Total revenue was $408.2 million, or 12% growth over Q1 of last year. While still in the early days, we are seeing this translate to stronger product penetration, higher average revenue per client, and improving client satisfaction and retention. In addition to our market-leading financial performance, our strong culture at Paylocity continues to be recognized externally as we were recently named to TIME's America's Growth Leaders 2026 list. I will now like to pass the call to Ryan to review the financial results in detail and provide updated fiscal 2026 guidance.
Total revenue for the first quarter was $408.2 million, an increase of 12%, with recurring and other revenues up 14% from the same period last year. On a non-GAAP basis, G&A costs were 8.8% of revenue in the first quarter versus 9.5% in the same period last year, representing 70 basis points of leverage. Our Adjusted EBITDA for the first quarter was $146.4 million, or 35.9% margin, and exceeded the top end of our guidance by $11.4 million, resulting in increased margin guidance for fiscal 2026. We're estimating the average daily balance will be approximately $3 billion in Q2, with an average annual yield of approximately 360 basis points, representing approximately $27 million of interest income in Q2.
On a full-year basis, we're estimating the average daily balance will be approximately $3.25 billion, with an average annual yield of approximately 340 basis points, representing approximately $110 million of interest income. Note, our guidance reflects an additional 25 basis point rate cut during fiscal 2026 versus our initial expectations for the year we provided on our August earnings call. Our sales and marketing spend target decreases from 20%-25% to 15%-20% of revenue. Our stock-based comp target decreases from less than 10% of revenue to 5% of revenue, and we expect to make progress against these updated financial targets on a go-forward basis.
| Metric | Period | Current guidance |
|---|---|---|
| Recurring and other revenue | Q2 FY2026 | $378.5M-$383.5M (approx 10% growth) (Initiated) |
| Full-year FY2026 guidance | FY2026 | Raised by more than the Q1 beat, with increased margin guidance (Raised) |
| Interest income on client-held funds | Q2 FY2026 | Approx $27M (avg daily balance ~$3.0B, ~360 bps yield) (Initiated) |
| Interest income on client-held funds | FY2026 | Approx $110M (avg daily balance ~$3.25B, ~340 bps yield) (Initiated) |
| Free cash flow benefit from tax legislation (OBBA) | FY2026 | Approx $65M one-time benefit from reduced cash tax payments (Initiated) |
| Long-term revenue target | Long-term | $3 billion (Raised) |
| Long-term adjusted gross margin target | Long-term | 80%+ (Raised) |
| Long-term Adjusted EBITDA margin target | Long-term | 40%-45% (Raised) |
| Long-term free cash flow margin target | Long-term | 25%-30% (Raised) |
| Long-term sales and marketing target | Long-term | 15%-20% of revenue (Lowered) |
| Long-term G&A target | Long-term | 5%-7% of revenue (Lowered) |
| Long-term stock-based comp target | Long-term | 5% of revenue (Lowered) |
| Metric | YoY | Note |
|---|---|---|
| Total revenue | +12% | Driven by demand for the modern AI-driven platform and strong go-to-market execution; recurring and other revenue grew 14%. |
| Adjusted gross margin | +110 bps to 75.1% | Continued focus on scaling operational costs while maintaining industry-leading service levels. |
| Total R&D investment (expensed plus capitalized) | +16.4% | Ongoing investment to build out the platform to serve the needs of the modern workforce. |
| Non-GAAP G&A | -70 bps to 8.8% of revenue | Operating leverage from scaling the business and AI/automation efficiencies. |
| Adjusted EBITDA margin (ex-interest income) | +110 bps | Durable recurring revenue growth combined with expanding profitability and improved operational scale. |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Paylocity for Finance / office of the CFO expansion | — | v1 launched in July, early traction with new clients and the existing base, validating the platform thesis. | Rising |
| Paylocity for IT (asset and identity management) | — | Earliest days, larger ARPU than most HCM modules, leveraging employee-record data for onboarding/offboarding. | Rising |
| AI and automation (product and internal) | — | Next-gen AI assistant launched; AI feature usage more than doubled; internal engineering, operations and sales teams using AI tools to drive efficiency. | Rising |
| Broker referral channel | — | Again delivered more than 25% of new business, aided by broker-neutral positioning and consolidation among competitors. | Steady |
| Macro / client workforce levels | — | Stable demand environment; client workforce levels up slightly year over year and through October, guidance assumes flat levels. | Steady |