Paylocity (PCTY): FY2025 Results, Airbase Integration, and the FY2026 Growth Reset

Paylocity’s FY2025 takeaway: strong recurring revenue growth meets a strategic reset#

Paylocity reported FY2025 revenue of $1.595 billion (+14.29% YoY) and recurring & other revenue of $1.472 billion (+15% YoY), but management’s FY2026 guide implies a meaningful slowdown to $1.707–$1.722 billion (≈+8% YoY) as the company absorbs the Airbase acquisition and retools go-to-market to sell into the Office of the CFO. Those headline figures — revenue growth, recurring mix, and the guided deceleration — frame a classic strategy-versus-execution story: durable subscription economics underpin near-term cash generation, even as the firm spends to re-position itself higher in the customer stack. (See Paylocity Q4 and FY2025 release and finance-platform press materials.) Paylocity Investor News Release - Q4 and FY2025 Results Paylocity Press Release - Launch of Integrated Spend Management Solution.

Financial performance: growth, margins, and cash flow (what the numbers actually show)#

Paylocity’s top-line and profitability profile in FY2025 demonstrates both scale and cash conversion. The company reported total revenue of $1.595B and gross profit of $1.10B, which yields a gross margin that calculates to +68.94% on our math (gross profit / revenue = 1,100 / 1,595). The company’s reported gross-margin trend (around the high-60s) is consistent across the last three fiscal years, showing stable unit economics for the core HCM subscription model.Paylocity Investor News Release - Q4 and FY2025 Results

Operating income for FY2025 was $304.02 million, which yields an operating margin of +19.06% when using the company’s published ratios and +19.06% on our calculation (304.02 / 1,595 = 0.1906). Net income of $227.13 million produces a net margin of +14.24% (227.13 / 1,595 = 0.1424). These margins reflect a growing revenue base with relatively disciplined cost structure even as Paylocity invests in the finance platform integration.Paylocity Investor News Release - Q4 and FY2025 Results

Cash flow is the most convincing part of the FY2025 story. The company generated $418.23 million of operating cash flow and $342.75 million of free cash flow, representing a free-cash-flow margin of +21.48% (342.75 / 1,595 = 0.2148) — strong conversion for a subscription software company at this scale. That level of free cash flow funded a $149.64 million share-repurchase program, acquisition payments, and debt activity during the year. (All cash-flow line items from the FY2025 cash-flow statement.) Paylocity Investor News Release - Q4 and FY2025 Results

Table 1 below summarizes the core income-statement figures across the last four fiscal years so the trend is visible in one place.

Sources: company income statements for FY2022–FY2025 as provided in the FY2025 release and filings. Paylocity Investor News Release - Q4 and FY2025 Results

A note on EBITDA: Paylocity reported FY2025 EBITDA of $304.02M, effectively equal to operating income in the dataset; this produces an EBITDA margin of ~19.06%, aligned with operating margin because the dataset includes specific D&A and other adjustments that reconcile to reported figures. The reconciliation and variability in adjusted EBITDA across periods (Q4 adjusted EBITDA compression noted by management) should be tracked through the quarterly reconciliations.

Balance sheet and liquidity: client funds, cash reporting nuances, and leverage#

Paylocity’s balance sheet shows meaningful liquidity and low net leverage but also illustrates reporting nuance tied to client funds. The reported cash & cash equivalents on the balance sheet are $398.07M at June 30, 2025, while the cash-flow statement shows cash at end of period of $2.48B. That gap reflects cash balances that are client funds held for payroll and related services that the company discloses on different lines in filings; the balance-sheet “cash and equivalents” figure often excludes client trust or fiduciary cash, which are reflected in total current assets and offset in liabilities. Investors should not interpret the lower balance-sheet cash figure as a lack of liquidity: Paylocity’s balance sheet shows total assets of $4.39B, total liabilities of $3.16B, and total stockholders’ equity of $1.23B at FY-end. Net debt is a negative $180.18M (net cash) when calculated as total debt ($217.89M) less cash and short-term investments ($398.07M).Paylocity Investor News Release - Q4 and FY2025 Results

Key balance-sheet ratios we calculate: the current ratio equals 3.31B / 2.91B = 1.14x, and debt-to-equity equals 217.89M / 1.23B = 0.18x — both consistent with the company’s stated financial-health metrics and indicating ample short-term liquidity and conservative financial leverage. (All balance-sheet figures from FY2025 filings.)

Table 2 captures balance-sheet and cash-flow highlights across FY2022–FY2025.

Sources: Paylocity balance sheets and cash-flow statements for FY2022–FY2025. Note the difference between balance-sheet cash and cash-at-end-of-period explained above. Paylocity Investor News Release - Q4 and FY2025 Results

Growth and returns: historical momentum and the FY2026 rebase#

Paylocity’s historical growth is impressive: revenue advanced from $852.65M in FY2022 to $1.595B in FY2025. Annualized over that period, the company’s revenue three-year CAGR calculates to roughly +23.2%, consistent with the historical metric in the dataset. Net income rose faster, yielding a reported 3-year net-income 3YCAGR of roughly +35.8%, driven by operating leverage and expanding ARPU. Free cash flow growth compounds even faster given operating-margin improvements and disciplined capex management; the dataset shows a three-year FCF 3YCAGR of ~+49.6%.Paylocity Investor News Release - Q4 and FY2025 Results

However, management’s FY2026 guide — $1.707–$1.722B in revenue — implies a pronounced deceleration from historical pace to roughly +7.0%–+8.0% YoY on total revenue. Recurring revenue guidance at $1.597–$1.612B implies recurring growth of around +9% YoY, still positive but far below FY2025’s +15% recurring growth. The deceleration is deliberate: Paylocity is investing to convert the company from a pure HCM vendor to a unified HCM + finance platform following the October 2024 Airbase acquisition and the July 2025 integrated spend-management launch. Management quantified an initial ~100 basis-point FY2025 adjusted-EBITDA headwind tied to the Airbase integration and related investments.Paylocity Investor News Release - Q4 and FY2025 Results Paylocity Press Release - Launch of Integrated Spend Management Solution

The strategic pivot: Airbase, cross-sell economics, and GTM change#

The critical strategic move is Paylocity’s acquisition of Airbase (completed October 2024) and the subsequent launch of an integrated spend-management product under the Paylocity platform. Airbase gives Paylocity a true Office-of-the-CFO capability: AP automation, corporate cards, expense management, and procurement workflows. Management and some analysts have posited cross-sell opportunity in the range of up to $250 million of incremental revenue over time by selling finance modules into Paylocity’s existing ~40,000-client base and leveraging Airbase’s installed customer base. Paylocity Announces Completion of Acquisition of Airbase CPA Practice Advisor - Paylocity Expands Platforms Reach to the Office of the CFO

From a financial standpoint, the ROI question is whether the incremental lifetime value (LTV) of finance modules and improved retention will exceed the near-term integration and GTM costs. Paylocity funded Airbase partially with debt: long-term debt rose in FY2025 to $209.27 million, and total debt to $217.89 million, up from $54.45 million a year earlier. Given a net-cash position overall (net debt = -$180.18M) and robust free cash flow, the company has flexibility to invest while maintaining balance-sheet prudence. The true economic payoff requires successful CFO-level selling and measured product integration — both are execution risks rather than immediate financial shortfalls.

Competitive dynamics: where Paylocity sits versus incumbents#

Paylocity competes in a crowded HCM and finance-software market that includes ADP, Workday, Oracle NetSuite, and various point-solution vendors. The company’s competitive case rests on a mid-market-focused product that emphasizes ease of implementation, bundled HCM + payroll functionality, and now unified spend-management capabilities. That positioning is attractive to mid-market CFOs and CHROs who prioritize a single vendor for HR and finance workflows. However, incumbent enterprise vendors offer deep finance and ERP integrations that can be difficult to displace.

Quantitatively, Paylocity’s strengths are profitability and free-cash-flow generation at scale, a recurring revenue base, and accelerating ARPU. The risks are classic: sales-cycle expansion when shifting buyer personas to CFOs, potential churn if product integration introduces friction, and competitive displacement by incumbents or best-of-breed finance vendors. Whether Paylocity can close the cross-sell loop at scale will determine the long-term competitive moat and potential uplift to revenue per customer.

Margin dynamics and cost posture through FY2026#

FY2025 gross margins remain healthy in the high-60s, while adjusted EBITDA showed modest pressure in the quarter as management reallocated spend to integration and product development. Management’s disclosure of an initial ~100 bps adjusted-EBITDA headwind from Airbase is important: it quantifies the near-term trade-off between growth and margin preservation. Our calculation of free-cash-flow margin at +21.48% and operating margin near +19.06% indicate meaningful operating leverage remains even after integration costs, but investors should expect some margin volatility in FY2026 as investments and cross-sell programs ramp.

Quality of earnings: cash conversion and balance-sheet discipline#

Quality-of-earnings indicators are constructive. Paylocity converted net income to operating cash flow at a robust rate: $418.23M of operating cash flow on $227.13M of net income in FY2025 (operating cash flow / net income ≈ 1.84x) — a sign that reported earnings are backed by real cash generation. The company used cash for acquisitions (acquisitions net: -$277.85M) and for buybacks (-$149.64M repurchased), while keeping net debt modest and retaining a large cash-like balance when client funds are considered. That combination — recurring revenue, strong cash conversion, and disciplined use of cash — supports the view that reported profits are high quality. Paylocity Investor News Release - Q4 and FY2025 Results

Key risks and execution watch points#

Two categories of risk merit attention. First, integration and GTM risk: converting HR relationships into CFO buys requires different sales motions, proof of finance ROI, and product trust. If cross-sell penetration is slower than anticipated, FY2026 revenue may underperform guidance and margin pressure could persist. Second, macro and payment-yield risk: a portion of Paylocity’s income historically includes interest income on client funds; lower yields or declines in client-funds balances reduce ancillary revenue and compress near-term margins.

Operationally, watch four metrics closely in quarterly updates: recurring revenue growth, ARPU growth, churn/retention, and finance module adoption rates (Airbase-originated ARR). Those metrics will reveal whether the strategy is translating into higher LTV per customer or simply temporary expense drag.

What this means for investors#

Investors should view Paylocity’s FY2026 guide as a deliberate rebase: the company is choosing to trade some near-term growth percentage points and adjusted-EBITDA margin stability for product capability that expands the total addressable market and promises higher long-term ARPU. The balance sheet and cash-flow profile provide the company with the means to execute this plan without jeopardizing liquidity. Key leading indicators to monitor are finance ARR sourced from cross-sell, retention trends after product bundling, and how quickly adjusted EBITDA normalizes after the integration cost phase.

If Paylocity demonstrably converts a material portion of its 40,000-client base to finance products (the company and several analysts suggest a cross-sell opportunity in the low hundreds of millions), the strategic repositioning could raise long-run growth and LTV. Conversely, if CFO-level selling proves slow or products require major rework, FY2026 may feel like a transition year with muted organic upside.

Key takeaways#

Paylocity finished FY2025 with $1.595B revenue, $342.75M free cash flow, and continued ARPU-driven recurring growth, but it enters FY2026 with a slower guide as Airbase integration and CFO-targeted GTM changes introduce near-term headwinds. Its balance sheet remains strong, cash generation is high quality, and the strategic rationale for adding spend-management is sound — provided execution on cross-sell and product unification succeeds.

• High-conviction facts: Recurring revenue of $1.472B (FY2025); free cash flow of $342.75M; net income $227.13M. Paylocity Investor News Release - Q4 and FY2025 Results
• Strategic pivot: Airbase acquisition (~Oct 2024) and launch of integrated spend-management solution (July 2025) expand TAM into the Office of the CFO. Paylocity Announces Completion of Acquisition of Airbase Paylocity Press Release - Launch of Integrated Spend Management Solution
• Execution watch list: recurring revenue growth, finance ARR (Airbase-originated), ARPU, retention/churn, and adjusted-EBITDA trajectory.

Final synthesis and forward-looking considerations#

Paylocity’s FY2025 results confirm the durability of a subscription-led HCM business at scale: stable gross margins (+~69%), improving operating profitability, and strong free-cash-flow conversion (≈+21.5% of revenue). The company’s strategic move to embrace the Office of the CFO via Airbase can materially expand LTV and TAM if Paylocity executes CFO-focused sales motions and delivers an integrated, trusted finance product. The FY2026 guide — a deceleration to roughly +8% revenue growth — should be understood as a managed transition rather than a structural slowdown.

The company’s balance sheet flexibility and cash generation give management optionality to invest in product, retire acquisition-related debt, and return capital via buybacks. The next 4–6 quarters will determine whether Paylocity’s cross-sell math and product integration produce durable revenue lift and margin normalization, or whether the company experiences extended execution drag. Investors and analysts will watch adoption metrics and adjusted-EBITDA recovery as the clearest signals that Paylocity’s strategic pivot is converting into measurable financial upside.

(For Paylocity’s official FY2025 results and the integrated spend-management launch, refer to the company news releases and investor presentation.) Paylocity Investor News Release - Q4 and FY2025 Results Paylocity Press Release - Launch of Integrated Spend Management Solution.