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Paycom Software, Inc. (PAYC)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered double‑digit growth and margin expansion: revenue $483.6M (+10.5% YoY), non‑GAAP diluted EPS $2.06 (+27% YoY), and adjusted EBITDA $198.3M (+24% YoY); management raised FY2025 revenue ($2.045–$2.055B) and adjusted EBITDA ($872–$882M) guidance .
  • Results beat S&P Global consensus: revenue beat by ~$11.6M and non‑GAAP EPS beat by $0.28; recurring revenue grew 12.2% YoY to $455.1M (94.1% of total) . Consensus values denoted with asterisks; Values retrieved from S&P Global.*
  • Product catalyst: launch of IWant, a command‑driven AI engine intended to increase usage, satisfaction, and ROI; initial activation started Jul 31 with ~10–20% of clients turned on in the first week, with a plan to activate the entire base through Q3 .
  • Capital allocation and outlook: cash & equivalents $532.2M, no debt; declared $0.375 dividend payable Sept 8, 2025; CFO reiterated plans to reinvest margin gains into AI/CapEx while keeping free cash flow margin similar to last year .

What Went Well and What Went Wrong

What Went Well

  • Strong topline and profitability with raised FY2025 targets: revenue $483.6M, adjusted EBITDA $198.3M (41% margin), non‑GAAP EPS $2.06; FY2025 revenue and adjusted EBITDA ranges increased vs prior quarter .
  • Sales execution and product momentum: “Outside sales continues to set records,” and IWant is “the most significant product in our company's history” designed to eliminate navigation and deliver accurate results from a single database .
  • Efficiency and margin drivers: adjusted EBITDA margin up ~450 bps YoY to 41%, aided by revenue upside, G&A efficiencies, and timing of marketing spend; focus on automation slowing hiring/backfills contributed to margin strength .

What Went Wrong

  • Interest headwind: interest on funds held for clients declined 11% YoY to ~$28.5M (down from $32.0M), and FY2025 assumes two rate cuts with interest revenue of ~$113M .
  • Higher investment needs: management will “increase our marketing and R&D budgets in the back half of the year” to support IWant, and CapEx for GPUs/AI infrastructure will be front‑loaded and transitory, tempering free cash flow uplift near‑term .
  • Sequential seasonality: revenue decreased sequentially from Q1 ($530.5M) to Q2 ($483.6M), typical seasonality for payroll/HCM, while R&D expense rose YoY to $74.8M as the company leaned into product innovation .

Financial Results

Core P&L vs prior periods and S&P consensus

MetricQ2 2024Q1 2025Q2 2025 ActualQ2 2025 Consensus*
Revenue ($USD Millions)$437.5 $530.5 $483.6 $471.95*
GAAP Diluted EPS ($)$1.20 $2.48 $1.58 —
Non-GAAP Diluted EPS ($)$1.62 $2.80 $2.06 $1.78*
Adjusted EBITDA ($USD Millions)$159.7 $253.2 $198.3 —
Adjusted EBITDA Margin (%)36.5% 47.7% 41.0% —

Notes: Consensus figures marked with asterisks; Values retrieved from S&P Global.*

Revenue composition

MetricQ2 2024Q1 2025Q2 2025
Recurring & Other Revenue ($M)$405.5 $500.0 $455.1
Interest on Funds Held for Clients ($M)$32.0 $30.5 $28.5
Recurring & Other as % of Total92.7% 94.2% 94.1%

Margins and cash

MetricQ2 2024Q1 2025Q2 2025
Gross Margin (%)80.8% 84.0% 81.9%
Net Income Margin (%)15.5% 26.3% 18.5%
Adjusted EBITDA Margin (%)36.5% 47.7% 41.0%
Cash & Equivalents ($M)—$520.8 $532.2
Total Debt ($M)—$0.0 $0.0

Guidance Changes

MetricPeriodPrevious Guidance (Q1 2025)Current Guidance (Q2 2025)Change
Total Revenue ($B)FY2025$2.023–$2.038 $2.045–$2.055 Raised
Recurring & Other Revenue YoY GrowthFY2025~9% ~10% Raised
Interest on Funds Held for Clients ($M)FY2025~$110 ~$113 Raised
Adjusted EBITDA ($M)FY2025$843–$858 (≈42% margin) $872–$882 (≈43% margin) Raised
GAAP / Non‑GAAP Tax Rate (%)FY2025—GAAP ~27%, Non‑GAAP ~26% New detail
Stock‑based Compensation (% of Revenue)FY2025—~7% New detail
Dividend per Share ($)Q3 2025—$0.375 payable Sept 8, 2025 Announced

Earnings Call Themes & Trends

TopicQ4 2024 (Q‑2)Q1 2025 (Q‑1)Q2 2025 (Current)Trend
AI/Technology initiativesAutomation value; product awards (GONE) Automation and expanding margins; raised FY outlook Launch of IWant (voice/command‑driven AI), executive mode, single database accuracy Accelerating product innovation; AI at center
Sales executionClient counts/revenue retention stable; new offices opened Jan 2025 “Differentiated automation,” strong sales Outside sales “set records”; plan to activate IWant across clients; new offices ramping quickly Stronger go‑to‑market momentum
Margins & OpExFY2024 adjusted EBITDA margin 41.2% Q1 adjusted EBITDA margin 47.7%; timing helped S&M Q2 adjusted EBITDA margin 41%; efficiency in G&A; marketing/R&D to increase in H2 Healthy margins with targeted reinvestment
CapEx/InfrastructureFY2024 CapEx $192.9M Incremental AI/CapEx emerging Front‑loaded AI/CapEx (GPUs); transitory spend; FCF margin similar to last year Near‑term investment phase
Macro/InterestInterest on funds $124.9M FY2024 Interest $30.5M Q1 Interest $28.5M Q2; FY assumes two rate cuts, interest ~$113M Gradual decline from rate normalization
Tax and SBC——FY2025 GAAP tax ~27%, non‑GAAP ~26%; SBC ~7% of revenue Added outlook detail

Management Commentary

  • CEO framing on IWant: “IWant is the biggest release since our founding in 1998… Command‑driven automation marks the beginning of the future of all software” .
  • Product differentiation and sales: “We delivered very strong results… Outside sales continues to set records… clients are benefiting from the most automated solution… Now with IWant… we are well positioned to extend our product lead” .
  • CFO on guidance and financial strength: “We are raising our full year revenue and adjusted EBITDA guidance… adjusted EBITDA margin ~43%… ended the quarter with cash & equivalents of $532M and no debt” .

Q&A Highlights

  • Monetization and adoption of IWant: Management emphasized indirect monetization via higher full‑solution deployments, sales volume, and retention rather than separate pricing; activation started July 31 with rapid rollout plans .
  • Margin investment priorities: Several percentage points of margin expansion expected, reinvested into AI/CapEx; free cash flow margin targeted similar to last year .
  • Marketing/R&D ramp: Planned heavier marketing spend in Q3–Q4 tied to IWant opportunity; spend measured for ROI .
  • CapEx detail: Near‑term, front‑loaded spend for AI infrastructure; transitory nature expected; company owns and hosts its own platform .
  • Sales momentum visibility: Record new sales in Q1 and Q2 with many not yet started; expect subsequent quarters to reflect onboarding; heightened internal excitement .

Estimates Context

  • Q2 2025 beats: Revenue $483.6M vs $471.95M*; non‑GAAP diluted EPS $2.06 vs $1.78* — broad‑based beat driven by recurring revenue strength and efficiency gains . Consensus values marked with asterisks; Values retrieved from S&P Global.*
  • Forward quarters: Street models Q3/Q4 2025 revenue at ~$492.82M* / ~$542.77M* and EPS at ~$1.97* / ~$2.45*, consistent with management’s raised FY guide; IWant rollout could bias revisions upward if adoption accelerates.* Consensus values marked with asterisks; Values retrieved from S&P Global.*

Actual vs Consensus Table (Q2 2025)

MetricActualConsensus*Surprise
Revenue ($USD Millions)$483.6 $471.95*+$11.6M
Non-GAAP Diluted EPS ($)$2.06 $1.78*+$0.28

Notes: Consensus figures marked with asterisks; Values retrieved from S&P Global.*

Key Takeaways for Investors

  • The quarter was a clean beat on both revenue and EPS with FY2025 guidance raised across revenue, adjusted EBITDA, and interest on client funds — constructive for estimate revisions and sentiment .
  • IWant introduces a new command‑driven AI interface leveraging Paycom’s single database, aiming to expand usage and retention; rapid client activation underway provides a near‑term product narrative catalyst .
  • Margin quality improved amid efficiency gains, but management will reinvest in AI/marketing in H2, which may cap incremental free cash flow upside near‑term while supporting durable growth .
  • Interest tailwind is normalizing; FY outlook embeds two rate cuts, setting appropriate expectations for interest on client funds .
  • Balance sheet optionality remains strong (no debt; $532M cash) supporting dividends and buybacks while funding AI investments .
  • Watch for sequential acceleration from record sales as implementations start and IWant drives full‑suite adoption; sales office expansions are ramping quickly (e.g., Providence) .
  • Near‑term trading lens: Positive estimate revisions and product momentum are offsets to H2 OpEx/CapEx ramp; monitor adoption metrics, recurring revenue growth cadence, and margin trajectory in Q3/Q4 .