Paylocity Holding Corp. Q3 FY2025 earnings call

• Recurring and other revenue growth of 15% driven by the firm's differentiated value proposition and sustained R&D investment. • Launched AI use cases such as leveraging employee handbooks for policy questions and referencing compliance resources, as well as new features for employee recruiting and onboarding. • Airbase by Paylocity is fully integrated and resonating with clients. • Strong sales execution with broker channel referrals accounting for over 25% of new business in Q3. • The firm was named One of America's Greatest Workplaces for Women.

Recurring and other revenue in Q3 was $421.1 million, representing a 15% increase. Total revenue grew 13% compared to the same period last year. Adjusted gross profit for Q3 was 77%, an 110 basis point increase from Q3 of the previous fiscal year. Year-over-year investment in total R&D increased by 14.6% in Q3. The average daily balance of client funds in Q3 was $3.6 billion, with an estimated $3.1 billion in Q4 and $3 billion for full fiscal 2025.

• Fiscal 2025 recurring and other revenue guidance increased by $12.5 million, and total revenue guidance by $19.5 million at the midpoint. • Adjusted EBITDA guidance was increased. • For Q4, recurring and other revenue is expected to be in the range of $358.1 million to $363.1 million, and total revenue in the range of $385.5 million to $390.5 million. • For fiscal 2025, recurring and other revenue is expected to be $1.460 billion to $1.465 billion, total revenue $1.580 billion to $1.585 billion, and adjusted EBITDA $571 million to $575 million.

• Macro-economic uncertainty that could impact customer spending and decision-making. • Difficulty in reconciling forward-looking non-GAAP financial measures due to unavailable reconciliation data.

Q: Scott Berg inquired about how new products change the budget conversation.

A: Steve Beauchamp responded that different pricing models exist for different solutions and personas, but the land-and-expand strategy continues.

Q: Brad Reback asked about the macro impact on hiring plans.

A: Toby Williams stated that they are monitoring the market, with a similar mindset to fiscal 2025 focusing on productivity.

Q: Brian Peterson asked about the margin expansion cadence.

A: Ryan Glenn said it's a multiyear basis, not expecting the same level of overperformance in the normal cycle but confident in long-term margin growth.

Q: Samad Samana asked about qualitative factors in guidance.

A: Ryan Glenn said there's stability in the client base and they feel good about Q4 guidance.

Q: Mark Marcon asked about Airbase integration and the broker channel.

A: Steve Beauchamp said Airbase integration is progressing well, and the broker channel focuses on true partnership.

Q: Daniel Jester asked about AI engagement and average revenue per client.

A: Steve Beauchamp said AI is embedded in many use cases, and average revenue per client is important as not all products are on a PEPY model.

Q: Jared Levine asked about the impact of macro uncertainty on Airbase.

A: Steve Beauchamp said Airbase's value proposition resonates, and no material impact has been seen.

Q: Sheldon McMeans asked about macro learnings and the CFO side.

A: Steve Beauchamp said there's a balance between innovation and efficiency, and no need to adjust the sales script.

Q: Austin Cole asked about the importance of FY 2026.

A: Toby Williams said it's a combination of go-to-market execution, operational excellence, and product momentum.

Q: Bobby Dee asked about product innovation cadence.

A: Steve Beauchamp said core HCM enhancements are performing well, and the Office of the CFO will show success in FY 2026.

Q: Unidentified Analyst asked about Airbase sales team.

A: Steve Beauchamp said the sales team identifies needs, and experts assist in the purchase process with different implementation timelines.

Q: George Kurosawa asked about top of funnel and broker channel investments.

A: Steve Beauchamp said there's no softness in the top of funnel, and the broker channel approach is consistent.

Q: Jake Roberge asked about Q3 outperformance drivers.

A: Toby Williams said it's due to strong execution across the business by sales and operations teams.

Q: Jason Celino asked about workforce levels and the Q4 guide.

A: Ryan Glenn said workforce levels are flat in Q4 and assumed to be flat for guidance.

Q: Unidentified Analyst asked about Airbase pricing and sales rep hiring.

A: Steve Beauchamp said pricing is competitive, and Toby Williams mentioned an 8% rep headcount growth with a focus on productivity.

Q: Allan Verkhovski asked about fiscal 2026 guidance cadence and Airbase revenue.

A: Ryan Glenn said a similar cadence is expected, and Airbase is roughly 1% of revenue.

Q: Zachary Gunn asked about Airbase competing against large players.

A: Steve Beauchamp said Airbase has a strong product set targeted at average-sized customers with an employee experience element.