Paycom Software, Inc. Q1 FY2026 Earnings Call

Good afternoon. My name is Jade, and I will be your conference operator today. At this time, I would like to welcome everyone to Paycom's First Quarter 2026 Financial Results Conference Call. Operator instructions were provided. I will now turn the call over to James Samford, Head of Investor Relations. You may begin.

Thank you, and welcome to Paycom's Earnings Conference Call for the first quarter of 2026. Certain statements made on this call that are not historical facts, including those related to our future plans, objectives, and expected performance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this conference call. While we believe any forward-looking statements made on this call are reasonable, actual results may differ materially because the statements are based on our current expectations and subject to risks and uncertainties. These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on Form 10-K. You should refer to and consider these factors when relying on such forward-looking information. Any forward-looking statement made speaks only as of the date on which it is made, and we do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. Also during today's call, we refer to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income, and certain adjusted expenses. We use these non-GAAP financial measures to review and assess our performance and for planning purposes. A reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of the market today and is available on our website at investors.paycom.com. I will now turn the call over to Chad Richison, Paycom's founder and CEO. Chad?

Thanks, James. Thank you to everyone joining our call today. I'll briefly comment on some of our first quarter 2026 accomplishments and the progress we are making on our 2026 plan. Bob will review our first quarter results and full year guidance before taking a few questions. Let's get started. First quarter results were solid as we continue to advance our full solution automation strategy, create greater client ROI achievement, and deliver the world-class service that makes us the best in our industry. The 2026 plan that we laid out for you during our last call remains well on track, and I'm pleased with our progress. Our focus on client ROI achievement and world-class service continues to strengthen our client relationships, which helped increase revenue retention in 2025, while also improving our Net Promoter Score. Our clients are more engaged than ever and big promoters of our software. Discussions with them continue to be overwhelmingly positive as they use our software to drive automation, which is creating meaningful value for them. We also continue to see many clients return to Paycom after realizing their new provider systems don't produce automation and ease of use like Paycom. Our clients and their employees appreciate our single database architecture and employee-first technology, which enable the automation and decisioning across the platform, reducing complexity, improving accuracy, and driving efficiency. Our clients find that these strategic pillars help them achieve more ROI than anyone else in our space. We are also advancing our automation capabilities within our single database software. AI and automation are the future of our industry, and I am thankful we were early to offer our clients this level of functionality well before it becomes mainstream. Paycom is uniquely positioned within our industry as we are the most automated solution in the market. In fact, we have routinely been named the best HR and payroll software provider in our industry by third parties, most recently by G2, where we earned top rankings in their spring 2026 report across multiple categories. Our full solution automation strategy is working, and solutions like Beti, GONE, and other automated decisioning capabilities are eliminating manual processes, reducing redundancies, and helping our clients operate more efficiently. Forrester found that Beti reduced payroll processing labor by 90%, while also showcasing that GONE delivers an ROI of over 800%. Our AI solution, IWant, is accelerating speed to value for our clients by helping users get answers and complete work quickly without any necessary training in our software. As we continue rolling out more AI and automation across the platform, we are making our product easier to use and driving measurable value for our clients and their employees. While we are pleased with our momentum in a rapidly evolving market, the opportunity ahead of us is large as we continue to serve approximately 5% of the addressable market. This available market share represents a significant opportunity for Paycom over the long term. I want to thank our employees for their focus, execution, and the excellent start to 2026. Our people are what make Paycom a great place to work, and I am thankful Paycom was recently recognized as a 2026 Platinum Employer on the Where You Work Matters list. Paycom was the only company in our industry to receive the program's highest overall distinction of platinum, proving we are one of the best places to work in the U.S. Paycom was also the only company in our industry to earn a 5-star rating on USA Today's Most Trusted Brands in 2026. These distinctions are why brands all over the globe trust us to do their HR and payroll. As the most trusted HR and payroll provider, we have a lot of very exciting initiatives coming in 2026 to help our clients continue to create ROI, while also delivering world-class service. With that, let me turn the call over to Bob.

Thank you, Chad. We delivered strong first quarter results with total revenues of $572 million, up 8% over the comparable prior year period, and recurring and other revenue of $544 million, up 9% year-over-year. GAAP net income in the first quarter was $156 million or $3.04 per diluted share based on 51 million shares. Non-GAAP net income for the first quarter was $161 million or $3.15 per diluted share. Revenue strength in the quarter, combined with operational efficiencies from automation, resulted in strong profitability metrics in the first quarter. Adjusted EBITDA came in at $275 million, representing a 50 basis point year-over-year expansion to 48.2%. We are achieving operational efficiencies without compromising on sales and marketing effectiveness, world-class service, or product innovation. During the first quarter, we repurchased approximately 8.4 million shares of common stock, or approximately 15% of our shares outstanding as of the end of 2025, for a total of $1.06 billion, and we paid approximately $18 million in cash dividends. On May 4, the board approved a new $2 billion buyback authorization to replace our prior authorization. The board also approved our next quarterly dividend of $0.375 per share, payable in early June. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $154 million. In April, we replaced our previous revolving credit facility with a new 5-year, $2.125 billion credit facility, of which $675 million is currently drawn down. The average daily balance on funds held for clients was approximately $3.1 billion in the first quarter of 2026, up 8% over the prior year period. Now let me turn to guidance for 2026. Following our first quarter results, we are reaffirming our full year revenue and adjusted EBITDA guidance ranges. We expect total revenues to be between $2.175 billion and $2.195 billion, or approximately 6.5% year-over-year growth at the midpoint. We expect full year recurring and other revenue to be up 7% to 8% year-over-year. Finally, full year adjusted EBITDA is expected to be between $950 million to $970 million, representing an adjusted EBITDA margin of 44% at the midpoint of the range. Included in total revenue outlook is interest on funds held for clients of approximately $103 million, which is unchanged from our outlook provided on the last call. Our first quarter represented a strong first step towards achieving our strategic and financial goals for the year, and we're excited about what's ahead. With that, let's open the line for questions. Operator?

Your first question comes from the line of Samad Samana from Jefferies.

This is Jordan on for Samad. Thank you for taking my question. It's nice to see the recurring growth coming strong at 9%, which was ahead of our own expectations by a few points. I wanted to pick apart drivers of outperformance during the quarter there. Across key growth drivers, whether that be new booking, seller headcount versus productivity, employment growth, which factors performed better than your initial expectations and what contributed to that strength?

I would say it came in about what we expected for our expectations. When deal starts matter within a quarter, we had a successful quarter in the first quarter. Also, keep in mind the first quarter is the quarter where we have our forms filing business. That also can contribute to a higher margin profile in the first quarter.

Great. Maybe a quick follow-up. On the expense side, you're delivering some really strong leverage. I think the 50 basis points of gross margin expansion is particularly impressive, especially given the pressure coming from slow revenue. I'm curious, specifically, what's driving that healthy expansion this quarter? Do you have any puts and takes in the direction of gross margin as we think about the rest of the year?

We automated a lot throughout last year, and we're starting to see some of the benefit of that.

Yes. I would add the automation and the process efficiencies. We started last year on expense controls across the board, and we're seeing some of that benefit.

Great. Congrats again on the strong results.

Your next question comes from the line of Mark Marcon from Baird.

Similar to the prior question, you ended up outperforming relative to our expectations for this quarter. Fully recognize the forms filing. Been doing this for a while. I'm just wondering — you maintain the guidance, and it looks like you had a pretty nice beat here in the first quarter. The guidance basically assumes, in order to get to the 7% to 8% on recurring, we need to see a bit of a slowdown as the year unfolds. I'm wondering, are you just being conservative, or is there anything that you're looking at that would suggest that's going to slow down a little bit?

Mark, it's early in the year. We did have a strong first quarter. We've got the full year left. We're happy with what was there, but we like our guidance throughout the remainder of this year.

Okay. Can you talk a little bit about how the board's approaching — you obviously put your money where your mouth is with regard to the huge buyback, which we've written about before, and you're actually taking it up even further. Can you talk a little bit about the rationale for doing that now if in fact things are going to slow down? Perhaps there's a little bit of conservatism in the numbers.

I feel like our guide does reflect stability throughout the year. As far as the stock and the repurchases, our stock doesn't really trade off what we do. It kind of trades based on the AI prophecy of the day. I think there's a little bit of a sky's falling narrative out there and if you believe that narrative, our stock should almost be at zero. Our value proposition's getting stronger and stronger with our clients. Our Net Promoter Scores are going up. They're continuing to increase. I believe we're kind of valued at kind of a fool's gold price and we believe we're precious metal. When you have a $2 billion buyback authorization with a growing cash-positive business, it benefits us to take advantage of these disconnects in our value. I believe over time, long-term investors win when we're able to repurchase these shares.

Your next question comes from the line of Steven Enders from Citi.

Maybe just, dovetailing off of the last question, how are you kind of viewing the framework for how you're thinking about the buyback and capital allocation from here and how do you view the mix between leveraging more debt to support the buyback and what that means moving forward on those plans?

I think it's all dependent on where the share price is. We definitely remain opportunistic when it comes to buybacks. As you mentioned, we are taking on debt for that. We'll remain opportunistic as we go throughout the year and have opportunities.

Okay. Thanks for that. Maybe just in terms of the bigger product strategy — I guess with IWant kind of out in the market and the other automation solutions, what have you seen from how that's supporting top of funnel, new opportunities, first-time bookings and broader pipeline conversion and how you're seeing those metrics shift with the broader capabilities out there?

IWant creates real value and was the first AI tool in our industry that accessed an entire system. We'll discuss future AI products as we're ready to launch them. IWant's up another 33% just since the end of the fourth quarter from a usage perspective. Usage continues to do well with IWant as it becomes more of the predominant interface for many of our clients as well as their employees in how they navigate, make functional changes, and gather information from our system.

Your next question comes from the line of Jason Celino from KeyBanc Capital Markets.

Hi, this is Devin on for Jason today. Thanks for taking our questions. I also wanted to follow up on the first quarter recurring performance. I know you mentioned forms filing revenue, which sounds like it came in better. Could you perhaps speak to some of the sales retraining or changes that you have done late last year? Did you perhaps see less disruption or some early signs of benefits during the quarter that might have driven the strong start in recurring growth for the year?

I would say that the changes in the sales department did not have any impact on the Q1 starts and revenue, maybe toward the end, in March. Primarily, that forms filing revenue would've been baked in at the end of last year and became somewhat routine as we processed those throughout the quarter.

Got it. Okay. Thanks for that. Maybe just sticking on the topic of sales, I know you mentioned last quarter you're looking to expand sales rep per office. Yes, that will be helpful. Thank you.

Yes, we continue to hire in sales. We continue to produce many of the largest classes we've ever had go through our training. We have an award-winning sales team, and we're focused on remaining on top. Top salespeople want to sell the top products, and our salespeople have worked very hard to get where we are today. I'm proud of them. Paycom's a great place for salespeople, especially those who may be changing careers. We found that even HR directors can make pretty good salespeople for us these days.

Your next question comes from the line of Raimo Lenschow from Barclays.

I finally made it. Quick question on IWant. Usability is increasing a lot. What do you see in terms of pipeline builds when you talk to your sales guys about how that's impacting what's going on from pipeline builds, how that helps you all, and how that helps with trajectory or speed as you go through the pipeline because it does seem like a very compelling offering?

IWant has definitely helped us. It's automation throughout our system. IWant makes it easier for you to access GONE and other automated capabilities. It reduces the learning barrier to be able to utilize our software. We're having strong use cases. As employees use it at one company and they go to another company where the technology isn't as modern, they notice the difference. As we simplify our solution and deliver more automation, that contributes to greater opportunity for leads and sales throughout the year.

And then, if you think about this year, has macro impacted any of your thinking in terms of office openings or what you're seeing out in the field? That's the one concern everyone has. I don't think there's that much data, but any impact that you would see?

Internally, everything's going really well for us. We had a great start to the year and a good finish last year. We're working with our clients. Conversions are going well. Sales are going well. Our software development group continues to increase innovation. It's not until we come on these calls that we find out we're not doing that great, honestly, because outside of these, we're doing very well.

Okay, perfect. That's good to hear. Eventually, we will find out as well. Thank you.

Your next question comes from the line of Jared Levine from TD Cowen.

Thanks. Can you talk about bookings performance in 1Q and thus far into 2Q? Have you witnessed the inflection you were hoping for here?

I'm pretty impatient and want progress quickly. Matching my expectations can be challenging. Bookings came in according to budget and our expectations for the first quarter. I also mentioned we had pulled our sales group out of the field for a period of time — not a full three months, but they would come in for a week and then go back, which put some air in the line. We would expect as we move through the year to have greater opportunities for bookings to inflect.

Great. In terms of CapEx, you did have some pretty good leverage here, I think right around 6% of revenue in 1Q. Is that a reasonable expectation for the year?

Maybe not. There are constraints on different data centers. As a reminder, I don't know of anyone else in our industry other than us that operates their own data centers. We will have opportunities to expand in both power and purchase of certain items, and we'll have to see how CapEx is impacted through the year. We're not ready to give guidance on that right now.

Your next question comes from the line of Kevin McVeigh from UBS. (There was a brief name clarification from the queue).

Great. Thank you so much, and congratulations on the results. The buyback speaks for itself. There's so much concern in the market from an AI perspective. Is there anything you're seeing from client consumption patterns, whether it's formation down-market, mid-market adoption of IWant relative to Beti, that you'd call out to help dimensionalize or de-risk some of the concern? Clearly you're not seeing it in your numbers. To your point, Chad, the commentary sometimes flags things that aren't there. Anything you would point to to help shift the narrative?

We've been selling AI for a little while and getting clients to engage with it. AI changes things, but it doesn't change everything overnight. There are limitations to what should be deployed by a business with full AI, and trust is very important. We don't sell AI; we sell automated solutions to problems. Sometimes AI is the best way to solve a problem, and sometimes it's not.

Your next question comes from the line of Bhavin Shah from Deutsche Bank.

Chad, as you continue to lean on automation within the service organization, how are you seeing that impact your customer satisfaction levels and the time to implementation for new clients?

Automation is an important component of providing strong ROI for both our clients and ourselves. We continue to automate, especially decisions where you expect consistent behavior. We've become very good at that and have focused on it for some time as we build out our system to be fully automated.

Are you seeing any kind of improvement to retention at a high level? I know you report retention annually, but anything you're seeing as you automate and serve your customers better?

We report retention once a year and did report it last quarter for the previous year. It did increase. Any time you're able to make it easier for a client to access value, which increases their ROI, it makes it more difficult for them to leave or motivates them less to look. Coupled with our world-class service focus, we remain hopeful for the remainder of this year to continue to do well with our clients.

Your next question comes from the line of Daniel Jester from BMO Capital Markets.

Maybe we can just talk about the go-to-market. I think you talked in the past about adding sales capacity and enlarging sales offices. Could you expand on what you're seeing in the sales force and anything you're doing differently as you approach the year ahead? Thank you.

We're doing a lot differently in our sales organization. That really started November 1, late October of last year. With the new strategy, as we continue to sell automation, it's important that we're converting clients the correct way so they're receiving the ROI we've promised out of the gate and don't have to wait. It's important that we sell those things the right way. At the end of the day, it doesn't matter how great a product is — someone has to go sell it. Products don't sell themselves. We've always focused on having a world-class, best-in-class sales organization, and we've continued to maintain that while building onto it.

Appreciate it. Maybe just in terms of your own organization and adoption of AI to boost automation internally, could you share any examples that have gained particular traction and what the roadmap looks like for improving efficiencies inside Paycom?

I don't want to discuss all the things we're doing internally for competitive reasons. There isn't an area of our business that isn't impacted by our automation strategy. Sometimes that's coding the right way to get full automation, and sometimes it's utilizing AI. Many times we use AI to build what we need to achieve that. We remain focused across all departments and functions. This discipline will continue into the future.

Your next question comes from the line of Jacob Smith from Guggenheim Securities.

I understand we have these quarterly dynamics around extra Wednesdays again this year. It seems like you're starting to shift a bit towards a per employee per month model where clients are billed monthly regardless of payroll cycle. Is this only for new customers or are existing customers moving to this pricing model as well? What's the impetus behind rolling this out? Is there opportunity for more module uptake or price realization when having these discussions with customers?

Our pricing is proprietary for competitive reasons, so we don't go through the detailed pricing model. Our pricing relative to client value hasn't changed meaningfully one way or the other. There are different pricing structures that are more helpful to some clients based on how they hire and their turnover. We work those through with each client individually.

Your next question comes from the line of Jake Roberge from William Blair.

This is Jacob on for Pat McIlwee. Thanks for taking my question. I wanted to touch on retention, which we saw tick up in Q4. As you continue to see momentum in usage on IWant, how should we be thinking about retention going forward? Do you see it getting back to the 94%, 93% range from a few years ago?

Retention is definitely a focus. I would say it's not necessarily about an absolute number but continuing to make sure our clients achieve ROI, receive world-class service, and get value quickly. Our Net Promoter Score continues to improve, and I believe those things can have a positive impact throughout the year.

Your next question comes from the line of Brian Schwartz from Oppenheimer.

Chad, on sales, specifically with your newer sales reps that are ramping, what are you seeing in terms of efficiency trends relative to historical norms at Paycom? Then I have a follow-up.

I wouldn't say it's incredibly different yet. We have great reps who've been with us a long time and continue to sell strongly. Our new reps are coming out better trained than any rep we've put out in the last six or seven years. They're more prepared to go out there. We're excited about their ramp phase and are seeing new reps ramp faster than in the past several years.

The follow-up is on AI monetization. In your introductory comments you said customers are now expecting AI in the HCM platform. Do you expect AI to be a lever for price realization over time or primarily a retention and competitive necessity tool?

We don't sell AI in itself; we solve problems for our clients, often through automation and sometimes AI. When we're able to create measurable ROI for a client, we often get to share in that value. We do not charge for IWant; it is included with our system. Because clients use it, it creates greater usage and value, makes it easier to deploy additional products, and makes it easier for us to service clients as they're able to serve themselves more easily. All those factors contribute to opportunities for increases in both sales and other areas as we move through 2026 and beyond.

Your next question comes from the line of Matt VanVliet from Cantor.

I'm curious on progress breaking into other verticals, whether that be the public sector or near-adjacent geographies you've looked at. What kind of resources are you putting in there and what traction are you seeing?

We are industry-agnostic and geographically agnostic. We have offices across the U.S., which allows us to cover the entire country, though sometimes we have to fly to see somebody because we don't have offices in every city. We're continuing to have positive discussions with clients and prospects regardless of industry or geography.

Helpful. As you look at competitors getting into things like expense management, how are you approaching the product roadmap given increased velocity enabled by AI tooling? Are there areas of the platform you're interested in or opinions on entering adjacent spaces?

We've provided an expense management module as part of our system for around nine or ten years. We continue to build things that make sense. We start with the client problem now — it's important we solve real-life client problems they have today. We continue to expand into other things where appropriate and see opportunities for adjacencies. We have earned client trust and will continue to do that. The more trust we earn, the more opportunity we have to do business with them in other areas.

This concludes the question-and-answer portion of today's call. I will now turn the call back over to Mr. Chad Richison for closing remarks.

Thanks, everyone, for joining our call today. We look forward to speaking with many of you at the Jefferies Conference on May 27, the Baird Conference on June 2, and the Mizuho Conference on June 9. We are executing well against our 2026 plan, delivering world-class service and ROI for our clients. I want to thank all of our employees for their contributions to a strong start to the year. With that, operator, you may end the call. Thank you.

This concludes today's conference call. You may now disconnect.