Paylocity Holding Corp (PCTY) Q4 2026 Earnings Call Transcript

Good day and thank you for standing by. Welcome to the Paylocity Holding Corporation 4th Quarter 2026 Fiscal Year Results Conference 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ryan Glenn, Chief Financial Officer. Please go ahead.

Statements made are based solely on the present information and information. Also, during the course of time, 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, which is located on our website at paylocity.com, gap financial measure because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort. With that, let me turn the call over to Steve.

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 growth 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 pit 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 imperial 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 ignite ai hub helps close visibility gap by measuring real productivity gains including questions answers 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 describes 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. 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 percent 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 jovie come on client held funds only

40 percent in fiscal 26. one-time benefits in fiscal 26 we continue to have confidence in our ability to further exercise and development in 26 when compared to fiscal 20 on a non-gap basis sales and marketing expenses were 21.9 percent of revenue in the fourth quarter and 20.3 percent of basis G&A costs were 8.9% of revenue in fiscal. 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. Q1 of fiscal. On a full-year basis, we're estimating the average yearly balance will be approximately $3.4 to $3.5 billion in fiscal 27, approximately $103 million of interest income. 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. 26, 2.8 million shares for $398.1 million in aggregate repurchases, helping to drive our diluted share count down 3.1% in fiscal 2016. Approximately $1.3 billion remaining under the existing repurchase program, which we will opportunistically execute against on a go-for-it basis. 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. 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 27. In Fiscal 27, we will amortize deferred contract costs over an eight-year useful life, an increase from the current seven-year convention. This change is reflected in our guidance and will result in an increase to adjust 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. Fiscal 27 recurring in other revenue is expected to be in a range of $414 million to $419 million, or approximately 10% growth over first quarter of fiscal 26 recurring in other revenue. And total revenue is expected to be in a 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 sold for clients, is expected to be in the range of $126.5 million to $130.5 fiscal 27, is expected to be in the range of $1.777 billion to 26 recurring in other revenue, 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 for clients, is expected to be in the range of $587 million, approximately 80 basis points of inclusion. 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.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to 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. Please stand by while we compile the Q&A roster. Our first question comes from the line of Brad Reback with Stiefel. Your line is now open.

Great. Thanks very much. It's now a couple of quarters in a row of accelerating subscription and revenue growth. Can you maybe unpack what's driving the business higher here?

From a service perspective with our client, I think we've also had significant momentum, which you can see in all the product announcements and launches from, you know, Elevate to 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 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 Salesforce growth you need to achieve that? And maybe just wrapping that up, what type of efficiencies, especially with Gen AI as the Salesforce seeing right now?

Thanks. from a unit and ARPU standpoint, and, you know, I think the comments that we've made over the last few years are we don't, you know, you don't plan it, 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, you know, that have more relative balance between units in ARPU than we may have seen in, you know, 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, you know, 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 27.

Great. Thanks very much.

Thank you. Our next question comes from the line of Brian Peterson with Raymond James. Your line is now open.

This is Jessica on for Brian. That's a quick one. So as you're talking about a broader platform and all these investments you've done with your positive innovation, are you starting to see in your go-to-market motion, are customers coming to you more with, as considering payoffs with AI-first requirements? Are they seeing payoffs as a partner for AI, other capabilities, and how is it influencing win rates in your sales cycles?

Yeah, so I'll take the question. I would say that we do have more conversations with clients in the buying process around AI needs, what they're 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, gigantic capabilities in there where they feel like they are driving efficiencies and then 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 products use 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 that are AI first. I think AI is certainly becoming a greater part of the conversation with our prospects and driving some...

Really great to hear. And sort of following along your comments there, as you're thinking about capital allocation and everything you've had on your balance sheet, how do we think about the stock rate of your priorities if you're thinking about M&A versus 430s and organic investments versus buybacks? So what are we sure we think about this?

Yeah, I think we're really happy with how fiscal 26 played a reasonable amount of stock. So $400 million resulted in the leverage which continued 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. 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.

Thank you. Our next question comes from the line of Mark Markon with Robert W. Baird. Your line is now open.

Good afternoon, and thanks for taking my questions. And congrats on a great year. When I take a look at the ARPU growth, I was wondering if you could comment, you know, to what extent is that being driven by, you know, some of your more established SKUs versus what you're seeing in terms of, like, Airbase and, you know, some of the newer products that you've just come out with, what you're seeing there. And then I've got a follow-up.

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, recruiting and benefits in time. Probably a bigger driver if you looked at last year's performance, just because they've been around longer, their 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 bad 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.

That's great. Great. And then can you talk about two other things? One, just what the retention rate was. And then in terms of looking at your guidance in terms of the margins, particularly taking into account the change in the amortization schedule, we've always noted that you're conservative with regards to your guidance, but it doesn't seem like it implies much margin expansion. And so I'm wondering, how should we think about margins? I know you're introducing all sorts of new products. Those probably don't have the same margin level as your established products. I don't know if you were assuming or just being conservative with regards to what the contribution would be from those or how we should think about margin expansion for this year and then going on beyond this year, while acknowledging that you've always been really conservative as well.

Yeah, Mark, I can take both of those. I think first on the retention, it continues to be at 92% plus multiple years. We will see continued margin expansion. Specific to 27, I think we're in a period where we're absolutely investing in really nice momentum there, a number of new product releases between Paylassity Retirement, Elevate Solutions, and two new acquisitions with Grayscale and Adora, both of which I think we're really excited about and are seeing nice momentum in, both of those acquisitions are subscale from a margin standpoint and represent a slight headwind in 27 as well. So as you combine each of those elements, I think we're starting 27 pretty similar to where we are. We started 26 when you take into account each of those and 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 overperformance would fall to increase margin as you 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 a headwind.

Great. Thank you.

Thank you. Our next question comes from the line of Samad Samana with Jeffries. Your line is now open.

This is Jordan on for Samad. thanks for taking my question. Great to see the strong recurring growth. It seems like strength was largely attributed to execution. But based on the data that we've been seeing, it seems like employment growth stabilized a bit during the quarter. I'm curious, what did you see within your own base? And as we think about the initial fiscal 27 guidance, what are the employment assumptions baked within that outlook? Yeah, Jordan, so we continue to see very, very stable macro so consistent what what up in in q4 and that continues to be we're assuming flat workforce levels in 27 which would be a slight degradation from from awesome and then maybe a quick follow up on the purpose-built agents automating pain other administrative tasks within uh the ignite platform it seems like you're meaningfully reduced man hours for your clients you've spoken to that you've also spoken monetization i'm curious how are you thinking about the mechanism there could that be broader price increases or is that more so going to be maybe consumption-based pricing for those who are leveraging those agents more than others?

I think we're open to where the market goes from a pricing perspective. With Grayscale and Adora, those are great examples where we're going to take AI agents that are going to make 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.

Great. Thank you for take my questions.

Thank you. Our next question comes from the line of Sidi Panagrahi with Mizuho. Your line is now open.

Thank you and congrats on a good quarter. Just to extend Jordan's last question in terms of monetization. So you have done a few acquisitions as well as launched new products add-on modules. So when you look at the opportunity for fiscal 27 in terms of monetization how do you rank order all these add-on products are based on your discussion with with your customers they're working on Adora so I would probably you know put it come 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 a differentiation in the momentum in the business yeah and then And another question, Ryan, I mean, you know, in terms of buyback, there was a strong year also, I think you still have 1.3 billion authorization probably left.

How are you planning to balance in terms of, you know, capital allocation in terms of buyback versus keeping some dry powder for future M&A?

Balance sheet and strong cash flows to be able to continue to repurchase stock would expect to continue to drive down diluted chairs outstanding while also certainly being open from an acquisition standpoint. So I think the...

Yeah, sorry, I was jumping out on call.

Thank you. Our next question comes from the line of Jared Levine with TD Cohen. Your line is now open.

Thank you. I wanted to dig into air-based cross-sell progress one year in. I guess, you know, how would you characterize this first year in and, you know, the 10 to 20 percent penetration within three to five years, is that still a reasonable target based on what you saw this first year?

I think it is. I mean, I go back to B for any new product that we launch, whether it's built or acquired, and I think that's acquisition. I think as we sit a little over a year in, yeah, I think we're very pleased with profit. I believe that that's the path that we're on from. So I think we're really pleased with the progress that the team's made.

Got it. And then, Ryan, I want to dig into free cash flow here. So you did have a pretty notable uptick in PP&E purchases and 4Q here. What's the outlook here as we think to 27 in terms of CapEx, and I guess more broadly free cash flow, just being mindful you don't formally guide to free cash flow, but just any puts and takes would be helpful here?

Yeah, I mean, I think the big picture ends with the right multi-year targets. As I mentioned on the prepared remarks, we did have a one-time benefit in fiscal 26, the year-over-year increase we saw in addition to 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 one to one and a half percent of revenue range versus about two percent this year. So I would expect to get some 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 margin specifically just given the challenge around grow over.

Got it. Thank you.

Thank you. Our next question comes from the line of Daniel Jester with BMO Capital Markets. Your line is now open.

Great. Thanks for taking my question tonight. Maybe just in terms of the product and sales enablement you you've mentioned multiple times in the call sort of the amount of products relatively new that you're going to be giving to your sales force this year so can we spend a moment about sort of how you're enabling your sales team to go out with this and maybe in terms of engaging with customers you know there's a lot obviously here there's a lot of change happening in the world with regards to ai how are you helping sort of customers get over the finish line yeah thanks Thanks, Dan.

I mean, I think, as you know, we've had a fairly launching products into the market, launching products to our sales teams, and preparing those teams from – I think we've taken a similar approach with each of the launches that we've had over the last, you know, 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. And I think, you know, the early indications are that we've seen really nice traction with each one of those products or offerings that we've launched. And so 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. And so, you know, 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.

Well, that's great. Thank you. And then, Ryan, maybe for you on as you're ramping all these AI products, can you just help us think about sort of your cost structure and any implications for gross margins as we're considering our models for next year? Thank you so much.

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're seeing some really positive signs both from a margin standpoint as well as from a client and employee satisfaction perspective as well and would expect to be able to continue to leverage those throughout 27.

Great. Thank you very much.

Thank you. Our next question comes from the line of Terry Tillman with Truist. Your line is now open.

Hi, guys. John Carlo on here for Terry. Thank you for taking the question and congrats on the quarter. Just on the product roadmap, you mentioned a lot of progress moving forward. how do you actually train the sales force for new products and how do they pitch it to customers?

Teams focus on either different market segments or different consultant teams 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. 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 that. And so we are really happy to have to run that playbook many, many times.

Got it. Thanks, guys. Appreciate it.

Thank you. Our next question comes from the line of Ian Black with Needham & Company. Your line is now open.

Hi, this is Ian Black. I'm for Scott Berg. Brokers are obviously a key source of lead generation. Does the new retirement offering enhance that sales channel?

Yeah, I mean, I think from a standpoint, I think we're really pleased with, again, throughout not just Q4 but throughout fiscal 26 and financial advisors, and I think we've seen great receptivity from a financial advisor standpoint with the retirement offering, and I think that fits well with, you know, how we've crafted the relationship with them. So overall, I mean, 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. Thank you. Our next question comes from the line of Jason Salino with KeyBank Capital Markets.

Your line is now open hey great thanks for taking my question i just wanted to ask about the the q4 recurring uh performance from a prior question it sounds like it was more booking strengths related but um what was the inorganic contribution because i think it was the first quarter that included grayscale would recurring growth still have accelerated um even when stripping out any m a contribution yes it would have still accelerated the the impact of grace Okay. Perfect. Thanks, Ryan. And then maybe it was kind of blazed over in another question, but can you speak to maybe the change in the useful life assumptions? Curious kind of what led to the process there.

And then it would obviously be incremental to your 40 to 45% longer term margin ambitions.

Just wanted to ask that. Thanks.

Yeah. So years at this point, qualitative and quantitative factors to confirm in 2019 each year. And the facts were such that we're moving from seven years to eight years beginning.

Amazing. Thank you.

Thank you. Our next question comes from the line of Raymo Lenshaw with Barclays. Your line is now open.

Hi, this is Sheldon McMains on for Raymo. Thanks for taking the question. I have a two-parter here on macro and that's all. So it was nice to see the healthy 7% client growth for the year. And I'd love to hear how that trended, how that growth trended throughout the year. And just given the mixed macro backdrop in particular, how did that look in the most recent June quarter? And I appreciate there's some seasonality there. So maybe comparing that to the prior Q4 quarter. And then related to that, if there's been any kind of changes in your conversations or any impact whatsoever regarding the situation in the Middle East or any other dynamics out there. Thank you.

Yeah, I think if you look at the overall client growth or unit growth over the, it's been fairly 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 don't, I think it was pretty fiscal 26, fiscal 25, apart from, as you said, the seasonality that you see in the business, which again is primarily in Q3, 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.

Understood. Thank you.

Thank you. Our next question comes from the line of George Kurosawa with Citi. Your line is now open.

Okay, great. I'm on for Steve Enders. Thanks for taking the questions. I wanted to touch on the FY27 guidance. You all have had a pretty consistent philosophy in setting yourselves up for a beat and raise cadence, which obviously delivered on in 26. Just when you think about the elements of conservatism or potential upside that are embedded into FY27, it sounds like employment levels might be one of those. Any Any other areas that you would point out when you're putting the guide together?

Yeah, I think the guidance philosophy that we've employed, certainly in fiscal 26, 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 them.

Okay, that's helpful. And then on AI, these AI products that you're rolling out, I think our sense is that primary approach to date had been more indirect monetization of AI. It sounds like you are leaning more into some separately monetized SKUs. If you could just talk about kind of what's driving that change in approach and if there's anything different about maybe the commercialization approach, how you're thinking about pricing those products.

Yeah, sure. You know, I think when you apply AI, you're taking a manual process and you're really driving a lot of value back to the customer. You're creating a much, and when you do that, you have an opportunity. 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.

Great. Thanks for taking the questions.

Thank you. Our next question comes from the line of Alan Verkovsky with U.S. Bancorp BTIG. Your line is now open.

Hey there. Thanks for taking the questions and congrats on the strong finish to the year.

Maybe first, just on future M&A, how are you prioritizing opportunities across your HR finance and IT verticals and I've got a quick follow-up yeah I think if you look back over the course of our history we've we've prioritized the areas that have the most strategic value where we think we're meeting the you know the biggest client need and I think we've done we certainly done deals in 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 through 27. 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 forward into 27.

Got it. And then just double-clicking on an earlier question regarding gross margins, given your comments about confidence and your ability to scale as you continue investing in AI capabilities across the platform, can you go a touch deeper in what gives you conviction that gross margins can improve from roughly 75% today to the 80%-plus target you outlined that's $3 billion in revenue?

Yeah, I mean, I think we obviously, one, have a long history of expanding gross margins on an annual basis, and we did that again in fiscal 26. And 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, you know, 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, it is the right one.

Got it. Thank you, guys.

Thank you. Our next question comes from the line of Jacob Smith with Guggenheim Securities. Your line is now open.

Hey, thanks for taking my question. On Elevate Solutions, when we look around across the SMB market, more and more vendors are going after the service layer, and it feels like that's where the industry is broadly headed. With that backdrop and given Elevate sits in direct adjacency to your core payroll and HCM motion, could the adoption curve and pace of revenue be faster than what we've seen with Pay Loss Super Finance and IT?

And any update you could give on the rollout of Elevate so far this quarter, that would be helpful.

I think you did hit, in the addition of many of the AI form, that we can deliver still with a service touch, which is certainly important to our customers in a relationship, but we can do that much more efficiently. And so that's what gave us confidence to be able to kind of launch that product. And we're seeing great receptivity in the market. Too early to tell where that's going to go from a long-term perspective. 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 it on a multi-year basis.

Great.

And just a quick follow-up there. How are you thinking about the delivery build-out to services, managed services, business at scale? Is that something that would be an investment area heading into FY27?

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 close margins and many of them frankincense. 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.

Great. Thank you.

Thank you. Our next question comes from the line of Craig Marr with CT Partners. Your line is now open.

Hey, this is Isabelle on for Craig. I just wanted to get clarification on the accounting change and just how we get to the 120 to 140 bits. Can you clarify the timing of when this benefit will come? You know, is there a one-time trip of all existing contracts that gets us to this magnitude, or is this the level of ongoing benefit that we should expect going forward, even beyond 27?

It's the latter, so it does not hit.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to management for closing remarks.

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.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.