PCTY

A month has gone by since the last earnings report for Paylocity (PCTY). Shares have added about 4.6% in that time frame, outperforming the S&P 500. Will the recent positive trend continue leading up to its next earnings release, or is Paylocity due for a pullback? Well, first let's take a quick look at the latest earnings report in order to get a better handle on the recent drivers for Paylocity Holding Corporation before we dive into how investors and analysts have reacted as of late. Paylocity reported fourth-quarter fiscal 2026 non-GAAP net income of $1.84 per share, which increased 17.9% year over year and beat the Zacks Consensus Estimate by 19.48%.Total revenues increased 11% year over year to $444.7 million and surpassed the Zacks Consensus Estimate by 3.18%.Top-line growth was driven by the 12.4% increase in recurring and other revenues (roughly 93% of total revenues) to $415.6 million. Interest income on funds held for clients (about 7% of total revenues) declined 5.6% year over year to $29.1 million. Paylocity's adjusted gross profit was $327.5 million, up 10.4% from the year-ago period, though the adjusted gross margin contracted roughly 40 basis points (bps) to 73.6%. Non-GAAP operating income rose 13.8% year over year to $120.2 million, with the non-GAAP operating margin expanding about 70 bps to 27%.Adjusted EBITDA increased 11.3% from the year-ago quarter to $145.5 million, with the adjusted EBITDA margin up roughly 10 bps to 32.7%. Adjusted EBITDA excluding interest income on funds held for clients rose 16.5% year over year to $116.4 million, with margin (as a percentage of recurring and other revenues) up roughly 100 bps to 28%.GAAP net income for the quarter was $60.3 million, or $1.12 per share, up 24.1% and 30.2%, respectively, from $48.6 million, or 86 cents per share, in the year-ago quarter. As of June 30, 2026, Paylocity's cash and cash equivalents were $271.9 million, down from $299.7 million as of March 31, 2026.Long-term debt totaled $81.3 million as of the end of fiscal 2026, down 50% from $162.5 million a year earlier, reflecting repayment of approximately $81.3 million on the outstanding credit facility balance (originally drawn to fund the October 2024 acquisition of Airbase Inc.) during fiscal 2026.Net cash provided by operating activities for fiscal 2026 was $533.3 million (30.1% of total revenues), up 27.5% from $418.2 million (26.2% of total revenues) in fiscal 2025. Free cash flow rose 24.8% year over year to $427.8 million, or 24.2% of total revenues, compared with $342.8 million, or 21.5%, in fiscal 2025.Paylocity repurchased $398.1 million, or approximately 2.8 million shares, of common stock during fiscal 2026, bringing cumulative repurchases since May 2024 to $697.8 million, or approximately 4.6 million shares. Approximately $1.3 billion remained available under the share repurchase authorization as of June 30, 2026. In April 2026, Paylocity completed the acquisition of Grayscale Labs, Inc., an AI-powered recruiting automation company, expanding its recruiting capabilities to help clients engage candidates earlier and move faster through hiring workflows.The company also launched Paylocity Elevate Solutions, pairing its unified platform with dedicated payroll and HR experts to handle implementation, ongoing payroll processing and HR execution on clients' behalf, comprising Elevate Implementation, Elevate Payroll and Elevate HR.The company also disclosed a change in accounting convention: beginning in fiscal 2027, deferred contract costs will be amortized over an eight-year useful life, up from seven years, a shift expected to lift fiscal 2027 adjusted EBITDA margins by approximately 120-140 bps.Management also pointed to continued investment in its AI platform capabilities across HR, Finance and IT workflows as a key driver of the company's product strategy heading into fiscal 2027. For the first quarter of fiscal 2027, Paylocity expects total revenues in the range of $439.5-$444.5 million, indicating approximately 8% growth from the year-ago period. Recurring and other revenues are projected between $414 million and $419 million, implying approximately 10% growth.Adjusted EBITDA is projected in the range of $152-$156 million, while adjusted EBITDA excluding interest income on funds held for clients is expected between $126.5 million and $130.5 million.For fiscal 2027, Paylocity projects total revenues between $1.88 billion and $1.895 billion, implying approximately 7% growth over fiscal 2026. Recurring and other revenues are expected in the range of $1.777-$1.792 billion, suggesting approximately 8% growth.Adjusted EBITDA is expected between $690 million and $700 million, while adjusted EBITDA excluding interest income on funds held for clients is projected between $587 million and $597 million. In the past month, investors have witnessed a upward trend in estimates review. The consensus estimate has shifted 15.39% due to these changes. Currently, Paylocity has a average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy. Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in. Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Paylocity has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months. Paylocity is part of the Zacks Internet - Software industry. Over the past month, Snap (SNAP), a stock from the same industry, has gained 4.9%. The company reported its results for the quarter ended June 2026 more than a month ago. Snap reported revenues of $1.6 billion in the last reported quarter, representing a year-over-year change of +18.9%. EPS of $0.06 for the same period compares with -$0.01 a year ago. For the current quarter, Snap is expected to post earnings of $0.16 per share, indicating a change of +166.7% from the year-ago quarter. The Zacks Consensus Estimate has changed +50% over the last 30 days. Snap has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Paylocity Holding Corporation (PCTY) : Free Stock Analysis Report Snap Inc. (SNAP) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Image source: The Motley Fool. Tuesday, Aug. 4, 2026 at 5:00 p.m. ET Chief Financial Officer - Ryan Glenn Executive Chairman - Steven Beauchamp President and Chief Executive Officer - Toby Williams Operator: Good day, and thank you for standing by. Welcome to the Paylocity Holding Corporation Fourth Quarter 2026 Fiscal Year Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ryan Glenn, Chief Financial Officer. Please go ahead. Ryan Glenn: Good afternoon, and welcome to Paylocity's earnings results call for the fourth quarter and fiscal '26, which ended on June 30, 2026. 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 statements. 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 the directly comparable GAAP financial measure because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort. With that, let me turn the call over to Steve. Steven Beauchamp: Thanks, Ryan, and thanks to all of you for joining us on our fourth quarter and fiscal '26 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 12.4% and total revenue growth of 11% in Q4. For fiscal '26, recurring revenue grew 12.2% and total revenue grew 11% as we ended the year with approximately $1.8 billion of revenue. Our sustained multi-year investment in R&D and commitment to driving innovation continues to fuel durable recurring revenue growth and expanded average revenue per client as the combination of HCM, finance, and IT in one single platform, all underpinned by our expanded AI capabilities and core employee record data represents the most comprehensive offering in the market. A critical component of this strategy is the launch of Paylocity Ignite AI, which is designed to help accelerate productivity for HR, finance, and IT teams across companies of all sizes and industries. Our approach to AI remains focused on driving value for our clients rather than adding complexity through stand-alone features. Ignite AI is woven directly into core workflows to help clients complete the tasks faster, surface insights more quickly, and move from answers to action. For example, within recruiting, our candidate agent uses job description analysis, recruiter-defined criteria, and candidate application data to help identify strong potential matches while giving recruiters the ability to review, audit, and adjust the criteria. Similarly, clients can leverage our talent rediscovery agent to scan their existing talent pool to identify candidates whose skills, experiences, education, and certifications align most closely with current job requirements and reengage qualified talent with personalized invitations to apply for open rules. Given the demonstrated and measurable productivity improvements that the candidate fit and talent rediscovery agents will drive for our clients, we believe both agents represent an incremental opportunity for direct AI-driven monetization. Additionally, our Answer & Insight Agent makes HR and payroll teams more efficient. Rather than relying on spreadsheets or manual analysis to uncover data-driven insights, administrators can ask natural language questions and receive faster, client-specific answers in their flow of work. As part of this continued evolution, we are also introducing our Ignite AI Hub, a centralized dashboard that gives clients greater visibility and control over how AI is used across their organization. The Ignite AI Hub helps close the visibility gap by measuring real productivity gains, including questions answered, tasks completed, and issues resolved across our payroll time and recruiting agent. It also allows leaders to see which agents are active, configure them based on their organization's needs, and identify opportunities for additional automation. The early feedback from our clients reinforces the value proposition of Ignite AI. It is embedded in the workflows our clients already use, powered by the data they already trust, and designed to support people rather than replace them. As an auto dealer client with more than 600 employees told us, Paylocity's AI feels like another team member, while a non-profit client with over 500 employees described it as an extra set of hands that still preserves the human element of approval and decision-making. That combination of productivity, trust, and control is critical in HR and payroll where accuracy, transparency, and compliance are paramount. This positive sentiment is similarly reflected in the growing utilization of our AI capabilities with the number of AI interactions nearly doubling quarter-over-quarter. Product expansion has been a key part of Paylocity's growth algorithm for over a decade, and we believe the launch of Paylocity Ignite AI, combined with the continued expansion of our broader HCM, finance and IT portfolio, will help to drive further growth in our average revenue per client, which reached roughly $37,200 in fiscal '26 compared to $35,300 in fiscal '25, an increase of more than 5%. We also continue to see significant growth in our client base in fiscal '26 to 44,400 clients, representing approximately 7% growth from fiscal '25. 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. I would now like to pass the call to Toby to provide further color on the quarter. Toby Williams: Thanks, Steve. In Q4 and fiscal '26, our differentiated position in the market was reflected in solid sales and go-to-market execution, and we have continued investing in our go-to-market functions to carry this momentum into fiscal '27. We also saw another strong year of channel referral performance, primarily from benefit brokers who once again represented more than 25% of new business in fiscal '26. The sustained success of our broker channel continues to be driven by our modern platform, third-party integration, and API capabilities, and 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 and support to our referring brokers and their clients. We have also continued to drive product innovation to meet client needs and bring to market meaningful new solutions that both create differentiation and drive ARPU. In addition to our recent launch of our Elevate Solutions, in June, we also announced the launch of Paylocity Retirement, a new offering that brings plan administration and employee savings tools directly to the Paylocity platform. Retirement benefits are a critical component of an employee's long-term financial well-being, but many employers still manage these programs through disconnected systems, manual file transfers, and separate employee portals. This fragmentation creates additional administrative work for HR and payroll teams, increases the risk of errors, and can make it more difficult for employees to engage with their retirement savings. As Steve highlighted, we are also excited about the continued evolution of our AI capabilities and the incremental value we expect to deliver to our more than 44,000 clients through the recent launch of Ignite AI. To further expand the AI capabilities across our platform, we also recently announced the acquisition of Aidora, which will enhance our leave of absence management capabilities through a fully automated AI native system that streamlines the full leave of absence life cycle from eligibility and planning to payroll coordination and compliance. This is one of the most complex areas of regulatory compliance in HR, which is typically also manual in nature for both HR teams and employees. With Aidora as part of Paylocity, the full leave of absence process will be automated, leveraging Aidora's AI native product, delivering a seamless employee experience with clear time lines, personalized guidance, and transparent pay expectations, all through natural language interaction, and HR teams will be able to shift their focus from managing manual payroll and complicated compliance processes to supporting their people. We are excited by the opportunity to integrate Aidora's advanced capabilities into our existing suite, delivering incremental value to our clients that we can directly monetize in the form of a premium offering for incremental AI-driven capabilities. Following our acquisition of Grayscale last year, we are also integrating Grayscale's AI-powered recruiting automation capabilities into our platform in the form of a premium offering, helping companies hiring at scale move faster through candidate matching, automated engagement, and continuous candidate check-ins. Collectively, the launch of Ignite AI, Elevate Solutions, Paylocity Retirement, and the ongoing integration of Grayscale and Aidora into the Paylocity platform highlights our dual focus on embedding AI into high-value workflows while continuing to broaden the platform with solutions that reduce manual work and help clients unlock more value from the Paylocity platform. And 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 '26. 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 '26, I'd like to thank all of our people and teams for a fantastic year, and we appreciate everything that you do. The strong culture at Paylocity also continues to be recognized externally as we recently were named by TIME as one of America's Best Companies 2026 and by Forbes as one of America's Best Employers for Women 2026. I would now like to pass the call to Ryan to review the financial results in detail and provide initial outlook on fiscal '27. Ryan Glenn: Thanks, Toby. 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. As Toby noted, our sales and operations team had another solid quarter, and we were pleased to come in $11.3 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 $145.5 million or 32.7% margin and exceeded the top end of our guidance by $12.9 million. For fiscal '26, adjusted EBITDA was $654.9 million or 37% margin and an increase of 12.3% on a dollar basis from fiscal '25, resulting in leverage of 50 basis points. Excluding the impact of interest income on funds held for clients, adjusted EBITDA margin for fiscal '26 was 32.4%, reflecting operating leverage of 120 basis points versus fiscal '25 and a year-over-year increase of 16.4% on a dollar basis. Additionally, we continue to show strong growth on free cash flow with fiscal '26 free cash flow margin of 24.2%, representing an increase of 24.8% on a dollar basis from fiscal '25. Excluding the impact of interest income on client-held funds, we expanded free cash flow by approximately 40% in fiscal '26, representing margin expansion of 370 basis points. While fiscal '27 will be a difficult comparison due to the tax legislation that provided one-time benefits in fiscal '26, we continue to have confidence in our ability to further expand free cash flow margin on a multi-year 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 14.5% of revenue in fiscal '26. And on a dollar basis, our year-over-year investment in total R&D increased by 12.6% in fiscal '26 when compared to fiscal '25. On a non-GAAP basis, sales and marketing expenses were 21.9% of revenue in the fourth quarter and 20.3% of revenue in fiscal '26. On a non-GAAP basis, G&A costs were 8.9% of revenue in fiscal '26, 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 $300.4 million, operating income was $84.4 million, and net income was $60.3 million. For the full year, gross profit was $1.2 billion, operating income was $386 million, and net income was $269.7 million. In regard to funds held for clients and interest income, our average daily balance of client funds was $3.4 billion in Q4 and $3.3 billion for fiscal '26. We are estimating the average daily balance will be approximately $3.0 billion in Q1 of fiscal '27 with an average annual yield of approximately 340 basis points, representing approximately $25.5 million of interest income in Q1. On a full year basis, we're estimating the average daily balance will be approximately $3.4 billion to $3.5 billion in fiscal '27 with an average yield of approximately 300 basis points, representing approximately $103 million of interest income. In regard to interest rates, our guidance assumes [ 2 25 ] basis point rate cuts in the back half of fiscal '27 with a cut in each of January and March reflected in our guidance. Additionally, given the confidence we have in our business and our strong cash flows, we repurchased approximately 466,000 shares for $48.1 million in aggregate repurchases during Q4. In total for fiscal '26, we repurchased approximately 2.8 million shares for $398.1 million in aggregate repurchases, helping to drive our diluted share count down 3.1% in fiscal '26. As of June 30, we had approximately $1.3 billion remaining under the existing repurchase program, which we will opportunistically execute against on a go-forward basis while also maintaining flexibility in our capital allocation plan to invest for future growth. In regards to the balance sheet, we ended the fiscal year with $271.9 million in cash, cash equivalents and invested corporate cash, and $81.3 million outstanding on our credit facility. Finally, I'd like to provide our financial guidance for Q1 and fiscal '27, which includes the impact of 2 25 basis point interest rate cuts in the back half of fiscal '27 and flat workforce levels in fiscal '27 versus fiscal '26. Note, beginning in fiscal '27, we will amortize deferred contract costs over an 8-year useful life, an increase from the current 7-year convention. This change is reflected in our guidance and will result in an increase to adjusted EBITDA margins in fiscal '27 of approximately 120 to 140 basis points, which is dependent on our overall business performance and timing and volume of sales and client implementations. For the first quarter of fiscal '27, recurring and other revenue is expected to be in the range of $414 million to $419 million or approximately 10% growth over first quarter fiscal '26 recurring and other revenue. And total revenue is expected to be in the range of $439.5 million to $444.5 million or approximately 8% growth over first quarter fiscal '26 total revenue. Adjusted EBITDA is expected to be in the range of $152 million to $156 million and adjusted EBITDA, excluding interest income on funds held for clients, is expected to be in the range of $126.5 million to $130.5 million. And for fiscal '27, recurring and other revenue is expected to be in the range of $1.777 billion to $1.792 billion or approximately 8% growth over fiscal '26 recurring and other revenue. Total revenue is expected to be in the range of $1.880 billion to $1.895 billion or approximately 7% growth over fiscal '26. Adjusted EBITDA is expected to be in the range of $690 million to $700 million, and adjusted EBITDA, excluding interest income on funds held for clients, is expected to be in the range of $587 million to $597 million, representing approximately 80 basis points of leverage at the midpoint. In conclusion, as we kick off fiscal '27, we remain confident in our differentiated value proposition, go-to-market strategy, operational strength, and product road map and believe our predictable business model and execution, durable recurring revenue growth, and prudent approach to guidance sets us up for a strong fiscal '27. With 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. Operator, we are now ready for questions. Operator: [Operator Instructions] Our first question comes from the line of Brad Reback with Stifel. Brad Reback: It's now a couple of quarters in a row of accelerating subscription revenue growth. Can you maybe unpack what's driving the business higher here? Toby Williams: Brad, it's Toby. I mean, I think, I'll start with just -- I think there's solid execution around the business. So if you go through the backdrop of a stable demand environment, I think we've had really strong performance from a go-to-market standpoint across our sales and marketing teams. I think we've had really strong performance from a service perspective with our client retention. And then I think we've also had significant momentum, which you can see in all the product announcements and launches from Elevate to Retirement to Grayscale and recruiting to Aidora with leave of absence management and then everything that we've announced with Ignite AI. So I think you're seeing all the things come together in pretty balanced execution in every area of the business, again, against what I think is a stable backdrop from a demand environment standpoint. Brad Reback: That's great. And just a quick follow-up. With 7% unit growth in '26, how should we think about kind of the opportunity in '27? What type of sales force growth you need to achieve that? And maybe just wrapping that up, what type of efficiencies, especially with Gen AI, is the sales force seeing right now? Toby Williams: Yes. I think over the last few years, we've seen relative balance between the unit growth and then ARPU growth, and it wasn't quite 50-50, but it was pretty close as we came through '26. And so I think we had another very balanced year of performance from a unit and ARPU standpoint. And I think the comments that we've made over the last few years are we don't -- you don't plan it to the decimal, but I think it's a balanced approach that we take as we're putting together the plan for '27, and certainly as we're putting together the guidance for '27. And so I think our approach as we come into '27 and the expectations are that we'll see that have more relative balance between units and ARPU than we may have seen in 5, 6 years ago, something like that. And then I think from an investment standpoint, as we looked at the investments across the go-to-market teams in the course of building the plan, the guidance for '27, I mean, I think we've been really happy with the execution that we've seen. We've focused on productivity, I think, more so over the last few years, and we've made the investments in both field and inside sales and across our marketing teams, including channels that have been able to produce, I think, the balance that you see. And I think our approach in terms of those investments is pretty similar and pretty consistent as we come into '27. Operator: Our next question comes from the line of Brian Peterson with Raymond James. Jessica Wang: This is Jessica on for Brian. Just a quick one. So as you -- I think I'm talking about the broader platform and all the investments you've done with your product innovation, are you starting to see -- in your go-to-market motion are customers coming to you more with considering Paylocity as -- with AI-first requirements? Are they seeing Paylocity as a partner for AI and other capabilities? And how is it influencing win rates in your sales cycles? Toby Williams: Yes. So I'll take the question. I would say that we do have more conversations with clients in the buying process around AI needs, what they're looking for from an AI perspective. I think many of our products require a fair amount of work on behalf of the clients, think of things like payroll, recruiting, time and labor management. And so inserting agentic capabilities in there where they feel like they are driving efficiencies, it's -- they're getting less errors, it's more seamless process. That's certainly a big part of the conversation and then demoing those capabilities for the customer so they can see that. I mean that's one avenue of innovation that we've seen. I think a second thing that AI has unlocked is some newer product SKUs that maybe we wouldn't have imagined before. I think the Grayscale and Aidora acquisitions are really good examples of us being able to add on AI-native capabilities that allow us to really drive productivity back to the customers and then being able to kind of monetize that. And so that -- you put all of that together and you've got agents built through the platform driving efficiency. You've got new product SKUs that are AI-first. I think AI is certainly becoming a greater part of the conversation with our prospects and driving some results for us. Jessica Wang: Really great to hear. And then following along your comment there. As you're thinking about capital allocation and everything you have on your balance sheet, how should we think about the stack rate of your priorities if you're thinking about M&A versus further organic investments versus buybacks? So what should we think about this? Ryan Glenn: Yes. I think we're really happy with how fiscal '26 played out, which allowed us to both repurchase a reasonable amount of stock, so $400 million bought back in fiscal '26, which combined with continued leverage on stock-based comp resulted in diluted share count down about 3%. So I think you'll see us continue to opportunistically repurchase stock in '27. We still have about $1.3 billion available under our authorization. And on top of that, we're investing for growth. So the Grayscale and Aidora acquisitions that we made recently, both funded with cash on balance sheet are good examples of that. So I think we're in a position with strong cash flows, increasing profitability where we can reduce share count while also investing for future growth. Operator: Our next question comes from the line of Mark Marcon with Robert W. Baird. Mark Marcon: Congrats on the great year. When I take a look at the ARPU growth, I was wondering if you could comment to what extent is that being driven by some of your more established SKUs versus what you're seeing in terms of like Airbase and some of the newer products that you've just come out with and what you're seeing there? And then I've got a follow-up. Ryan Glenn: Sure. I think, Mark, if you kind of go back in time and you think of where we were coming out of COVID, we were in the process of launching a number of engagement products. So add-ons on the learning, surveys, Community Plus, and we are seeing really good traction with those products. And so those have continued to increase as long as -- as well as the core products, things like recruiting and benefits and time. And so those are probably a bigger driver if you looked at last year's performance just because they've been around longer, they're bigger, they're more established. But we're really excited about the releases that we've had when you combine the Airbase acquisition and the entrance into finance and IT, combined with the product releases that we announced now, this has been as robust a new launch product road map that we've had in many, many years. And I think the other part that's exciting is we think the monetization opportunity for these, just from a PPM perspective, is relatively high. And so when you combine that with all the execution that we've had on top of it, I think that's what's produced the results. Mark Marcon: That's great. And then can you talk about 2 other things. One, just what the retention rate was? And then in terms of looking at your guidance in terms of the margins, particularly taking into account the change in the amortization schedule, we've always noted that you're conservative with regards to your guidance, but it doesn't seem like it implies much margin expansion. And so I'm wondering how should we think about margins? I know you're introducing all sorts of new products. Those probably don't have the same margin level as your established products. So I don't know if you were assuming or just being conservative with regards to what the contribution would be from those? Or how we should think about margin expansion for this year and then going on beyond this year, while acknowledging that you've always been really conservative as well. Ryan Glenn: Yes, Mark, I can take both of those. I think first on the retention, it continues to be at 92% plus. So really happy with the operations team's performance in fiscal '26. Relative to guidance, I think probably the context would be if you think about the leverage we drove on operating EBITDA in fiscal '26, 120 basis points of leverage. As a reminder, we started fiscal '26 from a guidance standpoint at 20 basis points. So as you saw the strong top line overperformance throughout the year, that fell to the bottom line, and we were able to increase margin every single quarter last year. When you think about the last 2 years, we've driven about 350 basis points of organic operating EBITDA margin. And we continue to believe that on a go-forward basis over multiple years, we will see continued margin expansion. Specific to '27, I think we're in a period where we're absolutely investing in AI, specifically with Ignite AI, which both Steve and Toby talked about in their prepared remarks, seeing really nice momentum there, a number of new product releases between Paylocity Retirement, Elevate Solutions, and 2 new acquisitions with Grayscale and Aidora, both of which I think we're really excited about and are seeing nice momentum in. Both of those acquisitions are subscale from a margin standpoint and represent a slight headwind in '27 as well. So as you combine each of those elements, I think we're starting '27 pretty similar to where we are -- we started '26 when you take into account each of those and the ASC 606 change. And again, I think similar to what we saw in '26, if we see continued momentum across the business, I think the expectation would be top line overperformance would fall to increased margin as we go throughout the year. Toby Williams: I think the only point I would add, Mark, is we don't feel that these new products are going to be margin dilutive over time. We feel like the products are going to drive great value to the clients, and we're going to be able to drive great value -- great margin out of them. So I would not consider that as a headwind. Operator: Our next question comes from the line of Samad Samana with Jefferies. Jordan Boretz: This is Jordan on for Samad. Great to see the strong recurring growth. It seems like strength was largely attributable to execution. But based on the data that we've been seeing, it seems like employment growth stabilized a bit during the quarter. I'm curious, what did you see within your own base as we think about the initial fiscal '27 guidance? What are the employment assumptions baked within that outlook? Ryan Glenn: Yes, Jordan. So we continue to see very, very stable macro. So consistent with what our commentary was for the first 9 months of fiscal '26. We saw client workforce levels up in Q4, and that continues to be up year-over-year nicely. Consistent with the guidance philosophy, we're assuming flat workforce levels in '27, which would be a slight degradation from what we've seen recently. Jordan Boretz: Awesome. And then maybe a quick follow-up on the purpose-built agents automating and paying other administrative tasks within the Ignite platform, it seems like you can meaningfully reduce man hours for your clients. You've spoken to that. You've also spoken monetization. I'm curious, how are you thinking about the mechanism there? Could that be broader price increases? Or is that more so going to be maybe consumption-based pricing for those who are leveraging those agents more than others? Toby Williams: I think we're open to where the market goes from a pricing perspective. We're really focused on delivering value to the clients. And when we deliver enough value to the clients, we look to be able to monetize that value. And so with Grayscale and Aidora, those are great examples where we're going to take AI native products and monetize those. With our Ignite agents, they're going to make existing processes for our clients much more efficient. It's going to create differentiation in the marketplace and allow us to win more business. And if we see opportunities where we can package something up and we offered enough value to the clients, then we'll monetize it. So it's really kind of a two-pronged approach. Operator: Our next question comes from the line of Siti Panigrahi with Mizuho. Sitikantha Panigrahi: Congrats on a good quarter. Just to extend Jordan's last question in terms of monetization. So you have done a few acquisitions as well as launch new products, add-on modules. So when you look at the opportunity for fiscal '27 in terms of monetization, how do you rank order all these add-on products based on your discussion with your customers? Toby Williams: Well, we're excited about all the products, I would say. We've got Elevate and Retirement in market right now, and we've got really good momentum behind those. So we're pretty excited about those. As you know, when we do an acquisition, it does take some time to really integrate that platform, their capabilities into our platform. We'll have Grayscale launch next, and we're actively working on Aidora. So I would probably put it kind of in that order of where we've launched them. Ignite is coming out with our clients this month, and so we're excited about that as well. But I think it's really the platform story as a whole that we really continue to strengthen, and that's what's really creating the differentiation and the momentum in the business. Sitikantha Panigrahi: Okay. And then another question, Ryan. I mean in terms of buyback, it was a strong year. And also, I think you still have $1.3 billion authorization probably left. How are you planning to balance in terms of capital allocation, in terms of buyback versus keeping some dry powder for future M&A? Ryan Glenn: Yes. I think consistent with my answer a few minutes ago, I think we can absolutely do both, and we've got the ability and the flexibility with the balance sheet and strong cash flows to be able to continue to repurchase stock. I would expect to continue to drive down diluted shares outstanding while also certainly being open from an acquisition standpoint. So I think the expectation consistent with what you saw us do in '26 is we've got the ability to do both in '27. Operator: Our next question comes from the line of Jared Levine with TD Cowen. Jared Levine: I wanted to dig into Airbase cross-sell progress 1 year in. I guess, how would you characterize this first year in and the 10% to 20% penetration within 3 to 5 years. Is that still a reasonable target based on what you saw this first year? Toby Williams: Yes, I think it is. I mean, I go back to when we did the acquisition, that was certainly how we described, and that's also consistent with how we would have described what the targets would be for any new product that we launch, whether it's built or acquired. And I think that's how we talked about it at the time of the acquisition. I think as we sit a little over a year in, yes, I think we're very pleased with the process, progress that we've made and still believe that, that's the path that we're on from -- ultimately from a penetration standpoint. So I think we're really pleased with the progress that the team has made. Jared Levine: Got it. And then Ryan, I want to dig into free cash flow here. So you did have a pretty notable uptick in PP&E purchases in 4Q here. What's the outlook here as we think to '27 in terms of CapEx? And I guess, more broadly, free cash flow, just being mindful you don't formally guide to free cash flow, but just any puts and takes would be helpful here. Ryan Glenn: Yes. I mean, I think the big picture answer is we continue to expect to drive free cash flow margin forward on a multi-year basis. And we increased our targets in the early part of fiscal '26 and absolutely continue to believe those are the right multi-year targets. As I mentioned on the prepared remarks, we did have a one-time benefit in fiscal '26, which was a big part of the year-over-year increase we saw in addition to natural scale in the business. And I think the Q4 PP&E purchases are really timing. We were able to opportunistically pull forward some of the spend that would have likely occurred in the first half of '27 into '26. I think what that looks like in '27 is PP&E is probably in the 1% to 1.5% of revenue range versus about 2% this year. So I would expect to get some leverage there. And then, again, a little bit of lumpiness relative to free cash flow. I would expect that to increase on a dollar basis in '27, might see a little bit of a headwind in margin specifically just given the challenge around grow over. Operator: Our next question comes from the line of Daniel Jester with BMO Capital Markets. Daniel Jester: Maybe just in terms of the product and sales enablement, you mentioned multiple times in the call sort of the amount of products relatively new that you're going to be giving to your sales force this year. So can we spend a moment about sort of how you're enabling your sales team to go out with this? And maybe in terms of engaging with customers, there's a lot obviously here. There's a lot of change happening in the world with regards to AI. How are you helping sort of customers get over the finish line? Toby Williams: Yes. Thanks, Dan. I mean I think, as you know, we've had a fairly robust history of launching products into the market, launching products to our sales teams, and preparing those teams from both a new logo acquisition to drive attach and then also back into our client base, driving penetration. And I think we've taken a similar approach with each of the launches that we've had over the last 9 months or so with the Elevate Solutions, with Aidora and Grayscale that we're working on now and everything that we've done from an Ignite standpoint and also Retirement. So we've had a long string over the last 9 months of things that we've launched, and we've taken the same methodical approach in terms of working through the training and the preparation with -- from our product teams to our sales and go-to-market teams and our service teams as well. And so I think we've run the same playbook as we've gone through each and every one of those launches over the last 9 months as we have historically in the business. And I think the early indications are that we've seen really nice traction with each one of those products or offerings that we've launched. And so I think sitting here today, we feel really good about the momentum that we have, the team's ability to consume all of that material and be effective in the market with our clients. And so I think sitting here coming into '27, yes, we -- I think we're really happy with the momentum that we've had in all of those launches. I think we're also really happy with the traction that we've seen early days still, but the traction that we've seen with the sales teams and with our clients. Daniel Jester: That's great. And then, Ryan, maybe for you on -- as you're ramping all of these AI products, can you just help us think about sort of your cost structure and any implications for gross margins as we're considering our models for next year? Ryan Glenn: Sure. Yes. I mean I think on gross margins, there will be a little bit of a benefit from the useful life change that we noted. That's probably of the 120 to 140 basis points, about 60% of that will be seen in sales and marketing and about 40% will be seen in gross margin. Beyond that, I think we continue to have confidence in our ability to scale. We are certainly leveraging AI and broader automation efforts across our operations teams, and we are seeing some really positive signs, both from a margin standpoint as well as from a client and employee satisfaction perspective as well. And we would expect to be able to continue to leverage those throughout '27. Operator: Our next question comes from the line of Terry Tillman with Truist. Giancarlo Valle: Giancarlo on here for Terry. Congrats on the quarter. Just on the product road map, you mentioned a lot of progress moving forward. How do you actually train the sales force for new products? And how do they pitch the customers? Unknown Executive: Well, we've got a number of different teams focused on either different market segments or different parts of our product portfolio as well as we've got teams focused on sales back to the client base. So it's really a matter of fitting that product into the right organization, training them on the value proposition, and then really supporting them. We've got a strong solution consultant team that are kind of product experts that work with them behind the scenes, so they don't have to know all the intricacies of the product. That allows them to ramp much faster. And then just the content marketing and training teams to be able to launch that. I think as Toby said, we really have a strong playbook on doing this. We've been doing this for a lot of years, and we've had great success with doing that. And so we are really happy to have to run that playbook many times going into FY '27 and the sales force is super excited. Operator: Our next question comes from the line of Ian Black with Needham & Company. Ian Black: This is Ian Black on for Scott Berg. Brokers are obviously a key source of lead generation. Does the new Retirement offering enhance that sales channel? Toby Williams: Yes. I mean I think from an overall channel standpoint, I think we were really pleased with the performance that we saw, again, throughout not just Q4, but throughout fiscal '26. And I think part of that is benefit brokers and then part of that is financial advisers. And I think we've seen great receptivity from a financial adviser standpoint with the retirement offering. I think that fits well with how we've crafted the relationship with them. So overall, I think, channel performance was really strong throughout the course of '26. We continue to see momentum with both the financial advisers and brokers. And I think the Retirement solution is certainly a part of that. Operator: Our next question comes from the line of Jason Celino with KeyBanc Capital Markets. Jason Celino: I just wanted to ask about the Q4 recurring performance. From a prior question, it sounds like it was more booking strength related. But what was the inorganic contribution? Because I think it was the first quarter that included Grayscale. Would recurring growth still have accelerated even when stripping out any M&A contribution? Ryan Glenn: Yes, it would have still accelerated. The impact of Grayscale was negligible in the quarter. We would have still accelerated even without Grayscale. Jason Celino: Okay. Perfect. And then maybe it was kind of glazed over another question, but can you speak to maybe the change in the useful life assumptions? Curious kind of what led to the process there? And then it would obviously be incremental to your 40% to 45% longer-term margin ambitions. I just wanted to ask that. Ryan Glenn: Yes. So I think for context on the useful life and deferred contract costs, ASC 606 was implemented for us in 2019. So we've had a 7-year convention for several years at this point. I think in the normal course of the business, annually, the team assesses both qualitative and quantitative factors to confirm that the 7-year life was accurate. And business, obviously, is much larger than it was in 2019. And I think we continue to see both very strong client retention. We see increasing client relationship life. We see increasing average clients -- average employees per client. So we go through that qualitative and quantitative assessment each year, and the facts were such that we're moving from 7 years to 8 years beginning in fiscal '27. Operator: Our next question comes from the line of Raimo Lenschow with Barclays. Sheldon McMeans: This is Shel McMeans on for Raimo. I have a 2-parter here on macro, and that's all. So it was nice to see the healthy 7% client growth for the year. And I'd love to hear how that growth trended throughout the year and just given the mixed macro backdrop, in particular, how did that look in the most recent June quarter? And I appreciate there's some seasonality there. So maybe comparing that to the prior Q4 quarter. And then related to that, if there's been any kind of changes in your conversations or any impact whatsoever regarding the situation in the Middle East or any other dynamics out there? Toby Williams: Yes. I think if you look at the overall client growth or unit growth over the course of the last 2 fiscal years, it's been fairly consistent year-to-year around that 7% level. And so I think for the last 24 months, you've seen relative consistency on a year-to-year basis in the unit growth. And then when you look at that quarter-to-quarter, I don't -- I think it was pretty fairly smooth through the course of fiscal '26 as it was relatively in fiscal '25, apart from, as you said, the seasonality that you see in the business, which again is primarily in Q3, having a larger onboarding of clients, which is in January. So I think if you look at the last 2 years, you see relative consistency both in the total unit growth and in the quarter-to-quarter spread of those units, both within the year and on a year-to-year basis. So there's nothing that stands out to me in terms of anything in any of the quarters, certainly in '26 that I would point to. Operator: Our next question comes from the line of George Kurosawa with Citi. George Michael Kurosawa: Okay. Great. I'm on for Steve Enders. I wanted to touch on the FY '27 guidance. You all have had a pretty consistent philosophy in setting yourselves up for a beat and raise cadence, which obviously delivered on in '26. Just when you think about the elements of conservatism or potential upside that are embedded into FY '27, it sounds like employment levels might be one of those. Any other areas that you would point out when you're putting the guide together? Ryan Glenn: Yes. I think the guidance philosophy that we've employed certainly in fiscal '26 and prior to that is exactly how we approach '27. So we feel like, obviously, the momentum across the business is strong from a product go-to-market and operational perspective. You saw the strong performance throughout fiscal '26 and the slight acceleration in revenue growth. So we feel like we're really well set up for a strong fiscal '27. And our hope and expectation would be if we continue to see that strong performance, we would be able to exceed our guidance and raise the guidance, both from a revenue and margin standpoint as we go throughout the year. George Michael Kurosawa: Okay. That's helpful. And then on AI, the AI products that you're rolling out, I think our sense is that primary approach to-date have been more indirect monetization of AI. It sounds like you are leaning more into some separately monetized SKUs. Maybe you could just talk about kind of what's driving that change in approach? And if there's anything different about maybe the commercialization approach, how you're thinking about pricing those products? Toby Williams: Yes, sure. I think when you apply AI to very specific use cases, you have an opportunity to drive efficiencies greater than you would have without AI. And so I think just look at our most recent acquisition with Aidora, lead management is a very complicated process. It's one where you have to really interact with employees and managers. They have a ton of back and forth questions. It's just a very -- traditionally, a fairly manual process. AI really allows you to build an AI-native first chatbot that can really automate so much of this interaction, have so much intelligence back and forth that you're taking a manual process and you're really driving a lot of value back to the customer, you're creating a much better employee experience. And when you do that, you have an opportunity to be able to monetize that. And, yes, we're going to keep our options open from a monetization perspective. We have per user pricing, we have PPM pricing, and we're certainly open if we have to consider utilization-based pricing. It's really about trying to drive the right value equation back to the customer so that they win from a productivity perspective, and we can obviously get paid for the value we're delivering. Operator: Our next question comes from the line of Allan Verkhovski with U.S. Bancorp BTIG. Allan M. Verkhovski: Congrats on the strong finish to the year. Maybe first, just on future M&A. How are you prioritizing opportunities across your HR, finance, and IT verticals? And then I've got a quick follow-up. Toby Williams: Yes. I think if you look back over the course of our history, we've prioritized the areas that have the most strategic value where we think we're meeting the biggest client needs. And I think we've done -- we've certainly done deals in -- across the platform, whether that's in HCM or in the finance area. We certainly had partnerships along the way, too, that have helped add from a product capability standpoint. I think the approach is the same as we look through '27. I think we see areas of opportunity across each part of the platform and I think we've always taken a fairly balanced approach of building and adding to the portfolio where we could from an acquisition standpoint, where we thought we had an opportunity to buy something in the market that would accelerate the product road map and that we would stand a good chance of integrating really tightly into the platform. And I think that's the exact same lens that we're bringing forward into '27. Allan M. Verkhovski: Got it. And then just double-clicking on an earlier question regarding gross margins. Given your comments about confidence in your ability to scale as you continue investing in AI capabilities across the platform, can you go a touch deeper in what gives you conviction that gross margins can improve from roughly 75% today to the 80% plus target you outlined at $3 billion in revenue? Ryan Glenn: Yes. I mean I think we obviously, one, have a long history of expanding gross margins on an annual basis, and we did that again in fiscal '26. And I think we've got the ability across a number of factors. One is natural scale as the business gets larger, as we continue to drive automation and leverage AI across those teams, we are seeing those benefits today, and I think we're still in the very early stages. So when you combine natural scale pricing power, I think, with some of the third-party vendors as well and then you layer on the AI and automation, I think that gives us the confidence that on a multi-year basis, the 80% plus increased gross margin target we have is the right one. Operator: Our next question comes from the line of Jacob Smith with Guggenheim Securities. Jacob Cody Smith: On Elevate Solutions, when we look around across the SMB market, more and more vendors are going after the service layer, and it feels like that's where the industry is broadly headed. With that backdrop, given Elevate sits in direct adjacency to your core payroll and HCM motion, could the adoption curve and pace of revenue be faster than what we've seen with Paylocity for finance and IT? And any update you could give on the rollout of Elevate so far this quarter, that would be helpful. Toby Williams: Yes. So I think we're very happy with the early results from receptivity of Elevate in the marketplace. I think you did hit on one of the key points and why we launched those, which is Elevate Solutions, historically, solutions like that would be very, very service-intensive. And we really see an opportunity with both the strength of our platform and how broad our platform has become and the addition of many of the AI capabilities that we're adding to the platform that we can deliver, still with a service touch, which is certainly important to our customers and a relationship, but we can do that much more efficiently. And so that's what gave us confidence to be able to kind of launch that product, and we're seeing great receptivity in the marketplace. Too early to tell where that's going to go from a long-term perspective, but it will definitely be a contributor into fiscal '27. And maybe more importantly, we see that as a long-term growth driver as we think about on a multi-year basis. Jacob Cody Smith: Great. And just a quick follow-up there. How are you thinking about the delivery build-out to service this managed services business at scale? Is that something that would be an investment area heading into FY '27? Toby Williams: All the new products require some level of investment when you first launch them. And then as you gain scale on those products, we're confident that we can get them to our gross margins and many of them, frankly, are incremental gross margins, and that's been a driver for us as we've launched new products. And so we feel good that we've got the right pacing for that. Some of that is investment in the product and tech. Some of that's in the teams that support it. Obviously, some of that's in the sales force. But we've had a long history of being able to launch a number of products, while at the same time, always marching forward from an overall margin and a gross margin perspective. And we don't see any reason why we can't continue to do that with the grouping of products that we have announced for this fiscal year. Operator: Our next question comes from the line of Craig Maurer with CT Partners. Unknown Analyst: This is [ Isabel ] on for Craig. I just wanted to get clarification on the accounting change and just how we get to the 120 to 140 bps. Can you clarify the timing of when this benefit will come? Is there a one-time true-up of all existing contracts that gets us to this magnitude? Or is this the level of ongoing benefit that we should expect going forward even beyond '27? Ryan Glenn: It's the latter. So there's a one-time true-up in the sense that '27 versus '26 will be benefited by 120 to 140 basis points, but it does not hit in Q1 specifically. Think of that as ratable over the course of '27. And just to clarify that, is 120 to 140 basis points additive to adjusted EBITDA, which is included in the margins -- sorry, in the guidance we provided today. Operator: I'm showing no further questions at this time. I would now like to turn it back to management for closing remarks. Toby Williams: Thank you. I just want to say thanks, everybody, for your interest in Paylocity, and thanks to all of our people and teams for a great fiscal '26. Thanks for your interest. Have a good night. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. 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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has positions in and recommends Paylocity. The Motley Fool has a disclosure policy. Paylocity (PCTY) Q4 2026 Earnings Call Transcript was originally published by The Motley Fool

Paylocity’s second quarter was marked by broad-based growth and positive market reaction, underpinned by strong performance across its human capital management platform. Management credited recurring revenue growth to the continued expansion of both client base and average revenue per client, as well as successful launches of new AI-driven features such as Ignite AI. President and CEO Toby Williams highlighted that product innovation and robust go-to-market execution played key roles, noting, “all the things come together in pretty balanced execution in every area of the business.” Is now the time to buy PCTY? Find out in our full research report (it’s free). Revenue: $444.7 million vs analyst estimates of $431.4 million (11% year-on-year growth, 3.1% beat) Adjusted EPS: $1.84 vs analyst estimates of $1.61 (14.2% beat) Adjusted EBITDA: $145.5 million vs analyst estimates of $131.5 million (32.7% margin, 10.7% beat) Revenue Guidance for Q3 CY2026 is $442 million at the midpoint, roughly in line with what analysts were expecting EBITDA guidance for the upcoming financial year 2027 is $695 million at the midpoint, above analyst estimates of $685.3 million Operating Margin: 19%, up from 16.5% in the same quarter last year Annual Recurring Revenue: $415.6 million (12.4% year-on-year growth) Market Capitalization: $7.73 billion While we enjoy listening to the management’s commentary, our favorite part of earnings calls is the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention. Brad Reback (Stifel): Asked what is driving the acceleration in subscription revenue. President and CEO Toby Williams pointed to balanced execution across sales, product launches, and client retention, with particular emphasis on new AI features and product momentum. Jessica Wang (Raymond James): Inquired whether customers increasingly view Paylocity as an AI-first partner. Williams confirmed that AI is now central in client conversations and sales demos, noting that AI features are driving both efficiency and new product SKUs. Mark Marcon (Robert W. Baird): Sought clarity on ARPU growth and the impact of established versus new products. CFO Ryan Glenn explained that while established add-ons remain the largest driver, new offerings like Airbase and recent acquisitions present high incremental monetization opportunities. Jordan Boretz (Jefferies): Queried the assumptions behind workforce levels in guidance. Glenn stated that while client workforce levels were stable and up year-over-year, guidance assumes no further growth as a baseline. Jared Levine (TD Cowen): Asked about cross-sell progress for Airbase and whether the initial penetration targets remain. Williams said the company is pleased with first-year progress and reiterated the 10–20% penetration target remains realistic. In the coming quarters, the StockStory team will watch (1) the adoption rate and monetization of Ignite AI and other premium product add-ons; (2) integration progress and client uptake following the recent Aidora and Grayscale acquisitions; and (3) the impact of new offerings like Paylocity Retirement and Elevate Solutions on ARPU and client retention. Execution on these fronts will be key to sustaining growth and margin expansion. Paylocity currently trades at $145.63, up from $143.32 just before the earnings. Is there an opportunity in the stock? The answer lies in our full research report (it’s free for active Edge members). ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time. Find out which stocks our AI platform is flagging this week. See this week’s Strong Momentum stocks — FREE. Get Our Strong Momentum Stocks for Free HERE. Stocks that have made our list include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.

Find your next quality investment with Simply Wall St's easy and powerful screener, trusted by over 7 million individual investors worldwide. Paylocity Holding (PCTY) is back in focus after reporting fourth quarter and full year 2026 earnings, issuing fiscal 2027 guidance, and updating investors on its ongoing share repurchase activity. See our latest analysis for Paylocity Holding. Paylocity Holding's latest earnings and guidance have arrived alongside a sharp shift in sentiment, with a 30 day share price return of 29.92% and a 90 day share price return of 35.46%. However, the 1 year total shareholder return is down 20.88%, which points to improving short term momentum after a weaker longer term experience. If Paylocity's results have you rethinking where software growth could come from next, it may be worth scanning other payroll and HR tech peers through a broader lens and checking out 22 top founder-led companies Paylocity now pairs steady revenue and earnings growth with a sharp recent share price rebound. The core business looks solid on the latest numbers. The open question is whether the stock already reflects that strength. The most followed narrative sees Paylocity Holding trading a little below its fair value of $152.85, compared with the latest close at $147.81. That small gap sets up a debate around whether the current price already reflects the company’s growth and margin profile. Read the complete narrative. Read the complete narrative. Curious what sits behind that fair value for Paylocity Holding. The narrative leans heavily on compounded revenue growth, firmer profit margins, and a richer earnings multiple. The key is how these inputs stack up together. The full breakdown lays out the exact assumptions and timing that make the numbers work. Result: Fair Value of $152.85 (UNDERVALUED) Have a read of the narrative in full and understand what's behind the forecasts. However, the Paylocity Holding narrative still hinges on guidance that points to slower 8% to 9% revenue growth and on successful uptake of newer, higher priced products. Find out about the key risks to this Paylocity Holding narrative. Analysts see Paylocity Holding trading about 3.3% below a fair value of $152.85. Yet on simple P/E math the stock looks expensive at 29.2x earnings versus 22.6x for the US Professional Services industry and a 21.9x fair ratio. That gap points to higher valuation risk if expectations cool. To see what the numbers say about this price, find out in our valuation breakdown: See what the numbers say about this price — find out in our valuation breakdown. With sentiment on Paylocity Holding mixed across timeframes, it helps to move fast and test the story against the underlying data yourself. To see what investors are currently optimistic about and weigh those potential upsides against the risks, take a closer look at the 3 key rewards. If Paylocity has sharpened your focus on where to put fresh capital next, do not stop here. Use the Simply Wall St screener to pressure test new ideas quickly. Target resilient opportunities by scanning companies with steady balance sheets and fundamentals through the solid balance sheet and fundamentals stocks screener (50 results). Hunt for quality at a potential discount by reviewing companies that screen as attractively priced using the 51 high quality undervalued stocks. Spot potential future standouts early by checking the screener containing 17 high quality undiscovered gems before they sit firmly on everyone else's radar. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Companies discussed in this article include PCTY. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]

Paylocity PCTY reported fourth-quarter fiscal 2026 non-GAAP net income of $1.84 per share, which increased 17.9% year over year and beat the Zacks Consensus Estimate by 19.48%.Total revenues increased 11% year over year to $444.7 million and surpassed the Zacks Consensus Estimate by 3.18%.Top-line growth was driven by the 12.4% increase in recurring and other revenues (roughly 93% of total revenues) to $415.6 million. Interest income on funds held for clients (about 7% of total revenues) declined 5.6% year over year to $29.1 million. Paylocity Holding Corporation price-consensus-eps-surprise-chart | Paylocity Holding Corporation Quote Paylocity's adjusted gross profit was $327.5 million, up 10.4% from the year-ago period, though the adjusted gross margin contracted roughly 40 basis points (bps) to 73.6%. Non-GAAP operating income rose 13.8% year over year to $120.2 million, with the non-GAAP operating margin expanding about 70 bps to 27%.Adjusted EBITDA increased 11.3% from the year-ago quarter to $145.5 million, with the adjusted EBITDA margin up roughly 10 bps to 32.7%. Adjusted EBITDA excluding interest income on funds held for clients rose 16.5% year over year to $116.4 million, with margin (as a percentage of recurring and other revenues) up roughly 100 bps to 28%.GAAP net income for the quarter was $60.3 million, or $1.12 per share, up 24.1% and 30.2%, respectively, from $48.6 million, or 86 cents per share, in the year-ago quarter. As of June 30, 2026, Paylocity's cash and cash equivalents were $271.9 million, down from $299.7 million as of March 31, 2026.Long-term debt totaled $81.3 million as of the end of fiscal 2026, down 50% from $162.5 million a year earlier, reflecting repayment of approximately $81.3 million on the outstanding credit facility balance (originally drawn to fund the October 2024 acquisition of Airbase Inc.) during fiscal 2026.Net cash provided by operating activities for fiscal 2026 was $533.3 million (30.1% of total revenues), up 27.5% from $418.2 million (26.2% of total revenues) in fiscal 2025. Free cash flow rose 24.8% year over year to $427.8 million, or 24.2% of total revenues, compared with $342.8 million, or 21.5%, in fiscal 2025.Paylocity repurchased $398.1 million, or approximately 2.8 million shares, of common stock during fiscal 2026, bringing cumulative repurchases since May 2024 to $697.8 million, or approximately 4.6 million shares. Approximately $1.3 billion remained available under the share repurchase authorization as of June 30, 2026. In April 2026, Paylocity completed the acquisition of Grayscale Labs, Inc., an AI-powered recruiting automation company, expanding its recruiting capabilities to help clients engage candidates earlier and move faster through hiring workflows.The company also launched Paylocity Elevate Solutions, pairing its unified platform with dedicated payroll and HR experts to handle implementation, ongoing payroll processing and HR execution on clients' behalf, comprising Elevate Implementation, Elevate Payroll and Elevate HR.The company also disclosed a change in accounting convention: beginning in fiscal 2027, deferred contract costs will be amortized over an eight-year useful life, up from seven years, a shift expected to lift fiscal 2027 adjusted EBITDA margins by approximately 120-140 bps.Management also pointed to continued investment in its AI platform capabilities across HR, Finance and IT workflows as a key driver of the company's product strategy heading into fiscal 2027. For the first quarter of fiscal 2027, Paylocity expects total revenues in the range of $439.5-$444.5 million, indicating approximately 8% growth from the year-ago period. Recurring and other revenues are projected between $414 million and $419 million, implying approximately 10% growth.Adjusted EBITDA is projected in the range of $152-$156 million, while adjusted EBITDA excluding interest income on funds held for clients is expected between $126.5 million and $130.5 million.For fiscal 2027, Paylocity projects total revenues between $1.88 billion and $1.895 billion, implying approximately 7% growth over fiscal 2026. Recurring and other revenues are expected in the range of $1.777-$1.792 billion, suggesting approximately 8% growth.Adjusted EBITDA is expected between $690 million and $700 million, while adjusted EBITDA excluding interest income on funds held for clients is projected between $587 million and $597 million. PCTY currently carries a Zacks Rank #5 (Strong Sell).Some better-ranked stocks in the broader Zacks Computer & Technology include Applied Materials AMAT, ACI Worldwide ACIW and Analog Devices ADI. Each stock sports a Zacks Rank of 1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here. Applied Materials shares have gained 112.7% in the year-to-date period. Applied Materials is set to report second-quarter 2026 results on Aug. 13. Shares of ACI Worldwide have gained 19.7% in the year-to-date period. ACI Worldwide is set to report second-quarter 2026 results on Aug. 6. Shares of Analog Devices have rallied 40.3% year to date. Analog Devices is slated to report fiscal third-quarter 2026 results on Aug. 19. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Paylocity Holding Corporation (PCTY) : Free Stock Analysis Report Analog Devices, Inc. (ADI) : Free Stock Analysis Report Applied Materials, Inc. (AMAT) : Free Stock Analysis Report ACI Worldwide, Inc. (ACIW) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Interested in Paylocity Holding Corporation? Here are five stocks we like better. Paylocity delivered solid fiscal 2026 results: Total revenue rose 11% to approximately $1.8 billion, recurring revenue increased 12.2%, and the client base grew 7% to about 44,400. Full-year adjusted EBITDA reached $654.9 million, while free cash flow increased 24.8%. AI and product expansion are central to the growth strategy. Paylocity launched Ignite AI, acquired leave-management provider Aidora, and is integrating AI recruiting capabilities from Grayscale as premium offerings across its HCM platform. Fiscal 2027 guidance calls for slower growth but continued profitability gains: The company expects recurring and other revenue growth of about 8%, total revenue growth of about 7%, and adjusted EBITDA of $690 million to $700 million. Paylocity also repurchased $398.1 million of stock during fiscal 2026 and has $1.3 billion remaining under its authorization. 3 Payroll Software Makers Set For Growth In 2023 Paylocity (NASDAQ:PCTY) reported fourth-quarter fiscal 2026 recurring revenue growth of 12.4% and total revenue growth of 11%, as the human capital management software provider highlighted product expansion, artificial intelligence initiatives and continued client growth. For the fiscal year ended June 30, 2026, Paylocity generated approximately $1.8 billion in total revenue, up 11%, while recurring revenue increased 12.2%. The company ended the year with about 44,400 clients, a 7% increase from fiscal 2025, and average revenue per client rose more than 5% to roughly $37,200. → SpaceX’s First Earnings Report Could Decide Whether Shorts or Bulls Have Control 3 Software Plays Showing Signs of Recovery Executive Chairman Steve Beauchamp said the company’s investments in research and development have supported recurring revenue growth and higher client spending. He pointed to Paylocity’s platform spanning HCM, finance and IT functions, along with its expanding AI capabilities. Paylocity emphasized its recent launch of Ignite AI, a set of AI capabilities embedded in existing customer workflows. The offering includes a candidate-fit agent for recruiting, a talent-rediscovery agent designed to identify potential candidates from existing talent pools, and an answers-and-insight agent intended to help HR and payroll teams obtain client-specific information through natural-language questions. → Financials Hit Record Highs as the AI Trade Unravels—Can They Keep Leading? The company also introduced an Ignite AI Hub, a centralized dashboard intended to provide customers visibility into AI usage, including questions answered, tasks completed and issues resolved. Beauchamp said AI interactions nearly doubled sequentially during the quarter. President and CEO Toby Williams said AI is becoming a larger part of conversations with prospective customers, particularly when customers evaluate tools to improve efficiency in payroll, recruiting and time-and-labor management. However, management said its approach to monetization will vary based on the value provided to clients. → Why Rare Earth Processing Could Be the Real 2027 Opportunity “We’re really focused on delivering value to the clients,” Beauchamp said. “When we deliver enough value to the clients, we look to be able to monetize that value.” The company recently acquired Aidora, an AI-native leave-of-absence management provider. Williams said Paylocity plans to integrate Aidora’s capabilities into its suite as a premium offering. The company is also integrating AI-powered recruiting automation capabilities from its prior Grayscale acquisition, which it expects to offer as a premium product. Other recent product initiatives include Elevate Solutions, a managed-services offering, and Paylocity Retirement, which brings retirement-plan administration and employee savings tools to the company’s platform. Williams said financial advisors have responded positively to the retirement offering. Fourth-quarter recurring revenue totaled $415.6 million, while total revenue exceeded the high end of Paylocity’s guidance by $11.3 million. Chief Financial Officer Ryan Glenn said most of the fourth-quarter revenue outperformance came from recurring and other revenue. Adjusted EBITDA was $145.5 million in the fourth quarter, representing a 32.7% margin and exceeding the top end of guidance by $12.9 million. For fiscal 2026, adjusted EBITDA totaled $654.9 million, or a 37% margin, up 12.3% from the prior year on a dollar basis. Excluding interest income on funds held for clients, full-year adjusted EBITDA margin was 32.4%, reflecting 120 basis points of operating leverage, according to the company. Fiscal-year free cash flow margin was 24.2%, and free cash flow increased 24.8% on a dollar basis. On a GAAP basis, Paylocity reported fourth-quarter gross profit of $300.4 million, operating income of $84.4 million and net income of $60.3 million. Full-year gross profit was $1.2 billion, operating income was $386 million and net income was $269.7 million. Management said fiscal 2026 revenue retention remained above 92%. Benefit brokers accounted for more than 25% of new business during the year, Williams said, as the company continued to invest in its broker channel. For the first quarter of fiscal 2027, Paylocity expects recurring and other revenue of $414 million to $419 million, representing approximately 10% growth from the prior-year period. Total revenue is projected at $439.5 million to $444.5 million, or approximately 8% growth. First-quarter adjusted EBITDA is expected to be $152 million to $156 million. First-quarter adjusted EBITDA excluding interest income on client funds is expected to be $126.5 million to $130.5 million. Fiscal 2027 recurring and other revenue is projected at $1.777 billion to $1.792 billion, representing approximately 8% growth. Fiscal 2027 total revenue is projected at $1.880 billion to $1.895 billion, representing approximately 7% growth. Full-year adjusted EBITDA is expected to be $690 million to $700 million. The outlook assumes flat workforce levels in fiscal 2027 compared with fiscal 2026, despite workforce growth in the company’s client base during the fourth quarter. It also incorporates two assumed 25-basis-point interest-rate cuts in the second half of fiscal 2027. Beginning in fiscal 2027, Paylocity will amortize deferred contract costs over eight years rather than seven years. Glenn said the accounting change is expected to add approximately 120 to 140 basis points to adjusted EBITDA margin during the year, with the benefit occurring ratably rather than entirely in the first quarter. Glenn said newer acquisitions and product launches will create a modest margin headwind in fiscal 2027 because they are currently subscale, but management does not expect those products to be margin dilutive over time. The company reiterated its expectation for continued multi-year free-cash-flow and margin expansion. Paylocity repurchased approximately 466,000 shares for $48.1 million in the fourth quarter. For the full fiscal year, it repurchased about 2.8 million shares for $398.1 million, reducing diluted share count by 3.1%. As of June 30, the company had approximately $1.3 billion remaining under its repurchase authorization, $271.9 million in cash equivalents and invested corporate cash, and $81.3 million outstanding on its credit facility. Glenn said Paylocity expects to continue opportunistic repurchases while preserving flexibility for acquisitions and investments in growth. Paylocity (NASDAQ: PCTY) is a leading provider of cloud-based payroll and human capital management (HCM) software designed to streamline workforce administration for mid-sized organizations. The company's integrated platform automates core functions such as payroll processing, benefits administration, time and labor tracking, and compliance management, enabling employers to manage employee data more efficiently and reduce administrative burdens. In addition to payroll and HR capabilities, Paylocity offers talent management solutions including recruiting, onboarding, performance tracking, and learning management. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "Paylocity Q4 Earnings Call Highlights" was originally published by MarketBeat. 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Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. Recurring revenue growth of 12.4% in Q4 was driven by a differentiated value proposition centered on a modern, unified platform for HCM, finance, and IT. Average revenue per client (ARPU) increased by 5% to approximately $37,200, fueled by the expansion of the product portfolio and increased adoption of high-value modules. The launch of Paylocity Ignite AI represents a strategic shift toward embedding agentic capabilities directly into core workflows to drive measurable productivity gains for clients. Sales execution remained strong with the benefit broker channel consistently contributing more than 25% of new business due to a non-compete strategy on insurance products. Management attributes sustained growth to a stable demand environment and balanced execution across unit growth (7%) and ARPU expansion. The acquisition of Aidora and Grayscale enhances the platform with AI-native capabilities for leave of absence and recruiting, creating new premium monetization opportunities. Revenue retention remained industry-leading at above 92%, reflecting the high switching costs and value delivered by the integrated platform. Fiscal 2027 guidance assumes flat workforce levels compared to fiscal 2026, representing a conservative stance relative to recent positive employment trends. Interest income projections assume two 25-basis-point rate cuts occurring in January and March of 2027. A change in the amortization period for deferred contract costs from 7 to 8 years will provide a 120 to 140 basis point tailwind to adjusted EBITDA margins in fiscal 2027. Management expects to continue opportunistic share repurchases, utilizing the remaining $1.3 billion authorization while maintaining flexibility for strategic M&A. Free cash flow margin is expected to expand on a multi-year basis, though fiscal 2027 faces a difficult comparison due to one-time tax benefits received in fiscal 2026. The transition to an 8-year useful life for contract costs reflects increasing client relationship longevity and larger average client sizes. Recent acquisitions of Grayscale and Aidora are currently subscale from a margin perspective, representing a slight near-term headwind to adjusted EBITDA. Capital expenditure for PP&E is expected to normalize to 1% to 1.5% of revenue in fiscal 2027 following opportunistic pull-forward of spending into late fiscal 2026. Management flagged that while AI investments are significant, they are not expected to be margin dilutive over the long term due to high value-add and monetization potential. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. Management is pursuing a two-pronged approach: driving differentiation to win new business and creating premium SKUs for AI-native products like Aidora. They remain open to various pricing models, including per-user, PPM, or potentially utilization-based pricing, depending on the specific value delivered. Confidence in the 80% plus target is supported by natural scale, pricing power with third-party vendors, and the early-stage benefits of internal AI automation. New products like Elevate Solutions are expected to reach core gross margins over time as they scale, despite being service-intensive in their traditional form. Paylocity utilizes a specialized solution consultant team to support the general sales force, allowing them to sell complex new products without needing deep technical expertise. The company is running a proven 'playbook' for product launches, focusing on training across field, inside sales, and channel partners to maintain balanced growth.

This article first appeared on GuruFocus. Total Revenue (Q4 FY2026): Increased 11% year-over-year. Recurring Revenue (Q4 FY2026): $415.6 million, up 12.4% year-over-year. Total Revenue (FY2026): Approximately $1.8 billion, up 11% year-over-year. Recurring Revenue (FY2026): Grew 12.2% year-over-year. Adjusted EBITDA (Q4 FY2026): $145.5 million, or 32.7% margin. Adjusted EBITDA (FY2026): $654.9 million, or 37% margin, up 12.3% on a dollar basis. Adjusted EBITDA Margin (FY2026, incl. interest income on client funds): 32.4%, reflecting 120 basis points of operating leverage. Free Cash Flow Margin (FY2026): 24.2%, up 24.8% on a dollar basis. Average Revenue per Client (FY2026): Roughly $37,200, up more than 5% from $35,300 in FY2025. Client Base (FY2026): 44,400 clients, representing approximately 7% growth from FY2025. Revenue Retention Rate (FY2026): Remained above 92%. GAAP Net Income (Q4 FY2026): $60.3 million. GAAP Net Income (FY2026): $269.7 million. GAAP Gross Profit (Q4 FY2026): $300.4 million. GAAP Gross Profit (FY2026): $1.2 billion. GAAP Operating Income (Q4 FY2026): $84.4 million. GAAP Operating Income (FY2026): $386 million. Total R&D Investment (FY2026): 14.5% of revenue, up 12.6% on a dollar basis. Sales and Marketing Expenses (FY2026): 20.3% of revenue on a non-GAAP basis. G&A Costs (FY2026): 8.9% of revenue on a non-GAAP basis. Interest Income on Client Funds (FY2026): Average daily balance of $3.3 billion. Share Repurchases (FY2026): Approximately 2.8 million shares for $398.1 million. FY2027 Guidance (Total Revenue): Expected in the range of $1.880 billion to $1.895 billion, or approximately 7% growth. FY2027 Guidance (Recurring Revenue): Expected in the range of $1.777 billion to $1.792 billion, or approximately 8% growth. FY2027 Guidance (Adjusted EBITDA): Expected in the range of $690 million to $700 million. Warning! GuruFocus has detected 4 Warning Signs with EHTH. Is PCTY fairly valued? Test your thesis with our free DCF calculator. Release Date: August 04, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Recurring revenue growth accelerated to 12.4% in Q4 and 12.2% for fiscal 2026, with total revenue reaching approximately $1.8 billion. Strong client base expansion, growing 7% to 44,400 clients, alongside a 5% increase in average revenue per client to $37,200. Successful launch of Paylocity Ignite AI, with AI interactions nearly doubling quarter-over-quarter, and positive client feedback highlighting productivity gains. Strategic acquisitions of Grayscale and Adora are expected to enhance AI-native capabilities in recruiting and leave management, offering new monetization opportunities. Solid financial performance with adjusted EBITDA margin expansion of 120 basis points (excluding interest income) and free cash flow margin growth of 370 basis points in fiscal 2026. Continued strong revenue retention rate above 92%, reflecting high client satisfaction and platform stickiness. Fiscal 2027 guidance assumes flat workforce levels, which may limit growth if employment conditions weaken. Revenue growth is expected to decelerate to approximately 8% for recurring revenue and 7% for total revenue in fiscal 2027. Adjusted EBITDA margin expansion in fiscal 2027 is modest at 80 basis points, partly due to investments in AI and new product launches. The change in deferred contract cost amortization from 7 to 8 years provides a one-time benefit of 120-140 basis points, which may not be sustainable in future years. Interest income is expected to decline due to anticipated rate cuts and lower average client fund balances, impacting overall profitability. New acquisitions (Grayscale and Adora) are subscale and represent a slight margin headwind in fiscal 2027. Q: It's now a couple of quarters in a row of accelerating subscription revenue growth. Can you maybe unpack what's driving the business higher here? A: Toby Williams (President and CEO) attributed the acceleration to solid execution across the business, including a stable demand environment, strong go-to-market performance, high client retention, and significant product momentum from launches like Elevate, Retirement, Grayscale, Adora, and Ignite AI. He noted that all areas of the business are coming together in balanced execution. Q: With 7% unit growth in '26, how should we think about the opportunity in '27, what type of sales force growth you need to achieve that? And what type of efficiencies, especially with Gen AI, is the sales force seeing right now? A: Toby Williams (President and CEO) stated that the company expects a relative balance between unit growth and ARPU growth in fiscal '27, similar to the balanced performance seen in '26. He noted that investments in field and inside sales, marketing, and channels have driven productivity, and the company will maintain a consistent approach to these investments going forward. Q: With your positive innovation, are you starting to see in your go-to-market motion, are customers coming to you more with considering POC as AI-first requirements? Are they seeing POC as a partner for AI, other capabilities, and how is it influencing win rates in your sales cycle? A: Toby Williams (President and CEO) confirmed that AI is becoming a greater part of conversations with prospects. He highlighted two avenues: embedding agentic capabilities into existing workflows (like payroll and recruiting) to drive efficiency and reduce errors, and launching new AI-native product SKUs (like Grayscale and Adora) that can be directly monetized. Both approaches are driving results and influencing win rates. Q: As you're thinking about capital allocation and everything you'd have on your balance sheet, how do we think about the stock rate of your priorities if you're thinking about M&A versus organic investments versus buyback? A: Ryan Glenn (CFO) stated that the company is happy with fiscal '26 performance, which allowed for $400 million in buybacks and a 3% reduction in diluted share count. He noted that the company will continue to opportunistically repurchase stock in '27, with $1.3 billion remaining under authorization, while also investing for growth through acquisitions like Grayscale and Adora, funded with cash on hand. Q: When I take a look at the ARPU growth, I was wondering if you could comment to what extent is that being driven by some of your more established SKUs versus what you're seeing in terms of like air base and some of the newer products? A: Steve Beauchamp (Executive Chairman) explained that established products like recruiting, benefits, and time are bigger drivers of ARPU growth due to their scale. However, he expressed excitement about the robust new product roadmap, including Airbase, Elevate, and Retirement, which have high monetization potential and are expected to contribute significantly to future growth. Q: Can you talk about two other things? One, just what the retention rate was, and then in terms of looking at your guidance in terms of the margins, particularly taking into account the change in the amortization schedule? A: Ryan Glenn (CFO) confirmed revenue retention remained above 92% in fiscal '26. Regarding margins, he noted that fiscal '26 delivered 120 basis points of operating EBITDA leverage, exceeding initial guidance. For '27, the company is investing in AI (Ignite AI), new product launches, and integrating acquisitions (Grayscale and Adora), which are subscale and represent a slight margin headwind. He expects continued margin expansion on a multi-year basis, with top-line overperformance potentially flowing to the bottom line. Q: It seems like employment growth stabilized a bit during the quarter. I'm curious, what did you see within your own base as we think about the initial fiscal 2027 guidance? What are the employment assumptions based within that outlook? A: Ryan Glenn (CFO) stated that the company continues to see a very stable macro environment, with client workforce levels up in Q4 and year-over-year. Consistent with its guidance philosophy, the company is assuming flat workforce levels in fiscal '27, which would be a slight degradation from recent trends. Q: On the purpose-built agents automating pay and other administrative tasks within the Ignite platform, how are you thinking about the mechanism there? Could that be broader price increases or is that more so going to be maybe consumption-based pricing? A: Toby Williams (President and CEO) stated that the company is open to where the market goes from a pricing perspective. He emphasized a two-pronged approach: Ignite agents will make existing processes more efficient, creating differentiation and helping win business, while AI-native products like Grayscale and Adora will be directly monetized as premium offerings. The company will consider various pricing models, including per-user, PEPM, or utilization-based, based on the value delivered. Q: You have done the acquisition as well as launched new products, add-on modules. So when you look at the opportunity for fiscal '27 in terms of monetization, how do you rank out all these add-on products based on your discussion with your customers? A: Toby Williams (President and CEO) ranked the products based on launch timing: Elevate and Retirement are currently in market with good momentum, Grayscale is launching next, and Adora is being actively integrated. He noted that Ignite AI is rolling out to clients this month. He emphasized that the overall platform story is what creates differentiation and momentum. Q: I wanted to dig into Air Base cross-sell progress one year in. I guess, how would you characterize this 1st year in and, the 10 to 20% penetration within three to five years? Is that still a reasonable target based on what you saw this 1st year? A: Toby Williams (President and CEO) confirmed that the 10-20% penetration target within three to five years remains the path the company is on. He expressed satisfaction with the progress made over the first year since the acquisition and believes the company is well-positioned to achieve that target. Q: You did have a pretty notable uptick in PP&E purchases in 4Q here. What's the outlook here as we think to '27 in terms of CapEx and I guess more broadly free cash flow? For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Paylocity (PCTY) came out with quarterly earnings of $1.84 per share, beating the Zacks Consensus Estimate of $1.54 per share. This compares to earnings of $1.56 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of +19.48%. A quarter ago, it was expected that this provider of cloud-based payroll and human-resources software services would post earnings of $2.43 per share when it actually produced earnings of $2.89, delivering a surprise of +18.93%. Over the last four quarters, the company has surpassed consensus EPS estimates four times. Paylocity, which belongs to the Zacks Internet - Software industry, posted revenues of $444.73 million for the quarter ended June 2026, surpassing the Zacks Consensus Estimate by 3.18%. This compares to year-ago revenues of $400.74 million. The company has topped consensus revenue estimates four times over the last four quarters. The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call. Paylocity shares have lost about 8.4% since the beginning of the year versus the S&P 500's gain of 11%. While Paylocity has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock? There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately. Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions. Ahead of this earnings release, the estimate revisions trend for Paylocity was mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. It will be interesting to see how estimates for the coming quarters and the current fiscal year change in the days ahead. The current consensus EPS estimate is $1.83 on $435.41 million in revenues for the coming quarter and $8.57 on $1.89 billion in revenues for the current fiscal year. Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Internet - Software is currently in the bottom 40% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. One other stock from the same industry, VERRA MOBILITY CORP (VRRM), is yet to report results for the quarter ended June 2026. The results are expected to be released on August 5. This company is expected to post quarterly earnings of $0.33 per share in its upcoming report, which represents a year-over-year change of -2.9%. The consensus EPS estimate for the quarter has remained unchanged over the last 30 days. VERRA MOBILITY CORP's revenues are expected to be $253.62 million, up 7.5% from the year-ago quarter. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Paylocity Holding Corporation (PCTY) : Free Stock Analysis Report VERRA MOBILITY CORP (VRRM) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

HR and payroll software provider Paylocity (NASDAQ:PCTY) reported Q2 CY2026 results exceeding the market’s revenue expectations , with sales up 11% year on year to $444.7 million. Guidance for next quarter’s revenue was better than expected at $442 million at the midpoint, 0.7% above analysts’ estimates. Its non-GAAP profit of $1.84 per share was 14.2% above analysts’ consensus estimates. Is now the time to buy Paylocity? Find out in our full research report. Revenue: $444.7 million vs analyst estimates of $431.4 million (11% year-on-year growth, 3.1% beat) Adjusted EPS: $1.84 vs analyst estimates of $1.61 (14.2% beat) Adjusted EBITDA: $145.5 million vs analyst estimates of $131.5 million (32.7% margin, 10.7% beat) Revenue Guidance for Q3 CY2026 is $442 million at the midpoint, roughly in line with what analysts were expecting EBITDA guidance for the upcoming financial year 2027 is $695 million at the midpoint, above analyst estimates of $687.5 million Operating Margin: 19%, up from 16.5% in the same quarter last year Free Cash Flow Margin: 16%, down from 38.2% in the previous quarter Annual Recurring Revenue: $415.6 million (12.4% year-on-year growth) Market Capitalization: $7.48 billion Operating in a field where companies traditionally juggled multiple disconnected systems, Paylocity (NASDAQ:PCTY) provides cloud-based human capital management and payroll software solutions that help businesses manage their workforce and HR processes. A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Paylocity’s sales grew at a solid 22.7% compounded annual growth rate over the last five years. Its growth beat the average software company and shows its offerings resonate with customers. We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Paylocity’s recent performance shows its demand has slowed as its annualized revenue growth of 12.4% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. This quarter, Paylocity reported year-on-year revenue growth of 11%, and its $444.7 million of revenue exceeded Wall Street’s estimates by 3.1%. Company management is currently guiding for a 8.3% year-on-year increase in sales next quarter. Looking further ahead, sell-side analysts expect revenue to grow 6.7% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will face some demand challenges. ALSO WORTH WATCHING: Nvidia’s Quiet Partner. Nvidia’s chips cost a hundred grand. The connectors that make them work cost even more. One company makes them all. Every AI server needs specialized infrastructure the chip companies don’t make. High-speed cables. Power connectors. Thermal sensors. This 90-year-old company built a monopoly on it. The AI boom just started. This stock is still flying under the radar. Claim The Stock Ticker Here for FREE. While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable. Paylocity’s ARR came in at $415.6 million in Q2, and over the last four quarters, its growth was underwhelming as it averaged 12.2% year-on-year increases. This performance mirrored its total sales and suggests that increasing competition is causing challenges in securing longer-term commitments. The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability. Paylocity is very efficient at acquiring new customers, and its CAC payback period checked in at 27.5 months this quarter. The company’s rapid recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments. We were impressed by how significantly Paylocity blew past analysts’ adjusted operating income expectations this quarter. We were also glad its EBITDA guidance for next quarter exceeded Wall Street’s estimates. On the other hand, its revenue guidance for next year suggests a significant slowdown in demand and its full-year revenue guidance was in line with Wall Street’s estimates. Overall, this print was mixed but still had some key positives. The stock traded up 2.1% to $146.01 immediately following the results. Paylocity had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.

Q4 2026 Recurring & Other Revenue of $415.6 million, up 12.4% year-over-year Q4 2026 Total Revenue of $444.7 million, up 11.0% year-over-year FY 2026 Recurring & Other Revenue of $1.651 billion, up 12.2% year-over-year FY 2026 Total Revenue of $1.771 billion, up 11.0% year-over-year Continued growth in cash flows in FY 2026 - net cash provided by operating activities margin of 30.1% and free cash flow margin of 24.2% Repurchased $398.1 million or 2.8 million shares of common stock during FY 2026; $697.8 million or 4.6 million shares repurchased since May 2024 SCHAUMBURG, Ill., Aug. 04, 2026 (GLOBE NEWSWIRE) -- Paylocity Holding Corporation (Nasdaq: PCTY), a leading cloud-based provider of HCM, finance and IT software solutions, today announced financial results for the fourth quarter and fiscal 2026, which ended June 30, 2026. “Fiscal 26 was a strong year as our differentiated position in the market was reflected in solid sales and operational execution, helping to drive 12.2% recurring and other revenue growth and 11.0% total revenue growth. Our durable growth was driven by the continued expansion of average revenue per client and a roughly 7% increase in our client base – while also increasing profitability across our organization. As we continue to expand our product suite, a critical component of our strategy is driven by the launch of Ignite AI, which is designed to help accelerate productivity for HR, Finance, and IT teams across companies of all sizes and industries. Our approach to AI remains focused on driving value for our clients - Ignite AI is woven directly into core workflows to help clients complete tasks faster and surface insights more quickly. In Fiscal 26 we continued to expand our product suite with the acquisition of Grayscale, which expands our recruiting capabilities with AI-powered automation that helps employers engage with candidates earlier and faster, and the announcement of Paylocity Retirement, which helps employers reduce manual work and provide their employees easier access to their retirement savings. Additionally, we launched Elevate Solutions, which pairs our unified platform with dedicated payroll and HR teams who work directly with clients to lighten their administrative workload, allowing them to focus more time on strategic priorities. We also continue to return capital to shareholders by repurchasing $398.1 million or approximately 2.8 million shares of our stock in Fiscal 26. I would also like to thank all of our employees for their efforts supporting our clients, and congratulate our teams for another successful year,” said Toby Williams, President and Chief Executive Officer of Paylocity. Key Recent Achievements FY 2026 Recurring & other revenue of $1.651 billion, up 12.2% year-over-year. FY 2026 Total revenue of $1.771 billion, up 11.0% year-over-year. FY 2026 GAAP net income increased 18.8% to $269.7 million from $227.1 million in FY 2025 and $4.92 per diluted share from $4.02 in FY 2025, an increase of 22.4%. FY 2026 Adjusted EBITDA, a non-GAAP measure, increased 12.3% to $654.9 million from $583.0 million in FY 2025, or 37.0% of Total revenue compared to 36.5% in FY 2025. FY 2026 Adjusted EBITDA excluding interest income on funds held for clients, a non-GAAP measure, increased 16.4% to $534.9 million from $459.6 million in FY 2025, or 32.4% of Recurring and other revenue compared to 31.2% in FY 2025. Completed acquisition of Grayscale Labs, Inc. in April 2026 to expand AI-powered recruiting capabilities Fourth Quarter Fiscal 2026 Financial Highlights Revenue: Recurring & other revenue was $415.6 million, an increase of 12.4% from the fourth quarter of fiscal 2025. Total revenue was $444.7 million, an increase of 11.0% from the fourth quarter of fiscal 2025. Operating Income: GAAP operating income was $84.4 million and non-GAAP operating income was $120.2 million in the fourth quarter of fiscal 2026, compared to GAAP operating income of $66.2 million and non-GAAP operating income of $105.6 million in the fourth quarter of fiscal 2025. Net Income: GAAP net income was $60.3 million or $1.12 per share in the fourth quarter of fiscal 2026 based on 54.0 million diluted weighted average common shares outstanding, compared to $48.6 million or $0.86 per share in the fourth quarter of fiscal 2025 based on 56.3 million diluted weighted average common shares outstanding. Adjusted EBITDA: Adjusted EBITDA, a non-GAAP measure, was $145.5 million in the fourth quarter of fiscal 2026 compared to $130.7 million in the fourth quarter of fiscal 2025. Adjusted EBITDA excluding interest income on funds held for clients, a non-GAAP measure, was $116.4 million in the fourth quarter of fiscal 2026 compared to $99.9 million in the fourth quarter of fiscal 2025. Fiscal 2026 Financial Highlights Revenue: Recurring & other revenue was $1.651 billion, an increase of 12.2% from fiscal 2025. Total revenue was $1.771 billion, an increase of 11.0% from fiscal 2025. Operating Income: GAAP operating income was $386.0 million and non-GAAP operating income was $557.3 million in fiscal 2026, compared to GAAP operating income of $304.0 million and non-GAAP operating income of $484.4 million in fiscal 2025. Net Income: GAAP net income was $269.7 million or $4.92 per share for fiscal 2026, based on 54.8 million diluted weighted average common shares outstanding, compared to $227.1 million or $4.02 per share for fiscal 2025 based on 56.6 million diluted weighted average common shares outstanding. Adjusted EBITDA: Adjusted EBITDA, a non-GAAP measure, was $654.9 million for fiscal 2026 compared to $583.0 million for fiscal 2025. Adjusted EBITDA excluding interest income on funds held for clients, a non-GAAP measure, was $534.9 million for fiscal 2026 compared to $459.6 million for fiscal 2025. Balance Sheet and Cash Flow: Cash and cash equivalents totaled $271.9 million at the end of fiscal 2026. Long-term debt totaled $81.3 million as of the end of fiscal 2026, representing borrowings under our credit facility. This reflects approximately $81.3 million repaid on our outstanding balance during fiscal 2026. Net cash provided by operating activities for fiscal 2026 was $533.3 million or 30.1% of Total revenue compared to $418.2 million or 26.2% of Total revenue for fiscal 2025. Free cash flow, a non-GAAP measure, was $427.8 million or 24.2% of Total revenue for fiscal 2026 compared to $342.8 million or 21.5% of Total revenue for fiscal 2025. Free cash flow excluding interest income on funds held for clients, a non-GAAP measure, was $307.8 million or 18.6% of Recurring and other revenue for fiscal 2026 compared to $219.3 million or 14.9% of Recurring and other revenue for fiscal 2025. A reconciliation of GAAP to non-GAAP financial measures has been provided in this press release, including the accompanying tables. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.” Change in Deferred Contract Costs Benefit Period Beginning in fiscal 2027 we will amortize deferred contract costs over an 8-year useful life, an increase from our current 7-year convention. This prospective change is expected to increase fiscal 2027 Adjusted EBITDA margins by approximately 120–140 basis points, depending on business performance, and timing and volume of sales and client implementations, and is reflected in the guidance below. Business Outlook Based on information available as of August 4, 2026, Paylocity is issuing guidance for the first quarter and full fiscal 2027 as indicated below. First Quarter 2027: Recurring and other revenue is expected to be in the range of $414.0 million to $419.0 million, which represents approximately 10% growth over fiscal 2026 first quarter recurring and other revenue. Total revenue is expected to be in the range of $439.5 million to $444.5 million, which represents approximately 8% growth over fiscal 2026 first quarter total revenue. Adjusted EBITDA, a non-GAAP measure, is expected to be in the range of $152.0 million to $156.0 million. Adjusted EBITDA excluding interest income on funds held for clients, a non-GAAP measure, is expected to be in the range of $126.5 million to $130.5 million. Fiscal 2027: Recurring and other revenue is expected to be in the range of $1.777 billion to $1.792 billion, which represents approximately 8% growth over fiscal 2026 recurring and other revenue. Total revenue is expected to be in the range of $1.880 billion to $1.895 billion, which represents approximately 7% growth over fiscal 2026 total revenue. Adjusted EBITDA, a non-GAAP measure, is expected to be in the range of $690.0 million to $700.0 million. Adjusted EBITDA excluding interest income on funds held for clients, a non-GAAP measure, is expected to be in the range of $587.0 million to $597.0 million. We are unable to reconcile forward-looking non-GAAP financial measures included in our guidance to their directly comparable GAAP financial measures because the information which is needed to complete the reconciliations is unavailable at this time without unreasonable effort. Conference Call Details Paylocity will host a conference call to discuss its fourth quarter and full fiscal 2026 results today at 4:00 p.m. Central Time (5:00 p.m. Eastern Time). A live audio webcast of the conference call, together with detailed financial information, can be accessed through https://investors.paylocity.com/events-and-presentations where you will be provided with dial in details. A replay of the call will be available and archived via webcast at https://investors.paylocity.com/. About Paylocity Headquartered in Schaumburg, IL, Paylocity (NASDAQ: PCTY) is an award-winning provider of HCM, Finance, and IT software solutions. Paylocity offers one unified, easy-to-use platform that helps businesses across HR, Finance, and IT streamline operations, manage spend and talent, and build culture and connection-with AI embedded directly into everyday workflows to save time, reduce manual effort, and support better decisions. Known for its unique culture and consistently recognized as one of the best places to work, Paylocity accompanies its clients on the journey to create great workplaces and help all employees achieve their best. For more information, visit www.paylocity.com. Non-GAAP Financial Measures The company uses certain non-GAAP financial measures when reporting and discussing its financial results, including the financial measures in this release that are designated as being “non-GAAP.” Management presents certain non-GAAP financial measures in this release because it considers them to be important supplemental measures of performance, as they provide investors with the company’s view of its financial performance. Management uses non-GAAP financial measures for planning purposes, including analysis of the company's performance against prior periods, the preparation of operating budgets and to determine appropriate levels of operating and capital investments. Management believes that these non-GAAP financial measures provide additional insight for analysts and investors in evaluating the company's financial and operational performance, including comparisons of current results to prior periods’ results by excluding items the company does not believe reflect fundamental business performance and are not representative or indicative of its results of operations. Non-GAAP financial measures have limitations as an analytical tool and other companies may define their non-GAAP financial measures differently than we do. Investors are encouraged to review the reconciliation of the non-GAAP measures to their most directly comparable GAAP measures provided in the accompanying tables to this release, as well as the definitions of those non-GAAP measures following such tables. Safe Harbor/Forward Looking Statements This press release contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included herein regarding Paylocity’s future operations, future financial position and performance, anticipated results of operations, prospects, plans and objectives of management are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” “would,” “seek” and similar expressions (or the negative of these terms) are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include statements about management's estimates regarding future revenues and financial performance, and other statements about management’s beliefs, intentions or goals and are expressed in good faith and believed to be reasonable at the time such statements are made. Paylocity may not actually achieve the expectations disclosed in the forward-looking statements, and you should not place undue reliance on such statements. These forward-looking statements involve risks and uncertainties, many of which are beyond Paylocity’s control, that could cause actual results or events to differ materially from the expectations disclosed in the forward-looking statements. Factors that could cause actual results or events to differ materially from what is presented include, but are not limited to, the general economic conditions in regions in which Paylocity does business, changes in interest rates, business disruptions, reductions in employment and increases in business failures that have occurred or may occur in the future; Paylocity’s ability to leverage forms of artificial intelligence and machine learning in its technology, which may be constrained by current and future laws, regulations, interpretive positions or standards governing new and evolving technologies and ethical considerations that could restrict or impose burdensome and costly requirements on its ability to continue to leverage data in innovative ways; Paylocity’s ability to retain existing clients and to attract new clients to enter into subscriptions for its services; the challenges associated with a growing company’s ability to effectively service clients in a dynamic and competitive market; challenges associated with expanding and evolving a sales organization to effectively address new geographies and products and services; challenges related to cybersecurity threats and evolving cybersecurity regulations; Paylocity’s reliance on and ability to expand its referral network of third parties; difficulties associated with accurately forecasting revenue and appropriately planning expenses; challenges with managing growth effectively; risks related to acquisitions and investments in other businesses and technologies; risks related to regulatory, legislative and judicial uncertainty in Paylocity’s markets; Paylocity’s ability to protect and defend its intellectual property and its use of open source software in its products; the risk that Paylocity’s security measures are compromised or a threat actor gains unauthorized access to customer data; unexpected events in the market for Paylocity’s solutions; changes in the competitive environment in Paylocity’s industry and the markets in which it operates; adverse changes in general economic or market conditions; changes in the employment rates of Paylocity’s clients and the resultant impact on revenue; the possibility that Paylocity may be adversely affected by other economic, business, and/or competitive factors; and other risks and potential factors that could affect Paylocity’s business and financial results that are identified in Paylocity’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on August 6, 2025, as well as any revisions or supplements to the information in subsequent reports filed or furnished to the SEC. These forward-looking statements represent Paylocity’s expectations as of the date of this press release. Subsequent events may cause these expectations to change, and unless legally required, Paylocity disclaims any obligations to update or alter these forward-looking statements in the future, whether as a result of new information, future events or otherwise. Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises for each of the three and twelve months ended June 30 are included in the above line items: (1) Represents acquisition-related costs and severance cost adjustments related to certain roles that have been eliminated. We exclude one-off severance costs that we incur as part of the normal course of our business operations. (2) Represents acquisition and nonrecurring transaction-related costs and severance costs related to certain roles that have been eliminated. We exclude one-off severance costs that we incur as part of the normal course of our business operations. (3) Includes the income tax effect on non-GAAP net income adjustments related to stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, amortization of acquired intangibles and other items, which include acquisition and nonrecurring transaction-related costs and severance costs related to certain roles that have been eliminated. We exclude one-off severance costs that we incur as part of the normal course of our business operations. (4) Represents cash paid for acquisition and nonrecurring transaction-related costs and severance costs related to certain roles that have been eliminated. Definitions of our Non-GAAP Measures Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted EBITDA Excluding Interest Income on Funds Held for Clients, and Adjusted EBITDA Excluding Interest Income on Funds Held for Clients Margin Adjusted EBITDA is calculated as net income before interest expense, income tax expense, and depreciation and amortization expense, adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises and other items as described above in this release. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total revenues. Adjusted EBITDA excluding interest income on funds held for clients is calculated in the same manner as Adjusted EBITDA and is further adjusted to eliminate interest income on funds held for clients. Adjusted EBITDA excluding interest income on funds held for clients margin is Adjusted EBITDA excluding interest income on funds held for clients divided by recurring and other revenue. Adjusted Gross Profit and Adjusted Gross Profit Margin Adjusted gross profit is adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, the amortization of capitalized internal-use software costs and certain acquired intangibles and other items as described above in this release. Adjusted gross profit margin is calculated as adjusted gross profit as described in the preceding sentence divided by total revenues. Non-GAAP Operating Income, Non-GAAP Net Income, and Non-GAAP Income Per Share Non-GAAP operating income is adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, the amortization of acquired intangibles and other items as described above in this release. Non-GAAP net income and non-GAAP net income per share are adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, the amortization of acquired intangibles and other items as described above in this release, including the income tax effect on these items. Non-GAAP Sales and Marketing Expense, Non-GAAP Sales and Marketing Expense Margin, Non-GAAP Total Research and Development, Non-GAAP Total Research and Development Margin, Non-GAAP General and Administrative Expense, and Non-GAAP General and Administrative Expense Margin Non-GAAP sales and marketing expense is adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises and other items as described above in this release. Non-GAAP sales and marketing margin is calculated by dividing non-GAAP sales and marketing by total revenues. Non-GAAP total research and development is adjusted for capitalized internal-use software costs paid and to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises and other items as described above in this release. Non-GAAP total research and development margin is calculated by dividing non-GAAP total research and development by total revenues. Non-GAAP general and administrative expense is adjusted to eliminate stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, the amortization of certain acquired intangibles and other items as described above in this release. Non-GAAP general and administrative margin is calculated by dividing non-GAAP general and administrative expense by total revenues. Free Cash Flow, Free Cash Flow Margin, Free Cash Flow Excluding Interest on Funds Held for Clients, Free Cash Flow Excluding Interest on Funds Held for Clients Margin, Adjusted Free Cash Flow Excluding Interest on Funds Held for Clients and Adjusted Free Cash Flow Excluding Interest on Funds Held for Clients Margin Free cash flow is defined as net cash provided by operating activities less capitalized internal-use software costs and purchases of property and equipment. Free cash flow margin is calculated by dividing free cash flow by total revenues. Free cash flow excluding interest income on funds held for clients is defined in the same manner as free cash flow but also excludes interest income on funds held for clients. Free cash flow margin excluding interest income on funds held for clients is calculated by dividing free cash flow excluding interest income on funds held for clients by recurring and other revenue. Adjusted free cash flow excluding interest income on funds held for clients is defined in the same manner as free cash flow excluding interest income on funds held for clients plus cash paid for other items as described above in this release. Adjusted free cash flow margin excluding interest income on funds held for clients is calculated by dividing adjusted free cash flow excluding interest income on funds held for clients by recurring and other revenue.