Paycom Software, Inc.

Paycom Software, Inc. is a leading provider of a comprehensive, cloud-based Human Capital Management (HCM) solution delivered as Software-as-a-Service (SaaS), offering functionality and data analytics to manage the complete employment lifecycle from recruitment to retirement [Description of Business]. The company's solution requires virtually no customization and is built on a core system of record maintained in a single database for all HCM functions, including payroll, talent acquisition, talent management, human resources (HR) management, and time and labor management applications [Description of Business]. This single-platform approach minimizes data integrity issues and the need for multiple third-party system integrations common with competitor offerings [The Paycom Solution].

The market for HCM solutions is highly competitive, rapidly evolving, and fragmented, with competitors ranging from small, regional firms to large, well-established international firms [Competition]. Key competitive factors include service responsiveness, product quality and reputation, breadth of service, application offering, and price [Competition]. The company competes with entities such as Automatic Data Processing, Inc., Dayforce, Inc., Intuit, Inc., Oracle Corporation, Paychex, Inc., Paylocity Holding Corporation, SAP SE, ServiceNow, Inc., Ultimate Kronos Group, and Workday, Inc. [Competition]. Paycom serves approximately 39,200 clients, or approximately 20,300 clients based on parent company grouping, and maintains a diversified client base with very low revenue concentration [Our Clients]. The company reports an annual revenue retention rate of 91% for the year ended December 31, 2025, and 90% for the year ended December 31, 2024 [48, 49].

Paycom's core business model generates revenue primarily from fixed amounts charged per billing period plus a fee per employee or transaction processed, and fixed amounts charged per billing period [Sources of Revenues]. Substantially all revenues are recurring, derived from its HCM applications and related services [Sources of Revenues]. The company targets organizations with 50 to 10,000 or more employees [Scalability to Grow with our Clients]. Its SaaS delivery model allows clients with geographically dispersed and mobile workforces to operate efficiently, providing on-demand, remote access through standard web browsers and mobile devices [Software-as-a-Service Delivery Model]. The company also earns interest income on funds held for clients, which are amounts collected in advance of payroll tax submissions or employee payment services [Interest on Funds Held For Clients]. In 2024, the Office of the Comptroller of the Currency authorized Paycom National Trust Bank, National Association, a wholly owned subsidiary, to operate as a national trust bank, which now holds substantially all client payroll and related funds [Government Regulation].

The Paycom solution offers a full suite of applications and tools categorized into Payroll, Talent Acquisition, Talent Management, HR Management, and Time and Labor Management [Our Applications and Tools]. Key applications include Beti, an industry-first technology empowering employees to do their own payroll, and IWant™, an AI engine providing instant access to employee data [Our Applications and Tools]. The Global HCM™ solution offers applications in 15 languages and dialects, accessible in over 190 countries, with native payroll services in Canada, Mexico, the United Kingdom, and Ireland [Our Applications and Tools].

Within Payroll, offerings include Payroll and Payroll Tax Management, Vault Visa® Payroll Card, Everyday® daily payroll service, Paycom Pay®, Client Action Center, Expense Management, Garnishment Administration, and GL Concierge [Our Applications and Tools]. Talent Acquisition includes Applicant Tracking, Enhanced Background Checks®, Onboarding, E-Verify®, and Tax Credits [Our Applications and Tools]. Talent Management features Employee Self-Service, Compensation Budgeting, Performance Management, Position Management, Paycom Learning, and Certification Management [Our Applications and Tools]. HR Management provides Manager on-the-Go®, Direct Data Exchange® (DDX®) analytics, 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 [Our Applications and Tools]. Time and Labor Management offers Time and Attendance, Scheduling, Time-Off Requests featuring GONE®, and Labor Allocation [Our Applications and Tools].

For the year ended December 31, 2025, total revenues were $2,051.7 million ¹, with recurring and other revenues at $1,938.7 million ² and interest on funds held for clients at $113.0 million ³. Cost of revenues totaled $345.4 million ⁴, resulting in a gross profit of $1,706.3 million ⁵ and a gross margin of 83.16% ⁶. Operating income was $567.2 million ⁷, representing an operating margin of 27.65% ⁸. Net income for the period was $453.4 million ⁹, with basic earnings per share of $8.13 ¹⁰ and diluted earnings per share of $8.08 ¹¹. As of December 31, 2025, the company reported cash and cash equivalents of $370.0 million ¹², funds held for clients of $5,137.0 million ¹³, total current assets of $5,838.8 million ¹⁴, and total assets of $7,598.7 million ¹⁵. The client funds obligation matched funds held for clients at $5,137.0 million ¹⁶, with total current liabilities of $5,368.4 million ¹⁷ and total liabilities of $5,867.2 million ¹⁸. Total stockholders' equity stood at $1,731.5 million ¹⁹. The company had no outstanding borrowings under its Revolving Credit Facility as of December 31, 2025 ²³. Net cash provided by operating activities was $678.9 million ²⁰, while net cash used in investing activities was $(611.2) million ²¹, and net cash provided by financing activities was $1,022.0 million ²².

Comparing 2025 to 2024, total revenues increased by 9.0% ²⁵ from $1,883.2 million ²⁴ to $2,051.7 million ¹. Recurring and other revenues grew by 10.3% ²⁷ from $1,758.3 million ²⁶ to $1,938.7 million ², driven by new clients, increased sales of additional applications, and greater usage of existing products [Revenues]. However, interest on funds held for clients decreased by 9.6% ²⁹ from $124.9 million ²⁸ to $113.0 million ³, primarily due to lower interest rates, partially offset by an increase in average funds held for client balances [Interest on Funds Held For Clients]. Cost of revenues increased by 3.2% ³¹ from $334.6 million ³⁰ to $345.4 million ⁴. Operating income decreased by 10.6% ³³ from $634.3 million ³² to $567.2 million ⁷, and net income decreased by 9.7% ³⁵ from $502.0 million ³⁴ to $453.4 million ⁹. Sales and marketing expenses increased by $48.4 million ³⁸ to $482.8 million ³⁶, research and development expenses rose by $40.8 million ⁴¹ to $283.4 million ³⁹, and general and administrative expenses surged by $120.4 million ⁴⁴ to $279.0 million ⁴², largely due to a $117.5 million reversal of previously recognized stock-based compensation expense in 2024 related to a forfeiture upon Chad Richison's transition to Co-Chief Executive Officer [General and administrative]. The annual revenue retention rate improved from 90% in 2024 to 91% in 2025 [48, 49]. The number of clients increased from 37,543 ⁵¹ to 39,199 ⁵⁰, and clients based on parent company grouping increased from 19,422 ⁵³ to 20,321 ⁵². The number of sales teams remained constant at 58 [54, 55].

During the reported period, the company completed an expansion of its corporate headquarters, which was placed into service in April 2024 ⁵⁶. In July 2025, the naming rights agreement for the downtown Oklahoma City arena was amended, resulting in a $35.6 million gain recognized in other income, net ⁵⁷. The company also adopted ASU 2023-09 retrospectively on December 31, 2025 ⁵⁹, and increased the estimated useful lives of its servers and network equipment from three years to six years, effective as of the beginning of the third quarter of 2025 ⁶⁰.

The company's management has not provided specific revenue, margin, or EPS guidance for the upcoming period in this filing. However, the company explicitly states its intention to continue to pay quarterly cash dividends ¹⁰⁴. On February 10, 2026, the Board of Directors declared a quarterly cash dividend of $0.375 per share of common stock, payable on March 23, 2026, to stockholders of record on March 9, 2026 ⁶⁸.

A primary growth area for Paycom is to continue establishing its solution as the HCM industry standard by leveraging sales force productivity, penetrating existing markets, and expanding into new markets ⁶¹. The company plans to increase its domestic sales capacity and open additional sales offices to further expand its market presence ¹⁰⁰. Currently, only seven of the 41 largest metropolitan statistical areas (MSAs) where Paycom has sales offices are served by multiple outside sales teams, indicating significant opportunity for penetration [Expand Into New Markets]. The company also intends to expand its offering to additional international markets [Our Strategy for Growth].

Another major growth vector involves strengthening and extending its solution, particularly by targeting large clients and enhancing global capabilities [Our Strategy for Growth]. The company believes larger employers, defined as organizations with greater than 1,000 employees, represent a substantial opportunity to increase revenues per client with limited incremental cost [Target Large Clients]. The launch of the Global HCM™ solution, which offers applications in 15 languages and dialects and is accessible in over 190 countries, along with native payroll in Canada, Mexico, the United Kingdom, and Ireland, is expected to make the solution more attractive to larger companies with a global presence [62, 102]. The company also intends to add native payroll in other countries [Our Applications and Tools].

Operationally, Paycom is focusing on incorporating and leveraging AI and automation across its full solution, viewing this as an important differentiator for attracting new clients and crucial for long-term client satisfaction and retention ⁶³. The company's software vision is to automate payroll-related and HCM-related tasks that systems can handle, freeing users from needing extensive training or system expertise [Growth Outlook, Opportunities and Challenges]. Due to new efficiencies created by automating core business systems, the company experienced headcount reductions and a decrease in certain employee-related expenses during 2025 ⁶⁴. Management expects that certain employee-related expenses will be lower in 2026 as compared to 2025 ⁹⁹.

Regarding capital allocation, Paycom plans to continue investing in research and development, focusing on new applications, enhancements, and learning courses responsive to client needs, with all development performed in-house [Maintain Our Leadership in Innovation by Strengthening and Extending our Solution]. The company's capital expenditures will fluctuate based on strategic initiatives, and it may accelerate investments in sales and marketing, acquisitions, technology, and services depending on growth opportunities [Cash Flow Analysis]. The Board of Directors increased the availability under the existing stock repurchase plan to $1.5 billion and extended the expiration date to August 15, 2026 ⁶⁵. As of December 31, 2025, $1.11 billion ⁶⁶ was available for repurchases under this plan. The company also intends to continue to pay a quarterly cash dividend ¹⁰⁴.

Management has identified macroeconomic pressures, such as inflation and changes in interest rates, as factors that impact clients' hiring practices to varying degrees, which in turn affect revenues ⁶⁹. The performance of certain offerings is sensitive to changes in the labor market, as charges are often on a per-employee basis [Our business depends on our clients’ continued use of our applications, their purchases of additional applications from us and our ability to add new clients.]. The company also notes that pursuing larger clients may result in longer sales cycles and less predictability in completing sales ⁷⁰. Furthermore, the "One Big Beautiful Bill Act" (OBBBA), signed into law on July 4, 2025, allows an immediate deduction for domestic research and development expenditures and reinstates 100% bonus depreciation, which decreased cash tax remittances in the second half of 2025, and the company anticipates continued reductions will positively impact cash flows in future periods ¹⁰³.

Paycom faces several material risks, including the possibility of security vulnerabilities, cyber-attacks, and network disruptions, which could lead to unauthorized access to sensitive data, harm its reputation, and result in significant liabilities ⁷¹. The company is subject to continuously evolving and complex laws and regulations globally, particularly concerning data privacy (e.g., CCPA, CPRA, EU GDPR, IBIPA), AI (e.g., EU AI Act), money transmission, tax, and employment, with non-compliance potentially leading to significant fines, litigation, or reputational damage ⁷². The company's ability to remain competitive depends on its capacity to develop enhancements and new applications, keep pace with rapid technological developments, and respond to future disruptive technologies like AI and machine learning, with significant investments in AI-powered tools carrying risks of obsolescence, bias, or inaccurate outputs ⁷³. The HCM market is highly competitive, with numerous entrants and aggressive pricing strategies, which could adversely affect Paycom's ability to attract and retain clients and maintain pricing levels ⁷⁴. The business is dependent on clients' continued use of applications, purchases of additional applications, and the ability to add new clients, with fluctuations in client employee counts directly impacting revenues ⁷⁵. Failures in solution performance or client dissatisfaction could harm the company's reputation and financial results ⁷⁶. Challenges exist in attracting and retaining larger clients, including demands for customized features, longer sales cycles, and less predictable sales ⁷⁷. The company's success is also dependent on the leadership of key executives and the ability to attract and retain qualified personnel, including software developers and sales staff, in a competitive talent market ⁷⁸. Significant growth and organizational change pose risks if not managed effectively, potentially leading to declines in service quality or operational difficulties ⁷⁹. The company's reliance on third-party relationships for services like payroll checks, tax forms, financial processing, and technology support presents risks if these parties do not perform as expected or if systemic banking disruptions occur ⁸². Furthermore, the use of open-source software in applications may expose the company to additional risks, including security vulnerabilities and intellectual property claims ⁸³. The company's increasing focus on automation, including AI, exposes it to risks related to development complexity, client adoption hesitancy, data sourcing issues, programmed bias, and evolving regulatory scrutiny ⁸⁴. Financial results may fluctuate due to factors beyond the company's control, including seasonality in revenues from payroll tax and ACA form filings, and unscheduled payroll runs ⁸⁸. The Revolving Credit Facility imposes operating and financial covenants, including a consolidated interest coverage ratio of not less than 3.0 to 1.0 and a consolidated leverage ratio of not greater than 3.0 to 1.0, which could restrict business and financing activities if breached ⁸⁹. Adverse economic and market conditions, such as fluctuations in interest rates, inflation, and labor trends, could negatively affect demand for HCM applications and the company's investment income on funds held for clients ⁹⁵.

Management's message to shareholders emphasizes a vision where people should not perform payroll-related and HCM-related tasks that systems can automate, highlighting a strategic focus on incorporating artificial intelligence (AI) and automation across the full solution [Growth Outlook, Opportunities and Challenges]. This automation strategy is seen as a key differentiator for attracting new clients and crucial for long-term client satisfaction and retention [Growth Outlook, Opportunities and Challenges]. The company explicitly states its intention to continue to pay quarterly cash dividends ¹⁰⁴, and on February 10, 2026, the Board of Directors declared a quarterly cash dividend of $0.375 per share of common stock ⁶⁸. Management anticipates that continued reductions in cash tax remittances, following the "One Big Beautiful Bill Act" (OBBBA) signed into law on July 4, 2025, will positively impact cash flows in future periods ¹⁰³. The two or three strategic priorities emphasized for the period ahead include continuing to establish the solution as the HCM industry standard by leveraging sales force productivity, penetrating existing markets, and expanding into new markets, as well as targeting large clients and strengthening and extending the solution through innovation ⁶¹. Management also expects that certain employee-related expenses will be lower in 2026 as compared to 2025 due to efficiencies from automating core business systems ⁹⁹.