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Paycom Software, Inc. (PAYC)·Q3 2025 Earnings Summary

Executive Summary

  • Revenue was $493.3M, up 9.1% YoY and slightly above consensus; non-GAAP diluted EPS was $1.94, modestly below consensus, while GAAP diluted EPS was $1.96 aided by a $26.3M tax-adjusted gain from a naming rights agreement modification . Q3 revenue vs consensus: $493.3M vs $492.8M*, EPS: $1.94 vs $1.97*.
  • Adjusted EBITDA was $194.3M (39.4% margin), +13% YoY with margin expansion vs prior year, supported by service and G&A efficiencies and automation .
  • FY25 guidance maintained at the levels raised in Q2: total revenue $2.045–$2.055B, recurring revenue growth ~10% YoY, interest on client funds ~$113M, adjusted EBITDA $872–$882M (~43% margin midpoint) .
  • Strategic catalysts: full rollout of the IWant AI command engine across the client base; front-loaded ~$100M AI/data center CapEx; workforce optimization (~500 administrative reductions); aggressive capital returns (Q3 dividends + buybacks; ~$319M repurchased in the last two months, authorization ~$1.1B remaining) .

What Went Well and What Went Wrong

What Went Well

  • Double-digit organic recurring revenue growth with expanding margins; recurring and other revenue rose 10.6% YoY to $466.5M and comprised 94.6% of total revenue .
  • Launch and full enablement of IWant, Paycom’s command-driven AI; management emphasized C-suite and new-user engagement, removing training needs and speeding access to value (“command-driven functionality is the future for all software”) .
  • Operational efficiencies: adjusted EBITDA margin expansion YoY to 39.4% despite an 11% YoY decline in interest on client funds; reductions in internal tickets/call volumes and service efficiency gains cited on the call .

What Went Wrong

  • Non-GAAP EPS ($1.94) modestly missed consensus ($1.97*) even as revenue was slightly ahead; GAAP EPS benefited from a naming-rights gain, potentially obscuring core profit trajectory .
  • Elevated, front-loaded AI/data center CapEx (~$100M) depressed free cash flow conversion in Q3; marketing spend was ramped to support IWant, with returns expected over coming quarters .
  • Workforce reductions of ~500 administrative roles signal near-term restructuring; benefits expected largely in 2026, introducing execution risk on the transition .

Financial Results

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($USD Millions)451.9 530.5 483.6 493.3
GAAP Diluted EPS ($)1.31 2.48 1.58 1.96
Non-GAAP Diluted EPS ($)1.67 2.80 2.06 1.94
Gross Margin (%)80.5% 84.0% 81.9% 82.7%
Adjusted EBITDA ($USD Millions)171.3 253.2 198.3 194.3
Adjusted EBITDA Margin (%)37.9% 47.7% 41.0% 39.4%
Net Income Margin (%)16.2% 26.3% 18.5% 22.4%

Segment/Revenue Composition

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Recurring & Other Revenue ($USD Millions)421.8 500.0 455.1 466.5
Interest on Funds Held for Clients ($USD Millions)30.1 30.5 28.5 26.8
Recurring & Other as % of Total Revenue—94.2% 94.1% 94.6%

KPIs and Balance Sheet

KPIQ1 2025Q2 2025Q3 2025
Cash & Cash Equivalents ($USD Millions)520.8 532.2 375.0
Total Debt ($USD Millions)0 0 0
Avg Daily Balance – Funds Held for Clients ($USD Billions)—~2.6 ~2.5
Dividends Paid in Quarter ($USD Millions)21.1 21.8 21.1
Shares Repurchased (Quarter)24,987 shares; $5.2M 127,717 shares; $32.6M 1,023,790 shares; $223.4M

Guidance Changes

MetricPeriodPrevious Guidance (Q1 2025)Current Guidance (Q3 2025)Change
Total Revenue ($USD Billions)FY 2025$2.023–$2.038 $2.045–$2.055 Raised
Recurring & Other Revenue Growth (%)FY 2025~9% ~10% Raised
Interest on Funds Held for Clients ($USD Millions)FY 2025~110 ~113 Raised
Adjusted EBITDA ($USD Millions)FY 2025$843–$858 $872–$882 Raised
Adjusted EBITDA Margin (%)FY 2025~42% midpoint ~43% midpoint Raised
Tax Rate (GAAP / Non-GAAP)FY 2025—27% / 26% New detail
Dividend per Share ($)Q4 2025—$0.375 declared Nov 3 New

Note: Management reiterated that variability in Q4 from bonus and unscheduled payroll runs can affect quarterly revenue cadence .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
AI/Technology – IWant rolloutIntroduced in Q2; full-solution automation focus; activation starting late July Fully enabled across client base; millions of queries; strong C-suite engagement; hosted in owned data centers Accelerating adoption and usage
AI/Data Center CapExPreparing to reinvest margin into AI hardware; CapEx rising in H2 ~$100M front-loaded AI/data center spend largely complete; multi-year capacity runway Front-loaded; taper expected post-Q3
Sales/New Logos & MarketingRecord sales; ramping H2 marketing to support IWant Marketing ramp continued; expected benefits in future quarters Investment continues; conversion lag
Operational Efficiency/HeadcountEfficiency gains slowing hiring/backfill ~500 administrative reductions; primary financial benefit in 2026 Restructuring underway
Funds Interest & Macro RatesInterest on client funds down 11% YoY Q2; two rate cuts assumed Interest on client funds down 11% YoY Q3; guidance assumes one additional rate cut Rates remain a headwind
Capital ReturnsDividend and buybacks ongoing; large remaining buyback authorization ~$319M repurchased in last two months; ~$1.1B authorization remaining; dividend declared Aggressive returns maintained

Management Commentary

  • “We delivered another strong quarter of double-digit organic recurring revenue growth and expanding margins… IWant continue[s] to be [a] differentiator” — Chad Richison .
  • “We’ve significantly expanded our data center capabilities, spending roughly $100 million of AI-focused CapEx… front-loaded this CapEx to match the timing of our IWant rollout” .
  • “Adjusted EBITDA margin in the quarter was 39%… driven by automation and operating efficiencies in service, support, and in G&A” — CFO Bob Foster .
  • “We reduced mostly administrative by about 500 people… [benefit] primarily… received in 2026” — Chad Richison .
  • “We repurchased $319 million of common stock in the open market… ~3% of shares outstanding… ~$1.1 billion remaining under our buyback authorization” — CFO Bob Foster .

Q&A Highlights

  • IWant monetization: not priced separately; management expects impact via higher new logo volume, greater module attach and retention improvements .
  • CapEx and free cash flow: ~$100M AI/data center CapEx is front-loaded; expects no similar magnitude of CapEx over the next couple of years, improving FCF conversion trajectory .
  • Recurring revenue growth cadence: Q3 around 10.6% YoY as guided; Q4 guided slightly above Q3 with typical variability from bonus/unscheduled runs .
  • Employment/workforce levels: stable employment levels on platform; operational efficiency initiatives to increasingly drive margins and retention .
  • GPU optimization and owned hosting: preference for owned data centers and internal optimization rather than external LLMs/public cloud due to data integrity, cost, and control .

Estimates Context

MetricQ1 2025Q2 2025Q3 2025
Revenue – Actual ($USD Millions)530.5 483.6 493.3
Revenue – Consensus ($USD Millions)522.23*471.95*492.82*
Revenue Surprise ($USD Millions)+8.27*+11.65*+0.48*
Primary EPS (Non-GAAP) – Actual ($)2.80 2.06 1.94
Primary EPS – Consensus ($)2.56*1.78*1.97*
EPS Surprise ($)+0.24*+0.28*-0.03*
EBITDA – Consensus ($USD Millions)236.94*177.78*192.56*

Values retrieved from S&P Global.*

Notes:

  • EPS comparisons reflect non-GAAP diluted EPS (“Primary EPS”) as commonly used in consensus. GAAP EPS ($1.96 in Q3) included a ~$26.3M tax-adjusted gain from naming rights modification .
  • EBITDA definitions may differ between S&P Global consensus and company-reported adjusted EBITDA; interpret with caution .

Key Takeaways for Investors

  • Q3 was broadly in line-to-better on revenue with a modest non-GAAP EPS shortfall; margin strength persisted despite lower interest on client funds and stepped-up AI/marketing investments .
  • The IWant AI rollout is a multi-quarter catalyst for engagement, module attach, and retention; it is supported by a front-loaded, largely completed ~$100M AI/data center build fostering control and scalability .
  • FY25 guidance held at raised levels from Q2 with ~9% total revenue growth and ~43% adjusted EBITDA margin midpoint; watch Q4 variability from bonus runs .
  • Structural efficiency actions (including ~500 administrative reductions) should be more visible in 2026 margins, while near-term focus remains on revenue growth and go-to-market execution .
  • Capital returns are robust (dividend and accelerated buybacks; ~$1.1B authorization remaining), underpinned by net cash and zero debt .
  • Near-term trading: monitor IWant adoption metrics, recurring revenue growth cadence into Q4, and signals on CapEx taper/FCF conversion; medium-term thesis: AI-led automation and owned data-center moat, driving sustained margin resilience and higher attach/retention .