Paylocity Holding Corporation Q1 FY2026 earnings call

• Started fiscal '26 with strong financial results, with recurring and other revenue growth of 14%. Total revenue was $408.2 million, a 12% growth over Q1 of the prior year. • Innovation with AI continues to set Paylocity apart, with usage of AI-powered features more than doubling in the past year, including over 1.2 million questions answered by the AI assistant. • Recently named an overall leader across 10 HCM product categories in the G2 Fall 2025 Grid reports. • Strong demand for the platform across target markets, with sales team momentum, referral channel delivering over 25% of new business in Q1, and strong client retention. • AI strategy progressing with predictive insights, generative AI functionality, and autonomous agents driving productivity through task and workflow automation. • Continued investment in AI across the platform driving increased adoption of the broader product suite, leading to simplified user experiences and higher business value for clients. • Held the annual Elevate Client Conference, highlighting investments in the AI strategy and expanding platform capabilities.

Total revenue for the first quarter was $408.2 million, a 12% increase over Q1 of the previous year. Recurring and other revenues grew by 14%. Recurring and other revenues contributed a significant portion to the total revenue, with total revenue at $408.2 million.

• For Q2 2026, recurring and other revenue is expected to be in the range of $378.5 million to $383.5 million, total revenue in the range of $405.5 million to $410.5 million, adjusted EBITDA in the range of $131.5 million to $135.5 million, and adjusted EBITDA excluding interest income on funds held for clients in the range of $104.5 million to $108.5 million. • For fiscal '26, recurring and other revenue is expected to be in the range of $1.605 billion to $1.620 billion, total revenue in the range of $1.715 billion to $1.730 billion, adjusted EBITDA in the range of $615 million to $625 million, and adjusted EBITDA excluding interest income on funds held for clients in the range of $505 million to $515 million. • Increased long-term financial targets: revenue target increases from $2 billion to $3 billion; adjusted gross margin target increases from 75% to 80% plus; sales and marketing spend target decreases from 20% to 25% to 15% to 20% of revenue; G&A spend target decreases from 5% to 10% to 5% to 7% of revenue; adjusted EBITDA margin target increases from 35% to 40% to 40% to 45%; free cash flow margin target increases from 20% to 25% to 25% to 30%; stock-based comp target decreases from less than 10% of revenue to 5% of revenue.

• Potential impacts of market changes on customer spending and adoption of products. • Competition in the HCM, finance, and IT software markets could affect market share and growth. • Risks associated with integrating new products and technologies, such as the Airbase acquisition, which could impact execution and financial results.

Q: Can you all give us an update on the macro, maybe how things were trending over the course of the quarter into October and your headcount assumptions in the updated guide?

A: Ryan Glenn stated that workforce levels at clients were up a touch year-over-year, consistent with Q4, and guidance assumes flat workforce levels over the balance of the fiscal year with prudence embedded.

Q: Switching to the updated long-term guidance, how does the natural scale of the business driving the upside versus AI benefit helping to drive the upside skew?

A: Ryan Glenn said it's still early days for AI and automation, but sees early benefits from margin expansion and team focus.

Q: Can you talk a little bit about the office of the CFO and the Airbase acquisition?

A: Toby Williams mentioned the V1 launch of the finance product was well-received, early traction in the market, with go-to-market via new clients and existing client base, and Steve Beauchamp added field feedback and inside sales support.

Q: The EBITDA ended up beating roughly by $13.4 million, but you raised the guide by less than the beat. What's the driver?

A: Ryan Glenn said it's due to prudence in guidance and timing elements, with expectations of increased profitability for fiscal '26.

Q: You've been talking about the opportunity in the IT department of your customers. Can you expand on the opportunity?

A: Steven Beauchamp said leveraging employee record data for asset and identity management, early innings but driving platform differentiation.

Q: Why was this the right time to update the long-term financial targets?

A: Ryan Glenn said pleased with progress against prior targets, continued confidence in scaling the business, and early benefits from AI giving incremental confidence.

Q: What are the execution milestones towards the $3 billion long-term target?

A: Steven Beauchamp and Toby Williams discussed continuing unit growth, ARPU expansion, and leveraging the platform across HCM, finance, and IT.

Q: How are you thinking about the pricing of Paylocity for Finance?

A: Toby Williams said mostly bundled approach, with flexibility for per user models if needed.

Q: Can you talk about the demand in different employee segments and feedback vs competitors?

A: Toby Williams said demand environment was stable across segments, with broad-based feedback on value.

Q: How are efficiency gains from AI used, reinvested in go-to-market or margin?

A: Steven Beauchamp said balance of margin expansion and R&D investment, confident in long-term prospects.

Q: Insight from sign-ups for Elevate conference and how it plays into selling season?

A: Toby Williams said pleased with go-to-market initiatives, excited about Elevate and registration levels.

Q: Color on new generation of AI assistant and potential to drive platform expansion?

A: Steven Beauchamp said AI investments driving broader product adoption, simplifying user experience and increasing product adoption.

Q: ARPU opportunity for IT offerings?

A: Steven Beauchamp said it's a good sized revenue opportunity, larger than most HCM modules, with pricing mix considerations.

Q: Impact of recent tax legislation changes on FY '27?

A: Ryan Glenn said the $65 million tax benefit in fiscal '26 is one-time, with other tailwinds in '27.

Q: How has the start to the end of the year selling season gone and pipeline vs prior years?

A: Toby Williams said demand environment was stable, with strong go-to-market execution and momentum.

Q: Changes to time to close deals with bigger platform?

A: Steven Beauchamp said no elongated sales cycles, with go-to-market strategy mitigating issues.

Q: Does Paylocity for Finance impact long-term financial targets and gross margin?

A: Steven Beauchamp said confident it will align with portfolio margins over time.

Q: How does sales rep productivity trend vs hiring?

A: Toby Williams said focus on productivity, with 8% headcount increase and strong Q1 performance.

Q: Customers trending towards landing with more products?

A: Toby Williams said seen both client acquisition with broader platform and increasing ARPU through product expansion.

Q: Specific AI tools for sales reps' go-to-market?

A: Toby Williams said broad-based use of AI tools to automate processes.

Q: Broker channel new business percentage and desired level?

A: Toby Williams said pleased with broker channel contributing over 25% of new business, looking to continue partnership.

Q: Impact of Airbase acquisition on organic vs inorganic innovation and retention?

A: Toby Williams said Airbase acquisition is a proof point, no strategic shift, and retention driven by product breadth and service. Steven Beauchamp added confidence in future M&A.

Q: How much of revenue per customer growth is from cross-sell of finance/IT or product expansion?

A: Steven Beauchamp said both cross-sell from HCM and early feedback from finance/IT contribute, with early innings for those segments.

Q: Update on original $2 billion target and $3 billion revenue target?

A: Toby Williams said growth comes from client growth and ARPU expansion, consistent with past formula.

Q: Why did sales and marketing target decrease when opportunity is right?

A: Toby Williams said rightsized investments, with sales and marketing spend at the top end of the new range.

Q: Broker channel and winning new referral business?

A: Steven Beauchamp said key part of go-to-market, with field relationships and corporate broker relationships enabling success.

Q: Impact of AI on customer hiring and seasonal trends?

A: Ryan Glenn said no indication of change in hiring due to AI, and no onetime seasonal impacts for Airbase.

Q: Cross-sell opportunity within long-term financial targets?

A: Steven Beauchamp said unit growth and ARPU expansion are key, with cross-sell contributing to growth.

Q: Why sales and marketing spend target decreased despite opportunity?

A: Toby Williams said rightsized investments, with confidence in productivity and delivery of go-to-market efforts.