Paycom Software, Inc. (PAYC) Q1 2026 Earnings Report, Transcript and Summary

Good afternoon. My name is Jade, and I will be your conference operator today. At this time, I would like to welcome everyone to Paycom's First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I will now turn the call over to James Samford, Head of Investor Relations. You may begin.

Thank you, and welcome to Paycom's Earnings Conference Call for the first quarter of 2026. Certain statements made on this call that are not historical facts, including those related to our future plans, objectives, and expected performance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this conference call. While we believe any forward-looking statements made on this call are reasonable, actual results may differ materially because the statements are based on our current expectations and subject to risks and uncertainties. These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on Form 10-K. You should refer to and consider these factors when relying on such forward-looking information. Any forward-looking statement made speaks only as of the date on which it is made, and we do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. Also during today's call, we refer to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income, and certain adjusted expenses. We use these non-GAAP financial measures to review and assess our performance and for planning purposes. A reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of the market today and is available on our website at investors.paycom.com. I will now turn the call over to Chad Richison, Paycom's founder and CEO. Chad?

Thanks, James. Thank you to everyone joining our call today. I'll briefly comment on some of our first quarter 2026 accomplishments and the progress we are making on our 2026 plan. Bob will review our first quarter results and full year guidance before taking a few questions. Let's get started. First quarter results were solid as we continue to advance our full solution automation strategy, create greater client ROI achievement, and deliver the world-class service that makes us the best in our industry. The 2026 plan that we laid out for you during our last call remains well on track, and I'm pleased with our progress. Our focus on client ROI achievement and world-class service continues to strengthen our client relationships, which helped increase revenue retention in 2025, while also improving our Net Promoter Score. Our clients are more engaged than ever and big promoters of our software. Discussions with them continue to be overwhelmingly positive as they use our software to drive automation, which is creating meaningful value for them. We also continue to see many clients return to Paycom after realizing their new provider systems don't produce automation and ease of use like Paycom. Our clients and their employees appreciate our single database architecture and employee-first technology, which enable the automation and decisioning across the platform, reducing complexity, improving accuracy, and driving efficiency. Our clients find that these strategic pillars help them achieve more ROI than anyone else in our space. We are also advancing our automation capabilities within our single database software. AI and automation are the future of our industry, and I am thankful we were early to offer our clients this level of functionality well before it becomes mainstream. Paycom is uniquely positioned within our industry as we are the most automated solution in the market. In fact, we have routinely been named the best HR and payroll software provider in our industry by third parties, most recently by G2, where we earned top rankings in their spring 2026 report across multiple categories. Our full solution automation strategy is working, and solutions like Beti, GONE, and other automated decisioning capabilities are eliminating manual processes, reducing redundancies, and helping our clients operate more efficiently. Forrester found that Beti reduced payroll processing labor by 90%, while also showcasing that GONE delivers an ROI of over 800%. Our AI solution, IWant, is accelerating speed to value for our clients by helping users get answers and complete work quickly without any necessary training in our software. As we continue rolling out more AI and automation across the platform, we are making our product easier to use and driving measurable value for our clients and their employees. While we are pleased with our momentum in a rapidly evolving market, the opportunity ahead of us is large as we continue to serve approximately 5% of the addressable market. This available market share represents a significant opportunity for Paycom over the long term. I want to thank our employees for their focus, execution, and the excellent start to 2026. Our people are what make Paycom a great place to work, and I am thankful Paycom was recently recognized as a 2026 Platinum Employer on the Where You Work Matters list. Paycom was the only company in our industry to receive the program's highest overall distinction of platinum, proving we are one of the best places to work in the U.S. Paycom was also the only company in our industry to earn a 5-star rating on USA Today's Most Trusted Brands in 2026. These distinctions are why brands all over the globe trust us to do their HR and payroll. As the most trusted HR and payroll provider, we have a lot of very exciting initiatives coming in 2026 to help our clients continue to create ROI, while also delivering world-class service. With that, let me turn the call over to Bob.

Thank you, Chad. We delivered strong first quarter results with total revenues of $572 million, up 8% over the comparable prior year period, and recurring and other revenue of $544 million, up 9% year-over-year. GAAP net income in the first quarter was $156 million or $3.04 per diluted share based on 51 million shares. non-GAAP net income for the first quarter was $161 million or $3.15 per diluted share. Revenue strength in the quarter, combined with operational efficiencies from automation, resulted in strong profitability metrics in the first quarter. adjusted EBITDA came in at $275 million, representing a 50 basis point year-over-year expansion to 48.2%. We are achieving operational efficiencies without compromising on sales and marketing effectiveness, world-class service, or product innovation. During the first quarter, we repurchased approximately 8.4 million shares of common stock, or approximately 15% of our shares outstanding as of the end of 2025, for a total of $1.06 billion, and we paid approximately $18 million in cash dividends. On May 4, the board approved a new $2 billion buyback authorization to replace our prior authorization. The board also approved our next quarterly dividend of $0.375 per share, payable in early June. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $154 million. In April, we replaced our previous revolving credit facility with a new 5-year, $2.125 billion credit facility, of which $675 million is currently drawn down. The average daily balance on funds held for clients was approximately $3.1 billion in the first quarter of 2026, up 8% over the prior year period. Now let me turn to guidance for 2026. Following our first quarter results, we are reaffirming our full year revenue and adjusted EBITDA guidance ranges. We expect total revenues to be between $2.175 billion and $2.195 billion, or approximately 6.5% year-over-year growth at the midpoint. We expect full year recurring and other revenue to be up 7% to 8% year-over-year. Finally, full year adjusted EBITDA is expected to be between $950 million to $970 million, representing an adjusted EBITDA margin of 44% at the midpoint of the range. Included in total revenue outlook is interest on funds held for clients of approximately $103 million, which is unchanged from our outlook provided on the last call. Our first quarter represented a strong first step towards achieving our strategic and financial goals for the year, and we're excited about what's ahead. With that, let's open the line for questions. Operator?

[Operator Instructions] Your first question comes from the line of Samad Samana from Jefferies.

This is Jordan on for Samad. Thank you for taking my question. It's nice to see the recurring growth coming strong at 9%, which was ahead of our own expectations by a few points. I wanted to pick apart drivers of outperformance during the quarter there. Across key growth drivers, whether that be new booking, seller headcount versus productivity, employment growth, which factors performed better than your initial expectations and what contributed to that strength?

I would say it came in about what we expected for our expectations. You know, when deal starts matter within a quarter, and you know, we had a successful quarter in the first quarter. Also first quarter, to keep in mind, it is the quarter where we have our forms filing business. That also can contribute to a higher margin profile in the first quarter.

Great. Maybe a quick follow-up. On the expense side, you're delivering some really strong leverage. I think the 50 basis points of gross margin expansion is particularly impressive, especially given the pressure coming from slow revenue. I'm curious, in the cognitive specifically, what's driving that healthy expansion this quarter? Do you have any puts and takes in the direction of gross margin as we think about the rest of the year?

You know, we had automated a lot, throughout last year, and we're starting to see some of the benefit of that. I don't know if Bob.

Yes. I would add the automation and the process efficiencies, and we started last year on expenses as well on all across the board, and we're seeing some of that benefit.

Great. Congrats again on the strong results.

Your next question comes from the line of Mark Marcon from Baird.

Similar to the prior question, you ended up outperforming relative to our expectations for this quarter. Fully recognize the form filings. Been doing this for a while. I'm just wondering you maintain the guidance, and it looks like you had a pretty nice beat here in the first quarter. The guidance basically assumes in order to get to the 7% to 8% on recurring, we need to see a bit of a slowdown as the year unfolds. I'm wondering, are you just being conservative, or is there anything that you're looking at that would suggest that that's going to slow down a little bit?

Yes. Raimo, it's early in the year and sorry, I did it again, Mark.....

You did.

I know. I did it again. It's early in the year and so, we did have a strong first quarter. We've got the full year left. We're happy with what was there, but we like our guidance throughout the remainder of this year.

Okay. Can you talk a little bit about how the board's approaching, you obviously put your money where your mouth is with regards to the huge buyback, which we've written about before, and you're actually taking it up even further. Can you talk a little bit about the rationale for doing that now if in fact things are going to slow down? Again perhaps there's a little bit of conservatism in the numbers.

I mean, I feel like our guide does reflect stability throughout the year. I mean, as far as the stock and the repurchases, I mean, right now our stock doesn't really trade, I don't believe, off what we do. It kind of trades based on the AI prophecy of the day. I think there's a little bit of a sky's falling narrative out there and if you believe that narrative, I mean, our stock should almost be at zero. Our value proposition's getting stronger and stronger with our clients. Our Net Promoter Scores are going up. They're continuing to increase. You know, we're kind of valued, I believe, at kind of a fool's gold price and we believe we're precious metal. When you have a $2 billion buyback authorization with growing cash positive business, it benefits us to have these disconnects in our value. I believe over time, long-term investors win when we're able to repurchase these shares.

Your next question comes from the line of Steven Enders from Citi.

Maybe just, dovetailing off of the, the last question, just, I guess, how are you kind of viewing I guess the framework for how you're thinking about the buyback and capital allocation from here and, and how do you kind of view the, I guess, mix between, I guess, leveraging more debt, to support the buyback and kind of just what that means moving forward, on those plans?

Well, I think it's all dependent on where the share price is. I mean, we definitely remain opportunistic when it comes to buybacks. As you mentioned, we are taking on debt for that. You know, we'll remain opportunistic as we go throughout the year and have opportunities.

Okay. Thanks for that. Maybe just in terms of the bigger kind of product strategy I guess with IWant kind of out in the market and the other automation solutions, just what have maybe you seen from how that's supporting top of funnel, new opportunities first time bookings and maybe just kind of broader pipeline conversion and how you're seeing those metrics maybe shift with the broader capabilities out there?

Yes. I mean IWant creates real value and was the first AI tool in our industry that accessed an entire system. You know, and we'll discuss future AI products as we're ready to launch them. I mean IWant's up another 33% just since the end of the fourth quarter from a usage perspective. Usage continues to do well with IWant as it becomes more of the predominant interface for many of our clients as well as their employees in how they both navigate, make functional changes, as well as gather information from our system.

Your next question comes from the line of Jason Celino from KeyBanc Capital Markets.

Hi, this is Devin on for Jason today. Thanks for taking our questions. I also wanted to follow up on the 1Q recurring performance too. I know you mentioned forms filing revenue, which sounds like it came in better. Could you perhaps speak to some of the sales retraining or changes that you have done late last year? Did you perhaps maybe see less disruption or some early signs of benefits during quarter that might have drove the strong start in the recurring growth of the year?

I mean, I would say that our, the changes in the sales department did not have any impact on the Q1 starts and revenue. Maybe toward the end, the March kind of level. Primarily those forms, that forms filing revenue would've been baked the end of last year and become somewhat routine as we process those throughout the quarter.

Got it. Okay. Thanks for that. Maybe just sticking on the topic of sales, I know you mentioned, I think last quarter you're looking to expand kind of sales rep per office. Yes, that will be helpful. Thank you.

Yes, we continue to hire in sales. We continue to produce many of our largest classes we've ever had go through our training. You know, we have an award-winning sales team, and we're focused on remaining on top. You know, top salespeople, they want to sell the top products, and our salespeople have worked very hard to get where we are today, and I'm real proud of them. Paycom's a great place for salespeople, especially those who may be changing their careers. We found that even HR directors can make pretty good salespeople for us these days.

Your next question comes from the line of Raimo Lenschow from Barclays.

I finally made it. Quick question on IWant. The obviously usability is increasing a lot. What do you see in terms of pipeline bills when you kind of talk to your sales guys about, like, how that's impacting what's going on from pipeline bills how that's kind of helps you all, and then also, like, how that helps you with kind of trajectory or then speed as you go through the pipeline because it does seem like a very compelling offering?

Yes, I mean, IWant has definitely helped us. You know, it's automation throughout our system. You know, IWant makes it easier for you to access GONE, you know? Automation throughout our system as we've moved toward full solution automation IWant makes it easier for people to access that. It reduces the learning barrier to be able to utilize our software. And again, we're having strong use cases. As employees use it at one company and they go to the other company and they kind of go back into 1994 they like that technology. As we simplify our solution and deliver more automation, that does contribute to greater opportunity for leads and sales for us throughout this year.

And then the -- if you think about this year, like, has macro impacted any of your thinking in terms of office openings or what you're seeing out in the field? Or because that's the one concern everyone has. I don't think there's that much data, but, like, any impact that you would see?

I will tell you that internally, everything's going really well for us. We had a great start to the year. We had a good finish last year. You know, we're working with our clients. Conversions are going well. Sales are going well. Our software development group continues to increase our innovation. I mean, it's not until we come on these calls that we find out that we're not doing that great, honestly. because, outside of these, we're doing very well.

Okay, perfect. That's good to hear. Eventually, we will find out as well. Thank you.

Your next question comes from the line of Jared Levine from TD Cowen.

Thanks. Can you talk about bookings performance in 1Q and thus far into 2Q? I guess, have you witnessed the inflection you were hoping for here?

Yes, I mean I'm pretty impatient, and I want it all just because of we shouldn't lose any deals. Matching my expectations, I think, is very, it can be a little bit challenging. I will say that book sales came in, according to budget and what our expectation was for first quarter. I also had kind of mentioned that we had pulled our sales group out of the field for a 3-month period of time. Not full 3 months, but you'd have to come for a week and then go back and then come back for a week. You know, that put a little air in the line, and we would expect as we move throughout the year to have greater opportunities for book sales to have some inflection there.

Great. In terms of CapEx, you did have some pretty good leverage here, I think right around 6% of revenue here in 1Q. Is that a kind of a reasonable expectation for the year here?

Maybe not. I mean there's moratoriums out there on different data centers. As a reminder, I don't know of anyone else in our industry other than us that operates their own data centers. We will have opportunities to expand in both power and purchase of certain items that we have, and we'll have to see how CapEx is impacted throughout this year. We're not ready to really give guidance on that right now.

Your next question comes from the line of Bhavin Shah from Deutsche Bank -- sorry, apologies. Kevin McVeigh from UBS.

Great. Thank you so much, and congratulations on the results. I mean, the buyback speaks for itself. I guess, obviously there's so much concern in the market from an AI perspective. Is there anything you're seeing from a client consumption pattern, whether it's formation down-market, mid-market, adoption of, kind of IWant relative to maybe Beti, that you'd call out just to help us dimensionalize or just really try to de-risk some of the concern that's out there? Cause you know, clearly you're not seeing it in your numbers, and to your point, Chad, right? It, we tell you how bad you're doing, it doesn't really seem like the business is operating that way. Just anything that you would point to try to just help us shift the narrative?

I mean, we've been selling AI here for a little bit now and getting clients to engage with it. I mean, AI changes things. I think it changes things for everybody, but it doesn't just change everything overnight. There are limitations to what should be deployed by a business that's full AI, and trust is very important. You know, we don't sell AI, we sell automated solutions to problems, and sometimes AI's the best way to solve for that, and sometimes it's not.

Your next question comes from the line of Bhavin Shah from Deutsche Bank.

Chad, as you continue to lean on automation within the service organization, how are you seeing that impact your customer satisfaction levels and the time to implementation for new clients?

You know, automation is an important component of providing strong ROI, cases for both our clients and ourselves. You know, we continue to do that. It's very important to be able to automate, especially decisions where you expect consistent behavior. We've become very good at that. That's been a focus of ours for some time as we continue to build out our system to be fully automated.

Are you seeing any kind of improvement to retention, high level? I know you don't have to speak on a quarterly basis, but anything that you're seeing as you kind of automate this stuff and are able to serve your customers better?

You know, we do report retention once a year. We did report it last quarter for the previous year. It did increase. I do think that any time you're able to make it easier for a client to access value, which increases their ROI on their end, it does make it more difficult for them to leave. Or maybe they're just not motivated to go look because they are receiving the value. I think you couple that with the world-class service focus that we've had with our clients and we would remain hopeful for the remainder of this year to continue to do well with our clients.

Your next question comes from the line of Daniel Jester from BMO Capital Markets.

Maybe we can just talk about the go-to-market and I think you talked about in the past adding sales capacity, enlarging your sales offices. Maybe just expand on kind of what you're seeing in the sales force, anything you're doing differently as you're approaching the year ahead. Thank you.

Yes. We're doing a lot differently in our sales organization. That really started November 1, late October of last year. I'm not going to say it's necessarily different than things we had done in the past, but it was important for us to with the new strategy, right? As we continue to go out there and sell automation, it's important that we're converting clients the correct way, that they're receiving the ROI that we've promised them out of the gate, and that they don't have to wait. It's important that we're selling those things the right way. We're going to continue to do that. You know, at the end of the day, it doesn't matter how great a product is, someone's got to go sell it. You know, products don't sell themselves, and I think it's important that we remember that. We've always focused on having a world-class, best-in-class sales organization, and we've continued to maintain that as well as build onto it.

Okay. Appreciate it. Maybe just in terms of your own organization and adoption of AI to boost automation internally, maybe share any examples that have gained particular traction, and maybe what the roadmap looks like for improving efficiencies inside Paycom. Thank you so much.

Yes. I don't want to really we're not going to really discuss, all the things that we're doing, with it internally, just for competitive reasons. I will say this, there's not an area of our business that isn't impacted through our automation strategy. You know, sometimes that's coding it the right way to get full automation and then sometimes it is, utilizing AI. Many times it's utilizing AI to build, what you need to be able to do that. We remain focused, throughout all of the departments that we have here at Paycom as well as all the functions. That's not a discipline that will go away. that will be something that we'll continue to do, into the future.

Your next question comes from the line of Jacob Smith from Guggenheim Securities.

I understand we have these quarterly dynamics around extra Wednesdays again this year, it seems like you're starting to shift a bit towards a per employee per month model where clients are billed monthly regardless of payroll cycle. Is this only for new customers or are existing customers moving to this pricing model as well? What's the impetus behind rolling this out? Is there opportunity for more module uptake or price realization when having these discussions with customers?

I mean, our pricing, we consider it proprietary for competitive reasons, we don't really go through the pricing model. What I will say is that our pricing as far as what we charge to a client and their overall value hasn't changed meaningfully one way or the other. There are different pricing structures that are more helpful to some clients based on how they hire and their turnover and what have you. We work those through with each client individually.

Your next question comes from the line of Jake Roberge from William Blair.

This is Jacob, on for Pat McIlwee. Thanks for taking my question. I just wanted to touch on retention, which we saw tick up in Q4. As you continue to see a nice momentum in usage on IWant, how should we be thinking about retention going forward? Kind of do you see it getting back to the 94%, 93% range from a few years ago? Thank you.

It's definitely a focus of ours. I mean, I would say not as necessarily an absolute number, but as a continuing to make sure that our clients are achieving the ROI that's out there for them, making sure that we're continuing to deliver world-class service and so that they can get that value. We are seeing our Net Promoter Score continue to be impacted to the positive, and I believe that all those things have an opportunity to impact us throughout this year.

Your next question comes from the line of Brian Schwartz from Oppenheimer.

Chad, on the, on the sales, specifically with your newer sales reps, that are ramping, what are you seeing in terms of the efficiency trends relative to, say, the historical norms at Paycom? Then I have a follow-up.

I wouldn't say it's incredibly different yet. I mean, we have great reps that have been with us a long time, and they continue to sell and they can almost pick how much they're going to sell each year. Our new reps are coming out the gate better trained than what any rep we've put out in the last 6 or 7 years. They're more prepared to go out there. You know, we're excited about the ramp phase for them. I do believe we are seeing new ramp, new reps ramp faster than what our reps had in the past for probably the last 6 or 7 years, honestly.

The follow-up question I had was just on AI monetization in the category. I believe in your introductory comments you said that customers are now expecting AI in the HCM platform. Do you expect AI to be a lever for price realization over time or primarily a retention and a competitive necessity tool?

I mean, like I said, we don't sell AI in itself. We solve problems for our clients. A lot of that is through automation and AI. When we're able to do that, and we're able to impact the client in a meaningful way, and it does create measurable ROI for them oftentimes we get to share in that value that we've created. We do not charge for IWant. IWant is included with our system. Because clients use it does create greater usage for them, more value for them. Makes it easier for them to deploy additional products that we come up with to sell that creates value for them. It also makes it easier for us to service clients as they're able to service themselves much easier, through these types of technologies. All those contribute to opportunities for increases for us in both sales and other, as we move throughout, 2026 and beyond.

Your final question comes from the line of Matt VanVliet from Cantor.

I guess curious on how you've made progress, maybe breaking into some other verticals, whether that be in the public sector, or even some of the near adjacent geographies, that you've looked at. Curious in terms of what kind of resources you're putting in there and what kind of traction you're seeing.

Yes we've been industry-agnostic, and I would say geographically agnostic from that perspective. We do have offices that are all over the U.S., and through those we're able to cover the entire U.S. Although sometimes we have to fly to see somebody, if you will, because we don't have offices in every single city. We're continuing to see have positive discussions with clients or prospects regardless the industry or geography in which they're located.

All right. Helpful. Then, I guess as you look at some of your competitors getting into things like expense management, curious on how you're approaching the overall product roadmap given the increase in velocity that's enabled by AI tooling. Are there areas of the platform that are interesting or do you have differing opinions on sort of whether or not you'd want to enter some things that are adjacent to what you're providing today?

Yes, we've provided an expense management module as part of our system probably for around 9 or 10 years. You know, we do continue to build out things that make sense. We really start with the client problem now, and that's very important, you know? We don't start with what is it like we would like to see developed. It's important that we're solving real-life client problems that they have today. That's been our focus. As we look into the future, we do continue to expand into other things. I also think there are opportunities for adjacencies for us. You know, you have to have everything prepared, and we've got to do it the right way. We have earned the trust of our clients and we'll continue to do that. The more trust we earn, the more opportunity we have to do business with them in other areas. And so we look forward to continue to earn that trust with our clients and to continue on as we have.

This concludes the question and answer portion of today's call. I will now turn the call back over to Mr. Chad Richison for closing remarks.

Thanks, everyone, for joining our call today. We look forward to speaking with many of you at the Jefferies Conference on May 27, the Baird Conference on June 2, and the Mizuho Conference on June 9. We are executing well against our 2026 plan, delivering world-class service and ROI for our clients. I want to thank all of our employees for their contributions to a strong start to the year. With that, operator, you may end the call. Thank you.

This concludes today's conference call. You may now disconnect.