Paycom Software, Inc. (PAYC) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals strong financial performance, optimistic guidance, and strategic initiatives like AI investments, which are likely to positively influence the stock price. Management's focus on new product development, expansion of sales teams, and efforts to improve retention further bolster the outlook. Although there are some uncertainties regarding specific figures and future plans, the overall sentiment is positive, driven by growth in recurring revenue, margin expansion, and strategic investments.
Key Financial Performance
Total Revenue (Q4 2025) $544.3 million, up 10.2% year-over-year. Driven by strong recurring and other revenue growth.
Recurring and Other Revenue (Q4 2025) $517.1 million, up 11.2% year-over-year. Growth attributed to client retention and automation initiatives.
Total Revenue (Full Year 2025) $2.05 billion, up 10% year-over-year. Surpassed initial outlook due to strong recurring revenue and operational efficiencies.
Adjusted EBITDA Margin (Q4 2025) 43.4% or $236.3 million. Maintained strong margins due to operational efficiencies and cost discipline.
Adjusted EBITDA (Full Year 2025) $882 million, up 14% year-over-year. Margin expanded by 180 basis points to 43%, driven by automation and cost discipline.
GAAP Net Income (Q4 2025) $114 million or $2.07 per diluted share. Reflects strong revenue and operational performance.
GAAP Net Income (Full Year 2025) $453 million or $8.08 per diluted share. Supported by revenue growth and operational efficiencies.
Non-GAAP Net Income (Q4 2025) $135 million or $2.45 per diluted share, up 4% year-over-year. Reflects margin strength and automation benefits.
Non-GAAP Net Income (Full Year 2025) $519 million or $9.24 per diluted share. Driven by strong revenue and operational efficiencies.
Operating Cash Flow (Full Year 2025) $679 million, up 27% year-over-year. Represented 33% margin, driven by automation and cost discipline.
Capital Expenditures (Full Year 2025) $275 million, approximately 13% of total revenues. Increased due to investments in data center expansion and AI initiatives.
Free Cash Flow (Full Year 2025) $404 million, up 20% year-over-year. Margin expanded by 180 basis points to 20%, driven by operational efficiencies.
Client Count (End of 2025) Approximately 39,200 clients, up 4% year-over-year. Growth attributed to automation and world-class service.
Annual Revenue Retention Rate (2025) 91%, up from 90% in 2024. Improved due to automation and client satisfaction.
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Operating Highlights
Full solution automation strategy: Launched automated decisioning tools complementing AI product IWant, and automation solutions Beti and GONE.
Automation tools: Beti reduces payroll processing labor by up to 90% and time correcting payroll errors by up to 85%. GONE automates PTO, streamlining time-off requests.
AI solution IWant: Accelerates system expertise without training, delivering over 400% ROI and significant productivity gains.
Market share: Currently holds approximately 5% of the total addressable market, indicating significant growth opportunities.
Client growth: Client count grew to approximately 39,200, a 4% increase year-over-year.
Upmarket success: Revenue from clients with over 1,000 employees grew faster than total revenue.
Revenue retention: Increased to 91% in 2025, up from 90% in 2024, driven by automation and world-class service.
Operational efficiencies: Achieved through automation and cost discipline, contributing to margin expansion.
Free cash flow: Increased 20% year-over-year to $404 million, with a margin expansion of 180 basis points.
Technological lead: Focus on extending technological lead and delivering unparalleled value to clients.
Capital allocation: Repurchased 1.7 million shares for $370 million and paid $85 million in dividends in 2025.
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Risk or Challenges
Market Share: Paycom currently holds only 5% of the total addressable market, indicating significant growth opportunities but also highlighting the challenge of capturing a larger market share in a competitive industry.
Revenue Growth: Projected revenue growth for 2026 is between 6% and 7%, which is lower than the 10% growth achieved in 2025, potentially signaling a slowdown in growth momentum.
Economic Conditions: Revenue projections for 2026 include assumptions of 2 interest rate cuts, which may not materialize, posing a risk to financial performance.
Client Retention: While client retention improved to 91% in 2025, retaining and growing the client base remains a challenge, especially in a competitive market.
Capital Expenditures: Capital expenditures increased significantly in 2025, with $100 million invested in data center expansion. This could strain financial resources if revenue growth does not meet expectations.
Operational Efficiency: The company is focusing on automation and cost discipline, but achieving further operational efficiencies may become increasingly difficult as the organization scales.
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Guidance & Outlook
Revenue Growth: For fiscal 2026, total revenue is expected to be between $2.175 billion and $2.195 billion, representing 6% to 7% year-over-year growth. Full year recurring and other revenues are projected to increase by 7% to 8% year-over-year.
Adjusted EBITDA: Full year adjusted EBITDA is expected to range between $950 million and $970 million, with an adjusted EBITDA margin of approximately 44% at the midpoint of the range.
Interest on Funds Held for Clients: Interest on funds held for clients is projected to be approximately $103 million, based on the consensus assumption of 2 rate cuts in 2026.
Market Opportunity: Paycom plans to continue targeting the remaining 95% of the total addressable market, leveraging its differentiated full solution automation strategy to drive long-term sustainable growth.
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Shareholder Return Plan
Cash Dividends Paid in 2025: Approximately $85 million
Quarterly Dividend for 2026: $0.375 per share payable in mid-March
Shares Repurchased in 2025: Over 1.7 million shares, approximately 3% of shares outstanding, for a total of $370 million
Shares Repurchased Since 2023: Nearly 4.2 million shares, approximately 7% of shares outstanding, for approximately $815 million
Remaining Buyback Authorization: Approximately $1.1 billion as of December 31, 2025
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Key Q&A
Q:Can you explain the apparent discrepancy between positive product developments and the slowdown in growth guidance?
A:Chad Richison explained that the company has been rapidly automating its product, leading to improved customer retention and satisfaction. He acknowledged opportunities in sales and emphasized that bookings have been increasing annually. He attributed the growth guidance to macroeconomic factors and inflection opportunities that will be reflected in future numbers.
Q:What changes should we expect with the new sales leadership?
A:Chad Richison stated that the focus is on re-emphasizing the value of full solution automation. Salespeople have been undergoing training on new product enhancements to ensure they are well-equipped to market the automated system effectively.
Q:Is there any change in the guidance methodology for recurring revenue?
A:Chad Richison and Robert Foster confirmed that there has been no change in the guidance methodology. They are guiding based on current visibility and will update as the year progresses.
Q:What are the contributors to the 7%-8% growth in recurring revenue, and where is there room for improvement?
A:Chad Richison highlighted new logo additions as the biggest growth opportunity, supported by adjacencies and a focus on outside sales. He emphasized the importance of execution and retention improvements.
Q:Are there any signs of hesitation or longer decision cycles among clients?
A:Chad Richison stated that there has been no reluctance from clients or prospects to adopt their product. He emphasized the importance of training salespeople to effectively communicate the value of the automated system.
Q:What is the usage and feedback for the IWant product?
A:Chad Richison reported an 80% increase in IWant usage in January compared to the fourth quarter. He noted that it has contributed to improved retention and is becoming a predominant way for employees and C-suite executives to access data.
Q:What is the impact of AI on internal productivity and efficiencies?
A:Chad Richison explained that AI has improved speed of processing and development, enabling the company to enter adjacent industries quickly. He emphasized that AI is viewed as a friend and an enabler for faster development and automation.
Q:Are there any plans for new sales office openings?
A:Chad Richison disclosed that the sales teams have expanded from 8 to 10, adding 100 salespeople. He mentioned that the company is hiring more salespeople and plans to open additional offices in the future.
Q:What is the strategy for improving retention in the coming years?
A:Chad Richison emphasized providing world-class service and ensuring clients achieve full value from the product. He expressed confidence in further improving retention through continued focus and momentum.
Q:How is the company balancing AI benefits between bottom-line expansion and growth reinvestment?
A:Chad Richison stated that AI is helping across various areas, including product development and internal efficiencies. He highlighted opportunities for faster development and automation, which are expected to drive growth and ROI for clients.
Q:What are the plans for capital expenditure and free cash flow in 2026?
A:Robert Foster mentioned that capital expenditures will be opportunistic, focusing on investments that enhance client ROI. The company has the EBITDA margins and cash to support such investments.
Q:What is the focus for new customer additions in 2026?
A:Chad Richison highlighted the importance of capturing opportunities in existing offices and maximizing pockets of success. He noted that new sales offices have ramped up quickly, contributing to customer growth.
Q:What is the company's approach to addressing competitive dynamics and retention?
A:Chad Richison stated that the company is focused on achieving full solution automation and providing value to clients. He expressed confidence in the company's ability to compete effectively and improve retention.
Q:How is the company addressing concerns about AI's impact on employment and its business?
A:Chad Richison stated that the company has not observed any significant impact from AI on employment. He emphasized the company's diversified client base and the opportunities available in the market.
Q:What is the company's strategy for cross-selling and new product development?
A:Chad Richison mentioned that the CRR team plays a key role in helping clients achieve full solution automation. He highlighted the company's focus on developing new products and automation to enhance client value.
Q:What is the company's view on the competitive landscape and win rates?
A:Chad Richison expressed optimism about improving win rates due to the differentiation of their product. He emphasized the ease of evaluating and achieving value from the company's offerings.
Q:What is the company's approach to layoffs and headcount management?
A:Chad Richison confirmed a restructuring in 2025, ending the year with about 5,800 employees. He did not provide specific details on future headcount strategies but emphasized the company's focus on efficiency and automation.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the retention numbers embedded in the 2026 guidance, the size and scope of recent layoffs, and the exact impact of AI on employment trends. Additionally, they did not disclose specific plans for capital expenditure or free cash flow beyond general statements about opportunistic investments.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI solution
Automation future
CEO value
Conference statement
GONE focus
IWant award
IWant catalyst
IWant productivity
IWant speed
Leaders IWant
Managers hour
PTO request
Paycom end
Paycom expectation
Paycom founding
Payroll HCM
Richison Paycom
accuracy Paycom
accuracy efficiency
achievement area
achievement world
addition record
analysis employee
architecture accuracy
architecture employee
area focus
automation launch
automation logic
automation solution
automation tool
automation world
award automation
class service
client achievement
goal
training
world class
PAYC Transcript
Paycom Software, Inc. (PAYC) Q4 2025 Earnings Call Transcript
Positive2-11
The earnings call reveals strong financial performance, optimistic guidance, and strategic initiatives like AI investments, which are likely to positively influence the stock price. Management's focus on new product development, expansion of sales teams, and efforts to improve retention further bolster the outlook. Although there are some uncertainties regarding specific figures and future plans, the overall sentiment is positive, driven by growth in recurring revenue, margin expansion, and strategic investments.
Paycom Software, Inc. (PAYC) Presents at Barclays 23rd Annual Global Technology Conference Transcript
Neutral12-10
Paycom Software, Inc. (PAYC) Q3 2025 Earnings Call Transcript
Positive11-5
The earnings call summary and Q&A session suggest a positive outlook. The company's raised guidance for revenue and EBITDA, alongside strong recurring revenue growth and product development like 'IWant', indicate optimism. Despite a decline in interest revenue, the strategic investments in AI and automation, along with no major CapEx expected soon, support financial health. Analysts' questions were largely addressed, and the focus on market share growth and efficiency points to a positive sentiment. While some uncertainties exist, the overall guidance and strategic direction are favorable for stock price appreciation.
Paycom Software, Inc. (PAYC) Presents At Citi's 2025 Global Technology, Media And Telecommunications Conference Transcript
Neutral9-3
PAYC Report
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