Paycom Software, Inc. Aktie

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.

Good afternoon. My name is Tamia, and I will be your conference operator today. At this time, I would like to welcome everyone to Paycom's Second 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's earnings conference call for the second 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, 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 focus my comments on our second quarter achievements and highlight our latest AI command-driven product, IWant. I'll then turn it over to Bob for a review of our second quarter results and an update on our full year guidance. We will then take questions.

With that, let's get started. We delivered very strong second quarter results, and we are building on our momentum by continuing to strengthen recurring revenue growth and margin expansion in 2025. Outside sales continues to set records, and we recently released IWant, the most significant product in our company's history. We already have the most automated solution in the industry, and I want delivers even more value to our clients through AI and automation.

I want will transform a client's relationship with Paycom and with its own business. Hopefully, everyone has seen the in demo we linked in today's earnings press release issued at the close of the market. If you did, you saw numerous use cases for in on the employee, manager, administrator and executive side of the software. You also saw how I want eliminates the need for a Paycom user to be trained on our software.

With IWant's command-driven AI users either type in or leverage voice-activated functionality to command the system, and IWant is designed to immediately provide the answer with accurate results. This means that navigation and asking others for system information is rendered obsolete. A critical component of AI is the data it pulls from. And because IWant pulls from Paycom's single database, it eliminates problems created by inconsistent or duplicative data sets.

On the manager side, IWant supports HR teams and organization leaders with instant employee information. For example, a manager can use IWant to pull data on when an employee returns from vacation, see who's clocked in for the day or analyze an employee's pay history. These are just a few examples of the power of IWant. Before IWant, executives like myself were dependent upon others to complete reports and provide critical decision-making information.

Today, and IWant's executive mode executives using Paycom now have the information they need at their fingertips, enabling them to be daily users of our solution without ever having to be trained on the system. Just tell it what you want and IWant delivers, making executives even smarter and more effective.

Now I can quickly find any information about my staff available in our single database because we track the entire employee life cycle and have data from applicant tracking, onboarding, Paycom Learning, expenses, benefits, time and attendance, payroll, schedules, surveys and more, all accessible through IWant. Early feedback has been phenomenal with clients calling this a total game changer. IWant's command-driven AI engine will increase usage among non-daily users in our system. And I fully expect IWant to increase satisfaction and client ROI.

Voice-activated command-driven functionality is the future for all software and Paycom's future started last week. We invest in innovation to increase client value, and this is skilling strong sales for Paycom. Our sales teams continue to set new records every quarter, and I'm very pleased with their strong execution. Our sales force was recently recognized by Selling Power magazine as one of the best sales organizations in the country. This is a testament to our sales leadership, training and culture.

Finally, Time Magazine listed Paycom amongst its best companies for a second consecutive year. Newsweek placed Paycom in the top 20 of their inaugural ranking of America's best online platforms and comparably recognized Paycom for best career growth and best leadership teams. I'd like to thank our employees for their hard work and commitment that are reflected in these awards.

We had very strong results in the first half and we are set up for continued strong momentum for the rest of 2025 and beyond.

With that, let me turn it over to Bob.

Thank you, Chad. Before I review our second quarter 2025 results and our commentary for the remainder of 2025, I'd like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. We delivered very strong second quarter results. Total revenue of $484 million increased 11% over the comparable prior year period with even faster growth in recurring and other revenue of 12% year-over-year, reaching $455 million.

Interest on funds held for clients declined 11% year-over-year as expected to approximately $28 million in the second quarter of 2025. GAAP net income in the quarter was $89 million or $1.58 per diluted share based on 56.5 million shares. Non-GAAP net income for the second quarter increased 27% year-over-year to $117 million or $2.06 in per diluted share. Profitability in the second quarter also increased significantly with adjusted EBITDA of $198 million, reflecting a 24% increase over the prior year period.

Adjusted EBITDA margin was 41%, representing a 450 basis point increase over the prior year period. Margin strength in the quarter was driven by revenue upside efficiency gains in G&A and timing of marketing spend. We continue to invest in the areas of AI, product and R&D. And as Chad mentioned last week, we introduced our most innovative development to date, IWant. Based on the strength of the first half of 2025, I am pleased to report that Paycom is in a very strong financial position, and we are raising our revenue and adjusted EBITDA targets for the year.

Our balance sheet is also very strong. We ended the second quarter with cash and cash equivalents of $532 million and no debt. The average daily balance on funds held for clients was approximately $2.6 billion in the second quarter of 2025, up 10% over the prior year period. During the second quarter of 2025, we paid approximately $22 million in cash dividends. Earlier this week, the Board approved our quarterly dividend of $0.375 per share payable in mid-September. We also purchased roughly $33 million of common stock through net downs on vested stock during the second quarter of 2025. And we still have $1.44 billion remaining under our stock repurchase plan.

Now let me turn to guidance for 2025. We continue to have success selling and onboarding new logos. Based on our strong first half results and our outlook for the remainder of the year, we are raising our full year revenue and adjusted EBITDA guidance ranges. We now expect total revenue to be between $2.45 billion and $2.55 billion, up 9% year-over-year at the midpoint of the range. For the full year 2025, we expect recurring and other revenue to be up 10% year-over-year, including quarterly growth of approximately 10.5% and and 11% year-over-year in Q3 and Q4, respectively.

Our revenue expectation for interest on funds held for clients is now $113 million in 2025, down 10% year-over-year, assuming 2 rate cuts later this year. Revenue upside along with continued automation of HCM and payroll manual tasks is driving margin improvement for Paycom. As a result, we are raising our full year adjusted EBITDA guidance range to between $872 million and $882 million. This represents a second increase to our prior adjusted EBITDA margin guidance to approximately 43% at the midpoint of the range.

We plan to increase our marketing and R&D budgets in the back half of the year in support of the Iowa product launch and additional innovation focused on AI and automation. Other forward-looking items include full year GAAP and non-GAAP tax rate of 27% and 26%, respectively, and stock compensation of approximately 7% of revenues. We are pleased to see employees across the organization executing very well, which is driving our solid performance year-to-date. Our go-to market and product strategies are working, and we are well positioned to deliver on our raised expectations for the year.

With that, we will open the line for questions. Operator?

[Operator Instructions]

The first question comes from Raimo Lenschow with Barclays.

Two quick questions and congrats from me as well. The first chat is, if I think about IWant, how should we think about that in terms of a driver for the overall business? Is it just like it's just differentiation tool and that basically helps you kind of against someone that doesn't have that kind of clean data structure that you guys have. And so then you kind of sell better.

And as far as I remember, there's not that many guys out there as clean as you. Or do you think eventually down the road, there will be some monetization offerings as well? And then one for Bob, if you think about more AI, it probably means you need some GPUs, et cetera? How should we think about gross margin impacts that potentially could come there because obviously, they need a lot more money in computer?

Yes. I'll start, Raimo. IWant is Paycom's voice command-driven AI tool. And it really just revolutionizes how people actually access and navigate a system now. And so think of any piece of software, any system in your life that you have to navigate. Imagine just commanding it. And we find that, that makes it easier for the employees. They don't have to learn a system. They can just go in and command what they need or ask what they need.

Employees don't enroll in benefits all the time. There are certain things in our system that they don't do all the time. And so there's not a need for them to be experts at it. So on the employee side, it automates everything. Same thing on the client side. For me, I'm not a daily user in our applicant tracking system. So if I wanted to get a resume, I had to make a phone call. I'm not a daily user of benefits administration system. And because I'm not a daily user, because I'm not set up as a user in those systems, I couldn't get access to certain information without contacting people.

Well, now I can get access to anything. I just ask IWant, it will go pull someone's reside for me. It will pull all the past job history, pay history. It will tell me who's all blocked in right now, who's late for work today. So basically, right now, I'm an expert in our system because I'm utilizing the IWant command-driven tool, which allows me to interact with our system differently. And so what's happening is as we turn this on and activated this for clients, more and more users and executives are actually engaging with the system, and it's eliminating the need for them to communicate with others in their organization or slow down the chain of data moving.

And then I'll let Bob take. And then as far as from a monetization process, I mean, this is everything. This is a different way to utilize software. I'm unfamiliar with any other SaaS company that has a command-driven navigation throughout their system. And so I do think this is going to be a thing for not only our industry, but any type of software where users are currently navigating. So I'll stop that and let Bob answer the GPU question.

Thank you, Raimo. Yes, we see that there will be a need. So we are going to use -- we're expanding margins as we've talked about. And those -- we expect those to be up several percentage points throughout the rest of the year, and we're going to take that and reinvest that back into CapEx, AI and equipment. And as a result, we do expect free cash flow to be similar to last year.

The next question comes from Mark Marcon with Baird.

Congratulations on the strong quarter. Chad, the product is really slick. I like it. I'm wondering if you can talk a little bit about what the marketing plan is. Is it already turned on with all of your existing clients? If not, what do they need to do? What's the training methodology just in terms of making them all aware of it and how they can use it? And then how are you going to unfold that in terms of national advertising? Are you going to switch your campaign in order to focus on this?

All right. So the marketing plan for IWant, first of all, we turned on -- we started turning on our first clients on July 31. We've turned on 10% of our clients so far this week. I would say by the end of this week, we're at 15% to 20% activated. And by turning on, IWant doesn't -- you can still navigate our system if you want to. I mean you can still navigate it if you want to. But most people once they get on eat, they stop navigating and at the employee and other levels.

And so it doesn't -- if someone wants to keep using the system after IWant the way they used to use it, they can. But once IWant's there, we found that people don't. And so activation is about turning it on and making sure people understand what IWant does. If you ask it where the closest gas station is to your location, you're not going to get a good response. So it's important that people understand how to use IWant. And so we go through a list of about 20 prompts once we turn people on and they understand it and then they're off to the races.

And so we do expect to be able to activate all of our clients throughout the remainder of this quarter. There's not really any lift to the client on this. This gets them easy access. I mean it's almost a reward to reward for our sales reps for all the hard work they've been doing to get us to this point to reward for our service individuals for all the hard work they've been doing. Now they're calling clients with very positive news. It's a reward for these clients that have implemented these different modules, believe in the single database system, and now they get instant access to all of it without having to be trained or what have you.

And so this will be everything for us in the future. And really, I do see this being the way that every company, and I mean every company that has business-to-business type software, even consumer software. I see this as the way it's going because there's just no need to be trained in a software now that we have new tools available to us. As far as the training, there's not much to it. And as far as the national advertising, our -- we're doing a lot of full solution automation. So IWant think of that as a way that you access it you still want to be set up on gone. You want to be having a decision in logic, you want to be set up on Betty. And then IWant is just how you get to access all that. You don't have to become an expert.

And so we're really excited about it into the future. And everything we develop now will have an IWant component to make sure we keep it clean.

The next question comes from Kevin McVeigh with UBS.

Great. My congratulations as well. I guess in terms of IWant, how are you going to monetize it, Chad? Is it kind of part of kind of a base [indiscernible]? Is it an individual? Or is it just a core package you have to adopt based on a certain number of modules? Any way to think about just the pricing and go-to-market motion on it?

Yes. So I was with somebody in the elevator earlier, and I wanted to look them up and see how long they've been here and what the resume looked like and their job history and everything have Paycom. Well, that requires me to have some modules. So one way that IWant -- IWant will also expose data that maybe you haven't looked at in a long time, so you're able to see it. But if I'm asking IWant -- if one of our clients is asking I want for resume information, or if they asked them for prior work history information, and they're not on our applicant tracking system, they're not going to have success pulling that information.

And so -- and one way it will help us is I do think there'll be more full solution deployments across our client base so that you get access. Another way we do expect it to increase our sales volume to a revolutionary product. It's easy to use. And I do think it's going to, over time, impact our retention as these clients become more engaged in the software and get the full value available to them. IWant removes all the impediments to value. So now you just get, you didn't have to work for it as much. And so we're really excited about what it can do for us on all those fronts.

The next question comes from Steve Enders with Citi.

Okay. Great. I guess just to start, I just want to understand like what actually maybe was different versus what you were expecting coming into the quarter? Because it looks like the upside looks pretty solid versus maybe what we've seen in the past few quarters. So I guess, a, what has kind of happened there? And then, I guess, secondly, just as we think about in and what that means, is there any implications for what that means for Betty adoption or need to adopt Betty to get the kind of full functionality of IWant.

Yes. I mean I think as far as the quarter, we've been talking about record sales and eventually, those things materialize and they turn into revenue as they start. That's something that we've been focused on. I would say our sales organization has been doing a great job. And so we've had some outperformance there, and I think you're seeing some of that here. And then as well as on the margin side, I mean, we continue to see efficiency through our full automation goals.

And it does slow our pace of hiring a bit and also our willingness to backfill some open positions just because of all of the automation. So we're getting some more efficiencies on that too. As far as implications for Betty adoption, it's not required that you've implemented Beti to get value out of I want. I do think that the more Paycom's products that you use, which would include it, the greater the value you're going to get from it. And the more questions that we'll answer for you, the more insight it will give you.

And so I do think IWant makes it easier to use all that additional functionality, but there's not a requirement that someone would have Beti. Although I will say, I believe Beti is a very important product. And I still say that it's the best way to do payroll for employees. And actually, we have a lot of clients boomerang back to us because they felt it when they left and the need for having accurate payrolls to prevent errors before they become problems.

The following comes from Jason Celino with KeyBanc.

Yes. So admittingly, I looked at the demo 30 minutes before this, and it looks pretty intuitive and helpful. But Chad, I mean I think you're calling it the biggest release since the company's founding. That's quite a bold statement, but you're obviously not charging for it. How do you envision recognizing the full value that you're providing here. I hear you on the full platform sales, but -- and what are some other mile markers we can kind of think about?

Well, I mean, I just mean what I said, it is the biggest. I mean, an F-16 is hard to fly. I mean sometimes you can have a lot of different people that know it, the more you add to it. But we've made it one button or a command that now you can fly the whole thing. So that's what I mean is it's our biggest development. I mean we've removed the barriers to value. The more you add, the more functionality you have in these types of systems and enterprise-type systems, it does require a level of training for someone to really to be able to deploy it.

Even some employees require some level of training. This removes all of it. And so it's the biggest innovation that we've ever done at our company since its founding just because of the impact that it has. I mean I'm actually -- I mean, clients are just overjoyed by it. I mean they're really over joy. You walk the floor here in service. You hear them talking to our clients. I mean they're just -- they're amazed and it's working very well for them. And they deserve to have it.

So I'm going to really stand by that. Not only is it the biggest development, I think by the time we do version 2 and 3, I don't even know what else I could develop after that. as we have the full solution automation on the back end. So I'm going to really stick by that. And then how we're going to recognize the full value, I think, was your other part is obviously in our go-to-market. It impacts that. And then again, when you remove barrier to value, that increases the value that your clients are getting. And so when you can do that, and they don't have to do that work.

We do think that that's going to create a more meaningful relationships with our clients or meaningful relationships they have with our system, and we do think that, that will impact retention.

And then just a quick follow-up for Bob. The 12% you saw in recurring in the quarter, very impressive. Here you on the back half, the slight decel but -- was there anything in second quarter from like a onetime perspective that -- or timing related? Just trying to understand the beat and the implied decel in the second half.

Yes. Thanks, Jason. No, there wasn't anything on a onetime date other than the timing of the marketing spend that we've been pretty consistent about in the first and second quarter. And then, obviously, we have never now what we can anticipate in the fourth quarter for bonus runs and et cetera.

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

Bob, I wanted to go back to a question earlier in the comment you made about free cash flow. I just wanted to clarify, is that free cash flow dollars or is that free cash flow margin. And I wanted to see if you contemplated any sort of tax benefits from the new tax bill.

Yes, Daniel, so that was margin. And we are evaluating the BBB now. There will be some cash flow benefit that in 2025, and that's built into our guidance.

Okay. And then just on the sales and marketing investments. I guess, should we anticipate -- this is a very intuitive product, but maybe you want to devote a little more resource back to the base to sort of help people out in those initial phases. Is that where -- is this maybe temporary investment that we're going to be able to harvest in 2026? Or do you think there's going to be a more substantial push?

I think you're talking about our sales and marketing spend as we look into the remainder of the year. We did know IWant was coming out. And so we have been preparing for that spend in the third and fourth quarter. I've always said with marketing, you don't just throw dollars at it, you have to measure it. It's got to be having a return. So we're always cautious on marketing spend, and we measure it, but it's our intent right now to maximize our budget in the third and fourth quarter for marketing just because of the opportunity that we have right now with this.

The next question comes from Jared Levine with TD Cowen.

I just wanted to dig in, in terms of 2Q, you had a pretty notable sequential increase in the -- within CapEx, specifically on PP&E and it sounds like you're contemplating pretty healthy spend there as well for the remainder the year. Can you dig into what exactly you're spending there and kind of when potentially that could taper off?

Yes. I mean I can take a little bit of this, Bob, then you can jump in. We've always developed and hosted our own platforms. And as we move into AI, it does require a certain level of spend. So as we look at that, I do believe it to be more transitory in nature. But as we look at that, that's going to be front-end loaded for us right now, and that's really what we're looking at. And a lot of that's going to be through CapEx.

I think Bob explained kind of we do expect to take the benefit that we're receiving in the additional margin accretion right now and put that into some of these CapEx expenditures. And then we would expect our margin for free cash flow to be not dissimilar this year to what it was last year. Again, I do believe these spends will be more front-end loaded and transitory. So we'll go from there. I don't know, Bob, if you have anything to add to it?

No. The only thing -- one thing I'll add, Chad, is that we see this as a growth opportunity for us, and we have the capital to take advantage of it right now, and that's what we're doing.

Got it. And then just one more here. Can you talk about your back-to-base sales productivity by CRRs year-to-date?

I mean they've been back in the field. So as I've mentioned before, it's kind of a per territory basis we did kind of change the way that group books and starts deals a while back that I mentioned. And that really became the new normal, but they are having success. They're more successful this year than what they were last year. And we'll just see how that time works those out.

I do think IWant is going to help them quite a bit because, again, in order for you to get the full solution automation, you need to have a full solution. And there's no better way to get it than just asking for it, and that's what IWant helps you with.

The following question comes from Alex Zukin with Wolfe Research.

So maybe on IWant specifically, when you think about how it fits into the overall product strategy with Beti, maybe help us a little bit where you're getting the most customer interest, what does success look like for IWant? And also, any update or mix around retention with Beti and kind of as you see that mix with Beti and IWant across your customers growing kind of where is the opportunity for retention in that well to go to?

Yes. I think both produce significant retention opportunities. I mean, I think they're both the best way to do something. But the way to think of IWant, I mean it just -- it runs through our entire system. So Beti touches multiple modules. IWant touches every module and every piece of data in our system, every field, everywhere. So it's quite a bit different.

Your users of IWant is going to be everyone. Your users are Beti, you're going to obviously have the employee at the time when they're doing payroll and then you have the payroll department and what have you. Both significant and very important. But think of IWant is just a new way to access information. I mean you can look at this the way you access your bank, the way you would just talk to it and tell it what you need like I can go into IWant right now and say, I had a baby, need to add them. [indiscernible]. I'm going to IWant right now and ask you somebody's spouse or [indiscernible]. And it doesn't. I mean they'll bring it up for me.

So I can ask it anything. If the data is in our system, it's going to respond and give me that data. And so we're really excited. And that's really a giant change in our industry, but really any industry where you use software where you're now voice-activated, command-driven throughout the software. So they work a little bit different than each other, but IWant just going to make Beti sweeter. I guess, would be a better way to put that.

The following comes from Bhavin Shah with Deutsche Bank.

Chad, you just kind of mentioned earlier that you think the CapEx will be a little bit more transitory as you build this out? And kind of with you owning the entire tech stack and once inside customer base is up and running on IWant and extending usage, why shouldn't there be more continued spend from a CapEx perspective as users kind of use it more and you're kind of running through GPU cycles?

Well, I mean, I think there's a certain amount of spend you have to do just to get to the starting line. And then I think on an ongoing, it becomes more incremental. But I think as you're looking at rolling out massive usage, like I said, I mean, we would expect to activate all of our clients this quarter. So there's going to be a certain level of first hit as they're using it, which we're already seeing.

And then in subsequent quarters and years, of course, we will add to that. Also kind of you see it over time, the cost of technology comes down, but the cost of power doesn't. And so there's just different things you have to look at as you go through building these things out. And we've incorporated all of that in our guidance and on our comments today.

And just -- I guess, just following on that, just given how like useful IWant books and how into it is, like why not more directly monetize it on a [indiscernible] basis or a usage basis versus kind of indirectly monetizing it on better sales and and driving attach above the modules?

I believe that every client should access their data this way, and we've had clients that have been with us a long time, and there's no reason to make them pay to get the value that's available for them, where I really think that this is just going to take off for us. So I really just don't think we need to do that plus. I don't want to spend a lot of time having to go out and sell clients and charge them on things that I can really get them to use the full utilization of the system.

And I believe that will create other opportunities for us both with these clients and definitely with prospects. So I think we have to be careful to stop and pick up the change on the ground when there's opportunities out there. We remain disciplined and really help the clients achieve the value available to them.

The next question comes from Joshua Reilly with Needham.

All right. I was just curious, maybe a little different angle and some of the other things we've been talking about, but how are you adjusting your sales and marketing processes internally with all the new different AI sales tools that are out there for front-end lead automation? And then also, along with that, the way that customers find you might be changing as well with organic Google search traffic declining TAM on a secular basis over time. How do you kind of square all these items up to manage sales efficiency over the next few years?

Yes. I mean I would divide marketing separate from sales. I would say our marketing group has been using those tools efficiently for quite some time and continue -- the tool is available to them and continue to seek more to that. I mean, from a sales process, we would right back to the way we were selling back in 2000. We went right back to that type of training, leverage and influence when Amy took over. And that's been working very well.

I'd love to think the product sells itself, but that's not true. At the end of the day, you have to have great salespeople who are out there working with the client to help them understand the value that's going to be created. And you have to have a very strong ROI case. So we're going to continue to sell the way we've been selling. But I would think about this as it just changes. I mean, it's night and day. We rolled this out on July 30 -- or 23 to our very first client. I mean, it's night and day, how you utilize our system on a go-forward from a simplicity standpoint.

And I do think that that's going to leave itself into sales. I mean, again -- and by the way, we turned our first client on July 23. I don't think we gave it to sales until last Monday. So they're just now a week in maybe at the most to actually being able to go out there and talk about it. So we'll kind of see the impact that IWant has on the sales organization here over the coming quarters and years for sure.

Just a quick follow-up. Is it fair to say that the new sales activity was up sequentially from Q1 to Q2? And how do you think about that in terms of visibility for revenue in the second half and how -- what level of visibility that you have into the updated revenue guidance?

What I would say is you know we're talking about record sales in the first quarter, and we just reported second quarter and now we've talked about record sales in the second quarter. So obviously, those haven't really lot of us haven't started yet. So let's say most of those haven't started yet. And so those will be reflected in subsequent quarters. And we always guide to what we can see. But I would say there's a level of excitement across Paycom right now that's different than it's been in a long time, and we've always been a pretty exciting company anyway.

The following comes from Siti Panigrahi with Mizuho.

I want to ask about a demand environment, how you're seeing in the first half and your expectation for second half. And then are you seeing any kind of changes in the competitive landscape, especially with all the consolidation that happened recently in your space?

Yes. I mean I would say our demand environment remains strong. I've always said we also create demand. And remember, we have less than 5% of the total addressable market just in the U.S. even. And so there's many opportunities. From a change in the competitive market, I think they all got a lot less competitive a couple of weeks ago, to be honest with you.

And this is going to be a thing. I mean you guys kind of see this will be a thing moving forward. I mean our client feedback has been really good. I think that I know competitors will say they have the most automated, the most is the most staff. But if you can't talk to it, it's not the most automated, it's not the most modern. People might want to drive an old car or a motorcycle or fly an old plane, I mean those things are nostalgic and cool. The driving an old HCM system around it's not cool. It's just sad.

So I do think that you're going to see a lot of clients gravitate toward this type of experience because why should they work extra hard to get the value, which is why we created it in the first place.

The final question comes from Jake Roberge with William Blair.

When you talk about IWant taking off for you, where do you think it shows up most? Is that new logos? Is it retention? Is it new product adoption? I guess, what should we be looking for on our end? And when do you think it actually starts showing up more meaningfully in the numbers?

I mean I think it's going to start showing up in all those areas. I mean I'm very bullish on it showing up in all those areas. Obviously, new sales new logo app has always been the largest opportunity. We have to increase and drive revenue growth. So I would definitely expect that to be probably the largest bucket of that. But I will also tell you, I expect to have a huge impact on our retention over time as people are using it becoming more acclimated to it.

And I also think it's going to have an impact on our CRRs being able to go out there and be able to talk to someone about if you want to be able to pull data from the complete employee life cycle. And if you want your employees to actually be able to leverage all this, it's really important that you have these other modules that we have. And so I also think it's going to make an impact there. And I believe win backs. We're already seeing that. I mean we're seeing clients that are going from us a really short period of time come right back because of Beti or gone or some of these other things are just client service that they like.

And this just changes all of that. I mean I don't know how you go from being used to commanding a system and just telling it your problem that it solves. I don't know how you go back to navigating and trying to find out how to fix your own problem. It just seems like people don't usually go backwards in technology. They don't do that too well. None of us even our consumer lives. None of us go backwards in technology very well. And I think that IWant has made it easier to access all the automation. And I just -- I think it would be very difficult for clients once they're getting full value to want to have less.

Okay. That's helpful. And then can you talk about how the initial rollouts of the new offices in L.A., Raleigh and Providence have been going? And now it feels like the business is in a much healthier place. Should we expect a more regular cadence of office launches moving forward?

Yes. I mean, I don't know that we've had as much of a regular cadence, maybe there for a while when we're doing 3 or 4. Our sales organization is doing very well right now. In fact, one of those offices, I'll go it and call them [indiscernible], I think it's Providence, hit $1 million in new sales faster than anybody -- any of our offices have ever gotten to it. So they're ramping up well.

And again, the more successful offices we have, the more successful managers we have, the more successful backfill for those managers we have, the better the opportunity we have to open up additional markets. And so that is a part of what we're doing as well as increasing the dollar volume in every territory that kind of gets us to those next levels.

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.

Well, I want to thank everyone for joining the call today. We look forward to speaking with many of you over the coming months. We will be participating in several investor events this quarter, including Deutsche Bank Technology Conference on August 27 in Dana Point. Then on September 3, we will be attending the Citi Global TMT Conference in New York City. We will also be hosting meetings at the Wolfe TMT Conference in San Francisco on September 10.

With the strong results and the recent launch IWant, I'm even more excited about how the future is shaping up for Paycom. I want to thank all of our employees for their contributions to our success. And with that, operator, you may end the call. Thank you.

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

Good afternoon, everybody. My name is Mark Marcon. I follow the human capital technology and solutions for Baird. Our next presenting company is Paycom, a growing SaaS provider of payroll and HCM solutions to companies with between 50 and 10,000 employees that's grown very rapidly over the years, all on an organic basis with some of the best margins in the industry. It's one of my favorite American success stories. Chad Richison, the CEO, Founder and Chairman, basically ended up starting up the company with an SBA loan and 13 credit cards and was able to build that into one of the fastest-growing and most successful companies within the space. So we're always pleased to have you here, Chad.

And then we've got Bob Foster. It's a pleasure to welcome you to a Baird conference for the first time. Bob is the CFO. He joined the company back in 2022 and assumed the role of CFO in 2025. We've always had Craig over here with us, and it's a pleasure to meet you.

I'm going to start off with a real softball. How do you feel about the Oklahoma Thunder?

I think they're going to do very well. We have an advertising agreement with them. So the more games they play, obviously, the better it is for us. But I think they'll sweep it [ in 4 ].

You think they're going to sweep it [ in 4 ]? All right.

I think Denver was probably their hardest, but we'll see.

We'll see. Well, there's going to be a lot of airing of Paycom stadium.

I've got one question I've been asking everybody. So I hope you indulge me. It's not a Paycom-specific question. But post election, there was a lot of optimism with regards to the environment. Since the election, we've had Liberation Day and obviously a dampening of animal spirits. Right now, it seems like the equity markets are basically shrugging off tariff concerns. What are you seeing in terms of smaller- and medium-sized businesses and up to the enterprises that you're dealing with from that perspective?

Yes. I mean we're not seeing anything differently than really what we've seen in the past. I mean we have such a small part of the TAM right now. So when we're doing well, it's because of the plans that we had and the strategies that we deployed to do well. I mean our 2 largest competitors from a size perspective, if you combine both of their client bases together, they have 1.7 million clients, and we have 36,000 clients. So for us, there's always demand there. It's how are we going to go capture it. And we have not seen anything politically or macro or otherwise that's impacting that to the negative for us.

And how has it impacted your spending programs, I mean, just in terms of just the general macro uncertainty?

I would say our spending is starting to change, not -- but not because of that. It's really because of our product releases. And we've been focused on automation, not just for the client, but also on the back end for ourselves. And the more we focused on that, the greater the impact that it's had on where we spend our money.

That's great. Now I'd like to shift over to Paycom-specific questions. Beti, it's a great product. I've demoed it multiple times. I think it's fantastic. I'm wondering if you can talk a little bit about the evolution of your approach to marketing Beti, to messaging around Beti. Because when we think about it, it's like the most automated solution, the ROI, those are all things that are very tangible to HR decision-makers. How are you -- how has that evolution gone? And where are you in that journey in terms of marketing that?

Yes. And so we started off payroll in the early days, and then we added time and labor management and benefits, expenses, learning management, just all of that, that we have today. And it was all in a single system as it still is today, and you eliminated the need of -- for integration. If you kind of fast-forward and we've developed more and more products that allow you to utilize a full system and make it count, well, Beti was one of those because we're doing the time and labor management, people already using the expense management within our system. Obviously, we're doing the payroll and so -- and time-off request and what have you.

And so you were able to bring that all together and actually put it in the employees' hands where they could fix and edit payroll before they became issues after they were paid. They were able to fix problems and prevent things from happening. And so that was a piece that we did, and we rolled that out, which really put the payroll into people's hands.

As we look into the future, that changes even more. I mean I mentioned this in December at a conference that I was at, and it's still true today. I mean the future of our industry will all be command driven. You will not navigate a system. And we expect we'll be rolling out our version here in the next -- this year. But the future of our industry, you'll tell the system what you want it to do or you'll ask it for the information that you want it to give you. We'll not go screen to screen and have to navigate it. And that will be both at the employee and the employer level.

There are so many things that -- there's not like 14 different ways to get a payroll right. There's only one. There's not many different ways to get your time card right. There's only one. I mean it's either perfect or it's wrong. And so when you have something like that, when you're always trying to hit something that's exact, you can automate it. You've got to know what you're doing. But the better we've gotten with these tools, which we're releasing a lot right now, the easier it is for us to see kind of what the future is going to look like.

And so we have all this data. And that's different than our competitors. Our competitors, they try to exact the same type of result, but there are multiple systems and there's integration. When you move to a command-driven system, not unlike Beti, you require all those data pieces. So for instance, if I asked, tell me about Mark's career on our system, and I'm using it on my phone right now, I can say, tell me about Mark's career. It's going to tell me everything you've done so far at Paycom. And because you used our applicant tracking system to apply, because we also have all of our preemployment services, it's going to go through all of your past jobs, too. I can even ask it, tell me about your performance. Well, all your performance and compensation is in our system, too.

And so that's the point is today, in order to utilize systems, you have to become maybe somewhat of an expert on the administration, especially on the back end. And so with the command-driven system, you're putting the information as well as the tasks in people's hands and you're putting it in more people's hands than what you could have before. If I need to know something about a specific employee or department, I can obviously use our system. But it's been a while since I've gone into advanced report writer and run a bunch of different reports. And so I might have to ask somebody to do that for me. Well, a command-driven system, I don't have to ask anybody to do anything. I ask for it right then, and it might be small. I might be asking...

What's an example of that?

Okay. This could be an example. I'm about to promote this person. I need to make sure we're giving them the right title. What's their boss' title? I mean that might take me a second. I can go into the system and find it. I just asked the system. I can say, who's taking time off? What does the schedule look like in the next -- who's taking time off? Anything that I have a question about.

I wanted to see -- I ran into someone in the hall the other day, and they're part of a dev group. I'm heavy into dev, have been back since November. And I'm like, where did this person come from? What was their hiring -- what did they do before now? What did they do before this? Maybe normally, I'd have to ask somebody that. I just asked my prompt. It gave me their information. So that's the way the future is going to be. It will all be command driven. You won't navigate. You'll command the system to go get what you wanted to get -- retrieve for you or to go do what you want it to do. And so that's just one thing that we're doing. But there's a lot -- as we look into the future, there's a lot that we can do now that we couldn't before.

Well, you've been leveraging AI and you just released Ask Here. What percentage of those capabilities that you're talking about does Ask Here currently have?

I mean Ask Here is not -- I mean, it's not command-driven yet. Ask Here is going through and filtering through their list of questions they've already answered all in the past. And they'll go through and filter through their handbook and things like that to answer a question for them. But absolutely, we use AI in that. A lot of AI is used to determine what did you ask. It might be your voice, it might be -- I can ask -- in our command-driven system, I can say, when did you start? What does that mean? When did you clock in today? Did that mean when were you hired? What does that mean? When did you start? Well, that's part of AI. You have to be able to work with that. You have to be able to speak the language and know that these are the different variables of that speech.

And so that's a lot of what we work with so that we know what to return to you. My point is in our business, you have to be 100% accurate or you get an F. I've always said that. If we're 99.99% accurate, we get an F. Someone didn't get paid right, there's tax problems, there's liability, what have you. And the good thing about our business, though, is it does calculate to an exact answer. And because of that, we are able to automate it a lot easier.

When are we going to see this?

And I would say within the next 2, 3 months, we'll start rolling things out.

Within the next 2 to 3 months. So when I go to HR Tech, I'll be able to demo it?

In October?

Yes.

We'll see. I'm hoping. I've got it right here on my phone right now, but we'll see.

I mean it sounds really powerful. I mean can you actually run like applications -- like if you're running a business, could you actually put in there like how much would it cost to run a third shift?

Our system -- well, if the data is in our system, you can come up with it. So there'll be different variations of it. But in the beginning, you'll be able to ask it any question about an employee, and it will pull you any information that is in our system. So...

It sounds pretty exciting.

I'm sure our competitors will come out with one tomorrow and say they developed it. We'll see.

We'll see. Your TrustRadius scores are really big -- I've looked through the annual report, you said your #1 priority was actually customer satisfaction. Can you talk a little bit about that just in terms of -- because when you went through the Beti transition initially, there were -- among some of your players, some of the people on your team, there were certain people that were a little bit heavy-handed in terms of talking to clients about switching over to Beti. How has that changed? What are you seeing in terms of your client scores, client scores fully utilizing the system, things of that nature?

Yes. I mean we're doing a lot better with that, obviously. We were so excited about Beti because of all the things it does for a client. I mean we can look and see how many payroll issues each client has every payroll. And so when you're able to prevent those, that really impacts the employee that's getting paid in a big way, and then it obviously impacts the client because they're the ones that have to pay to fix it and/or live with an upset employee. I think there's a stat that says if you pay an employee wrong more than twice, there's a 50% chance they're leaving kind of thing. So people expect to get paid right. I mean it's not -- it's just what we all expect.

And so -- but I think as you look into the future -- and again, you're talking about Beti. We're not -- I think we were disrupting a little bit of our client base. I don't -- if you're on Beti, great. If you're not on Beti, you're still on the Paycom system, it's the most automated system, and we want you to stay on Paycom. I do believe, when you look at the future, it does make more sense for employees to be able to do things that only they know if it's correct or not anyway. So it's not something that we've stopped on. But I think that we've recognized that our priority isn't always our client's priority at that moment. But we haven't changed our goal of making sure that all clients get the opportunity to achieve the greatest ROI that we have to offer.

And what percentage of clients are now on Beti?

We haven't updated that. I think the last update, we probably said 65%, 70%. It's more than that now, but we haven't updated that because we see it as 1 client base, not 2.

But it sounds like the client satisfaction scores are going up across the board. Is that correct?

It is. I mean there's been a very big focus. I went back into -- I had our product group forever, gave it up for 5 years, took it back over in 2023. And so we've been really focused on not just Beti, not any 1 product, but the entire usage strategy. And a lot of it comes down to configurations. A business has the best intent to utilize a system of full automation and then something changes in their business environment. They buy something, make a change or something changes in ours. We're rolling something new out. So it's very important for them to achieve that ROI for us to make it easy for them to digest changes and not have to do a lot of work to receive the value. And so we've been focused on that for quite some time now, and it's making an impact, as you see, in both whatever score you're looking at as well as in our Net Promoter Scores that we measure.

And when we think about like client retention, I mean, if the scores are going up, naturally, you would assume that client retention rates are going to start moving back up. Can you talk a little bit about that?

Well, I think we've talked about we have the haves and the have-nots. We've been trying to -- and it didn't cost you any more to use the system correctly. It's the same price. Say, it's a hammer. I go to the store to buy a hammer. I turn it around and use the claw side to beat in the nail. I mean it didn't cost me any more to turn it around a hit the nail the right way. And so that's really about what we're doing right now to drive usage and to help clients achieve that ROI.

I mean your client retention scores had gone up into the 92%, 93% range. Do you think we can get back there?

That's our hope. Yes. I mean definitely. The hope is that the greater experience and the greater ROI that clients actually achieve, the longer they stay. And everything we are doing right now is about that. It's about increasing the value that the client can achieve as well as increasing opportunities to go to market. It's really both. We're looking to deliver more of the product to clients that hadn't used us in the past as well as working with our current client base to get them in a better position.

I was going through your website, I saw a number of examples of clients that left you that have come back. Can you talk a little bit about how much -- how often you're seeing that?

Yes. I mean we increased our strategy to get clients back. You think of a breakup. And sometimes, you've got to go ask that person to come back to you. And I think that we've been through that. And we have a little bit different strategy for how we'd go after lost clients, no matter how long they've been gone because they didn't impact their situation. Maybe they got a lower price. Maybe they got -- but their situation didn't change. And so our opportunity is going back out there and delivering on the promise that we know that we can deliver on, and that's been a focus of ours.

I'm wondering if we can switch over to go-to-market. You had Amy takeover sales. Can you talk a little bit about some of the things that she's done to fine-tune the training, the selection, what sort of opportunities people go for and what that's done in terms of sales productivity?

I mean back to basics is all I would say. I would say that we eliminated a lot of the extra things that we implemented into training and just went back to the basics for us. I mean our training had gotten to 17 weeks, primarily off-site. I mean -- and after about 5 weeks, you're untraining people. And so we started implementing a lot more of the role-play that we've done in the past and really focused people. I think we had a lot of elephant hunters and focused them on unit counts as well. So there's a lot that we did.

Jeff York is still at the company, has been at the company. I know he retired as a Chief Sales Officer. I mean I would say he's probably the greatest sales mind out there. He continues to work with Amy every day as well. And together, they've kind of gone back to the basics. And it makes an impact for us.

It seems like it's working. I mean, if we take a look at like your sales trajectory and your bookings, there was a period of time we were consistently growing 25%, 30% organically. Obviously, there's a lot of larger numbers. But it started trending down, and then it's stabilized and it looks like it might even be trending up a little bit. Can you talk a little bit about what your aspirations are in terms of sales growth? Because we take a look -- it's like take ADP and Paychex combined, 1.8 million clients. You've got less than 40,000. There's natural churn. There's natural opportunities. How are you thinking now about the potential revenue growth rate and the algorithm there?

As much as we can get, I mean, I don't really think of it in terms of a percentage other than to your point, there's 1.8 million clients out there with just the 2. You add everybody else, there's a lot more of that. We have less than 40,000. We're the most automated solution. So we should have more clients, and that's a focus of ours. I think it's very important that we remove impediments to value. There's a lot of things you buy. I mean you might have bought a refrigerator that has technology in it. It can do a lot of things, but you got to set it all up. Do you, though?

There's different techniques now and into the future where a system can work with you to make sure that you're getting the full value and keep you up to date on it. And so that's really, I think, where we have the -- that's really the challenge of our industry. I don't know that it's just unique to Paycom. But it's something that we've been driving toward. And it's in our hands to be able to fix it. I mean we can. So...

And part of the growth algorithm is also coverage of territories. You've got 57 sales teams now. You just recently started up a group of them. But you went through several years where it was relatively stable without much change. How are you thinking about the number of sales teams that you could ultimately end up having? And what's that going to end up doing in terms of driving the growth?

When we looked at our opportunity -- and again, a sales group is measured by the number of prospects in a territory. About a couple of thousand prospects in our sweet spot, that's a territory right there. At one time, when I looked at it, we could have over 100 sales teams just with the number of prospects that we have out there. You're not going to have 1 sales team in New York City or 1 sales team in Atlanta. But you would have 1 in Tulsa. And so some cities, you can have multiple teams.

And so we looked at -- at that time, it was over 100. Today, we're at 57. We hadn't opened up -- to your point, we hadn't opened up any sales offices in the last 3 years. This year, we opened up 3. As you know, we take a current sales manager who's successful. We relocate them to a new city where they open it up, and then we backfill them with a sales rep who's ready to be sales manager.

Our log jam kind of -- prevents us from being able to open up offices is if you have managers that aren't yet at the success level where we're ready to relocate them or if you have a bench that's not ready to come in and backfill those managers who are relocating. So when you have success in your sales organization, it kind of tells you when is the right time to do that. We did. And so we had an opportunity to do 3 this year. But I would say 100 total over time, when it makes sense.

How much time? Look, I mean...

I'd like to do it tomorrow, but it's a function of having to backfill and having success.

I mean given that algorithm in terms of having the...

I don't know, Mark. I mean it just kind of -- I hope in my lifetime. I mean I don't know. It's...

I'm sure you can make that happen if you want to.

But I believe what we've also been doing is growing the amount that any 1 sales rep can sell to. I mean we've got reps that sell $4 million, for 1 sales rep. I mean when we IPO-ed and worked with you, I mean, [ as a ] city would sell $4 million, if you're lucky. And so it's not just the number of sales teams that we add. It's also the amount, the productivity for any 1 sales reps continuing to go up as well.

Can you talk a little bit about the -- you're not only automating your clients' business processes, but you're automating your own. You already have some of the best EBITDA margins in the space. But -- and for a while there, it was stagnant or potentially going down a little bit. Now it's starting to move back up. How should we think about the margins as you're continuing to automate?

They're the same thing. Automating for the client is automating for us or automating for us is automating for the client. I mean anything that we automate on the back end is to speed up a result for the client, whether that's on taxes, whether that's setting up EDI files or benefit carrier, whatever. Anything that we can automate on the back end is focused on client value. And so whether we're doing it on the client side and there's just work that we don't have to do anymore or whether we're doing it on the back end and it's impacting the service that's being delivered to a client.

We will always have a high-touch service model. I'm not going to automate relationships. But I think over time, you'll see service people shift out of a task management into an influence of usage model because sometimes people like to call and talk to somebody about how do I this, that and the other. I don't know that our system is going to mimic a conversation. But if you know the data you want, it will bring you the data. If you know the task you want to automate, it will do that. But I don't know that's going to automate the conversation. I believe that's going to be done through our service individuals. So I always see us having a high-touch sales model, high-touch conversion model and high-touch service model, but we're not trying to see how many times we can touch it, if that makes sense.

And so where are you in that journey just in terms of automation and...

One yard line, I mean, with what our plan is and where we are today. I mean I think if you looked at us compared to others, we're way, way beyond that. But I think for our own plan and what's possible today...

And so I mean that implies that the margins could actually improve much more than just small incremental changes from a long-term perspective.

Yes, I wouldn't say that's our -- I mean, I wouldn't say that we're doing it for that reason. But I do think the more automation you have, everyone wins, right? The client wins because they're getting the value without having to crawl through the forest to get it. We win for the same reason. I mean the only reason a client calls us is due to a deficiency in the product that we make. Why are they calling us? I mean we make the product. We have control over all of it. And so we can also provide the solution there as well.

You recently completed your fifth office in your big corporate park. CapEx, some people are assuming it may end up coming down a little bit. Can you talk a little bit about capital expenditures and capital allocation and how we should think about free cash flow conversion relative to EBITDA?

Bob?

Yes. So no, we have -- we finished a lot of the infrastructure at the corporate campus. Our data center in Arizona is online. And so when you look at the free cash flow, we had a good quarter. But we're also finding things -- we're still investing in our product and development. And AI is not expensive -- or not inexpensive to roll out. So we're still going to be opportunistic on how we spend that. We're not -- we haven't guided to free cash flow, but we are -- we focus on it internally, for sure.

But I mean would you anticipate -- even though AI is not inexpensive, would you anticipate that the free cash flow as a percentage of EBITDA is going to increase at least marginally over the next 12 months relative to where it's been?

I don't know that we can guide to that. I mean I think that we are -- I think you're going to see a shift away from buildings into -- because we're substantially built, even as you look at our employment base, we're still automating a lot. And then I think there is equipment and opportunities there. And fortunately, even that's coming down at a pretty good rate and especially when -- which you can get from a capability. So we are ambitious in what we're doing. And so -- but I don't think we know yet. We're doing what needs to be done and we haven't -- I wouldn't know yet. I wouldn't say we don't know yet. We know what we're doing. But I think from a percentage standpoint I don't think we're ready to talk about that yet.

Unfortunately, I think we're out of time in this room. But we do have time for a breakout session. So please join me in thanking Chad and Bob for a terrific discussion.