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Paycom Software, Inc. (PAYC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered accelerating top-line and profitability: revenue $493.8M (+13.6% YoY), GAAP diluted EPS $2.02, and adjusted EBITDA $214.9M with a 43.5% margin, aided by operational efficiency and automation initiatives .
  • FY 2025 guidance initiated: revenue $2.015–$2.035B (~8% YoY midpoint), recurring and other revenue growth ~9%, interest on client funds ~$110M, and adjusted EBITDA $820–$840M (~41% margin midpoint) .
  • Retention stable at 90%; total client count 37,543 (+2% YoY). Management flagged record sales momentum to start 2025 and opened three new sales offices (Raleigh, Los Angeles, Providence) .
  • Operating framework shifts to annual guidance (no quarterly), CFO transition to Bob Foster (effective Feb 21), and dividend maintained at $0.375, all notable narrative catalysts for investor positioning .

What Went Well and What Went Wrong

What Went Well

  • Strong Q4 print and margin expansion: adjusted EBITDA margin 43.5% (+290 bps YoY), supported by efficiency gains; FY 2024 adjusted EBITDA reached $775.4M .
  • Automation-led ROI: Beti drove ~85% reduction in payroll effort for highlighted clients; GONE cited with up to 800% ROI; internal AI agent eliminated >25% of service tickets YoY, improving response times and NPS .
  • Demand and sales momentum: January 2025 was the company’s largest sales month ever; expansion of field coverage with three new offices to support growth .

What Went Wrong

  • Client metrics mixed: parent-group client count was “relatively flat”; total client count grew 2% with revenue retention at 90%—solid but below prior-years’ peak levels, a continuing investor focus area .
  • Interest income sensitivity: management expects interest headwinds in Q1 as float revenue normalizes with rate cuts, shaping quarterly seasonality near term .
  • Gross margin previously pressured by facility ramps and depreciation; while gross margin improved in Q4, management acknowledged new building costs impacted margins in the back half of 2024 .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Total Revenues ($USD Millions)$437.5 $451.9 $493.8
Recurring and Other Revenues ($USD Millions)$405.5 $421.8 $464.8
Interest on Funds Held for Clients ($USD Millions)$32.0 $30.1 $29.0
Diluted EPS - Continuing Operations ($USD)$1.20 $1.31 $2.02
Non-GAAP Diluted EPS ($USD)$1.62 $1.67 $2.32
Adjusted EBITDA ($USD Millions)~$160.0 $171.3 $214.9
Adjusted EBITDA Margin %36.5% 37.9% 43.5%
Gross Margin %N/A80.5% 83.1%
GAAP Net Income ($USD Millions)$68.0 $73.3 $113.6
YoY Revenue Growth %9.0% 11.2% 13.6%

Segment composition (Revenue)

MetricQ2 2024Q3 2024Q4 2024
Recurring and Other ($USD Millions)$405.5 $421.8 $464.8
Interest on Funds Held for Clients ($USD Millions)$32.0 $30.1 $29.0
Total Revenues ($USD Millions)$437.5 $451.9 $493.8

KPIs and balance/capital allocation snapshots

KPI / MetricValue
Client count (parent-group basis)19,422 (flat YoY)
Total client count37,543 (+2% YoY)
Annual revenue retention rate90% (unchanged YoY)
Employee records stored7.0M (+3% YoY)
Cash & Cash Equivalents$402.0M (12/31/24)
Total Debt$0 (12/31/24)
Q4 capital returnsDividend paid $21.1M; 31,824 shares repurchased for $7.3M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total RevenueFY 2025N/A$2.015–$2.035B (~8% midpoint) Initiated
Recurring & Other Revenue GrowthFY 2025N/A~9% YoY Initiated
Interest on Funds Held for ClientsFY 2025N/A~$110M Initiated
Adjusted EBITDAFY 2025N/A$820–$840M (~41% margin midpoint) Initiated
GAAP Effective Tax RateFY 2025N/A~29% Initiated
Non-GAAP Effective Tax RateFY 2025N/A~27% Initiated
Stock-Based Compensation (% of Revenue)FY 2025N/A~8% Initiated
CapEx (% of Revenue)FY 2025N/ABelow 10% Initiated
Dividend per shareQ1 2025$0.375 $0.375 (payable Mar 24, 2025) Maintained
Q4 2024 RevenueQ4 2024$477–$484M Actual $493.8M Beat
Q4 2024 Adjusted EBITDAQ4 2024$184.5–$191.5M Actual $214.9M Beat

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q4 2024)Trend
AI/technology initiativesQ2: doubled dev productivity; AI agent launched; Q3: AI agent improved immediate response ~25% AI agent eliminated >25% of service tickets YoY; improved NPS and internal efficiencies Strengthening
Product performance (Beti, GONE)Q2: Beti reduces payroll time; GONE recognized; Q3: GONE ROI up to 800%; automation launches in recruiting and org-change Beti examples of ~85% payroll effort reduction; GONE’s automation value reiterated Continued emphasis
Macro/interest & employmentQ3: rate cuts pressure float; Q4: employment stability; Q1 interest headwinds highlighted Macro stable; float revenue declines expected near term Neutral to mild headwind
Sales & footprintQ2: added ~67 reps; Q3: largest sales month; Q4: January largest sales month; opened 3 new offices Expanded field coverage and record bookings Accelerating
R&D execution & marginsQ2: adj R&D $55M; Q3: adj R&D $55M; Q4: adj R&D $61M; adj EBITDA margin improved to 43.5% Investment sustained; margin expanding Positive
International expansionQ2: Beti in CA, MX, UK, IE; global HCM; Q3: wins with multinational payroll footprint Continued build-out, partner connectivity where needed Gradual expansion

Management Commentary

  • “We ended 2024 with strong momentum… Our solution remains the most automated on the market and is delivering strong ROI for our clients.” — Chad Richison (CEO) .
  • “Fourth quarter results were better than expected… Fourth quarter adjusted EBITDA was $215M, representing a quarterly margin of 43.5%, up 290 bps year-over-year.” — Craig Boelte (CFO) .
  • “Our AI agent… has eliminated service tickets by over 25% compared to a year ago… we are realizing internal efficiencies, driving increasing client satisfaction and seeing higher Net Promoter Scores.” — Chad Richison .
  • “We opened 3 new sales offices in January… Raleigh, Los Angeles and Providence.” — Company .
  • “We anticipate our effective income tax rate to be approximately 29% on a GAAP basis and approximately 27% on a non-GAAP basis [in 2025].” — Management .

Q&A Highlights

  • Guidance approach: Shifted to annual guidance only; management views this as better aligned with long-term focus and margin profile .
  • Retention: Revenue retention remained at 90% in 2024; management expects strengthening trends with greater automation usage (e.g., Beti) .
  • Q4 upside drivers: Strong unscheduled/bonus runs and good new-client starts; expectation that strength continues and accelerates through 2025 .
  • Interest on float: FY 2025 assumes Fed rate cuts mid-year and year-end; near-term float revenue headwinds shape Q1 seasonality .
  • Margins and facilities: Margin expansion in Q4; gross margin pressure earlier from new building depreciation; efficiencies expected as capacity is absorbed .

Estimates Context

  • S&P Global Wall Street consensus for Q4 2024 EPS/revenue was unavailable due to an API request limit, so an estimates comparison cannot be provided at this time. As a result, references to estimates are omitted and investors should consider reviewing current consensus independently. Values typically retrieved from S&P Global.*

  • Implications: With actual Q4 results exceeding company’s prior quarterly guidance and FY 2025 margin guide at ~41%, sell-side models may need to reflect stronger operating leverage and interest normalization dynamics .

Key Takeaways for Investors

  • Automation narrative is translating into measurable ROI and operating leverage (Q4 adj. EBITDA margin 43.5%); sustained R&D and product velocity underpin medium-term margin confidence .
  • FY 2025 guide signals disciplined growth (~8% revenue; ~41% adj. EBITDA margin) with recurring revenue growth (9%) and explicit float assumptions ($110M) to frame interest sensitivity .
  • Retention and client mix: 90% revenue retention with larger clients (>1,000 employees) up 12% YoY; mix shift toward larger enterprises supports unit economics despite flat parent-group clients .
  • Sales momentum and go-to-market strength: Record January bookings and three new offices suggest improving pipeline conversion into 2H contribution as offices ramp over ~24 months .
  • Near-term watch items: Float revenue headwinds in Q1 from rate cuts; normalized seasonality around forms filings may lower EBITDA margins early-year versus Q4 exit .
  • Corporate changes: CFO transition to Bob Foster and move to annual guidance increase focus on strategic execution and longer-horizon KPIs; dividend maintained .
  • Valuation catalyst framework: Evidence of sustained margin expansion, automation-led differentiation (Beti/GONE/AI agent), and strengthening retention/upsell motions are likely to guide estimate revisions and narrative into 2025 .