Sign in

You're signed outSign in or to get full access.

PH

PAYCOR HCM, INC. (PYCR)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 FY2025 revenue rose 17% YoY to $167.5M, with recurring revenue up 16% to $154.0M and interest income on client funds at $13.5M; adjusted operating income (AOI) increased 43% to $22.8M (13.6% margin) while GAAP net loss narrowed to $(7.3)M .
  • Results exceeded company’s prior Q1 guidance: revenue $167.5M vs $161–$163M and AOI $22.8M vs $17.5–$18.5M; management raised FY2025 guidance to revenue $726–$733M (from $722–$729M) and AOI $127–$130M (from $123–$126M) .
  • Drivers: average employees on platform +5% YoY and effective PEPM +11% to $19; broker channel influenced 60%+ of field bookings; embedded channel contributed ~2 pts to employee growth but modest PEPM drag near-term .
  • Cash generation is seasonally weak in Q1 but improving: adjusted FCF of $(22.2)M vs $(40.0)M YoY; balance sheet ended with $98M cash and no debt .

What Went Well and What Went Wrong

What Went Well

  • “Impressive start to the year, delivering 17% revenue growth” with “significant margin and free cash flow expansion” and continued investment for growth .
  • Product momentum: launch of Paycor Assistant (AI-powered HR companion) and the Paycor Integration Platform with 320+ prebuilt connections to expand attach and PEPM opportunity .
  • GTM execution: average employees +5%, effective PEPM +11% to $19, strong broker influence (>60% of field bookings), and healthy embedded channel momentum (double-digit partners) .

What Went Wrong

  • GAAP profitability and cash still a watch item: GAAP net loss $(7.3)M and adjusted FCF of $(22.2)M, albeit both improved YoY .
  • Sequential AOI margin down vs Q4 (13.6% in Q1 vs 15.2% in Q4) reflecting seasonality and investment cadence .
  • PEPM growth partly offset by embedded channel mix; management noted a 1–2 point PEPM drag from embedded deals even as they add employees .

Financial Results

YoY comparison (Q1 FY2025 vs Q1 FY2024)

MetricQ1 FY2024Q1 FY2025
Total Revenue ($M)$143.6 $167.5
Recurring Revenue ($M)$132.7 $154.0
Interest Income on Funds Held for Clients ($M)$10.9 $13.5
GAAP Net Income ($M)$(20.6) $(7.3)
GAAP Diluted EPS ($)$(0.12) $(0.04)
Adjusted Net Income ($M)$12.8 $18.7
Adjusted EPS ($)$0.07 $0.10
Adjusted Operating Income ($M)$15.9 $22.8
Adjusted Operating Margin (%)11.1% 13.6%
GAAP Gross Margin (%)64.2% 64.6%
Adj. Gross Margin ex-D&A (%)78.3% 79.2%

Sequential comparison (Q4 FY2024 → Q1 FY2025)

MetricQ4 FY2024Q1 FY2025
Total Revenue ($M)$165 $167.5
Adjusted Operating Income ($M)$25 $22.8
Adjusted Operating Margin (%)15.2% 13.6%
Adjusted Free Cash Flow ($M)$37 $(22.2)

Q1 FY2025 vs Company Guidance (from Q4 call)

MetricCompany Guidance (Q1 FY2025)Actual (Q1 FY2025)
Total Revenue ($M)$161–$163 $167.5
Adjusted Operating Income ($M)$17.5–$18.5 $22.8

Revenue Composition

ComponentQ1 FY2024 ($M)Q1 FY2025 ($M)
Recurring & Other$132.7 $154.0
Interest on Client Funds$10.9 $13.5
Total$143.6 $167.5

KPIs

KPIQ1 FY2024Q1 FY2025
Customers~31,000 ~31,000
Employees on Platform~2.5M ~2.6M
Avg Employees Growth YoY—+5%
Effective PEPM—$19 (+11% YoY)
Broker Channel Influence—>60% of field bookings
Embedded Partners—>10 partners; ~2 pts employee growth

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue ($M)FY2025$722–$729 $726–$733 Raised
Adjusted Operating Income ($M)FY2025$123–$126 $127–$130 Raised
Total Revenue ($M)Q2 FY2025—$176–$178 New
Adjusted Operating Income ($M)Q2 FY2025—$26–$27 New
Notes: FY2025 guidance includes $48–$50M of interest income and contemplates up to 150 bps of rate cuts; sequential Q2 guidance includes ~$12M interest income .

Earnings Call Themes & Trends

TopicQ3 FY2024 (Q-2)Q4 FY2024 (Q-1)Q1 FY2025 (Current)Trend
AI/product innovationAnnounced skills, leadership tools; strong talent suite traction GenAI analytics assistant; comp management; platform advances Launched Paycor Assistant; Integration Platform (320+ connections) Accelerating features; early monetization potential
Embedded HCMRamping; 2 pts employee growth; onboarding new partners Expect to double embedded revenue in FY25; pipeline growing Double-digit partners; upmarket velocity; 1–2 pt PEPM drag Scaling breadth; modest near-term mix drag; long-term accretive
Go-to-market/BrokersCoverage expansion; moderating sales headcount growth 55% top-50 city coverage; sales tenure improving Broker channel >60% of bookings; seller tenure/productivity up Improved productivity, stronger broker leverage
Macro/labor & mixForm filing and ERTC headwinds; same-store slowing Assuming flat labor market in FY25; rate cuts headwind to interest Employment trends “sub-1%” positive; NRR trending up Stabilizing; still conservative in outlook
Upmarket momentumLarger customers growing faster than average Average deal size and customer size up Attach >2.5 modules; mid-market momentum; healthcare strength Continued upmarket traction

Management Commentary

  • CEO: “Paycor had an impressive start to the year, delivering 17% revenue growth year-over-year… while demonstrating the scalability of our business model with significant margin and free cash flow expansion.”
  • CFO: “Quarterly adjusted operating income increased over 40% to $23 million with margins of 13.6%… Free cash flow margins expanded at an accelerated rate… Q1 is our seasonally lowest cash flow quarter.”
  • Product vision: “Paycor Assistant… is designed to boost productivity… Our Integration Platform provides prebuilt connections to over 300 best-in-breed technology partners.”
  • GTM: “Benefit brokers… influenced over 60% of our field bookings this quarter… embedded HCM channel continued to ramp.”

Q&A Highlights

  • AI monetization: Early pilots for Paycor Assistant are positive; monetization opportunities exist but “still too early”; leveraging Azure and third-party models to limit AI infra spend .
  • Pricing/PEPM: Price increases are tied to added product value; roughly one-third contribution from pricing, cross-sell, and adoption; embedded creates 1–2pt PEPM drag near-term .
  • Embedded partners: Double-digit partners; mix includes technology/vertical WFM/ERP/POS; new signings skew smaller but pipeline broadened; FY25 embedded revenue expected to double (off small base) .
  • Sales productivity: Tenure increases driving productivity; broker channel overperformance driven by refined targeting and more tenured reps .
  • Vertical trends: Healthcare stood out as strong in the quarter .

Estimates Context

  • We attempted to retrieve S&P Global consensus estimates for Q1 FY2025, Q2 FY2025, and FY2025; data was unavailable due to a mapping issue, so a like-for-like comparison to Wall Street consensus cannot be provided at this time. Values would normally be retrieved from S&P Global.
  • Relative to company guidance, Q1 results were above both revenue and AOI ranges, and FY2025 guidance was raised on both revenue and AOI, implying potential upward revisions to sell-side models toward the new guidance midpoints .

Key Takeaways for Investors

  • Execution beat-and-raise: Outperformance vs company Q1 guidance and raised FY25 targets signal improving operating leverage and demand resilience—near-term positive for sentiment .
  • Durable growth engines: +5% employee growth, +11% PEPM, strong broker influence, and embedded partner scaling underpin recurring growth momentum .
  • Watch the mix: Embedded channel drives employee adds but dilutes PEPM 1–2 pts; monitor mix and margin trajectory as partners ramp .
  • Margin trajectory intact: AOI margin up 250 bps YoY to 13.6% despite seasonal Q1 trough; management reiterates focus on sales efficiency and cash conversion (LT adj. FCF margin target >20%) .
  • Cash/FCF improving from a low base: Seasonally weak Q1 FCF improved materially YoY; $98M cash and no debt provide flexibility .
  • Product catalysts: AI Assistant and Integration Platform expand attach and differentiation; early customer feedback is positive; monetization optionality ahead .
  • Risk checks: Interest income likely moderates with rate cuts; macro labor growth contribution remains modest; continued investment required to scale embedded channel .