$508.5 $505.0–$515.0 Raised
Client Funds Interest AssumptionsFY264×25 bps cuts (Sep/Dec/Mar/Apr) Adds extra 25 bps cut vs Aug baseline Lower Rates Embedded

Long-term targets update:

MetricPrevious TargetUpdated Target
Total Revenue$2B+ $3B
Adjusted Gross Profit75–80% 80%+
Non-GAAP R&D (% Revenue)10–15% 10–15%
Non-GAAP Sales & Marketing (% Revenue)20–25% 15–20%
Non-GAAP G&A (% Revenue)5–10% 5–7%
Adjusted EBITDA Margin35–40% 40–45%
Free Cash Flow Margin20–25% 25–30%
Stock-Based Compensation (% Revenue)<10% 5%

Earnings Call Themes & Trends

TopicQ3 FY25 (Prior-2)Q4 FY25 (Prior-1)Q1 FY26 (Current)Trend
AI/Technology InitiativesContinued AI embedding; strong product differentiation AI adoption rising; expanded roadmap Next-gen AI Assistant; usage doubled; 1.2M+ questions answered; margin lift Strengthening adoption and impact
Paylocity for Finance (Airbase)Announced Airbase integration; initial TAM expansion Launch details; inside sales experts; early customer interest Early positive reception; cross-sell back to base; bundled pricing flexibility Early traction; go-to-market maturing
Broker Channel>25% of new business; consistent referrals >25% of new business; competitive differentiator >25% again in Q1; deepening relationships Durable contributor
Macro/Workforce LevelsStable demand backdrop Stable; FY26 guide prudently embeds rate cuts/flat workforce Stable through October; assume flat workforce; prudence in guidance Stable with prudent assumptions
R&D ExecutionTotal R&D up; combined view (expensed + capitalized) R&D ~14.3% of rev FY25; continued investment R&D up 16.4% YoY Q1; ongoing platform build-out Ongoing investment for differentiation
Interest Rates/Client FundsFY26: 4×25 bps cuts assumed Same Adds an extra 25 bps cut vs initial expectations Slightly more rate-pressure embedded
Retention/ARPU92%+ retention; ARPU growth 92%+ retention; ARPU $35.3K 92%+ retention continued; ARPU expansion strategy Stable/high retention; ARPU rising
Partnerships/IntegrationsProduct expansion momentum —Rain EWA integration to Paylocity marketplace Ecosystem building

Management Commentary

  • “Fiscal 26 is off to a strong start… as our differentiated value proposition of providing the most modern software in the industry continues to resonate” — Toby Williams, CEO .
  • “Our adjusted gross margin was 75.1%… 110 basis points of leverage… continued to focus on scaling operational costs while maintaining industry-leading service levels” — Ryan Glenn, CFO .
  • “Early positive response to our Paylocity for Finance solution… managing all spend and key business workflows… resonating with both clients and prospects” — Toby Williams .
  • “Given the confidence… we repurchased nearly 1.2 million shares… $200 million… and with $500 million remaining… anticipate continuing to be active” — Ryan Glenn .
  • “Usage of our AI-powered features has more than doubled, including over 1.2 million questions answered by our AI assistant” — Management .

Q&A Highlights

  • Macro and headcount assumptions: Stable demand; workforce levels “up a touch YoY,” but guidance assumes flat workforce; prudence leaves room for beat/raise .
  • Long-term model and AI leverage: Updated targets reflect natural scale plus emerging AI/automation benefits; margin/FCF targets increased without sacrificing growth .
  • Paylocity for Finance go-to-market: Inside sales experts support field; bundled pricing common with flexibility for per-user pricing; expected higher ARPU vs typical HCM modules; no elongated sales cycles .
  • Profitability guide prudence: Adjusted EBITDA beat in Q1, guide raised less than beat to preserve flexibility for investments; leverage expected to continue .
  • Taxes and cash flow: One-time ~$65M FY26 cash tax benefit expected to bolster FCF (R&D deductibility changes); normalize in FY27 .
  • Retention and broker channel: Retention remains 92%+; broker referrals >25% of new business — a durable differentiator .

Estimates Context

  • Q1 FY26 revenue and Non-GAAP EPS materially beat consensus: $408.2M vs $399.5M* and $1.75 vs $1.57*; these beats plus margin expansion support FY26 guidance raise .
  • Q2 FY26 consensus revenue stands at ~$408.3M*, within company guidance ($405.5–$410.5M); consensus EPS ~$1.56* .
    Values with asterisk (*) retrieved from S&P Global.

Key Takeaways for Investors

  • Bold beat and margin expansion: Both revenue and Non-GAAP EPS beat consensus, with Adjusted EBITDA margin at 35.9%; operating leverage from AI/automation and scale remains a core driver .
  • Raised FY26 guidance and long-term targets: Higher revenue and Adjusted EBITDA ranges plus increased 40–45% EBITDA margin and 25–30% FCF margin targets underpin a higher long-term earnings power trajectory .
  • Product expansion is working: Early traction for Paylocity for Finance and continued AI adoption should support ARPU growth and cross-sell into a 41,650-client base; broker channel remains a reliable growth engine .
  • Rate backdrop prudently embedded: Additional rate cuts included in guidance temper client funds interest income; leaves upside if rates cut less or if core recurring revenue outperforms .
  • Cash return + balance sheet de-risking: $200M buyback in Q1 and rapid debt paydown ($81.3M repaid) enhance per-share metrics and financial flexibility .
  • Watch FY26 FCF cadence: One-time ~$65M tax benefit is supportive in FY26; normalize FY27 — monitor ongoing margin and FCF leverage excluding client funds interest .
  • Near-term trading setup: Beat/raise cadence appears intact with selling season momentum, stable macro, and conservative guidance — catalysts include Elevate client event and continued Paylocity for Finance wins .

Other Relevant Press Releases (Q1 FY26)

  • Rain integration with Paylocity to streamline earned wage access through the marketplace — supportive of ecosystem and client value proposition .