HR and payroll software provider Paylocity (NASDAQ: PCTY) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 12.5% year on year to $408.2 million. The company expects next quarter’s revenue to be around $408 million, close to analysts’ estimates. Its non-GAAP profit of $1.75 per share was 11.3% above analysts’ consensus estimates.
Is now the time to buy Paylocity? Find out by accessing our full research report, it’s free for active Edge members.
Paylocity (PCTY) Q3 CY2025 Highlights:
- Revenue: $408.2 million vs analyst estimates of $400.6 million (12.5% year-on-year growth, 1.9% beat)
- Adjusted EPS: $1.75 vs analyst estimates of $1.57 (11.3% beat)
- Adjusted Operating Income: $121.2 million vs analyst estimates of $109 million (29.7% margin, 11.1% beat)
- The company slightly lifted its revenue guidance for the full year to $1.72 billion at the midpoint from $1.71 billion
- EBITDA guidance for the full year is $620 million at the midpoint, in line with analyst expectations
- Operating Margin: 18.2%, in line with the same quarter last year
- Free Cash Flow Margin: 16.5%, similar to the previous quarter
- Annual Recurring Revenue: $378.9 million (13.7% year-on-year growth)
- Market Capitalization: $7.77 billion
“Fiscal 26 is off to a strong start, with recurring & other revenue growth of 14% in the first quarter, combined with a significant increase in profitability, as our differentiated value proposition of providing the most modern software in the industry continues to resonate in the marketplace. Additionally, our AI strategy has continued to progress - delivering predictive and actionable insights, generative AI functionality and a growing number of autonomous agents across the platform to drive productivity through task and workflow automation that goes beyond the basic search capabilities that are considered table stakes in today’s evolving AI landscape. We are also very pleased with the early positive response to our Paylocity for Finance solution, as the value proposition of managing all spend and key business workflows is resonating with both clients and prospects,” 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. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Paylocity’s 23.5% annualized revenue growth over the last five years was solid. Its growth beat the average software company and shows its offerings resonate with customers.
Long-term growth is the most important, but within software, a half-decade historical view may miss new innovations or demand cycles. Paylocity’s annualized revenue growth of 15.1% over the last two years is below its five-year trend, but we still think the results were respectable. 
This quarter, Paylocity reported year-on-year revenue growth of 12.5%, and its $408.2 million of revenue exceeded Wall Street’s estimates by 1.9%. Company management is currently guiding for a 8.2% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 6.6% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and implies its products and services will face some demand challenges.
Software is eating the world and there is virtually no industry left that has been untouched by it. That drives increasing demand for tools helping software developers do their jobs, whether it be monitoring critical cloud infrastructure, integrating audio and video functionality, or ensuring smooth content streaming. Click here to access a free report on our 3 favorite stocks to play this generational megatrend.
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 $378.9 million in Q3, and over the last four quarters, its growth slightly lagged the sector as it averaged 14.7% 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 measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
Paylocity is extremely efficient at acquiring new customers, and its CAC payback period checked in at 21.3 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 Q3 Results
We were impressed by how significantly Paylocity blew past analysts’ EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance slightly exceeded Wall Street’s estimates. On the other hand, its EBITDA guidance for next quarter slightly missed. Overall, this print had some key positives. The stock remained flat at $139.33 immediately following the results.
So do we think Paylocity is an attractive buy at the current price? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.
