What Management Said
Read the full Q4 2026 transcript ↗Welcome to Paylocity's earnings results call for the fourth quarter in fiscal 2026, which ended on June 30th, 2026. For fiscal 2026, recurring revenue growth 12.2% and total revenue grew 11% as we ended the year with approximately $1.8 billion of revenue. We also continue to see significant growth in our client base in fiscal 2026 to 44,400 clients, representing approximately 7% growth from fiscal 2025. Our commitment to product development also continues to be recognized in the market, with Paylocity recently recognized by HR Tech Outlook Magazine as the top payroll software for 2026.
This commitment to product innovation and world-class service continues to be reflected in our industry-leading revenue retention rates, which once again remained above 92% in fiscal 2026. 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. I would now like to pass the call to Ryan to review the financial results in detail and provide initial outlook on fiscal 2027. Recurring revenue for the fourth quarter was $415.6 million, an increase of 12.4%, with total revenue up 11% from the same period last year.
Adjusted EBITDA for the fourth quarter was $145.5 million, or 32.7% margin, and exceeded the top end of our guidance by $12.9 million. For fiscal 2026, adjusted EBITDA was $654.9 million, or 37% margin, an increase of 12.3% on a dollar basis from fiscal 2025, resulting in leverage of 50 basis points. Additionally, we continue to show strong growth on free cash flow with fiscal 2026 free cash flow margin of 24.2%, representing an increase of 24.8% on a dollar basis from fiscal 2025. Excluding the impact of interest income on client held funds, we expanded free cash flow by approximately 40% in fiscal 2026, representing margin expansion of 370 basis points.
What went well
- Recurring revenue grew 12.4% and total revenue 11% in Q4, with recurring revenue growth accelerating for a second consecutive quarter; full-year recurring revenue grew 12.2% to close fiscal 2026 at roughly $1.8 billion of total revenue.
- Q4 total revenue beat the top end of guidance by $11.3 million (mostly recurring/other) and adjusted EBITDA of $145.5 million (32.7% margin) exceeded the top of guidance by $12.9 million.
- Full-year adjusted EBITDA reached $654.9 million (37% margin), up 12.3% in dollars; excluding client-fund interest income, margin was 32.4% with 120 basis points of operating leverage.
- Average revenue per client rose more than 5% to roughly $37,200 (from $35,300), and the client base grew about 7% to 44,400 clients.
- The company launched Paylocity Ignite AI (agents woven into core payroll, time and recruiting workflows) with AI interactions nearly doubling quarter over quarter, and expanded the platform with Paylocity Retirement, Elevate Solutions, and the Grayscale and Aidora AI acquisitions.
- Fiscal 2026 free cash flow margin was 24.2% (up ~25% in dollars; up ~40% and 370 bps excluding client-fund interest), revenue retention stayed above 92%, and the company repurchased $398.1 million of stock (2.8M shares), cutting diluted share count 3.1%.
What went wrong
- Fiscal 2027 total revenue is guided to only ~7% growth (recurring ~8%), a deceleration from fiscal 2026's 11%/12.2%, reflecting the company's characteristically prudent guidance.
- Free cash flow faces a tough fiscal 2027 comparison because one-time tax-legislation benefits inflated fiscal 2026 free cash flow.
- The recently acquired Grayscale and Aidora businesses are subscale on margin and represent a slight headwind to fiscal 2027 margins.
- Guidance assumes flat workforce levels in fiscal 2027, a slight degradation from the recent trend of client employee counts running up year over year.
- Interest income on client funds is expected to step down (average daily balance ~$3.0B in Q1 FY2027 and ~$3.4-3.5B for the year at a ~300 bps yield vs prior-quarter levels), with guidance assuming two 25 bps rate cuts in the back half of fiscal 2027.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Total revenue | Q1 FY2027 | $439.5M-$444.5M (~8% growth) |
| Recurring & other revenue | Q1 FY2027 | $414M-$419M (~10% growth) |
| Adjusted EBITDA | Q1 FY2027 | $152M-$156M ($126.5M-$130.5M excluding client-fund interest income) |
| Total revenue | FY2027 | $1.880B-$1.895B (~7% growth) |
| Recurring & other revenue | FY2027 | $1.777B-$1.792B (~8% growth) |
| Adjusted EBITDA | FY2027 | $690M-$700M ($587M-$597M ex client-fund interest; ~80 bps leverage at midpoint) |
| Deferred-contract-cost amortization life | FY2027 | 8 years — adds ~120-140 bps to adjusted EBITDA margin (ratable over FY2027; ~60% in S&M, ~40% in gross margin) |
| Interest income on client funds | FY2027 | ~$103M (avg balance ~$3.4-3.5B at ~300 bps; ~$25.5M in Q1 at ~340 bps); assumes 25 bps cuts in Jan and Mar 2027 |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Recurring revenue | +12.4% to $415.6M | Solid go-to-market execution, >92% retention, product expansion (ARPU) and ~7% client growth against a stable demand backdrop. |
| Total revenue (GAAP) | +11.0% to $445M | Recurring growth plus interest income on client funds; Q4 beat the top of guidance by $11.3M. |
| GAAP diluted EPS | $1.12 | Q4 GAAP operating income of $84.4M and net income of $60.3M on an 11% revenue increase. |
| Operating margin (GAAP) | 19.0% | Operating leverage from scale, partly offset by continued R&D investment (14.5% of revenue on a combined non-GAAP basis). |
| Adjusted EBITDA (Q4) | $145.5M / 32.7% margin | Beat top of guidance by $12.9M as top-line overperformance fell to the bottom line. |
| Adjusted EBITDA (FY2026) | $654.9M / 37% margin (+12.3%) | 120 bps of operating leverage ex client-fund interest; ~350 bps of organic operating EBITDA leverage over two years. |
| Average revenue per client | +5%+ to ~$37,200 | Product expansion across HCM, finance and IT plus new AI-native SKUs. |
| Client base | +7% to 44,400 | Modern platform value proposition and strong channel referrals (brokers >25% of new business). |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Ignite AI and AI monetization | Indirect AI within workflows | Ignite AI embeds agents (candidate fit, talent rediscovery, answers/insights) into core workflows with a new Ignite AI Hub dashboard; the company is shifting toward directly monetized AI-native SKUs (Grayscale recruiting, Aidora leave-of-absence) while keeping pricing flexible (per-user, PEPM, or utilization-based). | — |
| Platform breadth: HCM + finance + IT | Airbase entry into finance/IT | The most robust new-product roadmap in years — Airbase, Elevate Solutions, Paylocity Retirement, Grayscale, Aidora and Ignite — deepens differentiation and ARPU, with Airbase cross-sell tracking to its 10-20% penetration target within three to five years. | — |
| M&A and capital allocation | Balanced build-and-buy | Grayscale and Aidora funded with balance-sheet cash; ~$1.3B remains on the buyback authorization; management says it can both reduce diluted shares and invest for growth, prioritizing acquisitions with the most strategic value across the platform. | — |
| Channel / broker strategy | Brokers key lead source | Benefit brokers again drove more than 25% of new business (Paylocity does not sell competing insurance), and financial advisors showed strong receptivity to the new Paylocity Retirement offering, reinforcing the referral channel. | — |
| Margin trajectory | Multi-year expansion | The 7-to-8-year deferred-cost amortization change adds 120-140 bps to FY2027 adjusted EBITDA; subscale acquisitions are a slight headwind, but management reaffirms multi-year margin expansion and an 80%+ gross-margin target at $3B revenue driven by scale, AI/automation and vendor pricing power. | — |
| Guidance philosophy | Beat-and-raise | FY2027 is set with the same prudent approach (flat workforce assumption, conservative rate-cut and balance assumptions) that produced FY2026's steady beats and quarterly margin raises, with management expecting to raise revenue and margin through the year if momentum holds. | — |
| Sales enablement of new products | Established launch playbook | The same methodical training/solution-consultant playbook is being run across the nine-month wave of launches, with early traction reported strong across Elevate, Retirement, Grayscale, Aidora and Ignite as the sales force ramps. | — |
Q&A Summary
Brad Reback (Stifel) asked what is driving two consecutive quarters of accelerating subscription revenue growth, and how to think about 2027 unit growth, sales-force needs and Gen AI efficiencies.
Williams credited balanced execution across go-to-market, service/retention and the wave of product launches against a stable demand backdrop; he expects continued relative balance between unit and ARPU growth in FY2027 with a consistent, productivity-focused investment approach across field, inside sales and channels.
Jessica Wong (Raymond James) asked whether prospects increasingly come with AI-first requirements and how it affects win rates, plus capital-allocation priorities.
Williams said AI is a growing part of buying conversations (agentic capabilities in payroll/recruiting/time) and has unlocked new AI-native SKUs like Grayscale and Aidora; Glenn said the company can both repurchase stock (~$400M in FY2026, $1.3B remaining) and invest for growth via cash-funded acquisitions.
Mark Marcon (Baird) asked what is driving ARPU growth (established vs new SKUs) and how to read the FY2027 margin guide given the amortization change.
Glenn said established products (recruiting, benefits, time) plus post-COVID engagement add-ons drove most ARPU, with Airbase/finance-IT and new launches ahead; on margins, FY2026 delivered 120 bps of leverage (starting from 20 bps guidance) and ~350 bps over two years, and FY2027 starts similarly with AI investment and subscale acquisitions offset by upside if momentum holds — new products are not seen as long-term margin dilutive.
Jordan Boretz (Jefferies) asked about employment trends in Paylocity's base and the FY2027 employment assumptions, plus the monetization mechanism for Ignite agents.
Glenn said macro is stable with client workforce levels up in Q4 and year over year, but guidance conservatively assumes flat workforce; Beauchamp said monetization is two-pronged — AI-native products (Grayscale, Aidora) monetized directly, while Ignite agents make existing processes more efficient and drive win rates, monetized where enough packaged value exists.
Jason Celino (KeyBanc) asked whether Q4 recurring growth still accelerated excluding Grayscale, and about the useful-life change.
Glenn confirmed recurring growth would have accelerated even without the negligible Grayscale contribution; the move from a seven- to eight-year deferred-contract-cost life followed the annual qualitative/quantitative assessment reflecting stronger retention, longer client life and higher employees per client.
George Kurosawa (Citi) asked what conservatism/upside is embedded in FY2027 guidance and why the shift toward separately monetized AI SKUs.
Glenn said the same beat-and-raise philosophy applies (employment a conservative lever) with hope to exceed and raise if momentum holds; on AI, applying it to specific complex use cases (e.g., Aidora leave management) creates outsized efficiency and value worth monetizing, with pricing kept flexible (per-user, PEPM, utilization).
Allan Verkhovski (BTIG) asked how M&A is prioritized across HR/finance/IT and what underpins confidence in gross margins improving toward the 80%+ target.
Glenn said M&A prioritizes the highest strategic value and tightest integration across the platform; gross-margin confidence rests on a long history of annual expansion plus natural scale, AI/automation benefits already appearing, and third-party vendor pricing power on a multi-year basis.
Jacob Smith (Guggenheim) asked whether Elevate Solutions could ramp faster than finance/IT given its adjacency to core payroll, and about service build-out investment.
Glenn said early Elevate receptivity is strong because the platform and AI let Paylocity deliver a service-intensive offering far more efficiently; it will contribute in FY2027 and is viewed as a multi-year growth driver, with new-product investment (product, service teams, sales) manageable within the company's track record of marching margins forward.
Isabelle (FT Partners, for Craig) asked for clarification on the mechanics and timing of the 120-140 bps amortization benefit.
Glenn said it is an ongoing benefit (FY2027 vs FY2026), ratable over the year rather than a Q1 one-time true-up, and is additive to adjusted EBITDA and already included in the guidance provided.
Sheldon McMeans (Barclays) asked how the 7% client growth trended through the year and whether the Middle East or other macro dynamics had any impact.
Glenn said unit growth has been consistent around 7% for two years with smooth quarter-to-quarter cadence apart from the normal Q3 (January) onboarding seasonality, and nothing macro (including the Middle East) stood out in any FY2026 quarter.
More on Paylocity Holding Corp
Reported 2026-08-04 · figures from the Paylocity Holding Corp Q4 2026 earnings call.
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