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Paycom Software, Inc. (PAYC)·Q1 2025 Earnings Summary

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 .

Financial Results

Revenue and composition (USD millions)

MetricQ1 2024Q4 2024Q1 2025
Total Revenue$499.9 $493.8 $530.5
Recurring & Other$466.0 $464.8 $500.0
Interest on Funds Held for Clients$33.9 $29.0 $30.5

Profitability (EPS in USD, USD millions otherwise)

MetricQ1 2024Q4 2024Q1 2025
GAAP Diluted EPS$4.37 $2.02 $2.48
Non-GAAP Diluted EPS$2.59 $2.32 $2.80
Adjusted EBITDA ($)$229.5 $214.9 $253.2

Margins

MetricQ1 2024Q4 2024Q1 2025
Gross Margin %84.3% 83.1% 84.0%
Adjusted Gross Margin %84.9% 83.6% 84.6%
Net Income Margin %49.4% 23.0% 26.3%
Adjusted EBITDA Margin %45.9% 43.5% 47.7%

Revenue composition (segment-like disclosure, USD millions)

ComponentQ1 2024Q1 2025
Recurring & Other$466.0 $500.0
Interest on Funds Held for Clients$33.9 $30.5
Total$499.9 $530.5

KPIs and cash flow

KPIQ1 2024Q1 2025
Free Cash Flow ($M)$100.9 $144.8
FCF Margin %20.2% 27.3%
Cash & Equivalents ($M)$371.3 $520.8
Avg Daily Funds Held for Clients ($B)—~$2.9

Q1 2025 vs S&P Global consensus

MetricActual (Company)Consensus*Surprise
Revenue ($M)$530.5 $522.2*+$8.3M / +1.6pp
Non-GAAP Diluted EPS ($)$2.80 $2.56*+$0.24
Adjusted EBITDA ($M)$253.2 $236.9*+$16.3M

Values marked with * retrieved from S&P Global.

Context: management noted YoY interest headwinds and cited internal efficiency and lower S&M/G&A as drivers of margin outperformance . Note that S&P Global definitions for “EBITDA” may differ from company “Adjusted EBITDA.”

Guidance Changes

MetricPeriodPrevious Guidance (as of Q4’24)Current Guidance (Q1’25)Change
Total RevenueFY 2025$2.015–$2.035B (~8% mid) $2.023–$2.038B (~8% mid) Raised
Recurring & Other Revenue GrowthFY 2025~9% YoY ~9% YoY; ~10% YoY for remainder of 2025, highest in Q4 (qualitative) Maintained (added cadence color)
Interest on Funds Held for ClientsFY 2025~$110M ~$110M Maintained (assumes 2 cuts: Jun & Dec)
Adjusted EBITDAFY 2025$820–$840M (~41% mid) $843–$858M (~42% mid) Raised
GAAP Tax RateFY 2025~29% ~28% Lowered
Non-GAAP Tax RateFY 2025~27% ~27% Maintained
Stock-based Compensation (% Rev)FY 2025~8% ~8% Maintained
DividendQ2 2025—$0.375/share payable Jun 9 (record May 27) Announced

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3’24)Previous Mentions (Q4’24)Current Period (Q1’25)Trend
Automation/AI (Beti, GONE, Ask Here/AI agent)Emphasis on full-solution automation and ROI AI agent cut service tickets >25% YoY; continued automation focus NPS +16 pts YoY; record sales; continued AI/automation efficiency gains Improving adoption/impact
Sales execution/new logosSalesforce “continues to set records” Record January book sales; opened 3 offices (Raleigh, LA, Providence) “Meaningful increase” in Q1 book sales and units sold; more offices ramping Strengthening
Retention/Client experience—Annual revenue retention 90% (flat), expecting improvement; focus on usage NPS +16 pts; strategy to win back “boomerang” clients Gradually improving
Macro/tariffs exposure—Macro not assumed in guide; stable employment assumptions Limited direct exposure; monitoring tariffs; no impact seen yet Neutral
Interest headwinds—Strong float; but rates a variable; guide embeds cuts Interest on funds held -10% YoY; guide embeds two rate cuts Modest headwind
International expansion—Live in 4 countries; building global HCM PI license from Central Bank of Ireland to expand EEA payroll Expanding capability

Management Commentary

  • “We delivered strong results in the first quarter, led by our differentiated approach to automation, strong sales execution and operational efficiency gains” .
  • “We are well positioned to deliver an even stronger full-year adjusted EBITDA margin than last year” .
  • “GONE… decisions all time-off requests… According to a Forrester study, GONE's automation delivers an ROI of up to 800%” .
  • “Beti… reduce the labor needed to process payroll by up to 90% and… cut the time spent correcting payroll errors by up to 85%” .
  • “Average daily balance on funds held for clients was approximately $2.9 billion in the first quarter” .
  • “Authorization as a Payment Institution [in Ireland]… allows us to move further into Europe” .

Q&A Highlights

  • Efficiency and margins: Internal automation reduces tickets and backfills fewer roles; margin leverage coming from S&M and G&A efficiency while continuing AI/R&D investment .
  • Macro/tariffs: No meaningful impact observed; limited direct exposure; any impact would flow through employment levels; monitoring ongoing developments .
  • Revenue cadence: Recurring revenue growth >9% for FY25 with ~10% growth in Q2–Q4 and highest in Q4; forms business constrains Q1 growth mix .
  • Rates assumption: Guidance embeds two Fed cuts (June and December) for funds held for clients interest outlook (~$110M) .
  • International: Irish PI license enables EEA payroll money movement; initial focus on U.S.-based multinationals while building in-country capabilities .
  • Marketing: Q1 brand spend light; more direct/digital to follow in subsequent quarters; no reduction in overall strategy .

Estimates Context

  • Against S&P Global consensus, PAYC beat on revenue ($530.5M vs $522.2M*) and non-GAAP EPS ($2.80 vs $2.56*). Company-reported adjusted EBITDA ($253.2M) exceeded S&P Global “EBITDA” consensus ($236.9M*), noting definitional differences vs adjusted metrics .
  • Expect upward estimate revisions to FY25 EBITDA and margins following the guide raise and commentary on continued operating efficiencies (AI/automation), partially offset by interest headwinds .

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • PAYC’s Q1 beat-and-raise quarter underscores durable core growth (recurring +7.3% YoY) despite rate headwinds, with clear operating leverage from automation; margins expanded materially .
  • FY25 revenue and EBITDA guide were raised with a higher margin outlook (~42% mid), suggesting continued expense discipline and efficiency gains through the year .
  • Automation moat is deepening (Beti, GONE, Ask Here/AI agent) and driving both client ROI and PAYC margin structure; NPS up 16 points YoY confirms improving client experience .
  • Revenue cadence skews stronger into Q4 driven by recurring growth acceleration and additional payroll runs; interest on client funds remains a manageable headwind under embedded two-cut scenario .
  • International optionality improved via Irish PI license, enabling EEA payroll money movement without third parties—medium-term catalyst as product/localization scales .
  • For trading: positive estimate-revision momentum and raised FY guide are near-term catalysts; watch macro/employment trends and rate path as swing factors for interest income and growth optics .
  • Medium term: continued sales force productivity (new offices ramping), AI-driven operating leverage, and retention improvements (“boomerang” wins) support a margin-expansion-with-growth thesis .

Additional Detail and Cross-References:

  • Q1 2025 highlights: revenue $530.5M, GAAP NI $139.4M (26.3% margin), non-GAAP NI $157.7M (diluted $2.80), adjusted EBITDA $253.2M (47.7% margin), cash $520.8M, no debt .
  • YoY GAAP EPS down due to Q1’24 one-time $117.5M G&A benefit from CEO award forfeiture; non-GAAP metrics reflect underlying improvement .
  • Dividend declared: $0.375 per share, payable June 9, record May 27 .