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PAYCOR HCM, INC. (PYCR)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 revenue grew 18% year-over-year to $0.165B, with recurring revenue up 17%; adjusted operating income margin expanded to 15.2% from 11.0% a year ago .
  • Management issued FY’25 guidance of $0.722–$0.729B revenue and $123–$126M adjusted operating income and guided Q1’25 revenue to $0.161–$0.163B; both were first-time guideposts for these periods .
  • Q4 results exceeded the company’s prior Q4 guidance ($0.160–$0.162B revenue; $21–$22M adjusted operating income), reflecting stronger execution and efficiency gains; adjusted free cash flow margin improved to 22.6% in Q4 .
  • New long-term target: adjusted free cash flow margin >20%, with management emphasizing sustained leverage from sales efficiency, implementation productivity, and G&A over time .

What Went Well and What Went Wrong

What Went Well

  • Strong execution drove revenue growth (Q4 +18% YoY) and adjusted operating margin expansion to 15.2%; adjusted FCF margin rose to 22.6% in Q4 .
  • Mix shift upmarket continued: effective PEPM increased 8% YoY to nearly $19; net revenue retention was 98% for FY’24; customers ~30,500 and employees ~2.7M on platform, supported by embedded HCM channel contributing two points of employee growth in Q4 .
  • Strategic product innovation and interoperability: new Compensation Management (+$2 PEPM list), expanded API endpoints >40%, and 300+ prebuilt integrations; talent suite revenue increased ~40% in FY’24 .

What Went Wrong

  • Gross margin softness in Q4 vs prior year driven by slower high-margin form filings and unwinding of ERTC; management expects additional pressure as remaining form filings roll off in FY’25 .
  • Macro headwinds: moderating labor market and potential negative same-store sales in certain industries (food & beverage, arts & entertainment) pressured recurring growth; micro-segment customers continued to decline marginally .
  • Sales organization churn earlier in the year required territory redesign; while retention improved in Q4, management acknowledged execution issues that delayed sales hiring and contributed to conservative FY’25 assumptions .

Financial Results

Quarter-over-Quarter and Year-over-Year Comparison

MetricQ4 2023Q3 2024Q4 2024
Total Revenue ($USD Billions)$0.140 $0.187 $0.165
GAAP Diluted EPS$-0.17 $0.03 $-0.10
Gross Profit Margin (%)65.4% 68.6% 64.8%
Operating Margin (%)-22.6% 4.0% -8.1%
Adjusted Operating Margin (%)11.0% 25.5% 15.2%
Adjusted EPS ($)$0.08 $0.21 $0.11

Segment Revenue Breakdown

SegmentQ4 2023 ($MM)Q3 2024 ($MM)Q4 2024 ($MM)
Recurring & Other$128.966 $171.973 $150.473
Interest Income on Funds Held for Clients$11.077 $15.046 $14.327
Total$140.043 $187.019 $164.800

KPIs

KPIQ4 2023Q3 2024Q4 2024
Customers (approx)~30,600 ~30,600 ~30,500
Employees on Platform (approx)>2.6M >2.6M ~2.7M
Net Revenue Retention (FY)——98%
Effective PEPM—nearly $22 nearly $19
Embedded HCM Contribution to Employee Growth—~2 pts ~2 pts
Talent Suite Revenue Growth (FY)——~40% YoY

Company Guidance vs Actual (Q4 FY’24)

MetricGuided (from Q3 release)ActualResult
Revenue ($MM)$160–$162 $164.8 Beat
Adjusted Operating Income ($MM)$21–$22 $25.0 Beat

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($MM)Q1 FY’25N/A$161–$163 New
Adjusted Operating Income ($MM)Q1 FY’25N/A$17.5–$18.5 New
Revenue ($MM)FY’25N/A$722–$729 New
Adjusted Operating Income ($MM)FY’25N/A$123–$126 New
Interest Income (context)FY’25N/A$48–$50 (embedded in revenue guide) New
Long-term Adjusted FCF Margin Target (%)Multi-yearN/A>20% New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 FY’24)Previous Mentions (Q3 FY’24)Current Period (Q4 FY’24)Trend
AI/Technology InitiativesIntroduced Pay Benchmarking & Labor Forecasting; AI agent assist in CX Continued product innovation; talent suite awards and recognition New Compensation Mgmt; interoperability expansion (API endpoints +40%, 300+ integrations) Expanding feature set and connectivity
Embedded HCM ChannelEarly momentum; 2 pts employee growth; margin accretive over time Tripled partners; 2 pts employee growth again; pipeline building; minimal near-term revenue Several new partners; expect doubling embedded revenue in FY’25 (from <0.5 pt of FY’24 revenue) Building capacity; revenue impact ramps in FY’25
Macro/Labor & Same-Store SalesGuidance assumed flat organic employee growth; tight labor market Same-store sales slowing; potential negative trends in certain industries Labor market moderated; FY’25 guide includes rate-cut backdrop and conservatism Cautious near-term macro assumptions
Upmarket/Enterprise MotionSales headcount expansion, Tier 1 focus Enterprise growth faster than overall; sales redesign to reduce churn Average customer and deal size expanded; 1/3 of sales org targeting 500+ segment Continuing upmarket mix shift
Form Filings/ERTCForm filings boosted Q2; ERTC contribution declining Form filings pulled forward; ERTC immaterial in Q4 guide Gross margin drag from form filings; ERTC immaterial in Q4 actual Headwind receding into FY’25
Sales Capacity & EfficiencyPlan to grow sales force ~20% Moderated headcount growth; territory redesign; retention improving Sales team 600; top 50 metros coverage rose to 55%; focus on efficiency and cash conversion Efficiency over brute-force headcount

Management Commentary

  • “Paycor delivered revenue growth of 18% for the quarter and 19% for the year… We continued winning market share by delivering substantial value through our robust, modern HCM solution that powers people and performance.” — CEO Raul Villar Jr. .
  • “Quarterly adjusted operating income increased over 60% to $25 million… During the quarter, we generated $37 million of adjusted free cash flow at 23% margin… We ended the year with $118 million in cash and no debt.” — CFO Adam Ante .
  • “We are introducing a new long-term adjusted free cash flow margin target of greater than 20%… the majority… will come out of the cost of acquisition… 8 to 10 plus more points to go over the next couple of years.” — CFO Adam Ante .
  • “Revenue from our robust talent suite increased nearly 40% again this fiscal year… frontline leaders are improving employee engagement… increasing employee retention by 10%.” — CEO Raul Villar Jr. .

Q&A Highlights

  • Growth vs Macro: Management reiterated healthy demand but embedded conservatism in FY’25 given labor market headwinds and a likely declining rate environment; first quarter interest income expected at ~$12M on just over $1B average client funds .
  • Free Cash Flow Target and Leverage: Medium-to-long-term path to >20% adjusted FCF margin focuses on sales/implementation efficiency and G&A; no structural “pops,” gradual expansion anticipated .
  • Embedded Channel Mechanics: FY’25 doubling expected from existing partners; some contracts have minimums; visibility is primarily pipeline diligence and partner go-to-market capability; revenue impact ramps over time .
  • Sales Organization & Upmarket: Territory redesign improved retention; 1/3 of salesforce targets 500+ employee segment; continued focus on top 50 metros coverage (now ~55%) .
  • Form Filings/ERTC: High-margin form filings and ERTC are unwinding faster than anticipated; ERTC immaterial in Q4, ~1 point headwind into FY’25 vs FY’24 .

Estimates Context

  • S&P Global consensus estimates for Q4 FY’24 were unavailable due to a CIQ mapping error for PYCR; therefore, comparisons to Wall Street consensus could not be verified at this time [SpgiEstimatesError]. Values retrieved from S&P Global.*

Where estimates may need to adjust:

  • FY’25 revenue and interest-income assumptions (embedded up to 200 bps rate cuts, $48–$50M interest income) may prompt consensus revisions to non-recurring interest components and margin trajectories .
  • The >20% long-term adjusted FCF margin target could influence medium-term margin and cash conversion expectations in models .

Key Takeaways for Investors

  • Q4 beat on revenue and adjusted operating income versus company guidance, with continued operating leverage and strong adjusted free cash flow conversion in the quarter .
  • FY’25 guide embeds macro conservatism (labor headwinds, declining rates); recurring revenue growth should be supported by upmarket mix and embedded channel ramp, though headline growth decelerates vs FY’24 due to interest and form filings effects .
  • Upmarket motion and talent suite strength underpin PEPM growth; interoperability expansion (API endpoints +40%, 300+ integrations) enhances platform stickiness and cross-sell velocity .
  • Embedded HCM channel is strategically important for lower acquisition costs and margin accretion; revenue contribution set to double in FY’25 with broader partner mix and frameworks .
  • Management’s new long-term >20% adjusted FCF margin target signals rising cash conversion and disciplined growth, a potential re-rating catalyst for quality-of-earnings focus .
  • Watch industry same-store sales and micro-segment trends (pressure in food & beverage, arts & entertainment) for near-term volatility in recurring growth .
  • Continued product innovation (Compensation Mgmt, benchmarking, forecasting) and awards support competitive differentiation and upmarket wins .

Additional Relevant Q4 Press Release

  • Paycor published “HR in 2025: Insights & Predictions” based on 7,000+ professionals, highlighting leadership development as an HR priority and engagement trends across remote/hybrid/onsite; management cited stronger hiring and retention outcomes among Paycor customers .