Paylocity finished fiscal 2025 with fourth-quarter recurring revenue up 15% and total revenue up 14%, beating the top end of guidance on both revenue and adjusted EBITDA of $130.7 million, while full-year revenue reached $1.6 billion with average revenue per client up about 8% and free cash flow margin of 21.5%. The company launched Paylocity for Finance and completed the first phase of the Airbase integration, though it absorbed headwinds from the shift to full cash taxpayer status, lower interest rates, and the acquisition. Management guided fiscal 2026 to roughly 9% recurring revenue growth, a deceleration as the inorganic Airbase benefit anniversaries after the first quarter.

What went well
  • Q4 recurring revenue grew 15% and total revenue grew 14%, while full-year fiscal 2025 recurring revenue grew 14% and total revenue grew 12%, ending the year at $1.6 billion of revenue.
  • Q4 revenue came in $10.2 million above the top end of guidance and Q4 adjusted EBITDA of $130.7 million (32.6% margin) exceeded the top end of guidance by $8 million.
  • Average revenue per client reached just over $35,300 in fiscal 2025 versus $32,800 in fiscal 2024, an increase of approximately 8%, while the client base grew 7% to 41,650 clients.
  • The company launched Paylocity for Finance, extending its platform into the office of the CFO and completing the first phase of the Airbase integration.
  • Fiscal 2025 free cash flow margin reached 21.5%, with free cash flow expanding approximately 19% on a dollar basis and 50 basis points of margin expansion despite the shift to full cash taxpayer status, lower interest rates, and Airbase headwinds.
  • The benefit broker channel again represented more than 25% of new business in fiscal 2025, and revenue retention remained greater than 92%.
What went wrong
  • The company transitioned to full cash taxpayer status, a material headwind to free cash flow in fiscal 2025.
  • Lower interest rates and the Airbase acquisition were headwinds to free cash flow, and guidance assumes four 25 basis point rate cuts in fiscal 2026 that pressure interest income on funds held for clients.
  • Sales and marketing expense jumped quarter-over-quarter in Q4 due to year-end bonus timing, additional programs, and Q4 hiring as the company entered the year fully staffed.
  • Recurring revenue growth is expected to decelerate to approximately 9% for fiscal 2026 (about 8% to 8.5% implied for Q2 through Q4) as the inorganic Airbase benefit anniversaries after Q1.

Management Commentary

Read the Q4 2025 summary ↗
Ryan Glenn
CFO, Paylocity

Good afternoon and welcome to Paylocity's earnings results call for the fourth quarter and fiscal year 2025 which ended on June 30th, 2025. I'm Ryan Glenn, Chief Financial Officer, and joining me on the call today are Steve Beauchamp, Executive Chairman, and Toby Williams, President and CEO of Paylocity. Today we will be discussing the results announced in our press release issued after the market closed. A webcast replay of this call will be available for the next 45 days on our website under the Investor Relations tab. Before beginning, we must caution you that today's remarks, including statements made during the question and answer session, contain forward-looking statements. These statements are subject to numerous important factors, risks, and uncertainties which could cause actual results to differ from the results implied by these or other forward-looking statements.

Also, these statements are based solely on the present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward-looking statement. For additional information, please refer to our filings with the Securities and Exchange Commission for the risk factors contained therein and other disclosures. We do not undertake any duty to update any forward-looking statements. Also, during the course of today's call we will refer to certain non-GAAP financial measures. We believe that non-GAAP measures are more representative of how we internally measure the business and there is a reconciliation schedule detailing these results currently available in our press release which is located on our website at paylocity.com under the Investor Relations tab and filed with the Securities and Exchange Commission.

Please note that we are unable to reconcile any forward-looking non-GAAP financial measure to their directly comparable GAAP financial measure because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort. In regard to our upcoming conference schedule, we will be attending the KeyBanc Technology Leadership Forum and the Stifel Technology Executive Summit. Please let me know if you'd like to schedule time with us at either of these events. With that, let me turn the call over to Steve.

Steve Beauchamp
Executive Chairman, Paylocity

Thanks Ryan, and thanks to all of.

you for joining us on our fourth quarter and fiscal 2025 earnings call. Our differentiated value proposition of providing the most modern platform in the industry continues to resonate in the marketplace and helped drive recurring revenue growth of 14% and total revenue growth of 12%. In Q4 for fiscal 2025, recurring revenue growth grew 15% and total revenue grew 14% as we ended the year with $1.6 billion of revenue. Our sustained multi-year investment in R&D has resulted in continued product differentiation and a significant expansion of our product suite, which has helped drive durable recurring revenue growth and continued expansion of our average revenue per client. Most recently, we announced the launch of Paylocity for Finance, expanding our market-leading modern workforce platform for HCM into the office of the CFO and bringing both finance and HR together through a unified system grounded in the employee record.

With the addition of Airbase and our previously launched headcount planning solution, Paylocity for Finance delivers a comprehensive suite of tools that connects day-to-day spend management with strategic workforce planning, reflecting our vision to equip leaders with modern AI-powered solutions that bridge the gap between HR and finance on our single unified platform. Going forward, our clients can now manage both payroll and non-payroll spend in a single platform and eliminate disconnected systems, manual processes, and approval bottlenecks. Product expansion has been a key part of Paylocity's growth algorithm for over a decade, and we believe Paylocity for Finance, together with the continued expansion of our HCM portfolio, will drive further growth over time in our average revenue per client, which reached just over $35,300 in fiscal 2025 compared to $32,800 in fiscal 2024, an increase of approximately 8%.

We believe Paylocity for Finance represents a significant multi-year opportunity for both new clients and a cross-sale back into our 41,650 existing client base, which grew 7% from fiscal 2024. Our commitment to product development also continues to be recognized in the market, with Paylocity recently winning a TrustRadius Top Rated Award in HR management software for the third year in a row. I would now like to pass the call to Toby to provide further color on the quarter.

Toby Williams
President and CEO, Paylocity

Thanks, Steve. In Q4 in fiscal 2025, our differentiated position in the market was reflected in solid sales execution, and we have continued investing in our go-to-market functions to carry this momentum into fiscal 2026 across sales, marketing, and channel referrals. Coming into fiscal 2026, we expanded our sales force by 8% to 952 sales reps and will be focused on continuing to drive productivity and efficiency across our teams, consistent with prior years. We are pleased to be fully staffed to begin fiscal 2026, and we continue to successfully attract the best sales talent in the industry, positioning us well for durable recurring revenue growth. We also saw another strong year of channel performance, primarily from benefit brokers, who once again represented more than 25% of new business in fiscal 2025.

The sustained success of our broker channel continues to be driven by our modern platform, third-party integration, and API capabilities. Because we do not compete against our broker partners by selling insurance products, we remain committed to investing in and supporting the broker channel with the goal of continuing to deliver real value and true partnership in support of our referring brokers and their clients. Revenue retention also remained consistent at greater than 92% in fiscal 2025, and we remain committed to investing in our operations teams to deliver world-class service to our clients. As Steve highlighted, we are excited about the opportunity with the recent launch of Paylocity for Finance, which represents the natural evolution of our mission to simplify work through innovation and empowers finance teams with AI-powered automated solutions seamlessly integrated into the Paylocity platform, including headcount planning, expense management, AP automation, corporate cards, and guided procurement.

By unifying data and connecting critical workflows, we're delivering enhanced visibility, improved efficiency, and an exceptional user experience that drives increased value across HR and finance teams and their employees. Employees will now be able to submit expense reports and spend requests in the same system they already use for payroll, time tracking, and benefits, while managers will benefit from a single centralized task list for all approvals, whether for time off, expenses, or purchases. This unified experience minimizes friction, accelerates financial processes, provides better controls, and ultimately drives increased value from a single platform. For example, an early adopter has consistently struggled to manage approvals and spend requests across multiple disconnected systems, leading to bottlenecks and delayed decisions, sometimes taking up to 45 days to complete a purchase.

After implementing Paylocity for Finance, including AP automation and guided procurement, the client was able to streamline their approval cycle by eliminating numerous manual steps and integrating seamlessly with their existing critical systems, driving greater efficiency and generating time savings for their finance teams. With features like invoice matching, they now have full confidence that incoming invoices align with pre-approved spend, ensuring every purchase is backed by clear accountability and real-time visibility. Our strong culture, industry-leading software innovation, and exceptional sales and operational execution would not be possible without the dedication and commitment of our employees. As we close out a very strong fiscal 2025, I'd like to thank all of our people and teams for a fantastic year.

The strong culture at Paylocity also continues to be recognized externally as we recently were named by Newsweek as one of America's Greatest Workplaces for Gen Z, listed by Time as one of America's Best Midsize Companies, and included in the Association for Talent Development's 2025 Best Award Winners list. I would now like to pass the call to Ryan to review the financial results in greater detail and provide an initial outlook on fiscal 2026.

Ryan Glenn
CFO, Paylocity

Thanks, Toby. Recurring revenue for the fourth quarter was $369.9 million, an increase of 14% with total revenue up 12% from the same period last year. As Toby noted, our sales team had another solid quarter and we were pleased to come in $10.2 million above the top end of our revenue guidance, with the majority of our Q4 revenue beat coming from recurring and other revenue. Adjusted EBITDA for the fourth quarter was $130.7 million, or 32.6% margin, and exceeded the top end of our guidance by $8 million. For fiscal 2025, adjusted EBITDA was $583 million, or 36.5% margin and an increase of 15% on a dollar basis from fiscal 2024, resulting in leverage of 50 basis points excluding the impact of interest income on funds held for clients.

Adjusted EBITDA margin for fiscal 2025 was 31.2%, reflecting operating leverage of 120 basis points versus fiscal 2024 and approximately 220 basis points of organic operating leverage when excluding the impact of Airbase. Additionally, we continue to show strong growth on free cash flow, with fiscal 2025 free cash flow margin of 21.5%, representing an increase of 12% on a dollar basis from fiscal 2024. Despite facing material headwinds as we transition to full cash taxpayer status, the impact of lower interest rates and the headwinds from the Airbase acquisition excluding the impact of interest income on client held funds, we expanded free cash flow by approximately 19% in fiscal 2025, representing margin expansion of 50 basis points. We continue to have confidence in our ability to further expand free cash flow on a go forward basis.

We continue to make significant investments in research and development and to understand our overall investment in R&D, it is important to combine both what we expense and what we capitalize on a combined non-GAAP basis. Total R&D investments were 14.3% of revenue in fiscal 2025 and on a dollar basis. Our year-over-year investment in total R&D increased by 14% when compared to fiscal 2024. We continue to believe our investments in R&D provide us with valuable product differentiation and the ability to drive future growth as we deliver the most modern platform in the industry. On a non-GAAP basis, sales and marketing expenses were 23.1% of revenue in the fourth quarter and 21% of revenue in fiscal 2025.

On a non-GAAP basis, G&A costs were 9.7% of revenue in the fourth quarter and on a full year basis, G&A costs were 9.3% of revenue and we remain focused on continuing to drive leverage in our G&A expenses on an annual basis. Briefly covering our GAAP results for Q4, gross profit was $271.9 million, operating income was $66.2 million, and net income was $48.6 million. For the full year, gross profit was $1.1 billion, operating income was $304 million, and net income was $227.1 million. In regard to funds held for clients and interest income, our average daily balance of client funds was $3.1 billion in Q4 and $3 billion for fiscal 2025. We are estimating the average daily balance will be approximately $2.85 billion in Q1 of fiscal 2026, with an average annual yield of approximately 390 basis points representing approximately $27.5 million of interest income in Q1.

On a full year basis, we're estimating the average daily balance will be $3.15 billion in fiscal 2026 with an average yield of approximately 350 basis points representing approximately $110 million of interest income. In regard to interest rates, our guidance assumes four 25 basis point rate cuts during fiscal 2026, with a cut in September, December, March, and April reflected in our guidance. Additionally, given the confidence we have in our business and our strong cash flows, we repurchased approximately 315,000 shares of common stock at an average price of $178.21 per share for $56 million in aggregate repurchases during Q4. In total, for fiscal 2025, we repurchased approximately 800,000 shares of common stock at an average price of $190.16 per share for roughly $150 million in aggregate repurchases. In July, our Board increased our share repurchase authorization by an additional $500 million.

In addition to the increased authorization, as of June 30th, we had approximately $200 million remaining under the existing repurchase and anticipate continuing to execute against the repurchase program going forward. In fiscal 2025, we also drove 140 basis points of leverage in stock-based comp expense and achieved our target of less than 10% of revenue as stock-based comp expense was down year-over-year on a dollar basis for the second consecutive year. In regards to the balance sheet, we ended the fiscal year with $398.1 million in cash, cash equivalents and invested corporate cash, and $162.5 million outstanding on our credit facility related to the Airbase acquisition, with approximately $81 million repaid on our outstanding balance in Q4.

Finally, I'd like to provide our guidance for Q1 and full fiscal year 2026, which includes the impact of 100 basis point interest rate cuts in fiscal 2026 and flat workforce levels in fiscal 2026 versus fiscal 2025. For the first quarter of fiscal 2026, recurring and other revenue is expected to be in the range of $370 million-$375 million, or approximately 12% growth over first quarter fiscal 2025 recurring and other revenue, and total revenue is expected to be in the range of $397.5 million-$402.5 million, or approximately 10% growth over first quarter fiscal 2025. Total revenue adjusted EBITDA is expected to be in the range of $131 million-$135 million, and adjusted EBITDA excluding interest income on funds held for clients is expected to be in the range of $103.5 million-$107.5 million.

For fiscal 2026, recurring and other revenue is expected to be in the range of $1.597 billion-$1.612 billion, or approximately 9% growth over fiscal 2025 recurring and other revenue. Total revenue is expected to be in the range of $1.707 billion-$1.722 billion, or approximately 8% growth over fiscal 2025. Adjusted EBITDA is expected to be in the range of $608.5 million-$618.5 million, and adjusted EBITDA excluding interest income on funds held for clients is expected to be in the range of $498.5 million-$508.5 million, representing approximately 20 basis points of leverage at the midpoint. In conclusion, as we kick off fiscal 2026, we remain confident in our differentiated value proposition, go-to-market strategy, operational strength, and product roadmap, and believe our predictable business model and execution, durable recurring revenue growth, and prudent approach to guidance set us up for a strong fiscal 2026.

A combination of industry-leading recurring revenue growth and free cash flow margin, a long track record of strong and consistent revenue retention, and expanding both our client base and average revenue per client. We have a high level of confidence in our ability to continue to drive sustainable revenue growth and increase margin on a multi-year basis as we execute against our goal of surpassing $2 billion in total revenue. Operator, we're now ready for questions.

Analyst Q&A

Scott Berg — Analyst, Needham & Company
Hi everyone.
Really nice quarter, and thanks for taking my questions here.
A couple of them.
Don't know who wants to take this between probably Steve and Toby, but how do we think about the demand environment right now? I kind of look at your results and ARPU growth remained really strong in the year. Customer growth is normalizing towards mainly pre-pandemic level, maybe a little bit elevated from that, but a really consistent number right now. Is this how we should view the environment? It's kind of baked in your guidance into 2026. Are there any puts and takes with the ability to maybe move that customer acquisition kind of number maybe up or.
Down in the year?
Steve Beauchamp — Executive Chairman, Paylocity
Operator, can you hear us now?
Scott Berg — Analyst, Needham & Company
Hi everyone.
For some reason I thought you didn't like my question and that was the end of the call.
Steve Beauchamp — Executive Chairman, Paylocity
We could hear you. You couldn't hear us. We can pick up from your question and jump to the answer if that's helpful.
Scott Berg — Analyst, Needham & Company
That works great.
Thanks.
Steve Beauchamp — Executive Chairman, Paylocity
I appreciate the patience and thanks for the question, Scott. I think relative to the demand environment, we saw a fairly stable demand environment across the course of the year, and that's what we continue to see in Q4 as well. To your comment or to part of your question, we saw relative stability in the year-to-year growth in units in through 2025, and the same thing with respect to ARPU, with ARPU growth and unit growth being fairly evenly distributed through the course of 2025. Ultimately, with all those things, really happy with the execution from a go-to-market and from a sales team perspective throughout the course of 2025, which is where I think you saw some of the overage come from.
Scott Berg — Analyst, Needham & Company
Understood, thank you. Ryan, if I look at the financials, you know, pretty much in line with my expectations from what we heard in the quarter, but your sales and marketing expense had a kind of significant jump quarter-over-quarter. You maybe help us understand what the difference there is. I don't know if it's bonus payments or some new investments in some programs here going into this year, but any.
Color there would be helpful.
Ryan Glenn — CFO, Paylocity
Thanks. Yeah, Scott, I think it's your typical Q4 year-end timing where you have a little bit of movement of bonus payments and some additional programs that we may try to get into the end of the year.
Obviously, as Toby mentioned, we came into.
The year fully staffed as well. A fair amount of hiring in the fourth quarter as well. It's really just timing within the year, I would say as we look at the sales and marketing spend over the course of 2025 and head into 2026, we came in consistent with expectations.
Scott Berg — Analyst, Needham & Company
Really nice quarter.
Thanks for taking my questions again.
Sorry if I scared you off.
Thanks, guys.
Toby Williams — President and CEO, Paylocity
Thank you.
Daniel Jester — Analyst, BMO Capital Markets
Great.
Thanks for taking my question.
Maybe we'll go with Paylocity for Finance. Appreciate all the context there. Does this mean that the integration of Airbase is basically complete, or is there more work to be done on that part? That's part number one. Number two is, are you shifting any more resource in your sales organization to attack? The back to the base opportunity here seems pretty large relative to maybe just adding another module or two.
On the HR side.
Thank you.
Steve Beauchamp — Executive Chairman, Paylocity
Sure. I think as we had mentioned after we had made that acquisition, that we would anticipate doing the integration in phases. We certainly put out the press release indicating we've completed the first phase of that integration, which is certainly probably the most meaningful step. However, we do view opportunity to continue to integrate that platform over time, and we're excited about that opportunity in getting users' feedback and continue to look for the leverage that we believe we can drive from an employee record perspective across HCM and finance. The product is in market. I would say a fully integrated version with new opportunities is coming, and we'll probably see enhancements to that realistically every quarter. That is our goal.
I think on the second point with our go-to-market motion, we are just in the process with that product just being released, getting our field sales organization up to speed and knowledge with the integrated product offering such that they can refer an inside sales team of experts to then be able to take those opportunities across the finish line. We've also got that inside sales team of experts looking at back to the base opportunities. All that has just been launched with the press release that you saw from an integration perspective.
Daniel Jester — Analyst, BMO Capital Markets
That's really helpful.
Thank you.
Maybe Ryan, I know you don't guide the free cash flow, but I'd appreciate it. Are there any puts and takes as.
We think about the free cash flow outlook for fiscal 2026?
Obviously, float is going to change. Maybe there's some R&D tax.
Credits we should consider.
Anything you'd share on that would be very helpful.
Thank you.
Ryan Glenn — CFO, Paylocity
Yeah, Dan, I think to your point, as I said in my prepared remarks, really pleased with where we've taken profitability as a whole. That includes both adjusted EBITDA and free cash flow. I think we've expanded free cash flow margin by, call it, 400 basis points just over the last two years and continue to have a lot of confidence that we'll be able to do so in 2026 and on a go forward basis. I think probably the only note I would make is you do have the likelihood of some tailwind relative to the new tax legislation. We're still working through what that impact would look like specifically, but a high likelihood that that will reduce our federal taxes in fiscal 2026 and that will have a knock on effect or a tailwind to free cash flow.
Be able to provide more details as we get more clarity. That's probably the one item I would note. We're now full cash taxpayer status outside of that new legislation and have a lot of confidence that that free cash flow margin and EBITDA will continue to move forward in 2026 and beyond.
Daniel Jester — Analyst, BMO Capital Markets
Great, thank you very much.
Mark Marcon — Analyst, Baird
Good afternoon. Great quarter. Thanks for taking my questions. Two questions, one just on Paylocity for Finance. Can you tell us a little bit about, I know it's extremely early, but what sort of expectations are you kind of building in for that? Can you talk a little bit about the pricing, the types of clients that would probably be the most likely to adopt, the experiences of the clients that you've talked to thus far? Remember, during our conference, Toby was very optimistic about how things were going there.
Steve Beauchamp — Executive Chairman, Paylocity
Yeah.
I think early on we are getting good feedback from customers. They see the value in the integrated platform, the ability to leverage the employee data that we have so that it's easy to request spend, easy to put in rules around spend, make sure that approval process happens relatively quickly. All of that leads to a much faster close process on the back end. I think the integration is getting us really good feedback. We're also very pleased with the standalone product capabilities that we purchased and our ability to be able to continue to move those forward and enhance those based off client feedback. I think that has gone pretty well. As you mentioned, we are still early. We are setting up our first clients on the integrated offering kind of as we speak. We are excited about that opportunity.
What I would say is one of the questions we get a lot is how is that sales process going to translate from a decision maker capability. That's another area that I would say pretty happy with. The CFO is definitely involved in a payroll and HR purchase, although sometimes they're not the primary decision maker. We have certainly had opportunities, either via referrals or back to base conversations, to have pretty easy access into that conversation from a CFO perspective. They've got appreciation for what the integration offers as well as the opportunity to get a singular support structure as well. Early on, good success. I would say our expectations are that it takes a little bit longer than maybe an additional module from a sales process because it is a bigger purchase price, as you mentioned.
It might take us a little bit longer to get to the same penetration rates as additional HCM modules. We feel confident that our over 40,000 customers represent a great opportunity to sell back into.
Mark Marcon — Analyst, Baird
Do you think, Steve, that we can still get to somewhere in the 15%-25% penetration rate over time? Can you remind us of how you're pricing this solution? Obviously, it's going to end up.
Adding a lot more than typical.
$1-$2 per month.
Steve Beauchamp — Executive Chairman, Paylocity
That's correct. I think over time we've always talked about modules getting into that 10%-20% penetration rate. That would still be the goal with this. As I mentioned, it may take a little bit longer. However, the revenue per client is much higher, and it can certainly be more impactful than most of our HCM modules that we've launched. It will also provide us additional capabilities from an expense management perspective. We had an expense management solution embedded in our suite. I would call that a more basic version. They have much more advanced capabilities. I think that represents an opportunity that is priced generally on a PEPM basis. The rest of the modules are really per employee, per user.
Mark Marcon — Analyst, Baird
Terrific.
Thank you.
Dominique Manansala — Equity Research Associate, Truist Securities
Hi, this is Dominique Guenanzela on for Terry. Thanks for taking my question. Just looking at AI innovations like the policy answering assistant that you all mentioned last quarter, are there any new AI-driven features or client adoption trends you want to call out in the quarter? How does adoption rates or client feedback shape your view on AI as a differentiator now, as you're heading into fiscal year 2026?
Steve Beauchamp — Executive Chairman, Paylocity
That's a great question. We definitely see AI coming up in the conversation with prospects at an increased rate. At the same time, we are seeing our current customers take advantage of the embedded AI capabilities across various modules in the suite. We have certainly a long list of opportunities that we're working on to be able to continue to embed AI. I think we talked a little bit about, and you mentioned, the chatbot interactions and how that sources data, both from client data as well as our knowledge management, and then our ability to add third-party data to be able to answer a wider variety of questions. We see that growing as we continue to grow the data set and the capabilities within that chat interaction.
We have been really happy with the innovation we've put into the platform so far from an AI perspective, and we're excited about what the roadmap looks like.
Dominique Manansala — Equity Research Associate, Truist Securities
Got it, thank you.
Jonathan McCary — Senior Equity Research Associate, Raymond James
Thank you. This is Jonathan McCarry on for Brian this evening. Just one for me here. I wanted to ask on the thinking on M&A now that Airbase is in the early stages of being integrated and launched. I'm curious, how does that impact your appetite for M&A? Are there some strategic product areas you point us to that you find particularly interesting at the moment from here?
Thank you.
Toby Williams — President and CEO, Paylocity
Yeah, thanks, John. I mean, I think we are, first of all, really, I think, happy with our ability to get the Airbase deal done. Certainly an area of strategic interest for us and to be able to get the integration accomplished with the success that we have. Then the launch just recently of Paylocity for Finance. I think overall, have been very happy with our ability over time not just to do that deal, but to do a few others that have been strategic to us, that have really added to the product set and helped drive our differentiation over time and drive more value to clients. I think the strategy around M&A has been fairly consistent and will continue to be in terms of being open to areas where we can accelerate the roadmap through M&A.
I think the focus from our teams generally is to be able to continue to build out products that drive more value for clients and that address key needs. When we can augment that from an M&A standpoint in areas where it will accelerate the product roadmap, I think those are the things that are interesting to us. It's a fairly high bar from the standpoint of really being focused on the ability to take any acquired product and integrate it so tightly into the platform that a user can't tell whether you built it or bought it. I think that's what we're doing with Airbase, which is one of the reasons, I think we're so excited about the experience that we're creating from that integrated product set.
Thank you.
Jared Levine — Equity Research Director, TD Cowen
Thank you. In terms of your AI investments for internal operations, what stage would you say you're at currently, and any sense on how long until you could potentially be in a net benefit position from AI?
Steve Beauchamp — Executive Chairman, Paylocity
I think one of the things that we've called out in the past is that there is a tremendous amount of opportunity from AI across the business. Whether that's in our operations, whether that's in our product development team and building new features for our customers, or really a lot of our teams that support individuals talking to clients or even in G&A, I think we're still in the relatively early innings. I also think this happens gradually over time. We look at this as an opportunity to continue to invest in that category. That becomes one of the ways that we can drive both a better client experience, but also margin enhancements over time as we continue to identify use cases, make investments, and realize the benefits from that. It becomes part of our long-term model and the way that we think about driving efficiency in the business.
Jared Levine — Equity Research Director, TD Cowen
Ryan, in terms of retention direction, can you give us some color on if that was up or down here for FY 2025, including any differences on controllable versus uncontrollable churn?
Ryan Glenn — CFO, Paylocity
Yeah, nothing I'd particularly note, I think.
As we said in the prepared remarks.
At 92%+ again in fiscal 2025, really pleased with those results. I think when you look at the results we put up on recurring revenue in fiscal 2025, obviously strong execution from a sales standpoint, but really strong execution from an operational standpoint. I think that goes both to our implementation teams as well as our service team. Really pleased with where we are from retention, always a key focal point for us, but outside of that, nothing I would call out that would have materially changed in 2025.
Jared Levine — Equity Research Director, TD Cowen
Great, thank you.
Ryan Glenn — CFO, Paylocity
Thanks.
Kincaid LaCorte — Analyst, Citizens Bank
Hi, team.
Thanks for taking my question. This is Kincaid on for Pat. I just had two questions about incentives.
First off, if I'm a Paylocity sales.
Rep, what am I making the most money selling? Number two, with the launch of Paylocity for Finance, is there going to be a shift in those incentives? Thanks.
Steve Beauchamp — Executive Chairman, Paylocity
I think our Paylocity sales reps are really focused on new business and new recurring revenue that get added to the platform. I don't think those incentives change at all. We also have a system where if they're going to refer an expert, they're going to be able to collect some part of that commission from that referral. If I'm a sales rep, I see a great opportunity. I've created a relationship with the head of HR as well as the CFO. I realize they could benefit from some of the Airbase modules, refer them over to an expert. We can do that all as part of one sales process. We could actually go back to them after they've already started or start them first.
From a finance perspective, the incentives are absolutely there, and as we mentioned earlier, it's fairly robust from an annual recurring revenue, which creates even a higher incentive for our field sales force of over 900 people to be able to refer our team of experts in.
Kincaid LaCorte — Analyst, Citizens Bank
Thanks so much, guys.
Raimo Lenschow — MD, Barclays
Hey, perfect.
Thank you. Quick question on that, on philosophy for finance as well. Obviously now you can have like a joint offering. How does it change the competitive, you know, selling motion that you have there? Does it change your competitive field? Does it increase the win rate? What are the early experiences there? Thank you.
Toby Williams — President and CEO, Paylocity
Yeah, thanks, Ramo. I mean, I think we're still early for sure, but I think part of there's incremental value that we're delivering to clients from the ability to have a finance solution on the same platform. That's a different strategy that I think you see with the vast majority of our competitors in the HCM space. We definitely view it as a point of differentiation. You know, I think to Steve's earlier comments, yes, we're very early, but I think we're really pleased with what we've been able to do in terms of the integration of the Airbase products and solutions into a single platform that is real value, that is significant value prop for clients, both new clients coming onto our platform and back into the client base. I think we're optimistic early days, but optimistic with the traction we'll be able to get with that value prop.
Raimo Lenschow — MD, Barclays
Does it kind of bring you into certain verticals? Because finance is obviously not finance in every single vertical. Is there something that kind of then gets you into some other verticals? Thank you.
Toby Williams — President and CEO, Paylocity
I think the offering being on one platform gives us the ability to go across verticals the same way that we do with the payroll and HCM parts of our suite. I think part of the attraction was this was another horizontally interesting area that we think we can also take into different verticals the same way that we have Paylocity for payroll and HCM. I think it's a great fit for the platform, and I think, going back to Steve's comments, early days, but I think the early traction that we're seeing is positive and I think we're pretty excited about it.
Raimo Lenschow — MD, Barclays
Perfect, thank you.
Congrats.
Siti Panigrahi — MD, Mizuho
Thank you.
I just want to ask about Airbase. It's been more than a year, wondering what kind of feedback you have gotten from customers. At least those customers using Paylocity, customers using Airbase, what sort of revenue uplift you are seeing. One clarification, in terms of sales rep growth, 8%. Is this most of the Paylocity sales.
The combined one?
Toby Williams — President and CEO, Paylocity
Sure. On the first part, it's been 10 months since we made the acquisition and we're just now, in the last couple of weeks, launching Paylocity for Finance. We're really just now at a point where we have the Airbase products integrated into the Paylocity platform. I think we're really at the point now where we can be, I think, more focused and more aggressive from a sales team and from a go-to-market standpoint, now that we really have a key part of the value prop we're able to deliver against, a key part of the value prop in terms of the whole set of solutions on a single platform, which is really important to clients and prospects. We're in the early days, but I think the feedback so far from a product perspective has been very strong.
That was part of our attraction to the Airbase business, was the strength of the product set. It's been well regarded in things like G2. I think our view was we could take a really strong product, create significant integration on a single platform and bring that to market and that that would be valuable to clients. I think that's what we're seeing, albeit in the early days of launch.
Steve Beauchamp — Executive Chairman, Paylocity
I think your question on headcount growth, i.e. total headcount growth across all of our sales forces, including Airbase, which as you know, when we bought that was relatively small. We're excited about the opportunity in front of us, but the bulk of those additions are really in our HCM sales forces.
Siti Panigrahi — MD, Mizuho
Thank you.
Alex Zukin — Analyst, Wolfe Research
Yeah, hey guys, thanks for taking the question. I guess maybe on sticking with the.
Theme of Airbase, any features that you're seeing drive the most kind of interest?
Intense cross sell conversations.
Is it headcount planning, expense management, corporate card, and maybe just comment on the gross margin tailwinds potentially around kind of as the mix evolves with those deals relative to the core.
I've got a quick follow.
Steve Beauchamp — Executive Chairman, Paylocity
Yeah, so I think if you look at module adoption, expense management probably has the greatest adoption, and in some cases that ends up being the entry product. Although we absolutely see full suite purchases, because once you have all your employees using that and making approvals, you can then really take advantage of that utilization on that single platform to drive spend management, more complex rules, all the reporting on the back end, and ultimately if you use all of their products, we've got all the data that they spend both on people as well as on their business items. There's analytics on the back end that are valuable to the customers. If I had to call one out, I think that's probably the expense management in terms of the most penetrated.
Module, they offer gross margins.
Ryan, any comments?
Ryan Glenn — CFO, Paylocity
Yeah, I guess, Alex, just to the other part of your question, on gross margins, I wouldn't say that the Airbase product has materially different margin profile than the core Paylocity business. I think we will, going forward, as we did in 2025, look to expand gross margin both within Airbase.
As well as the core product set.
We have confidence that we'll be able to do so while still investing in the Airbase opportunity.
Alex Zukin — Analyst, Wolfe Research
Perfect. Maybe just dimensionalized potential contribution for fiscal 2026.
I know last time you guys talked about revenue contribution, it was, you know.
On the order of maybe 1% for fiscal 2025. Is it fair to assume something similar?
For fiscal 2026 or could it be.
A little bit above that?
Ryan Glenn — CFO, Paylocity
Yeah, I mean, I think you're still in that range that that business has grown faster than our core business. That probably becomes a higher percentage over time, although it is still a very, very small portion. I wouldn't sort of overstate that. You know, I think that business continues to grow at a healthy rate and will continue to increase in 2026.
Alex Zukin — Analyst, Wolfe Research
Perfect.
Thank you, guys.
Toby Williams — President and CEO, Paylocity
Congrats on a great quarter.
Ryan Glenn — CFO, Paylocity
Thank you.
Jason Celino — Analyst, KeyBanc Capital Markets
Great, thanks.
Just a couple questions for Ryan.
That's okay.
Looking at the recurring revenue guide for this year, I know Q1 still has some inorganic benefit, but how should we think about the shape of the rest of the, you know, the decel heading into 2026?
Thanks.
Ryan Glenn — CFO, Paylocity
Sure.
Yeah.
I think to your point, Q1 is the fourth quarter of the Airbase impact. You know, I think you see a little bit of that in the guide. I think you also see the strong momentum we had to end fiscal 2025. If you look at what's implied for Q2 to Q4, I think it's sort of 8% to roughly 8.5% recurring. As I said in the prepared remarks, guidance approach will likely be similar in fiscal 2026, which is to say if we continue to see strong execution, we obviously have closer and better visibility into the near term quarter. That's typically where you see probably slightly higher revenue growth and guidance and then a level of prudence as you think about probably the back half of the year. Feel good about the momentum, feel good about the Q1 and full year guide.
I think if we continue to execute well, hope to be able to take that number up as we go throughout 2026, very similar to what we did in 2025.
Jason Celino — Analyst, KeyBanc Capital Markets
Okay, great.
Following up with Dan's.
Very first question on the OBVA potential benefit. I know there's a difference between.
You know, R&D expensing in the U.S. and international.
For you, the majority of your.
R&D operations are in the U.S., correct?
Ryan Glenn — CFO, Paylocity
The majority are, yes. We would have a small portion that would be foreign related, but the majority are going to be U.S. That's correct. Correct.
Jason Celino — Analyst, KeyBanc Capital Markets
Okay, thank you.
Jake Roberge — Analyst, William Blair
Yeah, thanks for taking the questions.
Congrats on the solid results. You referenced continued strength in the broker channel. I know it's still fairly early days, but have you started to see any incremental changes in that channel following just the recent M&A in the space, or have things been fairly consistent?
With what you've seen in prior years?
Toby Williams — President and CEO, Paylocity
Yeah, I mean, I think to your question, Jake, we've been really happy with what we've seen in the broker channel. Being able to continue to drive 25%+ of new business referred from that channel is, I think, a testament to the effort there. I think it's also a testament to the value prop that we've been able to provide to brokers over a.
Long period of time.
I think that continued clearly through the course of 2025. What I'd say is our message has resonated in the market. I think it continues to. I think that continued through the course of 2025 and into Q4. I think that continues to be strong for us. I certainly think to your question, our value prop that we have always stood behind, including not competing with brokers from a market standpoint, is a really important point that we've certainly leaned on and I think has continued to resonate. I feel good about where we finished in 2025 with respect to broker relationships and the broker channel. I think we're teed up for continued.
Momentum there as we go to Q1.
Jake Roberge — Analyst, William Blair
Okay, that's helpful.
I just wanted to follow up on the demand environment. I know last quarter you called out.
A little bit of noise in the last week of April.
Did that noise continue throughout the quarter or was it just a week or two blip? Ryan, helpful commentary on your headcount rate cut expectations in the guide, but just any sense of what you're assuming for the health of broader budgets when compared to prior years?
Toby Williams — President and CEO, Paylocity
Yeah, I mean, I think maybe going back to my earlier comments on the demand environment overall, I think if you look back at fiscal 2025 in its entirety, I think what we would say is that we saw a fairly steady and healthy demand environment, and I think that's what we continue to see in Q4. I think that's what sits underneath our guide as we've come into Q4, developed the guide, and as we look across 2026, I think we're making a similar assumption relative to the demand environment.
I think our sales and go-to-market team did a great job of executing throughout the course of 2025, and I think that is what allowed us to produce the result that we've reported.
Ryan Glenn — CFO, Paylocity
Yeah, I would just add, I think we feel really good about the initial guide. We took a similar approach as we did in fiscal 2025, so comfortable with I think all assumptions across each of the variables, whether that is HR budgets, workforce levels, you know, obviously interest rate impact as well, and feel good about where we are from a guidance standpoint. To Toby's point, I think feel really good about the momentum we have exiting 2025 into 2026.
Jake Roberge — Analyst, William Blair
Great, thanks for taking the questions.
Steve Enders — Analyst, Citi
Great, I'm on for Steve Enders. Thanks for taking the questions here. Just on that point about hiring activity, headcount hiring for FY 2026 and maybe the flip side of that, productivity. I understand FY 2025, you guys are quite focused on go to market productivity. Maybe you just talk about what seems to have been working there and how you're thinking about, you know, proving that metric into FY 2026.
Toby Williams — President and CEO, Paylocity
Yeah, I mean, I think coming into fiscal 2025 we increased our sales headcount by right around 8%. The goal coming into 2025 was to be able to continue to drive productivity. I think that's what we saw throughout the course of the year, quarter-to-quarter. Looking back on the full fiscal year, I think we continue to have access to the best talent in the industry from a go-to-market, from a sales perspective. That's always been the goal, to be the destination in the industry for the best talent. I think that continues to be the case and I think we're really fortunate we were able to come into fiscal 2026 fully staffed again with right around 8% headcount growth again this year coming into 2026.
Looking out across the year, I think the goal and the focus will be exactly the same as it was in 2025, to be able to take that 8% headcount lift and to be able to continue to drive productivity. I think that's exactly what you saw us be able to do throughout the course of 2025. I think pretty happy overall with the setup that we think we have for 2026.
Zachary Gunn — Research Associate, FT Partners
Okay, great.
Just one on Paylocity for Finance, it sounds like you've alluded to it being a bit of a bigger purchase decision. Maybe if you could talk about what you've seen or what you expect in terms of trigger points for adoption. What causes someone to purchase?
Steve Beauchamp — Executive Chairman, Paylocity
I think it varies by organization, but I think the value prop, you've got people in our mobile app every day using all of our products on the web. When we talk to a CFO and present the opportunity to be able to manage expenses, spend cards, all in a single place with incremental rules that match the organizational policies and then be able to accumulate all that data on the back end for a faster close, it's a pretty interesting value proposition that we find. Most customers are at least willing to entertain the conversation, and then it's about differentiating versus other competitive offerings that they can have. Overall, I think it really starts with the integrated platform, which is the point I'm really trying to make, and the value that it is from a service and implementation and how easy all that really is to use.
We've got the finance capabilities that they're looking for with a very rich product in the Airbase capabilities. As I said, it's probably not going to scale quite as fast as simply an HCM add-on because it's a higher price point. It's probably a bigger commitment from an organizational implementation. Early signs, we feel really good about that. We feel good about the referrals that we've gotten back to the client base as well as new prospects. You know, we were only a few weeks in, as Toby mentioned, into the launch. We are going to keep making this better over time and take advantage of the opportunity.
Steve Enders — Analyst, Citi
Great, thanks for taking the questions.
Ryan Glenn — CFO, Paylocity
Thank you.
Zachary Gunn — Research Associate, FT Partners
Hey there, just one for me. Thanks for taking my question. As other companies have looked to build out their accounts payable products, there's always a lot of focus on the supplier side of the network as much as the customer side. As companies like Bill have also pushed up market, they've stressed the need for building the supplier side of the network. Can you just talk a little bit about with Airbase and with the finance products, how you're addressing the kind of supplier and customer sides of the network?
Steve Beauchamp — Executive Chairman, Paylocity
I think there's different parts of that supplier question that we do provide capabilities for. Certainly, managing who the supplier is, there's a PO process that maybe a larger organization might have to be able to make sure that that purchase is approved with that supplier, obviously making those payments on the back end. I think the greater the payment volume that you've got, the greater opportunity is to have that broad supplier network. We certainly will see that opportunity become more interesting as we scale this solution over time and we drive volume through the platform. If you look at the average customer size being roughly similar to ours, around 150 employees, you probably in general are not necessarily highly sophisticated in terms of that supplier network. It's an area that we're investing in and that we feel as we scale and drive volume to will create incremental opportunities.
Zachary Gunn — Research Associate, FT Partners
Helpful. Thank you.
Toby Williams — President and CEO, Paylocity
Yeah, just wanted to thank everybody for joining, appreciate your interest in Paylocity and wanted to say a special thank you to all of our employees for a strong fiscal 2025. Thanks and have a good night.
Source: Paylocity Holding Corp earnings call transcript (2025-08-05). Management commentary and analyst Q&A are reproduced as delivered; speaker roles as stated on the call.

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