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Paylocity FY Conference Summary Company Overview - **Company**: Paylocity (NasdaqGS:PCTY) - **Event**: FY Conference held on December 10, 2025 - **Speakers**: Sheldon McMeans (Barclays) and Ryan Glenn (CFO of Paylocity) Key Highlights Financial Performance - **Q1 FY26 Results**: - Recurring revenue growth of **14%** - Total revenue growth of **12%** - Raised guidance for revenue and profitability due to strong performance [3][4][8] - **Long-term Targets**: - Increased targets based on significant progress in EBITDA and free cash flow leverage, and strong gross margin leverage [8][9] Market and Demand Environment - **Macro Environment**: - Stable macro and demand environment with slight year-over-year increase in client workforce levels [3][10] - **Client Base**: - Average client has about **150 employees**; successful in moving upmarket to larger clients [17][29] Product and Service Offerings - **HCM Market Growth**: - HCM market continues to grow with mid-to-high single-digit unit growth and increasing average revenue per client [29][30] - **AI and Automation**: - AI embedded in all products; significant year-over-year increase in adoption of AI assistant [46][57] - AI expected to enhance client experience and retention [57][61] Sales and Marketing Strategy - **Sales Headcount**: - Sales headcount increased by **8%** over the last two years; revenue per rep continues to climb [31][34] - **Client Engagement**: - Strong engagement at the Elevate conference with both existing clients and prospects [24][25] Competitive Landscape - **Market Position**: - Continued to take market share in the HCM payroll space; stable win rates against competitors [26][38] - **Defensibility Against AI**: - Complexities in payroll compliance and high-touch service model provide a competitive moat against new entrants [46][49] Future Outlook - **Margin Expansion**: - Optimistic about expanding gross margins through AI efficiencies and maintaining high client satisfaction [92][93] - **Capital Allocation**: - Active share repurchase program with **$500 million** repurchased since May 2024; plans to continue buybacks [109][110] - **International Strategy**: - Focus on serving multinational corporations and adapting to trends of smaller businesses hiring internationally [125][126] Additional Insights - **Integration of Acquisitions**: - Successful integration of Airbase acquisition, with expectations of high adoption rates for new finance products [63][64] - **Client Retention**: - High levels of client retention noted, with a focus on maintaining service quality while leveraging AI for efficiency [91][92] This summary encapsulates the key points discussed during the Paylocity FY Conference, highlighting the company's financial performance, market dynamics, product offerings, and strategic outlook.

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Core Viewpoint - Zacks Premium provides tools and resources to help investors make informed decisions and enhance their confidence in stock market investments [1] Zacks Style Scores Overview - Zacks Style Scores rates stocks based on value, growth, and momentum, serving as complementary indicators to the Zacks Rank [2] - Stocks are rated from A to F, with A indicating the highest potential for outperforming the market [3] Value Score - The Value Style Score focuses on identifying undervalued stocks using financial ratios such as P/E, PEG, Price/Sales, and Price/Cash Flow [3] Growth Score - The Growth Style Score assesses a company's financial health and future outlook, considering projected and historical earnings, sales, and cash flow [4] Momentum Score - The Momentum Style Score identifies optimal times to invest based on price trends and earnings estimate changes [5] VGM Score - The VGM Score combines all three Style Scores, providing a comprehensive assessment of stocks based on value, growth, and momentum [6] Zacks Rank Integration - The Zacks Rank utilizes earnings estimate revisions to guide investors in stock selection, with 1 (Strong Buy) stocks historically yielding an average annual return of +23.93% since 1988 [7][8] - Investors are encouraged to select stocks with a Zacks Rank of 1 or 2 and Style Scores of A or B for optimal returns [9] Company Spotlight: Paylocity (PCTY) - Paylocity is a cloud-based payroll and HCM software provider for medium-sized organizations in the U.S. [11] - Currently rated 3 (Hold) with a VGM Score of B, PCTY shows potential for growth with a projected earnings growth of 2.4% for the current fiscal year [11] - Recent upward revisions in earnings estimates have increased the Zacks Consensus Estimate to $7.34 per share, with an average earnings surprise of +13.8% [12]

Financial Data and Key Metrics Changes - The meeting confirmed that as of October 7, 2025, there were 54,381,598 shares of common stock outstanding, with approximately 88% represented at the meeting [4][5] - The preliminary voting results indicated strong support for the election of directors, with affirmative votes ranging from 91% to 99% for various nominees [11][12] Business Line Data and Key Metrics Changes - No specific business line data or key metrics were discussed in the meeting Market Data and Key Metrics Changes - No specific market data or key metrics were discussed in the meeting Company Strategy and Development Direction and Industry Competition - The company proposed the ratification of KPMG as the independent registered public accounting firm for the fiscal year ending June 30, 2026, indicating a focus on maintaining strong governance and oversight [8][12] - The approval of the amended and restated 2023 Equity Incentive Plan suggests a strategy to align executive compensation with company performance [9][12] Management's Comments on Operating Environment and Future Outlook - Management did not provide specific comments on the operating environment or future outlook during the meeting Other Important Information - The final results of the voting will be reported in a Form 8-K filing within four business days following the meeting [13] Q&A Session Summary - There were no questions submitted by stockholders during the meeting [15]

Financial Data and Key Metrics Changes - The preliminary report indicates that approximately 88% of shares outstanding were represented at the meeting, confirming a quorum for business [5] - The voting results showed that Steven Beauchamp received an affirmative vote of 98%, while other directors received votes ranging from 91% to 99% [11][12] Business Line Data and Key Metrics Changes - No specific business line data or key metrics were discussed during the meeting Market Data and Key Metrics Changes - No specific market data or key metrics were discussed during the meeting Company Strategy and Development Direction and Industry Competition - The company proposed to ratify the appointment of KPMG as the independent registered public accounting firm for the fiscal year ending June 30, 2026, indicating a focus on maintaining strong governance and oversight [7] - The approval of the amended and restated 2023 Equity Incentive Plan suggests a strategy to align executive compensation with company performance [9] Management's Comments on Operating Environment and Future Outlook - Management did not provide specific comments on the operating environment or future outlook during the meeting Other Important Information - The final results of the voting will be reported in a Form 8-K filing within four business days following the meeting [13] Q&A Session Summary Question: Were there any questions submitted by stockholders? - There were no questions submitted by stockholders during the meeting [14]

Core Insights - Paylocity's shares fell 5.7% following a significant earnings miss in its first-quarter fiscal 2026 results, with earnings per share at $0.86 compared to the forecast of $1.57, representing a miss of over 45% [1][2] - The company's revenue increased by 12% year-over-year to $408 million, but the disappointing earnings led to a negative reaction from analysts, including a price target reduction from Citizens from $270.00 to $245.00, a decrease of more than 9% [2] Company Performance - Paylocity's stock has decreased by 28.3% since the beginning of the year, currently trading at $139.77 per share, which is 35.8% below its 52-week high of $217.86 from February 2025 [6] - An investment of $1,000 in Paylocity's shares five years ago would now be worth $738.23, indicating a decline in long-term value [6] Market Context - Paylocity's shares have shown low volatility, with only four moves greater than 5% over the past year, suggesting that the market views the recent news as significant but not fundamentally altering its perception of the company [4] - The recent acquisition interest in competitor Dayforce by Thoma Bravo, which could value the company at around $8.4 billion, highlights a trend of consolidation in the HR Tech sector, potentially affecting valuations of similar companies like Paylocity [5]

Revenue Growth - Total revenues increased from $363.0 million for the three months ended September 30, 2024 to $408.2 million for the same period in 2025, representing a 12% year-over-year increase[91]. - Recurring and other revenue accounted for 92% and 93% of total revenues for the three months ended September 30, 2024 and 2025, respectively[99]. - Recurring and other revenue increased by $45.8 million, or 14%, to $378.9 million for the three months ended September 30, 2025, compared to $333.1 million for the same period in 2024[117]. Profitability and Efficiency - Adjusted Gross Profit rose from $268.7 million in Q3 2024 to $306.7 million in Q3 2025, reflecting a significant increase in operational efficiency[95]. - Adjusted EBITDA increased from $129.0 million for the three months ended September 30, 2024 to $146.4 million for the same period in 2025[96]. - Operating income improved from $64.1 million in Q3 2024 to $74.2 million in Q3 2025, demonstrating enhanced profitability[113]. - Gross margin improved from 68% in 2024 to 69% in 2025[119]. Expenses - Sales and marketing expenses grew from $88.4 million in Q3 2024 to $96.4 million in Q3 2025, indicating a continued investment in client acquisition[113]. - Research and development expenses increased from $47.3 million in Q3 2024 to $55.6 million in Q3 2025, highlighting a focus on technological advancement[113]. - General and administrative expenses grew by $5.4 million, or 11%, to $53.6 million for the three months ended September 30, 2025[122]. - Sales and marketing expenses rose by $7.9 million, or 9%, to $96.4 million for the three months ended September 30, 2025[120]. - Research and development expenses increased by $8.3 million, or 18%, to $55.6 million for the three months ended September 30, 2025[121]. Cash Flow and Financial Position - The company had $165.2 million in cash and cash equivalents as of September 30, 2025, and a $550.0 million revolving credit facility[130]. - Net cash provided by operating activities was $91.5 million for the three months ended September 30, 2024, compared to $86.5 million for the same period in 2025, reflecting changes in operating assets and liabilities[139]. - Net cash used in investing activities increased from $13.3 million in 2024 to $17.7 million in 2025, primarily due to a $10.3 million increase in purchases of available-for-sale securities[140][141]. - Net cash used in financing activities decreased from $318.3 million in 2024 to $229.7 million in 2025, with a significant increase in client fund obligations by $692.0 million[142]. - Capital expenditures were $2.3 million in 2024 and $3.8 million in 2025, excluding capitalized internal-use software costs of $15.2 million and $15.5 million, respectively[144]. - As of September 30, 2025, the company had cash and cash equivalents of $165.2 million and funds held for clients totaling $2,775.6 million[148]. Future Outlook and Strategic Initiatives - The company plans to expand spend management capabilities through the acquisition of Airbase Inc. in October 2024, enhancing its platform offerings[84]. - The number of clients is expected to grow as the company continues to invest in its sales and marketing organization across new and existing territories[86]. - The company anticipates improved gross and operating margins over the long term as it scales its operations and gains economies of scale[88]. - The company expects to continue investing in capital spending to enhance operating facilities and technical infrastructure, depending on sales growth[144]. Market and Economic Factors - Interest income on funds held for clients decreased by $0.5 million, or 2%, to $29.3 million for the three months ended September 30, 2025, from $29.9 million in 2024[118]. - Cost of revenues increased by $13.4 million, or 12%, to $128.4 million for the three months ended September 30, 2025, compared to $115.0 million in 2024[119]. - An immediate 100-basis point increase in interest rates would decrease the market value of available-for-sale securities by $12.0 million, while a decrease would increase it by $11.6 million[150]. - The company maintains a revolving credit facility of $550.0 million, which can be increased to $825.0 million, with $81.3 million borrowed as of September 30, 2025[151]. - The company has $81.3 million in borrowings on its revolving credit facility, which is not due in the next twelve months, along with $63.2 million in operating lease obligations[143]. - Inflation has not materially affected the company's financial condition, but significant inflationary pressures could impact costs and pricing strategies[152]. Income Metrics - Net income decreased to 12% in 2025 from 14% in 2024, with income before income taxes at 18% for both years[116].

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Core Insights - Paylocity (PCTY) reported quarterly earnings of $1.75 per share, exceeding the Zacks Consensus Estimate of $1.5 per share, and up from $1.66 per share a year ago [1] - The earnings surprise was +16.67%, following a previous surprise of +13.04% in the last quarter [2] - The company achieved revenues of $408.17 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 1.95% and increasing from $362.96 million year-over-year [3] Earnings Performance - Paylocity has consistently surpassed consensus EPS estimates for the last four quarters [2] - The current consensus EPS estimate for the upcoming quarter is $1.53, with expected revenues of $407.48 million, and for the current fiscal year, the estimate is $7.14 on $1.72 billion in revenues [8] Stock Performance and Outlook - Paylocity shares have declined approximately 29.4% year-to-date, contrasting with the S&P 500's gain of 16.5% [4] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the market in the near future [7] Industry Context - The Internet - Software industry, to which Paylocity belongs, is currently ranked in the top 32% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [9] - Another company in the same industry, Bentley Systems, is expected to report earnings soon, with a consensus EPS estimate of $0.27, reflecting a year-over-year increase of +12.5% [10]