Paycom Software, Inc. Aktie

Good afternoon. My name is Hillary, and I will be your conference operator today. At this time, I would like to welcome everyone to Paycom's Second Quarter 2026 Financial Results Conference Call. [Operator Instructions]

I will now turn the call over to James Samford, Head of Investor Relations.

Thank you, and welcome to Paycom's earnings conference call for the second 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 will 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 and thank you to everyone joining our call today. I'll briefly comment on some of the new product launches and achievements so far this year. Then I will pass the call over to our President, Shane Hadlock, and then Bob will review our second quarter results and full year guidance. We will then take questions.

Let's get started. We delivered another solid quarter with results coming in ahead of expectations. The benefit of our software's full solution automation, coupled with world-class service, continue to drive industry-leading ROI, which is resonating in the market. With our strong first half results, we are well positioned to exceed our initial 2026 plan on both the revenue and profitability basis. Demand for automation is increasing, and our platform remains the most intelligent solution in the industry. Thanks to our early focus on data integrity and consolidation, we continue to expand our automation capabilities with AI and automated decisioning to deliver even more value to our clients. Earlier this year, we announced the release of our career and succession planning solution, and we are seeing solid client adoption. This is another automated product that equips leaders with a solution to more easily identify and develop talent, ensuring organizations are better prepared for the future.

With this product, organizations have reliable data to discover workforce talent gaps and assess talent readiness, a client of ours with over 500 employees who is already using our performance and Paycom Learning products, added career and succession planning. And for the first time, they have all key positions and successors identified. They were very pleased with how quickly they could identify leadership gaps in the with people who were developed to step into the roles. Clients are thrilled with this new functionality and the automation it creates for career development and succession. In July, we released our latest automated product asset management. This solution enables businesses to manage their physical and digital assets, which represent 1 of their largest budgetary spends, ensuring those investments are deployed, tracked and recovered through our automated software.

The launch of asset management expands our capabilities into an entirely new multibillion dollar TAM that fits perfectly within our software ecosystem. By combining asset management, with the automated tools already in the Paycom system, we help our clients strengthen the security of their assets, bolster compliance and reduce lost property. Not only can organizations track all of their assets across their locations, but they can also identify the exact resources a position requires, which ensures a consistent deployment and retrieval of all company assets. Even though it was just released a few weeks ago, client feedback has been very strong, and they're already adopting this new technology. Asset Management marks the 45th product we have developed, hosted, distributed and service over our nearly 28 years in business. We take great pride in our ability to consistently release industry-leading technology that generates tremendous ROI for our clients.

Now I would like to turn the call over to Shane Hadlock. Prior to his role as our President, he served as our Chief Client Officer, where he was instrumental in increasing retention, driving world-class service building strong groups of leaders and delivering tremendous automation across the organization. With that, let me turn the call over to Shane.

Thanks, Chad. We are driving innovation across our industry, and this quarter, we released Project ARC. Project ARC was the largest system-wide release we have had in our company's history. This new release fundamentally changes the way clients and their employees experience Paycom. Clients love the new scalability and customization. This new release gives each user a unique experience, helping them quickly find the information and action items most relevant to them. Our clients say that their managers are raving about how customizable the system is, making it easier for them to do their jobs. One of our clients with a few thousand employees said that they were impressed with the new Arc release because it provides great customization and performance for their employees, managers and organization.

In addition to the new customizable features, Project ARC included significant updates to enhance the performance, scalability and functionality of our software. These changes to system performance and scalability have produced an experience for our clients that is much more efficient. In fact, a client of ours with over 10,000 employees reported their system performance increased by 4x. Client feedback has been incredible, and they are enjoying the benefits of this customization and improved scale, making the industry's most intelligent solution even more powerful. Our award-winning AI solution, IWant, continues to accelerate speed to value for our clients by providing them with system intelligence that automates events and tasks within the system. For many new employees and new users of our software utilizing in is their first interaction of our software, making it easier than ever to use.

As we roll out more AI and automation across the platform, we are driving measurable value for our clients and their employees. IWant has been a game changer for our clients and the industry. I am proud of our team and all the work we have accomplished over the course of the year to drive efficiency and client satisfaction. Across the board, we have great talent at Paycom especially in the leadership team. We have a deep and experienced bench with institutional knowledge and a competitive mindset that sets us apart. I would like to thank our employees for their contributions to an excellent first half of 2026 and the robust results year-to-date. We are building strong momentum on a variety of new products to further automate businesses.

During the quarter, our product and culture received several accolades. Paycom earned the 2026 top-rated award from TrustRadius, which reflects strong client satisfaction across multiple HR and payroll categories. I was also pleased to see Paycom was named to News League's greatest workplaces in tech, and our sales organization was included in Selling Power's 60 best companies to sell for. These awards highlight our differentiated product set, client satisfaction and Elite sales program. This is an exciting time to be part of Paycom.

With that, let me turn the call over to Bob.

Thank you, Shane. Second quarter results were strong with total revenue of $531 million up 10% over the comparable prior year period and recurring and other revenue of $505 million, up 11% year-over-year. Revenue strength in the quarter was broad-based, reflecting consistent product demand conditions and increased client satisfaction. Our focus on process automation and leveraging our own technology is driving increased productivity across the organization that is fundamentally strengthening our business. Our efforts over the last several quarters are driving sustainable margin expansion and earnings growth. GAAP net income increased 20% in the second quarter to $107 million or $2.34 per diluted share, based on an average of 46 million shares outstanding.

Non-GAAP net income for the second quarter was $128 million or $2.78 per diluted share. Adjusted EBITDA in the second quarter came in at $235 million, representing a 320 basis point year-over-year margin expansion to 44.2%. Based on the strength of our results in the first half, we are well positioned to deliver industry-leading EBITDA margins, record free cash flow and accelerated earnings per share growth in 2026. We continue to identify what we view as a valuation disconnect in the market during the second quarter. and opportunistically repurchased approximately 2.6 million shares of common stock or approximately 6% of our shares outstanding for a total of $346 million. Over the first 6 months of the year, we reduced shares outstanding by 20% by repurchasing nearly 11 million shares of common stock, returning approximately $1.4 billion to stockholders.

We ended the second quarter with approximately 44 million shares outstanding and $1.66 billion remaining on our buyback authorization. We also paid approximately $18 million in cash dividends during the second quarter. On August 3, the Board approved our next quarterly dividend of $0.375 per share payable in early September. Turning to the balance sheet. We continue to enjoy a very strong liquidity position. We ended the quarter with cash and cash equivalents of $198 million and have drawn down a total of $900 million on our $2.1 billion revolving credit facility, to support our year-to-date stock repurchases. The average daily balance of funds held for clients was approximately $2.9 billion in the second quarter of 2026, up 9% over the prior year period.

Now let me turn to guidance for 2026. Based on the strength of our first half results and more visibility heading into the second half, we can confidently increase our revenue and adjusted EBITDA guidance ranges. We expect total revenues to be between $2.197 billion and $2.212 billion or between 7% and 8% year-over-year growth. We now expect full year recurring and other revenue to be up 8% to 9% year-over-year. Included in total revenue outlook is interest on funds held for clients of approximately $105 million, which assumes current rates hold for the remainder of the year.

Finally, as we continue to benefit from the impact of our automation initiatives, full year adjusted EBITDA is now expected to be between $1.007 billion and $1.022 billion, representing a record adjusted EBITDA margin of 46% at the midpoint of the range. Our strong first half results have bolstered our conviction in our 2026 plan and in our full solution automation strategy. We are executing well across the organization. Our clients are increasingly pleased with our platform and their ROI achievement and we continue to opportunistically return value to stockholders through our capital allocation strategy.

We'd like to thank our employees for their commitment to our vision and their contribution to our strong first half results. With that, let's open the line for questions. Operator?

[Operator Instructions] Your first question comes from the line of Raimo Lenschow from Barclays.

Perfect. Congrats from me, it's a great quarter. If I look through my model chart, it's like the biggest beat you had for a while, revenue accelerated very nicely. Was there anything special in this quarter like one-off factors or something that drove there. Can you speak to that strength? I mean you gave some of the points already that I have a lot of clients kind of wondering Well, this is really, really good. So what happened here? And then I have 1 quick follow-up for Bob.

No, it was broad-based. Nothing new, all from the same buckets that we've always had in the past.

Okay. Perfect. And anything on the new products contributing already? Or is this just -- well, it seems to be almost too early for that.

Yes. I mean, obviously, some of the products that we produced last year starting to contribute to that. We did release 2 significant products, I would say, in the last 3 months, 1 of them in the last couple of weeks. I would say their contribution to this quarter wouldn't have been meaningful, but they would -- 1 of them would have contributed a little bit, but we do look for both of those to contribute more as we move into the future.

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

Chad, you guys have always had a very strong sales distribution team. I'm curious, you've talked a lot about AI and the impact of solutions you're creating for clients. I'm curious what you guys are doing from an internal AI enablement perspective for your sales organization? And how that's driving productivity and how you might think about that influencing sales office expansion or head count growth? And then I have 1 follow-up.

Yes. I don't know that I would say AI is much. Definitely, AI helps us in the prospecting and identifying certain prospects and maybe what trends they had before. We are a high-touch sales organization. And so we do that high-touch sales model. I will say that over time, especially over the last couple of years, including into this year, we have allowed our clients to buy in-app. And so it does somewhat circumvent the book sales process as they can buy directly from us. Career and succession planning was actually a product. that allowed for that.

Understood. And then maybe just a follow-up in terms of the capital allocation. especially given kind of the very aggressive buyback in the first half of the year and I think that's paid off in spades. Should we think about capital allocation being a bit more balanced going forward? Should we think that the buyback remains the top priority. Just help us think about kind of building dry powder versus the level of buybacks we've seen in the first half of the year.

You bet. When you think of CapEx, first, I mean, I kind of want to frame it this way. Last year, we spent over $100 million to prepare data centers to host our own AI models. And this year alone, that spend will lead to about $100 million savings in R&D and another $30 million or more, and I want response fees that would have come from a third party. And as an added bonus, we use some of the excess capacity to improve the performance of our systems with greater processing power. So we do believe last year's investments will produce even greater value as we move into 2027. And then, Bob, do you want to comment on the CapEx?

Yes, I do. Let me comment Samad too, on the CapEx. It will be a little more normalized than in the past. But when we look at the results, especially as it flows down through EBITDA. I want to go ahead, that flows all the way through to free cash flow. So I want to kind of make a onetime comment on free cash flow, given how the market has consistently underestimated the strength of our business model over the last few quarters. But I would tell you that based on the strong first half results and what we have visibility into for the rest of 2026, we do expect free cash flow to exceed $650 million in 2026. And then maybe Samad on the CapEx, approximately 6%. And then I'll give you the tax numbers, too, for the model. GAAP tax rate is 29%, non-GAAP tax rate of 27% and stock-based comp is 3% of revenues in 2026.

Your next question comes from the line of Steve Enders from Citibank.

Okay. Great. Actually, maybe just following up on the last point on free cash flow. I guess maybe -- what is maybe different now that's driving the incremental free cash flow and some better conversion rates coming from EBITDA this year. And I guess, how do we think about -- is there like a framework for maybe what that conversion rate will look like moving forward beyond '26.

[Operator Instructions]

Okay. Great. Yes. Maybe just following up on the last point on free cash flow. I guess I just want to get a better sense for what is driving the, I guess, improved free cash flow for this year? Like what are the levers that are coming through right now? And then, I guess, how should we think about maybe a framework moving forward for free cash flow conversion rates from EBITDA or just what that trend will look like going into the future.

Thank you so much for your question. We're just dealing with a very brief technical difficulty, [Operator Instructions] Hi, everyone. Thank you so much for your patience. We will now continue the call. I would like to ask Steve Enders to please reask your question.

Okay. Great. Yes, I guess I just want to follow up on the free cash flow commentary that you just gave. I guess I want to understand, I guess, what are the levers that are really, I guess, kind of supporting the improved free cash flow outlook for this year? And then I guess, similarly, is there a framework to maybe think about EBITDA to free cash flow moving forward into future years?

Yes, Steve. So last year, actually, at your conference, we talked about we were conscious of the fact that EBITDA margin and free cash flow margin had to begin to get closer and closer. So that what will drive it this year, and it is sustainable as it was broad-based, too. It was efficiencies and how we do our processes and efficiencies in our labor workforce, and we'll continue to drive those efficiencies in the future.

Okay. That's helpful. And then on just, I guess, sales productivity rates, I know there was a big focus talent last year to retrain the sales force? Just I guess, where are we at in terms of sales productivity trends and the impact that we train is having. And would you say we're kind of back to typical levels at this pull in? Or just how are you kind of thinking about the incremental improvement that can come from the sales productivity?

Sure. With an enhanced system, it did require somewhat of an enhanced sales process just to make sure that our clients are able to achieve the full ROI that's available to them, and we want to make sure we're presenting that to them on first call. And so we have -- sales has been doing great. As a reminder, we have many reps still going through training. And also as a reminder, we expanded our teams of 8 to teams of 10. So you have 100 of our new sales reps, over 100 of the new sales reps are also additional head count for sales.

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

I think I asked my question already, but the follow-up questions I wanted to have for Bob. If you think about the your rate assumptions for the year, like obviously, there's a debate around what's going to happen to the rates. Like what's driving your thinking about like a stable rate, like using the current rate for the year there?

Sure, Raimo. We -- in our assumptions that there would not be any kind of rate increase or cut through the rest of the year, even if there were, we'd have a minimal impact on this year.

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

Great. Maybe just following up on Enders' last question around sales productivity. With the acceleration that we're seeing in recurring, how much would you credit the performance in the second quarter being from the better training from last year and the expanded headcount?

Bookings came in as expected. We have 2 categories of book sales. One is sales to new prospects, and we also have sales to current clients. As I kind of mentioned earlier at the beginning of the call, over the last couple of years, we've implemented more in-app purchase capabilities. and that somewhat skips the book sales process. But bookings have come in as expected, and we would expect, as we add more and more reps to the field and as they grow those pipelines, we would expect that the additional rep head count would be accretive to future book sales.

Great. And then maybe just a quick 1 for Bob. When we think about the second half, the recurring growth profile, anything we should think about in terms of seasonality in Q3 or Q4?

No. There's -- this is my favorite question. Thanks, Jason, the calendars. We -- the seasonality have probably 1 more Wednesday, maybe in the third quarter and they need a little bit of a tough comp in the fourth quarter. But as you know, we look at that and smooth that out over the 2 quarters, so we look at it 6 months. So...

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

Congratulations on the strong results. I had a couple of questions. One, Chad and Shane, I was just wondering how would you describe the current pipeline? I went to sure I've gone to a couple of other smaller conferences and where you appeared and your booth was this packed. And it seems like there's a lot of interest in the automation story and so I'm wondering what's the shape of the pipeline now? Your revenue projections assume a little bit of decel relative to the first half. And I know you're trying to be conservative but it seems like you've got a lot of really good momentum right now. So I was just wondering if you could talk about that and potentially also along those lines, what you would expect from the new products in terms of what they can add. And then I've got a follow-up just on the financials.

Yes. Sure. Pipelines remain very strong. In the perfect world, your pipeline turns into backlog of clients ready to implement. And so that's what we look for. but pipelines remain strong, and they'll continue to build as more reps enter their territory. As far as product contributions into the future, we've done a lot of development in the last year. We've got a lot more that will be coming out in the next year. The 1 thing that hosting our own models has done has really allowed us to move very quickly into [indiscernible]. It's also saved us on token expense, which we do have token expense, but we have a lot less of it now that we run our own models internally. And it's also allowed us to deploy our AI engine like IWant, if you will.

And I think someone would be hard-pressed to find a client of ours that hasn't used in. And so I think as you look into the future, we'll continue to be adding products that add value to the client, and then those, of course, will be hosted by us. We've had products now that we've developed, released, hosted, distributed and serviced. And so we've gotten really good at that process. And I think that it's become a little bit easier to do some of those things. And so it's an opportunity for us to accelerate that as we look into the future.

That's great. And then just as a follow-up. Can you talk a little bit about like the R&D expense? It went down fairly significantly here in Q2. At the same time, the G&A actually went up a little bit. And I was just wondering, is that just a change in the allocation? Or are you getting more efficiencies. Obviously, the whole total, you're seeing great improvement in terms of the margins, which is terrific. But just wondering about the pieces moving around.

From an R&D perspective, I can take that, Bob can take the G&A. I mean we are developing differently than what we ever have in the past. I mean, we're organized differently. Our structure is different. The process that product goes through is different that a product would go through to get all the way through to release is different. And so I would say that's quite a bit different for us, and our performance is very high. So we've been able to do all of this and increase productivity and client satisfaction with the product. And so from an R&D perspective, I would say that we've become much more effective. And that has also led to great efficiencies on that line. And then, Bob, if you want to...

On the G&A, it did go up a little bit. Biggest category is probably around professional services and some of that was related to a onetime expense. We expanded and renewed our line of credit. There was a great interest in that. We were proud that people believe in a robust business model, and that's what led to some of that in G&A.

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

It's good to hear that bookings came in line with your expectations in 2Q. I guess have you seen that inflection that you were hoping for in terms of when you went into this year, just directionally, any kind of color in terms of kind of the momentum here would be helpful on the bookings front and how you're kind of seeing things progress into 3Q so far?

Yes. I mean, I would say that my expectations are always higher than what could maybe even reasonably be achieved. But what I will say this is, yes, bookings came in as expected. And also, just a stat to share is that our new reps going out of training are getting up to productivity much faster than they ever have in the past, and we're having great success with that. And so all this bodes well as we look into the future.

Got it. And then in terms of -- we've seen a multiple of your competitors pushing more into managed services, I guess how are you thinking about this opportunity, if at all?

I think we look at everything that has a positive impact on a client and can produce a strong ROI for them. And we also try to automate everything that we can and we think that's very important asking the questions, why and what are you going to do with that so that we can go ahead and complete it for them. So we're going to continue to focus on that. We do have preemployment services. I think we're probably 1 of the largest preemployment service companies in the U.S. I think at 1 time, we were about fourth. That side of our service business continues to be very strong, and it's up a measurable amount for this year.

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

Great. Maybe first on IWant. Is there anything you can share about sort of how that ramped from a usage perspective in the quarter? And as you go back to customers that have been here for a long time, have you seen any change in their willingness to adopt to IWant and all of the functionality it provides?

Yes. Not really any change. I would say the more you work with a consistent model that delivers accurate responses, the better you get at knowing how to ask it a question. And the better you get at asking questions, the less time it takes for you to get that response. And in our environment, your consecutive responses per second that helps that become more efficient as well. So -- but yes, we continue to see great uptake. Nobody goes backwards in technology once you're used to using something. Once you're there, nobody steps away backwards from that. We've said in the past that IWant is the predominant way that employees -- new employees experience our system. As we completed Project Ark, it put that even more in the spotlight. IWant will continue to grow in capability, but it's very also important that we'd be accurate. We come up with functionality all the time and agents all the time and I always have the same question for the people that create it. I'm like, well, is it cool or is it accurate? And if I don't get an accurate response, I mean, we continue to work until we can produce that. And so we've been focused on that, and IWant does deliver a very reliable efficient way for someone to achieve all the value that's available to them in the Paycom system.

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

Revenue from customers above 1,000 employees was growing faster than total in past quarters. So I was wondering if you could provide an update on what you're seeing there. And as the sales or goes to market with a full solution automation pitch, are you seeing average deal size or module count at initial and trend higher this quarter, particularly upmarket?

I wouldn't say that the profile of size of clients changed in the second quarter here. I think we continue to produce value across the board regardless of the client size, industry or location.

Okay. And just as a quick follow-up, Chad, you talked about at the beginning of the year, the goal of expanding sales capacity across offices. And on the last call, you mentioned new reps were coming through training and ramping faster than pretty much any class in a number of years. Can you give us an update on where you stand on that capacity expansion? Or are you at the pace of hiring you'd like to be? And is this year more about driving productivity higher with existing reps or ramping new reps?

Both. I would say it's both. Definitely, productivity with existing reps continues to increase. with new reps it takes a second, I mean your initial productivity gains you're going to get are always going to be with your current reps. New reps that takes a second. They can get the value proposition. They understand the pitch. But then you go out there and you run into some situations that you have to get through and it takes sometimes a new rep, a little bit longer to get that. So they stay in the game and then they start having success, and then that confidence starts to build and then they start selling more and more and more. And so our existing reps are going to obviously outsell a lot more than our new reps, but we do have so many new reps that we put in the field. that we're very excited about what that's going to mean for us as we had both throughout this year and then as well as we go into next year.

Your next question comes from the line of Kevin McVeigh from UBS.

And congratulations on the results. I mean it feels like the business is structurally different, right? I mean the pacing of the margin, the revenue you're delivering, is that primarily the standup of the data centers last year. Are you in the early phases of the AI across the expense structure with more to come? And from a revenue perspective going forward, is it going to shift from more of a fixed to -- with a variable component as opposed to [indiscernible]. Any way to think about how the business model will be impacted, clearly, you're in a good position and able to leverage it. But just anything we can help because the results have been and continue to be exceptional.

Yes. I mean I would say that the whole world is probably still a little bit in the early stages of AI. I would say we jumped in head first with everything we had last year. not just in product but in infrastructure and everything else. And then we started using it to develop and become a lot stronger at that, and we started using it in areas of our service and so we're becoming better and better at it. I wouldn't say we use AI for AI. I mean automation matters, and there's a great amount of accuracy you get with automation. And in our industry, you only get points for being accurate. And so that's always been a focus of ours. So we see that to continue, What was the other question from a fixed variable?

I'm not 100% sure on your revenue question except to say our pricing model does follow somewhat industry norm. It is proprietary to us. It does follow industry norms, and we do look to deliver to our clients, the greatest amount of ROI for that spend with us.

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

Congrats on the strong quarter. It's nice to see all the new product releases. As you move into other adjacencies such as asset management, how do you have to think about adjusting maybe the go-to-market motion to account for the different potential end buyers that you might be dealing with outside of just the HR departments.

Yes. I mean we've had spend management for a while. We have other areas that impact the accounting department or the office of the CFO, if you will. I mean, there's never been a deal that we've ever done where we weren't integrating with a general ledger system and what have you. Also, I mean CFOs care about labor and what HCM system is deployed because for us -- for a lot of companies, anyway, labor is 1 of their largest expenses. And so asset management does flow naturally into what we already do. Our same sales organization that we have now are well equipped to go sell our asset management as it both has a impact in provisioning for employees. And then it also has a total asset tracking system as well. And so we feel like that folds in nicely with what we're selling anyway.

Got it. And maybe just a quick follow-up for Bob. Just in terms of the strength you saw in the first half of the year, especially on the growth side, why not invest more into the business, just given what you're seeing happening versus kind of flow to the bottom line and that strong EBITDA you guys guide?

Yes. Well, we are continuing to invest in the business in different ways. So you'll see that. That's why we believe it's -- we're just smart about how we do it and it's sustainable. So again, we are worried about the growth side and the efficiency side.

Your next question comes from the line of Patrick O'Neill from Wolfe Research.

Just a quick 1 for me. How would you characterize the client employment growth in the first half of the year? And then maybe if the growth was positive, what was the benefit in the first half? And what's implied in the guidance from here following the impressive rates to the full year outlook?

I mean client employment growth would have just been stable, same consistent with -- as it's been every year in the past with the exception of when it went down about 14% during COVID and then it came right back. not long after that, it may have been a little more than 14% that went down. But really since that time, we've had stability. And we would expect that and all of our guidance going forward would expect stability in that.

Your next question comes from the line of Allan Verkhovski from U.S. Bancorp.

Given the sequential decline in OpEx, how are you thinking about Paycom's head count growth through year-end? You mentioned earlier you're seeing labor efficiencies. So more color there would be helpful.

Sure. So our focus is product automation, and that drives cost efficiencies in many areas, including labor, we update our employment numbers annually, and we had 5,770 employees as of our last update that we gave on the February earnings call. We're focused on client ROI achievement, not necessarily our cost. The ROI achievement is higher with automation. And while there's no limit to what can be automated, there is a limit on labor efficiency as we do believe there is a strong human aspect to developing, selling, converting and servicing business.

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

Thanks, everyone, for joining the call today. We look forward to speaking with many of you at the Deutsche Bank Conference on August 26 in Dana Point and the Citi Conference in New York City on September 8. I want to thank our employees for their contributions over the first half of the year. With that, operator, you may end the call.

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

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]

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 will 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, 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 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 Crowd, 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 redundancy 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 the 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 are excited about what's ahead. With that, let's open the line for questions. Operator?

[Operator Instructions] Your first question comes from the line of Samad Samana from Jefferies.

This is [ Jordan ] on for Samad. It's nice to see the recurring growth come in 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 performed better than your initial expectation? And what contributed to that strength?

I would say it came in about what we expected for our expectations. [ Wind deal ] starts matter within a quarter, and 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 lower revenue. So I'm curious, in the [ cog line ] 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?

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

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

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

So similar to the prior question, you ended up outperforming relative to our expectations for this quarter. Fully recognize the form filings, you've been doing this for a while. I'm just wondering, you maintained the guidance, and it looks like you had a pretty nice beat here in the first quarter. And 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. 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?

Yes. [ Ron ], it's early in the year and -- or 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 so 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. And then can you talk a little bit about how the Board is approaching -- you obviously put your money where your mouth is with regards 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? Or again, perhaps there's a little bit of conservatism in the numbers?

Yes. I mean, I feel like our guide, that does reflect stability 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 based on the AI prophecy of the day. So I think there's a little bit of a sky falling narrative out there. And if you believe that narrative, I mean, our stock should almost be at 0.

So our value proposition is getting stronger and stronger with our clients. Our Net Promoter Scores are going up. They're continuing to increase. We're kind of valued, I believe, at kind of a fools' gold price, and we believe we're precious metal. So when you have a $2 billion buyback authorization with a growing cash positive business, it benefits us to have these disconnects in our value. And I believe over time, long-term investors win when we're able to repurchase these shares.

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

Okay. Great. Maybe just dovetailing off of the last question. But just, I guess, how are you kind of viewing, I guess, the framework for how you're thinking about the buyback and 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 where the share price is. I mean, we definitely have remained opportunistic when it comes to buybacks. As you mentioned, we are taking on debt for that. So we'll remain opportunistic as we go throughout the year and have opportunities.

Okay. Okay. And then maybe just in terms of the bigger kind of product strategy, I guess, with IWant kind of out in the market and the other automation solutions, just what have maybe you seen from how that's supporting top of funnel new opportunities, 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?

Yes. I mean, 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 is 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.

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

This is Devin Au on for Jason today. I also want to follow up on the 1Q recurring performance, too. I know you mentioned forms filing revenue, which sounds like it came in better. Could you perhaps speak to some of the sales returning or changes that you have done late last year? Did you perhaps maybe see less disruption or some early signs of benefits during the quarter that might have drove the strong start in the recurring growth of the year?

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

Got it. Okay. 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 per office. Maybe just give us an update on that progress? That will be helpful.

Yes. We continue to hire in sales. We continue to produce many of our 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, they want to sell the top products, and our salespeople have worked very hard to get where we are today, and I'm really proud of them. So Paycom is a great place for salespeople, especially those who may be changing their 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.

Quick question on IWant. Obviously, usability is increasing a lot. What do you see in terms of pipeline build when you kind of talk to your sales guys about like, how that's impacting what's going on from pipeline builds, how that kind of helps you? And then also like, how it helps you with kind of trajectory or [ treatment ] speed as you go through the pipeline? Because it does seem like a very compelling offering.

Yes. I mean, IWant has definitely helped us. It's automation throughout our system. IWant want makes it easier for you to access GONE. And so automation throughout our system as we've moved toward full solution automation, IWant makes it easier for people to access that. It reduces the learning barrier 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 they kind of go back into 1994, 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 the -- 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 -- that's the one concern that one has. It doesn't -- I don't think there's that much there yet, but like any impact that you are seeing?

I will tell you that internally, everything is going really well for us. We had a great start to the year. We had a good finish last year. We're working with our clients. Our 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.

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

Can you talk about bookings performance in 1Q and thus far into 2Q? I guess, have you witnessed the inflection you were hoping for here?

Yes. I mean, I'm pretty impatient, and I want it all just because we shouldn't lose any deals. So matching my expectations, I think, is very -- it can be a little bit challenging. But I will say that both sales came in according to budget and what our expectation was for first quarter.

I also kind of mentioned that we had pulled our sales group out of the field for about a 3-month period of time. Not full 3 months, but you'd have to come for a week and then go back and then come back for a week. And so that put a little air in the line, and we would expect as we move throughout the year to have greater opportunities 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, 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 will just -- we'll have to see how CapEx is impacted throughout this year. We're not ready to really give guidance on that right now.

Your next question comes from the line of Bhavin Shah from Dutch -- sorry, apologies, Kevin McVeigh from UBS.

Congratulations on the results. 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, adoption of kind of IWant relative to maybe Beti that you'd call out, just to help us dimensionalize or just really try to derisk some of the concern that's out there? Because 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.

So we don't sell AI. We sell automated solutions to problems. And sometimes AI is the best way to solve for that. 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 cases for both our clients and ourselves. And so we continue to do that. It's very important to be able to automate, especially decisions where you expect consistent behavior. 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.

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

We do report retention once a year. We did report it last quarter for the previous year. It did increase. I do think that anytime 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 we would 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.

So maybe we could just talk about the go-to-market. And I think you talked about in the past, adding sales capacity and 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?

Yes. We're doing a lot differently in our sales organization. And that really started November 1, 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 -- with the new strategy, right, as we continue to go out there and sell automation, it's important that we're converting clients the correct way, that they're receiving the ROI that we 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 we're going to continue to do that. At the end of the day, it doesn't matter how great a product is. Someone's got to go sell it. And so products don't sell themselves, 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 on to 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 road map looks like for improving efficiencies inside Paycom?

Yes. So I don't want to really -- we're not going to really discuss all the things that we're doing with it internally just for 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.

So we remain focused throughout all of the departments that we have here at Paycom, as well as all the functions. And that's not a discipline that will go away. That will be something that we will continue to do into the future.

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

Great. I understand 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. And so we work those through with each client individually.

Your next question comes from the line of Jacob Zerbib from William Blair.

This is Jacob on for [ Pat McKilley ]. I just wanted to touch on retention, which we saw tick up in Q4. As you continue to see a nice momentum in usage on IWant, 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?

Definitely a focus of ours. I mean, I would say 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 and 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.

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

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 6 or 7 years. So -- and they're more prepared to go out there. And so 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 6 or 7 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?

Yes. 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. 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 technology. So all those contribute to opportunities for increases for us in both sales and other as we move throughout 2026 and beyond.

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

I guess, 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?

Yes. 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 are 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 see -- have positive discussions with clients or prospects regardless of the industry or geography in which they're located.

All right. Helpful. And then I guess, as you look at some of your competitors getting into things like expense management, curious on how you're approaching the overall product road map 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. So we've provided an expense management module as part of our system, probably for around 9 or 10 years. And we do continue to build out things that make sense. We really start with the client problem, though. And that's very important. We don't start with what is it what 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 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 to continue on as we have.

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.

Good afternoon. My name is Cameron and I will be your conference operator today. At this time, I would like to welcome everyone to Paycom's Fourth Quarter and Year-end 2025 Financial Results Conference Call. [Operator Instructions]

Thank you. 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 fourth quarter of 2025. The 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 will 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 CEO and President. Chad?

Thanks, James, and thank you to everyone joining our call today. I'll comment on our 2025 achievements and our areas of focus for 2020. We I'll then turn it over to Bob for a review of our fourth quarter and full year results along with our full year guidance. We will then take your questions. Let's get started. .

We executed well against our 2025 plan exceeding our strategic and financial goals by focusing on full solution automation, client ROI achievement and providing world-class service. We delivered strong results, including double-digit recurring revenue growth and near-record adjusted EBITDA margins. We advanced our full solution automation strategy with the launch of many automated decisioning tools that complement our command-driven AI product [indiscernible] and other award-winning automation solutions, Betty and Gone. Our focus on client ROI achievement and world-class service strengthened revenue retention in 2025, which increased to 91%.

This is a testament to the success that our clients are achieving through full solution automation as well as the world-class service we are providing across our client base. In addition, we experienced a record number of clients returning to the Paycom platform in 2025.

We Automation is the future of our industry and Pecos leading the way with the most automated solution in the market. While I'm excited about the momentum in client retention, we still only have approximately 5% of the total addressable market and the opportunities ahead of us are robust.

AECOM is a truly differentiated company. our single database architecture and employee first technology allow us to offer automated decisioning that is unmatched in our industry. This architecture enables us to deliver greater accuracy and efficiency eliminating the need for complex integrations while driving strong ROI and satisfaction for our clients and their employees. Our automation tools across our full solution are clear examples of our commitment to innovation. Beti is one of these and reduces payroll processing labor by up to 90%, while cutting the time spent correcting payroll errors by up to 85%.

Another is GONE, which automates PTO, fully streamlining time-off request. These are just a few solutions that eliminate duplicative tasks reduce redundancies and contribute directly to unparalleled ROI for our clients. Our most advanced AI solution IWant is designed to accelerate the speed to value by allowing anyone to become an expert in the system without any training.

Forrester's recent analysis of a composite organization with more than 500 employees found that organizations using IWant experienced an ROI of over 400% driven by productivity gains at every level. Managers save as many as 600 hours per year, executives up to 60 hours, HR teams up to 240 hours and employees across the organization collectively reclaimed 3,600 hours annually.

Leaders describe IWant as a catalyst for deeper insight. And one CEO remarked, I get immediate without any training or knowledge of Paycom, I can go in and immediately understand more about my business. Since our founding, we have led the way in innovation and automation. With full solution automation and decision in logic, we are again transforming our industry. Payroll and HCM are critical solutions in the enterprise that require 100% accuracy and Paycom is delivering on that expectation every day.

As we look to 2026 and beyond, we will continue to extend our technological lead and focus on delivering unparalleled value to our clients while continuing to attack the remaining 95% of the addressable market that is available to us. IWant to thank our employees who have been diligently focused on leading our clients, executing our goals and delivering strong results in 2025. With that, let me turn it over to Bob. Bob?

Thank you, Chad. We delivered strong fourth quarter results with total revenue of $544 million, up 10% over the comparable prior year period and recurring and other revenue of $517 million, up 11% year-over-year. Looking at 2025 full year results, we are very pleased with the execution throughout the year. Total revenue in 2025 came in at $2.05 billion, ahead of our initial outlook with recurring and other revenue growth of 10% year-over-year to $1.94 billion compared to our initial expectation of 9% growth. We delivered even stronger fourth quarter and full year profit metrics that were driven by stronger revenues and operational efficiencies gained from automation and cost discipline initiatives. Adjusted EBITDA margin remained strong in Q4 at 43.4% or $236 million. Full year 2025 adjusted EBITDA grew 14% year-over-year to $882 million, representing a 180 basis point year-over-year margin expansion to 43%.

Turning to GAAP results. GAAP net income in the fourth quarter was $114 million or $2.07 per diluted share based on 55 million shares. Full year 2025 GAAP net income was $453 million or $8.08 per diluted share based on 56 million shares. Non-GAAP net income for the fourth quarter increased 4% year-over-year to $135 million or $2.45 per diluted share.

Full year 2025 non-GAAP net income was $519 million or $0.24 per diluted share based on 56 million shares. Margin strength in the quarter and full year was broad-based, driven by our continued focus on automation.

We continue to invest in sales and marketing to drive future growth, and we maintain our commitment to world-class service. With that said, we are also finding significant opportunities to streamline processes across our organization, while still expanding our sales capacity and maintaining a human approach to world-class service. Operating cash flow increased 27%. In 2025 presented approximately 13% of total revenues compared to $197 million or approximately 10% of total 180 basis points year-over-year to approximately 20%.

In 2025, we repurchased over 1.7 million shares of common stock or approximately 3% of our shares outstanding for a total of $370 million, and we paid approximately $1.1 billion remaining under our buyback authorization as of December 31, 2025. And we continue to be opportunistic buyers of our stock. In addition, the Board has approved our next quarterly dividend of $0.375 per share payable in mid-March.

Turning to the balance sheet. Even after returning capital to stockholders through buybacks and dividends paid in 2025, we ended the year with a very strong balance sheet, including cash and cash equivalents of $370 million and 0 debt.

The average daily balance on funds held for clients was approximately $2.8 billion in the fourth quarter of 2025, up 11% over the prior year period. We grew our client count to approximately 39,200 clients as of the end of 2025, representing growth of 4% compared to 2024. On a parent company grouping basis, we ended the year with approximately 2,300 clients, up 5%. Revenue growth was broad-based as we added clients across the various target client sizes, but we continue to have success upmarket with revenue from clients over 1,000 employees, growing faster than total revenue.

Total employee records stored in our system in 2025 was $7.4 million, up 5% year-over-year. Paycom's annual revenue retention rate in 2025 increased to 91% compared to 90% in 2024, and we believe our significant efforts and investments in automation and world-class service are contributing to the value and overall satisfaction that our clients are experiencing. Now let me turn to guidance for 2026.

We have a highly predictable, profitable and resilient recurring revenue model. Similar to last year, we are providing our initial full year outlook, which represents our best estimate for certain key metrics based on what we can see today for revenues and budgeted expenses.

For fiscal 2026, we expect total revenue to be between $2.175 billion and $2.195 billion or between 6% and 7% year-over-year growth. We expect full year recurring and other revenue to be up between 7% and 8% year-over-year. We expect full year adjusted EBITDA in the range of $950 million to $970 million, representing an adjusted EBITDA margin of approximately 44% at the midpoint of the range.

Included in total revenue outlook is interest on funds held for clients of approximately $103 million and is based on the consensus assumption of 2 rate cuts in 2026. 2025 was a year of solid execution with very strong fundamentals. We will continue to focus on delivering the best product and service to our clients and enhance long-term stockholder value through attractive top line growth, operational discipline and opportunistic buybacks.

We have less than 5% share of a large and growing total addressable market, and we believe our differentiated full solution automation strategy can drive long-term sustainable growth for years to come. With that, let's open the line for questions. Operator?

Thank you. [Operator Instructions]

The first question comes from the line of Raimo Lenschow with Barclays.

The -- Chad, like there's a lot of positive things on the product side coming out of you with kind of IWant, et cetera. Customer retention gets better. your guidance growth looks a little bit like a slowdown for many people. Can you just kind of bring these 2 kind of sites together on the one hand, a lot of positivity, positive news on the other hand, it looks -- is that kind of macro? Or how should we think about that?

Yes. Well, first, I'd say we've continued to automate our product rapidly as we -- now the product begins to decision itself in many different areas. You don't have to log into it. It didn't use it as much as it will actually decision things. I feel good but not satisfied with our growth for last year. We have opportunities in sales, and that's an area of focus that we have right now as we talked about Raimo at your conference in December. The good thing is that our clients are happy and retention is improving, and we have the most automated product in the industry.

So I do think when you look at it, I mean, bookings have been up every year. They were up 2025, continued that trend. And our expectation is no different from 2026. We'll have some inflection opportunities throughout the year and as those materialize, those will be reflected in our numbers.

Okay. And then the follow-up that I had was like with the change in sales leadership at the beginning of the year. Should we think about like significant changes of go-to-market, et cetera? Or is that just fine-tuning? I know you have a very good sales organization in place anyway. But like -- how do we think about changing with the new leadership?

A lot of it -- a lot of this is the replacing of the value. Consumers and clients oftentimes have a more difficult time of digesting full solution automation. And -- so a lot of this is how we play them. And so we have been bringing in our sales people over the last 3 months to make sure that they're all trained on the new product enhancements that we've made just since November, which automates a lot of our system. As we've been talking about for the last couple of years, full solution automation has been a goal of ours, and we continue to move our product toward that goal.

Your next question comes from the line of Samad Samana with Jefferies.

Maybe sticking on the guidance theme. Just as I think about the recurring revenue outlook and contextualize that last year, the initial guide was for 9 and you guys ended up doing about a point and change better than that. So as I think about this year's 7% to 8% outlook, is there any change to the guidance methodology. Should we think about it as a similar construct and then kind of similarly thinking about maybe -- what are the upside nodes maybe as the year progresses? And then I have one follow-up.

Yes. Samad, last year, we guided at 7% to 8% total revenue growth, and we just reported that we finished at 9%. This year, we're guiding to 6% to 7% and total revenue growth. So about a 1% difference this year versus last year. Again, last year, we focused very much on sales but also on the full value chain of our client, world-class service.

We were able to see retention gains through that. Clients are happy. And as we focus on the new way to utilize our software, we've been focused on our go-to-market strategies here SP260265197 And Samad, I'll add that there has been no change. We're guiding to what we can see right now, and we'll continue to update throughout the year as we see that change.

Understood. And then maybe just understanding just kind of the growth algorithm. If I think about the client count growth in '25 being around 5% and use that kind of as a unit growth number. And if I think about the '26 to growth kind of that, again, 7% to 8% of recurring revenue, should we think about that kind of similar unit growth?

And then any ARPU expansion opportunities? Just Help us understand what the different contributors are to that 7% to 8% growth and maybe where you see the room for either most conservatism or outperformance.

New logo ads is going to be our biggest opportunity for growth. We have other opportunities as well now with adjacencies that are available to us. But new logo ads, that's what we're focused on. Our sales primarily come from our outside sales organization. They only focus on new logo ads. And again, after a client has been with us for 30 days, that's when we move toward the CRR group.

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

So you're coming off of a quarter where sequentially, your year-over-year growth rate ended up accelerating hit 11.3% on the recurring side against a tough comp, which was up 14.5% the year before. And the guide basically does imply a bit of a slowdown. I'm wondering what are you seeing in the field, and you did make a change with regards to sales leadership.

So I'm wondering, what are you seeing in the field? Obviously, all of the stocks across all of SaaS have been hit. Are clients expressing any sort of hesitation or longer decision cycles anything that you're seeing that's different or that would suggest that things are going to slow down, perhaps its employment and just fewer seats, I don't know. Just wondering if you can give us any sense there.

No, we're not. We're not seeing any change in the desire to buy our product. Again, we did for the last 3 months, we have been going through bringing everybody into training and going through what our product does now. We've released a lot of automation just since November.

And a lot of the product decisions itself, I mean you do not have to log in you do not have to move data. And so we're making decisions on things. And so we've been talking about that for a long time.

It was important for us to make sure our salespeople are going to market with that message. But no, we have not seen any reluctance from people and prospects to make changes out there in the marketplace.

That's great. And can you talk a little bit about the usage with regards to in at this point? I mean it looks really slick. So I'm just wondering what the usage patterns are there and what the customer feedback has been?

Yes. So I definitely think I want definitely contributed to help with our retention last year, as I mentioned in my prepared remarks, we're having a record number of clients returned to Paycom as they left for maybe something that they felt was a lower price but ended up being 10x our cost.

And so specific to I-9, usage is up 80% in January alone just based -- and that's from fourth quarter. And so IWant continues to generate greater and greater usage. And I think, especially at the employee level, it's really becoming the predominant way to access data as well as for the C-suite level. I think that you still have user buyers and administrators that are used to certain parts of the system.

And although they're gaining value through IWant, I also think that you have certain creatures of habits that are also continuing to get value by utilizing our system. The other way, which was also Yes. I would say shifted on quality, something that's been very important to us. I mean it's hard to say that we're in a sales environment that quality over quantity, but it is very, very important that we're out there doing things the right way because like I said, we lost some clients that we just shouldn't have lost because the value is there for them. And then as we brought those clients back on and as we look at going to market to sell new clients, we want to make sure that all the clients get the full solution automation available to them upfront, and they've purchased for the right reasons.

And so as a sales organization, we've got to get -- gotten together over the last 3 months, gone through all of our training to come out the other side of this. And so we are excited about that. We're also excited about what we see in the pipeline. Our opportunity hasn't changed. We only have 5% of the total addressable market available to us. We do have the most automated product. And we are beginning to see people crave that in a way that they're willing to digest automation.

Okay. Great. And then I guess just in terms of the guide, just wondering what you're assuming from an underlying kind of employee level perspective? And maybe how does that compare versus what you saw in Q4?

Yes. Stabilization is what our expectation is, and that's what we saw in Q4, too. Without some dramatic change in unemployment, really what's going to impact us would be our execution of our strategy.

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

This was the biggest new customer adds here since, I think, 2022. How much of this is maybe due to those new sales offices that have been ramping or those new returning customers that you talked about? And then what are some new incremental initiatives that are targeted toward new customers for 2026, if you have anything to share?

Yes. I mean the new office is definitely spun up quicker than any offices in the past to say that they were the largest contributor to the gain, I think, would be faster. But we've done very well with our product throughout the year, and we continue to have strong go-to-market. I mean, in some areas, we have offices that do well over $9 million in sales.

In some areas, we have offices to do much, much, much lower than that. In some areas, we have a sales rep that will sell $4 million as they did last year. And so all these are opportunities for this. And so we've had both buckets of success and pockets of opportunity.

And as we've looked at our organization as a whole, we're very confident on the go forward of capturing all that opportunity and continue to maximize those pockets of success that we see across the board. .

Okay. And then retention, 91%, nice to see the improvement. I think with I want, part of that product was to improve retention. So it's nice to see. But maybe it was unrealistic for me to have wanted to see more improvement, no pun intended. And it sounds like you're doing some training, but you might have some more room to chop on getting kind of retention back to was in years past. But maybe talk about the strategy there and how to think about improvement in the years to come.

Sure. Well, providing world-class service to clients and making sure that they achieve the full value that's available to us -- to them, excuse me, has been our focus. And so I did expect retention would go up last year because of how hard we focused and how well the clients now are using and getting value for the product. Do I think retention still has room to raise? .

Absolutely. And that not only do I think it has an opportunity. I mean, I think there's an expectation there across the board with all the work that we've done. And we have that momentum going in the right direction right now. So that's definitely a focus of ours.

Your next question comes from the line of Patrick O'Neill with Wolf Research.

Can you just elaborate a little bit on how AI is improving internal productivity and efficiencies, maybe which areas you are specifically seeing improvement? And then how are you thinking about sort of balancing the benefits between bottom line expansion and reinvesting in the business.

I mean, AI is helping us across the board. I mean, while we can talk about specific products, we can talk about speed of processing and all the different types of things that we've been able to do on our back end to really speed things up.

I think there's a little misjudgment about the AI thesis materializing as a threat weapon that will be used against us. I mean, AI is our friend at Paycom. And I've worked very hard to ensure that the misunderstanding of AI's impact on us is in our end. And I just believe, as you look into the future, we have opportunities now that we didn't have in the past, right, like the speed of development, increase the pace of the user buyer, being able to digest it might lag a little bit, that we can develop a lot more today than what we've been able to in the past.

We're in this age of software development and in some instances, replacement of specific software. Paycom can get into every adjacent industry now within weeks or months. I'll remind everybody that I was the first Bob coder back in 1998.

So there are several easy-to-displace that don't just sit ancillary to our industry, but they're dependent upon our industry of where the data starts. And so now that we can develop anything very quickly and use all these technologies to replace other industries in a matter of weeks or months, we're excited about how that -- what that looks like for our future as well.

The next question comes from Daniel Jester from BMO.

Yes. Great. I think maybe I'll just piggyback a little bit off the answer that you just gave there, Chad. I think, in your prepared remarks, you talked about building some tools maybe around IWant. And so if there's any examples you could share there, that would be great. And I know that part of the thesis, they're not the biggest one, was about the ability to cross-sell as customers use in and want access to all the data and functionality. So are you seeing any evidence of that?

Yes. The way I would look at I want is I want allows someone to access the value that's there. They do not have to be an expert in the system. They do not have to be trained in the system. And through the other automation that we've built throughout our system, with I want, it's just much, much easier to access that.

And so we continue to build out the system. We continue to add more and more functionality to it. It continues to get stronger and stronger. And we're putting out more products. We're putting out more products now than we ever have. And we don't even -- we don't necessarily announce it to the market, but our clients are experiencing it every day as we call them and turn them on, on these products and this automation. And so that's going to be our focus. from this point forward. The goal of the Paycom software is truly full solution automation to where you buy it, you configure it, and it does everything else for you. And so we've been focused on that.

It's something I've been talking about with the AI tools that we have right now and additional that we've become aware of and begun to start using also, there's faster opportunities for us there. I'm going to say that there's still things you have to do on the back end with these types of things, but we're excited about what's happening within our industry and definitely within our product and how this is all materializing for strong ROI for clients that utilize Paycom.

That's great. And then maybe, Bob, to you. I know that there was a lot of onetime capital spending this past year. Any color you can share with us about how we should expect CapEx and free cash flow to look in 2026?

Yes. Sure. So we did have a onetime expenditure, like you mentioned. The way we look at that though, we do run this business with the long-term outlook. If we do see an opportunity again like that to invest and help our clients achieve even more we would take that. And the positive thing there is we do have the EBITDA margins and the cash to do that.

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

Can you give us a sense in terms of your January retention performance, just given the significance of that churn for the full year? And then as we kind of look at the 26% guidance here, what are you assuming in terms of retention versus are you assuming any improvement or relatively stable?

Yes. So we disclosed retention once a year. We did just disclose it for 2025. I'll let my prior comments kind of speak for themselves as far as how important usage is and value attained is for a client in order to increase tension and how well I thought we did last year with this initiative and how more and more usage should be accretive for us into the future.

Got it. And then can you give us your latest thoughts in terms of new sales office openings here? Is the kind of change in sales leadership could impact potentially the pace of additional sales office this year over the near term?

Yes. So as I disclosed in the Barclays Conference, we have expanded our sales teams to 10 from 8. So that puts an extra 100 salespeople in the field. All salespeople now are experiencing a different level of training through our program. That's happening right now, and we're hiring as many salespeople as we can. Right now, we would expect that those would give us an opportunity in the future to open up more offices. It is a goal of ours, and it is also a goal of ours to capture the opportunity available to us in the offices that we have opening -- have to opened.

Your next question comes from the line of Kevin McVeigh with UBS.

Chad, your comments on Gene were pretty helpful. I wonder, could you give us a sense of, have you seen client behavior patterns in terms of consumption across any modules change as a result of the Gen AI adoption? I mean, obviously, 1 of the questions we get a lot is the perpetual displacement risk, which we don't subscribe to.

But is there anything you can help kind of the market understand that it helps alleviate some of that concern, whether it's clients that have these tools that are still using Paycom or leveraging different parts of your platform that they haven't in the past just to help dimensionalize and calibrate some of this concern.

Yes. I would say there are some clients that will run toward the full automation or what you might be calling a Gen AI consumption. But I will tell you, it's much more important that you meet them further than halfway there, if you want to get them fully utilized and actually getting the value out of it. You've got to make it easy for people to digest. .

And that's what we've spent a lot of time doing. You release something great, you like, why aren't they using it? Well, it's not good enough for them to understand how to digest it or plug into it. And so those are the things that we've been working on, both with our software as well as our go-to-market to make sure that we're bridging all of those gas.

That's helpful. And then just One quick question on the guidance. What retention numbers embedded in the 2016 guidance? And then how much buyback do you have in the 26 estimates as well?

We haven't disclosed what type of retention. I mean, obviously, we're happy with the retention and I would be very disappointed if retention reversed. And I think with all the work that we are doing and all the value and happiness that clients are achieving right now, I think we're in a pretty good position for that. We just finished up January and retentions of measurement throughout the year.

And so we're going to continue to do our work this year to make sure that we finish strong at the end of 2026.

On the buyback side, those are opportunistic as we're going through and taking a look at where the stock is and what we think if there's a displacement so those are just opportunistic, and we don't put anything into the guide on that.

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

Great. Chad or Bob, there's clearly a lot of positives here with better client growth versus last year, along with an improvement in retention. I'm just trying to reconcile that with the recurring revenue guide for next year, that would imply the smaller dollar adds in several years. .

Is there the change in sales training or an increase in pitonclient service impacting growth next year? Or is it maybe in slowing down decision-making processes? Any insights in terms of what could be impacting growth will be helpful, especially as industry dynamics seem to be somewhat stable.

Yes. I mean you guys kind of know what's going on in the fourth quarter there. You can kind of see the sequential change in you know kind of how revenue comes in week by week, day by day. You can see the sequential change as it goes into this year and look at kind of how that sequential change also normalizing for the things I just mentioned, what that looked like for last year. And I think when you come to that, you'll kind of see that our guide here is not incredibly dissimilar to last year's guide.

It may be different than where we ended. But from where we started last year, we took the same approach, and we're comfortable with the guide as we go into this year. As I mentioned, we do have inflection opportunities throughout the year. And as those materialize, we will make sure we report those.

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

You talked about seeing momentum upmarket and winning larger deals, which is really encouraging to see. First, is this an area where you're expanding sales ops for 2026?

Also, as you move upmarket, organizations that often have greater integration needs their road map to expand API access while also balancing your core single database advantages? And do you view monetization of APIs as a growth lever in the future?

I think helping upmarket digest the importance of full solution automation is critical for them, and it's critical for us. I mean most of your upmarkets, they're only used to ordering food from the buffet. And you go to the table and you're like, "Hey, I'd like to take your order." And they're like, well, where is the buffet, hand me my plate.

And so there's a whole different world here in how you plate these items to the upmarket and how they can easily plug into it. We've made it easier for ourselves to do that.

And through full solution automation and what we're doing right now, evaluating Paycom is very simple. It's very simple to evaluate it. I would say in the past, with certain strategies that we had, it may have been simple to evaluate, but we still kind of kept a little bit of it in the buffet line kind of as we've gone through this, and we're dealing with full solution automation and decisioning logic.

The system is decisioning everything. So before -- just to give you an example, and I've talked about time off, but you could talk about emotions, promotions, hiring. I mean I can go through our entire system. But just with time off, you have an employee that request time off tonight, at 7:00 at night, they're trying to request next week off. A manager the next day is dealing with overlapping decisions, who's going to be at the office to actually work because for some of us paid time off about who gets off work, but for the shift manager time offs about who showed up to work.

And we've all been there where you didn't have enough staff and now you're losing revenue. And these managers have to go through all types of decisions and they have decision fatigue. Does the person even have enough time to request off. Do I have coverage? Do I have any overlapping shift? Who asked first? Are any of these people on a write-up. Is anybody at this that I let off going to hit over time.

If I have to pull somebody else, you got to connect it to their schedule. You got to connect it to their shift, you've got to connect it to time and attendance. The point is, is it's impossible to make good decisions on this on a regular basis, unless you've implemented the Paycom system and the Paycom system will decision all of that.

So the employees who, by the way, already expects their time off as soon as they requested. The employee gets what they need. The manager does not have to go through all the decisioning of these policies. The policy administrator, who's the person that said all this stuff up in the beginning gets consistent behavior as well across the board. And so it is a way and that's just one item. I mean I can take you through all many different items where now will decision everything for a client and everything for an employee.

The problem that oftentimes comes up is, they don't oftentimes clients and people they don't have full documentations of the decisions that would be made in those scenarios. And so those are the processes that before we were going through manually with them to discuss. And now we can go through even those in a more automated process to move them in toward full decision automation through decisioning logic, which gets them full solution automation. And so that's what we've been working on.

We have the system, we're making sure that all of our current clients understand that and what's available to them. So they don't just get sold on something and then go through another conversion process to come back with us. And then also our go-to-market, it's very important that we're doing it correct now. We've made it easier. We've made it easier for a prospect to decide on Paycom's value and use it. It's very easy to evaluate Paycom these days. It's only 4 simple steps, and we look forward to walking through that with every prospect out there.

Great SP1 Your next question comes from the line of Joshua Reilly with Needham.

Most of my questions have been asked, but any update on how the CRR team performed in 2025 relative to 2024 sales productivity? And how much room do you see for improvement in 2026 cross-sell activity?

Yes. I mean I think CRRs have done a good job. They did exactly what we expected them to do last year. They're doing a good job this year. a big part of the play when we talk about full solution automation and helping clients understand that value that's available to them. And absolutely, in some cases, there's products that clients don't currently have which are needed to get to full solution automation. In addition to that, we're rapidly continuing to put out new products, and many of those have revenue opportunities associated with them. So CRRs are part of the play as we move forward through 2026 and beyond.

Got it. And then just on the overall competitive landscape, just curious, have you seen any impact on just your overall win rates or price competition from the marketplace as growth hasn't really decelerated significantly in the industry, but it's kind of, I would say, gone sideways. And just curious if that's leading to any changes in competitive dynamics.

We're ambitious with what our expectations are for win rates, both this year and going forward. When I look into last year, I would say, they were up to core to consistent with what they've kind of been in the past. But we have a new view on what close rates should look like these days just because of the major differentiation between our product and what we see out there. And we've made it again easier to sell and easier for a client to understand and achieve its full value. So we are bullish on those opportunities this year.

Your next question comes from the line of Siti Panigrahi with Missou.

Chad, just a follow-up to the prior question. ADP also talked about improving their retention rate rightly. How is that -- are you seeing any kind of changes to your business from that?

No.

Okay. And then other question that investors says is the AI impact to overall employment. How do you see that impacting Paycom business? Are you well diversified? Do you expect it to be more in certain kind of industry? Any color would be helpful.

Well, one, I'd say we're not seeing it. I'm not going to dismiss potential impacts for us to the future. I would say that we are not overexposed to any one industry, any one client, client size. And again, we only have 5% of the market.

And so you could do some calculations and we're the most automated product in the industry and the best product for the best value that someone is going to achieve throughout the industry. And so when you look at that, I think that you could do some adjustments in employment, which again, we have not seen. But I mean, even if you did, I still think our opportunity is intact for us. So I'll just leave it at that.

The last question comes from the line of Allan Verkhovski with BTIG.

Strong margins. Can you share what the size and scope of the lots you did the past month was as well as how you're thinking about the company's head count trajectory over the next year in the context of just realizing more and more AI efficiencies over time?

Sure. So we did announce a restructuring last year and ended the year with about 5,800 employees. We don't -- we aren't going to discuss internal employment trends or strategies associated with that. But that will be the number that you'll see in the K.

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 the call today. I want to congratulate the 2025 Jim Thorpe Award winner, Caleb Downs from Ohio State University. This award recognizes the most outstanding defensive back in college football and also memorializes one of the greatest all around athletes in history in a fellow Oklahoma and Jim Thor. .

I'd also like to thank our employees for their contribution to Paycom's success in 2025. We remain focused on world-class service, full solution automation and the client ROI achievement, which is resonating across our client base. With that, operator, you may disconnect. Thank you.

And this concludes today's conference call. You may now disconnect.

Welcome to our next session. Really happy to have Chad and Bob here from Paycom. We're going back so many years now. It's kind of nice to still have that relationship.

If you think about this year was very volatile from kind of many different aspects. If you think about tariffs, new government, DOGE, et cetera, from your perspective, how has the year kind of played out so far?

We've had a really good year. We came into the year with goals to focus on world-class service, client value achievement and then, of course, full solution automation. As we move throughout the year, we were able to get our clients to realize the value of the software as we continue to work with them and get them in a good space. We worked on our service organization to continue to enhance our world-class service model. Our clients today are, I would say, in a much better position, and we're seeing a lot of client satisfaction. Those ranges continue to move higher. We've also focused on full solution automation, along with the IWant process as well. So we've been able to roll out some good products.

And then the -- if you think about it, like what -- where I get a lot of questions on the -- from investors on the macro side, like you guys had very solid results, but there were some other players in your space where the numbers didn't come through like that much. And then the question was, was it macro? Is it kind of competition, et cetera? Like how do you think from kind of employment level conversations on that, how that's playing out for you? I mean not for you, but like for your space.

Yes. Well, I mean, we've seen the press releases and those types of things. We're not really seeing anything in our numbers from an employment perspective amongst our clients. So it's not really easy for me to call out anything on that. But as we've moved throughout the year, I mean, we've had a lot of success in our strategy and going through our full solution automation. And as we kind of look into next year, we're really excited about doubling down on the sell side. I think when you looked at a couple of years ago with our opportunities of what we needed to do from a client focus and make sure they were achieving the full value of the product, we focused on that. And our clients are in a really good position right now. We had some clients that left us that returned very quickly because their total cost of ownership went up and maybe they left for a little bit lower price, but what they experienced after doing that was an increase in total cost of ownership of the system and that lacked automation. And so we've had a lot of clients come back. Our service levels are as high as they've ever been in our company. And our product is strong...

When you say service level, how do you define that?

Client satisfaction levels that we measure. And you would expect that to have an impact on client retention. That's something that we report once a year. And so we're just having a lot of satisfaction out there with both the product as well as our service model. Our opportunity as we look into next year, and this is going towards your macro. I think that -- I don't think there's anything stopping us, but us from that standpoint. I think there's a sales opportunity for us now as we look into 2026. And that's really what we're focused on now. We feel really good about what we've done with our service model. And we feel really good what we've done and going back and working with the clients to get the full value. We feel really good about where our product is right now. So really, for us, it's a go-to-market recommitment and what we're doing with that. We only have 5% of the total addressable market out there right now. So there's plenty of opportunity for us. And as we're moving into next year, and we're getting set up right now, that's really where our commitment is next year into the sales growth side.

Do you think investors over-index a little bit macro, like I don't know how your conversations went so far, but like that's the one question I get all the time, but then I always try to say like, but Chad is kind of -- macro is one thing, but he's driving the company forward like more.

Yes. I mean I don't see where macro is going to necessarily stop us from working the plan that we have into next year and being able to capture the growth that we want. This year, we had recurring revenue growth of 10% and adjusted EBITDA at 43%. As we look into next year, we're very focused on being able to increase our ability to grow. Even opening up, we have a focus over the next 2 or 3 years to be able to open up several offices with what our plan is. And so it's really just right now a focus on growth because when you look at all of our other indicators within the company, which in any given year, I've been doing this for 28 years. In any given year, you have something that you're playing whack-a-mole on. And this year is just really good from everything that we've done. But our opportunities as we look into next year is increasing our sales opportunity. So we've been really focused on that for the last couple of months now.

And then is it capacity -- well, but you always were kind of in [ per sales ] office, you always had like 8 per sales office, et cetera. So if you think about like capacity increases, does that need to be like new offices then openings? Or how do you think about that? Or is it...

Both. I think there's an opportunity for us to add within cities that we're in, and we need to open up more markets. And the other part is taking the people we have and achieving greater success. Our city in Tulsa. Tulsa sell probably $9 million in new business this year. Our top rep across the company will sell over $4 million. And so when you look at our total number of reps and our total number of cities, not everyone is doing that. And so we have an opportunity to increase that within our current group, but we're also really recommitting on the number of salespeople that we bring in. I think that's our one opportunity as we look into 2026 because I feel really good about where our product is and also our road map of what's coming out next quarter and throughout 2026.

I feel really good about how we've worked with our current clients and helping them realize and achieve the value that's received when you use the full system. And I feel really good about all the work that our client service group has gone -- has done to become product experts so that we can really service those clients very well. And so when we look into 2026 and beyond, it's really that revenue growth opportunity that we have. We're a very strong sales organization. And I think as we've gotten together over the last couple of months to refocus on our value proposition, which has changed over time. It's still the single database, but it's the value that can be derived from using it. And today, our value is really decision logic. It's not -- now that you have the employees using the single database and using the system, it's how do we get managers, administrators and others out of the system and allow the system to decision -- routine decisions that should be consistent. And so we've spent a lot of time developing that within our system, and we have a lot of clients and prospects excited about those opportunities and already getting -- already generating great ROI from the utilization of those.

But that sounds almost -- and kind of leads us probably into the AI growth because like if the system is more automated and it's more decision-driven. So if you think, like I want is more on the user interface kind of I would think, this one sounds more like it's deeper in the system.

You're exactly right. It's not -- AI is kind of your friend. If you go all AI, you're going to miss a few things. And so there was an opportunity for us to automate a lot of these decisions within our system. And some of it is a configuration opportunity, but you also have AI involved in some others. The way I would look at AI for us right now is it's very -- outside of the analysis and the coding and other things that we use for, I'm talking about from a client's perspective of where they're seeing the greatest value. It's from not having to know our system. I mean AI is removed a lot of the need to know our system and be trained on it because it is -- think of it as more of a portal to the value that someone has available to them, which before was a lot harder.

So now a lot of the employees that even come on to the system since I want with our clients, they don't even really know what the software looks like. They're just using the IWant technology. And so they're not navigating throughout the rest of the software. And so that changes habits at the employee level, which has opportunities to change it at the manager level, policyholder, administrators and then, of course, in the finance department. So we're seeing that increased usage within our system from a value perspective, and that's our opportunity into the future.

I mean I have to give you credit again because like we saw one of the more upper end of the market peers just spend like $1 billion on a system that might just kind of solve that. So the IWant was like how long did you work on that?

I want...

It's out already, yes.

Well, IWant was a large group of us locked in a room for -- we worked on it for about 14 months probably. But I would say the last 8, we were kind of -- we worked every weekend and night until we -- there were times where we had it almost done and then we'd throw something else into it and go backwards. There would be times I'd come in and like what do we do to this? We had it there. And so -- but we've gotten a lot better at that, and it's working very well. I mean our clients love utilizing it. And it's just sped up the process for a client to really achieve the value that's available to them so that they can kind of realize that.

Yes, yes, yes. And then how do you think about like does that drive already improvement on the sales and sales engagement because with IWant, you have like a nice differentiation factor in the market. Does that kind of show up already?

It does. But it's a product and not a strategy. IWant is a product, not a strategy. And so again, I think throughout the year and when you really look at throughout our history, as we've released products, we kind of -- we go out and we sell that product. Now whether it's Beti or GONE or IWant, or all the products that have come before. But when you take a step back and you look at it, I mean, we're automating a lot of these things that are critical for a business. You take something as simple as time off request where you have an employee request and time off at 7:00 tonight. And time off is not about who gets time off. It might be for the employee. For me, time off is about who comes to work. It's managing how people come to work. And so before, when we looked at our own data, 50% of time off requests were decisioned after they'd already been paid. So that's obviously not a decision.

So you have employees waiting on decisions. They put request out 7:00 at night, then they chase their manager down the next day. And that manager has to decide who's on maternity leave, maternity leave, bereavement, jury duty, sick, what are my shifts that I need covered, and they have to go through all the -- does this employee have enough time? Are they in good standing? Are there overlapping shifts? And so if someone is trying to do that right, they're spending so much time just figuring out. Well, that's something we've automated through GONE. So there's no management decision on who gets off. The system knows the criteria that each person set of what they need for their capacity to run their shifts.

It knows what levels people are achieving their policy for both paid time off agreement, what have you. Nonproductive time represents 10% to 12% of a company's labor budget. And the labor budget is usually #1 or 2, the largest expense. And so it's going and manage. So these are opportunities. This is about one, but this is an example of what decisioning logic and automating the system. What happens is they're not even doing it. I can't even find anybody that knows their own vacation policy.

An employee or a manager or even the policyholders. And so when we're able to automate routine decisions where you expect consistency, there's a lot of value in that for clients. We were working with 1 prospect and they noticed that their revenue down on certain days. And when we went and we unpacked that, it's because they didn't have people working the shifts. And we've all stood in line where you want to purchase something, but it's so long. And you're like if they just had 2 or 3 more people there and you just put it down and you walk out, whether that's that, whether someone's -- it doesn't matter what you're doing, whether you're in manufacturing or what have you. And the point is oftentimes they did have those people. And so what you have is you have companies that are overstaffed as a company, but understaffed uncertain schedules and work.

And so when you're able to put decisioning logic into a tool, it becomes the enforcer because most managers don't want to tell an employee that has 8 weeks of vacation and hasn't taken one in a year. Most managers don't want to say no to that. Even to the extent that they're willing to work a shift that's understaffed, but that impacts the company. And so by having decisioning logic throughout the system, we're able to get people out of having to move that data along, which I mean if they're trying really hard, they're failing and most people have given up to be quite honest.

And then how does it -- go back to my question, like how does it true up on sales guys engaging with prospective clients or going back to the installed base, like, well, first of all, is IWant, just as a reminder for all of us, like, IWant, do I pay for that? Is it part of the overall package and then, how is it with new clients?

Yes. And so our opportunity to monetize IWant is going to be through increased retention and through greater generation of new logo adds, if you will, that's our biggest opportunity. With products where we want 100% adoption, I don't really love to go through the process of trying to sell it to each person. But we do believe it will impact -- in our early stages, we're seeing it impact client satisfaction. And of course, the happier your clients are, the more value they're achieving out of the product that they're using, you would expect that they would stay with you longer and that would impact retention and also give us the ability to go out and sell other deals.

There's a whole generation of Paycom users now since August that log in and they use the IWant interface. They're not navigating. It's where they go first. And so you extrapolate that out 2 or 3 years as employees move from place to place, and they have certain expectations of automation, even managers now, they don't want to approve time off because it can be automated. And so the more you can get people to change their habits and it's easy to get people to change their habits if it creates great value and it's simple for them to do. And so that's really -- that's really where IWant is going to help us. We've made it easier for a prospect to evaluate Paycom and see its value. And we've made it easier for clients to convert to Paycom. So we're really excited about how we're set up as we move into 2026 and beyond.

And then the -- how sustainable do you think that is as an advantage? Like if you look at your industry, you drove a lot of the innovation in the space, but there's kind of relatively quick follow-on for some of the stuff, like the single database for some of them is kind of impossible, so you can't really do that. But like how quickly do you think this will be like copied or how long -- how sustainable is that competitive advantage...

Well, I will just say, I think it's easier to copy the brochure -- actually what's being achievable. We're not seeing that out there. We're seeing a lot of people are still even focused on adoption. We're past that in the Paycom system. You already have adoption at the employee level. A lot of systems, I mean, for employees to be able to go through and do their expenses and their benefits and their payroll and their time off and their learning and their scheduling and everything in 1 system, I can keep going, recruiting and everything -- performance and compensation, doing everything in 1 system, usually for other businesses and their employees that utilize those, those could be anywhere from 6 to 8 different systems. And they don't talk well together and they're not easy to automate.

And so for Paycom, the first thing we wanted to do with the Direct Data Exchange is make sure we're measuring all employee interactions in the system, like having those employee interactions direct from employee to the system. Once you've done that, now you can get to automation, because you have employees that are utilizing the system, but it was moving through a flow all the way to the back end users to make decisions and move the data from there. Well, we automate it before it gets there now in many cases. And so there's great value there, and I think that, in some cases, our marketing was doing a better job than ourselves -- group was. And now as we have total alignment, and we're refocused on getting back out there, which we've had a great sales year too. But I don't think anybody should be using any of our competitor.

And so we really shouldn't be losing any deals. It's 2025, and we'll go into a competitor and half their employees aren't even utilizing the system. And it doesn't make any sense on the reason they're not is because it's cumbersome, complex, and they don't get any value out of it. So anyway, that's been our focus. And it's not about being first, it's about making sure that we're doing the right things for our clients in the future for our clients as well. And we just feel really good right now about how we head into next year. We had a lot of things that we needed to get through and get shored up, and we've had those things shored up for some time now.

Okay. I mean, I know you're a very competitive person. If you -- and so if you think about it, if I'm listening to you now, like more sales capacity, product is there, so you're looking forward to next year.

Yes. I mean I've been working with our sales staff myself for the last 4 weeks. I mean I'm direct with them. And what I mean by that every day, we've had our groups coming into Dallas, and we're just all really refocused on what the strategy is for clients. Because I think we're telling them so many things or so many things available to them. We've been able to now condense that to make it easier for -- to equate that to a client. So it's easier for them to see where the true value is through full solution automation. That's what we're talking about here. It's not how many times you log in and use the system. It's how many times you don't need to log in and use the system. That's what automation is. And you have to know your industry, you have to know what the user buyer needs and how they're utilizing the system. And when you do that and you understand the decisions that are being made, you can automate that for the benefit of our clients.

Yes, yes. Okay. Perfect. And then the -- yes, you mentioned earlier, like 1 of the drivers is like it's on -- I see this capacity, one of the drivers was like new office. Historically, you always had like you're very thoughtful about like where you -- if you want to go into a market like how you do that. So is that kind of thoughtful cadence changing for you? Or like how do you think about that? Or did the processes improve or change that you kind of different...

I wouldn't say it's necessarily changed, but we have identified opportunities to expedite it. So -- but I wouldn't say the criteria is the criteria for someone to be able to open up an office. The criteria is the criteria for someone to be able to become a manager, but we are seeing improvement in capabilities with that group. And so -- and I think as we kind of look into next year, we'll be seeing a lot more of it with that group, and that will produce more opportunities for us to open up office...

Can you -- historically, you talked about like territory opportunities in terms of like what you cover at the moment, what you don't cover. Has that number changed? But can you remind us...

Not really. I mean -- yes, it was about 100 offices we're able to open. We have 55 open right now. A territory represents 2,000 what we call, well, rainbow accounts, which are prospects within our sweet spot. And so some cities have 8,000 of those. You could have multiple offices. Some cities have 1,800. And so I just talked about Tulsa earlier. And so yes, the prospect basis there, and the abilities there, we've kind of been the -- a little bit -- we've kind of been our own log jam on that just from not having the people ready to lift up. But we're doing a lot better with that now. So I think in the next couple of quarters, I think that we'll be able to see what's happening with the sales organization from that standpoint.

Yes. Okay. And then the last few minutes I want to talk about more like slip over a little bit on the margin side. Like one of the things that comes up a lot with investors is like if you do AI, how do you do that? In the hyperscaler do you do it yourselves? Like, talk a little bit about your setup on AI, like where are you doing it?

You mean as far as we've always managed our own data from the beginning. So we didn't have that as an issue. We actually also manage our own the data centers that hold our GPUs and what have you. They're actually little bit different than some of our other data centers as well. But -- so we manage those ourselves. When you're looking at -- I mean, I've had to learn a lot about this. There's not -- you can put a lot of things in AI or in this model that you don't need to just because of, for instance, employees clocking in. Well, I want -- we had a program, but what you could say, clock me in. But it actually takes longer than what the widget on the very front of your screen. It takes longer to click IWant and say, clock me in than what it does to have the widget on your screen, say, clock me in. Plus, when you look at the consecutive responses that we're getting, that's hitting those GPUs.

There's a -- it eats up a lot, and there's not a ton of value in it when you understand an employee that's trying to log in and you -- that's collecting time that has to be there at AI, and they're trying to clock in and you're making them go through an AI tool. And so you do have to understand where does it work. Where does it slow down the process and becomes where I have to have something to understand you versus you already see it in front of you and you can click it. So where is it helpful and where is it going to slow you down. And so those are the things we focus on.

And then I think you're also looking at opportunities for a different level of AI that could potentially answer best practice type questions and serve as a proxy for an individual that might be having to answer those same types of questions. But I think a lot of that is -- you got to have a lot of configuration in there too, because you have to start with understanding what needs to be accomplished.

Yes, yes, yes. Okay. And then like the other big discussion point, that's 1 for you, Bob, it's like, how do you use -- do you use internally like -- I know Chad is always about increasing efficiency and not wasting money internally. Like, are you guys using it internally like already? And what are you doing there?

Oh, absolutely. I mean we're our biggest -- we're the biggest super user of the product out there, and that's driving the full solution automation that we're doing internally as well. So -- and it also helps improve our product because we see what clients see. We can help work with the teams on that.

Yes. And then the -- if you look at internal, is it the classic areas sort of like development is getting a little bit better because you can use tooling there, support...

It definitely helps in development -- being able to analyze certain things from client data, from conversations with clients when they call in through service, just analyzing clients' communication patterns with us and being able to predict which clients are in a good spot and which clients are susceptible and you need to make sure that we're covering those. And so I wouldn't say, we, of course, have it in our product, but we also have it in other areas of our business, even being able to have it analyzed the usage components of how do I get clients from this level of value over to a much higher level of value with the exact same spend. I mean, I've kind of said it for a long time. I can -- I kind of call it swinging the jackhammer, right? I can buy a jackhammer and I can sit there and swing it or I could have just turned it on. And we have a lot of clients that sometimes still do that. They buy a product that has automation, but they kind of use it the old way. And so we've also been able to use certain AI tools and what have you to be able to identify that and make it much easier for people to get value.

I mean, prior to IWant, a lot of people were making a lot of extra clicks even if they try to get the data in the system, sometimes they didn't know where to get it. And so IWant just speeds that up. IWant is either going to give you a home run or put you on third base, so you have one more click.

The last question for me and then it's time to say goodbye, it's kind of amazing. Last question for me is like as you think about better times next year, how do you think about margin as part of that? Because if you have more sales capacity, maybe more office opening, et cetera, do you...

I mean, I'm right this year, I'm really 2026, I'm focused on growth. Now I will say this as we sell -- we sell a really good product that creates a lot of efficiencies for the client. We get to share in that. So you would expect that as you are selling, you're also impacting your margins positively as well with this additional revenue. So we're focused on that. But we're also protective of our margins. We've got strong margins now. And we're not working through anything in our model to change the margin profile toward the negative, anyway.

Yes. Okay, perfect. That's a good summary. Okay. Chad, Bob, good to see you again. Thank you.

All right. Thank you.

Good afternoon. My name is Lauren, and I will be your conference operator today. At this time, I would like to welcome everyone to Paycom's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I will now turn the call over to James Samford Head of Investor Relations. You may begin.

Thank you, and welcome to Paycom earnings conference call for the third quarter of 2025. 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 will refer to certain non-GAAP financial measures, including adjusted EBITDA and 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 CEO and President.

Chad?

Thanks, James, and thank you to everyone joining our call today. I'll briefly comment on third quarter results and recent product innovations. I'll then turn it over to Bob for a review of our third quarter results and our full year guidance. We will then take questions. Let's get started.

Third quarter results came in strong with double-digit organic recurring revenue growth and continued margin expansion, setting us up to exceed our full year financial plan for 2025. In addition to strong financials, we also executed the launch of our award-winning and industry-first command-driven AI product, [indiscernible]. Now enabled across our entire client base, in is transforming how our clients and their employees engage with their HR and payroll data. ION has already successfully responded to means of queries from employees, managers and executives extending the power of our full solution automation.

We are seeing a dramatic uptick in usage, especially among new users which include the C-suite and newly onboarded employees of our clients. The intuitive nature of [indiscernible] means new employees no longer need training on the system and are able to utilize the full solution upon hire. I'm particularly encouraged by the engagement we are seeing among the C-suite. Traditionally, executives have not been daily users of HCM solutions. With [indiscernible] thousands of C-suite executives are already pulling data and insights directly from the Paycom system, and the feedback has been phenomenal.

I'm confident that command-driven functionality is the future for all software. Betty is another example of automation that delivers significant ROI and is driving new sales. This award-winning payroll solution reduces payroll processing labor by up to 90% while also cutting the time spent correcting payroll errors by up to 85%. [indiscernible] not only protects employees against insufficient funds by ensuring that payroll is correct prior to payday. It also eliminates human interaction with nonrevenue-generating tasks associated with avoided payments, check reversals, ledger updates and post payroll adjustments just to name a few.

Betty also enhances payroll compliance, ensuring accurate tax withholding along with wage and our accuracy, which reduces employer liability because employees have control over the accuracy of their check. Additionally, automation and perfect payroll with [indiscernible] is also attracting former clients back to Paycom. Recently, 2 clients who are not previous Betty users came back to Paycom thanks to Betty. One of these was a large auto group who after leaving Paycom had numerous issues processing multiple payrolls across their more than 25 locations that impacted their employees.

They quickly realized the mistake they made and reached out to us to come back. Upon the return, they were quick to adopt Betty because of the payroll automation and paycheck transparency. The second example of an organization returning was a manufacturing company, whose employees quickly voice frustration over the switch away from Paycom, especially managers who lost access to the information they were accustomed to resulting in a slowdown in revenue-generating work. This organization pointed to Betty as a significant reason for the return in a game changer with 100% accurate payrolls thanks to Betty identifying and notifying employees of items that need attention prior to payday.

[indiscernible] continues to be a powerful differentiator for us in the market as we continue to drive even more automation and deliver very strong ROI to our clients. To facilitate the automation experience, including [ IWAN ] and future AI developments in the pipeline, we significantly expanded our data center capabilities, spending roughly $100 million of AI-focused CapEx on our Phoenix and Oklahoma City data centers. We front-loaded this CapEx to match the timing of our [indiscernible] rollout in Q3.

Owning and operating advanced data centers is a sustainable competitive advantage for Paycom, particularly for clients who have reservations about opening up their critical data to external LOMs. [indiscernible] hosted by Paycom only draws from Paycom's single database, which eliminates conflicts created by inconsistent or duplicative external data sets, significantly improving data integrity and the quality of the user experience. Thanks to our product innovation and our focus on world-class service, client satisfaction trends remain strong.

We provide high-touch personal service and our clients appreciate our service levels now more than ever. We complement our high-touch service model with full solution automation, which drives service operation efficiency. As a result, we've seen a 20% to 30% year-over-year decline in internal tickets and inbound client call volume. These are positive influencers on client satisfaction. With our strong third quarter results and the outlook for the remainder of 2025, we are set to deliver a milestone year with over $2 billion in total revenues, all through organic growth and near-record level adjusted EBITDA margins.

Paycom has been leading our industry in innovation and client ROI achievement since we were founded. Now with automated products like [indiscernible], we are well positioned for continued strong performance in the future. I want to thank all of our employees for their consistent contribution to Paycom's success and also thank our clients for trusting us to deliver unmatched value through full solution automation.

With that, let me turn it over to Bob.

Thank you, Chad. Before I review our third quarter 2025 results and updated outlook for 2025. I'd like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. We delivered strong third quarter results with total revenues of $493 million, up 9.1% over the comparable prior year period. and recurring and other revenues of $467 million, up 10.6% year-over-year. Interest on funds held for clients declined 11% year-over-year to $27 million in the third quarter of 2025. GAAP net income in the quarter was $111 million or $1.96 per diluted share based on 56 million shares. Included in GAAP net income is a tax-adjusted onetime gain of approximately $26 million or $0.47 per diluted share related to the modification of our naming rights agreement.

Non-GAAP net income for the third quarter increased 17% year-over-year to $110 million or $1.94 per diluted share. Profitability continues to increase as we realize operational efficiencies and deliver consistent margin expansion. Even with the 11% decline in interest on funds held by clients in the third quarter, our robust business model produced a 13% year-over-year increase in adjusted EBITDA. And to $194 million. Adjusted EBITDA margin in the quarter was 39%, representing a 150 basis point increase over the prior year period. Margin strength in the quarter was driven by automation and operating efficiencies in service, support and in G&A.

As we indicated in our last earnings call, we ramped up marketing spend in the third quarter to support our product and brand strategies, including marketing related to our recent launch of iWatt. Feedback has been very positive, and we look forward to seeing the benefits from our marketing initiatives in the quarters to come. We continue to invest in the areas of sales, personal service, new client operations and our product. With our solid Q3 results, we are on track to deliver on our full year plan for double-digit organic recurring and other revenue growth and expanding adjusted EBITDA margins.

Our single database in our owned and operated data centers our competitive differentiators that enable us to rapidly develop and deploy new automations to benefit all our clients. During the quarter, we launched our most advanced automation solution ever [indiscernible] which is now enabled to our entire client base. To support Ian, we front-loaded a significant CapEx investment in advanced AI hardware and equipment within our data centers. More specifically, we invested approximately $100 million into our data centers, and that spend is now largely complete.

This investment provides us a multiyear capacity runway to support our AI initiatives. Over the last 2 months, we repurchased $319 million of common stock in the open market. buying back over 1.5 million shares or almost 3% of shares outstanding as of the end of August 2025. Since the beginning of 2023, we have returned over $1 billion to shareholders through our buyback and dividend program. During that period, we repurchased 4.1 million shares of common stock for $806 million or approximately 7% of our 2022 year-end shares outstanding.

We paid approximately $213 million in dividends. We still have approximately $1.1 billion remaining under our buyback authorization as of October 31, 2025, and the revolving credit facility of $1 billion available for us to execute on. Earlier this week, the Board approved our quarterly dividend [indiscernible] per share payable in mid-December. Even with these significant uses of cash in the quarter, our balance sheet remains very strong. We ended the third quarter with cash and cash equivalents of $375 million and no debt. The average daily balance on funds out for clients was approximately $2.5 billion in the third quarter of 2025, up 9% over the prior year period.

Now let me turn to guidance for 2025. Based on our strong year-to-date results, we are well positioned to meet our full year revenue and adjusted EBITDA guidance ranges. We continue to expect total revenue to be between $2.45 billion and $2.55 billion, up 9% year-over-year at the midpoint of the range. Within revenues, we expect organic full year recurring and other revenue to be up 10% year-over-year and interest on funds offer clients to be down 10% year-over-year to $113 million, assuming 1 additional rate cut later this year.

Our full year adjusted EBITDA guidance range is $872 million to $882 million, representing year-over-year adjusted EBITDA margin expansion of 160 basis points to near record levels at approximately 43% at the midpoint of the range. Other forward-looking items include full year GAAP and non-GAAP tax rates of 27% and 26%, respectively, and stock compensation of approximately 7% of revenues. We delivered strong results in the third quarter and reinvested our capital into data centers while at the same time, returning significant cash to shareholders through buybacks and dividends.

2025 has been a strong year, and we are well positioned for a robust 2026 and beyond. With that, we will open the line for questions. Operator?

[Operator Instructions] Our first question today comes from Raimo Lenschow from Barclays.

Okay. Perfect. Chad, 1 question I get a lot from investors here at the moment is that historically, your beat levels were a little bit higher. Can you speak a little bit what you're seeing? Is it in terms of economy, kind of et cetera, that might kind of change the situation there because we kind of -- you get used to a certain track record. It doesn't -- and this looks like a slight departure from them.

Yes. Well, 2025, we did change the way we guide. We broke out recurring revenue. We broke out our interest tax. And we provided a wider range at the beginning. I would point out that since providing that initial range that revenues raised by $25 million and adjusted EBITDA is raised by $47 million at the midpoint so far this year. So I know that people might want a little bit different type of number.

I will say that I'm very proud of the hard work that we've done and are doing. And I believe the accomplishments that we've made both this year and last year really set us up for a strong foundation for our future growth opportunities. So I would say that we didn't really guide to beat by certain amounts. I would say that we came out with a good guide throughout the year, we were able to raise, and I feel like 2025 is going to be a good year for us.

Okay. Perfect. And then what do you -- in terms of in that was 1 of the highlights from the Heatec conference that we saw there. how does that drive extra conversation for you? Because that was -- you were very early in the market. It seems like you're relatively unique in the market. What do you see in terms of what the sales guys are reporting back to you in terms of how that helps in terms of lead generation pipeline build, et cetera?

Yes. And so while we're seeing a complete change as new employees are added on to our system. Most of them are utilizing [indiscernible] versus any level of navigation we've been able to engage the C-suites into the system again. These types of users at the C-suite level and administrative level at some level needed the information and was always able to receive information through others that work for them, but with in, they're able to do it directly.

I mean, as far as being first, I've heard people say they have AI. I've seen a brochure. We don't experience that when we're working with their clients and our AI initiatives would have cost us for our full capacity opportunity about $25 million a quarter. So we've spent about $100 million this year, setting it up ourselves, which we've done all of our own database and our own data center since 1998. So I don't know who our competitors are using for AI, but it sounds like they got a really good deal on it.

Our next question comes from Mark Marcon from Baird.

With regards to in, I also demoed it at HR Tech with a group of investors, and I thought it was really slick. I'm wondering, can you talk a little bit more about like what you're seeing in terms of the usage pattern. You mentioned that you're seeing more executives using it. But like how frequently you've got some pretty good data capture in terms of being able to track how people are using it?

Like how broad is it at this point -- how many times are you seeing executives using it? Are all of them using it? And a little bit more just on the -- in terms of what you're hearing from the field in terms of sales. with regards to the potential for the selling season with it.

Yes. And so when you think of -- I want, you think of it as an easier way to access the value that's there. A lot of what we're focused on right now is decisioning automation and full automation of our system just due to decision fatigue that's out there right now everywhere. It's not that they're tired of making decisions. In many cases, they've just given up. And so when you think of I want you think of it as an easy way to access that value. In answer to your question, it changed -- if you are a current user of our system and you were used to going in utilizing it, well, it's an easy-to-use system already. And so it changed your behavior a little bit. from that standpoint and kind of widen the aperture on what you're able to do.

But if you're a new user being added on to our system, meaning you're a new employee, meaning you're just now gaining access to the system, it's your predominant way to use our software. And so as we look into the future, I would expect we would see more and more people utilizing I want as a way to access and navigate through our system. -- in order to make changes and receive information than what you would -- those that are actually navigating through the traditional way.

Great. And then -- can you talk a little bit about your cost of service. If we take a look at your operating cost of revenue, had a pretty nice sequential decline -- significant decline on a year-over-year basis. Can you talk a little bit about those efficiencies? And then there were some press reports with regards to some changes. Are those going -- just in terms of personnel, are those falling into the fourth quarter? And how should we think about that?

Yes. I mean any changes that we've had this primarily the benefit for that will receive in 2026. Of course, we're very aggressive on what we're doing now focused on our growth and focused on other initiatives. And so I'm not saying all of that will fall into next year, but we have that there. And look, we've got a backlog of development that's either already come out or is in the process of coming out, which led us to reduce mostly administrative by about 500 people. And I just will say, I mean, letting people go for no fault of their own, as a founder of this company, I mean, that just makes me sick of my stomach.

I don't expect we'll go through that again. We do have plenty of work for people, but -- what I will say is we always and will always seek to automate administrative tasks that slow down the flow or accuracy of data and information. It doesn't always materialize into reduction of staff. And so we've always been focused on become more efficient in how we do things. And you're already seeing that materialize prior to any of these reduction impacts on our numbers.

Our next question comes from Steven Enders from Citi.

Okay. Great. This is George Croson for Steve. Just wanted to follow up on the demand environment, if you could characterize what you saw out there in terms of sales cycles, retention, et cetera. Any color commentary would be great.

Yes. Demand remains strong. I mean we have a very differentiated product. We're going at it a different way. And the demand remains strong. I mean we still have less than 5% of the total addressable market even here just in the U.S. And so we create the demand that's available to us. We do continue to capture it. We do talk about retention once a year. We'll be reporting that next year. I will say how proud I've been of our people and all the work that we're doing internally, and they know what we're doing. And we do expect all this work to have a meaningful impact on the value that clients are achieving. And then in turn, over time, we would expect that to have a favorable impact on retention as well.

Okay. Great. And then I wanted to follow up on the $100 million in CapEx you called out for data center and AI investments. Looking at your free cash flow number, I think we wouldn't have guessed that, that was so big. Maybe if you can -- is it right to think that your free flow number ex that we should think about that basically $100 million higher than what the reported number is? And then if you could remind us the big components of that spend and why you feel like you're now set up, and that's sort of a onetime investment, if you will.

Yes. Well, you run certain models on your -- when you go through and you develop something and you're looking at the capacity, you're going to need to be able to run it. You have to run certain models how many people are accessing it at the same time, and you have to make sure you have enough capacity. I mean this is our system now. We've got a lot of employees and users at our clients. And this is the predominant way they use the system. So the way they use our systems forever changed. And so we did have to make a spend in order to have that capacity for both what we're doing now and into the future.

So we're in this business now. I don't expect that we would have any level even close to this type of spend over the next couple of years. But we are focused on growth. We are focused on providing the best product. And with us, I mean, it's not a brochure. It's something you actually utilize when we convert you onto it. And so when you're expecting that utilization, obviously, you have to spend the money to be prepared to receive it. We chose to do that ourselves just because we've always been in the data center business since 1998. So we chose to add it that way, we actually think it will be accretive to our free cash flow conversion, conversion as we move into the future.

And again, to the extent our competitors do have AI we're not running into it when we talk to their clients, and I don't know how they're paying for it because when we looked into it, it was a pretty expensive dore.

Our next question comes from Jason Celino from KeyBanc Capital Markets.

Great. This is Zane Megan on for Jason today. I was just hoping for a little extra color on the 3Q recurring revenue results. I understand it was a tough comp, but anything worth noting on that decel in the growth rate, maybe possibly softer workforce levels in the platform? Or is there anything onetime in nature that's worth calling out?

Yes. There's nothing onetime in nature. I think if you remember back to Q2, we had certain things levers hit in Q2 that may or may not could have hit in Q3. We also provided some color on what recurring revenue growth would be in Q3 at around 10.5%. And for the fourth quarter, we said that would be 11%. So it came in right above where we thought it would.

Okay. Great. And then just on the workforce levels, I mean, was that in line with expectations? Or I mean we -- 1 of our better yesterday talked about flat for the rest of the year? Is that how you're thinking about it?

We've only seen stability in the employment numbers and we're not seeing it react any differently than what it has in the past with the exception of the COVID time period.

The next question comes from Alex Zukin from Wolf Research.

This is Jason on for Alex Zukin. So more of a high-level question you've talked about you guys are less than 5% TAM penetration right now. What is the latest thinking on how to actually accelerate that new logo acquisition and at the same time, maintain double-digit recurring growth even beyond the FY '25 time frame? And where do you see the greatest white space opportunity in terms of modules, customer segments or...

I think our biggest opportunity is going to come from new logo adds. I mean we're very focused on that right now. We're streamlining the ability for our prospects to see the value a lot easier. We've shifted the value and what we're focused on, I would say, shift that enhanced the value that our clients can receive. We're seeing that. I mean we have clients that have left that come right back and we have clients that are getting great value out of the software now.

And so I think it's our opportunity as we move forward, continue to make it easier for prospects to buy from us, which you have to have enhanced sales skills, and you have to have a product that actually delivers the value that you're promising and I feel really good about the work that we've done in both of those areas that set us up really well as we continue into both next year in the future.

Great. And as you previously mentioned that the FY 25 free cash flow would be similar to last year. And given your comment that the AI-related CapEx investment are largely completed in this quarter, does that free cash flow outlook still hold? And should we view that 3Q as the peak quarter for the CapEx investment?

Yes. Well, I was just saying, I don't know of any major CapEx opportunities for next year or even the year after from a CapEx perspective. .

The next question comes from Daniel Jester from BMO Capital Markets.

So I want to spend a moment on the product. And now with in that you have executives using the product more. Are there opportunities in your mind to beyond just AI, build more products on the platform, which serve a broader set of use cases with your clients?

Yes, absolutely. We're focused on that. We're putting out a lot of automation right now, and we'll continue to release product sets that create value for our clients. And there's a lot of opportunity there. I mean, I'm not going to telegraph all the things that we're working on. But -- there's a lot more in front of us to automate than what we've even automated up to this point. Decision fatigues for real. And -- when it exists in the HCM business and the HCM market and it exists in every single module that we have, there's opportunities to automate. And you do want to automate decisions where you expect consistent behavior and adherence. And so we've been focused on that as we've created our software. We're getting a lot of positive responses from both prospects and clients around that. I think as you move into the future, we'll have a lot more of that. And of course, then also we'll be automating a lot more areas of the HCM process.

Great. And then maybe just a quick one about how you're seeing the new offices ramp -- and any change in your philosophy in terms of how you're thinking about adding sales capacity as we go into next year?

We have had changes in our focus for development of sales rep managers in our backfill. We are bullish on kind of what the next couple of years looks like in an effort to be able to expand and open up more offices. All of that comes from success at the sales rep and sales manager level. And so everything we are doing is about generating greater success than what we've had in the past. And that's not -- this could be a record year this year. We've been -- we have a very successful year this year. But I do think there's opportunities with the overextended value of our product to really put a pour on the gas there. And we're focused on that as an organ. .

The next question comes from Gerald Levine from TD Kawi.

In terms of 1, are there any initial signs of it driving increasing product attach rates to date?

Yes. With Ian, the more of our product that you have that you're utilizing the more access to the information that you have. So it becomes important in that as well as with I want, you're eliminating all navigation as well. So you don't really need training on the system. Most new employees, they would come into our system and they would have some level of training on how to use the system with I want, we're just not seeing that with new employees coming on to the system.

You just tell it what you want, and it takes it there. So again, sometimes usage patterns are hard to change. And I don't think someone should change their usage pattern. -- unless there's an opportunity to be more efficient or get something -- some -- get there quicker. And we're seeing that with new people that are on board in the system. And then we've also seen that with traditional users that may not have been achieving full value for all the modules that they have.

Great. And then in terms of the 540 employees impacted by the recent layoff announcement there, can you talk about expectations surrounding the annualized cost savings and how much of that will be reinvested back into the business?

Yes. I mean, that will be a part of our guide next year. Again, -- we're focused on automation. I do for that. As we come out with automation, it doesn't necessarily mean that you're displacing certain employment levels. It's not something I'd necessarily want to go through again. But I also think as we look into the future, we'll have opportunities to become more efficient without necessarily employees not being here for no fault of their own.

The next question comes from Bain Shaw from Deutsche Bank.

Bob, just on the 4Q, I guess, the implied full to guide. It's -- you talked about in the past the 4Q growth should be the highest for the year. And -- but the guide is kind of slightly below what 2Q, 3Q grew at? And given the 3Q strength you were saying 4Q would benefit from that. Is this just conservatism? Or is there something else that we should keep in mind for booking recurring revenue? And is 4Q good exit rate to think about for next year? .

Yes. It's not below -- it's above the 3Q number. And I said earlier about Q2 where some things fell on either side that could have happened in Q3. But there's nothing in there that you need to be thinking about going into next year or into the quarter. We're happy with how that's ending up and the momentum that we've picked up over the last 6 months and going into 2026.

We're trying to SP999 Let me just -- just trying to guide to what we can see right now. A reminder, Q4 has bonus runs and unscheduled runs. So -- we don't know what those will be yet.

That's fair. I appreciate that. And just 1 quick follow-up. You talked about kind of spending on marketing for Ian. How do we think about the timing of those kind of investments playing back from a top of funnel to conversion perspective?

I mean, we spend very well on marketing. We measure it on a weekly basis. Our marketing spend is very strategic, and we would expect to return from our marketing dollars. There is a point where you can get a diminishing return off the amount that you spend. And we're always that mindful of that as we focus on marketing and our growth initiatives for both fourth quarter and beyond.

The next question comes from of -- she Riley from Needham.

All right. Great. If you look at the strong bookings that you've had over the last few quarters, -- just curious, what's the trajectory been on how this has been translating to revenue here in Q3 and Q4? And just some -- maybe more of the starts from earlier in the year get pushed to Q4 or 2026. Just kind of wanted to get a sense of how that may be impacting the upside of the revenue here in Q3?

No. I mean when a deal starts in a quarter matters. You know if I start to deal with the very first of the quarter, get 100% of the revenue dollars for that quarter. I started the last month of the quarter, I'm getting 1/3 of the revenue dollars for that. So in any given quarter, you have some of that happen. But I don't have anything to call out of any changes of what we expected or any difference from what we expected out of book sales and starts for third and fourth quarter.

Got you. That's helpful. And then is it I'm guessing I know the answer to this, but I just want to check and see has there been any difference in the demand dynamics between the high end or larger customer opportunities versus the mid-market or [indiscernible] opportunities out in the market?

No. I think the demand is there. These things are always controlled by us. We create our own demand, and you only have less than 5% of the total addressable market. That's something we've been focused on. It's something our group has done very well with. And I would just say we're working very well as a group right now and all focused on the same thing. .

Our next question comes from Siti Panigrahi from Mizuho. .

This is Phil on for Citi. It sounds like I wan is pretty differentiated in the market. Is there an opportunity to eventually maybe monetize the product more directly? Or should we view this as more like a retention and module cross-play cross-sell play? .

Well, I'm looking out in July, we have 100% of our clients and all of their employees have. So I would think that you would kind of look at the monetization of Iowa coming through increased sales and increased retention as we move forward over time with a differentiated strategy. Again, I want -- helps you access value and automation that's been created. So I want a part of it. but there's a lot more there of value. Again, it's not something I want to sit here and telegraph of all the things that we're doing. But all of that to say is if you're talking to our clients today, I think you're going to find different value achievement that they have today maybe than what they had a couple of years ago. And then I think as you look into the future, that continues to accelerate. .

[Operator Instructions] Our next question comes from Matalan Brooks from Bank of America.

Great. Maybe more of a high-level 1 here. If I think about the stock performance year-to-date and the catalysts that are kind of on the horizon for the stock, what I'm kind of thinking is like, look, right, we're getting over some execution. Just strategy here, right? Our sales force is getting more effective now, we should be lapping that data center bailed out expense. So free cash flow should be going back up, right? These are all tables for the stock. But it feels like from this quarter, the numbers are leaving a little bit to be desired. But the opportunity is there for the taking rate. It's really mostly here on execution.

So I guess I'm just wondering what from an execution perspective could go right over the next couple of quarters to really kind of maybe get growth back up to that 12%, 14%. We're also going to see this inflection in cash flow. And maybe what is also kind of viewed as a challenge or what might make it difficult to get there.

Yes. Well, we're focused right now on revenue growth. I really feel good about all the work that we've done to set ourselves up in every other area. And so we're really focused on that. That doesn't mean we're not focused on product innovation, and we're not focused on service and the full client value achievement. I just feel like we've set ourselves up very well now to attack the revenue growth opportunity. .

I'm not confirming what our growth rates are going to be next year, and we're not setting guidance right now. But what I will say is that over the last 2 years, we've done a significant amount of work that needed to be done. -- throughout our organization. And as we sit here today, we're all focused on 1 thing, and that's capturing more market share and that's available to us now. We have a very differentiated product. It's meaningful. It's not a brochure. It's something you actually achieve value from once you start using it. And so as time goes on, I think we're going to have more and more opportunities to create greater distance. I do think the more growth you have, obviously, with strong margins, both operating adjusted EBITDA and other, that's going to be accretive to the rest of our financial profile including free cash flow conversion and a lot of the other things that you spoke about as we look into 2026.

Our final question today comes from Jacob Smith from Guggenheim Securities.

You talked about I want moving the impediments to value for customers with no change management required to use it. We see some AI systems out there that users may use initially, but then go back to how they've operated before. Can you share a little bit about the ramp and consistency of usage you're seeing so far? I think that would be helpful in demonstrating the stickiness of the product.

Sure. Well, it's a quicker way to access this data information. First of all, it's the only way to access it for certain people because they were never set up on any of the systems. As a CEO, I'm not set up on our benefit system to go run benefit information. I'm not set up on our applicant tracking or talent acquisition system. I'm not set up on our payroll to run all the payroll stuff or HR, any of it expenses, any of it. what I want, I can go in and I get access to everything. I don't need to know how to use it. I don't need to know how to do anything. I just tell the information that I want.

If I am needing to navigate through something as an employee or a manager or what have you, Same thing, I can both access information or it will put me where I need to be able to make these changes. And so we're continuing to both do that through I want as well as the functionality you're accessing is more automated today as well. So you really attack it from both sides. But I want is removing the impediments of usage that were there in any level of complicated usage, and it speeds everything up. And so you do see new employees utilizing it because it's just a much quicker way for them to either get to where they need to go or be able to pull information.

We're not seeing people use it a couple of times and then stop using it. I will say that when you looked at it in the early days, people didn't know how to use it. If you ask I want where the closest pizza restaurant is to you, it's not going to be real successful in answering that. question. And so people had to kind of learn how to use it to their benefit. And it's been a short period of time. Again, we've had in out since July. And every client we have has it and all their employees do now.

And just on gross margins, are you guys doing anything to optimize the usage of GPUs to better handle the millions of queries you're already seeing, whether it being the underlying LLM or using users what they can and can't do. And can that over time potentially extend the runway of the GPU investments as you get more experience running these workloads in your own data centers?

Yes. I mean, obviously, there's a lot you have to do to optimize. It matters how many times you're hitting it, it matters how you're filtering through. We use these things to also look at non-response rates and everything else. So there's a lot that we go through to be able to analyze. And this is a daily analyzation of what's going on within our product. So I don't want to describe everything that we're doing. It does matter though how you develop something to how much capacity of GPU, you're going to actually utilize or need and we've gone through those processes. That's kind of what I talked about if you have to load tests for lack of a better word. What your expectations are on simultaneous inquiries and responses.

And so we run through that. And obviously, we work to continue to make it more and more efficient as we move forward. Again, we did make a significant purchase in what we went to set up. We didn't set up a little bit of a process here. We knew 100% of all of our clients would be on it. and we made the purchase to meet that. We also looked at utilizing public cloud type data centers, if you will, to be able to host for us and utilizing their GPUs.

And with where we see ourselves going in the future and what the costs were associated with just being able to handle our current load initial load for Ian. We felt it better for us to go ahead and just set up and buy our own plus that way we have control over it, and it's operating just as all the rest of our business has for the last 27 years operating our own data centers. So it's really worked for us. I do think it's going to be a key differentiator into the future. And I think as our competitors actually take it from a brochure in an earnings call to install it at a client level, I think you'll start to see maybe either some changes in their financials or what they do with that. But RAI is costing us money, and you saw that being spent in the third quarter.

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

All right. Well, I want to thank everyone for joining the call today. We look forward to speaking with many of you at the UBS conference on December 1 in Scottsdale in the Barclays Conference in San Francisco on December 10. I'd like to thank our employees for their contributions throughout this year and our clients for their continued commitment to Paycom. With that, operator, you may disconnect. .

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

All right. Welcome back, everybody, to, I guess, the afternoon of day 1 of the Citi Global TMT Conference. I'm Steve Enders, part of the software research team here at Citi. With us for this session, we have both Chad and Bob from Paycom. I want to thank you both for being here.

Thank you.

Chad, maybe we'll start with you. Just maybe take us through the transformation of Paycom over the past few years. And kind of maybe where are we on processing through some of the transition that you've been going through?

Yes. So I would say we started off, obviously, online. We developed all of our system ourselves. We developed a single database system, which means no matter it manages an employee from hire to retire. So no matter if it's applicant tracking, onboarding, time and attendance, labor management, time off, payroll, benefits, learning management and you can just continue on, background checks. So all of that's done in a single system. And we've always done that. And by having a single system, it meant that it was easier for clients to utilize it. It meant that it was easier for employees to utilize the system.

You asked about our transformation. And so the transformation that we've really moved to is instead of having people use the system so much, it's actually automating the system to where someone doesn't have to use the system as much because we're in a single database and we have all the data in one place. It's made it easier for us to automate. By automation, I mean things like GONE. Prior to GONE, you had to actually manage time off. You had to approve, can someone take this time off? Who's going to backfill their schedule? Do they have enough time, what have you. With GONE, that's all automated. The employees work with GONE. There's no decisioning that needs to happen. And what I found is our clients, prospect, a lot of people, they get decisioning fatigue. You have to make the same decision over and over. And what happens, you develop a little bit of inconsistency in how you make decisions. Even I do that myself, I mean, depending on when you send me an e-mail, you might get a yes or no, depending on how much of it I actually want to read.

And so -- but what I would say is when you have automation, you get consistency and you remove barriers to value. And so that's what GONE has done, that's what Beti has done. And now with the transformation that we've made to a command-driven system, which removes even more impediments to value because you don't need to know how to navigate. You don't need to know how to pull information. You just ask the system. And what we are seeing is we have clients now and employees of our clients now that are not navigating the system at all. They don't even have menu items. They just have IWant set up their choice, and it works for them. So we're having a lot of success. And the word I would use is we've transformed into a full automation strategy, and that's very important for us as well as the clients and the value they're able to achieve from our software.

Okay. That's great to hear. I'm definitely going to dig into a lot of the AI strategy in the product side. But Bob, before I do that, I want to talk to you a little bit, just in terms of -- you recently took over as CFO a couple of quarters ago, a few quarters ago now. Can you maybe just give us a brief intro about yourself and maybe some of the biggest areas of focus for you as you take over the CFO role?

Yes. Well, first of all, I was very lucky to step into a role that has such a robust business model. Prior to joining Paycom, Chad and I had met, I had a global payroll business that I was running. And then prior to that, I had spent a long time with EY. And a couple of things that Craig and Chad had started prior to me that we continued is the execution and the discipline around our processes and how we think about the business, and we've grown so fast and now it was really time to think about, as Chad said, the automation strategy and what that means, not just for our clients but for us internally. And you're seeing some of that in our operating margin expansions. And even with some of the headwinds with interest rates, we're still able to expand margins. So we have a robust business model that we're going to continue to focus on.

Okay. That's great to hear. Maybe going back to the AI product strategy. I think you launched IWant earlier this quarter. I guess what makes it different versus maybe some other AI assistants that are in the marketplace? Or what really differentiates what you're doing with it in the market?

Well, I mean, I would say it works would be number one. But I mean, number two, it's over the entire system. I'm not asking a question about a document that's in somewhere. It's over the entire system. So IWant is either going to answer your question or put you on third base. So you may ask it, "I may ask you the question about who's logged in right now." It's going to tell me the people who are clocked in right now. If I ask the schedule, it's going to take me to the schedule, if that makes sense. So IWant is either going to answer your question or it's going to navigate you to the appropriate spot.

I don't know of anybody that's doing that. I mean I'm not saying someone couldn't, but we're not seeing anybody do that out in the industry. It's very important that you have a single source of truth when you're going to automate something. If we had multiple data sources that we're having to pull from, that'd be difficult. If our strategy was to buy best-in-breed technologies and integrate them, it would be difficult to produce IWant. I'm not saying we couldn't, but I would have to somehow have all that data in one spot and cleansed. If not, you get a lot of distortion. Even as we were developing IWant, there was a couple of times -- I mean, I remember there was one time I came out, and I'm like, "this thing is just going to smash everything. This is incredible." And then IWant in the next day, it wasn't working well because we had thrown something else into it.

And so what you feed into a model is important, but AI at its best used most accurately as the best source of truth. And then the only other thing you need is something that understands the human intent. Like what did you mean when you said when did someone start? Did you mean when did they start this project? Did you mean when did their shift start today? Or did you mean when were they hired? And so we have gotten really good at understanding which -- what question they're asking based on past questions they've asked as well as based on the type of employee they're asking about. And -- so anyway, all that's to say is I think you're going to see more people leveraging AI so that they can actually remove the impediments to value and get there quicker.

Sure. That makes sense. I guess when you -- I guess now that IWant is out there, what's kind of been the feedback that you've gotten from the customers so far? And the rollout may be trending versus what you were expecting?

I mean they say it's life-changing, transformational. I mean so much of these things, they've just given up on. It's so -- their tasks are so daunting when you're running HR, payroll, benefits, recruiting, what have you, it's just so daunting. And a lot of the things and activities that are just -- need to be done in these processes, a lot of people just given up on. It's just so difficult to do. And so the one thing with IWant, it gives them all that back. You get all the value without the effort. We developed IWant. We started using it in ourselves. We thought we'd roll it out to 10 clients. And within the first 2 weeks, we had rolled it out to 2,000.

And today, we're well over 50% by September 15. Here in 10 days, we'll be at 100% rolled out on IWant. So -- and that's the clients they just all wanted. We went to a company, one call closed the company the other day because they have Spanish-speaking employees. They didn't know how they were going to teach their employees how to use our system. They spoke Spanish into it. It worked for them. That's how they're doing it. You don't need to train. You don't need training. You just have to be able to speak. And so that's a different way. And I will say this.

If you look 10 years out, probably 5, maybe 3, there shouldn't be a piece of software that you're navigating. Why would you navigate anything? Why do you have to know where to go? There's AI now. There's other opportunities. So I think all software that's still navigable is going to die. And the only thing that's going to be left those that are command-driven automation.

So I guess with the opportunity with IWant, I mean great to hear the adoption and that rollout so quickly. Do you view the opportunity more about the ability to take more share, find more customers? Or is there something about what you're doing with it that you can monetize directly within the customer base?

I would say there's 3 primary buckets. IWant, we did not charge additional 4 because I wanted everyone to get the value. It's not all the time your customer service rep calls you and you're getting value for free and you didn't have to do any work. There's a lot of things. GONE was free. There are some things you had to change on your side as a business to get it. With IWant, we just teach you how to use it. And once you know how to use it, it's revolutionary for you. And so it was very important to be able to do that.

The monetization of IWant, though, we will see reflected in probably 3 primary ways. One will be, yes, increased sales. Why do you want to do it the old way? It doesn't make any sense. How do you want to work? How do you want to pay somebody just so you can work at their software? It doesn't make sense.

Well, when you buy a software that works for you and it's automated, so it will be increased sales for sure. It's going to increase retention. I do believe that it removes so much of the impediments to usage currently. I do think it's going to have an impact on our retention. And then the other thing I think you're going to have sales that are -- have more modules attached. I asked IWant right now your work history and you didn't have our applicant tracking module. It was just -- it will only give you all your work history that you've had at Citi. If Citi was using the applicant tracking module, well, then it would give you all your work history from ever. So do you want to buy the applicant tracking module or not? And so you'll have additional modules as well that people want to add because of the value they're going to get.

Okay. I guess from that perspective, maybe where are we in terms of that actually beginning to impact or benefit the sales process or maybe what you're seeing in the pipeline?

Well, you've seen very strong first quarter led into second quarter. We're having strong sales, revenues coming in well, and that had nothing to do with IWant. We started using IWant ourselves mid-July and turned it on for our first clients around July '24. So it's still early innings in that. But I mean, it is accelerating ourselves in the field and I would say that there's a lot of excitement around our -- with our service groups and our clients right now of getting something valuable like this that does nothing but add value and ROI for the client without the additional expense associated with it.

That makes sense. And I guess in terms of the investment behind it, I think you said there's a bigger push on the CapEx side of needing to be able to support the AI capabilities, build out the data center footprint. How should we think about maybe the magnitude of that? And how much investment you're putting to work here?

Well, I think it's first important to understand, we manage our own data centers and always have. In fact, in 2014, there were 13 Tier 4 data centers, and we were one of them. So we've always managed our own data centers. I believe we have the best margins in our industry and probably some of the best margins in software. I mean that's like a plan. It's not just something we happen to fall into. And part of that plan is managing our own data centers to be able to have control. And again, when we're managing a data center, it's just for us. We don't have other clients in there. It's just us. So we were able to spin up IWant and what we needed for it pretty quickly because we do have our own data centers.

And so our spend, I looked at it like this. We can spend $10 million to $12 million a month with a third party, leveraging GPUs, their resources or what have you. Well, we can spend $125 million to $130 million ourselves within our own data center. And it's not like we had to go build data centers. We already had them. What we had to do is, you got to go get 18 megs of power. You have to get cooling systems. You have to get batteries. Yes, you have to buy the GPUs. But I mean, the cost of GPUs come down over time. We have the GPUs. So the way I would look at it, it's like I said on our earnings call, it's front-end loaded and it's transitory.

On an ongoing basis, our AI cost compared to our competitors, I mean, we'll be 95% less. So we will. This year, our CapEx, we kind of mentioned that what we thought at the beginning of the year and the change to that, we kind of mentioned on the last quarter. This year, our CapEx expense -- had we not spent any on AI, our CapEx expense probably would have finished around 9%. Because of AI, it's going to finish around 15% this year. But next year, it's going to be well under 10%. It's a onetime transitory type thing that we've done in the past. I mean if you just look at what we've done in the past, these types of things, because we're already set up to actually manage our data and we do better when we do that, it's actually going to allow us to do it for a lot less on an ongoing basis. Again, I can spend $130 million 1 year and then 10% of that or less every year or I can spend $130 million every year, it's going up. So that was the decision that we made to do that.

That makes sense. I guess when you think then about -- you call this a transitory onetime spend, I guess, how do you think about the future road map for AI? What you're doing from a product perspective? And what more capabilities you could build in or would make sense to build in on the AI side?

Well, I mean, IWant goes to version 1.1, then version 1.2, then -- but I will say, in the future, you'll be committing all your changes that way, too. You won't just be collecting the data. It won't just be navigating to the right spot. You'll be committing all your changes that way, too. So in the future, you'll be able to do a very complex summary and calculation and analysis. So I mean, it's the future.

It leverages a lot of other development that we do, which is the automation behind it, it's very important. IWant leverages the GONE automation. IWant leverages the Beti automation. You really need to have it all. I mean it's one is food, one is water. I mean you can live with them for a little bit. You kind of need both to have a healthy life, and that's kind of where we're at right now.

Okay. That makes sense. Maybe I'll ask it a little bit differently. Just you think of the future road map for Paycom from a product perspective, how does it maybe evolve further as the -- as AI capabilities become even more advanced as you're able to do more with some of the models out there?

I mean when you think about us in the future, you really would want someone to think about just a brain that handles the HR function, the payroll functions, the benefit administration functions, background checks, onboard, just everything for a client for what we serve and the client doesn't have to be involved in it. And so employees can connect directly to the brain, if you will, which is a fully automated system. That actually handles everything that the employees need. We're getting close to that. I mean we still have more to go. But that's the trajectory of where we're moving. And I mean, that's what the future is going to be.

Yes. I do want to ask about the margin, the CapEx comment there. I think you said 15% of this year...

Would have been 9%. The 6% extras all AI. And most of that's over an 8-week period that we spin it. So it's not like it doesn't keep going. We already almost spin at all. Does that say you don't have to -- you buy a vehicle, you don't have to keep putting gas in it, change oil or whatever. Well, sure. But the expense associated with that, a lot of it is already inherent in our model because we already have data centers. We already manage them all ourselves and always have. So it's really just about the estimation of number of GPUs that we have, how many we're going to need in the future and the power associated with actually being able to keep them powered and what have you.

And then, of course, you run your own data center, whatever you buy for your primary, you have to buy for your backup. I mean we don't -- we're always buying too. It's like now as are. I mean if you're building data centers, you have to have those backups.

Okay. That makes sense. I guess with that investment you're making, just how maybe should we be thinking about EBITDA to free cash flow conversion rates? Is there any kind of change to that dynamic kind of moving forward here?

Yes. We're focused on that. We know it's a focus of investors too. And we talk about it internally. We don't guide the free cash flow. But going forward, Chad has said, as he mentioned that, that gap is going to narrow, going into the future because we're -- we generate a lot of cash and even these GPUs, Chad and I talked one night and -- you don't have to talk to anybody else, you've got enough cash. You can go buy them if that's what we decide. So we're focused on that, and you'll start to see that converge.

We don't know what else we would -- we don't have any appetite to build more buildings and things like that. So we don't really -- it's hard for me to think of what would impact free cash flow to the negative as we look further into the out years. Now we'll say this, this opportunity came about. We had looked at this last year. This wasn't something that we were putting in place. We needed to make sure we could develop it. We didn't know. We had to go through that process. As we got closer to closer, like we have something. And then I'm like we're going to put 10 clients on it. We ended up putting a couple of thousand on it like in the first 2 weeks kind of thing. And it's like, "Oh, we're going to need a bigger boat."

And so then you start doing that, but then you're set up to go. We kind of know what it will be like on a go forward. So -- but if we did need to spend to add more, that means we came out with even more technology and value, which would increase the revenue as well. But as I sit here today, those things will happen. I don't know that it's going to necessarily increase our spend though, we're looking at our -- a lot of it is also how you developed it. If you're hitting a GPU 5x when you could be hitting it twice, changes your capacity.

Yes, that makes sense. I have one last question on the model, then I'll open it up to the room. But just in terms of the tax bill that came out earlier this year, what impact does that maybe have on the margin? Or how are you thinking about what that can mean for free cash flow as well?

So we talked about a little bit on the call. We were just looking at it last quarter. It's going to have an impact in the third and fourth quarter on cash benefit. We will have to make certain tax payments. So that will help. It won't be as much cash-wise next year. Margin-wise, it's a balance sheet item. So...

Okay. Let's see if there's any questions in the room here. Okay. I'm going to ask about go-to-market a little bit. I do want to come back to AI after that. But just in terms of the go-to-market structure, I think you recently promoted Amy about a year ago, maybe a little more than that. I guess what has she done that's maybe helped drive some of the reacceleration in the business? And how do you think about maybe further opportunities to drive even better efficiency and productivity within the sales and marketing channel?

Yes. I mean, I think it was important for us to simplify our process. Our product has become a lot more simplified, a lot more automated. And I think that we were able to focus our sales force on that and what the value is for the clients. Our go-to-market changed a little bit in how new reps go out there and achieve quota of certain size of deals before they move further up market. That helped to drive additional unit growth in our core, which was very helpful to us. So we were able to open up 3 offices this year. That was helpful for us. In fact, Providence has got to $1 million faster than any city we've ever opened, got to $1 million in sales. So there's some acceleration on that side.

We continue to be called and be pulled up market. Prospects of any different size, I mean, they need automation. And a lot of these systems -- well, no -- I don't know of a system that has any automation in it, to be honest with you, of any major provider, of any large system in our industry that has any automation. So you can say, "Well, no, it will go crawl your employee handbook and tell you what T-shirt you can wear on a Friday." But I mean, that's not really automation, automation functions and tasks and actually automating something that somebody does every day. You take a 100 employee company, how many times they have to request time off and manage that in a day versus a 1,000-employee company or a 10,000-employee company or 100,000-employee company. I mean you get what I'm saying. And so the larger the company is, the more automation they require, and there's just nothing out there. We're getting calls on those kind of things right now, too. And I think that will be an opportunity for us in the future.

Sure. I want to touch on the, I guess, the office openings that you did, which I mean, encouraging to hear Providence is doing so well right now. Does that make you feel more comfortable opening up more offices in the future? How do you kind of think about when or where it would make sense to start to open additional offices?

We haven't changed that algorithm of how we open up offices and how they mature and when is the right time to do that. Opening up offices is always about bench strength and how is our bench strength. And when we can do it, we do it. So that really tells us what those opportunities are.

Okay. And how are you feeling about bench strength right now?

I mean, well, you don't have bench strength unless you have strong sales, and we have very strong sales right now coming through. And so that builds a lot of bench strength. Those are the people that are being successful.

Okay. That makes sense. I do want to ask a little bit around just the broader marketplace right now and some of the competitive dynamics out there. I think there's been quite a bit of M&A over the past year or so. And the HR payroll space, has that changed maybe what you've seen in the market? Is it changing pricing or competitive dynamics at all? Just yes, what have you seen?

I mean I've never seen a payroll company go private and get better. So -- and I'll just say that about that. I do think there's opportunities there. I think anytime you have mergers or acquisitions like that, I think it creates opportunities. But I will say that, that it's not a reason for someone to use this because this company got bought. I mean you have to have value. You have to have an ROI. Never a part of our ROI strategy was they're bad, we're good. It's what are you exactly creating in value. ROI is measured by a -- with a dollar sign in front of it and a plus. And so how much is that is based on what can we provide, not based off who got bought. But I do think it's going to create further opportunities for us.

Okay. Have you started to see maybe some of those companies or some of those potential customers start to come up for -- as they come up for renewal, are they looking for alternatives? Are they coming to Paycom, looking for something different?

I mean you're talking about the 2 that were just announced in the last 1.5 months, I'd say it's a little early. But I mean, we've had some in the past where it does kind of create those opportunities. But I would say it's still kind of early. Yes.

Okay. No, that makes sense. I do want to ask about some of the leadership changes that I think happened in the past month or so, New CTO, new CAO. I guess what do those changes indicate for you as a company? And how do you think about the key focus areas into that new leadership?

It's a normal evolution. These are both people that have worked for Paycom 12-plus years. So it's a normal evolution. Shane had run all of IT. Then he became our Chief Client Officer and actually ran service. He had an IT background in service that really helped our clients be able to automate certain functions from them on the service side. And then so as Brad. Smith is kind of moving into his new role. Shane has been natural to take over for that and then shares the role of COO with Randy because they're doing that together.

Rachel, I went back and took a product back. I had product forever, gave it up for about 4 or 5 years, didn't give it up. But like worked on other things. And then took product back over in October of 2023, and Rachel started running it at that time. And then so her and I have worked daily on all things, product and automation. And she runs at this time. She's running all of our product as well as software development groups.

Okay. That's good to hear. Just on the mid-market side, that opportunity, I think you've been indicating you're trying to move more up that way. I think you've done some things on the sales side to try to make that happen. Just what's resonating in that opportunity right now? And what are you doing from a go-to-market perspective to go after that and try to capture that?

I'd say we're focused on mid-market. I would say are up, but we continue to get upmarket opportunities. We've been able to sell a lot of them. They're very happy. So that's very helpful to us. I would just say this, I mean, we have 37,000 clients. Our 2 largest competitors have 1.7 million clients combined. So there's a lot of opportunity for us regardless of market, regardless of mid-market, upmarket, what have you. We're being pulled more upmarket, I think, just because of the automation. We are focused on mid-market. And then we have a lot of smaller businesses, too. The under 50 employee market represents about 3.5% of our revenue. So it is a much smaller piece, but we do have that market there as well.

Okay. I mean, I guess, is there anything that's changing from a go-to-market perspective? Like you're building out a mid-market team to try to support that? Or does it -- any other kind of requirements to try to do that?

No, we've been doing -- I mean, we've been doing what we've been doing now for 27 years. That's been our market. I would say there for a while. We had different reps maybe going to elephant hunting a little bit too much. We focus them more on what they need to be focused on.

Okay. That makes sense. I think one of the questions we tend to get from investors is, I think, sort of on the second half ramp-up on the revenue side, I think it's maybe pivoted from what gives you the confidence in that acceleration to now -- 2Q was so strong, how do we now think about the growth algorithm for the rest of the year from some of the prior comments about 4Q being the strongest? Just how do you think about that?

We've already got the sales. I mean a lot of it. You know what I mean, sales are already coming in. So you kind of -- and that's the way you look at it. And a lot of it started even before. I'll let Bob kind of continue on it. But mine will be sales growth.

The sales growth and starting earlier in the year with the record sales and have enough waterfall go through. Q2 was strong, but we still -- if you look at the stack comps too, it's still accelerating growth into Q3 and Q4. So we're still excited about it.

Okay. And I guess, as we think about that acceleration and we think about beyond Q4, I guess, what does that mean kind of moving forward? I guess what other factors maybe should we be thinking about as we think about what happens beyond this year?

I think as we always say, sales is our #1 driver of growth going into next year. And as Chad mentioned, he's pretty happy with where sales is and the momentum that they've gained. So as we start to look to '26 and '27, the levers all look pretty positive that we can pull.

Yes. I guess as you think about kind of the future of Paycom and what that looks like, I guess, where do you kind of see the most opportunity? What do you kind of view as kind of what you're most excited about is...

New logo ads, I mean, is our biggest opportunity. Like I said, we have 37,000 clients. Our 2 largest competitors have 1.7 million combined. So I mean, new logo ads is our biggest opportunity. Our product now, I mean, I was telling someone the other day, it feels a little bit like 2012, where we had just got the single database and it's like we have something that nobody had -- it feels like that now, I mean, with the opportunity that we have here. So I think we're very excited about it as we look into the future. But for us, I mean, it's going to be new logo ads because I think that's an important part for our clients. It's important for us to get them on the right product.

Sure. I guess what does that mean then, I guess, for the back-to-base motion? How do you feel about some of those reps who I think maybe there's a little bit of pause on their ability to go push product back into the base?

Yes. I mean, IWant is going to drive a lot of that right now because IWant exposes weaknesses in your set-up. It exposes weaknesses in your configuration. It will expose weakness in maybe systems that are ours that you're not even utilizing. And so -- and I mean that, I mean, exposes weakness is in a good way. People are seeing data they hadn't even seen before in some cases. And so IWant will provide additional opportunities for our CRRs to upsell clients, products that provide them a strong ROI value.

Sure. We got about a little over a minute left. I want to see if there's any last questions in the room. I'm going to ask one more question, and we'll let you get out of here. Just in terms of your own internal use of AI, I guess, how are you leveraging it? How are you driving efficiencies within the organization? And what does that mean for kind of the go-forward margin opportunity?

I mean it's going to have a positive impact on our margins going forward. We eat our own cooking. So there's a lot of automation. And I mean we're using AI to help us develop software, spec software, test software, deploy software. And then you have some of the same thing on the tax service and other side. And so when you can automate something, I think it's important to do so. I mean Paycom will always have an individual to talk to that services our clients. So we're always going to have that. We're always going to have a human touch model. But I've kind of said it at Paycom, and I've been kind of bullish on this. To the extent someone's taking data out of this system and putting it into this system or taking data out of the spreadsheet into that spreadsheet, well, that job is going away. And that's going to be going away everywhere because automation is here.

Awesome. Well, I think we can leave it there. But Chad, Bob, I want to thank you both for being here and thank everybody in the room.

Thank you.