Paycom Software, Inc. operates in the rapidly evolving, highly competitive human capital management (HCM) software industry, which is subject to changing technology, shifting client needs, and frequent introduction of new products and services. The market is fragmented, with competitors ranging from small regional firms to large international companies. Competition is primarily based on service responsiveness, product quality and reputation, breadth of service, application offering, and price, with price being the most important factor for smaller businesses and scope of features more important for larger businesses. The HCM industry has experienced an emergence of white label and embedded payroll offerings, and most competitors now offer cloud-based solutions, increasing competition for clients seeking flexibility and access to information.
The company competes with Automatic Data Processing, Inc., Dayforce, Inc., Intuit, Inc., Oracle Corporation, Paychex, Inc., Paylocity Holding Corporation, SAP SE, ServiceNow, Inc., Ultimate Kronos Group, Workday, Inc., and other international, national, regional, and local providers. Paycom believes it benefits from a competitive advantage with its research and development investments, people, and processes, having chosen to base its research and development team in Oklahoma and Texas, which it believes provides high-quality talent at a lower cost compared to other locations in the United States. The company also believes its single-database platform minimizes data integrity issues across applications, a common issue with competitor offerings that use multiple third-party systems.
The company generates revenue through a comprehensive, cloud-based HCM solution delivered as Software-as-a-Service (SaaS). Substantially all revenues are generated from fixed amounts charged per billing period plus a fee per employee or transaction processed, and fixed amounts charged per billing period. Revenues consist of recurring and other revenues, and interest on funds held for clients. Recurring revenues are derived primarily from payroll, talent acquisition, talent management, HR management, and time and labor management applications, fees for form filings and delivery of payroll checks and reports, and revenues from background checks and income and employment verification services. Other revenues consist of implementation fees for deployment of the solution and revenues from sales of time clocks. The company serves a diverse client base in terms of size and industry, with a target client size of organizations with 50 to 10,000 or more employees.
The company's HCM solution offers a full suite of applications and tools generally falling within the categories of payroll, talent acquisition, talent management, HR management, and time and labor management. Payroll applications include Beti, Payroll and Payroll Tax Management, Vault Visa Payroll Card, Everyday, Paycom Pay, Client Action Center, Expense Management, Garnishment Administration, and GL Concierge. Talent acquisition applications include Applicant Tracking, Enhanced Background Checks, Onboarding, E-Verify, and Tax Credits. Talent management applications include Employee Self-Service, Compensation Budgeting, Performance Management, Position Management, Paycom Learning, and Certification Management. HR management applications include Manager on-the-Go, Direct Data Exchange, Ask Here, Documents and Checklists, Government and Compliance, Benefits Administration, COBRA Administration, Personnel Action Forms, Paycom Surveys, Retirement Reporting, Report Center, Enhanced ACA, Clue, and MyCom. Time and labor management applications include Time and Attendance, Scheduling, Time-Off Requests featuring GONE, and Labor Allocation. The company also offers IWant, an industry-first command driven AI engine, and Global HCM, which makes a number of applications and tools available in 15 languages and dialects accessible to users in more than 190 countries, with native payroll in Canada, Mexico, the United Kingdom and Ireland.
The company has historically generated the majority of its revenues from its payroll applications and generally does not separately track revenues across its other applications because it often sells applications in various groupings and configurations for a single price. The company's solution is based on a core system of record maintained in a single database for all HCM functions, requiring virtually no customization. The company's strategy includes penetrating existing markets, enlarging existing client relationships, expanding into new markets, targeting large clients, and maintaining leadership in innovation by strengthening and extending its solution. The company has approximately 39,200 clients, or approximately 20,300 clients based on parent company grouping, and stored data for over 7.4 million persons employed by its clients during the year ended December 31, 2025 1.
During the year ended December 31, 2025, the company repurchased an aggregate of 1,730,720 shares of its common stock at an average cost of $213.81 per share, including 184,752 shares withheld to satisfy tax withholding obligations for certain individuals upon the vesting of equity incentive awards 2. The company's Board of Directors increased and extended the stock repurchase plan in July 2024, such that $1.5 billion is available for repurchases through August 15, 2026 3. As of December 31, 2025, there was $1.11 billion available for repurchases under the stock repurchase plan 4. In July 2025, the naming rights agreement was amended, resulting in a $35.6 million gain 5. The company also completed an assessment of the useful lives of its servers and network equipment in the third quarter of 2025, increasing the estimated useful lives from three years to six years 6.
Total revenues for the year ended December 31, 2025 were $2,051.7 million 7, compared to $1,883.2 million 8 in 2024, representing a 9.0% increase. Recurring and other revenues were $1,938.7 million 9 in 2025, up 10.3% from $1,758.3 million 10 in 2024. Interest on funds held for clients decreased 9.6% to $113.0 million 11 in 2025 from $124.9 million 12 in 2024. Net income was $453.4 million 13 in 2025, compared to $502.0 million 14 in 2024, a decrease of 9.7%. Diluted earnings per share were $8.08 15 in 2025 versus $8.92 16 in 2024. Operating income was $567.2 million 17 in 2025, compared to $634.3 million 18 in 2024, a decrease of 10.6%. Adjusted EBITDA was $882.3 million 19 in 2025, compared to $775.4 million 20 in 2024.
The company plans to continue expanding its sales capability by opening sales offices in certain metropolitan areas where it currently has no sales teams, historically selecting new locations based on potential client and employee demographics as well as business density. When opening a new sales office, the company typically relocates a proven sales manager from an existing territory who then recruits a team of high-performing sales representatives, and it typically takes a new sales office 24 months to reach maturity. The company also plans to continue increasing its domestic sales capacity and expand its offering to additional international markets, with its U.S.-based sales teams expanding reach into international markets by targeting global organizations with a U.S. presence. The company believes larger employers, such as organizations with greater than 1,000 employees, represent a substantial opportunity to increase revenues per client with limited incremental cost, and expects that its ability to serve organizations with international employees makes its solution more attractive to larger companies.
The company intends to continue extending the functionality and range of its solution, incorporating and leveraging AI and automation across its full solution. Development efforts are performed exclusively in-house and are heavily based upon proactive research and client input, with investments focused on the development of new applications, enhancements, and learning courses responsive to client needs. The company believes its strategy of focusing on incorporating AI and automation across its full solution is an important differentiator for attracting new clients and key to long-term client satisfaction and client retention. The company also plans to continue to invest in initiatives to increase the adoption of its solution and maintain high levels of client satisfaction as it extends and enhances the functionality of its solution.
Due to lower headcount, the company expects that certain employee-related expenses will be lower in 2026 as compared to 2025. The company expects research and development employee-related expenses to be lower in 2026 as compared to 2025 as a result of reduced headcount. Automating core business systems is creating new efficiencies that have led to reductions in headcount and, as a result, contributed to a decrease in certain employee-related expenses during the year ended December 31, 2025.
The company plans to continue to invest in its marketing program and may adjust spending levels in future periods as it sees opportunities for favorable returns on its investments, based on positive results from its advertising campaigns. The company plans to continue to lease additional office space to support its growth. Capital expenditures will fluctuate based on strategic initiatives, and depending on certain growth opportunities, the company may choose to accelerate investments in sales and marketing, acquisitions, technology, and services.
Total research and development costs for the year ended December 31, 2025 were $436.3 million 21, of which $152.9 million 22 was capitalized and $283.4 million 23 was expensed. For the year ended December 31, 2024, total research and development costs were $368.3 million 24, with $125.7 million 25 capitalized and $242.6 million 26 expensed. The company's stock repurchase plan has $1.5 billion 27 authorized for repurchases through August 15, 2026, with $1.11 billion 28 available as of December 31, 2025. The company intends to continue to pay a quarterly cash dividend, subject to the discretion of the Board of Directors, and declared a quarterly cash dividend of $0.375 per share on February 10, 2026 29.
The company faces challenges related to attracting and retaining larger clients, including demand for customized features, longer sales cycles, and less predictability in completing sales. Macroeconomic pressures such as inflation and changes in interest rates impact clients' hiring practices and, in turn, impact revenues. The performance of certain offerings is sensitive to changes in the labor market, as the company charges clients on a per employee basis for certain services. A decrease in interest rates would compress additional interest earnings on funds held for clients and potentially adversely affect operating results.
The company's expansion into international markets requires significant resources and management attention and subjects it to regulatory, economic, and political risks that differ from those in the United States. The regulatory framework for privacy of personal data is rapidly evolving, and new laws and regulations regarding data security, privacy, and AI could increase compliance costs and affect the company's ability to provide, improve, or commercialize its business. The company is also subject to risks associated with its reliance on third-party relationships, including financial institutions for ACH and wire transfers, and third-party licensed software, including a large language model.
Management's message emphasizes the company's focus on providing an innovative SaaS HCM solution and its strategy to continue establishing the solution as the HCM industry standard by leveraging sales force productivity, penetrating existing markets, and expanding into new markets. Key strategic priorities include penetrating existing markets through increased sales productivity and adding sales capacity, enlarging existing client relationships by selling additional applications and expanding Global HCM, expanding into new markets by opening sales offices in metropolitan areas without current sales teams, targeting large clients as a substantial opportunity to increase revenues per client, and maintaining leadership in innovation by strengthening and extending the solution with AI and automation. Management believes the company's long-term focused investments in automation, client ROI achievement, and world-class service can strengthen recurring revenue growth and the annual revenue retention rate.
Total revenues for the year ended December 31, 2025 were $2,051.7 million 34, compared to $1,883.2 million 35 for the year ended December 31, 2024. Net income was $453.4 million 36 for 2025, compared to $502.0 million 37 for 2024. Diluted earnings per share were $8.08 38 for 2025 versus $8.92 39 for 2024. Operating income was $567.2 million 40 in 2025, compared to $634.3 million 41 in 2024. The operating margin was 27.6% 42 in 2025, compared to 33.7% 43 in 2024. Net cash provided by operating activities was $678.9 million 44 in 2025, compared to $533.9 million 45 in 2024. As of December 31, 2025, the company had cash and cash equivalents of $370.0 million 46 and no outstanding borrowings under its $1.0 billion 47 Revolving Credit Facility. The company's effective income tax rate was 27% 48 for 2025 and 23% 49 for 2024. General and administrative expenses increased $120.4 million 50 from the prior year, primarily due to a $117.5 million 51 reversal of previously recognized stock-based compensation expense related to the forfeiture of a restricted stock award upon Chad Richison's transition to Co-Chief Executive Officer in February 2024. Other income, net increased to $55.6 million 52 in 2025 from $18.1 million 53 in 2024, primarily attributable to a $35.6 million 54 gain from the July 2025 amendment to the naming rights agreement.
The company faces material risks from cybersecurity threats, as its solution involves the collection, storage, and transmission of confidential and proprietary information, and HCM software is often targeted in cyber-attacks. The company has been targeted in cyber-attacks, and certain third parties with which it does business have been subject to cyber-attacks, one of which resulted in unauthorized access to data of certain Company clients and their employees as well as Company data and employee records. The company's business depends on clients' continued use of its applications, and its annual revenue retention rate was 91% 30 for the year ended December 31, 2025 and 90% 31 for 2024. Many clients have the right to cancel their agreements with 30 days' prior written notice. The company faces risks related to its increasing focus on and investments in automation, including the use of AI, as existing and prospective clients may be hesitant to adopt products that rely on automation, and the company may incur additional compliance costs due to increasing regulatory and legal scrutiny of AI-powered tools. The company is subject to various complex and evolving privacy, data protection, and AI laws and regulations, including the EU AI Act, which went into effect on August 2, 2024 32, with the majority of substantive requirements going into effect on August 2, 2026 33, and failure to comply could result in regulatory scrutiny, litigation, and fines.
Analysis on 9/27/2026
