Total revenue was $408.2 million, or 12% growth over Q1 of last year. While still in the early days, we are seeing this translate to stronger product penetration, higher average revenue per client, and improving client satisfaction and retention. In addition to our market-leading financial performance, our strong culture at Paylocity continues to be recognized externally as we were recently named to TIME's America's Growth Leaders 2026 list. I will now like to pass the call to Ryan to review the financial results in detail and provide updated fiscal 2026 guidance.

Total revenue for the first quarter was $408.2 million, an increase of 12%, with recurring and other revenues up 14% from the same period last year. On a non-GAAP basis, G&A costs were 8.8% of revenue in the first quarter versus 9.5% in the same period last year, representing 70 basis points of leverage. Our Adjusted EBITDA for the first quarter was $146.4 million, or 35.9% margin, and exceeded the top end of our guidance by $11.4 million, resulting in increased margin guidance for fiscal 2026. We're estimating the average daily balance will be approximately $3 billion in Q2, with an average annual yield of approximately 360 basis points, representing approximately $27 million of interest income in Q2.

On a full-year basis, we're estimating the average daily balance will be approximately $3.25 billion, with an average annual yield of approximately 340 basis points, representing approximately $110 million of interest income. Note, our guidance reflects an additional 25 basis point rate cut during fiscal 2026 versus our initial expectations for the year we provided on our August earnings call. Our sales and marketing spend target decreases from 20%-25% to 15%-20% of revenue. Our stock-based comp target decreases from less than 10% of revenue to 5% of revenue, and we expect to make progress against these updated financial targets on a go-forward basis.

What went well
  • Total revenue grew 12% year over year to $408.2 million, with recurring and other revenue up 14%, coming in $5.7 million above the top end of revenue guidance.
  • Adjusted EBITDA of $146.4 million (35.9% margin) exceeded the top end of guidance by $11.4 million, and excluding interest income on client funds, Adjusted EBITDA margin rose 110 basis points over the prior-year quarter.
  • Adjusted gross margin expanded 110 basis points to 75.1%, and non-GAAP G&A improved 70 basis points to 8.8% of revenue, reflecting operating leverage.
  • The July launch of Paylocity for Finance, expanding the platform into the office of the CFO and IT, saw strong early reception from both new clients and the existing base, validating the multi-product platform thesis.
  • AI adoption accelerated, with usage of AI-powered features more than doubling over the past year and over 1.2 million questions answered by the AI assistant, driving broader product adoption and higher ARPU.
  • The broker referral channel again delivered more than 25% of new business, and client retention remained strong at 92%-plus.

Guidance Changes

MetricPeriodCurrent guidance
Recurring and other revenueQ2 FY2026$378.5M-$383.5M (approx 10% growth) (Initiated)
Full-year FY2026 guidanceFY2026Raised by more than the Q1 beat, with increased margin guidance (Raised)
Interest income on client-held fundsQ2 FY2026Approx $27M (avg daily balance ~$3.0B, ~360 bps yield) (Initiated)
Interest income on client-held fundsFY2026Approx $110M (avg daily balance ~$3.25B, ~340 bps yield) (Initiated)
Free cash flow benefit from tax legislation (OBBA)FY2026Approx $65M one-time benefit from reduced cash tax payments (Initiated)
Long-term revenue targetLong-term$3 billion (Raised)
Long-term adjusted gross margin targetLong-term80%+ (Raised)
Long-term Adjusted EBITDA margin targetLong-term40%-45% (Raised)
Long-term free cash flow margin targetLong-term25%-30% (Raised)
Long-term sales and marketing targetLong-term15%-20% of revenue (Lowered)
Long-term G&A targetLong-term5%-7% of revenue (Lowered)
Long-term stock-based comp targetLong-term5% of revenue (Lowered)

Performance Breakdown

MetricYoYNote
Total revenue +12% Driven by demand for the modern AI-driven platform and strong go-to-market execution; recurring and other revenue grew 14%.
Adjusted gross margin +110 bps to 75.1% Continued focus on scaling operational costs while maintaining industry-leading service levels.
Total R&D investment (expensed plus capitalized) +16.4% Ongoing investment to build out the platform to serve the needs of the modern workforce.
Non-GAAP G&A -70 bps to 8.8% of revenue Operating leverage from scaling the business and AI/automation efficiencies.
Adjusted EBITDA margin (ex-interest income) +110 bps Durable recurring revenue growth combined with expanding profitability and improved operational scale.

Earnings Call Themes & Trends

TopicPrevious mentionCurrent periodTrend
Paylocity for Finance / office of the CFO expansion—v1 launched in July, early traction with new clients and the existing base, validating the platform thesis.Rising
Paylocity for IT (asset and identity management)—Earliest days, larger ARPU than most HCM modules, leveraging employee-record data for onboarding/offboarding.Rising
AI and automation (product and internal)—Next-gen AI assistant launched; AI feature usage more than doubled; internal engineering, operations and sales teams using AI tools to drive efficiency.Rising
Broker referral channel—Again delivered more than 25% of new business, aided by broker-neutral positioning and consolidation among competitors.Steady
Macro / client workforce levels—Stable demand environment; client workforce levels up slightly year over year and through October, guidance assumes flat levels.Steady

Q&A Summary

How is the macro trending through the quarter into October, and what are the headcount assumptions in the updated guide?
Continued stability; client workforce levels were up a touch year over year, consistent with Q4 and slightly better than expectations, holding through October. Guidance assumes flat workforce levels for the balance of the year, leaving room to beat and raise if execution stays strong.
On the updated long-term targets, does the upside skew more toward natural scale of the business or AI benefit?
Management would not parse it out; still early days for AI and automation, but it gives incremental multi-year confidence in driving leverage on top of the business's natural ability to scale, with early benefits seen in margin expansion and team focus.
EBITDA beat by roughly $13.4 million but the full-year guide was raised by less than the beat; what drove that?
A level of prudence in guidance plus timing elements one quarter into the year, while maintaining flexibility to invest. Management still expects increased FY2026 profitability and guided to leverage again in Q2; overperformance would accrue to higher margin over the balance of the year.
Why update the long-term financial targets now, having set the $2 billion target less than two years ago?
Significant progress since the August 2023 targets (several hundred basis points of EBITDA and free cash flow leverage, reduced stock comp) made it the right time to acknowledge continued confidence in durable growth and scaling, with early AI/automation benefits adding incremental confidence toward the $3 billion, 25%-30% free cash flow target.
What is the ARPU opportunity for the IT offering relative to the Airbase/finance offering?
A bit smaller and a couple of quarters behind the finance launch; management would not give an exact figure but characterized IT ARPU as larger than most HCM modules and somewhere between a larger HCM module and the Airbase number, with some per-user versus per-employee pricing mix.
Are longer sales cycles emerging now that Paylocity sells a bigger platform across finance and IT?
No elongation. The go-to-market motion gets clients live on HCM first, then sells or implements additional modules later, a familiar pattern. Deals typically already involve HR, finance and IT stakeholders, so it is not a wholly new buyer or motion.

More on Paylocity Holding Corp

Reported 2025-11-04 · figures from the Paylocity Holding Corp Q1 2026 earnings call.

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