Executive Summary

Q3 FY25 beat-and-raise: Total revenue $454.5M (+13% Y/Y) and recurring & other revenue $421.1M (+15% Y/Y) exceeded guidance; non-GAAP EPS $2.43 vs S&P Global consensus $2.12*; revenue $454.5M vs $441.7M consensus* .
Profitability scaled: Adjusted EBITDA $197.1M (43.4% margin) and adjusted gross margin 77%, both up Y/Y as operating leverage improved; GAAP diluted EPS $1.61 .
FY25 guidance raised across the board (revenue, EBITDA, ex-float EBITDA); new Q4 guide introduced; management reiterated stable client base/workforce and disciplined opex, with ~100 bps ex-float operating leverage Y/Y despite ~100 bps Airbase headwind .
Strategic drivers: broker channel >25% of new business again; AI use cases embedded across product; Airbase integration progressing with stand‑alone traction; $150M (~800k shares) repurchased FYTD through April; $243.8M debt outstanding post-Airbase with ~$81M repaid in Q3 .

What Went Well and What Went Wrong

What Went Well

Outperformed and raised: Q3 total revenue beat prior guidance by $10.5M and management lifted FY25 revenue and profitability guidance more than the quarterly beat for the third consecutive quarter .
Margin expansion: Adjusted gross margin reached 77% (+110 bps Y/Y) and adjusted EBITDA margin was 43.4%, reflecting scale benefits and cost discipline while maintaining service levels .
Channel/product momentum: Broker channel again contributed >25% of new business; AI assistant expanded to policy/compliance Q&A use cases; Airbase fully integrated organizationally with early stand‑alone sales traction .

What Went Wrong

Emerging macro caution: Management noted early, qualitative signs of buyer pause in some deals (longer decision cycles), particularly at the margin, though not yet visible in results; FY25 Q4 guidance assumes flat workforce levels .
Interest income headwind sensitivity: Client funds interest is a tailwind now, but guide embeds an additional 25 bps Fed cut; mix of “form filing” revenue grows slower than core recurring into Q3 seasonally .
Airbase still small and ex‑float EBITDA headwind: Airbase ~1% of FY25 revenue; ~100 bps headwind to adjusted EBITDA margin this year while integration progresses .

Financial Results

Headline beats vs S&P Global consensus (Q3 FY25)

Note: Asterisks indicate values retrieved from S&P Global.

Metric	Q3 FY25 Actual	Q3 FY25 Consensus*	Beat/(Miss)
Total Revenue ($USD Millions)	$454.5	$441.7*	+$12.8 (+2.9%)
Non-GAAP EPS ($)	$2.43	$2.12*	+$0.31 (+14.8%)

Values retrieved from S&P Global.

P&L highlights (YoY and QoQ comparison)

Metric	Q3 FY24	Q2 FY25	Q3 FY25
Total Revenue ($USD Millions)	$401.3	$377.0	$454.5
Recurring & Other Revenue ($USD Millions)	$366.8	$347.7	$421.1
Interest Income on Funds Held ($USD Millions)	$34.4	$29.3	$33.5
GAAP Operating Income ($USD Millions)	$106.3	$46.6	$127.0
GAAP Net Income ($USD Millions)	$85.3	$37.5	$91.5
GAAP Diluted EPS ($)	$1.50	$0.66	$1.61
Non-GAAP Net Income ($USD Millions)	$126.1	$86.0	$138.1
Non-GAAP EPS ($)	$2.21	$1.52	$2.43
Adjusted EBITDA ($USD Millions)	$167.9	$126.2	$197.1
Adj. EBITDA ex. Interest on Client Funds ($USD Millions)	$133.5	$96.9	$163.6

Margins and operating ratios

Metric	Q2 FY25	Q3 FY25
Adjusted Gross Margin %	73.8%	77.0%
Adjusted EBITDA Margin %	33.5%	43.4%
Non-GAAP Sales & Marketing (% of Revenue)	21.7%	18.2%
Non-GAAP G&A (% of Revenue)	9.8%	8.4%

Revenue composition (Q3)

Component	Q3 FY24 ($M)	Q3 FY25 ($M)
Recurring & Other Revenue	$366.8	$421.1
Interest Income on Funds Held for Clients	$34.4	$33.5
Total Revenue	$401.3	$454.5

KPIs and balance sheet items

KPI	Q3 FY25
Avg. Daily Client Funds Balance ($B)	$3.6B
Interest Income on Funds Held ($M)	$33.5
Cash & Cash Equivalents (Mar 31, 2025) ($M)	$477.8
Long-Term Debt (Mar 31, 2025) ($M)	$243.8
Share Repurchases (Q3)	$84.9M; ~429k shares @ $198.13 avg
Share Repurchases (FYTD through Apr 30)	$150M; ~800k shares @ $190.16 avg
Cash from Operations (9M FY25) ($M)	$331.7
Free Cash Flow (9M FY25) ($M)	$278.5

Non-GAAP reconciliation drivers include stock-based comp, amortization of acquired intangibles, acquisition/lease exit/severance costs; see 8‑K footnotes for detail .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Recurring & Other Revenue	FY25	$1.445B–$1.455B	$1.460B–$1.465B	Raised
Total Revenue	FY25	$1.558B–$1.568B	$1.580B–$1.585B	Raised
Adjusted EBITDA	FY25	$542M–$550M	$571M–$575M	Raised
Adj. EBITDA ex Interest on Client Funds	FY25	$429M–$437M	$451M–$455M	Raised
Recurring & Other Revenue	Q4 FY25	N/A	$358.1M–$363.1M	New
Total Revenue	Q4 FY25	N/A	$385.5M–$390.5M	New
Adjusted EBITDA	Q4 FY25	N/A	$118.7M–$122.7M	New
Adj. EBITDA ex Interest on Client Funds	Q4 FY25	N/A	$91.3M–$95.3M	New

Management highlighted ~100 bps Y/Y ex‑float operating leverage in FY25 despite ~100 bps Airbase headwind .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1–Q2 FY25)	Current Period (Q3 FY25)	Trend
AI/Technology initiatives	AI assistant GA to admins; early adoption; +30% utilization; nat‑lang report search cut time >20% . Headcount Planning and Benefits Decision Support broaden suite .	AI assistant now leverages employee handbooks and public resources for policy/compliance Q&A; broader embedded use cases across platform .	Expanding use cases and engagement
Broker channel	>25% of new business; consistent strategic focus and non‑insurance stance .	>25% of new business again; emphasis on integrations/APIs and consistency amid competitor consolidation .	Sustained strength
Macro/tariffs	Macro stabilized vs last year; prudent workforce assumptions .	Early qualitative buyer caution in some deals; pipeline stable; Q4 guide assumes flat workforce .	Slight caution, stable base
Airbase (Office of CFO)	Closed; ~1% FY25 revenue; early stand‑alone sales; cross‑sell build over 12–24 months .	Org integration complete; stand‑alone sales traction; integration in phases; ROI/GL integration/employee card UX resonating .	Gradual integration/cross‑sell ramp
Profitability/Leverage	Q2 adj gross margin 73.8%; driving leverage; ex‑float EBITDA leverage strong .	Q3 adjusted gross margin 77%; adj EBITDA margin 43.4%; FY25 ex‑float leverage ~100 bps Y/Y despite Airbase headwind .	Improving margins

Management Commentary

“Recurring revenue growth of 15%, total revenue growth of 13% and increased revenue and profitability guidance for the fiscal year… We continue to see strong channel performance… more than 25% of new business… We… returned capital to shareholders with $150 million or approximately 800,000 shares repurchased through April” — Toby Williams, CEO .
“Our AI assistant can now leverage a client's employee handbook to answer policy-related questions… [and] reference publicly available resources to answer common compliance-related questions… early AI use cases… drive tangible efficiency gains for our clients” — Steve Beauchamp, Executive Chairman .
“Adjusted EBITDA for the third quarter was $197.1 million or 43.4% of revenue… We ended the quarter with $477.8 million in cash… $243.8 million outstanding on our credit facility… $84.9 million or approximately 429,000 shares… repurchased in Q3… ~$150 million or ~800,000 shares… FYTD” — Ryan Glenn, CFO .

Q&A Highlights

Pricing and models: HCM remains PEPY; Office of CFO products (Airbase) priced per user/transaction where appropriate to match buyer personas; land-and-expand motion with specialized inside team support .
Macro and demand: Noted qualitative buyer caution/longer cycles in some deals; no material impact observed; pipeline/top-of-funnel stable; Q4 guide assumes flat workforce levels .
Margin expansion cadence: Significant operating leverage (ex‑float ~100 bps in FY25; ~200 bps organic offsetting Airbase headwind); longer‑term goal to keep driving adjusted EBITDA and FCF margins higher as scale builds .
Airbase strategy/competitive fit: Early stand‑alone traction; integration phases to unlock single‑pane‑of‑glass value; targeted at Paylocity’s core mid‑market; confident vs well‑funded competitors due to fit and employee experience .
Broker channel: Consistent, non‑competing stance with brokers reinforced by technology/integrations; seen as a steady partner amid industry consolidation .

Estimates Context

Q3 FY25 revenue beat S&P Global consensus by ~2.9% ($454.5M vs $441.7M*); non‑GAAP EPS beat by ~14.8% ($2.43 vs $2.12*) .
Given continued sales execution and stable client workforce levels, estimate revisions likely move higher on revenue and non‑GAAP EPS for Q4/FY25; management also raised FY25 adjusted EBITDA and ex‑float EBITDA, implying operating leverage persists .