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On August 4, Paylocity Holding Corporation (NASDAQ:PCTY) closed the books on a fiscal 2026 that most software companies would envy: 11% total revenue growth, a 22.4% jump in diluted earnings per share, and close to $700 million spent buying back its own stock since May 2024. But tucked into the same release is a fiscal 2027 outlook that grows at roughly half last year's pace, and that gap between the year just finished and the year ahead is where this story gets interesting.
Paylocity's fiscal 2026 numbers show a company converting growth into cash rather than just chasing it. Recurring and other revenue reached $1.65 billion for the year, up 12.2%, while GAAP net income climbed even faster, rising 18.8% to $269.7 million. Diluted earnings per share grew faster still, up 22.4% to $4.92, partly because the company spent $398.1 million buying back 2.8 million shares during the year, shrinking the share count those earnings get divided across. That brings the buyback total to $697.8 million and 4.6 million shares repurchased since May 2024, a steady drawdown of the float that keeps working in shareholders' favor.
Profitability widened alongside growth. Adjusted EBITDA rose 12.3% to $654.9 million, pushing the margin to 37.0% of revenue from 36.5% a year earlier, and free cash flow climbed to $427.8 million, or 24.2% of revenue, up from 21.5% in fiscal 2025. That kind of cash generation is funding more than buybacks. Paylocity closed its acquisition of Grayscale Labs in April to add AI-powered recruiting tools, rolled out its own Ignite AI features across the platform, and layered on Paylocity Retirement and Elevate Solutions, a service pairing clients with dedicated payroll and HR teams. The client base grew roughly 7% for the year, giving the company more accounts to sell each of those products into.
The guidance Paylocity issued alongside these results tells a different story than the year it just closed. Fiscal 2027 recurring and other revenue is expected to grow about 8%, and total revenue about 7%, both roughly half the pace the company just posted for fiscal 2026. The first quarter outlook shows the same pattern, with total revenue growth of about 8% guided against the 11% Paylocity delivered in the fourth quarter it just reported. A 7% increase in the client base, slower than the 11% total revenue growth, suggests more of that growth came from selling existing clients additional products than from winning new logos, a well that eventually runs shallower.
Some of next year's margin improvement is coming from an accounting change rather than the business itself. Starting in fiscal 2027, Paylocity will spread deferred contract costs over eight years instead of seven, a shift the company says should lift adjusted EBITDA margins by 120 to 140 basis points on its own. And the distance between GAAP and adjusted results remains wide: fiscal 2026 GAAP operating income was $386.0 million against non-GAAP operating income of $557.3 million, a reminder that a meaningful share of the profitability story depends on measures that exclude real costs like stock-based compensation.
Hedge fund ownership held exactly flat at 44 funds quarter over quarter, showing neither fresh conviction nor an exodus. Short interest sits at 7.42% of the float, high enough to reflect real skepticism but well short of a crowded trade. Paylocity trades at a forward P/E of 15.80, as of September 16, a multiple that looks more like a mature, steadily profitable software company than a high-growth one, which lines up with the deceleration built into its own fiscal 2027 guidance.
Paylocity closed fiscal 2026 with double-digit growth, expanding margins, and a buyback that keeps shrinking its share count, yet it guided investors toward fiscal 2027 growth at roughly half that pace. Ignite AI, the Grayscale acquisition, and Elevate Solutions still need to show up as new revenue rather than just product announcements before that deceleration reverses. At the same time, a chunk of next year's projected margin gain comes from stretching out contract cost amortization rather than the business getting more efficient.
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