Paylocity Holding (PCTY) Q4 2026 earnings call transcript

Good afternoon, and welcome to Paylocity's earnings results call for the fourth quarter in fiscal 26, which ended on June 30, 2026. I'm Ryan Glenn, Chief Financial Officer, and joining me on a call today is Steve Beauchamp, Executive Chairman, and Toby Williams, President and CEO of Paylocity. Today, we will be discussing the results announced in our press release issued after the market closed. A webcast replay of this call will be available for the next 45 days on our website under the Investor Relations tab. Before beginning, we must caution you that today's remarks, including statements made during the question and answer session, contain forward-looking statements. These statements are subject to numerous important factors, risks, and uncertainties, which could cause actual results to differ from the results implied by these or other forward-looking statements.

Also, these statements are based solely on the present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward-looking statements. For additional information, please refer to our filings with the Securities and Extensions Commission for the risk factors contained therein and other disclosures. We do not undertake any duty to update any forward-looking statements. Also, during the course of today's call, we will refer to certain non-GAAP financial measures. We believe that non-GAAP measures are more representative of how we internally measure the business, and there is a reconciliation schedule detailing these results currently available in our press release, which is located on our website at paylocity. com under the Investor Relations tab and FOB with the Securities and Exchange Commission.

Please note that we are unable to reconcile any forward-looking non-GAAP financial measure Thanks Ryan, and thanks to all of you for joining us on our fourth quarter and fiscal 26 earnings call. Our differentiated value proposition of providing the most modern platform in the industry continues to resonate in the marketplace and help drive recurring revenue growth of 12.4% and total revenue growth of 11% in Q4. For fiscal 26, recurring revenue grew 12.2% and total revenue grew 11% as we ended the year with approximately $1.8 billion of revenue. Our sustained multi-year investment in R&D and commitment to driving innovation continues to fuel durable recurring revenue growth and expanded average revenue per client as the combination of HCM, finance, and IT in one single platform, All underpinned by our expanded AI capabilities and core employee record data represents the most comprehensive offering in the market.

A critical component of this strategy is the launch of Paylocity Ignite AI, which is designed to help accelerate productivity for HR, finance, and IT teams across companies of all sizes and industries. Our approach to AI remains focused on driving value for our clients rather than adding complexity through standalone features. Ignite AI is woven directly into core workflows to help clients complete tasks faster, surface insights more quickly, and move from answers to action. For example, within recruiting, our candidate fit agent uses job description analysis, recruiter-defined criteria, and candidate application data to help identify strong potential matches, while giving recruiters the ability to review, audit, and adjust the criteria. Similarly, clients can leverage our talent rediscovery agent to scan their existing talent pool to identify candidates whose skills, experiences, education, and certifications align most closely with current job requirements, and re-engage qualified talent with personalized invitations to apply for open roles.

Given the demonstrated and measurable productivity improvements that the candidate fit and talent rediscovery agents will drive for our clients, we believe both agents represent an incremental opportunity for direct AI-driven monetization. Additionally, our answers and insight agent makes HR and payroll teams more efficient. Rather than relying on spreadsheets or manual analysis to uncover data-driven insights, administrators can ask natural language questions and receive faster, client-specific answers in their flow of work. As part of this continued evolution, we are also introducing our Ignite AI Hub, a centralized dashboard that gives clients greater visibility and control over how AI is used across their organization. The Ignite AI Hub helps close the visibility gap by measuring real productivity gains, including questions answered, tasks completed, and issues resolved across our payroll time and recruiting agents.

It also allows leaders to see which agents are active, configure them based on their organization's needs, and identify opportunities for additional automation. The early feedback from our clients reinforces the value proposition of Ignite AI. It is embedded in the workflows our clients already use, powered by the data they already trust, and designed to support people rather than replace them.

As an auto dealer client with more than 600 employees told us, Paylocity's AI feels like another team member, while a nonprofit client with over 500 employees described it as an extra set of hands that still preserves the human element of approval and decision-making. That combination of productivity, trust, and control is critical in HR and payroll, where accuracy, transparency, and compliance are paramount.

This positive sentiment is similarly reflected in the growing utilization of our AI capabilities, with the number of AI interactions nearly doubling quarter over quarter. However, product expansion has been a key part of Paylocity's growth algorithm for over a decade, and we believe the launch of Paylocity Ignite AI, combined with the continued expansion of our broader HCM finance and IT portfolio, will help to drive further growth in our average revenue per client, which reached roughly $37,200 in fiscal 26, compared to $35,300 in fiscal 25, an increase of more than 5%. We also continue to see significant growth in our client base in fiscal 26 to 44,400 clients, representing approximately 7% growth from fiscal 25.

Our commitment to product development also continues to be recognized in the market, with Paylocity recently recognized by HR Tech Outlook magazine as the top payroll software for 2026. I would now like to pass a call to Toby to provide further color on the quarter.

Thanks, Steve. In Q4 and Fiscal 26, our differentiated position in the market was reflected in solid sales and go-to-market execution, and we have continued investing in our go-to-market functions to carry this momentum into Fiscal 27. We also saw another strong year of channel referral performance, primarily from benefit brokers, who once again represented more than 25% of new business in Fiscal 26. The sustained success of our broker channel continues to be driven by our modern platform, third-party integration, and API capabilities, and because we do not compete against our broker partners by selling insurance products. We remain committed to investing in and supporting the broker channel with the goal of continuing to deliver real value and true partnership and support to our referring brokers and their clients.

We have also continued to drive product innovation to meet client needs and bring to market meaningful new solutions that both create differentiation and drive ARPU. In addition to our recent launch of our Elevate solutions, in June we also announced the launch of Paylocity Retirement, a new offering that brings plan administration and employee savings tools directly to the Paylocity platform. Retirement benefits are a critical component of an employee's long-term financial well-being, but many employers still manage these programs through disconnected systems, manual file transfers, and separate employee portals. This fragmentation creates additional administrative work for HR and payroll teams, increases the risk of errors, and can make it more difficult for employees to engage with their retirement savings.

As Steve highlighted, we are also excited about the continued evolution of our AI capabilities and the incremental value we expect to deliver to our more than 44,000 clients through the recent launch of Ignite AI. To further expand the AI capabilities across our platform, we also recently announced the acquisition of Adora, which will enhance our leave of absence management capabilities through a fully automated AI native system that streamlines the full leave of absence lifecycle from eligibility and planning to payroll coordination and compliance.

This is one of the most complex areas of regulatory compliance in HR, which is typically also manual in nature for both HR teams and employees. With Adora as part of Paylocity, the full leave of absence process will be automated, leveraging Adora's AI native product, delivering a seamless employee experience with clear timelines, personalized guidance, and transparent pay expectations, all through natural language interaction, and HR teams will be able to shift their focus from managing manual payroll and complicated compliance processes to supporting their people. We are excited by the opportunity to integrate Adora's advanced capabilities into our existing suite, delivering incremental value to our clients that we can directly monetize in the form of a premium offering for incremental AI-driven capabilities.

Following our acquisition of Grayscale last year, we are also integrating Grayscale's AI-powered recruiting automation capabilities into our platform in the form of a premium offering, helping companies hiring at scale move faster through candidate matching, automated engagement, and continuous candidate check-ins. Collectively, the launch of Ignite AI, Elevate Solutions, Paylocity Retirement, and the ongoing integration of Grayscale and Adora into the Paylocity platform highlights our dual focus on embedding AI into high-value workflows while continuing to broaden the platform with solutions that reduce manual work and help clients unlock more value from the Paylocity platform. And this commitment to product innovation and world-class service continues to be reflected in our industry-leading revenue retention rates, which once again remained above 92% in fiscal 26.

Our strong culture, industry-leading software innovation, and exceptional sales and operational execution would not be possible without the dedication and commitment of our employees. As we close out a very strong fiscal 26, I'd like to thank all of our people and teams for a fantastic year, and we appreciate everything that you do. The strong culture at Paylocity also continues to be recognized externally, as we recently were named by Time as one of America's Best Companies 2026 and by Forbes as one of America's Best Employers for Women 2026. I would now like to pass the call to Ryan to review the financial results in detail and provide initial outlook on fiscal 27.

Thanks, Toby. Recurring revenue for the fourth quarter was $415.6 million, an increase of 12.4%, With total revenue up 11% from the same period last year. As Toby noted, our sales and operations team had another solid quarter, and we were pleased to come in $11.3 million above the top end of our revenue guidance, with the majority of our Q4 revenue beat coming from recurring and other revenue. Adjusted EBITDA for the fourth quarter was $145.5 million, or 32.7% margin, and exceeded the top end of our guidance by $12.9 million. For Fiscal 26, adjusted EBITDA was $654.9 million, or 37% margin, and an increase of 12.3% on a dollar basis from Fiscal 25, resulting in leverage of 50 basis points.

Excluding the impact of interest income on funds held for clients, adjusted EBITDA margin for Fiscal 26 was 32.4%, reflecting operating leverage of 120 basis points versus Fiscal 25 and a year-over-re-increase of 16.4% on a dollar basis. Additionally, we continue to show strong growth on free cash flow, with Fiscal 26 free cash flow margin of 24.2%, representing an increase of 24.8% on dollar basis from Fiscal 25. Excluding the impact of interest income on client-held funds, we expanded free cash flow by approximately 40% in Fiscal 26, representing margin expansion of 370 basis points. While Fiscal 27 will be a difficult comparison due to the tax legislation that provided one-time benefits in Fiscal 26, we continue to have confidence in our ability to further expand free cash flow margin on a multi-year basis.

We continue to make significant investments in research And to understand our overall investment in R&D, it is important to combine both what we expense and what we capitalize. On a combined non-gap basis, total R&D investments were 14.5% of revenue in Fiscal 26. And on a dollar basis, our year-over-year investment in total R&D increased by 12.6% in Fiscal 26 when compared to Fiscal 25. On a non-gap basis, sales and marketing expenses were 21.9% of revenue in the fourth quarter and 20.3% of revenue in Fiscal 26. On a non basis G costs were 8 of revenue in Fiscal 26 and we remain focused on continuing to drive leverage in our G expenses on an annual basis Briefly covering our gap results for Q4 gross profit was $300.4 million, operating income was $84.4 million, and net income was $60.3 million.

For the full year, gross profit was $1.2 billion, operating income was $386 million, The net income was $269.7 million. In regard to funds held for clients and interest income, our average yearly balance of client funds was $3.4 billion in Q4 and $3.3 billion for Fiscal 26. We are estimating the average yearly balance will be approximately $3.0 billion in Q1 of Fiscal 27 with an average annual yield of approximately 340 basis points, representing approximately $25.5 million of interest income in Q1. On a full year basis, we are estimating The average yearly balance will be approximately $3.4 to $3.5 billion in Fiscal 27, with an average yield of approximately 300 basis points, representing approximately $103 million of interest income.

In regard to interest rates, our guidance assumes two 25 basis point rate cuts in the back half of Fiscal 27, with a cut in each of January and March reflected in our guidance. Additionally, given the confidence we have in our business and our strong cash flows, we repurchased approximately $466,000 shares for $48.1 million in aggregate repurchases during Q4. In total for fiscal 26, we repurchased approximately $2.8 million shares for $398.1 million in aggregate repurchases, helping to drive our diluted share count down 3.1% in fiscal 26. As of June 30, we had approximately We have only $1.3 billion remaining under the existing repurchase program, which we will opportunistically execute against on a go-forward basis, while also maintaining flexibility in our capital allocation plan to invest for future growth.

In regard to the balance sheet, we ended the fiscal year with $271.9 million in cash, cash equivalents in invested corporate cash, and $81.3 million outstanding on our credit facility.

Finally, I'd like to provide our financial guidance for Q1 in Fiscal 27, which includes the impact of two 25 basis point interest rate cuts in the back half of Fiscal 27 and flat workforce levels in Fiscal 27 versus Fiscal 26. Note beginning in Fiscal 27, we will amortize deferred contract costs over an 8-year useful life, an increase from the current 7-year convention. This change is reflected in our guidance and The Paylocity Holding Corp earnings will result in an increase to adjusted EBITDA margins in Fiscal 27 of approximately 120 to 140 basis points, which is dependent on our overall business performance and timing and volume of sales and client implementation. For the first quarter of Fiscal 27, recurring another revenue is expected to be in the range of $414 million to $419 million, or approximately 10% growth over the first quarter of Fiscal 26 recurring another revenue.

And total revenue It is expected to be in the range of $439.5 million to $444.5 million, or approximately 8% growth over first quarter fiscal 26 total revenue. Adjusted EBITDA is expected to be in the range of $152 million to $156 million, and adjusted EBITDA, excluding interest income on funds held for clients, is expected to be in the range of $126.5 million to $130.5 million. And for fiscal 27, recurring and other revenue is expected to be in the range of $1.777 billion to $1.792 billion, or approximately 8% growth over fiscal 26 recurring and other revenue.

Total revenue is expected to be in the range of $1.880 billion to $1.895 billion, or approximately 7% growth over fiscal 26. Adjusted EBITDA is expected to be in the range of $690 million to $700 million, and adjusted EBITDA excluding interest income on funds held for clients is expected to be in the range of $587 million to $597 million, representing approximately 80 basis points of leverage at the midpoint. In conclusion, as we kick off fiscal 27, we remain confident in our differentiated value proposition, go-to-market strategy, operational strength, and product roadmap, and believe our predictable business model execution, durable recurring revenue growth, and prudent approach to guidance sets us up for a strong fiscal 27. With a combination of industry-leading recurring revenue growth and free cash flow margin, a long track record of strong and consistent revenue retention, and expanding both our client base and average revenue per client, we have a high level of confidence in our ability to continue to drive sustainable revenue growth and increase margin on a multi-year basis.

Operator, we are now ready for questions.

Hey, Brad. Toby, I mean, I think I'll start with just, I think there's solid execution around the business. So if you go through, you know, the backdrop of a stable demand environment, I think I think we've had really strong performance from a go-to-market standpoint across our sales and marketing teams. I think we've had really strong performance from a service perspective with our client retention. And then I think we've also had significant momentum, which you can see in all the product announcements and launches from Elevate to Retirement to Grayscale and Recruiting to Adora with Leave of Absence Management and then everything that we've announced with Ignite AI. So I think you're seeing all the things come together in pretty balanced execution in every area of the business, again, against what I think is a stable backdrop from a demand environment standpoint.

That's great. And just a quick follow-up with 7% unit growth in 26, how should we think about kind of the opportunity in 27, what type of sales force growth you need to achieve that? And maybe just wrapping that up, what type of efficiencies, especially with Gen AI, is the sales force seeing right now? Thanks. Yeah, I think over the last few years, we've seen relative balance between the unit growth and then ARPU growth. And it wasn't quite 50-50, but it was pretty close as we came through 26. And so, you know, I think we had another very balanced year of performance from a unit in ARPU standpoint. I think the comments that we've made over the last few years are you don't plan it to the decimal, but I think it's a balanced approach that we take as we're putting together the plan for 27, certainly as we're putting together the guidance for 27.

And so I think our approach as we come into 27 and the expectations are that we'll see that have more relative balance between units in ARPU than we may have seen in five, six years ago, something like that. And then I think from an investment standpoint, as we looked at the investments across the go-to-market teams in the course of building the plan and the guidance for 27, I mean, I think we've been really happy with the execution that we've seen. We've focused on productivity, I think, more so over the last few years, and we've made the investments in both field and inside sales and across our marketing teams, including channels, that have been able to produce, I think, the balance that you see.

And I think our approach in terms of those investments is pretty similar and pretty consistent as we come into 2017. Great. Thanks very much.

I will take the question. I would say that we do have more conversations with clients in the buying process around AI needs, what they are looking for from an AI perspective. I think many of our products require a fair amount of work on behalf of the clients. Think of things like payroll, recruiting, time and labor management. And so inserting agentic capabilities in there where they feel like they are driving efficiencies, they're getting less errors, it's a more seamless process. That's certainly a big part of the conversation, and then, you know, demoing those capabilities to the customer so they can see that. I mean, that's one avenue of innovation that we've seen. I think a second thing that AI has unlocked is some newer product SKUs that maybe we wouldn't have imagined before.

I think the Grayscale and Adora acquisitions are really good examples of us being able to add on AI native capabilities that allow us to really drive productivity back to the customers and then being able to kind of monetize that. And so you put all of that together and you've got agents built through the platform driving efficiency. You've got new products used that are AI first. I think AI is certainly becoming a greater part of the conversation with our prospects and driving some results for us.

Yeah, I think we're really happy with how fiscal 26 played out, which allowed us to both repurchase a reasonable amount of stock, so $400 million bought back in fiscal 26, which combined with continued leverage on stock-based comp resulted in the looted share count down about 3%. So I think you'll see us continue to opportunistically repurchase stock in 27. We still have about $1.3 billion available under our authorization. And on top of that, we're investing for growth. So the Grayscale and Adora acquisitions that we made recently, both funded with cash on balance sheet, are good examples of that. So I think we're in a position with strong cash flows, increasing profitability, where we can reduce share count while also investing for future growth.

Sure. I think, Mark, if you kind of go back in time and you think of where we were coming out of COVID, we were in the process of launching a number of engagement products. So, you know, add-ons on to learning, surveys, Community Plus, and, you know, we were seeing really good traction with those products. And so those have continued to increase as well as the core products, things like recruiting and benefits and time. And so those are probably a bigger driver if you looked at last year's performance, just because they've been around longer, they're bigger, they're more established. But we're really excited about the releases that we've had. When you combine the Airbase acquisition and the entrance into finance and IT, combined with the product releases that we announce now, this has been as robust as We've developed a new launch product roadmap that we've had in many, many years.

And I think the other part that's exciting is we think the monetization opportunity for these just from a PPM perspective is relatively high. And so when you combine that with, you know, all the execution that we've had on top of it, I think that's what's produced the results.

I think first on the retention, it continues to be at 92 percent plus. So really happy with the operations team's performance in fiscal 26. Relative to guidance, I think probably the context would be if you think about the leverage we drove on operating EBITDA in fiscal 26, We are going to be able to see the next year. We are going to be able to see the next year. I will now turn the call over to management for a few years. Starting 27, pretty similar to where we are. We started 26 when you take into account each of those in the ASC 606 change. And again, I think similar to what we saw in 26, if we see continued momentum across the business, I think the expectation would be top line over performance would fall to increase margin as we go throughout the year.

I think the only point I would add, Mark, is we don't feel that these new products are going to be margin diluted over time. We feel like the products are going to drive great value to the clients, and we're going to be able to drive great margin out of them, so I would not consider that as headwind.

Yeah, Jordan, so we continue to see very stable macro, so consistent what our commentary was for the first nine months of fiscal 26, we saw client workforce levels up in Q4, and that continues to be up year over year nicely. Consistent with the guidance philosophy, we're assuming flat workforce levels in 27, which would be a slight degradation from what we've seen recently.

I think we're open to where the market goes from a pricing perspective. We're really focused on delivering value to the clients, and when we deliver enough value to the clients, we look to be able to monetize that value. And so with Grayscale and Adora, those are great examples where we're going to take AI native products and monetize those. With our Ignite agents, they're going to make existing processes for our clients much more efficient. It's going to create differentiation in the marketplace and allow us to win more business. And if we see opportunities where we can package something up and we've offered enough value to the clients, then we'll monetize it. So it's really kind of a two-progged approach.

Well, we're excited about all the products, I would say. We've got Elevate and Retirement in market right now, and we've got really good momentum behind those, so we're pretty excited about those. As you know, when we do an acquisition, it does take some time to really integrate that platform, their capabilities into our platform. We'll have Grayscale launch next, and we're actively working on Adora. So I would probably put it kind of in that order of where we've launched them. Ignite is coming out with our clients this month, and so we're excited about that as well. But I think it's really the platform story as a whole that we really continue to strengthen, and that's what's really creating the differentiation and the momentum in the business.

Yeah, I think consistent with my answer a few minutes ago, I think we can absolutely do both, and we've got the ability and the flexibility with the balance sheet and strong cash flows to be able to continue to repurchase stock, would expect to continue to drive down diluted shares outstanding, while also certainly being open from an acquisition standpoint. So I think the expectation, consistent with what you saw us do in 26, is we've got the ability to do both in 27.

Yeah, I think it is. I mean, I go back to, you know, when we did the acquisition, that was certainly how we described, and that's also consistent with how we would have described what the target would be for any new product that we launch, whether it's built or acquired. And I think that's how we talked about it at the time of the acquisition. And I think as we sit a little over a year in, I think we're very pleased with the process, progress that we've made, and still believe that that's the path that we're on ultimately from a penetration standpoint. So I think we're really pleased with the progress that the team's made.

Yeah, I mean, I think the big picture answer is we continue to expect to drive free cash flow margin forward on a multi-year basis, and we increased our targets in the early part of fiscal 26 and absolutely continue to believe those are the right multi-year targets. As I mentioned on the prepared remarks, we did have a one-time benefit in fiscal 26, which was a big part of the year-over-year increase we saw in addition to natural scale in the business. And I think the Q4 PP&E purchases are really timing. We were able to opportunistically pull forward some of the spend that would have likely occurred in the first half of 27 into 26. I think what that looks like in 27 is PP&E is probably in the 1 to 1.5% of revenue range versus about 2% this year.

So I would expect to get some leverage there. And then, again, a little bit of lumpiness relative to free cash flow. Would expect that to increase on a dollar basis in 27. Might see a little bit of a headwind in margins, specifically, just given the challenge around grow over.

Yeah, thanks, Dan. I mean, I think, as you know, we've had a fairly robust history of launching products into the market, launching products to our sales teams, and preparing those teams from both a new logo acquisition We've taken a similar approach with each of the launches that we've had over the last nine months or so with the Elevate solutions, with Adora and Grayscale that we're working on now, and everything that we've done from an Ignite standpoint and also retirement. So we've had a long string over the last nine months of things that we've launched, and we've taken the same methodical approach in terms of working through the training and the preparation from our product teams to our sales and go-to-market teams and our service teams as well.

So I think we've run the same playbook as we've gone through each and every one of those launches over the last nine months as we have historically in the business. I think the early indications are that we've seen really nice traction with each one of those products or offerings that we've launched. I think sitting here today, we feel really good about the momentum that we have, the team's ability to consume all that material and be effective in the market with our clients. I think sitting here coming into 27, yes, I think we're really happy with the momentum that we've had in all of those launches. I think we're also really happy with the traction that we've seen early days still, but the traction that we've seen with the sales teams and with our clients.

Sure, yeah. I mean, I think on gross margins, there will be a little bit of a benefit from the useful life change that we noted. That's probably, of the 120 to 140 basis points, about 60% of that will be seen in sales and marketing, and about 40% will be seen in gross margin. Beyond that, I think we continue to have confidence in our ability to scale. We are certainly leveraging AI and broader automation efforts across our operations teams, and we are seeing some really positive signs, both from a margin standpoint.

I will now turn the call over to management for the Paylocity Holding Corp. Well, we've got, you know, a number of different teams focused on either different market segments or different parts of our product portfolio, as well as we've got teams focused on sales back to the client base. So, it's really a matter of fitting that product into the right organization, training them on the value proposition, and then really supporting them. We've got a strong solution consultant team that are kind of product experts that work with them behind the scenes, so they don't have to know all the intricacies of the product. That allows them to ramp much faster. And then just the content marketing and training teams to be able to launch that.

I think as Toby said, we really have a strong playbook on doing this. We've been doing this for a lot of years, and we've had great success with doing that.

And so we are really happy to have to run that playbook many, many times going into FY27, and the Salesforce is super excited.

Yeah, I mean, I think from an overall channel standpoint, I think we're really pleased with the performance that we saw, again, throughout not just Q4, but throughout fiscal 26. And I think you know part of that is benefit brokers and then part of that is financial advisors And I think we seen great receptivity from a financial advisor standpoint with the retirement offering I think that fits well with how we crafted the relationship with them Overall I think channel performance was really strong throughout the course of 26 We continued to see momentum with both the financial advisors and brokers and I think the retirement solution is certainly a part of that Thank you.

Yes, it would have still accelerated. The impact of Grayscale was negligible in the quarter. We would have still accelerated even without Grayscale.

Yeah, so I think for context on the useful life and deferred contract costs, ASC 606 was implemented for us in 2019, so we've had a seven-year convention for several years at this point. I think in the normal course of the business, annually the team assesses both qualitative and quantitative factors to confirm that the seven-year life was accurate. And business obviously is much larger than it was in 2019, and I think we continue to see both very strong client retention. We see increasing client relationship life. We see increasing average employees per client. So we go through that qualitative and quantitative assessment each year, and the facts were such that we're moving from seven years to eight years beginning in fiscal 27.

Yeah, I think if you look at the overall client growth or unit growth over the course of the last two fiscal years, it's been fairly consistent year to year around that 7% level. And so I think for the last 24 months, you've seen relative consistency on a year-to-year basis in the unit growth. And then when you look at that quarter-to-quarter, I think it was fairly smooth through the course of fiscal 26 as it was relatively in fiscal 25, apart from, as you said, the seasonality that you see in the business, which, again, is primarily in Q3, having a larger onboarding of clients, which is in January. So I think if you look at the last two years, you see relative consistency both in the total unit growth and in the quarter-to-quarter spread of those units, both within the year and on a year-to-year basis.

So there's nothing that stands out to me in terms of anything in any of the quarters, certainly in 26, that I would point to.

Yeah, I think the guidance philosophy that we've employed, certainly in fiscal 26 and prior to that, is exactly how we approach 27. So we feel like, obviously, the momentum across the business is strong from a product go-to-market and operational perspective. You saw the strong performance throughout fiscal 26 and the slight acceleration in revenue growth. So we feel like we're really well set up for a strong fiscal 27, and our hope and expectation would be if we continue to see that strong performance, We would be able to exceed our guidance and raise the guidance both from a revenue and margin standpoint as we go throughout the year.

Yeah, sure. You know, I think when you apply AI to very specific use cases, you have an opportunity to drive efficiencies greater than you would have without AI. And so I think just look at our most recent acquisition with Adora. Lead management is a very complicated process. It's one where you have to really interact with employees and managers. They have a ton of back and forth questions. It's just a very, traditionally, a fairly manual process. AI really allows you to build, you know, an AI native first, you know, chatbot that can really automate so much of this interaction, have so much intelligence back and forth that you're taking a manual process, and you're really driving a lot of value back to the customer.

You're creating a much better employee experience, and when you do that, you have an opportunity to be able to monetize that. And, you know, we're going to keep our options open from a monetization perspective. We have per-user pricing, we have PPM pricing, and we're certainly open if we have to consider utilization-based pricing. It's really about trying to drive the right value equation back to the customer so that they win from a productivity perspective and we can obviously get paid for the value we're delivering.

Yeah, I think if you look back over the course of our history, we've prioritized the areas that have the most strategic value where we think we're meeting the biggest client need. I think we've done – we've certainly done deals across the platform, whether that's in HCM or in the finance area. We've certainly had partnerships along the way, too, that have helped add from a product capability standpoint. I think the approach is the same as we looked I think we see areas of opportunity across each part of the platform, and I think we've always taken a fairly balanced approach of building and adding to the portfolio where we could from an acquisition standpoint where we thought we had an opportunity to buy something in the market that would accelerate the product roadmap and that we would stand a good chance of integrating really tightly into the platform, and I think that's the exact same lens that we're bringing I will now turn the call over to management for the Paylocity Holding Corp. We did that again in fiscal 26.

I think we've got the ability across a number of factors. One is natural scale as the business gets larger. As we continue to drive automation and leverage AI across those teams, we are seeing those benefits today, and I think we're still in the very early stages. So when you combine natural scale pricing power, I think, with some of the third-party vendors as well, and then you layer on the AI and automation, I think that gives us the confidence that on a multi-year basis, the 80% plus increased gross margin target we have is the right one.

Yeah, so I think we're very happy with the early results from receptivity of Elevate in the marketplace. I think you did hit on one of the key points and why we launched those, which is Elevate solutions. Historically, solutions like that would be very, very service intensive, and we really see an opportunity with both the strength of our platform and how broad our platform has become, and the addition of many of the AI capabilities that we're adding I will now turn the call over to management for a service touch, which is certainly important to our customers in a relationship, but we can do that much more efficiently. That's what gave us confidence to be able to kind of launch that product, and we're seeing great receptivity in the marketplace.

Too early to tell where that's going to go from a long-term perspective, but it will definitely be a contributor into fiscal 27, and maybe more importantly, we see that as a long-term Growth driver as we think about on a multi-year basis.

You know, all the new products require some level of investment when you first launch them, and then as you gain scale on those products, we're confident that we can get them to our gross margins, And many of them, frankly, are incremental gross margins. And that's been a driver for us as we've launched new products. And so we feel good that we've got the right pacing for that. Some of that is investment in the product and tech. Some of that's in the teams that support it. Obviously, some of that's in the sales force. But we've had a long history of being able to launch a number of products while at the same time always marching forward from an overall margin and a gross margin perspective.

And we don't see any reason why we can't continue to do that with the grouping of products that we have announced for this fiscal year.

It's the latter. So there's a one-time true-up in the sense that, you know, 27 versus 26 will be benefited by 120 to 140 basis points, but it does not hit in Q1 specifically. Think of that as rateable over the course of 27. And just to clarify, that is 120 to 140 basis points additive to adjusted EBITDA, which is included in the margins, sorry, in the guidance we provided today.

Thank you. I just wanted to say thanks to everybody for your interest in Paylocity, and thanks to all of our people and teams for a great fiscal 26. Thanks for your interest. Have a good night.