Paycom Software - Earnings Call - Q1 2025

Executive Summary

• PAYC delivered a clean Q1 with revenue of $530.5M (+6.1% YoY), non-GAAP EPS of $2.80 (+8% YoY), and adjusted EBITDA of $253.2M (+10% YoY), while GAAP EPS of $2.48 declined YoY due to a one-time G&A benefit in Q1’24; management raised FY25 revenue and EBITDA guidance and highlighted broad-based sales strength and internal efficiency gains.
• Results beat S&P Global consensus on revenue and non-GAAP EPS (Rev: $530.5M vs $522.2M*; EPS: $2.80 vs $2.56*), with margin upside driven by lower S&M and G&A and continued automation benefits; interest on funds held declined 10% YoY as expected due to rate cuts headwinds.
• FY25 guidance raised: revenue to $2.023–$2.038B (from $2.015–$2.035B), adjusted EBITDA to $843–$858M (from $820–$840M), margin ~42% at mid (from ~41%); GAAP tax rate outlook tweaked down to 28% (from 29%).
• Near-term stock narrative: positive estimate revision setup from raised FY guide, strengthening non-GAAP profitability, and proof points on automation/AI (Beti, GONE, Ask Here) offsetting interest headwinds; international optionality increased with an Irish Payment Institution license.

What Went Well and What Went Wrong

• What Went Well

  • Raised FY25 revenue and EBITDA outlook on stronger sales execution and internal efficiency gains; management expects adjusted EBITDA margin expansion vs 2024 to ~42% at mid.
  • Non-GAAP EPS rose to $2.80 (+8% YoY) and adjusted EBITDA grew 10% YoY with margin up ~180 bps YoY to 47.7%, reflecting lower S&M and G&A as a % of revenue and automation benefits; “we are well positioned to deliver an even stronger full-year adjusted EBITDA margin than last year”.
  • Product/AI differentiation resonating: record book sales and higher units; NPS up 16 points YoY; Beti and GONE cited as major ROI drivers; “we have the most automated solution in the industry”.

• What Went Wrong

  • GAAP EPS fell to $2.48 from $4.37 YoY due to the $117.5M Q1’24 one-time G&A benefit (CEO award forfeiture) rolling off; headline GAAP comps look weak despite core improvement.
  • Interest on funds held for clients declined 10% YoY to ~$30.5M given rate-cut headwinds; management embeds two cuts (June and December) in the outlook.
  • R&D expense intensity ticked up (11.7% of revenue; 10.4% adjusted) as the company continues to invest in automation and AI, modestly tempering expense leverage outside S&M/G&A.

Transcript

Operator (participant)

Good afternoon. My name is Lauren, and I'll be your conference operator today. At this time, I would like to welcome everyone to Paycom's First Quarter 2025 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question-and-answer session. If you would like to ask a question during this time, simply press Star by the number one on your telephone keypad. If you would like to withdraw your question, please press Star by the number two. Thank you. I will now turn the call over to James Samford, Head of Investor Relations. You may begin.

James Samford (Head of Investor Relations)

Thank you. Welcome to Paycom's Earnings Conference Call for the First 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 CEO and President. Chad.

Chad Richison (CEO and President)

Thanks, James, and thank you to everyone joining our call today. I'll focus my comments on some of our achievements in the first quarter and the progress we've made executing on our 2025 plan. I'll then turn it over to Bob for a review of our first quarter results and an update of our full-year guidance. We will then take questions. With that, let's get started.

We are executing very well and delivering strong ROI for our clients as they are experiencing the benefits of our full-solution automation strategy. Recent product enhancements and client-focused initiatives are driving positive trends across our client usage metrics, and our Net Promoter Score increased another 16 points year-over-year. We have the most automated solution in the industry, and our clients routinely attest to this. Our award-winning solution, GONE, is a perfect example of how Paycom simplifies tasks through automation and AI.

GONE is the industry's first fully automated time-off solution that decisions all time-off requests based on customizable guidelines set by the company's time-off rules. Before GONE, 10% of an organization's labor costs went substantially unmanaged, creating scheduling errors, increased costs from overpayments, staffing shortages, and employee uncertainty over pending time-off requests. According to a Forrester study, GONE's automation delivers an ROI of up to 800% for clients. GONE continues to receive recognition. Most recently, Fast Company Magazine named Paycom one of the world's most innovative companies for a second time. This honor specifically recognized GONE and is a testament to how Paycom is shaping our industry by setting new standards for automation across the globe. Another example of automation that is changing our industry is Beti.

Our award-winning payroll solution continues to be a major selling point for organizations looking to reduce the labor needed to process payroll by up to 90% and also cut the time spent correcting payroll errors by up to 85%. Beti allows clients to focus resources on profit-driving initiatives as it eliminates human involvement in non-revenue-generating tasks like post-payroll adjustments, check reversals, voids, ledger corrections, and more. Thanks to Beti and the importance of perfect payrolls, we are also successfully getting former clients back onto the Paycom platform. We recently brought back a 500-employee healthcare company who quickly realized the pain they brought on themselves by switching to another provider. With this other provider, this client lost the transparency and ability to fix errors before they became problems.

In fact, their employees were some of the biggest advocates and encouraged this client to return to Paycom because they missed having control over the accuracy of their pay. Once employees experience Beti, they don't want to go backwards in technology. The client returned to us within nine months and went from processing payroll in four days with their previous vendor to four hours with Beti. Sales continues to break records, including the first quarter where we saw a meaningful increase in book sales. We also saw an increase in the number of units sold for the quarter as compared to the same period last year. One of the new clients we onboarded was a 2,500-employee restaurant group who wanted a single, easy-to-use software solution.

Working across nearly 80 locations, this group is now utilizing Beti and the rest of the Paycom suite to automate tasks that were previously performed across numerous systems, which created data inconsistencies. More and more businesses like this one are abandoning disparate decision-making processes for more consistent, scalable, and automated solutions. Organizationally, Paycom was named one of America's best large employers by Forbes, and Newsweek ranked us as one of the most trustworthy companies in America for a fourth consecutive year.

Both are testaments to the strategy and execution of our organization. I'd like to thank our employees for their hard work and dedication that they demonstrate every day. We have a strong balance sheet with high-margin organic growth. We are building on strong momentum, and I'm very pleased with how this is setting us up for even stronger results through the rest of 2025 and beyond. With that, let me turn it over to Bob.

Bob Foster (CFO)

Thank you, Chad. Before I review our first 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 solid first-quarter results. Total revenue of $531 million increased 6% over the comparable prior year period, including a milestone quarter for recurring and other revenue at $500 million, up 7% year-over-year. As expected, rate cuts in 2024 represented a headwind to interest on funds held for clients, which declined 10% year-over-year to approximately $31 million in the first quarter of 2025.

GAAP net income in the quarter was $139 million, or $2.48 per diluted share based on approximately 56 million shares. Non-GAAP net income for the first quarter was $158 million, or $2.80 per diluted share. We delivered strong profitability in the first quarter. Adjusted EBITDA of $253 million increased 10% over the prior year period, representing a 48% margin and a 180 basis point increase over the prior year period. Margin strength in the quarter was driven by solid revenues and effective spend in sales and marketing and G&A.

At the same time, we continue to invest in the areas of AI, product, and R&D. Combining these with efficiencies from internal automation initiatives, we are well-positioned to deliver an even stronger full-year adjusted EBITDA margin than last year. Our balance sheet is strong. We ended the first quarter with cash and cash equivalents of $521 million and no debt. The average daily balance on funds held for clients was approximately $2.9 billion in the first quarter of 2025. During the first quarter of 2025, we paid approximately $21 million in cash dividends.

Earlier this week, the board approved our quarterly dividend of $0.37 per share, payable in mid-June. We repurchased $5 million of common stock through net-downs on vested stock during the first quarter of 2025, and we still have $1.47 billion remaining under our stock repurchase plan. As a reminder, our capital allocation strategy includes a disciplined return of capital through our dividend plan and opportunistic repurchases through our buyback authorization. Now, let me turn to guidance for 2025. We continue to have success selling and onboarding new logos. Based on our strong Q1 results and outlook for the remainder of the year, we are raising our full-year revenue and Adjusted EBITDA guidance ranges. We expect total revenue to be between $2.023 and 2.038 billion, up approximately 8% year-over-year at the midpoint of the range.

For the full year 2025, we expect recurring and other revenue to be up over 9% year-over-year, including growth of approximately 10% year-over-year for the remainder of 2025, with the highest growth coming in Q4. Our expectation for interest on funds held for clients remains unchanged at approximately $110 million in 2025, down 12% year-over-year. Automation of HCM and payroll manual tasks is driving our own internal efficiencies. Because of the efficiencies we are realizing throughout our business, we are raising our full-year adjusted EBITDA guidance range to be between $843 and 858 million.

This represents an expansion of adjusted EBITDA margin to approximately 42% at the midpoint of the range, up 70 basis points compared to 2024. Other forward-looking items include full-year GAAP and non-GAAP tax rates of 28% and 27%, respectively, and stock compensation of approximately 8% of revenues. We are pleased to see our teams executing well against our full-year plan and the positive response from the market. We will continue to invest in our strategic initiatives focused on world-class service, full-solution automation, and high client ROI. With that, we will open the line for questions. Operator.

Operator (participant)

Thank you. At this time, I would like to remind everyone in order to ask a question, press Star then the number one on your telephone keypad. In the interest of time, we ask that you please limit yourself to one question and one follow-up. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Raimo Lenschow from Barclays. Your line is open.

Raimo Lenschow (Managing Director)

Thank you. Congrats. Great start to the year. Two quick questions. One for Chad. At the moment, everyone is obviously worrying about tariffs, volatility. Can you talk a little bit about what you're seeing in your fields? I would assume it's not that much, but what's the feedback from the sales guys, et cetera, on that one? And one question for Bob. You've talked about the efficiency gains that help you on the EBITDA side. Can you maybe give us a couple of examples of how far can you push that to understand that a little bit better? Thank you.

Chad Richison (CEO and President)

Yeah, I'll take the tariffs. I mean, I would say it's still early to kind of be able to judge specifically. I would say we don't have much direct exposure to it. We're not over-concentrated down market where you might see more of the maybe mom-and-pop impact a little bit more than what you could from a total employee base impact. But ultimately, anything that impacts our clients does impact us. It's just we haven't seen anything yet, but it is something that we'll continue to monitor. I would say that it would have to have an impact on employee count and the overall employment, I would say, to really have a meaningful impact on us. But like everyone else, it's something we're monitoring.

Bob Foster (CFO)

And, Raimo, on the efficiency gains, just like our clients, we use our product, all of our product suite. And as we continue to see how we can implement, and maybe there's somebody that doesn't have to, that might leave and we don't backfill a position, let's say, or expense management's a great way where we do some automation around there with our product. So we're seeing the benefits of our full-solution automation throughout basically our entire organization. We've talked in the past about how we are dealing with less tickets now through automation in our service to provide better service to our clients.

Operator (participant)

Thank you. Our next question comes from Samad Samana from Jefferies. Please go ahead.

Samad Samana (Managing Director)

Hey, good evening, and thank you all for taking my question. Congrats to the whole organization. Maybe one for you, Chad, and then one follow-up. Just as I think about the new offices, I know that they usually take, let's call it, 18-24 months to ramp. But I think last quarter, you had mentioned that maybe this go around, it could be a little bit faster. Just are those staffed, have you seen in terms of early impact? And then a follow-up on the in terms of the shape of the year, I'll go ahead and ask them at the same time. Any shift in the number of processing days? Does 4Q have an extra day? Just trying to understand the shape of the year with more context. Thank you both for answering my questions.

Chad Richison (CEO and President)

Yeah, so on the new offices, we get better and better as we open offices. And as you know, we didn't open offices for a couple of years there. And so when we did open up those offices, we were better prepared to hit the ground running. They're still going to mature in 24 months. It'll still take 24 months before a new office will be carrying the same level of quota of a mature office. But we are getting better as we've opened up offices. As far as processing days, any given year, you're going to have a little bit here and there. We did kind of discuss it a little bit last quarter. And then any impact from either additional or less is included in our current guide.

Operator (participant)

Thank you. Our next question comes from Mark Marcon from Baird. Mark, please go ahead.

Mark Marcon (Senior Research Analyst)

Hey, good afternoon, and thanks for taking my questions. So two major questions. One, Chad, can you describe a little bit more about what you've done recently in terms of fine-tuning the sales process, both externally as well as in terms of the internal CRR group, in terms of how they're approaching clients and what sort of results you're seeing from that? That's the first question. And then the second question is, is this more on the margins? When we think about the Q1 to Q2 transition, obviously, there's going to be some seasonality, and obviously, there's some high-margin work that goes into Q1 and inflated fund balances. Can you give us a little bit of guidance just in terms of thinking through Q2, just in terms of the typical seasonality? Thanks.

Chad Richison (CEO and President)

Yeah. So, well, first on the sales side, I would say that we've been continuing to get better and better at sales. I do believe that our sales staff is the best in the world at what they do. We did have a reconstitution, if you will, of training early part of last year as Amy kind of took over the group to get back to the normal blocking and tackling that we've always done here at Paycom. That resulted in increased sales, especially as well as increased units, new logo adds. Obviously, those came on throughout the year, and most would have all started by now. Then as we turned into first quarter, we saw a continuation of the same, up meaningfully in both book sales and units. Activity matters in sales.

Of course, having a product that's getting better and better and better as we go to market, removing barriers of usage. Then as far as on the efficiency side, we're automating everywhere. I mean, we're automating our product for the client. We're automating our product for the client, and we're also automating things internally. There are several tasks that we have to perform on the back end that we've been able to automate. And that has an impact on our Adjusted EBITDA across the board. But it also has an impact on the client experience. And that's really why we're doing a lot of the things that we're doing through automation.

I like to say the only reason a client even calls us is due to a deficiency in the software that we create. And so a lot of our focus has been removing impediments, removing clicks, and really focusing on allowing a client to have a full-solution, fully-solutioned automated product. And so that's been impacting our margins, and that's been impacting our sales.

Operator (participant)

Thank you. Our next question comes from Steve Enders from Citi. Please go ahead.

Steve Enders (Equity Research Analyst)

Okay, great. Thanks for taking the questions here. I guess just to start, I want to ask on the, I guess, the kind of free cash flow dynamics look pretty solid here. Is there anything that we should be kind of taking into account for timing impacts or how we should be thinking about how that maybe compares to the EBITDA progression for the year? And then secondarily, just on the mid-market opportunity, it seems like there was good traction there last quarter, and just wanting to see how that's maybe tracking comparatively from what you saw in 1Q here.

Chad Richison (CEO and President)

Yeah. I mean, the mid-market opportunity, I mean, I would say everywhere for us is going very well. I mean, we're not seeing any changes to demand, if anything. I've always kind of said we also create demand ourselves by the work we do. And as I just talked about, first quarter was up meaningfully for both revenue from a book sales perspective as well as for units. As far as the free cash flow conversion, we did talk about how we've substantially finished out the completion of our facilities. I think we've got a parking garage and something else that'll be coming online. I will say this, though. We are very ambitious with what we do with our technology and what we're doing in the ways of AI and other.

Over time, I would think that some of that spend that we spend on facilities. I think you would see some of that transfer to those technological assets that are required to really run a full-scale, fully automated product. We don't guide to free cash flow. It has been a focus of ours to be able to improve that. I think you've seen a little bit of that recently.

Operator (participant)

Thank you. Our next question comes from Jason Celino from KeyBanc Capital Markets. Please go ahead.

Jason Celino (Managing Director and Equity Research Analyst)

Great. Thank you. I'm just trying to decipher some of the subtleties in kind of the script language today. I think, Bob, in your section, you mentioned the recurring revenue growth being up over 9% this year. I think before it was technically approximately. And then I think you also said that it would be up 10% for the remainder of the year. Is that like an average, or is that kind of like each quarter? Just curious there.

Bob Foster (CFO)

Yeah, Jason. We've talked about being consistent for the Q2, Q3, and Q4 with a little acceleration in Q4 on recurring revenue. That's how we're looking at that.

Jason Celino (Managing Director and Equity Research Analyst)

Okay. Perfect. Thank you for that, and then changing topics a little bit. I think in the quarter, there was a press release saying that you received authorization as a payment institution from the Central Bank of Ireland. Curious what this means for the business and the international part of the story? Thank you.

Chad Richison (CEO and President)

Yeah, and so Ireland and being there allows us to get to the rest of Europe from there, and we've been focused on continuing to build out our product. I mentioned Global HCM that works for all countries. We continue to onboard for that. We actually process native payroll in four other countries other than the U.S., which includes the banking side of it, and so we're continuing to do that, and this was one of those steps that you take to be able to continue to move further into Europe.

Operator (participant)

Thank you. Our next question comes from Daniel Jester from BMO Capital Markets. Please go ahead.

Daniel Jester (Managing Director of Software Research)

Great. Thank you very much for taking my question. Maybe just another one on the product side. You also talked this quarter about getting some credentialing on the background screening side. I guess, is that an incremental revenue opportunity, or how should we be thinking about that?

Chad Richison (CEO and President)

Yeah. So we've been in pre-employment services for a while now. In fact, I think from a size perspective, we're one of the largest out there right now. And so that's been a part of our business for a while. We've continued to get more and more of our clients on that. I would say that I don't know of a better pre-employment service than Paycom's as far as a quick return and its accuracy. So that was confirmed, obviously, by receiving this accreditation. And that's just something that allows us to have a proof source for how well our product's doing for our clients, but also as we move forward and sell other clients, there's no reason for them not to switch pre-employment over to Paycom as well.

Daniel Jester (Managing Director of Software Research)

That's great. Thank you. And then in the script, you talked about a boomerang client who left and came back. I guess, do you have specific programs targeting some of those customers that may have churned over the past few years?

Chad Richison (CEO and President)

Our best prospects sometimes are clients that left because they didn't solve the problem. It's oftentimes just the thorns pulled out of the paw, and you didn't really come with a full solution. And I mean, at the end of the day, clients of ours who are using our products, as they leave and try to go to other companies for maybe they got sold something shiny, or maybe it's a cost-type thing. At the end of the day, when you look at total cost of a system, you have to include both what you're paying as well as the ROI that it delivers to you and the value that you're achieving.

And when that's real and you leave and it doesn't work out, you look to come back. We're also focused on that. We want every client to come back. I mean, there's no questions asked on our part. Let's get going, and so we do have a strategy to get clients that have left back. We also have a strategy to make sure that clients are receiving the value so that they don't have to go through that pain of a conversion just to turn around and come back to us, and so that remains a part of our overall strategy. It has, and we're having a lot of success with that.

Operator (participant)

Thank you. Our next question comes from Jared Levine from TD Cowen. Please go ahead.

Jared Levine (Management Research Analyst)

Thank you. It just suggested you've had limited sequential growth relative to recent years, and haven't really seen too many TV commercials in recent months. Can you talk about how advertising spend is expected to impact FY25 margins? And is there any new strategy surrounding advertising spend right now?

Chad Richison (CEO and President)

Yes. I mean, we are still continuing to spend brand advertising, which is more what you're talking about with commercials and things on TV. We're also doing a lot more direct as we continue to move people down the funnel. We have deployed different initiatives through marketing and advertising that we have not done previously that we're having more success with as well. But I mean, to the extent we were a little light in first quarter on marketing spend, it'll be up more in subsequent quarters before as well. We're not reducing what we're doing in marketing and advertising, but you will have some timing here and there based on those spends, especially now that we're doing more direct than what we've been doing in the past.

Jared Levine (Management Research Analyst)

Got it. And then just wanted to clarify in terms of ExFlow growth gains for the year. Can you dig into why the 4Q ExFlow growth would be the highest for the year?

Chad Richison (CEO and President)

Yeah. I mean, as we continue to go through the year, fourth quarter has always kind of had that opportunity with your additional payroll runs, which again, are hard for us to necessarily forecast right now, but we do have placeholders for that. I think you saw fourth quarter last year was also one of our largest growth quarters. And also, I would say traditionally, first quarter was like that for quite a long time. But with our first quarter forms business, it just doesn't grow at the same level with the rest of our business. Meaning, at the end of the year, we've pretty much done ACA, W-2s, and 1099s for about 10 years now.

We haven't added any additional annual services to that. And I believe the fees are the exact same that they were 10 years ago still. And so meanwhile, the rest of our business with the products that we make and sell, it continues to grow disproportionately to those forms of business in the first quarter. And so you've been kind of seeing a little bit of a trend of that in regards to fourth quarter because of those additional payroll runs.

Operator (participant)

Thank you. The next question comes from Bhavin Shah from Deutsche Bank. Please go ahead.

Bhavin Shah (Director of Software Equity Research)

Great. Thanks for taking my question. Chad, just back to the authorization you received to be a payment institution in Europe. What are the next steps that you're looking to accomplish to go further into that region? And then how do you kind of think about your go-to-market strategy, your product strategy internationally as you progress kind of down that path?

Chad Richison (CEO and President)

And our global market strategy right now is focused on U.S.-based companies that have locations, employees, and operations in other countries as we continue to build out our systems. And as it makes sense for us to go in-country to make sales locally to those, that's something that we'll be deploying at the right time. For now, this allows us to move money throughout Europe. The last yard of a payroll is actually getting it into the employee's account correctly. And if you do everything else right, you don't do that part, you kind of did nothing. So for us to make sure that we ensure the highest quality for all of our clients, we like to keep the ball in our hand. And this is something that's required to do that.

Bhavin Shah (Director of Software Equity Research)

That's helpful there. Just one quick call for Bob. Just on the flow guidance, can you just remind us what's embedded in terms of rate cut expectations? Thanks so much.

Bob Foster (CFO)

Yes. We had two rate cuts embedded in the guidance, one in June and one in December.

Operator (participant)

Thank you. The next question comes from Joshua Reilly from Needham & Company. Please go ahead.

Ian Black (Managing Partner)

Hi. This is Ian Black on for Joshua Reilly. Thank you for taking my question. How is gross retention trending given the improving customer satisfaction and the lapping of any churn from the shift to Beti?

Chad Richison (CEO and President)

Yeah. So we do report retention once a year. Obviously, it's reflected. The net of it is reflected in both of our current quarter achievements as well as any future guidance. We did talk about, on the call, how our net promoter continues to go up. And also that we are continuing to see more utilization of all of our products as we've removed more and more impediments to good usage. All of that is meant to have a positive impact on our retention. So those are all early indicators of things that we would expect to be reporting at the end of the year.

Ian Black (Managing Partner)

Thank you.

Operator (participant)

Thank you. Our next question comes from Siti Panigrahi from Mizuho. Please go ahead.

Philip Di Perna (Senior Wealth Advisor)

Hey, it's Phil on for Citi. Just a quick one for me. Are you guys seeing any shifts in how your competitors are positioning on price or discounting in the market?

Chad Richison (CEO and President)

Not any different than anything we've seen in the past.

Philip Di Perna (Senior Wealth Advisor)

Got it. Thank you. It's helpful.

Operator (participant)

Our next question is Brian Schwartz from Oppenheimer. Please go ahead.

Brian Schwartz (Managing Director and Senior Analyst)

Thank you for taking my questions this afternoon and nice start to the year. Chad, in terms of maybe more of a real-time question on what you're seeing in terms of demand, clearly the macro pressures did not impact the business at all in 1Q. But how is the business faring in April when those macro pressures intensified? And I have a follow-up for Bob.

Chad Richison (CEO and President)

Yeah. I mean, we're just not seeing it right now. I mean, again, I wouldn't say we're overexposed to any one industry or any one employee size necessarily. We definitely don't have overexposure to the small business side. I will just say I think there's a lot of different movements, and I think as you have different tariffs and what have you, businesses will maneuver, and they'll maneuver to what makes sense for them, and so I think there'll be a lot of that at play as we move on.

I think it's important to keep in mind, although our direct exposure is low and we're not seeing anything, I mean, we're not seeing anything. Anything that impacts our clients, I mean, it will eventually impact us, but that would have to be somewhat reflected through reduction in force. And so I think you would have some leading indicators to that. And right now, we don't have anything to call out.

Brian Schwartz (Managing Director and Senior Analyst)

My follow-up question for Bob: Given the greater operating efficiencies that you're realizing internally from AI, has that made you change the hiring plan for the year? Thanks.

Chad Richison (CEO and President)

No. We've had an AI plan and a full automation plan for a little bit now, and so our hiring plans did change, but not for what our expectations were this year. We've been able to repurpose people in different areas. I do want to make a point on this, though. With all the automations that we've done on the back end, we will always have a high-touch service model. We do have a high-touch service model, and we're putting a lot of resources into our people to make it easier for them to service our clients, as well as allow the clients to get more value out of the product without having to crawl through something to get it, and so we've been very focused on that.

With greater automation, obviously, we can do things quicker, and it doesn't require the same type of labor commitment to it. That said, when you have great people and you do have an opportunity to put them in places that can make impacts, we look to do that. So oftentimes, to Bob's point, Bob made the point early in this call, it's oftentimes where we just don't need to hire as many people in certain areas. There are areas within Paycom that continues to grow at a rate equal to or larger than it has in the past when you're looking at areas like sales, or you're looking at areas like software development and those types of areas. And then there's other areas which were more administrative on the back end, which are being automated.

I mean, I'm telling people, I mean, if you're inputting something into spreadsheets and out of spreadsheets and all that, I mean, that's going away. It's going away, and it'll end up going away everywhere. So get a skill set that's not that. And that's what we're focused on. And so we're that type of business. We create value for our clients when we automate. We create value for ourselves when we automate. And that's what we've been focused on for quite some time now. And it's rolling out. It's actually rolling out. It's not just a goal. We're actually achieving it and rolling out throughout the product as well as our back end.

Operator (participant)

Thank you. This concludes the question and answer portion of today's call. So now I'll turn the call back over to Mr. Chad Richison for closing remarks.

Chad Richison (CEO and President)

I want to thank everyone for joining our call today, and I want to thank our employees for all their hard work and their commitment to Paycom's success. We'll be participating in several investor events this quarter, including the Needham Virtual Technology and Media Conference on May 12th, then on May 28th, Bob and James will be attending the Jefferies Software Conference in Newport, and finally, on June 3rd, we'll be presenting at Baird's Global CTS Conference in New York City. Thanks for your interest in Paycom, and operator, you may disconnect.

Operator (participant)

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