Did Paylocity beat earnings in Q2 2026?

Yes, Paylocity beat on both revenue and EPS. Revenue came in at $416.1M, beating consensus by 4.2% ($399.5M expected). Non-GAAP EPS was $1.85, beating consensus by 17.8% ($1.57 expected).

Did Paylocity raise guidance?

Yes, Paylocity raised FY2026 guidance. Total revenue now expected at $1.732-1.742B (up from $1.715-1.730B). Adjusted EBITDA guidance raised to $622.5-630.5M (up from $615-625M).

How did Paylocity stock react to earnings?

PCTY shares rose 2.3% in after-hours trading to $130.00 following the Q2 FY2026 earnings beat and guidance raise.

Paylocity Holding (PCTY)·Q2 2026 Earnings Summary

Paylocity Beats on Revenue and EPS, Raises Full-Year Guidance After Strong Selling Season

February 5, 2026 · by Fintool AI Agent

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Paylocity (NASDAQ: PCTY) delivered a strong Q2 FY2026, beating consensus estimates on both revenue and earnings while raising full-year guidance. Total revenue grew 10% year-over-year to $416.1 million, driven by an 11% increase in recurring and other revenue. CEO Toby Williams characterized the selling season as "strong" with a "stable demand environment," while the company's AI capabilities — including a new Policy and Procedures Agent — drove AI Assistant usage up over 100% quarter-over-quarter.

Did Paylocity Beat Earnings?

Yes — Paylocity beat on both top and bottom line, extending its earnings beat streak to 9 consecutive quarters.

Metric	Actual	Consensus	Surprise
Revenue	$416.1M	$399.5M*	+4.2%
Non-GAAP EPS	$1.85	$1.57*	+17.8%
Adj. EBITDA	$142.7M	—	—

*Consensus estimates from S&P Global

Year-over-Year Comparison:

Metric	Q2 FY26	Q2 FY25	YoY Growth
Total Revenue	$416.1M	$377.0M	+10.4%
Recurring & Other Revenue	$387.0M	$347.7M	+11.3%
GAAP Net Income	$50.2M	$37.5M	+33.9%
Adj. EBITDA	$142.7M	$126.2M	+13.1%
Non-GAAP EPS	$1.85	$1.52	+21.7%

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What Did Management Guide?

Paylocity raised full-year FY2026 guidance on both revenue and profitability, signaling confidence from a strong selling season.

Guidance Progression

Q3 FY2026 Guidance:

Recurring & Other Revenue: $457.5M - $462.5M (+9-10% YoY)
Total Revenue: $487.0M - $492.0M (+7-8% YoY)
Adjusted EBITDA: $200.0M - $204.0M

Full-Year FY2026 Guidance (Raised):

Metric	Prior Guide (Q1)	New Guide	Change
Recurring Revenue	$1.605-1.620B	$1.620-1.630B	+$15M at midpoint
Total Revenue	$1.715-1.730B	$1.732-1.742B	+$14.5M at midpoint
Adjusted EBITDA	$615-625M	$622.5-630.5M	+$6.5M at midpoint

The guidance raise implies ~9% full-year revenue growth and continued EBITDA margin expansion.

What Changed From Last Quarter?

Several positive developments emerged in Q2:

1. Strong Selling Season Execution CEO Toby Williams highlighted that "momentum seen in Q1 continued into the second quarter and contributed to a strong selling season performance." Client growth remained consistent with last year, and the company saw no signs of smaller initial lands or budget pressure that some peers reported.

2. AI Adoption Accelerating AI Assistant monthly usage increased over 100% quarter-over-quarter, driven by new capabilities like the Policy and Procedures Agent and HR rules/regulations guidance. Management noted: "We continue to see growing utilization of our AI capabilities."

3. Accelerating Cash Flow Generation

Cash from Operations: +40% YoY in H1 FY26
Free Cash Flow: +26% YoY over LTM
Free Cash Flow Margin: ~24% TTM

4. Aggressive Capital Return Repurchased ~690,000 shares at $144.86/share average for $100M in Q2. Year-to-date: 1.8M shares at $162.66 average for $300M. Diluted shares outstanding down more than 2% YoY. ~$400M remaining under authorization.

5. Paylocity for Finance Gaining Traction V1 of the integrated Airbase solution launched in July 2025 and was "an important factor from a differentiation standpoint as we came through selling season." On track for 10-20% penetration targets over 3-5 years.

How Did the Stock React?

PCTY closed at $127.05 in regular trading and rose to $130.00 in after-hours (+2.3%) following the earnings release. The stock remains below its 52-week high of $223.80 but has found support near its 52-week low of $123.71.

Metric	Value
After-Hours Price	$130.00 (+2.3%)
50-Day Average	$146.21
200-Day Average	$166.93
52-Week High	$223.80
52-Week Low	$123.71
Market Cap	$7.0B

Historical Earnings Reactions: Paylocity has beaten EPS estimates for 9 consecutive quarters. The company has a track record of conservative guidance followed by raises throughout the fiscal year.

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Key Financial Metrics & Trends

Margin Progression (Last 8 Quarters):

Metric	Q3 FY24	Q4 FY24	Q1 FY25	Q2 FY25	Q3 FY25	Q4 FY25	Q1 FY26	Q2 FY26
Gross Margin	71.2%	67.5%	68.4%	67.1%	71.7%	68.1%	68.8%	67.8%*
EBITDA Margin	28.5%	18.7%	19.8%	15.3%	30.4%	19.3%	20.8%	34.3%*

*Q2 FY26 margins calculated from 8-K data

The seasonal pattern is clear: Q3 (calendar Q1, Jan-Mar) shows peak margins due to year-end processing and tax season activity.

Balance Sheet Highlights (Dec 31, 2025):

Cash & Equivalents: $162.5M
Funds Held for Clients: $5.51B
Long-Term Debt: $81.3M
Total Stockholders' Equity: $1.10B
Shares Outstanding: 53.9M (down from 55.4M in June)

Long-Term Financial Targets

Updated targets (from Q1 FY26):

Target	Previous	Updated
Total Revenue	$2B+	$3B
Adjusted Gross Profit	75-80%	80%+
Adjusted EBITDA Margin	35-40%	40-45%
Free Cash Flow Margin	20-25%	25-30%
Stock-Based Comp	<10%	5%

Capital Allocation

Paylocity has been aggressive on buybacks, returning significant capital to shareholders:

Period	Shares Repurchased	Amount	Avg Price
Q2 FY26	~690,000	~$100M	$144.86
H1 FY26 YTD	1.8M+	~$300M	$162.66
Authorization Remaining	—	~$400M	—

Diluted shares outstanding decreased more than 2% YoY as of Q2 end. Management noted they will "continue to opportunistically execute" against the buyback program.

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Q&A Highlights

On Selling Season Performance: CEO Toby Williams emphasized the strength of the selling season: "I would characterize the selling season as strong this year. The go-to-market teams performed really well across sales and marketing and our channel teams, and we saw a very stable demand environment."

On AI Usage & Monetization: Executive Chairman Steve Beauchamp explained how AI drives value: "From a monetization perspective, we're seeing people put more data and drive more utilization of our platform. That has an opportunity for us to sell more of our modules back to our clients." Management noted AI Assistant monthly usage increased over 100% quarter-over-quarter.

On Why AI Isn't a Disruption Risk: When asked about AI threats, Steve Beauchamp outlined the company's moat: "There's a lot more conversation from prospects around our service levels... Unlike other software spaces, we've got a pretty big moat around the service component of what we do. We interface with thousands of agencies on the back end from a tax filing perspective... Those are all deterministic calculations. They are not something that you can do and be probably right."

On Airbase/Paylocity for Finance Progress: "We delivered V1 of the integrated product set in July, and that was an important factor from a differentiation standpoint as we came through selling season... We're continuing to see lift there and positive feedback from a client and prospect standpoint."

On Broker Channel Momentum: "Our referral channel once again delivered more than 25% of our new business in Q2. The sustained success of our broker channel continues to be driven by our modern platform, third-party integration, and API capabilities, and because we do not compete against our broker partners by selling insurance products."

On Employment Levels: CFO Ryan Glenn provided comfort on headcount stability: "A lot of stability in employment levels... We continue to see year-over-year workforce levels up modestly in Q2, spot-on to what we saw in the first quarter. We continue to have an assumption in the back half of the year of flat employment levels year-over-year."

On Smaller Lands/Budget Pressure: When asked if they're seeing smaller initial deals like some peers: "No. We haven't seen that at all. We've seen a huge amount of consistency from a go-to-market standpoint."

On Client Retention: "Our retention rate has been north of 92% for over a decade... The more value that you can add to clients, whether that's through the adoption of a broader part of the platform coupled with our service model, that's the recipe for success."

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Key Operational Metrics

Metric	Q2 FY26 Value	Commentary
Avg Client Size	~150 employees	Core SMB market focus
Broker Channel	>25% of new business	Consistent referral source
Client Retention	>92%	Sustained for over a decade
AI Assistant Usage	+100% QoQ	Growing adoption of embedded AI
Adjusted Gross Profit	74.4%	+60 bps leverage YoY
G&A % of Revenue	9.0%	-80 bps leverage vs 9.8% prior
R&D Investment	+10% YoY	Continued platform investment

New Product Highlights

Policy & Procedures Agent: "We recently released our Policy and Procedures Agent, which enables clients to leverage their own internal documentation, such as employee handbooks and standard operating procedures, to provide employees with instant and accurate answers."

HR Rules & Regulations AI: "We recently extended our AI Assistant into HR rules and regulations, tapping into more than 200 IRS and Department of Labor knowledge sources to provide administrators with guidance on tax and labor regulations."

Recruiting Enhancements: New functionality including video candidate screening, self-service scheduling, and pre-screening forms. One client with 1,200+ employees achieved a "roughly 50% reduction in their time to hire" using the new recruiting features.

Benefits-Guided Setup: "Allows brokers to directly build plans and rate structures and update rates on behalf of their clients directly within the Paylocity platform."

Forward Catalysts

Q3 Peak Season - January-March quarter historically shows strongest margins due to year-end processing
Continued Share Buybacks - ~$400M remaining under authorization
Airbase Cross-Sell - V1 integration launched July 2025, driving differentiation
AI Productivity Gains - Internal automation driving margin expansion; targeting 10-20% penetration for new products over 3-5 years
Broker Channel Momentum - Benefits from competitor disruption and product investments

Risks & Concerns

Macro Sensitivity - Workforce levels directly impact revenue; guidance assumes flat headcount
Interest Rate Exposure - Float income (~$29.5M in Q3) sensitive to rate cuts; guidance assumes 25 bps cuts in March and April
Valuation - Trading at premium multiples to HCM peers despite slower growth
Stock Near 52-Week Lows - Despite strong fundamentals, shares have declined significantly from highs
AI Disruption Narrative - Management explicitly addressed investor concerns about AI replacing HCM software, citing service moat and tax agency complexity

Data sources: Paylocity 8-K filed February 5, 2026; Q2 FY2026 Earnings Call Transcript; S&P Global consensus estimates