Q4 2025 Paylocity Holding Corp Earnings Call
Good day and thank you for standing by, welcome to the Pelosi holding Corporation fourth quarter, 2025 fiscal year results conference. Call at this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session to ask a question during the session. You will need to press star 1, 1 on your telephone. You will then hear an automated message. Advising that your hand is raised to withdraw your question. Please press star 1 1 again, please be advised. That today's conference is being recorded, I would now like to hand the conference over to your speaker today, Ryan. Glenn Chief Financial Officer. Please go ahead.
Good afternoon and welcome to Pelosi's earnings results. Call for the fourth quarter and fiscal year, 25 which ended on June 30th 2025.
I'm Ryan Glenn Chief Financial Officer and joining me in the call. Today, are Steve Bosch executive chairman and Toby, Williams president and CEO of philosophy.
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 contain their in 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 of detailing. These results currently available in our press release, which is located on our website at pelosi.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 their directly comparable, gaap Financial measure because the information which is needed to complete a Reconciliation is unavailable at this time without unreasonable effort,
In regard to our upcoming conference schedule, we will be attending the KeyBank technology leadership forum and the stifel technology executive Summit.
Please let me know if you'd like to schedule a time with us at either of these events with that, let me turn the call over to Steve.
Thanks Ryan and thanks for all of you for joining us on our fourth quarter, in physical 25 earnings call.
Our differentiated value proposition of providing the most modern platform in the industry continues to resonate in the marketplace and help drive recurring revenue growth of 14% and total revenue growth of 12% in Q4.
For fiscal 25, recurring Revenue growth, grew 15% and total revenue grew 14% as we ended the year with 1.6 billion of Revenue.
Our sustained multi-year investment in R&D has resulted in continued product differentiation and a significant expansion of our product suite, which has helped drive durable, recurring revenue growth and continued expansion of our average revenue per client.
Most recently we announced the launch of Paylocity for finance, expanding our market-leading modern Workforce platform for HCM into the office of the CFO and bringing both finance and HR together through a unified system grounded in the employee record.
With the addition of airbase and our previously, launched headcount planning solution velocity for finance delivers, a comprehensive Suite of tools that connects day-to-day spend management with strategic workforce planning reflecting our vision to equip Leaders with modern AI, powered solutions, that bridge the gap between HR and Finance on our single unified platform.
going forward, our clients can now manage, both payroll and non-payroll spend in a single platform and eliminate disconnected systems, manual processes and approval bottlenecks
Product expansion has been a key part of philosophy's growth, algorithm for over a decade and we believe Paylocity for finance together with the continued expansion of our HCM portfolio will drive further growth over time. In our average revenue per client, which reached just over 35,300 in fiscal, 25 compared to 32800 in fiscal 24, an increase of approximately 8%.
Pay your opportunity for both new clients and across sale back into our 41650 existing client base which grew 7% from fiscal 24.
Our commitment to product development, also continues to be recognized in the market.
With Paylocity recently winning a trust radius top rated award in HR management software, for the third year in a row.
I would now like to pass the call to Toby to provide further color on the quarter.
Thanks Steve in Q4 and fiscal. 25 are differentiated position in the market was reflected in solid sales execution, and we have continued investing in our go to market functions, to carry this momentum into fiscal 26, across sales marketing and channel referrals.
Coming into fiscal. 26, we expanded our sales force by 8% to 952 sales reps and we'll be focused on continuing to drive productivity and efficiency across our teams.
Consistent with prior years. We are pleased to be fully staffed to begin fiscal 26. And we continue to successfully attract the best sales talent in the industry positioning as well for durable, recurring Revenue growth.
We also saw another strong year of Channel performance primarily from benefit brokers who, once again represented, more than 25% of new business in fiscal 25.
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 of our referring Brokers and their clients,
Revenue retention also remained consistent at greater than 92% in fiscal 25, and we remain committed to investing in our operations teams to deliver work class, service to our clients.
As Steve highlighted, we are excited about the opportunity with the recent launch of Paylocity for finance, which represents the natural evolution of our mission to simplify work through innovation. This empowers finance teams with AI-powered automated solutions, seamlessly integrated into the Paylocity platform, including headcount planning, expense management, AP automation, corporate cards, and guided procurement.
By unifying data and connecting critical workflows. We're delivering enhanced visibility improved efficiency and an exceptional user experience that drives increased value across HR and finance teams and their employees.
Employees will now be able to submit expense reports and spend requests in the same system. They already use for payroll time tracking and benefits. While managers will benefit from a single centralized task list for all approvals, whether for time off expenses or purchases,
This unified experience, minimizes friction accelerates Financial processes. Provides better controls and ultimately drives increased value from a single platform.
For example, in early, adopter has consistently struggled to manage approvals and spend requests across multiple disconnected systems leading to bottlenecks and delayed decisions, sometimes taking up to 45 days to complete a purchase.
After implementing Paylocity for finance, including AP Automation, and guided procurement the client was able to streamline their approval cycle by a limiting. Numerous manual steps and integrating seamlessly with their existing critical systems, driving greater efficiency and generating Time Savings for their Finance teams.
With features like invoice matching. They now have full confidence that incoming invoices aligned with pre-approved spend.
Thanks Toby, 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 as Toby noted, our sales team had another solid quarter and we were pleased to come in 10.2 million above the top end of our Revenue Guidance, with the majority of our Q4 Revenue, beat coming from recurring and other Revenue.
Adjustments. After the fourth quarter is 130.7 million.
Or 32.6% margin and exceeded the tap in of our guidance, by 8 million.
For fiscal 25 adjust Z. But I was 583 million or 36.5% margin and an increase of 15%. On a dollar basis. From fiscal 24, resulting in leverage of 50 basis points.
Perfecting operating leverage of 120 basis points versus fiscal 24, and approximately 220 basis points of organic operating leverage, when excluding the impact of Air Base.
Additionally, we continue to show strong growth on free cash flow with fiscal 25, free cash flow. Margin of 21.5% represented an increase of 12% on a dollar basis from fiscal 24 to spice facing material headwinds, as we transition to full cash taxpayer, status the impact of lower interest rates, and the headwinds, from The Airbase acquisition,
excluding the impact of interest income on client Health funds. We expanded free cash flow by approximately 19% in fiscal. 25 representing margin expansion of 50 basis points.
We continue to have confidence in our ability to further. Expand free cash flow on a go forward basis.
We continue to make significant Investments and research and development and 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 14.3% of Revenue in fiscal 25. And on a dollar basis, our year-over-year investment in total R&D increased by 14% when compared to fiscal 24.
We continue to believe our investments in R&D provide us with valuable product differentiation and the ability to drive future growth, as we deliver the most modern platform in the industry.
At a non-GAAP basis, sales and marketing expenses were 23.1% of revenue in the fourth quarter and 21% of revenue in fiscal 2025.
And on a non-GAAP basis, G&A costs were 9.7% of revenue in the fourth quarter, and on a full-year basis, G&A costs were 9.3% of revenue. We remain focused on continuing to drive leverage in our G&A expenses on an annual basis.
Briefly covering our Gap results for Q4 gross, profit was 271.9 Million. Operating income was 66.2 million. And net income was 48.6 Million.
For the full year, gross profit was $1.1 billion. Operating income was $304 million, and net income was $227.1 million.
In regard to funds held for clients and interest income. Our average daily balance of client funds was 3.1 billion in Q4 and 3 billion for fiscal 25.
We are estimating. The average daily balance will be approximately 2.85 billion in q1 of fiscal. 26 with an average annual yield of approximately 390 basis points, representing approximately 27.5 million of interest income in q1.
Out of 4 year basis. We're estimating, the average daily balance, will be 3.15 billion in fiscal 26. With an average yield of approximately 350, basis points, representing approximately 110 million of interest income.
In regard to interest rates, our guidance assumes 4, 25 basis point rate Cuts. During fiscal 26 with a cut in September December March and April reflected in our guidance.
Additionally, given the confidence, we have in our business and our strong cash flows. We repurchase approximately 315,000 shares of common stock at an average price of 178.21 cents per share for fixed 56 million, in aggregate repurchases during Q4.
In total for fiscal 2025. We repurchase a, approximately 800,000 shares of common stock added average. Price of $190.16 per share for roughly 150 million in aggregate repurchases.
In July our board increased, our share repurchase authorization by an additional 500 million.
In addition to the increased authorization, as of June 30th, we had approximately $200 million remaining under the existing repurchase program and anticipate continuing to execute against the repurchase program going forward.
In fiscal 25. We also drove 140 basis points of Leverage in stock-based comp expense and achieved our Target of less than 10% of Revenue at stock-based comp expense, was down year-over-year on a dollar basis for the second consecutive year.
in regards to the balance sheet, we ended the fiscal year with 398.1 million in cash, cash equivalents and investors, corporate cash and 162.5 million outstanding on our credit facility related to the airbase acquisition with approximately 81 million repaid, on our standing balance in Q4,
Finally, I'd like to provide our guidance for q1 and full fiscal year 26, which includes the impact of 100 basis point interest rate, cuts, and fiscal 26 and flat, Workforce levels and fiscal 26. Versus fiscal 25.
For the first quarter of fiscal, 26, recurring and other revenue is expected to be the range of 370 million to 375 million for approximately 12% growth. Over first quarter fiscal, 25, recurring in another Revenue.
And total revenue is expected to be in the range of 397.5 million to 4202.5 million for approximately 10% growth over. A first quarter fiscal, 25, total revenue.
Is expected to be in the range of 103.5 million to 107.5 million.
And for fiscal, 26 recurring and other revenue is expected to be in the range of 1.597 billion to 1.612 billion or approximately 9% growth. Over fiscal, 25 recurring in other Revenue.
Total revenue is expected to be in the range of 1.707 billion to 1.722 billion or approximately 8% growth over fiscal 25.
Adjusted ibida is expected to be the range of 608.5 million to 618.5 million.
And adjust Vida, excluding interest income on funds held for clients is expected to be in the range of 498.5 million to 58.5 million representing a proximately 20 basis points of Leverage at the midpoint.
In conclusion as we kick off fiscal 26, we remain confident in our differentiated value proposition. Go to market strategy, operational strength and product roadmap, and believe, our predictable, business model and execution durable, recurring Revenue growth and prudent approach to guidance sets us up for a strong fiscal 26,
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 for clients. 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 as we execute against our goal of surpassing
2 billion dollars in total revenue.
Operator. We're now ready for questions?
Certainly, as a reminder to ask a question, please press *11 on your phone and wait for your name to be announced to withdraw your question. Please press *11 again, and stand by while we compile our Q&A roster.
And our first question will be coming from Scott Berg of Neiman company. Your line is open Scott.
Hi everyone, really nice quarter and thanks for taking my questions here. Uh, a couple of them don't know who wants to, you know, take this between probably Stephen and and Toby. But how do we think about the, the demand environment right now? I kind of looked at your results and our food growth remained really strong in the year. Customer growth is normalizing towards that mainly uh pre-pandemic level maybe a little bit elevated from that. But a really consistent number right now is is this how we should view the the environment? You know, it's kind of baked in your guidance into 26. Are there any puts and takes with the ability to maybe you move, that customer acquisition, kind of number maybe up or down in the year.
Please stand by.
again, ladies and gentlemen, we do appreciate your patience, please stand by
And please stand by.
We do appreciate your patience, please stand by.
Operator, can you hear us now?
You are loud and clear. Our first question will come from Scott Berg? Your line is open Scott.
Hi everyone. I, uh, for some reason thought you didn't like my question and that was the end of the call. But we forgot— we could hear you; you couldn't hear us. So we can pick up from your question and jump to the answer if that's helpful. But that works great. Thanks.
Yeah, I appreciate the patience. Um and thanks for the question, Scott.
so,
Environment. I think we saw a fairly stable demand in environmental across the course of the year, and that's what we continue to see in Q4 as well.
25. And then the same thing with respect to rpu with rpu growth and and unit growth being uh fairly evenly distributed through the course of 25. And so, you know, ultimately with with all those things, um, you know, really happy with the execution from a go to market and from a sales team perspective throughout the course of 25, which is where, you know, I think you saw some of the overage come from.
Understood, thank you. And then, um,
Ryan. If I look at the financials, you know pretty much in line with my expectations from what we heard in the quarter but your sales and marketing expense had a kind of significant jump quarter over quarter, um you maybe kind of help us understand what the, what the difference there is. I don't know if it's bonus payments or some, you know, new investments in in some programs here going in this year, but any color that would be helpful. Thanks.
It's, it's your typical Q4 year, end timing, where you have a little bit of movement of bonus payments, and some additional programs that we may try to get into the end of the year. Obviously, as Toby mentioned, we came into the year fully staffed as well. So, you know, a fair amount of hiring in the fourth quarter as well. So it's really just timing within the year. I would say as we look at the sales and marketing spend over the course of 25 and head into 26. We we came in, you know, consistent with expectations.
Really nice quarter of things, uh, for taking my questions again, and sorry, if I scared you off. Thanks Scott. Thank you.
Thank you, and our next question will be coming from Daniel gesture of BMO. Capital markets, Daniel, your line is open.
Great. Thanks for taking my question. Uh, maybe we'll go with uh, Paylocity for finance. Uh, appreciate all all the contacts there, um, does this mean that the integration of Airbase is is basically complete or? Or is there more work to be done? Uh, on that part as part number 1 and the number 2 is uh are you shifting any more resource uh in your sales organization to attack sort of the back to the base opportunity? Here seems pretty large relative to maybe just adding another module or or or 2 on the HR side. Thank you.
Sure. I think as we had mentioned after we had made that acquisition that we would anticipate doing the integration in phases, we certainly put out the press release indicating. We've completed the first phase of that integration, which is certainly probably the most meaningful step. Um, however, we do view opportunities to continue to integrate that platform over time. Um, and and we're excited about that opportunity and getting user feedback and, and continue to look for The Leverage that we believe we can drive
From an employee record perspective, across HCM and finance. And so um, a product is in Market full, uh, I would say, you know, a fully integrated version with new opportunities, um, Coming. Um, and we'll probably see enhancements to that realistically. Every quarter is our goal. I think on the on the second point, with our go to market motion. Um, we are just in the process with that product just being released getting our field sales organization up to speed, um, and knowledgeable with the integrated product offering such that they can refer an inside sales team of experts to then be able to take those opportunities across the finish line. And we've also got that inside sales team of experts looking at back to the base, uh, opportunities and so that all that has just been launched, um, with the press release that you saw, um, from an integration perspective,
That's really helpful. Thank you. Uh, and maybe Ryan, uh, I know you don't guide the free cash flow, uh, but I'd appreciate it. Are there any puts and takes as we think about the free cash flow outlook for fiscal 26 obviously, float is going to change, maybe there's some R&D tax credits, we should consider. Um, but anything you'd share on that would be very helpful. Thank you.
Yeah, Dan, I think, you know, to, to your, to your point, as I said, in my prepared, remarks really pleased with where we've taken profitability as a whole, and and that includes both adjusted and free cash flow. I think we've expanded free cash flow margin by, you know, call 400 basis points just over the last 2 years and continue to have a lot of confidence that we'll be able to do so in, in 26 and on a go forward basis. I think probably the only note I would make uh, is you do have the, the likelyhood of some Tailwind relative to the new tax legislation. We're still working through what that impact would look like specifically. But, uh, a high likelihood, that, that will reduce our federal taxes in fiscal 26 and that will have a knock-on effect or a Tailwind to to free cash flow. So we'll be able to provide more details as we get more clarity. But that's probably the 1 item. I I would, I would note we're now full cash taxpayer, status outside of that new legislation and you know, have a lot of confidence that that free cash flow margin and I will continue to move forward in 26 and Beyond
Great, thank you very much.
And our next question.
Uh, good afternoon, great quarter, thanks for taking my questions. Um, so 2 questions 1, just on Paylocity for finance, can you tell us a little bit about? I know, it's extremely early but what, what sort of expectations are you kind of building in for that? And can you talk a little bit about, you know, the pricing? Um, the types of clients that would probably be the most likely to adopt. Sure. Um, the experience is of the the clients that you've you've talked to thus far. I remember during our conference. Um, Toby was very optimistic about how things were going there.
Yeah, so I think early on we are getting good feedback from customers. They see the value in the integrated platform, the ability to leverage the employee data that we have. So that it's easy to request, spend easy to put in rules around spend, uh, make sure that, that approval process happens, relatively quickly, all of that leads to a much faster, closed process on the back end. And so, I think the integration is getting us a really good feedback. We're also very pleased with the the Standalone product capabilities. Uh, you know, that we that we purchased and our ability to be able to continue to move those forward and enhance those based off client feedback. So I think that has gone, uh, pretty. Well as you mentioned, we are still early. We've, uh, setting up our first clients on the integrated offering kind of as we speak. And so we're
We're excited about that opportunity. Um but I think what I would say is 1 of the questions we get a lot of is how is that sales process going to translate from a decision maker? Uh, capability? That's another area that I would say. We're pretty happy with the CFO is definitely involved in a payroll and HR purchase, although sometimes they're not the primary decision maker, but we have certainly had opportunities either via referrals or back to base conversations to, to have pretty easy access into that conversation from a CFO perspective. Um, and they've got appreciation for with the integration offers as well as the opportunity to get, you know, a singular support structure as well. And so, um, early on good success. Um, I would say, I we, our expectations are that it takes a little bit longer than maybe an additional module from a sales process because it is a bigger purchase price as you mentioned. Um, so it might take us a little bit longer to get to the same, penetration rates as additional HCM modules, but we feel confident that our over 40,000 customers represent a great
Great opportunity to sell back into.
I mean, do you think, Steve, that we can still get to, you know, somewhere in the 15% to 25% penetration rate over time? And can you remind us of how your pricing, um, the solution, because obviously it's going to end up adding a lot more than the typical $1 to $2 per month? That's correct.
Um, so I think, um, over time we've always talked about modules, getting into that 10 to 20% penetration rate. Um, that would still be the goal with this. As I mentioned, it may take a little bit longer, however, the revenue per client is much higher and so it can certainly be more impactful than most of our HCM modules that we've launched. Um, it will also provide us additional capabilities from an expense management perspective. So we had an expense management solution embedded in our suite. I would call that a, you know, a more basic version. Um they have much more advanced capabilities and so I think that represents an opportunity that is priced generally on a PM basis. Um and the rest of the modules are really per employee per user.
Terrific. Thank you. Thank you.
And 1 moment for our next question, which will be coming from Terry Tillman of truist Securities? Your line is open. Terry.
Hi, this is Dominique Gullah on for Terry. Thanks for taking my question. So just looking at AI Innovations like the policy, answering assistant assistant that you all mentioned last quarter. Um are there any new AI join features or client adoption Trends you want to call out in the quarter and how those adoption rates or client feedback shaping, your view on AI as a differentiator now as you're heading into fiscal year 26,
Innovation— we've put into the platform so far, from our perspective, and we're excited about the roadmap. It looks like...
Got it. Thank you.
And our next question will be coming from Brian Peterson of Raymond James. Brian. Your line is open.
Thank you. Uh this is Jonathan with carry on for Brian this evening, just just 1 for me here. Um, so I wanted to ask when the thinking on m&a now that are bases is in the early stages of of being integrated and launched. I'm curious, how does that impact your your appetite from an A and are there some strategic product areas you point us to, um, that you find particularly interesting at the moment for from here. Thank you.
We are first of all.
Filled done, certainly in areas of strategic interest for us and to be able to get the the integration accomplished with the success that we have. And then the launch with uh just recently of Pelosi for finance. And so I think overall have been very happy with our ability over time. Not just to do that deal, but to do a few others that event, strategic to us that have really added to the products that and helped Drive our differentiation over time and drive more value to clients. So I think the strategy around m&a is has been fairly consistent and will continue to be in terms of being open to uh, areas that that where we can accelerate the road map through. Um, through m&a, I think the the focus
Our teams generally is to be able to continue to build out products that drive more value for clients and address key needs and when we can augment that from an m&a standpoint that with in areas that will accelerate the product road map. I think those are the things that are interesting to us. But I think it's a, it's a fairly High bar from the standpoint of really being focused on the ability to take any acquired product and integrate it. So tightly into the platform that you know, a user can't tell whether you built it or bought it so. And I think that's what we're doing with with Airbase, which is 1 of the reasons I think we're so excited about the experience that we're creating from from that, integrated product set.
Thank you.
Give me 1 moment for our next question. Our next question, will be coming from Jared Levine of TD Cohen? Your line is open.
Thank you in terms of your AI Investments for internal operations. What stage would you say you're at? Currently in any sense on how long until you can potentially be in a net benefit position from AI?
Thinq 1 of the things that we've called out in the past, is that there there is a tremendous amount of opportunity from AI across the business. And so whether that's in our operation, whether that's in our product development, team and building new features for our customers or really a lot of our, our teams that support, you know, individuals talking to clients or even in GNA. And so, um, I think we're still in the relatively early Innings. Um, I also think this happens gradually over time and so we look at this as an opportunity to continue invest in that category, that becomes 1 of the way.
Is that we can drive both a better client experience, but also margin enhancements over time. And so as we continue to identify use cases, make investments and realize the benefits from it. That becomes part of our, our long-term model. And the way that we think about uh, driving efficiency in the business,
Got it. And then right in terms of retention Direction, can you give us some color on it? That was up or down here for?
Yeah, nothing. I, I'd particularly noticed, I think it is. We said that prepared remarks at 92% plus, again, in fiscal 25. So really pleased with with those results. And you know, I think when you, when you look at the results, we put up on recurring Revenue in fiscal 25, obviously uh, strong execution, from a sales standpoint, but really strong execution from an operational standpoint. And I think that goes both to our implementation teams as well as our service team. So really pleased with where we are from for retention. Uh, always a key, focal point for us, but outside of that, nothing, I would call out, uh, that would have materially changed in, in 25.
Great. Thank you.
And our next question.
Will be coming from Patrick while Raven of Citizens Bank. Patrick, your line is open.
Hi team. Thanks for taking my question. This is King. Kate on for Pat? I just had 2 questions about incentives. Um, first off, if I'm a Paylocity sales rep, what am I making the most money selling and number 2 with the launch of Paylocity for finance? Is there going to be a shift in those incentives? Thanks.
From some of the airbase, uh, modules I can, um, refer them. I over to an expert. We can do that all, as part of 1 sales process, we could actually, you know, go back to them. After they've already started or start them first from a finance perspective and so the incentives are absolutely there. Um, and as, as we mentioned earlier, it's fairly robust from an annual, recurring Revenue, um, which creates even a higher incentive for our field sales, force of over 900 people to be able to refer our team of experts in
Spectacular. Thanks so much, guys.
And our next question will be coming from raymo Lynch child of Barkley's. Your line is open.
Hey perfect. Thank you. Um the quick question on that um, on Philosophy for finance as well.
No. You can have like a a joint offering. How does it change the competitive uh, you know, selling motion that you have there and does it change your competitive field? Does it increase to win rate? What are the early experiences then? Thank you.
For sure. Um, but I think part of
There's incremental value that we're delivering to clients from the ability to have a finance solution on the same platform, and that's a different strategy that I think you see with the vast majority of our competitors in the HCM space. So, we definitely view it as a point of differentiation. And, you know, I think to Steve's earlier comments, yes, we're very early, but I think we're really pleased with what we've been able to do in terms of the.
Integration of the airbase uh products and solutions into a single platform that is that a real value that that is significant value prop for clients. Both new clients coming onto our platform and back into the client base. So you know I think we're, we're optimistic early days but optimistic, with the traction, we'll be able to get with that value prop.
And and does it kind of uh bring you into certain verticals because like Finance is obviously not uh Finance in every single vertical, is there? Something that kind of then kind of gets you into uh some other vertical. Thank you.
Verticals the same way that we do with the payroll and HCM parts of our suite. So um, you know, I think part of the attraction was, this was a another
Horizontally interesting area that we think we can also take into different verticals the same way that we have Paylocity for, you know, payroll in in in HDM. So I think it's a great fit for the platform and I think the, you know, going going back to these comments early days. But I think the, the early traction that we're seeing
Is positive. I think we're pretty excited about it.
Perfect, thank you. Congrats
And one moment for our next question.
Our next question will be coming from City Pangri of Mizo. Your line is open.
Thank you. Uh, I just want to ask about the air base. It's been uh, you know, more than a year wondering, what kind of feedback you have got from customer at least those customers who are using velocity customer using air base, what sort of Revenue uplift you are seeing and in 1 Clarion of sales, rep growth. 8% is this, uh, mostly the velocity sales of the combined 1.
Sure. On, on the first part, it's been 10 months since we made the acquisition and, you know, we're just now, uh, in the last couple of weeks launching pay lasting for finance. And so we're really just now at a point where we have the airbase products, integrated into the Paylocity platform. So I, I think we're really at the point now where we can, uh, be, I think more focused and more aggressive from a sales team, and from a go to market standpoint. Now that we really have, I think, a key part of the part of the value prop, we're able to deliver against the key part of the value prop. In terms of the, the whole set of Solutions on a single platform which is I think really important to clients and Prospects. So um, we're we're in the early days but I think the feedback so far from from a just product perspective has been very strong. That was part of our attraction to the airbase business was the strength of the products that it's been. Well regarded in, in things, like,
2. So, I think, you know, our view was, we could take a really strong product to create significant integration on a single platform and bring that to Market. And that, that would be valuable to clients. And I think that's what we're seeing albeit in the early days of launch.
I think your question on headcount growth that is total headcount growth across all of our sales for all of our sales forces, including Airbase, which as you know, when we bought that was relatively small, we're excited about the opportunity in front of us, but, um, the, the bulk of those additions are really in our, our HCM sales force.
Thank you.
And our next question will be coming from Alex zugan of wolf research. Your line is open, Alex.
Hey guys, thanks for taking the question, I guess maybe on sticking with the theme of Air Base. Um any features that you're seeing Drive the most kind of interest and intense cross sell conversations, is it headcount planning expense Management corporate card and maybe just comment on the gross margin um, Tailwind potentially uh, around kind of as the mix evolves with those deals relative to the core. Then I've got a follow, yeah.
Cases, um, that ends up being the entry product although we absolutely see full Suite purchases. Um, because once you have all your employees using that, um, and making approvals, you can then really take advantage of that. Utilization on that single platform to drive, you'd spend management more complex rules, all the reporting on the back end and ultimately, if you use all of their products, um, you know, we've got all the data that they spend both on people as well as on their business uh items. And so there's analytics on the back end that that are valuable to the customers and so but if I had to call 1 out, I think it's that's probably the expense Management in terms of the the most penetrated module they offer
Try any comments?
Yeah. Yeah, I guess Alex is to the, the other part of your question. On, on Gross margins, I wouldn't say that the the airbase product has materially different margin profiles than than the core Paylocity business. Um, you know, I think we will going forward as we did in 25 look to expand gross margin both with an air bases as well as the core product set and we have confidence that we'll be able to do so while still investing in in the air base opportunity.
Perfect. And then maybe just dimensionalized potential contribution for fiscal 26. I, I know, I think last time you guys talked about Revenue contribution, it was, you know, on the order of maybe 1% for fiscal 25, is it fair to assume something similar for fiscal 26, or could it be a little bit above that?
faster than
business. So that that probably becomes a higher percentage over time. Although it is, it is still a very well, very small portion. So I wouldn't, I wouldn't sort of overstate that but, you know, I think that business continues to grow at a healthy rate and we'll continue to increase in 26.
Okay, thank you guys. Congrats on a great quarter.
Thank you.
And now, our next question.
Will come from Jason selino of keybanc. Capital markets. Your line is open, Json.
Great thanks. Just a couple questions for Ryan, if that's okay. Um, looking at the recurring Revenue guide for this year, um I know q1 still has some inorganic benefit, but how should we think about the shape of the rest of the, you know, the Del heading into 2026? Uh, thanks.
Sure. Yeah, I think to to your point q1 is the is the fourth quarter of of the of the air base impact. And, you know, I think you see a little bit of that in the guide. And I think you also see the, you know, strong momentum, we had to, to end Cisco 25. If you look at what's implied for Q2 to Q4, I think it's sort of 8 8 to roughly 8 and a half percent recurring. And I think, you know, as I said in the prepared, remarks got an approach guidance approach will likely be similar in in fiscal 26. Which is to say if we continue to see strong execution, we obviously have closer and better visibility than the near-term quarter. And and that's typically where you see, probably slightly higher uh, Revenue growth and and guidance and then you know, a level of prudence as you think about probably the the back half.
Year. But feel good about the momentum. Feel good about the q1 and, and full your guide. And, you know, I think if we continue to execute well, hope to be able to take that number up. Uh, as we go throughout 26, very similar to what we did in 25.
Okay great and then just following up with Dan's very first question on the obba potential benefit. Um, I know there's a difference between um, you know, R&D expensing in the US and international. But for you, the majority of your, your R&D operations are in the US, correct. The majority are yes, we would have a small portion that would that would be foreign related but the majority are going to be us. That's correct.
Okay, thank you.
Thank you. And our next question will be coming from Jacob Roberts of William Blair. Jacob, your line is open.
Yeah. Thanks for taking the questions and and congrats on the solid results. Um, you, you reference continued strength in in the broker Channel. I know it's still fairly early days but have you started to see any incremental changes in that channel following uh just the recent m&a in the space or have things been fairly consistent with what you've seen in Prior years.
25% plus of new business referred from, from that channel is, I I think a testament to the effort there. Um, and I think it's also a testament to the value prop that we've been able to provide Brokers over a long period of time. And, um, you know, I think that continued clearly through the course of of 25. And I and I think what what I'd say is, you know, our message, I think, has resonated in the market. I think it continues to I think that continued through the course of 25 and um, you know, and and into Q4 and so, you know, I think that continues to be strong for us and you know, I see I I certainly think to your question our value prop that that we have always stood behind including that competing with with Brokers from a comp from a market standpoint is is a really important point that we've certainly leaned on and and I think has continued to resonate so feel good about where we finished in 25 with respect to broker relationships and the broker Channel I think we're teed up for continued momentum.
Okay, that's helpful. And then just wanted to follow up on the demand environment. I know last quarter you called out a little bit of noise in the last week of April. Did that noise continue throughout the quarter, or was it just a week or two blip? And then Ryan, helpful commentary on your headcount and rate cut expectations and the guide, but just any sense of what you're assuming for the health of broader HR budgets when compared to prior years?
Yeah. I mean I I think maybe going back to my earlier comments on the demand environment overall. I mean I think we we if you look back at fiscal 25 in its entirety, I think what we would say is that we saw a fairly steady and healthy demand environment and I think that's what we continue to see in Q4. Um, and I think that's, that's
That's what sits underneath our, our guide, as we've come into Q4 developed a guide and we, as we looked across 26, um, I think we're, we're making a similar assumption relative to the demand environment and I think, you know, our sales and go to market, team did a great job of executing throughout the course of 25. And
I think that's
about us to produce the results that we've
Yeah, I would just add, I think we feel really good about the initial guide. We took a similar approach as we did in fiscal 2025, so we're comfortable with all assumptions across each of the variables, whether that is HR budgets, workforce levels, you know, obviously interest rate impact as well, and feel good about where we are from a guidance standpoint. And then Toby's point, I think we feel really good about the momentum we have exiting 2025 to 2026.
Great. Thanks for taking the questions.
Yeah.
And our next question will come from George kiraz. Sawa of City, your line is open George.
Great, I'm on for Steve Anders, thanks for taking the questions here, uh, just on that that point about hiring activity. Headcount hiring for FY, 26 and and maybe the flip side of that productivity, you know, I I understand FY 25. You guys were quite focused on go to market productivity and you talk about what seems to have been working there and how you're thinking about uh, you know, improving that metric into FY. 26.
Yeah, I mean, I think coming into fiscal 25, we we increased our, our sales head count by, uh, right around 8% and, you know, the goal coming into 25, was to be able to continue to drive productivity. And, you know, I think that's what we saw throughout the course of of the year, a quarter to quarter, and then looking back on the full fiscal year. Um, I think we, you know, continue to have
Access to the best.
In the industry from a go to market from a sales perspective and that's always been the goal to be. I think the the destination in the industry for the best talent, I think that continues to be the case and I think we're really fortunate. We were able to come into fiscal, 26, fully staffed again with right around 8% headcount. Uh,
Growth again, this year coming into the 26th and I think, you know, looking looking out across the year, I think the the goal and the focus will be the exactly the same as it was in 25 to be able to take that 8% headcount lift and to be able to continue to drive productivity and you know, I think that's exactly what you saw us be able to do throughout the course of 25. So I think, you know, pretty happy overall with setup that we think we have for 26.
Okay, great. And then just 1 on on Paylocity, for finance, it sounds like you've alluded to it being a bit of a bigger purchase decision. Maybe if you could talk about what you've seen or what you expect in terms of trigger points for, uh, for adoption. What what causes someone to uh, to purchase?
Conversation and then it's about, you know, differentiating versus other competitive offerings that they can have. And, um, so overall I I think it really starts with the integrated platform is the point. I'm really trying to make and the value that, um, it is from a service and implementation and how easy all that really is to use? And then we've got the finance capabilities that they're looking for with a very rich product in the, in the airbase capabilities and so, um, but it, as I said, it's probably not going to scale quite as fast as, as simply an HCM add-on because it's a higher price point. It's probably a bigger commitment from an organizational implementation. Um, but early signs, uh, we feel really good about that. We feel good about the referrals that we've gotten back to the client base, um, as well as, as new prospects. And, um, you know, we were only a few weeks in as Toby mentioned into the lot. So, um, we're going to keep making this better over time and take advantage of the opportunity.
Great. Thanks for taking the questions.
And our next question.
Will be coming from Zachary gun of Ft Partners. Your line is open.
Hey there, just one from me. Thanks for taking my question. Uh, yeah, at the other companies that have looked to build out their accounts payable products, there's always a lot of focus on the supplier side of the network as much as the customer side. Companies like Bill have also pushed up market; they've stressed the need for building these supplier sides of the network. So, can you just talk a little bit about that?
The airbase and, with the finance products, how you're addressing the kind of supplier and customer sides of the network.
Um and then that we do provide capabilities for so you know, certainly managing the who the supplier is there's a poo process that maybe a larger organization might have to be able to make sure that you know that purchase is approved that supplier obviously making those payments on the back end. I think the the greater the payment volume that you've got um then the greater opportunity is to have that broad supplier Network and so we certainly will see that I think opportunity become more interesting as we scale this solution over time and we drive volume through the platform. If you look at um you know, the average customer size being you know, roughly similar to ours around 150 employees, you probably in general are not necessarily highly sophisticated in terms of that supplier network. But, um, it's an area that we're investing in and that we feel as we scale and drive volume to will create incremental opportunity.
Helpful. Thank you.
And I show no further questions at this time. I would now like to turn the call back to management for closing remarks.
All of our employees for a strong fiscal 2025. Thanks, and have a good night.
And this concludes today's conference call. Thank you for participating. You may now disconnect.