HR and payroll software provider Paylocity (NASDAQ: PCTY) reported Q4 CY2025 results beating Wall Street’s revenue expectations, with sales up 10.4% year on year to $416.1 million. Guidance for next quarter’s revenue was better than expected at $489.5 million at the midpoint, 1.1% above analysts’ estimates. Its non-GAAP profit of $1.85 per share was 15.9% above analysts’ consensus estimates.
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Paylocity (PCTY) Q4 CY2025 Highlights:
- Revenue: $416.1 million vs analyst estimates of $408.6 million (10.4% year-on-year growth, 1.9% beat)
- Adjusted EPS: $1.85 vs analyst estimates of $1.60 (15.9% beat)
- Adjusted Operating Income: $119.1 million vs analyst estimates of $109.3 million (28.6% margin, 8.9% beat)
- The company slightly lifted its revenue guidance for the full year to $1.74 billion at the midpoint from $1.72 billion
- EBITDA guidance for the full year is $626.5 million at the midpoint, above analyst estimates of $620.8 million
- Operating Margin: 16.9%, up from 12.4% in the same quarter last year
- Free Cash Flow Margin: 3.8%, down from 16.5% in the previous quarter
- Annual Recurring Revenue: $387 million (11.3% year-on-year growth)
- Market Capitalization: $6.89 billion
“The momentum seen in Q1 continued into the second quarter and contributed to a strong selling season performance and increased revenue and profitability guidance for fiscal 26. Our results continue to be driven by the combination of strong sales, operational execution, and product differentiation – including the addition of new platform capabilities like Benefits Guided Setup to support our clients and broker partners through open enrollment season. Additionally, as highlighted last quarter, we continue to invest in AI and broader automation efforts internally to drive greater efficiency and productivity across our business, as evidenced by our increasing free cash flow and adjusted EBITDA margins. I would also like to thank all of our Paylocity teams as they support our clients through our busiest time of year,” said Toby Williams, President and Chief Executive Officer of Paylocity.
Company Overview
Operating in a field where companies traditionally juggled multiple disconnected systems, Paylocity (NASDAQ: PCTY) provides cloud-based human capital management and payroll software solutions that help businesses manage their workforce and HR processes.
Revenue Growth
A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Paylocity grew its sales at a solid 23.5% compounded annual growth rate. Its growth beat the average software company and shows its offerings resonate with customers.
We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Paylocity’s recent performance shows its demand has slowed as its annualized revenue growth of 14% over the last two years was below its five-year trend. 
This quarter, Paylocity reported year-on-year revenue growth of 10.4%, and its $416.1 million of revenue exceeded Wall Street’s estimates by 1.9%. Company management is currently guiding for a 7.7% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 6.4% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will see some demand headwinds.
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Annual Recurring Revenue
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
Paylocity’s ARR came in at $387 million in Q4, and over the last four quarters, its growth was underwhelming as it averaged 13% year-on-year increases. This performance mirrored its total sales and suggests that increasing competition is causing challenges in securing longer-term commitments. 
Customer Acquisition Efficiency
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
Paylocity is very efficient at acquiring new customers, and its CAC payback period checked in at 27.6 months this quarter. The company’s rapid recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments. 
Key Takeaways from Paylocity’s Q4 Results
We enjoyed seeing Paylocity beat analysts’ EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance slightly exceeded Wall Street’s estimates. Overall, this print had some key positives. The market seemed to be hoping for more, and the stock traded down 1.4% to $125.51 immediately after reporting.
Should you buy the stock or not? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here (it’s free).
