Paycom Software Q1 2025 Earnings Call Transcript

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Operator

Good afternoon. My name is Lauren, and I will be your conference operator today. At this time, I would like to welcome everyone to Paycom's First Quarter twenty twenty five Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Thank you. I will now turn the call over to James Sandford, Head of Investor Relations. You may begin.

James Samford
James Samford
Head - IR at Paycom Software

Thank you, and welcome to Paycom's earnings conference call for the first quarter of twenty twenty five. 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 ks.

James Samford
James Samford
Head - IR at Paycom Software

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 will 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.

James Samford
James Samford
Head - IR at Paycom Software

I will now turn the call over to Chad Richardson, Paycom's CEO and President. Chad?

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

Thanks, James, and thank you to everyone joining our call today. I'll focus my comments on some of our achievements in the first quarter and the progress we've made executing on our 2025 plan. I'll then turn it over to Bob for a review of our first quarter results and an update of our full year guidance. We will then take questions. With that, let's get started.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

We are executing very well and delivering strong ROI for our clients as they are experiencing the benefits of our full solution automation strategy. Recent product enhancements and client focused initiatives are driving positive trends across our client usage metrics, and our net promoter score increased another 16 points year over year. We have the most automated solution in the industry, and our clients routinely attest to this. Our award winning solution, Gone, is a perfect example of how Paycom simplifies tasks through automation and AI. Gone is the industry's first fully automated time off solution that decisions all time off requests based on customizable guidelines set by the company's time off rules.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

Before gone, 10% of an organization's labor cost went substantially unmanaged, creating scheduling errors, increased costs from overpayments, staffing shortages, and employee uncertainty over pending time off requests. According to a Forrester study, Gone's automation delivers an ROI of up to 800% for clients. Gone continues to receive recognition. Most recently, Fast Company magazine named Paycom one of the world's most innovative companies for a second time. This honor specifically recognized Gone and is a testament to how Paycom is shaping our industry by setting new standards for automation across the globe.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

Another example of automation that is changing our industry is Betty. Our award winning payroll solution continues to be a major selling point for organizations looking to reduce the labor needed to process payroll by up to 90% and also cut the time spent correcting payroll errors by up to 85%. Veti allows clients to focus resources on profit driving initiatives as it eliminates human involvement in nonrevenue generating tasks like post payroll adjustments, check reversals, voids, ledger corrections, and more. Thanks to Betty and the importance of perfect payrolls, we're also successfully getting former clients back onto the Paycom platform. We recently brought back a 500 employee health care company who quickly realized the pain they brought on themselves by switching to another provider.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

With this other provider, this client lost the transparency and ability to fix errors before they became problems. In fact, their employees were some of the biggest advocates and encouraged this client to return to Paycom because they missed having control over the accuracy of their pay. Once employees experience Betty, they don't wanna go backwards in technology. The client returned to us within nine months and went from processing payroll in four days with their previous vendor to four hours with Betty. Sales continues to break records, including the first quarter where we saw a meaningful increase in book sales.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

We also saw an increase in the number of units sold for the quarter as compared to the same period last year. One of the new clients we onboarded was a 2,500 employee restaurant group who wanted a single easy to use software solution. Working across nearly 80 locations, this group is now utilizing Betty and the rest of the Paycom suite to automate tasks that were previously performed across numerous systems, which created data inconsistencies. More and more businesses like this one are abandoning disparate decision making processes for more consistent, scalable, and automated solutions. Organizationally, Paycom was named one of America's best large employers by Forbes, and Newsweek ranked us as one of the most trustworthy companies in America for a fourth consecutive year.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

Both are testaments to the strategy and execution of our organization. I'd like to thank our employees for their hard work and dedication that they demonstrate every day. We have a strong balance sheet with high margin organic growth. We are building on strong momentum, and I'm very pleased with how this is setting us up for even stronger results through the rest of 2025 and beyond. With that, let me turn it over to Bob.

Bob Foster
Bob Foster
CFO at Paycom Software

Thank you, Chad. Before I review our first quarter twenty twenty five results and our commentary for the remainder of 2025, I'd like to remind everyone that my comments related to certain financial measures will be on a non GAAP basis. We delivered solid first quarter results. Total revenue of $531,000,000 increased 6% over the comparable prior year period, including a milestone quarter for recurring and other revenue at $500,000,000 up 7% year over year. As expected, rate cuts in 2024 represented a headwind to interest on funds held for clients, which declined 10% year over year to approximately $31,000,000 in the first quarter of twenty twenty five.

Bob Foster
Bob Foster
CFO at Paycom Software

GAAP net income in the quarter was $139,000,000 or $2.48 per diluted share based on approximately 56,000,000 shares. Non GAAP net income for the first quarter was $158,000,000 or $2.8 per diluted share. We delivered strong profitability in the first quarter. Adjusted EBITDA of $253,000,000 increased 10% over the prior year period, representing a 48% margin and a 180 basis point increase over the prior year period. Margin strength in the quarter was driven by solid revenues and effective spend in sales and marketing and G and A.

Bob Foster
Bob Foster
CFO at Paycom Software

At the same time, we continue to invest in the areas of AI, product and R and D. Combining these with efficiencies from internal automation initiatives, we are well positioned to deliver an even stronger full year adjusted EBITDA margin than last year. Our balance sheet is strong. We ended the first quarter with cash and cash equivalents of $521,000,000 and no debt. The average daily balance on funds held for clients was approximately $2,900,000,000 in the first quarter of twenty twenty five.

Bob Foster
Bob Foster
CFO at Paycom Software

During the first quarter of twenty twenty five, we paid approximately $21,000,000 in cash dividends. Earlier this week, the Board approved our quarterly dividend of $0.03 $75 per share payable in mid June. We repurchased $5,000,000 of common stock through net downs on vested stock during the first quarter of twenty twenty five, and we still have $1,470,000,000 remaining under our stock repurchase plan. As a reminder, our capital allocation strategy includes a disciplined return of capital through our dividend plan and opportunistic repurchases through our buyback authorization. Now let me turn to guidance for 2025.

Bob Foster
Bob Foster
CFO at Paycom Software

We continue to have success selling and onboarding new logos. Based on our strong Q1 results and outlook for the remainder of the year, we are raising our full year revenue and adjusted EBITDA guidance ranges. We expect total revenue to be between $2,023,000,000 and $2,038,000,000 up approximately 8% year over year at the midpoint of the range. For the full year 2025, we expect recurring and other revenue to be up over 9% year over year including growth of approximately 10% year over year for the remainder of 2025 with the highest growth coming in Q4. Our expectation for interest on funds held for clients remains unchanged at approximately $110,000,000 in 2025, down 12% year over year.

Bob Foster
Bob Foster
CFO at Paycom Software

Automation of HCM and payroll manual task is driving our own internal efficiencies. Because of the efficiencies we are realizing throughout our business, we are raising our full year adjusted EBITDA guidance range to be between $843,000,000 and $858,000,000 This represents an expansion of adjusted EBITDA margin to approximately 42% at the midpoint of the range, up 70 basis points compared to 2024. Other forward looking items include full year GAAP and non GAAP tax rates of 2827% respectively and stock compensation of approximately 8% of revenues. We are pleased to see our teams executing well against our full year plan and the positive response from the market. We will continue to invest in our strategic initiatives focused on world class service, full solution automation and high client ROI.

Bob Foster
Bob Foster
CFO at Paycom Software

With that, we will open the line for questions. Operator?

Operator

Thank you. At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Your first question comes from the line of Raimo Lenschow from Barclays. Your line is open.

Raimo Lenschow
Raimo Lenschow
Managing Director at Barclays

Thank you. Congrats. Great start to the year. Two quick questions, one for Chad. Like at the moment, everyone is obviously worrying about tariffs, volatility.

Raimo Lenschow
Raimo Lenschow
Managing Director at Barclays

Can you talk a little bit about what you're seeing in your field? I would assume it's not that much, but like what's the feedback from the sales guys, etcetera, that one? And then one question for Bob. If you talked about the efficiency gains that help you on the EBITDA side, Like, can you maybe give us a couple of examples of that? How far can you push that to understand that a little bit better?

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

Yes.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

I'll take the tariffs. I mean, I would say it's still early to kind of be able to judge specifically. I would say we don't have much direct exposure to it. We're not over concentrated down market where you might see more of the maybe mom and pop, impact a little bit more than what you could, from a total employee base impact. But ultimately, in anything that impacts our clients, you know, does impact us.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

It's just we haven't seen anything yet, and, but it is something that we'll continue to monitor. I would say that it would have to have an impact on, employee count, and the overall employment, I would say, to really have a meaningful impact on us. But, you know, like everyone else, it's something we're monitoring.

Bob Foster
Bob Foster
CFO at Paycom Software

And, Raimo, on the efficiency gains, you know, just like our clients, we use our product all of our products we and as we continue to see how we can implement. And maybe there's somebody that doesn't have to that might leave and we don't backfill a position, let's say, or expense management is a great way where we do some automation around there with our products. So we're seeing the benefits of our full solution automation throughout, basically, our entire organization. We've talked in the past about how we are dealing with less tickets now through automation in our service to provide better, you know, better service to our clients.

Operator

Thank you. Our next question comes from Samad Samana from Jefferies. Please go ahead.

Samad Samana
Samad Samana
Managing Director at Jefferies Financial Group

Hey, good evening, and thank you all for taking my question. Congrats to the whole organization. Maybe one for you, Chad, and then one follow-up. Just as I think about the new offices, I know that they usually take, call let's call it eighteen to twenty four months to ramp. But I think last quarter, had mentioned that maybe this go around, it could be a little bit faster.

Samad Samana
Samad Samana
Managing Director at Jefferies Financial Group

Just are those staffed, have you seen in terms of early impact? And then a follow-up on the, and just in terms of the shape of the year, I'll go ahead and ask them at the same time. Any shift in the number of processing days? Like, does 4Q have an extra day? Just trying to understand the shape of the year with with more context. Thank you both for answering my questions.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

Yeah. So on the new offices, you know, we we get better and better And as you know, we didn't open offices for a couple of years there. And so when we did open up those offices, you know, we were better prepared to hit the ground running. They're still gonna mature in twenty four months. It'll still take twenty four months before a new office will be carrying the same level of quota of a mature office.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

But, you know, we we are getting better as we've opened up offices. As far as processing days, you know, any given year, you're gonna have a little bit here and there. You know, we have we did kinda discuss it a little bit last quarter, and then, you know, any impact from either additional or less is included in our current guide.

Operator

Thank you. Our next question comes from Mark Marcon from Baird. Mark, please go ahead.

Mark Marcon
Senior Research Analyst at Baird

Hey, good afternoon and thanks for taking my questions. So two major questions. One, Chad, can you describe a little bit more about what you've done recently in terms of fine tuning, you know, the sales process both externally as well as, you know, in terms of the internal CRR group, in terms of how they're approaching, you know, clients and and what sort of results you're seeing from that? That's the first question. And then the second question is is this more on the margins?

Mark Marcon
Senior Research Analyst at Baird

You know, when we think about, the Q1 to Q2 transition, obviously, there's going to be some seasonality and obviously, there's some high margin work that goes into Q1 and inflated fund balances. Can you give us a little bit of guidance just in terms of thinking through Q2 just in terms of the typical seasonality? Thanks.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

Yes. So well, first on the sales side, you know, I would say that we've been continuing to get better and better in sales. You know, I do believe that our sales staff is the best in the world at what they do. And, you know, I we did have a reconstitution, if you will, of training early part of last year as Amy kinda took over the group to get back to the normal blocking and tackling that we've always done here at Paycom. That resulted in increased sales, especially as well as increased units, new logo adds.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

Obviously, those came on throughout the year and most would have all started by now. And then as we turned into first quarter, we saw a continuation of the same, up meaningfully in both book sales and units. And so activity matters in sales. And then, of course, having a product that's getting better and better and better as we go to market, removing barriers of usage. And then as far as the on the efficiency side, you know, we're automating everywhere.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

I mean, we're automating our product for the client. We're automating our product for the client, and we're also automating things internally. There are several tasks that, you know, we have to perform on the back end that we've been able to automate, and that has an impact on our adjusted EBITDA across the board. But it also has an impact on the client experience, and that's really why we're doing a lot of the things that we're doing through automation. I like to say the only reason a client even calls us is due to the diff a deficiency in the software that we create.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

And so a lot of our focus has been removing impediments, removing clicks, and really focusing on allowing the client to have a full solution fully solution automated product. And so that's been impacting our margins, and that's been impacting our sales.

Operator

Thank you. Our next question comes from Steve Enders from Citi. Please go ahead.

Steven Enders
Steven Enders
Equity Research Analyst at Citi

Okay. Great. Thanks for taking the questions here. I guess just to start, I want to ask on the, I guess, the kind of free cash flow dynamics. Was pretty solid here.

Steven Enders
Steven Enders
Equity Research Analyst at Citi

Is there anything that we should be kind of keeping into account for timing impacts? Or how we should be thinking about how that maybe compares to the EBITDA progression for the year? And then secondarily, just on the mid market opportunity, it seems like there is good traction there last quarter and just wanting to see how that's maybe tracking comparatively from what you saw in in one q here.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

Yeah. I mean, the mid market opportunity, I mean, I would say everywhere for us is going very well. I mean, we're not seeing any changes to demand, if anything. I've always kinda said we also create demand ourselves by the work we do. And as I just talked about, first quarter was up meaningfully for both revenue from a book sales perspective as well as for units.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

As far as the free cash flow conversion, we did talk about how we've substantially finished out the completion of our facilities. I think we've got a parking garage and something else that will be coming online. I will say this, though, we are very ambitious with what we do with our technology and what we're doing in the ways of AI and other. And over time, I would think that some of that spend that we spend on facilities, think you would would see some of that transfer, to those technological assets that are required to really run a full scale, fully automated product. But we don't guide to free cash flow.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

You know, it has been a focus of ours to be able to improve that, and, you know, I think you've seen a little bit of that recently.

Operator

Thank you. Our next question comes from Jason Celino from KeyBanc Capital Markets. Please go ahead.

Jason Celino
Jason Celino
Managing Director & Equity Research Analyst at KeyBanc Capital Markets

Great. Thank you. I'm just trying to decipher some of the subtleties in kind of the script language today. I think, Bob, in your section, you mentioned, the recurring revenue growth being up over 9% this year. I think before, it was technically approximately.

Jason Celino
Jason Celino
Managing Director & Equity Research Analyst at KeyBanc Capital Markets

And then I think you also said that it would be up 10% for the remainder of the year. Is that like a like a average? Or is that kind of like a each quarter? Just curious there.

Bob Foster
Bob Foster
CFO at Paycom Software

Yeah, Jason. We've talked about being consistent for the q two, q '3, and q four with a little acceleration in q four on recurring revenue. That's how we're looking at that.

Jason Celino
Jason Celino
Managing Director & Equity Research Analyst at KeyBanc Capital Markets

Okay. Perfect. Thank you for that. And then, you know, changing topics a little bit. I think in the quarter, there was a press release saying that you received authorization as a payment institute institution from the Central Bank of Ireland.

Jason Celino
Jason Celino
Managing Director & Equity Research Analyst at KeyBanc Capital Markets

Curious, you know, what this means for the business and and the international part of the story. Thank you.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

Yeah. And so, you know, Ireland and and being there allows us to get to the rest of Europe, from there. And, you know, we've been focused on continuing to build out our product. You know, I mentioned global HCM that works for all countries. We continue to onboard for that.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

We actually process native payroll in four other countries other than The US, which includes the banking side of it. And so we're continuing to do that, and this is one of those steps that you take to be able to continue to move further into Europe.

Operator

Thank you. Our next question comes from Daniel Jester from BMO Capital Markets. Please go ahead.

Daniel Jester
Daniel Jester
Director & Equity Research Analyst at BMO Capital Markets

Great. Thank you very much for taking my question. Maybe just another one on the product side. You also talked this quarter about, getting some credentialing on the background screening side. I guess, is that a a incremental revenue opportunity, or how should we be thinking about that?

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

Yeah. So we've been in preemployment services for a while now. In fact, I think we're, you know, from a size perspective, we're one of the largest out there right now. And so that's been a part of our business for a while. You know, we've continued to get more and more of our clients on that.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

I would say that I don't know of a better pre employment service than Paycom's as far as a quick return and its accuracy. So, you know, that was confirmed, obviously, by receiving this accreditation. And that's just, you know, something that allows us to have a proof source for, how well our product's doing for our clients, but also as we move forward and sell other clients. You know, there's no reason for them not to switch preemployment over to Paycom as well.

Daniel Jester
Daniel Jester
Director & Equity Research Analyst at BMO Capital Markets

That's great. Thank you. And then in the script, you talked about a boomerang client who who left and and came back. I guess, do you have specific programs targeting some of those customers that may have churned, over the past few years?

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

Our best prospects sometimes are clients that left because they didn't solve the problem. You know, it's oftentimes just the thorns pulled out of the paw, and you didn't really come with a, full solution. And, I mean, at the end of the day, clients of ours who are using our products, as they leave and try to go to other companies for maybe they got sold something shiny or maybe it's a cost type thing. You know, at the end of the day, you know, when you look at total cost of the system, you have to include both what you're paying as well as the ROI that it delivers to you and the value that you're achieving. And when that's real and you leave, you know, and it doesn't work out, you look to come back.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

We're also focused on that. We want every client to come back. I mean, there's no questions asked on our part. Let's get going. You know?

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

And so we do have a strategy to get clients that have left back. We also have a strategy to make sure that clients are receiving the value so that they don't have to go through that pain of a conversion too just to turn around and come back to us. And so that remains a part of our overall strategy. It has, And we're having a lot of success with that.

Operator

Thank you. Our next question comes from Jared Levine from TD Cowen. Please go ahead.

Jared Levine
Jared Levine
Analyst at Cowen

You. Adjusted S and M had limited sequential growth relative to recent years and haven't really seen too many TV commercials in recent months. Can you talk about how advertising spend is half of

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

we'll the about with commercials and things on TV. We're also doing a lot more direct as we continue to move people down the funnel. We have deployed different initiatives through marketing advertising that we have not done previously that are have we're having more success with as well. But, I mean, to the extent we were a little light in first quarter on marketing spend, you know, it'll be up more in subsequent quarters before as well. We're not we're not reducing what we're doing in marketing and advertising, but you will have some timing here and there based on those spend, especially now that we're doing more direct than what we've been doing in the past.

Jared Levine
Jared Levine
Analyst at Cowen

Got it. And then just wanted to clarify in terms of xFlow growth cadence for your for the year. Can you dig into why the 4Q xFlow growth would be the highest for the year?

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

Yeah. I mean, as we continue to go through the year, you know, fourth quarter has always kind of had that opportunity with your additional payroll runs, which again are hard to for us to necessarily forecast right now, but we do have, you know, placeholders for that. I think you saw fourth quarter last year was also one of our largest growth quarters. And so you know? And and also, I would say, traditionally, you know, first quarter has been was like that for quite a long time.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

But with our first quarter forms business, it just doesn't grow at the same level with the rest of our business. Meaning, you know, at the end of the year, we've pretty much done ACA, w twos, and ten ninety nines for about ten years now. We haven't added any additional annual services to that. I believe the fees are the exact same that they were ten years ago still. And so meanwhile, the rest of our business with the the products that we make and sell, it continues to grow disproportionately to those forms of business

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

And so you've been kind of seeing a little bit of a trend of that in regards to fourth quarter because of those additional payroll runs.

Operator

Thank you. The next question comes from Babin Shah from Deutsche Bank. Please go ahead.

Bhavin Shah
Bhavin Shah
Director - Software Equity Research at Deutsche Bank

Great. Thanks for taking my question. Chad, just back to the authorization you received to be a payment institution in Europe, what are the next steps that you're looking to accomplish to go further into that region? And then how do you kind of thinking about your go to market strategy or product strategy internationally as you progress kind of down to that?

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

In our global market strategy right now is focused on, U. S.-based companies that have, locations, employees and operations in other countries, as we continue to build out our systems and as it makes sense for us to go in country to make sales locally to those, you know, that's something that we'll be deploying at the right time. For now, this allows us to move money throughout Europe. You know, the last yard of a payroll is actually getting it into the employee's account correctly. And, you know, if you do everything else right, you don't do that part, you kinda did nothing.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

So for us to make sure that we ensure the highest quality for all of our clients, you know, we like to keep the ball in our hand, and this is something that's required to do that.

Bhavin Shah
Bhavin Shah
Director - Software Equity Research at Deutsche Bank

That's helpful there. Just one quick follow-up for Bob.

Bhavin Shah
Bhavin Shah
Director - Software Equity Research at Deutsche Bank

Just just on the the float guidance, can you just remind us what's embedded in terms of rate cut expectations?

Bob Foster
Bob Foster
CFO at Paycom Software

Yes.

Bob Foster
Bob Foster
CFO at Paycom Software

We had two rate cuts embedded in the guidance, one in June and one in December.

Operator

Thank you. The next question comes from Joshua Riley from Needham and Company. Please go ahead.

Ian Black
Equity Research Associate at Needham & Company

Hi, this is Ian Black on for Joshua Riley. Thank you for taking my question. How is gross retention trending given the improving customer satisfaction and the lapping of any churn from the shift to Betty?

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

Yeah. So, you know, we do report retention once a year. Obviously, it's reflected the net of it is reflected in both of our current quarter achievements as well as any future guidance. We did talk about on the call how our Net Promoter continues to go up and also that we are continuing to see more utilization of all of our products as we've removed more and more impediments to good usage. All of that is meant to have a positive impact on our retention.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

So, those are all early indicators of things that we would expect to be reporting at the end of the year.

Ian Black
Equity Research Associate at Needham & Company

Thank you.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

Thank you.

Operator

Our next question comes from Panigrahi from Mizuho. Please go ahead.

Phillip Leytes
Phillip Leytes
Software Equity Research Analyst at Mizuho Financial Group

Hey, it's Phil on for Citi. Just a quick one for me. Are you guys seeing any shifts in how your competitors are positioning on price or discounting in the market?

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

Not any different than anything we've seen in the past.

Phillip Leytes
Phillip Leytes
Software Equity Research Analyst at Mizuho Financial Group

Got it. Thank you. That's helpful.

Operator

Our next question is Brian Schwartz from Oppenheimer. Please go ahead.

Brian Schwartz
Managing Director and Senior Analyst at Oppenheimer & Co. Inc.

Thank you for taking my questions this afternoon and nice start to the year. Chad, in terms of maybe more of a real time question on what you're seeing in terms of demand, clearly, the macro pressures did not impact the business at all in 1Q. But how is the business faring in April when those macro pressures intensified? And I have a follow-up for Bob.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

Yes. I mean, we're just not seeing it right now. I mean, again, I wouldn't say we're overexposed to any one industry or any one employee size necessarily. We don't definitely don't have overexposure to the small business side. You know, I will just say, think there's a lot of different movements.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

And I think as you have different tariffs and what have you, you know, businesses will maneuver, and they'll maneuver to, you know, what makes sense for them. And so I think there'll be a lot of that at at play as we move on. I think it's important to keep in mind, although our direct exposure's low and and we're not seeing anything, I mean, we're not seeing anything. You know, anything that impacts our clients, I mean, it it will eventually impact us, but that would have to be somewhat reflected through reduction in force. And so I think you would have some leading indicators to that.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

And right now, we just we don't have anything to call out.

Brian Schwartz
Managing Director and Senior Analyst at Oppenheimer & Co. Inc.

My follow-up question for Bob. Given the greater operating efficiencies that you're realizing internally from AI, has that made you change the hiring plan for the year? Thanks.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

No. We've had an AI plan and a full automation plan for a little bit now. And so our hiring plans did change, but not for what our expectations were this year. We've been able to repurpose people in different areas. I do always wanna I do wanna make a point on this, though.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

With all the automations that we've done on the back end, we will always have a high touch service model. We do have a high touch service model. And we're putting a lot of resources into our people to make it easier for them to service our clients, as well as allow the clients to get more value out of the product without having to, you know, crawl through something to get it. And so we've been very focused on that. With greater automation, obviously, we can do things quicker, and it doesn't require the same type of labor commitment to it.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

That said, when you have great people and you do have an opportunity to put them in places that can make impacts, we look to do that. So oftentimes, to Bob's point, Bob made the point early in this call, it's it's oftentimes where we just don't need to hire as many people in certain areas. There are areas within Paycom that continues to grow at a rate equal to or larger than it has in the past when you're looking at at areas like sales or you're looking at areas like software development and those types of areas. And so and then there's other areas which were more administrative on the back end, which are you know, those are being automated. I mean, I'm I'm telling people, I mean, if you're if you're inputting something into spreadsheets and out of spreadsheets and all that, I mean, that's going away.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

It's going away, and it'll end up going away everywhere. So get a skill set that's not that, and that's what we're focused on. And so, you know, we're that type of business. We create value for our clients when we automate. We create value for ourselves when we automate, and that's what we've been focused on, you know, for quite some time now, and it's rolling out.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

It's actually rolling out. It's not just a goal. We're actually achieving it, rolling out throughout the product as well as our back end.

Operator

Thank you. This concludes the question and answer portion of today's call. So I'll now turn the call back over to Mr. Chad Richardson for closing remarks.

Chad Richison
Chad Richison
Founder, President, CEO & Chairman of the Board of Directors at Paycom Software

I want to thank everyone for joining our call today, and I want to thank our employees for all their hard work and their commitment to Paycom's success. We'll be participating in several investor events this quarter, including the Needham Virtual Technology and Media Conference on May 12. Then on May 28, Bob and James will be attending the Jefferies Software Conference in Newport. And finally, on June 3, we'll be presenting at Baird's Global CTS Conference in New York City. Thanks for your interest in Paycom. And operator, you may disconnect.

Operator

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

Executives
    • James Samford
      James Samford
      Head - IR
    • Chad Richison
      Chad Richison
      Founder, President, CEO & Chairman of the Board of Directors
    • Bob Foster
      Bob Foster
      CFO
Analysts

Key Takeaways

  • Paycom’s automation and AI-powered solutions such as Gone and Betty are driving client ROI—Gone can deliver up to an 800% ROI on time-off management and Betty reduces payroll labor by up to 90%—helping lift the company’s net promoter score by 16 points year over year.
  • In Q1 2025, Paycom reported total revenue of $531 million, up 6% year over year, non-GAAP net income of $158 million ($2.80 per share) and adjusted EBITDA of $253 million, a 10% increase that drove a 48% margin, up 180 basis points.
  • The company has raised its 2025 guidance to $2.023–2.038 billion in total revenue (around 8% growth) and $843–858 million in adjusted EBITDA, reflecting a projected 42% margin and recurring revenue growth of over 9% for the year.
  • Paycom closed the quarter with a strong balance sheet—$521 million in cash, no debt and $2.9 billion in client funds—while returning $21 million in dividends and repurchasing $5 million in stock under its $1.47 billion buyback authorization.
  • The company continues to win recognition and expand globally, earning Fast Company’s Most Innovative Companies award for Gone and securing payment institution authorization from the Central Bank of Ireland to enable broader European payroll services.
AI Generated. May Contain Errors.
Earnings Conference Call
Paycom Software Q1 2025
00:00 / 00:00

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