Executive Summary

Q2 FY25 delivered 16% total revenue growth to $377.0M and 17% recurring & other revenue growth to $347.7M; adjusted EBITDA rose to $126.2M, while GAAP EPS was $0.66 .
Results came in above company guidance; management cited revenue landing ~$8M above the top end of guidance and adjusted EBITDA beating the midpoint by ~$8.2M, driving a second consecutive quarter of a guidance raise; consensus estimates from S&P Global were unavailable for comparison due to data access limits .
FY25 guidance was raised across revenue and profitability: total revenue to $1.558–$1.568B and recurring & other to $1.445–$1.455B; Q3 FY25 guidance: total revenue $439.0–$444.0M and recurring & other $410.0–$415.0M .
Strategic drivers: continued product differentiation (AI assistant adoption, new Benefits Decision Support and Headcount Planning lifting max PEPY to $600), strong broker channel (>25% of new business), and stable macro; Airbase contribution remains small (~1% of FY revenue) but cross-sell/integration expected to build over 12–24 months .

What Went Well and What Went Wrong

What Went Well

Strong topline and profitability with above-guidance performance: “we came in $8M above the top end of our revenue guidance” and exceeded adjusted EBITDA guidance midpoint by ~$8.2M .
Product-led ARPU expansion: launch of Benefits Decision Support and Headcount Planning increased max PEPY to $600, achieving the prior target; AI assistant generally available with 30% utilization increase and 20% faster report discovery .
Channel strength and upmarket traction: broker referrals represented >25% of new business, aided by not competing on insurance products and modern platform/integrations .

What Went Wrong

GAAP EPS modestly down YoY despite revenue strength (Q2 FY25 $0.66 vs $0.67 in Q2 FY24), reflecting higher operating expenses including R&D and integration costs .
Sequential EPS down vs Q1 FY25 ($0.66 vs $0.88) due to seasonality and mix (interest income timing, operating expense cadence) and Airbase headwind (~100 bps to adjusted EBITDA for FY) .
Slight pull-forward of client starts from Q3 into Q2 (a “handful of million dollars”), creating a small headwind to Q3 growth optics; management flagged prudence in guidance and macro caution in some enterprise decisions .

Financial Results

Core financials vs prior year, prior quarter, and consensus

Metric	Q2 FY24	Q1 FY25	Q2 FY25	Consensus (S&P)
Total Revenue ($USD Millions)	$326.361	$362.956	$376.980	N/A*
Recurring & Other Revenue ($USD Millions)	$298.416	$333.105	$347.714	N/A*
Interest Income on Funds Held ($USD Millions)	$27.945	$29.851	$29.266	N/A*
GAAP Net Income ($USD Millions)	$38.116	$49.573	$37.465	N/A*
Diluted EPS ($USD)	$0.67	$0.88	$0.66	N/A*
Adjusted EBITDA ($USD Millions)	$112.609	$129.026	$126.166	N/A*
GAAP Operating Income ($USD Millions)	$49.706	$64.144	$46.623	N/A*
Gross Profit ($USD Millions)	$218.962	$247.996	$252.435	N/A*

*Estimates unavailable; see S&P Global note in “Estimates Context”.

Revenue breakdown

Revenue Component	Q2 FY24	Q1 FY25	Q2 FY25
Recurring & Other ($USD Millions)	$298.416	$333.105	$347.714
Interest Income on Funds Held ($USD Millions)	$27.945	$29.851	$29.266
Total Revenue ($USD Millions)	$326.361	$362.956	$376.980

Margin and operating ratios (as disclosed)

Metric	Q2 FY24	Q1 FY25	Q2 FY25
Adjusted Gross Profit Margin (%)	72.7%	N/A	73.8%
Adjusted EBITDA Margin (%)	N/A	N/A	33.5%
Non-GAAP Sales & Marketing (% of Revenue)	N/A	N/A	21.7%
Non-GAAP G&A (% of Revenue)	N/A	N/A	9.8%

KPIs and balance sheet highlights

KPI	Q2 FY24	Q1 FY25	Q2 FY25
Max PEPY (pricing capacity)	$550	$550	$600
Broker referrals share of new business	N/A	N/A	>25%
AI assistant adoption/efficiency	N/A	Launch announced in Oct	30% utilization increase; 20% faster report discovery
Cash & Cash Equivalents ($USD Millions)	N/A	$778.549	$482.364
Long-term Debt ($USD Millions)	N/A	$325.000	$325.000
Share repurchases	N/A	N/A	~$8.6M; ~40,000 shares at ~$197.90 avg price

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Recurring & Other Revenue	FY25	$1.427B–$1.442B	$1.445B–$1.455B	Raised
Total Revenue	FY25	$1.535B–$1.550B	$1.558B–$1.568B	Raised
Adjusted EBITDA	FY25	$530M–$540M	$542M–$550M	Raised
Adj. EBITDA ex Interest	FY25	$422M–$432M	$429M–$437M	Raised
Recurring & Other Revenue	Q3 FY25	N/A	$410M–$415M	New
Total Revenue	Q3 FY25	N/A	$439M–$444M	New
Adjusted EBITDA	Q3 FY25	N/A	$171M–$175M	New
Adj. EBITDA ex Interest	Q3 FY25	N/A	$142M–$146M	New

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 FY25 and Q3 FY25)	Current Period (Q2 FY25)	Trend
AI/Technology initiatives	AI assistant launched; product suite expansion (Q1) . In Q3, AI assistant leveraging handbooks/compliance; rising chatbot utilization .	AI assistant GA with 30% utilization increase; 20% faster report finding .	Strengthening adoption and use cases.
Office of the CFO (Airbase)	Acquisition closed Oct 1; TAM expansion (Q1) . In Q3, integration progress, Visionary in Gartner AP Applications .	Early reception positive; ~1% FY revenue contribution; cross-sell building; 12–24 month integration roadmap .	Building; small current impact, increasing cross-sell potential.
Broker channel	>25% of new business in Q3; strong partner value proposition .	>25% of new business; opportunity as competitors consolidate .	Structural advantage; potentially enhanced by industry consolidation.
Macro/Workforce levels	Stable; prudent guidance; workforce levels up slightly (Q3) .	Stable; slight qualitative caution; small pull-forward of starts .	Generally stable with prudent posture.
Product performance/PEPY	New modules driving ARPU; max PEPY $550 (Q1) .	Max PEPY reached $600 via new modules .	ARPU capacity expanding.
Margin leverage	Q3 adjusted EBITDA margin 43.4% and adj. gross margin +110bps YoY .	Adjusted gross margin 73.8% vs 72.7% prior year; adj. EBITDA margin 33.5% (seasonal) .	Multi-year structural leverage intact.
Capital allocation	$150M repurchase in FY24; Q3 repurchases $150M FYTD .	$8.6M repurchased in Q2 .	Continuing buybacks; remaining authorization ~$341M as of Q2 .

Management Commentary

“Momentum…continued into the second quarter…resulting in very strong results…increased revenue and profitability guidance…product differentiation…recent launch of Benefits Decision Support and Headcount Planning increasing our max PEPY to $600” — Toby Williams, CEO .
“Our new AI assistant chatbot is now generally available…30% increase in utilization…natural language search…over 20% reduction in time required to find reports” — Steve Beauchamp, Executive Chairman .
“We came in $8M above the top end of our revenue guidance…raise to our fiscal year guidance by more than our beat for the second consecutive quarter” — Ryan Glenn, CFO .

Q&A Highlights

Broker channel positioning amid consolidation: management sees opportunity as peers’ broker strategies shift; Paylocity does not sell insurance, enabling deeper broker partnerships .
Airbase contribution and trajectory: ~1% of FY revenue; core overperformance drove the guidance raise; integration to unlock larger cross-sell over 12–24 months .
Pull-forward dynamics: a few million dollars of recurring revenue started earlier than typical, net-positive to Q2 but slightly headwinds optics for Q3 .
Margins and cash conversion: EBITDA-to-FCF conversion impacted by acquisition timing; FY free cash flow margin expected north of ~20% (non-formal guidance), with longer-term leverage opportunity .
Pricing model: HCM remains PEPY; Office of the CFO skews per-user/transaction, aligning with buyer personas; competitive pricing confidence maintained .

Estimates Context

S&P Global Wall Street consensus for Q2 FY25 EPS, revenue, and EBITDA was unavailable due to data access limits; therefore, comparisons to consensus are not provided (Values could not be retrieved from S&P Global).
Actionable proxy: Company beat its own guidance materially (revenue ~$8M above the high end; adjusted EBITDA >midpoint by ~$8.2M), and raised FY25 revenue and EBITDA ranges, signaling positive estimate revision risk for the Street even without explicit consensus datapoints .

Key Takeaways for Investors

Positive surprise vs guidance and a broad FY25 guidance raise indicate durable demand and operational execution; near-term setup favorable for continued beat/raise cadence absent macro deterioration .
Product-led ARPU expansion (Benefits Decision Support, Headcount Planning to $600 max PEPY) and AI adoption are tangible drivers of revenue per client growth; supports medium-term margin leverage through efficiency .
Broker channel remains a differentiated GTM pillar (>25% of new business), potentially strengthened by industry consolidation — a near-term catalyst for share gains .
Airbase adds strategic optionality into Office of the CFO; current financial impact small (~1% FY revenue) but cross-sell/ integration over 12–24 months could be a medium-term growth vector .
Balance sheet capacity and active buybacks ($8.6M in Q2; ~$341M remaining authorization) provide downside support and EPS accretion potential .
Watch for Q3 seasonality and the noted pull-forward from Q3 to Q2; management’s prudent macro tone suggests estimates should bake in conservative workforce assumptions despite stable base trends .
Near-term trading: positive setup on raised FY guide and AI/product momentum; monitor any macro-related elongation in upmarket cycles and incremental updates on Airbase integration milestones .

S&P Global note: Consensus estimates were unavailable due to access limits at time of analysis; comparisons relied on company guidance and reported results.

Paylocity Holding Corp (PCTY)·Q2 2025 Earnings Summary