Paycom Software, Inc.

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. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I will now turn the call over to James Sanford, 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 a 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 referred 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 Richardson, Paycom's founder and CEO. Chad?

Thanks, James, and 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. Then Bob will review our first quarter results in 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 Crowd, where we earned top rankings in their spring 2026 report across multiple categories. Our full solution automation strategy is working, and solutions like Betty, Gone, and other automated decisioning capabilities are eliminating manual processes, reducing redundancy, and helping our clients operate more efficiently. Forrester found that Betty reduced payroll processing labor by 90% while also showcasing that GON delivers an ROI of over 800%. Our AI solution I want 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 five-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. Down gap 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 4th, the Board approved a new $2 billion buyback authorization to replace our prior authorization. The Board also approved our next quarterly dividend of 37.5 cents 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 five-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 FUDS health 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 are excited about what's ahead. With that, let's open the line for questions. Operator?

Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. In the interest of time, we ask that you please limit yourself to one question. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Samad Samana from Jefferies. Your line is open. Please go ahead.

Thanks. 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 up our drivers of outperformance during the quarter there. So across key growth drivers, whether that be new bookings, seller headcount versus productivity, employment growth, which factors perform better than your initial expectation and what contributes to that strength?

I would say it came in about what we expected for our expectations. You know, when deals starts matter within a quarter and, you know, we had a successful quarter in the first quarter. Also, first quarter, to keep in mind, it is the quarter where we have our forms filing business. And so that also can contribute to a higher margin profile in the first quarter.

Great. And 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 float revenue. So I'm curious, in the Cogman specifically, what's driving that healthy expansion this quarter? And do you have any puts and takes in the direction of gross margin as we think about the rest of the year?

You know, we had automated a lot throughout last year. And, you know, we're starting to see some of the benefit of that. I don't know, Bob.

Yeah, I would add the automation and the process efficiency. We started last year on expenses as well, all across the board, and we're seeing some of that benefit.

Great. Congrats again on the strong results, and I appreciate you taking my questions.

your next question comes from the line of mark markham from baird please go ahead hey good afternoon um so similar to the the prior question you ended up outperforming uh relative to our expectations for this quarter fully recognize the forum filings been doing this for a while i'm just wondering um you know you maintain the guidance And it looks like you had a pretty nice beat here in the first quarter. And the guidance basically assumes, you know, in order to get to the 7% to 8% on recurring, we need to, you know, see a bit of a slowdown as the year unfolds. And I'm wondering, are you just being conservative or is there anything that you're looking at that would suggest that that's going to slow down a little bit?

Yeah, Rama, you know, it's early in the year and we are sorry I did it again, Mark. It's early in the year and I know I did it again. It's early in the year and you know, so we did have a strong first quarter. We've got the full year left. We're happy with what was there, but you know, we like our guidance throughout the remainder of this year.

OK. um and then can you talk a little bit about you know how the board's approaching you obviously put your money where your mouth is with regards to um you know the huge buyback which you know we've written about before and you're you're actually you know taking it up even further um can you talk a little bit about the rationale for doing that now if in fact things are going to slow down or again, you know, perhaps there's a little bit of conservatism in the numbers.

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

Agreed. Thank you.

Thank you. Your next question comes from the line of Steve Enders from Citi. Please go ahead.

Justin Cappos- Okay, great thanks for thanks for taking the questions here, maybe just telling off of the last question. Justin Cappos- But just I guess, how are you kind of viewing. Justin Cappos- You know the framework for for how you're thinking about the buyback and. you know, capital allocation from here? And how do you kind of view the, I guess, mix between, I guess, leveraging more debt to support the buyback and kind of just what that means moving forward on those plans?

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

Okay. Okay. Thanks. Thanks for that. And then maybe just in terms of the bigger kind of product strategy, you know, I guess with I-1 kind of out in the market and the other automation solutions, just what have maybe you seen from How about supporting, you know, top of funnel new opportunities, you know, first time bookings and maybe just kind of broader pipeline conversion and how you're seeing those metrics maybe shift with the broader capabilities out there?

Yeah, I mean, you know, IWANT creates real value and was the first AI tool in our industry that accessed an entire system. And we'll discuss future AI products as we're ready to launch them. But I mean, IWANT's up another 33% just since the end of the fourth quarter from a usage perspective. So 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 and how they both navigate make functional changes as well as gather information from our system.

Okay, perfect. Thanks for taking the questions. Thank you.

Your next question comes from the line of Jason Salino from KeyBank Capital Market. Please go ahead.

Hi, this is Devin Au on for Jason today. Thanks for taking our questions. I also wanted to follow up on the 1Q recurring question. 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 maybe see less disruption or some early signs of benefits during quarter that might have drove the strong start in the recurring growth of the year?

Yeah, I mean, I would say that the changes in the sales department did not have any impact on the Q1 starts. revenue, maybe toward the end, the March kind of level, but primarily those forms, that forms filing revenue would have been banked at the end of last year and become somewhat routine as we process those throughout the quarter.

Got it. Okay. Thanks for that. And then maybe just sticking on the topic of sales, I know you mentioned I think last quarter you're looking to expand kind of sales rep for office. Maybe just give us an update on that progress. That would be helpful. Thank you.

Yes, we continue to hire in sales. We continue to produce many of our largest classes we've ever had go through our training. You know, we have an award-winning sales team, and we're focused on remaining on top. No top salespeople they want to sell the top products and ourselves people work very hard to get where we are today and and i'm real proud of them so they comes a great place for sales people, especially those. who may be changing their careers, we found that even HR directors can make pretty good sales people for us these days.

Great thanks for taking our questions.

Your next question comes from the line of Ramo Lencho from Barplace. Please go ahead.

Hey, thank you. I finally made it. Thanks. Hey chat. Quick question on I want the you know. Obviously you know usability is increasing a lot. What do you see in terms of pipeline bills when you kind of talk to you since guys about like how that's impacting what's going on from pipeline bills? You know how that's kind of helps yours and then also like How does it help you with kind of trajectory or speed as you go through the pipeline? Because it does seem like a very compelling offering.

Yeah, I mean, IWANT has definitely helped us. You know, it's automation throughout our system. You know, IWANT makes it easier for you to access GOM. You know, and so automation throughout our system as we've moved toward full solution automation. You know, IWANT makes it easier for people to access that. It reduces the learning barriers. you know, to be able to utilize our software. And so, and again, we're having strong use cases. So as employees use it at one company and they go to the other company and, you know, they kind of go back into 1994, you know, they like that technology. And so as we simplify our solution and deliver more automation, that does contribute to a greater opportunity for leads and sales for us throughout this year.

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

I will tell you that internally, everything's going really well for us. We had a great start to the year. We had a good finish last year. You know, we're working with our clients. Conversions are going well. Sales are going well. Our software development group continues to increase our innovation. I mean, it's not until we come on these calls that we find out that 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 Cohen. Please go ahead.

Thanks. Can you talk about Booking's performance in one queue and thus far into two queue? I guess, have you witnessed the inflection you were hoping for here?

Yeah, I mean, you know, I'm pretty impatient and, you know, I want it all just because of we shouldn't lose any deals. So matching my expectations, I think it can be a little bit challenging, but I will say that, you know, both sales came in according to budget and what our expectation was, you know, for first quarter. I also had kind of mentioned that we had pulled our sales group out of the field for about three months, a three-month period of time. Not full three months, but, you know, you'd have to come for a week and then go back and then come back for a week. And so, you know, that put a little air in the line, and we would expect as we move throughout the year to have greater opportunities for us. for book sales to have some inflection there.

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

Maybe not. I mean, you know, there's moratoriums out there 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 that we have. And it'll just, we'll have to see how CapEx is impacted throughout this year. We're not ready to, you know, really give guidance on that right now.

Perfect. Thank you.

Your next question comes from the line of Bhavin Shah from Dutch. Sorry, apologies. Kevin McVey from UBS. Please go ahead.

Great. Thank you so much. And congratulations on the results. I mean, the buyback speaks for itself. But I guess, obviously, there's so much concern in the market from an AI perspective. Is there anything you're seeing from a client consumption pattern, whether it's formation down market, mid-market? uh, adoption, you know, of kind of, I want relative to maybe Betty that you'd call out just to help us dimensionalize or just really try to de-risk some of the concern that's out there. Cause you know, clearly you're not seeing it in your numbers and to your point, Chad, right. We tell you how bad you're doing. It doesn't really seem like the business is operating that way. So just anything that you would point to, to try to just help us shift the narrative.

Well, I mean, we've been selling AI here for a little bit now and getting clients to engage with it. I mean, AI changes things. I think it changes things for everybody, but it doesn't just change everything overnight. There are limitations to what should be deployed by a business that's full AI, and trust is very important. know we don't sell ai we sell automated solutions to problems and sometimes ai is the best way to solve for that you know sometimes it's not great thank you thank you your next question comes from the line of bovin shah from dutch bank please go ahead great thanks for taking my question

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 cases for both our clients and ourselves. We continue to do that. It's very important to be able to automate, especially decisions where you expect consistent behaviors. And so we've become very good at that. That's been a focus of ours for some time as we continue to build out our system to be fully automated.

Are you seeing any kind of improvement to retention, high level? I know you're not speaking on a quarterly basis, but anything that you're seeing as you kind of automate this stuff and are able to serve your customers better?

You know, we do report retention once a year. We did report it last quarter for the previous year. It did increase. I do think that any time you're able to make it easier for a client to access value, which increases their ROI on their end, it does make it more difficult for them to leave. Or maybe they're just not motivated to go look because they are receiving the value. I think you couple that with a world-class service focus that we've had with our clients. And, you know, we would remain hopeful, you know, 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 DMO Capital Market. Please go ahead.

Hey, great. Thanks for taking my question. So maybe we can just talk about the go to market. And, you know, I think you talked about in the past adding sales capacity, enlarging your sales offices. Maybe just expand on kind of what you're seeing in the sales force, anything you're doing differently as you're approaching the year ahead. Thank you.

Yeah, we're doing a lot differently in our sales organization. And that really started november 1st late october of last year and so i'm not going to say it's necessarily different than things we had done in the past but it was important for us to you know with a new strategy right as we continue to go out there and sell automation it's important that you know we're converting clients uh the correct way that they're receiving the roi that we've promised them out of the gate and that they don't have to wait and so it's important that we're selling those things the right way and And we're going to continue to do that. You know, at the end of the day, it doesn't matter how great a product is. Someone's got to go sell it. And so, uh, you know, products don't sell themselves. Uh, and I think it's important that we remember that. And we've always focused on having a world-class best in class sales organization. And we've continued to maintain that as well as build onto it. Okay.

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

Yeah, so I don't want to really, you know, we're not going to really discuss all the things that we're doing with it internally just for, you know, competitive reasons. But I will say this, there's not an area of our business that isn't impacted through our automation strategy. Sometimes that's coding it the right way to get full automation. And then sometimes it is utilizing AI. And then many times it's utilizing AI to build what you need to be able to do that. We remain focused throughout all of the departments that we have here at PACOM as well as all the functions. And that's not a discipline that'll go away. That'll be something that we'll continue to do into the future. Thank you very much.

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

Great, thanks. But I understand that we have these quarterly dynamics around extra Wednesdays again this year, but 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 existing customers moving to this pricing model as well? Also, what's the impetus behind rolling this out and is there opportunity for more module uptake or price realization when having these discussions with customers?

I mean, our pricing, we consider it proprietary for competitive reasons, so we don't really go through the pricing model. What I will say is that our pricing as far as what we charge to a client and their overall 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 and what have you. We work those through with each client individually.

Great. Thanks.

Your next question comes from the line of Jacob Serban from William Blair. Please go ahead.

Hi. This is Jacob on for Pat McKinley. Thanks for taking my question. I just wanted to touch on retention, which we saw pick up in Q4. As you continue to see a nice momentum and usage on I-1, how should we be thinking about retention going forward? And kind of do you see getting back to the 94, 93% range from a few years ago? Thank you.

Definitely a focus of ours. I mean, I would say, you know, not as necessarily an absolute number, but as a continuing to make sure that our clients are achieving the ROI that's out there for them, making sure that we're continuing to deliver world-class service so that they can get that value. We are seeing our net promoter score continue to be impacted to the positive, and I believe that all those things have an opportunity to impact us throughout this year.

Got it. Thank you.

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

Yeah, hi, Chad and Bob. Thank you for taking my questions this afternoon. Chad, on the sales, specifically with your newer sales reps that are ramping, what are you seeing in terms of the efficiency trends relative to, say, the historical norms at Paycom? And then I have a follow-up.

I wouldn't say it's incredibly different yet. I mean, we have great reps that have been with us a long time, and they continue to sell, and they can almost pick how much they're going to sell each year. But our new reps are coming out the gate better trained than what any rep we've put out in the last six or seven years, and they're more prepared to go out there. You know, we're excited about the ramp phase for them. I do believe we are seeing new reps ramp faster than what our reps had in the past for probably the last six or seven years, honestly.

And then the follow-up question I had was just on AI monetization in the category. I believe in your introductory comments, you said that customers are now expecting AI in the HCM platform. So do you expect AI to be a lever for price realization over time or primarily a retention and a competitive necessity tool? Thanks again.

Yeah, I mean, like I said, I mean, we don't sell AI. AI in itself, we solve problems for our clients. And a lot of that is through automation and AI. And so when we're able to do that and we're able to impact the client in a meaningful way, and it does create measurable ROI for them, you know, oftentimes we get to share in that value that we've created. We do not charge for iWant. iWant is included with our system, but because clients use it, it does create greater usage for them, more value for them. makes it easier for them to deploy additional products that we come up with to sell that creates value for them. It also makes it easier for us to service clients as they're able to service themselves much easier through these types of technologies. So all those contribute to opportunities for, you know, increases for us in both sales and other as we move throughout 2026 and beyond.

Very clear. Thank you for taking my questions.

Thank you.

Your final question comes from the line of Matt Van Lier from Cantor. Please go ahead.

Thanks for taking the question. Curious on how you've made progress, maybe breaking into some other verticals, whether that be in the public sector or even some of the near adjacent geographies that you've looked at. Curious in terms of what kind of resources you're putting in there and what kind of traction you're seeing.

Yeah, you know, we've been industry agnostic and I would say geographically agnostic from that perspective. We do have offices that are all over the U.S., and through those, we're able to cover the entire U.S., although sometimes we have to fly to see somebody, if you will, because we don't have offices in every single city. But we're continuing to have positive discussions with clients or prospects, regardless of the industry or geography in which they're located.

All right, helpful. I guess as you look at some of your competitors getting into things like expense management, I'm curious on how you're approaching the overall product roadmap, given the increase in velocity that's enabled by AI tooling. And are there areas of the platform that are interesting, or do you have differing opinions on sort of whether or not you'd want to enter some things that are adjacent to what you're providing today?

Yes. And so we've provided an expense management module as part of our system, probably for around nine or 10 years. And, you know, we do continue to build out things that make sense. We really start with the client problem though. And that's very important. You know, we don't start with what is it like we would like to see developed. It's important that we're solving real life client problems that they have today. And so that's been our focus. And as we look into the future, we do continue to expand into other things. And I also think there are opportunities for adjacencies for us, but you know, you have to have everything prepared and we've got to do it the right way. And so we have earned the trust of our clients and we'll continue to do that. And the more trust we earn, the more opportunity we have to do business with them in other areas. And so we look forward to continue to earn that trust with our clients and continue to continue on as we have.

Very great. Thank you.

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

Thanks everyone for joining our call today. We look forward to speaking with many of you at the Jeffries Conference on May 27th, the Baird Conference on June 2nd, and the Mizuho Conference on June 9th. 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.