Snapshot
Paylocity Holding Corp reported $401M of revenue in Q4 2025, up 12.2% year over year, with diluted EPS of $0.86 and an operating margin of 16.5%.
- Revenue
- $401M
- YoY growth
- +12.2%
- Diluted EPS
- $0.86
- Operating margin
- 16.5%
What management said
- •you for joining us on our fourth quarter and fiscal 2025 earnings call.
- •Our differentiated value proposition of providing the most modern platform in the industry continues to resonate in the marketplace and helped drive recurring revenue growth of 14% and total revenue growth of 12%.
- •In Q4 for fiscal 2025, recurring revenue growth grew 15% and total revenue grew 14% as we ended the year with $1.6 billion of revenue.
- •We believe Paylocity for Finance represents a significant multi-year opportunity for both new clients and a cross-sale back into our 41,650 existing client base, which grew 7% from fiscal 2024.
- •Our commitment to product development also continues to be recognized in the market, with Paylocity recently winning a TrustRadius Top Rated Award in HR management software for the third year in a row.
- •We are pleased to be fully staffed to begin fiscal 2026, and we continue to successfully attract the best sales talent in the industry, positioning us well for durable recurring revenue growth.
- •Revenue retention also remained consistent at greater than 92% in fiscal 2025, and we remain committed to investing in our operations teams to deliver world-class service to our clients.
- •Our strong culture, industry-leading software innovation, and exceptional sales and operational execution would not be possible without the dedication and commitment of our employees.
- •I would now like to pass the call to Ryan to review the financial results in greater detail and provide an initial outlook on fiscal 2026.
- •Recurring revenue for the fourth quarter was $369.9 million, an increase of 14% with total revenue up 12% from the same period last year.
- •Adjusted EBITDA for the fourth quarter was $130.7 million, or 32.6% margin, and exceeded the top end of our guidance by $8 million.
- •Adjusted EBITDA margin for fiscal 2025 was 31.2%, reflecting operating leverage of 120 basis points versus fiscal 2024 and approximately 220 basis points of organic operating leverage when excluding the impact of Airbase.
What went well
- •Q4 recurring revenue grew 15% and total revenue grew 14%, while full-year fiscal 2025 recurring revenue grew 14% and total revenue grew 12%, ending the year at $1.6 billion of revenue.
- •Q4 revenue came in $10.2 million above the top end of guidance and Q4 adjusted EBITDA of $130.7 million (32.6% margin) exceeded the top end of guidance by $8 million.
- •Average revenue per client reached just over $35,300 in fiscal 2025 versus $32,800 in fiscal 2024, an increase of approximately 8%, while the client base grew 7% to 41,650 clients.
- •The company launched Paylocity for Finance, extending its platform into the office of the CFO and completing the first phase of the Airbase integration.
- •Fiscal 2025 free cash flow margin reached 21.5%, with free cash flow expanding approximately 19% on a dollar basis and 50 basis points of margin expansion despite the shift to full cash taxpayer status, lower interest rates, and Airbase headwinds.
- •The benefit broker channel again represented more than 25% of new business in fiscal 2025, and revenue retention remained greater than 92%.
What went wrong
- •The company transitioned to full cash taxpayer status, a material headwind to free cash flow in fiscal 2025.
- •Lower interest rates and the Airbase acquisition were headwinds to free cash flow, and guidance assumes four 25 basis point rate cuts in fiscal 2026 that pressure interest income on funds held for clients.
- •Sales and marketing expense jumped quarter-over-quarter in Q4 due to year-end bonus timing, additional programs, and Q4 hiring as the company entered the year fully staffed.
- •Recurring revenue growth is expected to decelerate to approximately 9% for fiscal 2026 (about 8% to 8.5% implied for Q2 through Q4) as the inorganic Airbase benefit anniversaries after Q1.
Guidance changes
| Metric | Period | Previous | Current | Change |
|---|---|---|---|---|
| Recurring and other revenue | Q1 FY2026 | — | $370M–$375M (~12% growth) | New |
| Total revenue | Q1 FY2026 | — | $397.5M–$402.5M (~10% growth) | New |
| Adjusted EBITDA | Q1 FY2026 | — | $131M–$135M | New |
| Adjusted EBITDA excluding interest income on funds held for clients | Q1 FY2026 | — | $103.5M–$107.5M | New |
| Recurring and other revenue | FY2026 | — | $1.597B–$1.612B (~9% growth) | New |
| Total revenue | FY2026 | — | $1.707B–$1.722B (~8% growth) | New |
| Adjusted EBITDA | FY2026 | — | $608.5M–$618.5M | New |
| Adjusted EBITDA excluding interest income on funds held for clients | FY2026 | — | $498.5M–$508.5M (~20 bps leverage at midpoint) | New |
| Interest income on funds held for clients | Q1 FY2026 | — | ~$27.5M (avg daily balance ~$2.85B, ~390 bps yield) | New |
| Interest income on funds held for clients | FY2026 | — | ~$110M (avg daily balance $3.15B, ~350 bps yield) | New |
Performance breakdown
| Metric | YoY change | Reason |
|---|---|---|
| Recurring revenue | +14% (Q4); +15% on a Q4 basis | Strong sales execution plus durable demand, with the majority of the Q4 revenue beat coming from recurring and other revenue. |
| Total revenue | +12% (Q4) | Continued product differentiation and expansion of average revenue per client driven by sustained multi-year R&D investment. |
| Adjusted EBITDA (FY2025) | +15% on a dollar basis | Operating leverage of 120 basis points, or approximately 220 basis points of organic leverage excluding Airbase. |
| Average revenue per client | +8% (to ~$35,300) | Product suite expansion and continued cross-sale of HCM modules into the existing client base. |
| Client count | +7% (to 41,650) | Continued new client additions with a normalizing customer growth rate near pre-pandemic levels. |
| Free cash flow (FY2025) | +19% on a dollar basis; ~21.5% margin | Profitability gains despite full cash taxpayer status, lower interest rates, and Airbase headwinds. |
| Total R&D investment (expensed plus capitalized) | +14% on a dollar basis (14.3% of revenue) | Continued investment to maintain product differentiation as the most modern platform in the industry. |
Earnings call themes & trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Paylocity for Finance / Airbase integration | — | First integration phase completed and product launched into the office of the CFO; early adopter feedback positive but still very early days | rising |
| Product expansion driving ARPU | $32,800 ARPU in FY2024 | ARPU just over $35,300 in FY2025; modules targeted at 10%-20% penetration over time | rising |
| Broker channel strength | More than 25% of new business in prior years | Again more than 25% of new business in FY2025, with a non-competing value proposition | steady |
| AI capabilities | Policy answering assistant / chatbot referenced last quarter | AI increasingly raised by prospects and embedded across modules; still early innings for internal operations efficiency | rising |
| Demand environment | Some noise noted in the last week of April last quarter | Fairly steady and healthy demand environment through FY2025 and Q4, baked into FY2026 guidance | steady |
| Sales headcount and productivity | ~8% headcount growth coming into FY2025 | Sales force expanded 8% to 952 reps; fully staffed entering FY2026 with continued productivity focus | steady |
Q&A summary
How should we view the demand environment and customer growth, and is it baked into 2026 guidance?
Management saw a fairly stable demand environment across the year and in Q4, with relatively stable year-to-year unit growth and ARPU growth evenly distributed through 2025; strong go-to-market execution drove the revenue overage.
Why did sales and marketing expense jump quarter-over-quarter in Q4?
It was typical Q4 year-end timing, including movement of bonus payments, some additional programs pulled into year-end, and a fair amount of Q4 hiring to enter the year fully staffed; full-year spend was consistent with expectations.
Is the Airbase integration complete, and are you shifting sales resources to the back-to-base opportunity?
The first and most meaningful integration phase is complete with more to come roughly every quarter; the field sales team is being trained to refer opportunities to an inside sales team of experts who also pursue back-to-base opportunities.
What penetration, pricing, and client expectations do you have for Paylocity for Finance?
Early customer feedback is positive; management still targets the typical 10%-20% module penetration over time though it may take longer given the higher price point, with finance priced generally on a PEPM basis versus per-employee for other modules.
What is the expected shape of the recurring revenue deceleration into fiscal 2026?
Q1 carries the final quarter of the Airbase inorganic benefit; Q2 through Q4 imply roughly 8% to 8.5% recurring growth, and management took a prudent guidance approach with hopes to raise the number if execution stays strong, as it did in 2025.
Which Airbase features drive the most cross-sell interest, and what are the gross margin implications?
Expense management has the greatest adoption and is often the entry product, with full-suite purchases also occurring; the Airbase product does not have a materially different margin profile than the core business, and management expects to expand gross margin in both.