Q1 2026 Paylocity Holding Corp Earnings Call

November 4, 2025

Call 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 one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again, please be advised that today's.

Operator: 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 one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one 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.

Ryan Glenn: The only thing I'd add is I think there's all of the above elements to your question in terms of continuing to drive the unit growth consistently that we haven't been able to drive, and also increasing the overall ARPU on a go-forward basis. I think part of what Steve said is what gives us the opportunity to do that on the ARPU element. I think as we look at 2026 in particular, we're taking, again, same as we did last year, a pretty balanced view of the ability to continue to drive new client acquisition, drive unit growth, while also expanding the ARPU, which has been, I think, a key part of the growth algorithm for years. I think we see that same opportunity as we look forward to that $3 billion mark.

Speaker #2: Good day and thank you for standing by . Welcome to the Paylocity holding Corporation . First quarter 2026 Fiscal results conference call . At this time , all participants are in a listen only mode .

<unk> 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.

Speaker #2: After the speakers presentation , there will be a question and answer session . To ask a question during the session , you will need to press star one on your telephone .

Good afternoon, and welcome to pay lots of these earnings results call for the first quarter of fiscal 2006, which ended on September 32025.

Speaker #2: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again.

Ryan Glenn: Good afternoon, welcome to Paylocity's earnings results call for Q1 of fiscal 2026, which ended on 30 September 2025. 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. During the call, we will use certain non-GAAP financial measures as defined in Regulation G. You can find the related reconciliations to GAAP in our press release, which is located on our website at paylocity.com under the Investor Relations tab. We will also make forward-looking statements. Actual events or results could differ materially from those projected in our forward-looking statements.

Speaker #2: 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.

And Glenn Chief Financial Officer, and joining me on the call today are Steve Beauchamp Executive Chairman and Toby Williams, President and CEO of philosophy.

[Analyst] (Truist): Yeah, that's great. It's really helpful. Maybe just as a follow-up, as you continue to take Paylocity for Finance to market, how are you kind of thinking about the pricing? Are you kind of thinking about this more testing on a standalone versus bundle approach, or what do you guess, what, I guess, are you learning about the willingness to pay from the early adoption of clients? Thank you, guys.

Well, 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. During the call. We will use certain non-GAAP financial measures as defined in regulation G. You can find the related reconciliations to GAAP in our press release, which is located on our website.

Speaker #3: Good afternoon , and welcome to Paylocity . S earnings results call for the first quarter of fiscal 26 , which ended on September 30th , 2025 .

Speaker #3: I'm Ryan Glenn chief Financial Officer and joining me on the call today are Steven Beauchamp executive chairman and Toby Williams president and CEO of Paylocity .

Ryan Glenn: Most of the way that we price across the suite really ends up being on a bundled basis, and that's not anything new for us. That's a consistent approach that we have taken with whether it's things in the office of the CFO from a finance and spend management perspective or from an IT perspective. Pretty consistent strategies we have looked to extend into those areas, and the bundled approach that we've taken, whether that's from a new client perspective or otherwise.

At <unk> Dot com under the Investor Relations tab, we will also make forward looking statements actual events or results could differ materially from those projected or forward looking statements.

Speaker #3: Today , we'll be discussing the results announced in our press release issued after the market closed . The webcast replay of this call will be available for the next 45 days on our website under the Investor Relations tab .

Speaker #3: During the call , we will use certain non-GAAP financial measures as defined in regulation G . You can find the related reconciliations to GAAP in our press release , which is located on our website at Paylocity .

Please refer to our press release and SEC filings, including our most recent 10-K, which contains important factors that could cause actual results to differ materially from the forward looking statements. We do not undertake any duty to update any forward looking statements.

Ryan Glenn: Please refer to our press release and SEC filings, including our most recent 10-K, which contains important factors that could cause actual results to differ materially from the forward-looking statements. We do not undertake any duty to update any forward-looking statements. In regard to our upcoming conference schedule, we will be attending the annual Needham Tech Week, the Callan Virtual Human Capital Management Summit, the Barclays Global Tech Conference, the Raymond James Tech Conference, and the Needham Growth Conference. Please let me know if you'd like to schedule time with us at any of these events. With that, let me turn the call over to Steve.

Speaker #3: Under the Investor Relations tab . We will also make forward looking statements . Actual events or results could differ materially from those projected in our forward looking statements .

Steve Beauchamp: I think the only thing I would add is we have the flexibility with some of these newer product offerings. If we think that a per-user model is more attractive to the market, we can easily pivot to that. To Toby's point, we kind of sell it as a bundle, and here's what your whole overall annual spend would be. Here's the ROI you're going to get on that investment. No real change in the sales motion, but we definitely see some of our products being priced on a per-user basis, obviously a higher price point, lower number of users, whereas the HCM products are largely on a per-employee basis.

In regard to upcoming conference schedule, we will be attending the annual Needham Tech week, the Cowen virtual human capital Management Summit, the Barclays Global Tech Conference Raymond James Tech Conference and the Needham growth Conference. Please let me know if you'd like to schedule time with us at any of these events with that let me turn the call over to Steve.

Speaker #3: Please refer to our press release and SEC filings , including our most recent 10-K , which contains important factors that could cause actual results to differ materially from the forward looking statements .

Speaker #3: We do not undertake any duty to update any forward looking statements in regard to our upcoming conference schedule . We will be attending the annual Needham Tech Week .

Thank you Ryan and thanks to all of you for joining us on our first quarter fiscal 'twenty six earnings call. We started off fiscal 'twenty six with strong financial results with Q1 recurring and other revenue growth of 14% as our differentiated value proposition of providing the most modern software in the industry continues to see success in the marketplace total revenue was four <unk>.

Steve Beauchamp: Thank you, Ryan, and thanks to all of you for joining us on our Q1 fiscal 2026 Earnings Call. We started off fiscal 2026 with strong financial results, with Q1 recurring and other revenue growth of 14% as our differentiated value proposition of providing the most modern software in the industry continues to see success in the marketplace. Total revenue was $408.2 million or 12% growth over Q1 of last year. Our growth continues to be led by our ongoing commitment to driving innovation and providing the most modern AI-driven platform for business, highlighted by the recent launch of Paylocity for Finance, which expanded our market-leading workforce platform for HCM into the office of the CFO, which we have further expanded across IT.

Ryan Glenn: I think the interesting thing about what we've seen so far as we've gone to market, still in the early days, is the fact that there is a willingness to pay based on the value that's being delivered. I think that's certainly a part of the traction that we've seen. Clients and prospects are finding value in it, they're willing to invest in it. That has not been a challenge from a value perceived and price perspective.

$8 2 million or 12% growth over Q1 of last year.

Our growth continues to be led by our ongoing commitment to driving innovation and providing the most modern AI driven platform for business highlighted by the recent launch of Pelosity for finance, which expanded our market leading workforce platform for HCM into the opposite the CFO, which we have further expanded across it we're.

Operator: Thank you. Our next question comes from Siti Panigrahi of Mizuho. Your line is open.

We're very pleased with the early response from both existing clients and prospects to the value proposition of managing all spend in key business workflows in a single AI driven platform across critical company functions HR finance and it all driven by employee data, which contributed to our strong results in the quarter and the increased confidence.

Steve Beauchamp: We are very pleased with the early response from both existing clients and prospects to the value proposition of managing all spend and key business workflows in a single AI-driven platform across critical company functions: HR, finance, and IT, all driven by employee data, which contributed to our strong results in the quarter and the increased confidence reflected in our updated fiscal 26 guidance. Our AI strategy is also setting us apart in the market and contributing to our strong financial results and increased guidance as we expand and deepen AI capabilities throughout our platform to deliver the next level of business impact and user experience. For example, at HR Tech in September, we announced the next generation of our AI assistant, which now turns everyday questions into instant action by providing users the answer, data, or the workflow needed across both desktop and mobile.

Siti Panigrahi: Thank you. Thanks for taking my question. I just want to drill into the comment, strong demand environment. Can you talk about the demand you are seeing in a different employee segment? Specifically, now that your platform, you offer finance, HR, and IT, what kind of feedback you are hearing from different employee segment-based about the value you offer versus your competitors?

Reflected in our updated fiscal 'twenty guidance.

Our AI strategy is also setting us apart in the market and contributing to our strong financial results and increased guidance as we expand and deepen AI capabilities throughout our platform to deliver the next level of business impact and user experience. For example at HR Tech in September we announced the next generation of our AI assistant, which now turns every.

Ryan Glenn: Yeah. I think through the course of Q1, we've seen a very stable demand environment. I think really pleased with the results overall in Q1. I think that's part of what's reflected in that is the strength of the execution in our go-to-market teams. That was really well balanced across the entirety of the target market that we're focused on. I wouldn't call out any specific difference, whether it's in HCM or the finance area, in any segment that we have. I think it's pretty broad-based, and I think the demand environment was stable throughout the course of the quarter. I think our teams did a really good job from an execution perspective and go-to-market across the segments that we're in.

Hey questions into instant action by providing users the answer data or the workflow needed across both desktop and mobile with our AI assistant users can now ask how many vacation days do I have left this year and immediately see there up to the minute vacation balance with a direct link to submit a new request or a manager May say show me.

Steve Beauchamp: With our AI Assistant, users can now ask, "How many vacation days do I have left this year?" Immediately see their up-to-the-minute vacation balance with a direct link to submit a new request. A manager may say, "Show me open headcount for my department," and the AI Assistant will show real-time openings for their specific teams or department and provide direct links for planning new hires, backfills, or role transfers. We believe these enhancements will help to further increase the value proposition of our platform and is beginning to drive wider product adoption across our client base by enabling an even more simplified user experience with direct access to answers and actions. To this point, in the past year, usage of our AI-powered features has more than doubled, including over 1.2 million questions answered by our AI Assistant.

Open head count from my Department, and the AI Assistant will show real time openings for their specific teams or department and provide direct links for planning new hires backfill or rural transfers. We believe these enhancements will help to further increase the value proposition of our platform and is beginning to drive wider product adoption across our client base by enabling an even.

Siti Panigrahi: Okay. As you talk about efficiency gain from all the AI uses in engineering, sales, marketing, and operation, it's early stage at this point, but as you gain efficiency, are you planning to invest back that more into your go-to-market and sales to drive growth, or are you going to offer more efficient margin?

More simplified user experience with direct access to answers and actions to this point in the past year usage of our AI powered features has more than doubled including over $1 2 million questions answered by our AI assistant.

Steve Beauchamp: Yeah. I think we've had a pretty consistent approach of driving margin expansion across most of the line items. We also see a big opportunity to continue investing in products so that we can fuel that growth. You can see R&D spend was up nicely, while at the same time, we were able to get margin across the board everywhere else, more than make up for that. We're always making that balance of decisions. We're confident in the long-term prospects of the business. We think there's great opportunities to continue to invest in R&D, while at the same time getting leverage in all the other parts of the business. I think you see that kind of reflected in the long-term guidance, the new long-term guidance that we just launched today.

Our innovation also continues to be recognized by third parties as Pelosity was recently named as an overall leader across 10, HCM product categories and the latest G to fall 2025 grid reports.

Steve Beauchamp: Our innovation also continues to be recognized by third parties as Paylocity was recently named as an overall leader across 10 HCM product categories in the latest G2 Fall 2025 Grid Reports. I would now like to pass the call to Toby to provide further color on the quarter.

I would now like to pass the call to Toby to provide further color on the quarter.

Thank you.

As Steve noted, we continue to see strong demand for our platform across our target market and we're pleased with the momentum of our sales team as we enter the heart of selling season as evidenced by our strong Q1 recurring revenue performance.

Toby Williams: Thanks, Steve. As Steve noted, we continue to see strong demand for our platform across our target market, and we're pleased with the momentum of our sales team as we enter the heart of selling season, as evidenced by our strong Q1 recurring revenue performance. We also continue to be pleased with the consistency of our referral channel, which once again delivered more than 25% of our new business in Q1. 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 also continue to be pleased with the consistency of our referral channel, which once again delivered more than 25% of our new business in Q1.

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.

Siti Panigrahi: Perfect. Thank you so much.

Operator: Thank you. Our next question comes from Ryan Lynchow of Barclays. Your line is open.

We remain committed to investing in and supporting the broker channel with a goal of continuing to deliver real value and true partnership and support to our referring brokers and their clients.

[Analyst] (Jefferies): Hi. This is Sheldon McMeans on for Ryan Glenn. Thanks for taking our question. I would love to ask, you have your upcoming Elevate conference. Is there any insight from sign-ups for the event or broadly from your top of funnel metrics that you're seeing? Can you speak to how that plays into your thinking entering the large end of your selling season?

We also saw strong client retention in the quarter, which contributed to our strong financial performance and reflects our commitment to world class client service and client partnerships.

Toby Williams: We also saw strong client retention in the quarter, which contributed to our strong financial performance and reflects our commitment to world-class client service and client partnership. As Steve noted, our AI strategy has continued to progress, delivering predictive and actionable insights, generative AI functionality, the Paylocity AI Assistant, and a growing number of autonomous agents across the platform to drive productivity through task and workflow automation that goes beyond the basic search capabilities that are considered table stakes in today's evolving AI landscape. Our continued investment in AI across our platform is driving increased adoption of our broader product suite, with these new features resulting in simplified and connected user experience across HCM, finance, and IT use cases, driving higher utilization and increased business value for our clients.

As Steve noted our AI strategy has continued to progress delivering predictive and actionable insights generative AI functionality.

Ryan Glenn: Well, I think so far, I mean, you can see what I think we believe were pretty strong results in Q1. I think we're pretty happy with how our go-to-market motion has progressed through the course of the fiscal year. You're right. We're definitely in the heart of selling season. I think I would just give you that same commentary. I think we've been really pleased with our go-to-market initiatives and efforts throughout the course of the year so far to date. I think we're certainly excited about Elevate. That's always a great opportunity for us to spend time with our existing clients, and really excited about the registration levels that we've seen so far. I feel like we have had year-to-year positive momentum with Elevate, and I think we do again this year. I think we are, again, just excited to be able to spend time with clients.

Obsity AI assistant and a growing number of autonomous agents across the platform to drive productivity through task and workflow automation that goes beyond the basic search capabilities that are considered table stakes in today's evolving landscape.

Our continued investment in AI across our platform is driving increased adoption of our broader product suite with these new features resulting in simplified and connected user experience across HCM finance it use cases, driving higher utilization and increased business value for our clients.

While still in the early days, we are seeing this translate to stronger product penetration higher average revenue per client and improving client satisfaction and retention.

Toby Williams: While still in the early days, we are seeing this translate to stronger product penetration, higher average revenue per client, and improving client satisfaction and retention. In addition to embedding AI capabilities within our product suite, we are also investing in AI and broader automation efforts internally to help drive greater efficiency and productivity across our business. For example, our engineering teams are now using AI coding assistance on a daily basis for code generation, testing, and design mock-ups, and are realizing increased productivity and code quality through these investments. Similarly, our operations teams have seen a reduction in client case volumes, and our sales teams are investing in AI tools to drive efficiencies in our go-to-market motion to automate rep day-to-day activities.

Ryan Glenn: It's always, I think, a valuable set of days for us.

In addition to embedding AI capabilities within our product suite. We are also investing in AI and broader automation efforts internally to help drive greater efficiency and productivity across our business.

[Analyst] (Jefferies): Got it. Understood. Thank you. I would love to ask on the new generation of the AI assistant, just any color on. Sometimes it's great when your salespeople have a new nice product to sell. I know you're not explicitly monetizing it, but is there an opportunity to go back to your customer base, show off that new product, and potentially drive more platform expansion? Because from my understanding, you need to have all of the underlying modules to extract the most value from the AI solution.

For example, our engineering teams are now using AI coding assistance on a daily basis for cogeneration testing and design mock ups and are realizing increased productivity and code quality through these investments.

Similarly, our operations teams have seen a reduction in client case volumes and our sales teams are investing in AI tools to drive efficiencies in our go to market motion to automate rough day to day activities.

Steve Beauchamp: Yeah, I think you heard us say in the prepared remarks that some of our investments in AI are driving broader product adoption and kind of sale back to the client base. I think you're absolutely correct. The more products you use, the more value you can get out of these integrated AI experiences, where something that might be more difficult to use, I might have to take three or four different steps to figure that out, it's pretty seamless, certainly from an employee and manager perspective. I can use natural language. I can interact with the software. It really simplifies the user experience, and it really makes that value proposition much easier for a customer to implement and use. I think we're still in the early innings of that, but we are definitely seeing that trend early on.

We will continue to invest in AI and broader automation and believe these investments will drive further efficiencies and provide for more time to focus on strategic and value added work for all of our teams. While also driving continued leverage in our business over time.

Toby Williams: We will continue to invest in AI and broader automation, and believe these investments will drive further efficiencies and provide for more time to focus on strategic and value-added work for all of our teams, while also driving continued leverage in our business over time. Next week, we will hold our annual Elevate client conference, where we will host thousands of business leaders representing HR, finance, IT, and operations across dozens of sessions over the course of 2 days. At Elevate, we will highlight the continued investments in our differentiated AI strategy and our expanding platform capabilities, delivering automated workflows and seamless user experiences across the platform enabled by AI. In addition to our market-leading financial performance, our strong culture at Paylocity continues to be recognized externally as we were recently named to Times America's Growth Leaders 2026 list.

Next week, we will hold our annual elevate client conference, where we will host thousands of business leaders, representing HR finance it and operations across dozens of sessions over the course of two days and elevate we will highlight the continued investments in our differentiated AI strategy and our expanding platform capabilities delivering automated workflows.

And seamless user experiences across the platform enabled by AI and.

Steve Beauchamp: I think if you really talk to the customers, that's where they're getting a ton of value. My employees are going to be asking me fewer questions because it's super easy for them to get things done. I myself, as an administrator, you've reduced the number of steps that it takes for me to accomplish the task. You're automating from an agentic experience things that I used to have to do manually. That's the concept really where we see the differentiation opportunity. The simpler we can make that user experience, the more product adoption. I think that it's also true as you start to extend beyond HCM and think about the integrated experience across IT and finance.

In addition to our market leading financial performance, our strong culture philosophy continues to be recognized externally as we were recently named at times Americas growth leaders 2026 list.

I will now let's pass the call to Ryan to review the financial results in detail and provide updated fiscal 'twenty six guidance.

Toby Williams: I will now like to pass the call to Ryan to review the financial results in detail and provide updated fiscal 26 guidance.

Thanks, Tobey total revenue for the first quarter was $408 2 million, an increase of 12% with recurring and other revenues up 14% from the same period last year. Our sales team had a solid start to the year across both our HCM and finance suites, and we were pleased to come in at $5 7 million above the top end of our revenue guidance with the majority of our revenue be once.

Ryan Glenn: Thanks, Toby. Total revenue for Q1 was $408.2 million, an increase of 12%, with recurring and other revenues up 14% from the same period last year. We were pleased to come in $5.7 million above the top end of our revenue guidance, with the majority of our revenue beat once again coming from recurring and other revenue, allowing us to raise our fiscal year guidance by more than our beat in Q1. Our adjusted gross margin was 75.1% for Q1 versus 74% in Q1 of last year, representing 110 basis points of leverage as we continue to focus on scaling our operational costs while maintaining industry-leading service levels.

[Analyst] (Jefferies): Great. Thank you.

Operator: Thank you. Our next question comes from Jared Levine of TD Cowen. Your line is open.

Again coming from recurring and other revenue, allowing us to raise our fiscal year guidance by more than our beat in Q1.

Our adjusted gross margin was 75, 1% for Q1 versus 74% in Q1 of last year, representing 110 basis points of leverage as we continue to focus on scaling our operational costs, while maintaining industry leading service levels.

[Analyst] (Truist): Thank you. First, I want to start on your IT offering. With the Airbase acquisition, you called out an ARPU comparable to HCM, somewhere in the neighborhood of $25,000 to 30,000. Can you talk about the ARPU opportunity your IT offerings present?

We continue to make significant investments in research and development and understand our overall investment in R&D is important to combine both what we expense and what we capitalized on a dollar basis, our year over year investment in total R&D increased by 16, 4% when compared to the first quarter of 'twenty five and we remain focused on making investments in R&D throughout fiscal 'twenty six.

Steve Beauchamp: Yeah. I would say it's a little bit smaller. We're a little bit earlier in the launch of that cycle. We certainly have clients on it. We are actively selling it in the market, but we're probably just from a timing perspective, a couple of quarters behind where we were with the Airbase offering. I don't think we're prepared to give you kind of the exact number. What I would say is it's larger than most of our HCM modules, and I think we're excited about that. It's a good-sized revenue opportunity. Again, some of this is a little bit of pricing mix. Some of you got to price on a per-user basis versus per employee, so there's a mix there. Think about it as somewhere between one of our larger HCM modules and that Airbase number.

Ryan Glenn: We continue to make significant investments in research and development. To understand our overall investment in R&D, it is important to combine both what we expense and what we capitalize. On a dollar basis, our year-over-year investment in total R&D increased by 16.4% when compared to Q1 2025, and we remain focused on making investments in R&D throughout fiscal 2026 as we continue to build out the Paylocity platform to serve the needs of the modern workforce. In regards to our go-to-market activities, on a non-GAAP basis, sales and marketing expenses were 21.3% of revenue in Q1, and we remain focused on making investments in this area of the business in fiscal 2026 to drive continued growth.

As we continue to build out the pelosity platform to serve the needs of the modern workforce.

In regards to our go to market activities on a non-GAAP basis sales and marketing expenses were 21, 3% of revenue in the first quarter and we remain focused on making investments in this area of the business in fiscal 'twenty six to drive continued growth.

On a non-GAAP basis G&A costs were eight 8% of revenue in the first quarter versus nine 5% in the same period last year, representing 70 basis points of leverage.

Ryan Glenn: On a non-GAAP basis, G&A costs were 8.8% of revenue in Q1 versus 9.5% in the same period last year, representing 70 basis points of leverage. Briefly covering our GAAP results. For Q1, gross profit was $279.8 million, operating income was $74.2 million, and net income was $48 million. Our adjusted EBITDA for Q1 was $146.4 million or 35.9% margin and exceeded the top end of our guidance by $11.4 million, resulting in increased margin guidance for fiscal 2026.

[Analyst] (Truist): Got it. Ryan, in terms of the $65 million of expected tax benefit this year from OBBA, are there any headwinds to be mindful of as we think about FY27?

Briefly covering our GAAP results for Q1 gross profit was $279 8 million operating income was $74 2 million and net income was $48 million.

Ryan Glenn: Well, I think we're calling that out as a one-time benefit in fiscal 2026. You'd have to adjust the model as that benefit would not be recurring. I think there are likely some other tailwinds from the new tax legislation that will help in 2027, but that big element, that $65 million, is one-time. I would adjust that out in 2027. Outside of that, there's nothing at this time that I would call out on free cash flow, other than the fact that we would expect to continue to drive leverage, certainly in 2026, but on a go-forward basis as well.

Our adjusted EBITDA for the first quarter was $146 4 million or 35, 9% margin and exceeded the top end of our guidance by 11 4 million, resulting in increased margin guidance for fiscal 'twenty six.

Good and the impact of interest income on funds held for clients. Adjusted EBITDA margin for Q1 was up 110 basis points over Q1 of fiscal 'twenty five and we continue to be pleased with our ability to drive both durable recurring revenue growth and expanded profitability.

Ryan Glenn: Excluding the impact of interest income on funds held for clients, adjusted EBITDA margin for Q1 was up 110 basis points over Q1 of fiscal 2025, and we continue to be pleased with our ability to drive both durable recurring revenue growth and expanded profitability. To this end, we remain focused on driving leverage by improving operational scale and through improved efficiencies resulting from our ongoing investments in automation and AI across our business, which are helping us scale our teams and providing the ability to focus on more strategic work, which is ultimately helping to drive increased adjusted gross margin, adjusted EBITDA, and free cash flow.

To this end, we remain focused on driving leverage by improving operational scale and through improved efficiencies, resulting from our ongoing investments in automation and AI across our business, which are helping us scale, our teams and providing the ability to focus on more strategic work, which is ultimately helping to drive increased adjusted gross margin adjusted EBITDA and free.

[Analyst] (Truist): Got it. Thank you.

Operator: Thank you. Our next question comes from Jake Roberge of William Blair. Your line is open.

[Analyst] (Citizens): Yeah, thanks for taking the questions. Just wanted to follow up on the demand environment. Can you talk more about how the start to the end of the year selling season has gone thus far, and just how the pipeline you're seeing this year may compare to some of those prior year periods?

Cash flow.

Additionally, given the confidence we have in our business and our strong cash flows in Q1, we repurchased nearly one 2 million shares of common stock at an average price of 170 to $2 30 per share for $200 million in aggregate repurchases.

Ryan Glenn: Additionally, given the confidence we have in our business and our strong cash flows, in Q1, we repurchased nearly 1.2 million shares of common stock at an average price of $172.30 per share for $200 million in aggregate repurchases. Since May 2024, we have repurchased approximately $500 million or 3 million shares, and with $500 million remaining under the current repurchase program, we anticipate continuing to be active going forward. In addition to our expectations for continued growth in adjusted EBITDA and free cash flow, the combination of increased profitability and reduced diluted shares outstanding will drive continued expansion of earnings per share on an annual basis.

Ryan Glenn: Yeah. I think it's been good so far. I mean, we've described the demand environment as being stable. I think from a quarter-to-quarter perspective, throughout the course of last year, we would have called out stability in the demand environment, and then strong execution from our go-to-market teams, which is really what gave us, I think, a great performance in the course of fiscal 2025. I think that has really carried through into Q1. As we've really gotten into the heart of selling season, I think the demand environment has continued to be stable, and our teams have executed really well. I think we have. We're pleased with the momentum that we've seen so far from both the pipeline and a conversion standpoint.

May of 'twenty, four we have repurchased approximately $500 million or 3 million shares and with $500 million remaining under the current repurchase program, we anticipate continuing to be active going forward.

In addition to our expectations for continued growth in adjusted EBITDA and free cash flow. The combination of increased profitability and reduced diluted shares outstanding will drive continued expansion of earnings per share on an annual basis.

In regard to cash flows we expect the impact of the recent tax legislation changes to benefit fiscal 'twenty six free cash flow by approximately $65 million as a result of a reduction in our fiscal 'twenty six cash tax payments, primarily driven by changes to DAC tax deductibility rules for domestic R&D costs, and we continue to be pleased by our.

Ryan Glenn: In regard to cash flows, we expect the impact of the recent tax legislation changes to benefit fiscal 2026 free cash flow by approximately $65 million as a result of a reduction in our fiscal 2026 cash tax payments, primarily driven by changes to dac-tax deductibility rules for domestic R&D costs. We continue to be pleased by our ability to drive the best combination of recurring revenue growth and free cash flow margin in the industry. Looking at the balance sheet, we ended the quarter with $165.2 million in cash equivalents, and invested corporate cash, and $81.3 million outstanding on our credit facility related to the Airbase acquisition, with approximately $81.3 million repaid on our outstanding balance in Q1.

[Analyst] (Citizens): Okay. That's helpful. Just on the sale side, now that you're selling a bigger platform into a few different departments, are you seeing any changes to the time it takes you to close a deal, just given you may need more signatures, or have those remained fairly consistent since the launch of Paylocity for Finance?

<unk> to drive the best combination of recurring revenue growth and free cash flow margin in the industry.

Steve Beauchamp: Yeah. I would say no, we have not. We've been very conscious of that fact. I think our go-to-market strategy really mitigates the potential to have elongated sales cycles. We're very comfortable getting them up and running on any of the products, first and foremost. It typically happens with HCM since that's obviously the bigger part of our suite today. They may take a little bit longer to implement any of the additional modules. That's a motion we're very used to. That happens sometimes even within the HCM products. We try to get them up and running, deal with the decision-makers that are ready to move. I think it's important that they understand the breadth of the platform.

Looking at the balance sheet, we ended the quarter with $165 2 million in cash cash equivalents and invested corporate cash and $81 3 million outstanding on our credit facility related to the airbase acquisition with approximately $81 3 million repaid on our outstanding balance in Q1.

In regard to client held funds and interest income our average daily balance of client funds was approximately $2 9 billion in Q1.

Ryan Glenn: In regard to client held funds and interest income, our average daily balance of client funds was approximately $2.9 billion in Q1. We're estimating the average daily balance will be approximately $3 billion in Q2, with an average annual yield of approximately 360 basis points, representing approximately $27 million of interest income in Q2. On a full year basis, we are estimating the average daily balance will be approximately $3.25 billion, with the average annual yield of approximately 340 basis points, representing approximately $110 million of interest income. In regards to interest rates, our guidance reflects the recent 25 basis point rate cuts in each of September and October, with additional 25 basis point rate cuts in each of December, March, and April.

We're estimating the average daily balance will be approximately $3 billion in Q2 with.

With an average annual yield of approximately 360 basis points, representing approximately $27 million of interest income in Q2.

Steve Beauchamp: Sometimes they implement at the same time, sometimes they implement a little bit later, and sometimes we got to go back and sell them the additional products, which is a very consistent motion with finance IT just as it was with the additional HCM module. No elongated sales cycles.

On a full year basis, we are estimating the average daily balance will be approximately $3. Two 5 billion with an average annual yield of approximately 340 basis points, representing approximately $110 million of interest income.

Ryan Glenn: I would also say that it is the usual occurrence that in the context of selling HCM, you are also talking to someone from one of the other areas. The idea that this is a totally new motion with a totally new buyer is just not right. I mean, it is usually the case that we are talking to the head of HR, someone from the finance area, and someone from the IT area, which could be the CIO, the CFO, and the head of HR. It could be someone on their teams, but it is usually the case that we're dealing with someone in all three of those areas.

In regards to interest rates our guidance reflects the recent 25 basis point rate cut in each of September and October with additional 25 basis point rate cuts and each of December March and April.

Note our guidance reflects an additional 25 basis point rate cut during fiscal 'twenty six versus our initial expectations for the year, we provided on our August earnings call.

Ryan Glenn: Note, our guidance reflects an additional 25 basis point rate cut during fiscal 2026 versus our initial expectations for the year we provided on our August earnings call. Before I provide our updated financial guidance, as a result of the confidence we have in our ability to drive durable growth, the significant profitability increases we've realized over the last several years, the long-term opportunity we see in AI and automation benefits, and natural scale in our business, we are increasing our long-term financial targets as follows. Our revenue target increases from $2 billion to $3 billion. Our adjusted gross margin target increases from 75% to 80% to 80%+. Our non-GAAP total R&D target remains at 10% to 15% of revenue. Our sales and marketing spend target decreases from 20% to 25% to 15% to 20% of revenue.

Before I provide our updated financial guidance as a result of the confidence we have in our ability to drive global growth the significant profitability increases we've realized over the last several years the long term opportunity, we see in AI and automation benefits and natural scale in our business. We are increasing our long term financial targets as follows.

[Analyst] (Citizens): That's helpful. Thanks for taking the questions.

Operator: Thank you. Our next question comes from Scott Berg of Needham & Company. Your line is open.

Our revenue target increases from 2 billion to $3 billion, our adjusted gross margin target increases from 75% to 80% to 80% plus.

[Analyst] (Needham & Company): Hi. This is Ian Blackdon from Scott Berg. Does the Paylocity for Finance solution impact your long-term financial targets at all? Is there an impact on gross margins specifically?

Our non-GAAP total R&D target remains at 10% to 15% of revenue.

Our sales and marketing spend target decreases from 20% to 25% to 15% to 20% of revenue or.

Steve Beauchamp: Yeah. We've had that question in the past. We were pretty comfortable that over time we can get the Paylocity for Finance solution to be similar margins to the rest of our portfolio. I think you see that kind of reflected in our confidence in increasing the target for long-term gross margin. We don't necessarily see that as being a headwind at all.

Our G&A spend target decreases from 5% to 10% to 5% to 7% of revenue.

Ryan Glenn: Our G&A spend target decreases from 5% to 10% to 5% to 7% of revenue. Our adjusted EBITDA margin target increases from 35% to 40% to 40% to 45%. Our free cash flow margin target increases from 20% to 25% to 25% to 30%. Our stock-based comp target decreases from less than 10% of revenue to 5% of revenue. We expect to make progress against these updated financial targets on a go-forward basis. There is a table in our earnings press release that provides our prior and updated financial targets for reference.

EBITDA margin target increases from 35% to 40% to 40% to 45% are.

Our free cash flow margin target increases from 20% to 25% to 25% to 30%.

[Analyst] (Needham & Company): Great. Thank you.

And our stock based comp target decreases from less than 10% of revenue to 5% of revenue and we expect to make progress against these updated financial targets on a go forward basis and there is a table in our earnings press release that provides a prior and updated financial targets for reference.

Operator: Thank you. Our next question comes from Samad Samana of Jefferies. Your line is open.

[Analyst] (Jefferies): Hey, this is Jordan Barretts on for Samad. Congrats on the strong results. I wanted to touch on the competitive front for a second. You called out product differentiation in your own platform driving kind of key strength. I'm curious, with some noise of consolidation in the market, both at the high end and the lower end, obviously with Paycor and Paycor, are you seeing any notable changes in win rates against those competitors, more so in the lower end of the market, as that company segment kind of navigates the changing landscape there?

In regards to our financial guidance for Q2, and full fiscal 26 for the second quarter of fiscal 'twenty six recurring and other revenue is expected to be in the range of $378 5 million to $383 5 million or approximately 10% growth over second quarter of fiscal 'twenty five recurring revenue.

Ryan Glenn: In regards to our financial guidance for Q2 and full fiscal 2026, for Q2 of fiscal 2026, recurring and other revenue is expected to be in the range of $378.5 to 383.5 million, or approximately 10% growth over Q2 fiscal 2025 recurring revenue. Total revenue is expected to be in the range of $405.5 to 410.5 million, or approximately 8% growth over Q2 fiscal 2025 total revenue.

In total revenue is expect to be in the range of $405 5 million to $410 5 million or approximately 8% growth over second quarter of fiscal 'twenty five total revenue.

Adjusted EBITDA is expected to be in the range of $131 5 million to $135 5 million.

Ryan Glenn: Adjusted EBITDA is expected to be in the range of $131.5 million to 135.5 million, adjusted EBITDA excluding interest income on funds held for clients is expected to be in the range of $104.5 million to 108.5 million. For fiscal 2026, as a result of the strong results we are seeing across our HCM, finance, and IT solutions, and our confidence in our ability to continue to drive competitive differentiation in our AI strategy, we are increasing all aspects of our guidance as follows. Recurring and other revenue is expected to be in the range of $1.605 billion to 1.620 billion, or approximately 10% growth over fiscal 2025 recurring and other revenue.

And adjusted EBITDA, excluding interest income on funds held for clients is expected to be in the range of $104 5 million to $108 5 million.

Steve Beauchamp: Yeah. I would say we've always felt like we've got a differentiated product portfolio, and it has been a competitive environment and remains a competitive environment. I do think that the value proposition, as Toby mentioned in his prepared remarks, of really being broker-neutral and broker-friendly, has been a key part of our go-to-market motion for many, many years. I think there's some uniqueness to that, and we have been a leader in that space for a while. I think some of the consolidation is certainly helpful in that category. I will just go back to the fact that you've got to win based off of your product, your service that you provide every single day. It's a competitive market, and we're really proud of the results that our sales team were able to generate in the first quarter.

And for fiscal 'twenty six as a result of the strong results, we are seeing across our HCM financing solution and our confidence in our ability to continue to drive competitive differentiation and our AI strategy. We are increasing all aspects of our guidance as follows recurring and other revenue is expected to be in the range of $1 605 billion to one six.

Two zero billion or approximately 10% growth over fiscal 'twenty five recurring and other revenue.

And total revenue is expected to be in the range of $1 71, 5 billion to $1 730 billion for approximately 8% growth over fiscal 'twenty five total revenue.

Ryan Glenn: Total revenue is expected to be in the range of $1.715 to $1.730 billion, for approximately 8% growth over fiscal 2025 total revenue. Adjusted EBITDA is expected to be in the range of $615 to $625 million, and adjusted EBITDA excluding interest income on funds held for clients is expected to be in the range of $505 to $515 million, which represents approximately 40 basis points of leverage at the midpoint. In conclusion, we are pleased with our Q1 results, the early success of Paylocity for Finance, and the continued momentum we have across our sales and operations teams as we enter the busiest time of the year. Operator, we're now ready for questions.

[Analyst] (Jefferies): Awesome. On the go-to-market side, I was wondering if you can maybe parse out how sales rep productivity is trending versus hiring, and how hiring is trending versus your initial expectations into the year.

Adjusted EBITDA is expected in the range of $615 million to $625 million.

Adjusted EBITDA, excluding interest income on funds held for clients is expected to be in the range of $505 million to $515 million, which represents approximately 40 basis points of leverage at the mid point.

Ryan Glenn: Yeah. I think we came into the fiscal year with around an 8% increase in headcount. Obviously, you can see where we landed the quarter and where we've guided the year. I think our focus going into fiscal 2025 and then coming into fiscal 2026 again was to be able to drive the type of performance that we've actually delivered and to be able to do that focused on our sales rep and go-to-market productivity, which, again, I think, by looking at the headcount increase versus the amount of growth we've been able to deliver in Q1, I think we've done that again in Q1 of fiscal 2026. Overall, I think we continue to focus on the productivity of the teams, including our go-to-market teams, and I think that's what we've delivered again in Q1.

In conclusion, we are pleased with our Q1 results. The early success with Pelosity for finance and the continued momentum we have across our sales and operations teams as we enter the busiest time of the year.

Operator, we're now ready for questions.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again any interest of time, we ask that you. Please limit your questions to one question and one follow up please standby, while we compile the Q&A roster.

Operator: Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. In the interest of time, we ask that you please limit your questions to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from Brad Reback of Stifel. Your line is open.

Yeah.

[Analyst] (Jefferies): Great. Well, congrats on the strong start to the year, and I appreciate taking my questions.

And our first question comes from Brad Reback of Stifel. Your line is open.

Operator: Thank you. Our next question comes from Brian Peterson of Raymond James. Your line is open.

Great. Thanks, very much can you all give us an update on the macro maybe how things were trending over the course of the quarter until October and your head count assumptions and the updated guide.

Brad Reback: Great. Thanks very much. Can you all give us an update on the macro, maybe how things were trending over the course of the quarter into October, and your headcount assumptions in the updated guide?

Operator: Hi. This is Jessica on for Brian. Thanks for taking my question. I was just thinking a bit of a follow-up to earlier discussions we've had and comments. As you have heard this increasingly differentiated value of your platform, are you seeing customers trying to trend towards landing with more products than prior cohorts were, or has this been more of a benefit of saying like Paylocity, you guys have more places that a customer can land on, and then from there building out to expanding later? Thanks.

Yeah, Hey, Brad It's Ryan I think what we saw in the quarter was was continued stability. So workforce levels at our clients were up a touch year over year very consistent with what we saw in Q4, a little bit better than expectations and from a guidance standpoint continue to have the same philosophy. So we've assumed flat workforce levels over the balance.

Ryan Glenn: Hey, Brad, it's Ryan. I think what we saw in the quarter was continued stability. Workforce levels at our clients were up a touch year-over-year, very consistent with what we saw in Q4, a little bit better than expectations. From a guidance standpoint, continue to have the same philosophy. We've assumed flat workforce levels over the balance of the fiscal year. That was our experience, as I said, not only in the quarter, but through October as well. Continue to run the same playbook relative to guidance. Feel like if we continue to see strong execution, we have the ability to beat raise and continue to feel like we've got a level of prudence embedded in guidances as well.

Once of the fiscal year that was our experience as I said not only in the quarter, but through October as well and continue to run the same playbook relative to guidance. So feel like if we continue to see strong execution, we have the ability to to beat raise and continue to feel like we've got a level of prudence embedded in guidance as well.

Ryan Glenn: I think we've seen both. I mean, I think we've seen, to Steve's comments, we've seen differentiation gains that we've had from the broader platform that I think help us from an overall client acquisition and unit growth standpoint. I think we have, over a very long period of time, continued year to year to see the amount we realize out of the total amount that's chargeable on the platform increase. I think that reflects the fact that year after year after year, clients are taking a larger amount of product from us. I think you also get the benefit of being able to sell those products back into the customer base. I think you see it in differentiation. I think you see it in driving higher ARPU at the time of client acquisition.

That's great. Thanks, and then switching to the updated long term guidance and I appreciate that may not be able to.

Brad Reback: That's great. Thanks. Then switching to the updated long-term guidance, and I appreciate it may not be able to perfectly parse the answer on this, but if you think about the natural scale of the business driving the upside versus AI benefit helping to drive the upside, does it skew more one way than the other?

Perfectly parse the answer on this but if you think about the natural scale of the business driving the upside versus AI benefit helping to drive the upside does it skew more one way than the other.

Ryan Glenn: I think you see it in the ability to drive an overall higher ARPU as you sell back into the customer base over time.

Yeah, I think it's still early days from from AI and automation, but I think where we sit today that gives us certainly incremental confidence on a multiyear basis to be able to continue to drive leverage we've always had confidence that this ability.

Ryan Glenn: Yeah, I think still early days from AI and automation, but I think where we sit today, that gives us certainly incremental confidence on a multi-year basis to be able to continue to drive leverage. You know, we've always had confidence that this business will continue to scale. That continues to be the case. You heard in the prepared remarks, Toby referenced reduced case volume we're seeing in our operational teams, all of our engineers using coding assistance. My teams are using it from a back office standpoint as well.

Operator: Got it. Thanks.

Operator: Thank you. Our next question comes from Pat Walravens of Citizens. Your line is open.

Business will continue to scale that continues to be the case you heard in the prepared remarks, Toby referenced reduce case volume we're seeing in our operational teams all of our engineers using coding assistance. My teams are using it for a back office standpoint, as well so not sure I would parse out.

[Analyst] (Citizens): Oh, great. This is Kincaid on for Pat. Thanks for taking our question. You guys highlighted your sales reps are going to be using some AI tools to automate parts of their go-to-market. Is there any specific tools that you could call out there?

<unk> had a breakout the deleverage will see on a go forward basis, but certainly seeing the early benefits both from a margin expansion standpoint, as well as the ability for the teams to really focus on the most important elements of the business.

Ryan Glenn: Not sure I'd parse out, how to break out the leverage we'll see on a go-forward basis, but certainly seeing the early benefits, both from a margin expansion standpoint as well as the ability for the teams to really focus on the most important elements of the business.

Ryan Glenn: Yeah. I think when we look across all of the tech that our go-to-market teams in sales and marketing are using, I think our effort has been to try and find. This is true across the business. You're trying to find opportunities to automate the processes that everyone's going through day to day, including our sales reps. You're looking at what AI tools each one of those pieces of technology has available to them and making sure that we're leveraging each one to the fullest extent, while also, again, trying to take the lens of what can we automate in the process. I think that's what my comments and the prepared remarks were referring to. I think this is a broad-based commentary across all the tech that we're using from a go-to-market standpoint.

Great. Thanks very much.

Thank you.

Daniel Jester: Great. Thanks very much.

Brad Reback: Great. Thanks very much.

Operator: Thank you. Our next question comes from Mark Marcon of Robert W. Baird. Your line is open.

And our next question comes from Mark Marcon Robert W. Baird. Your line is open.

Good afternoon, and thanks for taking my questions.

Mark Marcon: Good afternoon, and thanks for taking my questions. Really nice quarter. Wondering if you can talk a little bit about the office of the CFO and the Airbase acquisition. Can you give us a little bit more dimensions with regards to, like, number of, you know, clients approached, what the go-to-market motion is? You know, I know it's early, but still any sort of reading on the sales trajectory, who is it appealing to the most, et cetera. We demoed it at HR Tech, and we thought it was really slick, and it sounds like it's got a really good ROI for users to take it up, so I'm just trying to get a little bit more color there.

Really nice quarter.

Wondering if you can talk a little bit about <unk>.

The opposite.

CFO.

It'll be some acquisition can you give us a little bit more debentures with regards to like number or you know clients Roche, what's the go to market motion.

[Analyst] (Citizens): On the broker channels, it's more than 25% of your new business in Q1. Is there a level that you'd like to see that get to, or is it around where you'd hope it is?

I know, it's early but still.

Really not.

The sales trajectory was it appealing to the most et cetera, we downloaded.

Ryan Glenn: Well, I mean, I think we've been saying for a very long time, making the same comment, that we've been able to drive more than 25% of new business coming from the broker channel. Steve made the comment before that when the business went public in 2014, looking at the size and scale of it then, and now as you see us guiding towards just under $2 billion in revenue for this fiscal year, our ability to continuously, for the last decade plus, deliver 25% of our new business coming from the broker channel, I think, is a testament to the focus that we've put on it, the investments from a technology perspective that we've made that well serve the broker channel and their clients.

At HR Tech, we thought it was what.

It sounds like it's kind of really good ROI.

For users who take it up so I'm, just trying to get a little bit more color there.

Hey, Mark its tobey. Thanks for your question and I'm glad you got the chance to actually check the product out at HR Tech, we're pretty proud of what we've been able to launch so far I mean, I think I would start with just a few comments on the quarter I think to your to your.

Toby Williams: Hey, Mark, it's Toby. Thanks for your question. I'm glad you got the chance to actually check the product out at HR Tech. We're pretty proud of what we've been able to launch so far. I mean, I think I would start with just a few comments on the quarter. I think to your beginning part of your question, I think it was a strong quarter really across the board for the business. You know, we had mentioned in the prepared remarks that the launch, which we did in July of V1 of the finance product, I think has really been well received in the market.

Beginning part of your question I think was a strong quarter really across the board for the business and we had mentioned in the prepared remarks that the launch which we did in July of <unk>.

Ryan Glenn: I think ultimately the investment that we have made to build those relationships over that period of time reflects the fact that they see real value and real partnership in how we approach business with them. I think overall, we're really pleased at what we've been able to deliver in Q1, the part that the broker channel has played in that, and look forward to continuing to partner with our broker channel throughout the course of the rest of the year.

B one of the.

Finance product I think has really been well received in the market. I think we are starting to see early days still of course, just with the launch in July, but I think starting to see traction in the market both from a new client perspective and back into the client base, which is an important part of the motion.

Toby Williams: I think we are starting to see early days still, of course, just with the launch in July, but I think starting to see traction in the market, both from a new client perspective and back into the client base, which is an important part of the motion. And to your, to the part of your question on the go-to-market piece, those are both avenues for us, both with new clients coming on to the Paylocity platform and then being able to add that value through our platform back into the client base. I think early days, but, you know, I think we're pleased with the momentum and the trajectory that we're seeing.

To your to your to the part of your question on the go to market.

So those are both.

[Analyst] (Citizens): Thanks so much.

Avenues for us both with new clients coming on to philosophy platform, and then being able to add that value through our platform back into the client base. So I think early days, but I think we're pleased with the momentum and the trajectory that we're seeing I think the thesis is very much been validated in terms of the value of having that product set in that category on the platform and the value.

Operator: Thank you. Our next question comes from Alex Zukin of Wolfe Research. Your line is open.

Alex Zukin: Yeah. Hey, guys. I think most of the questions have been. Most of the questions have been asked, but maybe just help us think about the impact to retention rates. I think they're still 92% at this time. As you look at the elements from selling more AI functionality into the base or monetizing that functionality, getting greater usage, monetizing Airbase, or cross-selling that functionality, how does that retention rate evolve, if at all? Does it go up over time, particularly as you approach that long-term target? How do you think about kind of organic versus inorganic going forward now we're one year past Airbase? It seems like it's going really well, and it's meaningfully increasing the addressable market opportunity. Maybe just comment on kind of your view on organic versus inorganic innovation at this time.

Toby Williams: I think the thesis has very much been validated in terms of the value of having that product set and that category on the platform and the value that that can add to clients. I think overall, we're pretty happy in the early days.

That can add too to clients. So I think overall, we're pretty happy in the early days and one additional comment I would make mark is the feedback we get from our field, who we've got fully trained on the product. They are identifying prospects, they're really telling the broader story upfront. It's certainly helping from an overall differentiation perspective, and then we've got an inside sales team that.

Steve Beauchamp: One additional comment I would make, Mark, is the feedback we get from our field who we've got fully trained on the product, they're identifying prospects. They're really telling the broader story upfront. It's certainly helping from an overall differentiation perspective. We've got an inside sales team that can take those spend management opportunities and take them over the finish line. We're seeing really good partnership across our organization, and we're getting really good feedback that this is really resonating with prospects in our overall platform differentiation.

Can take those spend management opportunities and take them over the finish line and so we're seeing really good partnership across our organization and we're getting really good feedback that this is really resonating with prospects in our overall platform differentiation.

That's great and then.

Really nice performance for the quarter.

Mark Marcon: That's great. Really nice, you know, performance for the quarter. You know, the EBITDA ended up beating, you know, roughly by, you know, $13.4 million. You raised the guide, by less than the beat. What would be the driver for that in terms of, you know, what you ended up doing in terms of the full year guide, for adjusted EBITDA?

EBIT ended up BD.

Ryan Glenn: Yeah. I mean, I think you're right. I think we're pleased with how the Airbase acquisition has gone. We're pleased with, based on the prior commentary, the level of traction that we're seeing, at least in the early days, with the spend management and finance part of the suite. I don't think our—I think that is a proof point of what we've been able to do from an acquisition standpoint, but I don't think our—I don't think we've fundamentally changed our mindset around capital allocation or the role that M&A plays in the business. I think if you look back over time, we've been able to build out an awful lot of new products organically. That's certainly still an important part of how we view innovation.

Roughly.

13 $4 million.

You raised the guide by less than the beat what would be the driver for that in terms of you know.

What you ended up doing in terms of the full year guide.

For adjusted EBITDA.

Yeah, Mark I think it's similar similar thoughts relative to our level of Prudence in guidance I think really happy with with Q1 as you said strong performance versus our expectations. We're certainly seeing some of the benefits of the investments we've made to continue to scale. The business. There's always some timing elements certainly one quarter into the year want to maintain a level of flexibility.

Toby Williams: Yeah, Mark. I think, you know, similar thoughts relative to, you know, a level of prudence and guidance. I think really happy with Q1. As you said, strong performance versus our expectations. We're certainly seeing some of the benefits of the investments we've made to continue to scale the business. There's always some timing elements, certainly one quarter into the year. Want to maintain, you know, a level of flexibility to make the investments that we've talked about to drive continued growth. You know, at the same point, we are expecting increased profitability for fiscal 26. We're guiding to leverage again in Q2 as well. Probably some timing elements of that.

Ryan Glenn: When we've found extraordinary opportunities to acquire something that would speed up our product roadmap and was really strategic, and we thought that we could integrate really well, we've had really good luck there, with, again, Airbase being the most recent data point on that. With respect to your question on retention, I mean, I think our view has been for a long time that if you continue to broaden out what you're able to deliver from a product perspective while also providing world-class service, that's a recipe for being able to deliver against the expectations of clients, and that will provide a positive result from a retention standpoint over time. That's exactly what I think we've seen. Again, your reference, it's 92% plus is how we've described retention, continues to be the case. I think that is very much what we see the opportunity as we look forward.

<unk> to make the investments that we've talked about to drive continued growth but.

At the same point, we are expecting increased profitability for fiscal 'twenty six we're guiding to leverage again in Q2 as well so probably some timing elements of that and I think as you've seen historically to the extent we continue to see over performance then that would accrue to increase margin or if we go as we go over the balance of the fiscal year.

Toby Williams: I think, you know, as you've seen historically, to the extent we continue to see overperformance, then, you know, that would accrue to increased margin as we go over the balance of the fiscal year.

<unk> ability to make the investments that we've talked about to drive continued growth but at.

I appreciate that thanks a lot.

At the same point, we are expecting increased profitability for fiscal 'twenty six we're guiding to leverage again in Q2 as well so probably some timing elements of that and I think as you've seen historically to the extent we continue to see over performance then that would accrue to increase margin. If we go as we go over the balance of the fiscal year.

Thank you.

Mark Marcon: I appreciate that. Thanks a lot.

Yeah.

Operator: Thank you. Our next question comes from Daniel Jester of BMO Capital Markets. Your line is open.

And our next question comes from Daniel Jester of BMO capital markets. Your line is open.

Great. Thanks for taking my question.

Daniel Jester: Great. Thanks for taking my question. maybe Steve or Toby, you know, you've been talking about the opportunity in the IT department of your customers a little bit more recently. I'd love if you can maybe expand on sort of the opportunity you see there, and how should we view that relative to Paylocity for Finance?

Maybe Steve or Toby.

You've been talking about the opportunity in the it department.

I appreciate that thanks a lot.

Steve Beauchamp: I guess just one additional point on the M&A strategy. Completely agree with Toby. There's no strategic shift here. I think it's probably important to note that is the largest acquisition that we have made kind of in our history. The ability to integrate that product portfolio, get it to launch, see the early success that we're having in go-to-market certainly gives us more confidence in our ability to do things like that on a go-forward basis.

Department of your customers a little bit more recently, so I'd love if you could maybe expand on sort of the opportunity you see there and how should we view that relative to Pelosity for finance.

Thank you.

And our next question comes from Daniel Jester of BMO capital markets. Your line is open.

Great. Thanks for taking my question.

Yes, I think just from a product perspective.

Maybe Steve or Toby.

Steve Beauchamp: Yeah. I think just from a product perspective, you know, we have the opportunity to really leverage the employee record data that we have to be more comprehensive in terms of the tasks we can help our customers accomplish when they onboard and off-board employees. We know who they work for, we know the department they need. Now in our product, we can store the equipment that they need. We can track all of the devices. We can really, through partnership and API, we can really help them get an equipment delivered right on-site. It's both asset management, as well as identity management, really leveraging the employee record data. That's also kind of in the early innings. Similar comments to Paylocity for Finance.

We have the opportunity to really leverage the employee record data that we have to be more comprehensive in terms of the tasks. We can help our customers accomplish when they onboard and off board employees, we know who they work for we know the department they need and now in our product we can store the equipment that they need we can track all of the devices, we can really.

You've been talking about the opportunity in the department.

Department of your customers a little bit more recently, so I'd love if you could maybe expand on sort of the opportunity you see there and how should we view that relative to Pelosity for finance.

Alex Zukin: Perfect. Thank you, guys. Congrats on a great quarter.

Operator: Thank you. Our next question comes from Matt VanVliet of Cantor. Your line is open.

Yes, I think just from a product perspective.

Through partnership and API, we can really help them getting equipment delivered right on site. So it's both asset management as.

[Analyst] (FT Partners): Hey, good evening. Thanks for taking the question. I guess first on the comment you made earlier about growing revenue per customer, curious how much of that is being driven by the cross-sell of whether it's the finance or IT modules or just some of the expansions of the product versus the AI and usage component being monetized already.

As well as identity management really leveraging the employee record data. So that's also kind of in the early innings. So similar comments to philosophy for finance, but I would make the same comment I made earlier, which is it's really helping from an overall platform differentiation. We're seeing great feedback from clients that are on the service already and so when you can.

Steve Beauchamp: I would make the same comment I made earlier, which is it's really helping from an overall platform differentiation. We're seeing great feedback from clients that are on the service already. When you combine, you know, leading HCM modern platform with the ability to scale across finance and IT, we think we have, you know, a more unique value proposition, than we had a year ago prior to the launch of those two categories.

Through a partnership an API, we can really help them getting equipment delivered right on site. So it's both asset management as.

Buying leading HCM modern platform with the ability to scale across finance in it we think we have.

Steve Beauchamp: Yeah. I would just say from a product perspective, some of that's a little bit challenging to differentiate. As Toby mentioned earlier, you're kind of selling a bundled package. Even when you're cross-selling back to the client base, you sometimes can get an uplift of not just a singular product. You may get one or two as you're kind of evaluating that. I think they're both in the mix. I think we're in the early innings still for finance and IT. A lot of that cross-sell is being driven by our HCM suite currently. We're really excited about the early feedback that we've got, and particularly because those products are a little bit more on an average revenue per customer. We think that that opportunity is certainly there.

More unique value proposition.

And then we had a year ago prior to the launch of those two categories.

Great. Thank you and then on the updated financial targets that you provided today I guess.

Daniel Jester: Great. Thank you. On the updated financial target that you provided today, I guess, you know, why was this the right time to update them? You know, if I, if I remember correctly, I think you just updated the $2 billion revenue target not even 2 years ago. Maybe a little bit more context would be helpful in terms of why you decided to make these adjustments to the long-term model today. Thank you so much.

Bind leading HCM modern platform with the ability to scale across finance in it we think we have.

Why why was this the right time to update them.

If I remember correctly I think you just updated the $2 billion revenue target not even two years ago. So.

A more unique value proposition.

And then we had a year ago prior to the launch of those two categories.

Great. Thank you and then on the updated financial target that you provided today I guess.

Maybe a little bit more context would be helpful. In terms of why you decided to make these adjustments to the long term model today. Thank you so much.

Steve Beauchamp: I think we've always talked about this as really an extension of our product strategy that will allow us to continue to have a mix in our growth algorithm of unit growth, which we expect to continue to drive, as well as average revenue per customer growth, which will be enabled by IT and finance expansion.

Hey, Dan It's Ryan I think we obviously have been really pleased with the progress we've made across those prior targets, which we did set in August of 2023 since that time, we've driven several hundred basis points of EBIT leverage free cash flow leverage as well we've reduced stock based comp. So I think these updated targets are really just an acknowledgement.

Why why was this the right time to update them.

Steve Beauchamp: Yeah, hey Dan, it's Ryan. I think, you know, we've always been really pleased with the progress we've made across those prior targets, which we did set in August of 2023. Since that time, we've driven, you know, several hundred basis points of EBITDA leverage, free cash flow leverage as well. We've reduced stock-based comp. I think these updated targets are really just an acknowledgment of what we see as continued confidence in the ability to scale the business, having made a lot of progress against those prior targets. It felt like the right time to acknowledge the fact that we continue to have a lot of confidence in driving durable revenue growth across the business, being able to scale from a profitability standpoint. I think this is that natural extension.

Ryan Glenn: Yeah, hey Dan, it's Ryan. I think, you know, we've always been really pleased with the progress we've made across those prior targets, which we did set in August of 2023. Since that time, we've driven, you know, several hundred basis points of EBITDA leverage, free cash flow leverage as well. We've reduced stock-based comp. I think these updated targets are really just an acknowledgment of what we see as continued confidence in the ability to scale the business, having made a lot of progress against those prior targets. It felt like the right time to acknowledge the fact that we continue to have a lot of confidence in driving durable revenue growth across the business, being able to scale from a profitability standpoint. I think this is that natural extension.

If I remember correctly I think you just updated the $2 billion revenue target is not even two years ago. So.

[Analyst] (FT Partners): All right. Helpful. As we look at the long-term financial targets, curious if you can give us a little update on what the original $2 billion target of primarily the HCM business, what that looks like as part of the $3 billion. The obvious other part is sort of the TAM expansion, platform expansion. How much of that billion-dollar raise in the revenue target is almost exclusively from finance and IT?

Maybe a little bit more context would be helpful. In terms of why you decided to leave.

These adjustments to the long term model today. Thank you so much.

What we see is continued confidence in the ability to scale the business, having made a lot of progress against those prior targets. It felt like the right time to acknowledge the fact that we continue to have a lot of confidence in driving durable revenue growth across the business being able to scale from a profitability standpoint, and I think this is this is that natural extension when you start to layer on.

Hey, Dan It's right I think we obviously have been really pleased with the progress we've made across those prior targets, which we did set in August of 2023 since that time, we've driven several hundred basis points of EBIT leverage free cash flow leverage as well we've reduced stock based comp. So I think these updated targets are really just an acknowledgement of.

Ryan Glenn: Yeah. I'm not sure we would have thought about it the same way that you asked the question. I think if you step back and you look at how we have driven growth every single year, it has been a mix of client growth, so new client acquisition and client growth, and then ARPU expansion from both a new client and existing client standpoint. I think that's really—and a lot of that ARPU growth comes from our ability to continue to innovate and continue to expand the product set. If you look back over the course of the last decade plus that we've been public, that's what we've delivered every single quarter and every single year.

The early benefits, we're seeing nation, and then broader AI I think that that is another element that as we looked at where we are from a financial standpoint gave us incremental confidence and as you think about that 3 billion target.

Steve Beauchamp: When you start to layer on the early benefits we're seeing nation and in broader AI, I think that is another element that as we looked at where we are from a financial standpoint, gave us incremental confidence. As you think about that $3 billion target, you know, 25% to 30% free cash flow, this is a very attractive opportunity for us and one that we think when you look at $3 billion of revenue, 30% free cash flow margin, what we're really excited about what that can be on a multiyear basis.

Ryan Glenn: When you start to layer on the early benefits we're seeing nation and in broader AI, I think that is another element that as we looked at where we are from a financial standpoint, gave us incremental confidence. As you think about that $3 billion target, you know, 25% to 30% free cash flow, this is a very attractive opportunity for us and one that we think when you look at $3 billion of revenue, 30% free cash flow margin, what we're really excited about what that can be on a multiyear basis.

What we see is continued confidence in the ability to scale the business, having made a lot of progress against those prior targets and felt like the right time to acknowledge the fact that we continue to have a lot of confidence in driving durable revenue growth across the business being able to scale from a profitability standpoint, and I think this is this is that natural extension when you start to layer on that.

25% to 30% free cash flow. This is a very attractive opportunity for us and one that we think when you. When you look at $3 billion revenue, 30% free cash flow margin. What we're really excited about what that can be on a multiyear basis.

Early benefits, we're seeing from automation and broader AI I think that is another element to that as we looked at where we are from a financial standpoint gave us incremental confidence and as you think about that 3 billion target.

Great. Thank you.

Thank you.

Connor Passarella: Great. Thank you.

Daniel Jester: Great. Thank you.

Operator: Thank you. Our next question comes from Terry Tillman of Truist Securities. Your line is open.

And our next question comes from Terry Tillman of Jewish Securities. Your line is open.

25% to 30% free cash flow. This is a very attractive opportunity for us and one that we think when you look at $3 billion revenue, 30% free cash flow margin. What we're really excited about what that can be on a multiyear basis.

Ryan Glenn: It is a fairly consistent—yes, it's changed depending on what's going on in any given year—but there's been consistency in the mix of both new unit growth, new unit acquisition, client growth, and ARPU expansion over time. I think that's really how we thought about the formula of how we get to $3 billion. You've got to be able to continue to drive client growth. You've got to be able to continue to drive ultimately ARPU expansion that comes with the TAM expansion of adding on things like finance and IT. I think you get there through that. That's the execution formula. With respect to the product pieces, I think there is an opportunity to continue to grow the product set from an HCM perspective. There's certainly an opportunity to grow the product set from a finance perspective. We're in the earliest days of product from an IT standpoint.

Oh, great. Good evening, Tim This is kind of a bus or on for Terry I. Appreciate you taking the question I just wanted to follow up on the previous one looking at the long term targets specifically around the updated 3 billion total revenue. So I guess just as you look at FY 'twenty six here, maybe what are the one or two execution milestones, whether it's cross penetration of philosophy for final.

Connor Passarella: Great. Good evening, team. This is Connor Passarella on for Terry. Appreciate you taking the question. I just wanted to follow up on the, on the previous one, looking at the long-term targets, specifically around the updated $3 billion of total revenue. I guess just as you look at FY 2026 here, maybe what are the one or two execution milestones, whether it's, you know, cross penetration of Paylocity for Finance, attach rates on newer modules, or even partner productivity that you kind of view as the highest confidence drivers towards driving towards that $3 billion long-term target?

Great. Thank you.

Thank you.

Okay.

And our next question comes from Terry Tillman of Jewish Securities. Your line is open.

Attach rates on Neuromodulators, even though our partner productivity that you kind of view as the highest confidence drivers towards driving towards that $3 billion long term target.

Great. Good evening, Tim This is <unk> on for Terry I. Appreciate you taking the question I just wanted to follow up on the previous one looking at the long term targets specifically around the updated 3 billion total revenue. So I guess just as you look at FY 'twenty six here have you what are the one or two execution milestones, whether it's cross penetration of philosophy for finance.

Yeah sure. So I'll start so first of all I think I would like to mention that we've got a huge tam and so we're still relatively low penetration in terms of the total addressable opportunity in front of us and so we think there is a ton of runway just in the HCM category. So by no means extending into other categories does that mean, we don't think.

Steve Beauchamp: Yeah, sure. I'll start. First of all, I think, you know, I would like to mention that we've got a huge TAM, we're still relatively low penetration in terms of the total addressable opportunity in front of us. We think there's, you know, a ton of runway just in the HCM category. By no means extending into the other categories, does that mean we don't think we're excited about what we can do in HCM. I think when you add on top of that, the ability for us to expand that TAM, HCM TAM, by moving into the office of the CFO as well as IT, it gives us even greater confidence and be able to scale this business from, you know, under $2 billion today to that $3 billion target.

Attach rates on Neuromodulators, given our partner productivity that you kind of view as the highest confidence drivers towards driving towards that $3 billion long term targets.

Ryan Glenn: I think you've got growth across all those three. If we can continue to drive that growth, continue to drive ARPU, continue to drive client growth, I think that's the formula. That's a consistent formula that we've executed against for the last 10-plus years.

We're excited about what we can do in HCM and then I think when you add on top of that the ability for us to expand that Tam HCM Tam by moving into the office of the CFO as well as it is.

Yes, sure. So I'll start so first of all I think I would like to mention that we've got a huge tam and so we're still relatively low penetration in terms of the total addressable opportunity in front of us and so we think there is a ton of runway just in the HCM category. So by no means extending into other categories.

It gives us even greater confidence in being able to scale. This business from under $2 billion today to that $3 billion target and then to Ryan's point hitting all of those other profitability metrics at the same time.

[Analyst] (FT Partners): Okay, thank you.

Operator: Thank you. Our next question comes from Jason Celino of KeyBanc Capital Markets. Your line is open.

Does that mean, we don't think we're excited about what we can do in HCM and then I think when you add on top of that the ability for us to expand that Tam HCM Tam by moving into the office of the CFO as well as it is.

Steve Beauchamp: You know, to Ryan's point, hitting all of those other profitability metrics at the same time.

The only thing I'd add is I think I think there is in all the all of the above element to your question in terms of continuing to drive the unit growth consistently that we were able with it we have been able to drive.

Toby Williams: The only thing I'd add is I think there's all of the above elements to your question in terms of continuing to drive the unit growth consistently that we have been able to drive, and also increasing the overall ARPU on a go-forward basis. That's, I think, part of what Steve said is what gives us the opportunity to do that on the ARPU element. I think, you know, as we look at 26 in particular, I think we're taking, again, same as we did last year, a pretty balanced view of the ability to continue to drive new client acquisition, drive unit growth, while also expanding the ARPU, which has been, I think, a key part of the growth algorithm for years.

[Analyst] (KeyBanc Capital Markets): Hey, great. Thanks for taking my questions. Just one follow-up on Paylocity for IT. Obviously, a very complimentary area. When I think about your customers today, what are they hypothetically using for asset management, identity management? Do you see yourself competing more with the traditional ITSM players?

And also increasing the overall arc.

On a go forward basis, and that's I think part of what Steve said is what gives us the opportunity to do that on the RP elements, but I think as we look at 'twenty six in particular I think we're taking again same as we did last year, a pretty balanced view of the ability to continue to drive new client acquisition drive unit growth. While also expanding via Harpoon, which has been I think a key part of the growth algorithm for <unk>.

The other thing I'd add is I think I think there isn't all of all of the above element to your question in terms of continuing to drive the unit growth consistently that we were able to that we have been able to drive.

Steve Beauchamp: Yeah. I think from an asset management perspective, a lot of it's fairly manual, whether they're tracking that in spreadsheets or, frankly, at the lower end of our market, whether they're really not tracking it very effectively at all. Being able to automate that as people are going on board, when they're changing positions, when they're coming off board, and then being able to manage that for an IT user is really, I think, critical for organizations. I think that's something that we've been really happy with, the receptivity. I think for the identity management, the strategy is a combination of our own capabilities as well as really integrating from a marketplace and API perspective.

And also increasing the overall arc.

Years, and I think we see that same opportunity as we look forward to that $3 billion Mark.

On a go forward basis, and Thats I think part of what Steve said is what gives us the opportunity to do that on the <unk> element, but I think as we look at 'twenty six in particular I think we're taking again same as we did last year, a pretty balanced view of the ability to continue to drive new client acquisition drive unit growth. While also expanding the <unk>, which has been I think a key part of the growth algorithm for <unk>.

Toby Williams: I think we see that same opportunity as we look forward to that $3 billion mark.

Yes, that's really helpful. Maybe just a follow up.

Connor Passarella: Yeah, that's great. It's really helpful. Maybe just as a follow-up. As you continue to take Paylocity for Finance to market, how are you kind of thinking about the pricing? Are you kind of thinking about this more testing on a standalone versus bundle approach? What, I guess, are you learning about the willingness to pay from the early adoption of clients? Thank you, guys.

So as you continue to take a philosophy for finance to market.

Are you kind of thinking about the pricing are you kind of thinking about this more testing on a stand alone versus bundle approach or what are you guys. What are you learning about the willingness to pay from the early adoption of clients. Thank you guys.

Years, and I think we see that same opportunity as we look forward to that $3 billion Mark.

Most of what the way that we price across the suite is really ends up being on a bundled basis and that's not anything new for us. So.

Yes, that's really helpful. Maybe just a follow up.

Toby Williams: Most of the way that we price across the suite is really ends up being on a bundled basis, and that's not anything new for us. That's a consistent approach that we have taken with, you know, whether it's things in the office of the CFO from a finance and spend management perspective or from an IT perspective. Pretty consistent strategies we have looked to extend into those areas and the bundled approach that we've taken, whether that's from a, you know, new client perspective or otherwise.

So as you continue to take a philosophy for finance to market.

Steve Beauchamp: You can get some value out of really leveraging the data in the employee record and not actually have to change your identity provider, or you can leverage our solution to be able to take on some of those capabilities for you. We see opportunities to be able to grow the category for sure, but we really are trying to help customers with that use case, both from an access and identity of really offboarding, changing positions, and onboarding.

Consistent approach that we've taken with.

Whether it's.

Things in the opposite CFO from a finance and spend management perspective or from.

From an it perspective, so pretty consistent strategies, we have looked to extend into those areas and the bundling approach that we've taken whether that's from a new client perspective, or otherwise I think the only thing I would add is we have the flexibility with some of these newer product offerings.

Most of what the way that we price across the suite is really ends up being on a bundled basis and thats not anything new for us. So.

Consistent approach that we've taken with.

Steve Beauchamp: I think the only thing I would add is, you know, we have the flexibility with some of these newer product offerings. If we think that a per user model is more attractive to the market, we can easily pivot to that. To Toby's point, we kind of sell it as a bundle, and here's what your whole overall annual spend would be. Here's the ROI you're gonna get on that investment. No real change in the sales motion, but we definitely see some of our products, being priced on a per user basis, obviously a higher price point, lower number of users. Whereas the HCM products are largely on a per employee basis.

Whether it's.

I think that a per user model is more attractive to the market. We can easily pivot to that to Tony's point, we got to sell it as a bundle and here's what your whole overall annual spend would be here's the ROI youre going to get on that investment. So no real change in the sales motion, but we definitely see some of our products being priced on a per user basis, obviously, a higher price point and lower number of users.

And the opposite CFO from a finance spend management perspective or from.

[Analyst] (KeyBanc Capital Markets): Okay. This is more of a philosophical question, but at this point, it looks like you're touching the HCM part of the business, the finance part of the business, and now the IT part. Long, long term, when we think about unified platform, could you ever see Paylocity expanding into more front office areas, or is it just too early?

Whereas the HCM products are largely on a per employee basis I think the interesting thing about what we've seen so far as we've gone to market still in the early days is the fact that there is a willingness to pay based on the value that's being delivered so I think that's certainly a part of the traction that we've seen as clients and prospects are finding value in it they are willing to invest in it and.

Think that a per user model is more attractive to the market. We can easily pivot to that to <unk> point, we got to sell it as a bundle and here's what your whole overall annual spend would be here's the ROI youre going to get on that investment. So no real change in the sales motion, but we definitely see some of our products being priced on a per user basis, obviously, a higher price point lower number of users.

Steve Beauchamp: I think we're pretty excited about the size of the TAM that we have in front of us. I go back to HCM. We're still at very low penetration in our core marketplace, and we're having good success driving that. We're pretty early in IT and finance. I think if you were to take a broader point of view, really, when you think about having that employee record, having the workflows across the organization, I think you've got a real opportunity to power much of the back office over time, and we can continue to stay focused on that. I think to think about getting into maybe front office solutions that are often more vertically based, it's probably not on the horizon.

Toby Williams: I think the interesting thing about what we've seen so far as we've gone to market still in the early days, is the fact that there is a willingness to pay based on the value that's being delivered. I think that's certainly a part of the traction that we've seen is, you know, clients and prospects are finding value in it, they're willing to invest in it. You know, that has not been a challenge from a, you know, value perceived and price perspective.

Yes.

Not been a challenge from a.

Value perceived and price perspective.

Thank you.

Operator: Thank you. Our next question comes from Siti Panigrahi of Mizuho. Your line is open.

And our next question comes from City Pentagon of Mizuho. Your line is open.

Thank you. Thanks for taking my question I, just wanted to drill into the comments strong demand environment can you talk about the demand you're seeing in a different employee segment.

[Analyst] (KeyBanc Capital Markets): Okay. Great. Thank you.

Siti Panigrahi: Thank you. Thanks for taking my question. I just want to drill into the comment, strong demand environment. Can you talk about the demand you are seeing in a different employee segment? Specifically, you know, now that your platform, you offer finance, HR, and IT, you know, what kind of feedback you are hearing from different this employee segment base about the value you offer versus your competitors?

Operator: Thank you. Our next question comes from George Kurosawa of Citi. Your line is open.

the fact that there is a willingness to pay based on the value that's being delivered. So I think that's certainly a part of the traction that we've seen is, you know, clients and Prospects are finding value in it. They're willing to invest in it and, you know, that that has not been a challenge from a

You know, value perceived in price perspective.

And specifically now that your platform you offer finance HR and it.

Thank you.

[Analyst] (KeyBanc Capital Markets): Okay. Great. Yeah. I'm on for Steve Enders. Thanks for taking the questions. Maybe just a high-level question. A lot of discussion about the impact of AI on labor markets more broadly. It sounds like headcount in your customers was a touch better than expected this quarter. Is there anything you guys have seen or heard that might indicate that your customers might be changing the way they're thinking about hiring based off of use of AI?

So what kind of feedback you are hearing from different segment employee segment.

And our next question comes from City. Penegra of mizuho, your line is open.

Do you offer versus your competitors.

Yes, I think through the course of Q1.

Toby Williams: Yeah, I think, you know, through the course of Q1, we've seen a very stable demand environment. I think, you know, really pleased with the results overall in Q1, I think that's, you know, part of what's reflected in that is the strength of the execution in our go-to-market teams. That was really well balanced across the entirety of the target market that we're focused on. I wouldn't call out any specific difference, whether it's in HCM or the finance area, in any segment that we have. I think it's pretty broad-based, I think the demand environment

We've seen very stable demand environment I think we're really pleased with the results overall in Q1 and I think that's part of what's reflected in that is the strength of the execution in our go to market teams and that was really well balanced across the entirety of the <unk>.

Ryan Glenn: No, not at this point. I think we obviously are able to track workforce levels as well as a host of additional elements across our client base. We continue to see stable data points. We look at those certainly on a weekly basis. To date, there's nothing that I would call out that would suggest a different experience than what we have seen.

Target market that we're focused on so I wouldn't call out any specific difference whether its an ATM or finance area in in any segment that we have I think it's pretty broad based and I think the demand environment was stable throughout the course of the quarter and I think our teams did a really good job from an execution perspective and go to market across the across the segments that we're in.

Uh, thank you, thanks for taking my question. Uh, I just want to drill into the comments. Strong demand environment. Can you talk about the demand? You are seeing in a different employee segment and, and specifically, you know, now that your platform, you offer Finance HR and IT now, what kind of feedback you are hearing from different this segment, employee segment, based about the value, you offer versus your competitors.

Yeah, I think you know, through the course of q1.

[Analyst] (KeyBanc Capital Markets): Great. A question on the back half of the year and seasonal trends. Form filings, I think you've said in the past, Airbase is maybe a bit less seasonal of a business than the core HCM side. Just anything to help us think through what that pattern will look like seasonally relative to typical historical patterns?

Steve Beauchamp: Was stable throughout the course of the quarter. I think our teams did a really good job from an execution perspective and go-to-market across the segments that we're in.

Toby Williams: Was stable throughout the course of the quarter. I think our teams did a really good job from an execution perspective and go-to-market across the segments that we're in.

Okay.

As you talk about efficiency gain from all the <unk>, you, Susan engineering sales marketing and operation.

Siti Panigrahi: Okay. As you talk about, you know, efficiency gain from all the AI usage in engineering, sales, marketing, and operation, you know, it's early, you know, early stage at this point, but as you gain efficiency, are you planning to invest back that more into your go-to-market and sales to drive growth, or are you going to offer more efficient, you know, margin?

Ryan Glenn: Yeah. Nothing one-time that I would call out at this point. I think you're right. Airbase would not necessarily have the same seasonal cadence that the HCM side, although obviously that is a very small part of our business today. Not sure I would discreetly adjust for that. Outside of that small item, everything else, I think so far, nothing I'd call out as far as one-time or different seasonal impacts as we think about the back half of the year.

Oddly at least stays at this point, but you again efficiency are you planning to invest Baghdad more into your go to market themselves to drive growth or are you going to.

We've seen a very stable demand environment, I think, you know, really pleased with the results overall in q1. And I think that's, you know, part of what's reflected in that is the strength of the execution and our go to market teams. And that was really well, balanced across the entirety of of the, the target market that we're focused on. So I wouldn't call out any specific difference, whether it's in HTML or the finance area. Um, in in any segment that we have, I think it's it's pretty broad-based and I think the demand environment was stable throughout the course of the quarter. And I think our teams did a really good job from an execution perspective and go to market across the across the the segments that we're in.

I'm going to offer more efficient.

<unk>.

Yes, So I think we've had a pretty consistent approach of driving margin expansion across most of the line items.

Steve Beauchamp: Yeah. I think, you know, we've had a pretty consistent approach of driving margin expansion across most of the line items. We also see a big opportunity to continue to invest in, you know, products so that we can fuel that growth. You can see R&D spend was up nicely, while at the same time we were able to get margin across the board everywhere else, more than make up for that. We're always making that balance of decisions. We're confident in the long-term prospects of the business. We think there's great opportunities to continue to invest in R&D, while at the same time getting leverage in all the other parts of the business.

We also see a big opportunity to continue to invest in Prague.

[Analyst] (KeyBanc Capital Markets): Great, thanks for taking the questions.

Products, so that we can fuel that growth and so you can see R&D spend was up nicely. While at the same time, we were able to get margin across the board everywhere else more than make up for that and so we're always making that balance of decisions. We're confident in the long term prospects of the business. We think there's great opportunities to continue to invest in R&D, while at the same time getting leverage at all.

Operator: Thank you. Our next question comes from Zachary Gunn of FT Partners. Your line is open. Zachary, your line is open. Please check your mute button.

Okay. And and uh, as you talk about, you know, efficiency again from all the AI you, you see as in engineering sales marketing and operation, uh, you know, it's early, you know, early, uh, stays at this point but as you gain efficiency, are you planning to invest back that more into your, uh, go to market and sells to drive growth? Or are you going to offer, uh, going to offer more efficient? Uh, you know, margin?

The other parts of the business and so I think you see that kind of reflected in the long term guidance that we have.

[Analyst] (FT Partners): Oh, sorry. Can you hear me?

Steve Beauchamp: I think you see that kind of reflected in the long-term guidance, that we, you know, the new long-term guidance that we just launched today.

Operator: Can hear you now.

Steve Beauchamp: I think you see that kind of reflected in the long-term guidance, that we, you know, the new long-term guidance that we just launched today.

[Analyst] (FT Partners): Yeah. We can. Okay. Yeah. Thanks. I just wanted to follow up on one of the earlier questions around Airbase and the longer-term financial targets. Just thinking about, you've talked in the past about the 10% to 20% kind of cross-sell opportunity. Is there a way to think about what cross-sell is embedded within that $3 billion? I recognize it's still a small portion of volume, but just any context on how has the long-term goal shifted there?

A new long term guidance that we just launched today.

Perfect. Thank you so much.

Siti Panigrahi: Perfect. Thank you so much.

Of driving margin expansion across, most of the line items. Um, we also see a big opportunity to continue investing in um, you know, products so that we can fuel that growth. And so, um, you can see R&D spend was up nicely. Well, at the same time we were able to get margin across the board everywhere else more than make up for that. And so we're always making

Thank you.

Okay.

Operator: Thank you. Our next question comes from Raimo Lenschow of Barclays. Your line is open.

And our next question comes from Ryan Lynch of Barclays. Your line is open.

Hi, This is Shaun mcmeans on for Raimo, Thanks for taking our question.

Sheldon McMeans: Hi, this is Sheldon McMeans on for Raimo. Thanks for taking our question. I would love to ask. You have your upcoming Elevate conference. Is there any insight from signups for the event or broadly from your top-of-funnel metrics that you're seeing? Can you speak to how that plays into your thinking entering the large end of your selling season?

I would love to ask you have your upcoming elevate conference is there any insight from sign ups for the event or broadly from your top of funnel metrics that you're seeing and can you speak to how that plays into your thinking entering the large end of year selling season.

That balance of decisions, we're confident in the long-term prospects of the business. We think there's great opportunities to continue to invest in R&D while at the same time, getting leverage and and all the other parts of the business. And so I think you see that kind of reflected in the long term guidance, uh that we uh you know, the new long-term guidance that we just launched today.

Steve Beauchamp: Yeah. I think Toby kind of answered this question. I'll maybe take a different tack at it. It's really about unit growth and average revenue per customer growth for us. That formula for us historically has moved around year by year, but we've been pretty consistent. Roughly half the growth has come from units, and the other half from average revenue per customer. That has shifted a little bit as we've had certain product launches, and they've moved up the adoption curve. We're not fundamentally thinking that the launch of IT and finance changes that equation materially. You may see some shifts in that over time. We feel more confident having that opportunity to expand in those areas, that we can absolutely continue that ARPU expansion.

Perfect, thank you so much.

Thank you.

And our next question comes from Rio Lynch, how of barklay your line is open.

Well I think so far I mean, you can see what I would I think we believe we're pretty strong results in Q1. So I think we're pretty happy with how our go to market motion has progressed through the course of the fiscal year, you're right, where we're definitely in the heart of selling season and I think.

Steve Beauchamp: Well, I think so far, I mean, you can see what I think we believe were pretty strong results in Q1. I think we're pretty happy with how our go-to-market motion has progressed through the course of the fiscal year. You're right, we're definitely in the heart of selling season, and I think, you know, we'll just give you that same commentary. I think we've been really pleased with our go-to-market initiatives and efforts throughout the course of the year so far to date. Yeah, I think we're certainly excited about Elevate. That's always a great opportunity for us to spend time with our existing clients, and, you know, really excited about the registration levels that we've seen so far.

Toby Williams: Well, I think so far, I mean, you can see what I think we believe were pretty strong results in Q1. I think we're pretty happy with how our go-to-market motion has progressed through the course of the fiscal year. You're right, we're definitely in the heart of selling season, and I think, you know, we'll just give you that same commentary. I think we've been really pleased with our go-to-market initiatives and efforts throughout the course of the year so far to date. Yeah, I think we're certainly excited about Elevate. That's always a great opportunity for us to spend time with our existing clients, and, you know, really excited about the registration levels that we've seen so far.

Just give you that same commentary I think we've been really pleased with our go to market initiatives and efforts throughout the course of the year.

Question. I would love to ask, um, you have your upcoming Elevate conference. Is there any insight from signups, uh, for the event or broadly from your top of funnel metrics um, that you're seeing? And can you speak to how that plays into your thinking entering the the large end of your selling season?

So far to date and I think we're certainly excited about elevate that's always a great opportunity for us to spend time with with our existing clients and really excited about the registration levels that we've seen so far so I feel like we have we have had year to year positive momentum with elevate and I think we do again this year and I think we are again.

Steve Beauchamp: Certainly, it is a factor in giving us confidence to be able to not only look towards $2 billion, which is kind of around the corner, but look beyond that to $3 billion.

Steve Beauchamp: I feel like we have had year-to-year positive momentum with Elevate, and I think we do again this year. you know, I think we are again, just excited to be able to spend time with clients. It's always, I think, a valuable set of days for us.

Toby Williams: I feel like we have had year-to-year positive momentum with Elevate, and I think we do again this year. you know, I think we are again, just excited to be able to spend time with clients. It's always, I think, a valuable set of days for us.

Operator: Thank you. Our next question comes from Madeline Brooks of Bank of America. Your line is open.

Excited to be able to spend time with clients, it's always I think.

Valuable set of days for us.

Got it understood. Thank you and so I would love to ask on the new generation of the AI assistant I'm just.

Sheldon McMeans: Got it. Understood. Thank you. I would love to ask on the new generation of the AI Assistant, just any color on... You know, sometimes it's great when your salespeople have a new, nice product to sell. I know you're not explicitly monetizing it, but is there an opportunity to go back to your customer base, you know, show off that new product and potentially drive more platform expansion? Because from my understanding, you need to have all of the underlying modules to extract the most value from the AI Solution.

[Analyst] (Bank of America): Hi. Thanks so much for fitting me in here. Just a quick one from me, guys. Looking at your long-term targets and how they've changed, looks like the updated target for sales and marketing as a percent of revenues actually went down a little bit. I'm just curious as to why, because if we look at the opportunity ahead of you, both in the businesses that you operate in, but then largely in the market in terms of AI and broader technological shifts, most other companies are ramping up investment in their go-to-market. I understand efficiencies from AI. However, I think the trend that we've seen is that those efficiencies kind of more supplement versus are used for total OpEx reduction. I'm just wondering why not invest a little bit more heavy-handedly at a time when the opportunity seems so ripe. Thank you.

Just any color on you know, sometimes it's great. When your salespeople have a new a nice product to sell I know you're not explicitly monetizing it but is there an opportunity to go back to your customer base, you know show up that new product and potentially drive more platform expansion because from my understanding you need to have all of the.

Well, I think so far. I mean, you, you can see what I what I think we believe we're pretty strong results in q1, so I think we're pretty happy with how our go to market. Motion has progressed through the course of the fiscal year. You're right, we're we're definitely in the heart of of selling season and I think, you know, we're just give you that same commentary. I think we've been really pleased with our go to market initiatives and efforts throughout the course of the year, uh, so far to date. And yeah, I think we're, we're certainly excited about Elevate. That's always a, a great opportunity for us to spend time with with our existing, uh, clients and, you know, really excited about the the registration levels that we've seen so far. So I feel like we have, we have had year-to-year positive momentum with Elevate. And I think we do again this year and you know, I think we, we are again, just excited to be able to spend time with clients. It's always, I think, uh, a valuable set of days for us.

The underlying modules to extract the most value from the AI solution.

I think you heard us say in the prepared remarks that some of our investments in AI are driving broader product adoption and kind of sale back to the client base and so I think youre absolutely correct. The more products you use the more value you can get out of these integrated AI experiences, where something that might be more difficult to use that might have to take three or four different steps to figure out.

Steve Beauchamp: Yeah. I think you heard us say in the prepared remarks that some of our investments in AI are driving broader product adoption and kind of a sell back to the client base. I think you're absolutely correct. The more products you use, the more value you can get out of these integrated AI experiences. Where something that might be more difficult to use, I might have to take three or four different steps to figure that out, it's pretty seamless, certainly from an employee and manager perspective. I can use natural language. I can interact with the software. Really simplifies the user experience, and it really makes that value proposition much easier for a customer to implement and use. I think we're still in the early innings of that, but we are definitely seeing that trend early on.

Got it, understood. Thank you. And and so I would love to ask on on the new generation of the AI assistant, um, just any color on, you know, sometimes it's great when, uh, your sales people have a new, uh, nice product to sell. I know you're not explicitly monetizing it but is there an opportunity to go back to your customer base, you know, show off that, that new product and and potentially drive more platforms?

That out it's pretty seamless certainly from an employee and manager perspective, I can use natural language I can interact with the software it really simplifies the user experience and it really makes that value proposition much easier for a customer to implement and use I think we're still in the early innings of that but we are definitely seeing that trend early on and I think.

Expansion. Because from my understanding you need to have all of the the underlying modules to extract the most value from the AI solution.

Ryan Glenn: Yeah. I think we feel like we've right-sized our investments across go-to-market against the opportunity that we have. The change in the target, I mean, if you look at where we closed last year, I think we were at 21.6 from a sales and marketing perspective. That's basically at the top end of the range that we have adjusted to. I wouldn't make more of that than is actually reflected in the data. I think we have a pretty consistent approach from a go-to-market spend perspective. We've talked about being able to drive more productivity there, but I don't think we're under-investing in what we see as a significant opportunity. I think we are appropriately invested in it. We're looking for productivity and efficiency, but we're also looking for delivery. I feel really good about the productivity of that team throughout the course of 2025.

prepared remarks, that some

If you really talk to the customers, that's where theyre getting a ton of value. My employees are going to be asking me last questions because it's super easy for them to get things done I myself as an administrator you've reduced the number of steps that it takes for me to accomplish the task you're automating from an agenda experience things that I used to have to do manually and so that's the concept really where we see the.

Steve Beauchamp: I think if you really talk to the customers, that's where they're getting a ton of value. My employees are gonna be asking me less questions 'cause it's super easy for them to get things done. I myself, as an administrator, you've reduced the number of steps that it takes for me to accomplish the task. You're automating, from an agentic per-experience things that I used to have to do manually. That's the concept really where we see the differentiation opportunity. The simpler we can make that user experience, the more product adoption. I think that it's also true as you start to extend beyond HCM and think about the integrated experience across IT and finance.

Differentiation opportunity and the simpler we can make that user experience to more product adoption and I think that it's also true as you start to extend beyond HCM and think about the integrated experience across it and finance.

Ryan Glenn: We've been in a great spot as the fastest-growing HCM provider. I think that's what we have in front of us too. I think we're invested to be able to produce that.

Great. Thank you.

Thank you.

Sheldon McMeans: Great. Thank you.

Okay.

Operator: Thank you. Our next question comes from Jared Levine of TD Cowen. Your line is open.

And our next question comes from Jared Levine of TD Cowen Your line is open.

[Analyst] (Bank of America): Thank you.

Operator: Thank you. Our next question comes from Jacob Smith of Guggenheim Securities. Your line is open.

Are driving broader product adoption and kind of uh sail back to the client base. And so I think you're absolutely correct. The more products you use, the more value you can get out of these, integrated AI experiences where something that might be more difficult to use. I might have to take 3 or 4 different steps to figure that out. It's pretty seamless. Certainly from an employee in manager perspective, I can use natural language. I can interact with the software, really simplifies the user experience and it really makes that value proposition much easier for a for a customer to implement and use. I think we're still in the early Innings of that. Um, but we are definitely seeing that Trend early on. And I think if you really talk to the customers, that's where they're getting a ton of value, my employees are going to be asking me last questions, because it's super easy for them to get things done. I myself as an administrator, you've reduced the number of steps that it takes for me, to accomplish the tasks. You're automating, uh, from an agent, to experience things that I used to have to do manually. And so that's the concept really where we see the differentiation opportunity in the simpler. We can make that

Thank you our first wanted to start on Europe.

Offering so with the airbase acquisition, you've called out in <unk> comparable to HCM somewhere in the neighborhood of like 25 to 30000 can you talk about the <unk> opportunity your <unk> offerings present.

Jared Levine: Thank you. I first wanna start on your IT offerings. With the Airbase acquisition, you called out an ARPU comparable to HCM somewhere in the neighborhood of, like, $25,000 to $30,000. Can you talk about the ARPU opportunity your IT offerings present?

[Analyst] (Guggenheim Securities): Hey, Ed. Thanks for taking my question. I want to ask another about the broker channel and Paylocity's right to win new referral business, especially in situations where brokers' books may have previously referred a lot of business to an acquired competitor. We understand this is a very competitive landscape with large public and private companies all leaning in pretty heavily into the channel, all going after the same opportunity. Most of them compete directly with brokers, as you guys point out, whereas Paylocity does not. Can you talk about what you're doing both at the leadership level with brokers in terms of strategic alignment, and at the micro level with individual producers to deepen vendor trust and buy-in to win new referral business now that that might be up for grabs?

User experience drives more product adoption. I think that it's also true as you start to extend beyond HCM and think about the integrated experience across IT and finance.

Great. Thank you.

Thank you.

Yes.

I would say, it's a little bit smaller we're a little bit earlier in the launch of that cycle. We certainly have clients on it we are actively selling it in the market but.

Steve Beauchamp: Yeah. I would say it's a little bit smaller. We're a little bit earlier in the launch of that cycle. We certainly have clients on it. We are actively selling it in the market, but, you know, we're probably just from a timing perspective, a couple quarters behind where we were with the Airbase offering. I don't think we're prepared to give you kind of the exact number. What I would say is it's larger than most of our HCM modules. I think we're excited about that. It's a good size revenue opportunity. Again, some of this is a little bit of pricing mix. Some of you had a price on a per user basis versus per employee, so there's a mix there.

And our next question comes from Jared Levine of KD cow and your line is open.

We're probably just from a timing perspective, a couple of quarters behind where we were with the airbase offering.

I don't think were prepared to give you the exact number what I would say is it's larger than most of our HCM modules.

Thank you first want to start on your uh, it offering. So with the airbase acquisition, you call down in our poo comparable to HCM somewhere in the neighborhood of like 25 to 30,000. Can you talk about the rpu opportunity? Your it offerings present.

And so I think we're excited about that so it's a good sized revenue opportunity.

And again some of this is a little bit of pricing mix. Some of you had a price on a per user basis versus per employee. So there's a mix there but think about it is somewhere between one of our larger HCM modules and that are based number.

[Analyst] (Guggenheim Securities): Also, is there any way to frame the benefit you've seen so far from any disruption in the channel? That'd be helpful. Thanks.

Steve Beauchamp: Think about it as somewhere between, you know, one of our larger HCM modules and that Airbase number.

Steve Beauchamp: Yeah, sure. I think, as you indicated, it's a key part of our go-to-market motion, has been even prior to going public. I think, as you also indicated, a lot of this happens at the field level. These are individual relationships between our salespeople who are interacting with the brokers in their offices, going out on calls together, sharing leads, and getting referrals. Those referrals obviously get translated into new business sales. I think the other thing I would say is we consistently have been above the 25%. We don't give the exact specific number, but I think we've given you the color that we've been excited about the momentum in the broker channel. That has definitely been a contributor to our overperformance, both in the back half of FY25 and into FY26. No change to the strategy. It's really the same strategy.

Got it and then Ryan in terms of heard you in terms of the $65 million of expected tax benefit this year from obs, but any headwinds to be mindful of as we think about FY 'twenty seven.

Jared Levine: Got it. Ryan, heard you in terms of the $65 million of expected tax benefits this year from OBBBA, but any headwinds to be mindful of as we think about FY 2027?

Well I think we're calling that out as a onetime benefit in in fiscal 'twenty six so you'd have to adjust the model is that benefit would not be recurring I think there are likely some other tailwind from the new tax legislation that will help in 'twenty, seven but that that big elements that $65 million is one time, so I would I would adjust that.

Steve Beauchamp: Well, I think we're calling that out as a one-time benefit in fiscal 2026, so you'd have to adjust the model as that benefit would not be recurring. I think there are likely some other tailwinds from the new tax legislation that will help in 2027, but that big element, that $65 million is one time. I would adjust that out in 2027. Outside of that, there's nothing at this time that I would call it on free cash flow, other than the fact that we would expect to continue to drive leverage, certainly in 2026, but on a go-forward basis as well.

Toby Williams: Well, I think we're calling that out as a one-time benefit in fiscal 2026, so you'd have to adjust the model as that benefit would not be recurring. I think there are likely some other tailwinds from the new tax legislation that will help in 2027, but that big element, that $65 million is one time. I would adjust that out in 2027. Outside of that, there's nothing at this time that I would call it on free cash flow, other than the fact that we would expect to continue to drive leverage, certainly in 2026, but on a go-forward basis as well.

Yeah. Um, I would say it's a little bit smaller. We're a little bit earlier in, um, the launch of that cycle. We we certainly have clients on it. We are actively selling it in the market but um, you know, we're probably just from a timing perspective, a couple quarters behind where we were uh, with the airbase offering. Um, I don't think we're prepared to give you kind of the exact number. What I would say is it's larger than most of our HCM modules. Um uh and so I think we're excited about that. So it's a it's a good size Revenue opportunity um and again some of this is a little bit of pricing mix. Some of you got a price on a per user basis versus per employee, so there's a mix there, but think about it somewhere between, you know, 1 of our larger HCM modules and that are Base number.

In 2007 outside of that there is nothing at this time that I would that would call. It on free cash flow other than the fact that we would expect to continue to drive leverage.

Abby, and then Ryan, in terms of heard you, in terms of the 65 million of expected tax, benefits this year from obba, but any headwinds to be mindful of, as we think about FY, 27,

Certainly in 'twenty six but on a go forward basis as well.

Got it thank you.

Steve Beauchamp: We also have relationships with the biggest brokers at a corporate level, and those are enabling factors. When you've got a little bit less competition out there, we certainly see that as an opportunity. We're going after that opportunity, and we think that has been a contributor to the strong start this fiscal year.

Thank you.

Toby Williams: Got it. Thank you.

Okay.

Operator: Thank you. Our next question comes from Jake Roberge of William Blair. Your line is open.

And our next question comes from Jay Group Birch of William Blair. Your line is open.

Yes, thanks for taking the questions just wanted to follow up on the demand environment can you talk more about how the start to the end of the year selling season has gone thus far and just how the pipeline you're seeing this year may compare to some of those prior year periods.

Jake Roberge: Yeah, thanks for taking the questions. Just wanted to follow up on the demand environment. Can you talk more about how the start to the end of the year selling season has gone thus far, and just how the pipeline you're seeing this year may compare to some of those prior year periods?

[Analyst] (Guggenheim Securities): Great, thanks again.

Well, I think we're we're calling that out as as a 1-time benefit in, in, in fiscal 26. So you'd have to adjust the the model as that benefit would would not be recurring. I think there are likely some other, uh, Tailwind from the new tax legislation that will help in 27. But that that big element that 65 million is is 1 time. Um, so I would I would adjust that out in 27 outside of that. There there's nothing at this time that I would that would call it on free cash flow. Other than the fact that we would expect to continue to drive leverage um, certainly in 26 but on the go forward basis as well.

Operator: Thank you. I show no further questions at this time. I'd like to turn it back to Toby Williams for closing remarks.

Got it. Thank you.

Thank you.

Yes, I think it's been it's been it's been good so far I mean, we've described the demand environment as being stable I think from a quarter to quarter perspective.

Ryan Glenn: Yeah. I just wanted to thank everybody for their interest in Paylocity. Thanks for your time tonight. Certainly, a large thank you to all of our employees who helped make Q1 great. Thank you again. Have a good night.

Steve Beauchamp: Yeah, I think it's been, you know, it's been, it's been good so far. I mean, we've described the demand environment as being stable. I think from a quarter-to-quarter perspective, you know, throughout the course of last year, we would've called out stability in the demand environment and then strong execution from our go-to-market teams, which is really what gave us, you know, I think a great performance in the course of fiscal 2025. I think that has really carried through into Q1. As we've really gotten into the heart of selling season, I think the demand environment has continued to be stable, and our teams have executed really well. I think we have... You know, we're pleased with the momentum that we've seen so far from both a pipeline and a conversion standpoint.

Ryan Glenn: Yeah, I think it's been, you know, it's been, it's been good so far. I mean, we've described the demand environment as being stable. I think from a quarter-to-quarter perspective, you know, throughout the course of last year, we would've called out stability in the demand environment and then strong execution from our go-to-market teams, which is really what gave us, you know, I think a great performance in the course of fiscal 2025. I think that has really carried through into Q1. As we've really gotten into the heart of selling season, I think the demand environment has continued to be stable, and our teams have executed really well. I think we have... You know, we're pleased with the momentum that we've seen so far from both a pipeline and a conversion standpoint.

Grow Burge of William Blair. Your line is open.

The course of last year, we would have called out stability in the demand environment and strong execution from our go to market teams, which is really what gave us.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.

I think a great performance in the course of fiscal 'twenty, five and I think that has really carried through into Q1 and as we've really gotten into the hardest selling season I think the demand environment has continued to be stable and our teams have executed really well. So I think we have.

Yeah, thanks for taking the questions. Just just wanted to follow up on the demand environment. Can you talk more about how to start to the end of the year? Selling season has gone thus far, and just how the pipeline you're seeing this year may compared to to some of those prior year periods?

We're pleased with the momentum that we've seen so far from both the pipeline and the conversion standpoint.

Okay. That's helpful. And then just on the sales side now that you're selling a bigger platform into a few different departments are you seeing any changes to the time. It takes you to close the deal just giving you may need more signatures are or those remained fairly consistent since the launch of Pelosity for finance.

Jake Roberge: Okay, that's helpful. Just on the sales side, now that you're selling a bigger platform into a few different departments, are you seeing any changes to the time it takes you to close a deal, just given you may need more signatures or have those remained fairly consistent since the launch of Paylocity for Finance?

Yes, I would say no we have not we've been very conscious of that fact, and I think our go to market strategy really mitigates the potential to have elongated sales cycles. So we're very comfortable getting them up and running on any of the products first and foremost it typically happens with HCM since that's obviously the bigger part of our suite today.

Yeah, I think it's been you know it's been it's been good so far. I mean we've described the demand environment as being stable I think from a quarter to quarter perspective you know throughout the course of last year we would have called out stability in the demand environment and then strong execution from our go to market teams which is really what gave us, you know, I think a great performance in the course of fiscal 25. And I think that has really carried through into q1 and, and as we've really gotten into the heart of selling season. I think the demand environment has continued to be stable and our teams have executed really well. So, I think we have, you know, we're we're pleased with the momentum that we've seen so far from both the pipeline and a conversion standpoint.

Steve Beauchamp: Yeah, I would say, no, we have not. We've been very conscious of that fact, and I think our go-to-market strategy really mitigates the potential to have elongated sales cycles. We're very comfortable getting them up and running on any of the products first and foremost, and it typically happens with HCM since that's obviously the bigger part of our suite today. They may take a little bit longer to implement any of the additional modules. That's a motion we're very used to. That happens sometimes even within the HCM products, and so we try to get them up and running, deal with the decision-makers that are ready to move.

And then they may take a little bit longer to implement any of the additional modules that emotion. We're very used to that happens sometimes even within the HCM products and so we try to get them up and running deal with the decision makers that are ready to move I think it's important that they understand the breadth of the platform and then sometimes they implement at the same time, sometimes they implement a little.

Okay, that's helpful. And then just on the sales side, now that you're selling a bigger platform into a few different departments, are you seeing any changes to the time it takes you to close a deal? Just given you may need more signatures, or if those remain fairly consistent since the launch of Paylocity for finance?

Steve Beauchamp: I think it's important that they understand the breadth of the platform. Then sometimes they implement at the same time, sometimes they implement a little bit later. Sometimes we've got to go back and sell them the additional products, which is very consistent motion with finance IT, just as it was with the additional HCM modules. No elongated sales cycles.

Bit later, and sometimes you got to go back and sell them additional products.

Which is very consistent motion with finance just as it was with the additional HCM module. So no longer sales cycles. I would also say that it is it is the usual occurrence that in the context of selling HCM. You are also talking to someone from one of the other areas. So the idea that this is a totally new motion with a totally new buyers just not right.

Toby Williams: I would also say that it is the usual occurrence that in the context of selling HCM, you are also talking to someone from one of the other areas. The idea that this is a totally new motion with a totally new buyer is just not right. I mean, it is usually the case that we are talking to the head of HR, someone from the finance area, and someone from the IT area, which could be the CIO, the CFO, and the head of HR. It could be someone on their teams, but it is usually the case that we're dealing with someone in all three of those areas.

It is very it is usually the case that we are talking to the head of HR someone from the finance area and someone from the IP area, which could be the CIO the CFO.

The head of HR or it could be someone on their teams, but it is usually the case that we're dealing with someone in all three of those those areas.

Yeah, I would say no, we have not um we've been very conscious of that fact and I think our go to market strategy, really mitigates the potential to have a long gated sales Cycles. So we're very comfortable getting them up and running on any of the products. First and foremost. And it typically happens with HCM since that's obviously the bigger part of our suite today. Um, and then they may take a little bit longer to implement any of the additional modules. That's a motion. We're very used to that happens sometimes even within the HCM products. And so, we try to get them up and running deal with the decision makers that are ready to move. I think it's important that they understand the breadth of the platform, and then sometimes they Implement at the same time, sometimes they Implement a little bit later and sometimes we got to go back and sell them, the additional products, um, which is very consistent motion with Finance. It just as it was with the additional HCM module, so no elongated sales Cycles. It would also say that it it is, it is the usual occurrence that in the

That's helpful. Thanks for taking my questions.

Jake Roberge: That's helpful. Thanks for taking the questions.

Thank you.

Operator: Thank you. Our next question comes from Scott Berg of Needham & Company. Your line is open.

And our next question comes from Scott Berg of Needham <unk> Company. Your line is open.

Context of selling HCM. You are also talking to someone from one of the other areas. So the idea that this is a totally new motion with a totally new buyer is just not right. I mean it is usually the case that we are talking to the head of HR some.

Paul This is Ian block on for Scott Berg.

Ian Black: Hi, this is Ian Black on for Scott Berg. Does the Paylocity for Finance solution impact your long-term financial targets at all? Is there an impact on gross margin specifically?

He wants to be profiling exclusive impact your long term target is there an impact on gross margin specifically.

On the finance area. And someone from the it area, which could be the CIO the CFO and the the head of HR, it could be someone on their teams, but it is usually the case that we're dealing with someone, in all 3 of those, those

That's helpful. Thanks for taking the questions.

Yes, we've had that question in the past that we were pretty comfortable that over time, we can get the pelosity for finance solution to be similar margins to the rest of our portfolio and I think you see that kind of reflected in our confidence in increasing the target for long term gross margin. So we don't necessarily see that as is being.

Thank you.

Steve Beauchamp: Yeah, we've had that question in the past, that we were pretty comfortable that over time, we can get the Paylocity for Finance solution to be similar, margins, to the rest of our portfolio. I think you see that kind of reflected in our confidence in increasing the target for long-term gross margin. We don't necessarily see that as being, you know, a headwind at all.

And our next question comes from Scott Berg of Neiman Company. Your line is open.

A headwind at all.

Hi, this is Ian Black on for Scottsburg. Does the philosophy for finding solutions impact your long-term financial targets at all? Is there an impact on gross margin specifically?

Great. Thank you.

Ian Black: Great. Thank you.

Thank you.

Operator: Thank you. Our next question comes from Samad Samana of Jefferies. Your line is open.

And our next question comes from Samad Samana of Jefferies. Your line is open.

Hi, This is Jordan <unk> on for some odd congrats on the strong results I wanted to touch on the competitive front for a second you called out product differentiation in your own platform driving.

Yeah, we've had that question in the past that we were pretty comfortable that over time. We can get the, uh, Paylocity for finance solution to be similar margins, uh, to the rest of our portfolio. And I think you see that kind of reflected in our confidence in increasing the, uh, Target for long-term gross margin. So, uh, we don't necessarily see that as as

Jordan Boretz: Hey, this is Jordan Boretz on for Samad. Congrats on the strong results. I wanted to touch on the competitive front for a second. You called out, you know, product differentiation in your own platform driving, kind of key strength. I'm curious, with some noise of consolidation in the market, both at the high end and the lower end, obviously with Dayforce and Paycor, are you seeing any notable changes in win rates against those competitors, more so, you know, in the lower end of the market, as, you know, that company segment kind of navigates the changing landscape there?

Um, you know, a headwind at all.

Right. Thank you.

Thank you.

A key strength.

I'm curious with some noise of consolidation of the market, but at the high end of the mower and obviously with the fourth pick.

<unk> are you seeing any notable changes in win rates.

And our next question comes from Samad Essa of Jeffrey's. Your line is open.

Against those competitors more so on the lower end of the market.

As you know.

Scott.

Excuse me that company segment.

Navigate the changing landscape there.

Hey, this is Jordan Barrett's on for Samad. Congrats on the strong results. I wanted to touch on the competitive front for a second. You called out, you know, product differentiation in your own platform driving, um, kind of...

Strength.

Yes, I would say.

We've always felt like we've got a differentiated product portfolio and it has been a competitive environment and remains a competitive environment.

Steve Beauchamp: Yeah, I would say, you know, we've always felt like we've got a differentiated product portfolio, it has been a competitive environment and remains a competitive environment. I do think that the value proposition, as Toby mentioned in his prepared remarks, of really being broker-neutral and broker-friendly, has been a key part of our go-to-market motion for many, many years. I think there's some uniqueness to that, and we have been a leader in that space for a while. I think some of the consolidation is certainly helpful in that category. But I will just go back to the fact that you've got to win based off of your product, your service that you provide every single day.

I do think that the value proposition as Toby mentioned in his prepared remarks of really being broker neutral and broker friendly.

It's been a key part of our go to market motion for many many years and so I think.

I'm curious with some noise of consolidation in the market both at the high end and the lower end obviously, with they force pay core, are you seeing any notable changes in win rates, uh, against those competitors more? So, you know, in the lower end of the market? As you know, that product, excuse me, that company segments kind of navigates the changing landscape there.

There is some uniqueness to that end, we have been a leader in that space for a while so I think some of the consolidation is certainly helpful in that category.

And what I will just go back to the fact that you've got to win based off of your product. Your service that you provide every single day, it's a competitive market and we're really proud of the results that our sales team, we're able to generate in first quarter.

Steve Beauchamp: It's a competitive market, and we're really proud of the results that our sales team were able to generate in Q1.

Awesome.

Then on the go to market side I was wondering if you could maybe parse out how sales rep productivity is trending versus <unk>.

Jordan Boretz: Awesome. Then on the go-to-market side, I was wondering if you can maybe parse out how sales rep productivity is trending versus hiring and how hiring is trending versus your initial expectations into the year?

Hiring and how hiring is trending versus your initial expectations into the year.

Yes, I think we came into the fiscal year with around an 8% increase in head count and obviously, you can see where we land in the quarter and where we've guided the year. So.

Toby Williams: I think we came into the fiscal year with around an 8% increase in headcount, and obviously you can see where we landed the quarter and where we've guided the year. You know, I think our focus, you know, going into fiscal 25 and then coming into fiscal 26 again, was to be able to, you know, drive the type of performance that we've actually delivered and to be able to do that focused on our sales rep and go-to-market productivity, which again, I think, you know, by looking at the headcount increase versus the amount of growth we've been able to deliver in Q1, I think we've done that again in Q1 of fiscal 26.

It's a competitive market, and we're really proud of the results that our sales team was able to generate in the first quarter.

I think our focus going into fiscal 'twenty, five and then coming into fiscal 'twenty six again was to be able to.

Drive the type of performance that we've actually delivered and to be able to do that focused on our sales rep and go to market productivity, which again I think.

Awesome. And then, on the go to market side, I was wondering if you can, maybe parse out how Salesforce productivity is trending versus, uh, hiring and how hiring is trending versus your initial expectations into the year.

We came into the fiscal.

clear with

By looking at the head count increase versus the amount of growth we've been able to deliver in Q1, I think we've done that again in.

In Q1 of fiscal 'twenty six so overall I think we continue to focus on the productivity of the teams, including our go to market teams and I think that's what we've delivered again in Q1.

Toby Williams: Overall, I think we continue to focus on the productivity of the teams, including our go-to-market teams, and I think that's what we've delivered again in Q1.

Great well congrats on the strong start to the year and I appreciate taking my questions.

Alex Zukin: Great. Well, congrats on the strong start to the year. I appreciate you taking my questions.

Jordan Boretz: Great. Well, congrats on the strong start to the year. I appreciate you taking my questions.

Thank you.

Operator: Thank you. Our next question comes from Brian Peterson of Raymond James. Your line is open.

And our next question comes from Brian Peterson of Raymond James Your line is open.

Hi. This is does go on for Brian Thanks for taking my question.

[Analyst] (Raymond James): Hi, this is Jessica on for Brian. Thanks for taking my question. I was just thinking a bit of a follow-up to earlier discussions we've had in comments is, as you have this increasingly differentiated value of your platform, are you seeing customers trying to trend towards landing with more products than prior cohorts were? Is this been more of a benefit of saying like Paylocity that you guys have more places that a customer can land on and then from there building out to expanding later? Thanks.

Obviously, you can see where we landed the quarter, um, and where we've guided the year. So, um, you know, I think our Focus, you know, going into fiscal 25 and then coming into fiscal 2016. Again, was to be able to, um, you know, Drive the type of performance that we've actually delivered and to be able to do that focused on our sales rep and and go to market productivity. Which again, I think you know by by looking at the headcount increase versus the amount of growth, we've been able to deliver in q1. I think we've done that again, uh, in q1 of fiscal 26. So overall, I think we continue to focus on the productivity of the teams including our go to market teams. And I think that's what we've delivered again in q1.

Thank you have a follow up to earlier discussions we've had a comment is as you have heard this increasingly differentiated value of your platform.

Great. Well, congrats on the strong start to the year and I appreciate you taking my questions.

Thank you.

Seeing customers trying to trend towards landing with more products than prior cohorts, where or is this been more of a benefit today like plc. You guys have more places that a customer can land on an eye from durability out to expanding later thanks.

And our next question comes from Brian Peterson of Raymond James. Your line is open.

Yes.

We've seen both I mean, I think we've seen to Steve's comments, we have seen differentiation gains that we've had from the broader a broader platform that I think help us from it from an overall client acquisition unit growth standpoint, I think we have over a very long period of time continued year to year to see the amount we realized out of the total amount that chartered along the plan.

Toby Williams: I think we've seen both. I mean, I think we've seen, to Steve's comments, we've seen differentiation gains that we've had from the broader platform that I think help us from an overall client acquisition and unit growth standpoint. I think we have, over a very long period of time, continued year to year to see the amount we realize out of the total amount that's chargeable on the platform increase. I think that reflects the fact that, you know, year after year after year, clients are taking a larger amount of product from us. I think you also get the benefit of being able to sell those products back into the customer base. I think you see it in differentiation.

Hi. This is Jessica over Brian. Um thank you for taking my question. I'll just thinking bit of a follow-up to earlier discussions. We've had in comments is as you have here, this increasingly differentiated value of your platform. Are you seeing customers trying to Trend towards lighting with more products than prior cohorts were? Or is this been more of a benefit of saying like chaos that you guys have more? Uh, places that a customer can land on and I'm from their ability out to expanding later, thanks.

<unk> increase and I think that reflects the fact that year after year. After year clients are taking a larger amount of product from US and then I think you also get the benefit of being able to sell those products back into the customer base. So I think you see it in differentiation I think you see it driving higher <unk> at the time of client acquisition and I think youll see it in the ability to drive an overall higher.

I think we've seen both. I mean, I think we've seen, to Steve's comments, we've seen differentiation gains that we've had from the broader platform that I think helped us from an overall client acquisition and unit growth standpoint. I think we have over.

Toby Williams: I think you see it in driving, higher ARPU at the time of client acquisition, and I think you see it in the ability to drive an overall higher ARPU as you sell back into the customer base over time.

<unk> you sell back into the customer base over time.

Got it thanks.

Thank you.

[Analyst] (Raymond James): Got it. Thanks.

Operator: Thank you. Our next question comes from Pat Walravens of Citizens. Your line is open.

And our next question comes from Pat Walraven from citizens. Your line is open.

Oh, Great. This is Kate on for Pat. Thanks for taking my question you guys highlighted your sales reps are going to use them. Some AI tools to automate parts of their go to market is there any specific tools that you can call out there.

Kincaid Hubbart: Oh, great. This is Kincaid on for Pat. Thanks for taking our question. You guys highlighted your sales reps are gonna be using some AI tools to automate parts of their go-to-market. Is there any specific tools that you could call out there?

Kincaid LaCorte: Oh, great. This is Kincaid on for Pat. Thanks for taking our question. You guys highlighted your sales reps are gonna be using some AI tools to automate parts of their go-to-market. Is there any specific tools that you could call out there?

A very long period of time continued year to year to see the the the amount we realize out of the total amount that chargeable on the platform increase. And I think that reflects the fact that, you know, year after year after year, clients are taking a larger amount of product from us. And then, I think you also get the benefit of being able to sell those products back into the customer base. So, I think you see it in differentiation. I think you see it driving a higher arpu at the time of client acquisition. And I think you see it in the ability to drive an overall higher rpu. As you said,

To the customer base over time.

Got it, thanks.

Thank you.

Yes, I think when we look across all of the tech that are that our go to market teams and sales and marketing are using I think our effort has been to try and find.

Toby Williams: Yeah. I think when we look across all of the tech that our go-to-market teams and sales and marketing are using, I think our effort has been to try and find... This is true across the business. You're trying to find opportunities to automate the processes that everyone's going through day-to-day, including our sales reps, and you're looking at what AI tools each one of those pieces of technology has available to them and making sure that we're leveraging each one to the fullest extent, while also, again, trying to take the lens of what can we automate in the process. I think that's what my comments in the prepared remarks were referring to. I think this is a, you know, it's broad-based commentary across all the tech that we're using from a go-to-market standpoint.

And our next question comes from Pat Wall Ravens of Citizens. Your line is open.

And this is true across the business you are trying to find opportunities to automate the processes that everyone's going through day to day, including our sales reps and Youre looking at what AI tools. Each one of those pieces of technology has available to them and making sure that we're leveraging each one to full fullest extent, while also again trying to take the lens of what can we automate the process and I think.

Oh, great, this is Canon for Pat. Thanks for taking our question. You guys highlighted uh your sales reps are going to be using some AI tools to automate parts of their go to market. Is there any specific tools that you could call out there?

That's what my my comments in the prepared remarks, where we're referring to so I think this is a broad based commentary across all the tech that were using from a go to market standpoint.

Yeah, I think when we look across all of the tech that our that our go to market teams in sales and marketing are using. I think our effort has been to try and find

And then on the broker channels, it's more than 25% of your new business. In Q1 is there a level that you'd like to see that get to or is it around where you'd hope it is.

Kincaid Hubbart: On the broker channels, it's more than 25% of your new business in Q1. Is there a level that you'd like to see that get to, or is it around where you hope it is?

Kincaid LaCorte: On the broker channels, it's more than 25% of your new business in Q1. Is there a level that you'd like to see that get to, or is it around where you hope it is?

Well I mean I think.

We've been saying for a very long time, making the same comment that we've been able to drive more than 25% of new business coming from the broker channel and Steve made the comment before that.

Toby Williams: Well, I mean, I think we've been saying for a very long time, making the same comment that we've been able to drive more than 25% of new business coming from the broker channel. You know, Steve's made the comment before that, you know, when the business went public in 2014, looking at the size and scale of it then, and now as you see us guiding towards, you know, just under $2 billion in revenue for this fiscal year. Our ability to continuously, for the last decade+, deliver 25% of our new business coming from the broker channel, I think is a testament to the focus that we've put on it, the investments from a technology perspective that we've made that well serve the broker channel and their clients.

and this is true across the business. You're trying to find an opportunity to automate the processes that that everyone's going through day to day, including our sales reps and you're looking at what AI tools each 1 of those, uh, pieces of technology has available to them and making sure that we're leveraging each 1 to full of the fullest extent while also again trying to take the lens of what can we automate in the process? And I think that's what my my comments in the prepared remarks were uh, were referring to. So I think this is a, you know, it's broad-based commentary across all the tech that we're using for go to market standpoint.

When the business went public in 2014 looking at the size and scale of it then and now as you see us guiding towards.

Just under $2 billion in revenue for this fiscal year, our ability to continuously for the last decade, plus deliver 25% of our new business coming from the broker channel I think is a testament to the focus that we put on it investments from a technology perspective that we've made that will serve the broker channel and their clients and then I think ultimately the investment that we have made to build there.

And uh and then on the broker channel, it's more than 25% of your new business in q1. Is there a level that you'd like to see that get to or is it around where you hope it is?

Toby Williams: I think ultimately, the investment that we have made to build those relationships over that period of time. I think it reflects the fact that they see real value and real partnership in how we approach business with them. You know, I think overall, I think we're really pleased at what we've been able to deliver in Q1, the part that the broker channel has played in that, and look forward to continuing to partner with our broker channel throughout the course of the rest of the year.

These relationships over that period of time and I think it reflects the fact that they see real value and real partnership and how we approach business with them and I think overall I think we're really pleased at what we've been able to deliver in Q1. The part that the broker channel has played in that and look forward to continuing to partner with our broker channel throughout the course of the rest of the year.

Thanks, so much.

Thank you.

Kincaid Hubbart: Thanks so much.

Kincaid LaCorte: Thanks so much.

Operator: Thank you. Our next question comes from Alex Zukin of Wolfe Research. Your line is open.

And our next question comes from Alex Zukin of Wolfe Research. Your line is open.

Hey, guys.

I think most of the questions have been have been most brokers have been asked but maybe just help us think about the.

Alex Zukin: Yeah. Hey, guys. I think most questions have been asked, but maybe just help us think about the impact to retention rates. I think they're still 92% at this time. You know, as you look at the elements from selling more AI functionality into the base or monetizing that functionality, getting greater usage, monetizing Airbase, you know, or cross-selling that functionality, how does that retention rate evolve, if at all? Does it go up over time, particularly as you approach that long-term target? How do you think about kind of organic versus inorganic going forward now we're one year past Airbase? It seems like it's going really well, and it's meaningfully increasing the addressable market opportunity.

Well, I mean, I think we, we've, we've been saying for a very long time, making the same comment that we've been able to drive more than 25% of new business coming from the broker Channel. And, you know, Steve made the comment before that. You know, when, when the business went public in 2014 looking at the, the size and scale of it, then, and now, as you see us guiding towards, you know, just under 2 billion in revenue for this fiscal year, our ability to continuously for the last decade plus deliver 25% of our new business coming from the broker Channel. I think is a testament to the focus that we've put on it. The investments from a technology perspective that we've made that well served the broker Channel and their clients. And then I think ultimately the investment that we have made to build those relationships over that period of time. And I think it reflects the fact that they see real value and real partnership in how we approach business with them. And, you know, I think overall I think we're really pleased, that that what we've been able to deliver in q1, the part that the broker channel has played in that and look forward to continuing to partner with our our our, our broker Channel throughout the course of the rest of the year.

Thank you so much.

The impact to retention rates I think there is still a 92% at this time.

Thank you.

As you look at the.

Elements from selling more AI functionality into the base or monetizing that functionality getting greater usage monetizing air base.

And our next question comes from Alex, Zukin of Wolf. Researcher line is open.

Cross selling that functionality.

How does that retention rate evolve if at all does it go up over time, particularly as you approach that long term target.

Hey guys. Um I think most of the questions have been have been uh most recent have been asked but maybe just

And then how do you think about kind of organic versus inorganic going forward now we're one year past air base. It seems like it's going really well and it's meaningfully increasing the addressable market opportunity, maybe just comment on kind of your.

Your view on organic versus inorganic innovation at this time.

Alex Zukin: Maybe just comment on kind of, you know, your view on organic versus inorganic innovation at this time.

I mean, I think you're right I think we're pleased with how the airbase acquisition is gone we're pleased with based on the prior commentary the level of traction that we're seeing at least in the early days with the spend management and finance part of the suite.

Toby Williams: Yeah. I mean, I think you're right. I think we're pleased with how the Airbase acquisition has gone. We're pleased with, you know, based on the prior commentary, the level of traction that we're seeing, at least in the early days with the spend management and finance part of the suite. You know, I don't think I think that is a proof point of what we've been able to do from an acquisition standpoint, but I don't think You know, I don't think we've fundamentally changed our mindset around capital allocation or the role that M&A plays in the business. I think if you look back over time, we've been able to build out an awful lot of new products organically. That's certainly still an important part of how we view innovation.

And I don't I.

I don't think our I think that as a proof point of what we've been able to do from an acquisition standpoint, but I don't think are I don't think we fundamentally changed our mindset around capital allocation or the role that M&A plays in the business I think if you look back over time, we've been able to build out an awful lot of new products organically Thats, certainly still an important part of.

Help us think about the impact to retention rates. I think there's still 92% at this time. You know, as you look at the uh, elements from selling more AI functionality into the base or monetizing that functionality getting greater usage monetizing Airbase, uh, you know, or cross-selling that functionality, how how does that retention rate evolve if, if at all, does it go up over time? Particularly as you approach, that long-term Target. Um, and then how do you think about kind of organic versus inorganic going forward? Now, we're 1 year passed their base, it seems like it's going really well and it's meaningfully increasing. Uh, the addressable Market opportunity, maybe just comment on kind of you know your your view and organic versus an organic uh Innovation at this time.

How we view innovation when we've found extraordinary opportunities to acquire something that would speed up our product roadmap and was really strategic and we thought that we could integrate really well we've had really good luck there with again airbase being the most recent data point on that.

Toby Williams: When we've found extraordinary opportunities to, you know, acquire something that would speed up our product roadmap and was really strategic, and we thought that we could integrate really well, we've had really good luck there with, again, Airbase being the most recent data point on that. With respect to your question on retention, I mean, I think our view has been, you know, for a long time that if you continue to broaden out what you're able to deliver from a product perspective while also providing world-class service, that's a recipe for being able to, you know, deliver against the expectations of clients, and that will provide, you know, a positive result from a retention standpoint over time. That's exactly what I think we've seen.

Acquisition is gone. We're pleased with, you know, based on the prior commentary, the level of traction that we're seeing at least in the early days with the spend management and finance part of the suite. Um, and you know, I don't think our, I think that is a proof point of what we've been able to do from an acquisition standpoint, but I don't think our, you know, I don't think we fundamentally changed our mindset around.

With respect to your question on retention I think our view has been for a long time that if you continue to broaden out what youre able to deliver from a product perspective, while also providing world class service, that's a recipe for being able to.

Deliver against the expectations of clients and that will provide a positive result from a retention standpoint over time, that's exactly what I think we've seen.

Again, you referenced it's 92% plus is our how we've described retention continues to be the case and I think that is very much what we see the opportunity as we look forward I guess, just one additional point on the M&A strategy completely agree with Toby there's no strategic shift here, but I think it's probably important to note that as the largest acquisition that we have made kind of in our.

Toby Williams: Again, you know, your reference, it's 92% plus, how we've described retention, continues to be the case. I think that is very much what we see, you know, the opportunity as we look forward.

Steve Beauchamp: I guess just one additional point on the M&A strategy. Completely agree with Toby. There's no strategic shift here. I think it's probably important to note that is the largest acquisition that we have made kind of in our history. The ability to integrate that product portfolio, get it to launch, see the early success that we're having in go-to-market, certainly gives us more confidence in our ability to do things like that on a go-forward basis.

History, and so the ability to integrate that product portfolio get it to large see the early success that we're having and go to market certainly gives us more confidence in our ability to do things like that on a go forward basis.

Capital allocation or the role that m&a plays in the business, I think, if you look back over time, we've been able to build out an awful lot of new products, uh, or organically, that's certainly still an important part of, uh, how we view Innovation. Um, when we found extraordinary opportunities to, you know, acquire something that would speed up our product roadmap and was really strategic. And we thought that we could integrate really well. We've had really good luck there with again, Air Base being the most recent data point on that um, with respect to your question on retention. And I think our our view has been, you know, for a long time that if you continue to broaden out what you're able to deliver from a product perspective, while also, providing world-class service, that's a recipe for being able to um, you know deliver against the the expectations of clients and that will provide, you know, a positive result from our attention, standpoint over time, that's exactly what I think we've seen. Uh again, you know, your reference, it's 92% plus is our, how we've described retention continues to be the case. And I think that is very much what we see

Perfect. Thank you guys congrats on a great quarter.

Jake Roberge: Perfect. Thank you, guys. Congrats on a great quarter.

Thank you.

Operator: Thank you. Our next question comes from Matt VanVliet of Cantor. Your line is open.

And our next question comes from Matt Vanvliet of Cantor. Your line is now open.

Hey, good evening, Thanks for taking my question.

Matt VanVliet: Hey, good evening. Thanks for taking the question. I guess first on the comment you made earlier about growing revenue per customer, curious to how much of that is being driven by the cross-sell of whether it's the Finance or IT modules or just some of the expansions of the product versus the AI and usage component being monetized already?

I guess first on the comment you made earlier about growing revenue per customer.

You know, the opportunity is we look forward. I think it's just 1 additional point on the m&a strategy. Uh completely agree with Toby. There's no strategic shift here but I I think it's probably important to note. That is the largest acquisition that we have made kind of in our history. And so the ability to integrate that product portfolio, get it to launch. See the early success that we're having in go to market. Certainly gives us more confidence in our ability, to do things like that on a go forward basis.

Curious how much of that is being driven by the cross sell.

Perfect. Thank you, guys. Congrats on a great quarter.

Whether it's finance or <unk>.

Thank you.

Modules are just some of the expansions of the product versus the AI and usage component.

And our next question comes from Matt Van Diest of Canter. Your line is open.

Being monetized already.

Yeah.

Yes, I would just say from a product perspective, some of that is a little bit challenging to differentiate as Toby mentioned earlier, you're kind of selling a bundled package and even when you are cross selling back to the client base and you. Sometimes you can get an uplift is not just a singular product you may get one or two as you are kind of evaluating that.

Steve Beauchamp: Yeah, I would just say from a product perspective, some of that's a little bit challenging to differentiate. As Toby mentioned earlier, you're kind of selling a bundled package, and even when you're cross-selling back to the client base, you sometimes can get an uplift of not just a singular product. You may get one or two as you're kind of evaluating that. I think they're both in the mix. I think we're in the early innings still for finance and IT, a lot of that cross-sell is being driven by our HCM suite currently. We're really excited about the early feedback that we've got, and particularly because those products are a little bit more on an average revenue per customer. We think that that opportunity is certainly there.

So I think they are both in the mix I think we're in the early innings still for finance in it. So a lot of that cross sell is being driven by our HCM suite currently.

Hey, good evening. Thanks for taking the question. Um, I guess, first on the, the comment you made earlier about, um, growing Revenue per customer, um, curious how much of that is being driven by the cross sell of, uh, whether it's the finance or it, um, modules or just some of the expansions of the product versus um, the AI and usage component, um, being monetized already.

But we're really excited about the early feedback that we've got and particularly because those products are a little bit more on an average revenue per customer. So we think that that opportunity is certainly there, but I think we've always talked about this as really an extension of our product strategy that will allow us to continue to have a mix in our growth algorithm.

Unit growth, which we expect to continue to drive as well as average revenue per customer growth, which will be enabled by it and finance expansion.

Generally, you're kind of selling a bundled package and even when you're cross selling back to the client base, you sometimes can get an uplifted, not just a singular product. You make get 1 or 2 is you as you're kind of evaluating that? Um, and so I think they're both in the mix. I think we're in the early Innings still for finance and it so a lot of that cross sales is being driven by our HCM Suite.

Alright helpful. And then as we look at the long term financial targets.

Matt VanVliet: All right. Helpful. Then as we look at the long-term financial targets, curious if you can give us a little update on what the original $2 billion target of primarily the HCM business, what that looks like as part of the $3 billion. The obvious other part is sort of the TAM expansion, platform expansion. How much of that $1 billion raise in the revenue target is almost exclusively from finance and IT?

Curious if you can give us a little update on what the original $2 billion target of primarily the HCM business, what that looks like as part of the $3 billion and then the other part is sort of the Tam expansion platform expansion.

How much of that $1 billion raise in the revenue target is almost exclusively from finance and it.

Currently, um, but we're really excited about the early feedback that we've got, and particularly because those products are a little bit more on an average revenue per customer. So we think that that opportunity is certainly there. But I think we've always talked about this as really an extension of our product strategy that will allow us to continue to have a mix in our growth algorithm of unit growth, which we expect to continue to drive, as well as average revenue per customer growth, which will be enabled by it and finance expansion.

Yes, I'm not sure we would have thought about it the same way that you asked the question I think if you step back and you look at how we have driven growth every single year. It has been a mix of <unk>.

Toby Williams: Yeah. I'm not sure we would've thought about it the same way that you asked the question. I think if you step back and you look at how we have driven growth every single year, it has been a mix of client growth, so new client acquisition and client growth, and then ARPU expansion, from a both new client and existing client standpoint. I think that's really. A lot of that ARPU growth comes from our ability to continue to innovate and continue to expand the product set. If you look back over the course of the last decade plus that we've been public, that's what we've delivered every single quarter and every single year is a fairly consistent...

Client.

Client growth, so new client acquisition and client growth and then <unk> mentioned.

Both new clients and existing client standpoint, and I think that's really in a lot of that ARPA growth Thomas.

All right, helpful and then as we look at the, the long-term Financial targets, um, curious if you can give us a little update on what the the original 2 billion dollar Target of of, primarily the HCM business, what that looks like as part of the 3 billion and then the obvious other part is is sort of the Tam expansion platform expansion. Um, how much of that billion dollar raise in the the revenue Target is is almost exclusively from finance and it

Comes from our ability to continue to innovate and continue to expand the product set and so if you look back over the course of the last decade, plus that we've been public that's what we've delivered every single quarter and every single year as it is a fairly consistent yes, it's changed depending on what's going on in any given year, but that theres been consistency in the mix of both new unit.

Every single year, it has been a mix of.

Toby Williams: Yes, it's changed, you know, depending on what's going on in any given year, but that there's been consistency in the mix of both new unit growth, new unit acquisition, client growth, and ARPU expansion over time. I think that's really how we thought about the formula of how we get to $3 billion. You've gotta be able to continue to drive client growth. You've gotta be able to continue to drive ultimately, you know, ARPU expansion that comes with the TAM expansion of adding on things like finance and IT. I think you get there through that. That's the execution formula. With respect to the product pieces, I think there is an opportunity to continue to grow the product set from an HCM perspective.

Growth New unit acquisition client growth and <unk> expansion over time, and I think thats really how we thought about the formula.

Client uh client growth. So new client acquisition and client growth and then our food expansion um from a, from a both new client and existing client standpoint. And I think that's really in a lot of that, our poo growth.

How we get to $3 billion.

You've got to be able to continue to drive client growth you've got to be able to continue to drive ultimately <unk> expansion that comes with a tam expansion of adding on things like finance it but I think you get there through that that's the execution formula and with respect to the product pieces. I think there is a there is an opportunity to continue to grow the product.

Set from an HCM perspective, there is certainly an opportunity to grow the product set from a finance perspective, and we're in the earliest days of product from a from an it standpoint, so I think you've got growth across all of those three.

Toby Williams: There's certainly an opportunity to grow the product set from a finance perspective, and we're in the earliest days of product from an IT standpoint. I think you've got growth across all those three, and if we can continue to drive that growth, continue to drive ARPU, continue to drive client growth, I think that's the formula, and that's a consistent formula that we've, you know, executed against for the last 10+ years.

And if we can continue to drive that growth continue to drive our <unk> continue to drive client growth I think that's the formula and that's that's a consistent formula that we've we've executed against for the last 10 plus years.

Okay. Thank you.

Thank you.

Matt VanVliet: Okay. Thank you.

Operator: Thank you. Our next question comes from Jason Celino of KeyBanc Capital Markets. Your line is open.

And our next question comes from Jason <unk> of Keybanc capital markets. Your line is open.

Hey, great. Thanks for taking my questions just one follow up on Pelosity for it.

Jason Celino: Hey. Great. Thanks for taking my questions. Just one follow-up on Paylocity for IT. You know, obviously a very complementary area. When I think about your customers today, you know, what are they hypothetically using for asset management and identity management?

Obviously, a very complementary area.

Batting on things like finance and it but I think you you get there through that, that's the execution formula. And with respect to the product pieces, I think there is a, there is an opportunity to continue to grow. The, the product set from an HCM perspective. There's certainly an opportunity to grow the products at from a finance perspective and we're in the earliest days of of product from a, from an IT standpoint. So I think you've got growth across all those 3. And if we can continue to drive that growth continue to drive our poo continue to drive client growth. I think that's the formula. And that's, that's a consistent formula that we've, we've, you know, executed against for the last 10 plus years.

When I think about your customers today what.

Okay, thank you.

Are they hypothetically using for asset management and identity.

Thank you.

<unk> management.

Do you see yourself competing more with like the traditional it some players.

Steve Beauchamp: Sure.

Jason Celino: You know, do you see yourself competing more with like the traditional ITSM players?

And our next question comes from Jason selino of keybanc capital markets, your line is open.

Yes, so I think from an asset management perspective, and a lot of it is fairly manual.

Steve Beauchamp: I think from an asset management perspective, a lot of it's fairly manual. Whether they're tracking that in spreadsheets or frankly, you know, at the lower end of our market, whether they're really not tracking it very effectively at all. Being able to automate that as people are going on board, when they're changing positions, when they're coming off board, and then being able to manage that for an IT user, is really, I think, critical for organizations. I think that's something that we've been really happy with the receptivity. I think for the identity management, the strategy is a combination of our own capabilities as well as really integrating from a marketplace and API perspective.

So whether they are tracking that in spreadsheets or frankly at the lower end of our market, whether they are really not tracking it very effectively at all and so being able to automate that as people are going onboard when they are changing positions when theyre coming off board and then being able to manage that for an it user.

Hey, great. Thanks for taking my questions. Just one follow-up on Paylocity for it. You know, obviously a very complementary area. Um, when I think about your customers today, you know what?

Are they hypothetically using identity management for asset management? Do you see yourself competing more with the traditional ITM players?

It is really critical.

For organizations and so I think that that's something that we've been really happy with the receptivity I think for the identity management. The strategy is a combination of our own capabilities as really as well as really integrating from a marketplace and API perspective, and so you can get some value out of really leveraging the data and the employee record and not <unk>.

Steve Beauchamp: You can get some value out of really leveraging the data in the employee record and not actually have to change your identity provider, or you can leverage our solution to be able to take on some of those capabilities for you. We see opportunities to be able to grow the category for sure. We really are trying to help customers with that use case, both from an access and identity of really off-boarding, changing positions and onboarding.

Actually I have to change your identity provider or you can leverage.

Our solution to be able to take on some of those capabilities for you and so we see opportunities to be able to grow the category for sure, but we really are trying to help customers with that use case, both from an access and identity really off boarding changing positioned and onboarding.

Okay and then this is more of a loss off uncle question, but at this point it looks like you're touching the HCM part of the business. The finance part of the business and now I'd parts long long term when we think about unified platform could you ever see pelosity expanding into more front office areas or.

Jason Celino: Okay. You know, this is more of a philosophical question, but at this point, you know, it looks like you're touching the HCM part of the business, the finance part of the business, and now the IT part. You know, long term, when we think about unified platform, could you ever see Paylocity expanding into more front office areas, or is it just too early?

Yeah, so I think from an asset management perspective and a lot of it's fairly manual. Um, and so whether they're tracking that in spreadsheets or frankly, you know, at the lower end of our Market whether they're really not tracking it, very effectively at all. And so, being able to automate that as people are going on board, when they're changing positions, when they're coming off board and then being able to manage that for an IT user um is is really, I think critical um, for organizations. And so I think that's that's something that we've been really happy with the receptivity. I think, for the identity management, the strategy is a combination of our own capabilities as really as well as really integrating from a Marketplace and API perspective. And so you can get some value out of really leveraging the data in the employee record and not actually have to change your identity provider or you can leverage our um, solution to be able to take on some of those capabilities for you. And so we see opportunities to be able to grow the category for sure, but um, we really are trying to help.

Or is it just too early.

Customers with that. Use case, both from an access and identity of really off-boarding changing positions and onboarding.

Yeah.

Thank you.

Pretty excited about the size of the Tam that we have in front of US again, I go back to HCM, where stuff very low penetration.

Steve Beauchamp: You know, I think we're pretty excited about the size of the TAM that we have in front of us. Again, I go back to HCM. We're still at very low penetration in our core marketplace, and we're having good success driving that. We're real-pretty early in IT and finance. I think if you were to take a broader point of view, really when you think about having that employee record, having the workflows across the organization, I think you've got a real opportunity to power much of the back office over time, and we can continue to stay focused on that. I think to think about getting into maybe front office solutions that are often more vertically based, it's probably not on the horizon.

In our core marketplace and we're having good success driving that were pretty early in it and finance I think if you were to take a broader point of view.

Really when you think about having that employee record having the workflows across the organization I think you've got a real opportunity to power much of the back office overtime and we can continue to stay focused on that I think to think about getting into maybe front office solutions that are often more vertically based.

Okay, and then, you know, this is more of a philosophical question, but at this point, you know, looks like you're touching the HCM part of the business, the finance part of the business. And now the it part, you know, long long term, when we think about unified platform. Could you ever see, you know, payloads of the expanding into more front office areas, or

Or is it just too too early?

Probably not on the on the horizon.

Okay, great. Thank you.

Thank you.

Jason Celino: Okay, great. Thank you.

Operator: Thank you. Our next question comes from George Kurosawa of Citi. Your line is open.

And our next question comes from George Kurosawa of Citi. Your line is open.

Okay, great, yes, im on for Steve vendors, Thanks for taking the questions.

George Kurosawa: Okay, great. Yeah, I'm on for Steven Enders. Thanks for taking the questions. Maybe just a high-level question. A lot of discussion about the impact of AI on labor markets more broadly. You know, it sounds like headcount in your customers was a touch better than expected this quarter. Is there anything you guys have seen or heard that might indicate that your customers might be changing the way they're thinking about hiring based off of use of AI?

High level question, a lot of discussion about the impact of AI on labor markets more broadly it sounds like your head count and your customers was a touch better than expected. This quarter is there anything that you guys have seen or heard that might indicate that your customers might be changing the way. They are thinking about hiring based off of use of AI.

I, you know, I think we're pretty excited about the size of the Tam that we have in front of us. Again, they go back to HCM. We're still have very low penetration um in our core Marketplace and we're having good success driving that we're pretty early in it and finance, I think if you were to take a broader point of view, um, really when you think about having that employee record having the workflows across the organization, I think you've got a real opportunity to power much of the back office, over time. And we can continue to stay focused on that. I think to think about getting into maybe front office solutions, that are often more vertically based. It's, it's probably not on the on the horizon.

Okay, great. Thank you.

Thank you.

And our next question comes from George Kurosawa of City. Your line is open.

No not at this point I think we obviously were able to track workforce levels as well as a host of additional elements across our client base and we continue to see stable data points. We look at those certainly on a weekly basis, but to date. There is nothing that I would call out that.

Steve Beauchamp: No, not at this point. I think we obviously are able to track workforce levels as well as a host of additional elements across our client base, and we continue to see stable data points. We look at those certainly on a weekly basis, to date, there's nothing that I would call out that would suggest a different experience than what we have seen.

Toby Williams: No, not at this point. I think we obviously are able to track workforce levels as well as a host of additional elements across our client base, and we continue to see stable data points. We look at those certainly on a weekly basis, to date, there's nothing that I would call out that would suggest a different experience than what we have seen.

Would would suggest a different experience than what we have seen.

Okay, great. Yeah, I'm on first, Steve Enders. Thanks for taking the questions. Maybe just a high-level question: a lot of discussion about the impact of AI on labor markets. More broadly, you know, it sounds like your headcount and your customers was a touch better than expected this quarter. Is there anything you guys have seen or heard that might indicate that your customers might be changing the way they're thinking about hiring based on the use of AI?

Okay, Great and then a question on the back half of the year and seasonal trends.

George Kurosawa: Okay, great. A question on, you know, the back half of the year and seasonal trends, you know, form filings. I think you've said in the past, Airbase is maybe a bit less seasonal of a business than the core HCM side. Anything to help us think through what that pattern will look like seasonally, relative to typical historical patterns.

Some filings I think you've said in the past airbase as maybe a bit less seasonal of a business and then the core HCM side, just anything to help us think through what that pattern will look like seasonally.

Relative to typical historical patterns.

Yes, no nothing one time that I would call out at this point I think youre right Air base would not necessarily have the same seasonal cadence that the HCM side, although obviously that is a very small part of our business today. So I'm not sure I would discreetly adjust for that outside of outside of that small.

No, not at this point. I think we obviously are able to to track Workforce levels as as well as a host of additional elements across our client base and we continue to see stable data points. We look at those certainly on a, on a weekly basis. But to date, there's nothing that I would call out that uh, would uh, would suggest a different experience than than what we have seen.

Steve Beauchamp: Yeah, nothing one time that I would call out at this point. I think you're right. Airbase would not necessarily have the same seasonal cadence that the HCM side, although obviously that is a, you know, very small part of our business today, so not sure I would discreetly adjust for that. Outside of that small item, everything else, I think so far, nothing I'd call out as far as one time or different seasonal impacts as we think about the back half of the year.

Toby Williams: Yeah, nothing one time that I would call out at this point. I think you're right. Airbase would not necessarily have the same seasonal cadence that the HCM side, although obviously that is a, you know, very small part of our business today, so not sure I would discreetly adjust for that. Outside of that small item, everything else, I think so far, nothing I'd call out as far as one time or different seasonal impacts as we think about the back half of the year.

Everything else I think so far nothing I'd call out as far as one time or different seasonal impacts as we think about the back half of the year.

Okay, great. And then a question on, you know, the back half of the year and seasonal Trends uh you know you form filings. I think you said in the past are bases, maybe a bit less seasonal of a business than than the core HCM side. Just anything to help us think through what that pattern will look like seasonally uh relative to typical historical patterns.

Great. Thanks for taking my questions.

Thank you.

George Kurosawa: Great. Thanks for taking the questions.

Operator: Thank you. Our next question comes from Zachary Gunn of FT Partners. Your line is open. Zachary, your line is open. Please check your mute button.

And our next question comes from Zachary <unk> of Ft Partners. Your line is open.

<unk> Your line is now open.

Please check your mute button.

Today. So not sure I would discreetly adjust for that. Um I would outside of outside of that, that small um item everything else. I think so far, nothing I'd call out as far as 1 time or or different seasonal impacts as we think about the back half of the year.

Oh, sorry can you hear me.

Great. Thanks for taking the questions.

Can you hear you know.

Thank you.

Zachary Gunn: Oh, sorry. Can you hear me?

Yes. Thank you I just wanted to follow up on one of the earlier questions around.

Operator: Can hear you now.

Steve Beauchamp: Yeah, we can.

Zachary Gunn: Okay. Yeah, thanks. I just wanted to follow up on one of the earlier questions around Airbase and, you know, the longer term financial targets. I'm just thinking about, you know, you've talked in the past about the 10% to 20% kind of cross-sell opportunity. Is there a way to think about, you know, what cross-sell is embedded within that $3 billion? I recognize it's still a small portion of volume, but just any context on, you know, have the long-term goals shifted there?

The longer term financial targets I'm, just thinking about.

And our next question comes from Zachary gun of Ft Partners, your line is open.

You've talked in the past about the 10% to 20% kind of cross sell opportunity is there way to think about.

Zachary, your line is open.

Cross selling is embedded within that $3 billion I recognize it's still a small portion of the volume.

Please check your mute button.

Oh, sorry, can you hear me?

Any context.

Can you hear me now?

The long term goals shifted there.

Yeah. So I think Toby kind of answered this question and I'll, maybe take a different tack at it it's really about unit growth and average revenue per customer growth for us and so that formula for us historically has moved around year by year, but we've been pretty consistent you know roughly half the growth has come from units and the other half from average revenue per customer that has shifted a little bit.

Steve Beauchamp: Yeah. I think Toby kind of answered this question. I'll maybe take a different tack at it. You know, it's really about unit growth and average revenue per customer growth for us. You know, that formula for us historically has moved around year by year, but we've been pretty consistent. You know, roughly half the growth has come from units and the other half from average revenue per customer. That has shifted a little bit as we've had certain product launches and they've moved, you know, up the adoption curve. We're not fundamentally thinking that the launch of IT and finance changes that equation materially. You may see some shifts in that over time. We feel more confident having that opportunity to expand in those areas that we can absolutely continue that ARPU expansion.

As we have had certain product launches and they've moved.

Yeah, thanks. I just wanted to follow up on 1 of the earlier questions around airbase and you know the longer term Financial targets and just thinking about, you know, you've talked in the past about the 10 to 20% tend to cross, sell opportunity, is there a way to think about you know what cross sales embedded within that 3 billion. I recognize it's still a small portion of volume but just any contacts on you know have the long term goals shifted their

The adoption curve, but we are not fundamentally thinking that the launch of it and finance changes that equation materially you may see some shifts in that over time.

But we feel more confident having that opportunity to expand in those areas that we can absolutely continue that <unk> expansion and certainly is a factor in giving us confidence to be able to not only look towards $2 billion, which is kind of around the corner, but look beyond that to $3 billion.

Yeah, so I think Toby kind of answered this question. I'll maybe take a different tack at it. You know, it's really about unit growth and average revenue per customer growth for us. And so, you know, that formula for us, historically, has moved around year by year, but we've been pretty consistent. You know, roughly half of the growth has come from units and the other half from average revenue per customer. That has shifted a little bit as we've had certain product launches, and they've moved.

Steve Beauchamp: Certainly is a factor in giving us confidence to be able to not only look towards $2 billion, which is kind of around the corner, but look beyond that to $3 billion.

Thank you.

Okay.

Operator: Thank you. Our next question comes from Madeline Brooks of Bank of America. Your line is open.

Uh huh.

And our next question comes from Madeleine Brooks of Bank of America. Your line is open.

Hi, Thanks, so much for fitting me in here and just a quick one from me guys looking at your long term targets and how they've changed.

Madeline Brooks: Hi. Thanks so much for fitting me in here. Just a quick one from me, guys. Looking at your long-term targets and how they've changed, looks like the updated target for sales and marketing as a percent of revenues actually went down a little bit. I'm just curious as to why, because if we look at the opportunity ahead of you, both in the businesses that you operate in, but then largely in the market in terms of AI and broader technological shifts, most other companies are ramping up investment in their go-to market. I understand efficiencies from AI. However, I think the trend that we've seen is that those efficiencies kind of more supplement versus are used for total OpEx reduction.

You know about the adoption curve, but we're not fundamentally thinking that the launch of it in finance changes that equation materially. You may see some shifts in that over time. However, we feel more confident having that opportunity to expand in those areas. We can absolutely continue our growth expansion, and certainly, this is a factor in giving us confidence to be able to not only look towards $2 billion, which is kind of around the corner, but look beyond that to $3 billion.

Changed, let's say updating the updated target for sales and marketing.

Thank you.

The percent of revenues actually went down a little bit and I'm just curious as to why because if we look at the opportunity ahead of you both in the businesses that you operate in but then largely in the market in terms of AI and broader technological shifts. Most other companies are ramping up investment in our go to market and I understand efficiency is from AI.

And our next question comes from Madlin Brooks of Bank of America. Your line is open.

However, I think the trend that we've seen is that those efficiencies more supplement versus are used for total opex reduction and so I'm just wondering why not invest a little bit more heavy handedly at a time when the opportunity seems so right.

Madeline Brooks: I'm just wondering why not invest a little bit more heavy-handedly, at a time when the opportunity seems so ripe. Thank you.

Yes, I think we feel like we've right sized our investments across go to market against the opportunity that we have and the change in the target I mean, if you look at where we closed last year I think we were at 21 six from a sales and marketing perspective, Thats basically at the top end of the range that we have adjusted too so I wouldn't I don't.

Steve Beauchamp: I think, you know, we feel like we've right-sized our investments across go-to-market against the opportunity that we have. The change in the target, I mean, if you look at where we closed last year, I think we were at 21.6% from a sales and marketing perspective. That's basically at the top end of the range that we have adjusted to. I wouldn't make more of that than is actually reflected in the data. I think we have a pretty consistent approach from a go-to-marketing spend perspective. We've talked about, you know, being able to drive more productivity there, but I don't think we're under-investing in what we see as a significant opportunity. I think we are appropriately invested in it. We're looking for productivity, and efficiency, but we're also looking for delivery.

Toby Williams: I think, you know, we feel like we've right-sized our investments across go-to-market against the opportunity that we have. The change in the target, I mean, if you look at where we closed last year, I think we were at 21.6% from a sales and marketing perspective. That's basically at the top end of the range that we have adjusted to. I wouldn't make more of that than is actually reflected in the data. I think we have a pretty consistent approach from a go-to-marketing spend perspective. We've talked about, you know, being able to drive more productivity there, but I don't think we're under-investing in what we see as a significant opportunity. I think we are appropriately invested in it. We're looking for productivity, and efficiency, but we're also looking for delivery.

Hi, thanks so much for getting me in here and just a quick 1 for me guys, looking at your long-term targets and how they've changed. Looks like that updated the updated Target for sales and marketing, um, as a percent of revenues actually went down a little bit, and I'm just curious as to why, because if we look at the opportunity ahead of you, you know, both in in the businesses that you offered in, but then largely in the market in terms of AI and brought our technological shifts, most other companies are ramping up investment in their boat to Market and I understand efficiencies from AI. However, I think, you know, the trend that we've seen is that those efficiencies kind of more supplement versus are used for total, you know, Opex reduction and so I'm just wondering why not invest a little bit more heavy.

I wouldn't make more of that then is actually reflected in the data. So I think we have a pretty consistent approach from a go to marketing spend perspective, we've talked about being able to drive more productivity there but.

Handedly, um, at a time when the opportunity seems so ripe, thank you.

yeah, we

we feel like we've right-sized our

Investments cross. Go to market against the.

Opportunity that we have.

But I don't think we are under investing in what we see as a significant opportunity I think we are appropriately invested in it we're looking for productivity.

Target. I mean, if you look at where we closed last year, I think we were at $21.6 million. From a sales and marketing perspective, that's basically at the top end of the range that we have adjusted to. So I wouldn't...

<unk>, but we're also looking for delivery and so I feel really good about the productivity of that team throughout the course of 'twenty five and we've been in a in a great spot as the fast growing.

Steve Beauchamp: you know, I feel really good about the productivity of that team throughout the course of 2025. you know, we've been in a, in a great spot as the fastest growing HCM provider, and I think That's what we have in front of us too. I think we're invested to be able to produce that.

Toby Williams: you know, I feel really good about the productivity of that team throughout the course of 2025. you know, we've been in a, in a great spot as the fastest growing HCM provider, and I think That's what we have in front of us too. I think we're invested to be able to produce that.

<unk> provider and I think thats, what looks that's what we have in front of us to and I think we're investing to be able to produce that.

Thank you.

Jake Roberge: Thank you.

Madeline Brooks: Thank you.

Operator: Thank you. Our next question comes from Jacob Smith of Guggenheim Securities. Your line is open.

And our next question comes from Jacobs Smith of Guggenheim Securities. Your line is open.

Hey, Thanks for taking my question I wanted to ask another about the broker channel.

Jacob Smith: Hey. Thanks for taking my question. Want to ask another about the broker channel and Paylocity's right to win new referral business, especially in situations where a broker's books may have previously referred a lot of business to an acquired competitor. We understand this is a very competitive landscape with large public and private companies all leaning in pretty heavily into the channel, all going after the same opportunity. Most of them compete directly with brokers, as you guys point out, whereas Paylocity does not. Can you talk about what you're doing both at the leadership level with brokers in terms of strategic alignment and at the micro level with individual producers to deepen vendor trust and buy-in to win new referral business now that might be up for grabs?

He lost the right to win new referral business, especially in situations where brokers.

I don't I don't, I wouldn't make more of that than is actually reflected in the data. So I think we have a pretty consistent approach from a go to marketing spend perspective. We've talked about, you know, being able to drive more productivity there, um, but I don't think we're under investing in what we see as a significant opportunity. I think we are appropriately invested in it. We're looking for productivity um, and efficiency. But we're also looking for delivery. And so, you know, I feel really good about the productivity of that team throughout the course of 25. And, you know, we've been in a, in a great spot as the fastest growing HCM provider and I think that's what looks that. That's what we have in front of us too. And I think we're, we're invested to be able to produce that.

Thank you.

So you referred a lot of business to an acquired competitor. We understand this is a very competitive landscape at large public and private companies are leaning pretty heavily into the channel all going after the same opportunity, but most of them compete directly with brokers as you guys pointed out Payless does not can you talk about what youre doing both at the leadership level with broke.

Thank you.

And our next question comes from Jacob Smith of Guggenheim Securities. Your line is open.

Bruce in terms of strategic alignment at the micro level with individual producers to deepen vendor trust and by the way.

New referral business out of it.

Might be up for grabs and also is there any way to frame the benefit you've seen so far from any.

Jacob Smith: Is there any way to frame the benefit you've seen so far from any disruption in the channel? That'd be helpful. Thanks.

The disruption in the channel that'd be helpful. Thanks, Sure I think as you indicated is a key part of our go to market motion has been even prior to going public.

Steve Beauchamp: Yeah, sure. I think as you indicated, it is a key part of our go-to-market motion, has been even prior to going public. I think as you also indicated, a lot of this happens at the field level. These are individual relationships between our salespeople who are interacting with the brokers in their offices, going out on calls together, sharing leads, and getting referrals. Those referrals obviously get translated into new business sales. I think the other thing I would say is, you know, we consistently have been above the 25%. We don't give the exact specific number, but I think we've given you the color that we've been excited about the momentum in the broker channel, and that has definitely been a contributor to our overperformance both in the back half of FY 2025 and into FY 2026.

And I think as you also indicated a lot of this happened at the field level. So these are individual relationships between our salespeople who are interacting with the brokers in their offices going out on calls together sharing leads.

And getting referrals in those referrals, obviously get translated into enter new business sales.

New referral business. Now that that might be up for grabs, is there any way to frame the benefit you've seen so far from any disruption in the channel? That'd be helpful. Thanks. Yeah, sure. I think as you indicated, it's a key part where...

I'd say as we consistently have been above the 25% we don't give the exact specific number but I think we've given you the color that we've been excited about the momentum in the broker channel and that has definitely been a contributor to our over performance both in the back half of FY 'twenty five and into FY 'twenty six.

So no change to the strategy.

Steve Beauchamp: No change to the strategy. It's really the same strategy. We also have relationships with the biggest brokers at a corporate level, and those are enabling factors. When you've got a little bit less competition out there, we certainly see that as an opportunity. We're going after that opportunity, and we think that has been a contributor to the strong start this fiscal year.

It's really the same strategy. We also have relationships with the biggest brokers at a corporate level and those those are enabling factors.

Market motion has been, um, even prior to going public, um, and I think as you also indicated, a lot of this happens at the field level. So, these are individual relationships between our salespeople who are interacting with the brokers in their offices, going out on calls together, sharing leads, um, and getting referrals. And those referrals obviously get translated into new business sales. I think the other thing I would say is, you know, we consistently have been a

When you've got a little bit less competition out there, we certainly see that as an opportunity we're going after that opportunity and we think that has been a contributor to the strong start this fiscal year.

Great. Thanks again.

Thank you I show no further questions at this time I would like to turn it back to Toby Williams for closing remarks.

Jacob Smith: Great. Thanks again.

Operator: Thank you. I show no further questions at this time. I'd like to turn it back to Toby Williams for closing remarks.

I just wanted to thank everybody for their interest in Pelosity. Thanks for your time Tonight, and certainly a large thank you to all of our employees, who helped make Q1, great. Thank you again have a good night.

Up to 25%, we don't give the exact specific number, but I think we've given you the color that we've been excited about the momentum in the broker channel, and that has definitely been a contributor to our overperformance, both in the back half of FY 25 and into FY 26. Um, so no change to the strategy. Um, it's really the same strategy. We also have relationships with the biggest brokers at a corporate level, and those are enabling factors. And so when you've got a little bit less comp.

Steve Beauchamp: Yeah. I just wanted to thank everybody for their interest in Paylocity. Thanks for your time tonight and certainly a large thank you to all of our employees who helped make Q1 great. Thank you again. Have a good night.

This concludes today's conference call. Thank you for participating and you may now disconnect.

Out there, we certainly see that as an opportunity. We're going after that opportunity, and we think that has been a contributor to the strong start this fiscal year.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.

Great. Thanks again.

Thank you. I show no further questions at this time. I'd like to turn it back to Toby Williams for closing remarks.

Yeah, I just wanted to thank everybody for their interest in Pelosi. Thanks for your time tonight, and certainly a large thank you to all of our employees who helped make Q1 great. Thank you again. Have a good night.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Q1 2026 Paylocity Holding Corp Earnings Call

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