Paylocity Holding Corp Q1 FY2026 earnings

Paylocity opened fiscal 2026 with total revenue of $408.2 million in the first quarter, up 12.5% from $363.0 million a year earlier. Gross profit rose 12.8% to $279.8 million, and operating income climbed 15.7% to $74.2 million. Gross margin was 68.5%, up 0.2 percentage points, and operating margin reached 18.2%, up 0.5 percentage points. Revenue growth came mostly from incremental revenues from new and existing clients on the strength of the sales team. Net income did not follow the same path. GAAP net income was $48.0 million, down 3.2% from $49.6 million, and diluted EPS slipped to $0.86 from $0.88. Higher income tax expense and lower other income drove the decline. Non-GAAP operating income was $121.2 million, and Adjusted EBITDA was $146.4 million.

Operating cash flow was $86.5 million for the first quarter, down 5.5% from $91.5 million. Capital expenditures were $3.8 million, up 63.1% from $2.3 million. Free cash flow, a non-GAAP measure that subtracts capitalized internal-use software costs and property purchases, was $67.2 million, compared with $73.9 million a year earlier. The company repurchased $200 million of stock, or 1.2 million shares, in the quarter, and $500 million, or 3.0 million shares, since May 2024. Deferred revenue was $29.9 million, up 17.8% from $25.4 million. Remaining performance obligations were $153.3 million, up 81.0% from $84.7 million. Those obligations can swing with the timing of client contracts, and the company notes that most agreements are generally cancellable by the client on 60 days' notice or less.

The quarter's operational story centered on product expansion and AI. Management said the AI strategy continues to deliver predictive insights, generative AI functionality and autonomous agents across the platform. It also flagged an early positive response to Paylocity for Finance, which manages spend and key business workflows. Guidance covers both the next quarter and the full fiscal year. For the second quarter of fiscal 2026, recurring and other revenue is expected to grow approximately 10% over the prior-year second quarter, and total revenue approximately 8%. Full-year fiscal 2026 recurring and other revenue is guided to approximately 10% growth over fiscal 2025, with total revenue at approximately 8% growth. Adjusted EBITDA is guided to $131.5 million to $135.5 million for the second quarter and $615.0 million to $625.0 million for the full fiscal year. Adjusted EBITDA excluding interest income on funds held for clients is guided to $104.5 million to $108.5 million for the second quarter and $505.0 million to $515.0 million for the full fiscal year. Management is unable to reconcile the forward-looking non-GAAP measures to their comparable GAAP measures without unreasonable effort.

Alongside the results, Paylocity updated its long-term financial targets. Adjusted EBITDA is now targeted at 40% to 45% of total revenue. Free cash flow is targeted at 25% to 30%. Stock-based compensation is targeted at 5%. Adjusted gross profit is targeted at 80% or more. The company also aims for non-GAAP sales and marketing at 15% to 20% of revenue, non-GAAP general and administrative at 5% to 7%, and non-GAAP research and development at 10% to 15%. Those targets assume the company holds its growth rate while widening margins. Risks remain. The filing cites market and economic uncertainty, swings in client employee counts, elongated sales cycles, client losses, and a changing interest rate environment. It also lists risks tied to AI regulation, cybersecurity threats, acquisitions, third-party payroll partners in foreign jurisdictions, and regulatory uncertainty. The effective tax rate stayed elevated, and the company recorded a valuation allowance on certain state tax attributes tied to the One Big Beautiful Bill Act. Those items weighed on net income even as operating income grew.