Earnings call transcript: Paycom beats Q2 2025 earnings expectations

Despite the positive earnings report, Paycom’s stock remained stable in after-hours trading at $223.26, unchanged from its previous close. Trading at a P/E ratio of 31.7x and an EV/EBITDA multiple of 24.81x, the stock reflects premium valuations typical of high-growth tech companies. Analyst price targets range from $203 to $310, suggesting mixed views on the stock’s potential. This stability suggests that investors may have already priced in the company’s strong performance or are awaiting further developments in its AI initiatives. For comprehensive valuation analysis and real-time updates, consider accessing the detailed Pro Research Report available on InvestingPro.

Key Takeaways

- Paycom’s EPS of $2.06 beat the forecast by 15.73%.

- Revenue increased 11% year-over-year to $484 million.

- Paycom launched "IWant," a command-driven AI engine.

- The company raised its full-year revenue guidance.

- Stock remained stable in after-hours trading despite earnings beat.

Company Performance

Paycom demonstrated robust financial performance in Q2 2025, with an 11% year-over-year increase in total revenue. The company’s innovative product launches, such as the AI-driven "IWant" interface, underscore its commitment to leveraging technology for competitive advantage. With a strong 47.22% one-year return and a beta of 0.82, Paycom has shown resilience while maintaining lower volatility than the market. The company’s single-database approach and first-to-market AI solutions position it uniquely in the human capital management industry. InvestingPro subscribers can access detailed analysis of Paycom’s competitive positioning and 10+ additional exclusive insights.

Financial Highlights

- Total (EPA:TTEF) revenue: $484 million, up 11% year-over-year

- Recurring and other revenue: $455 million, up 12% year-over-year

- GAAP net income: $89 million ($1.58 per diluted share)

- Non-GAAP net income: $117 million ($2.60 per diluted share)

- Adjusted EBITDA: $198 million, up 24% year-over-year

- Adjusted EBITDA margin: 41%, up 4.5 percentage points

Earnings vs. Forecast

Paycom’s EPS of $2.06 significantly outperformed the forecasted $1.78, resulting in a 15.73% earnings surprise. Revenue also exceeded expectations, with a 2.46% surprise as it reached $484 million compared to the $472.01 million forecast. This performance reflects Paycom’s strong operational execution and market positioning.

Market Reaction

Despite the positive earnings report, Paycom’s stock remained stable in after-hours trading at $223.26, unchanged from its previous close. Trading at a P/E ratio of 31.7x and an EV/EBITDA multiple of 24.81x, the stock reflects premium valuations typical of high-growth tech companies. Analyst price targets range from $203 to $310, suggesting mixed views on the stock’s potential. This stability suggests that investors may have already priced in the company’s strong performance or are awaiting further developments in its AI initiatives. For comprehensive valuation analysis and real-time updates, consider accessing the detailed Pro Research Report available on InvestingPro.

Outlook & Guidance

Paycom raised its full-year revenue guidance to a range of $2.045 billion to $2.055 billion, representing a 9% year-over-year growth. The company also increased its adjusted EBITDA guidance to between $872 million and $882 million. Paycom anticipates continued growth in recurring revenue and margin expansion in the coming quarters.

Executive Commentary

Chad Richison, CEO of Paycom, emphasized the transformative potential of the "IWant" interface, stating, "IWant will transform a client’s relationship with Paycom and with its own business." He also highlighted the strategic importance of voice-activated command functionality, declaring, "Voice activated command driven functionality is the future for all software, and Paycom’s future started last week."

Risks and Challenges

- Market Penetration: With less than 5% penetration in the U.S. market, expansion remains a challenge.

- Competitive Landscape: The emergence of AI-driven solutions could intensify competition.

- Economic Conditions: Macroeconomic pressures could impact client budgets and spending.

- Technological Investments: Continued investment in AI infrastructure may strain short-term financials.

Q&A

During the earnings call, analysts inquired about the potential impact of "IWant" on client acquisition and retention. Executives noted that while direct monetization of "iWant" is not planned, its introduction is expected to drive new logo acquisition, client retention, and increased product adoption. Additionally, questions were raised about capital expenditures, with management indicating that current investments are focused on enhancing AI capabilities.

Full transcript - Paycom Soft (NYSE:PAYC) Q2 2025:

Tamiya, Conference Operator: Good afternoon. My name is Tamiya, and I will be your conference operator today. At this time, I would like to welcome everyone to Paycom’s Second 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.

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

James Sanford, Head of Investor Relations, Paycom: Thank you, and welcome to Paycom’s earnings conference call for the 2025. 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.

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 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 CEO and President. Chad?

Chad Richison, CEO and President, Paycom: Thanks, James, and thank you to everyone joining our call today. I’ll focus my comments on our second quarter achievements and highlight our latest AI command driven product, IWant. I’ll then turn it over to Bob for a review of our second quarter results and an update on our full year guidance. We will then take questions. With that, let’s get started.

We delivered very strong second quarter results and we are building on our momentum by continuing to strengthen recurring revenue growth and margin expansion in 2025. Outside sales continues to set records, and we recently released IWant, the most significant product in our company’s history. We already have the most automated solution in the industry, and delivers even more value to our clients through AI and automation. IWant will transform a client’s relationship with Paycom and with its own business. Hopefully, everyone has seen the IWant demo we linked in today’s earnings press release issued at the close of the market.

If you did, you saw numerous use cases for IWant on the employee, manager, administrator, and executive side of the software. You also saw how IWant eliminates the need for Paycom user to be trained on our software. With I want’s command driven AI, users either type in or leverage voice activated functionality to command the system, and I want is designed to immediately provide the answer with accurate results. This means that navigation and asking others for system information is rendered obsolete. A critical component of AI is the data it pulls from.

And because IWant pulls from Paycom’s single database, it eliminates problems created by inconsistent or duplicative datasets. On the manager side, IWant supports HR teams and organization leaders with instant employee information. For example, a manager can use IWant to pull data on when an employee returns from vacation, see who’s clocked in for the day, or analyze an employee’s pay history. These are just a few examples of the power of I Before I one, executives like myself were dependent upon others to complete reports and provide critical decision making information. Today, in I one’s executive mode, executives using Paycom now have the information they need at their fingertips, enabling them to be daily users of our solution without ever having to be trained on the system.

Just tell it what you want, and IWant delivers, making executives even smarter and more effective. Now I can quickly find any information about my staff available in our single database because we track the entire employee life cycle and have data from applicant tracking, onboarding, Paycom learning, expenses, benefits, time and attendance, payroll, schedules, surveys, and more, all accessible through I one. Early feedback has been phenomenal with clients calling this a total game changer. I want’s command driven AI engine will increase usage among nondaily users in our system, and I fully expect I want to increase satisfaction and client ROI. Voice activated command driven functionality is the future for all software, and Paycom’s future started last week.

We invest in innovation to increase client value, and this is fueling strong sales for Paycom. Our sales teams continue to set new records every quarter, and I’m very pleased with their strong execution. Our sales force was recently recognized by Selling Power magazine as one of the best sales organizations in the country. This is a testament to our sales leadership, training, and culture. Finally, Time Magazine listed Paycom amongst its best companies for a second consecutive year.

Newsweek placed Paycom in the top 20 of their inaugural ranking of America’s best online platforms and comparably recognize Paycom for best career growth and best leadership teams. I’d like to thank our employees for their hard work and commitment that are reflected in these awards. We had very strong results in the first half, and we are set up for continued strong momentum for the rest of 2025 and beyond. With that, let me turn it over to Bob.

Bob, CFO, Paycom: Thank you, Chad. Before I review our second 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 very strong second quarter results. Total revenue of $484,000,000 increased 11% over the comparable prior year period with even faster growth in recurring and other revenue of 12% year over year reaching $455,000,000 Interest on funds held for clients declined 11% year over year as expected to approximately $28,000,000 in the 2025. GAAP net income in the quarter was $89,000,000 or $1.58 per diluted share based on 56,500,000.0 shares.

Non GAAP net income for the second quarter increased 27% year over year to $117,000,000 or $2.6 per diluted share. Profitability in the second quarter also increased significantly with adjusted EBITDA of $198,000,000 reflecting a 24% increase over the prior year period. Adjusted EBITDA margin was 41% representing a four fifty basis point increase over the prior year period. Margin strength in the quarter was driven by revenue upside, efficiency gains in G and A and timing of marketing spend. We continue to invest in the areas of AI, product and R and D.

And as Chad mentioned last week, we introduced our most innovative development to date, IWant. Based on the strength of the 2025, I am pleased to report that Paycom is in a very strong financial position and we are raising our revenue and adjusted EBITDA targets for the year. Our balance sheet is also very strong. We ended the second quarter with cash and cash equivalents of $532,000,000 and no debt. The average daily balance on funds held for clients was approximately $2,600,000,000 in the 2025, up 10% over the prior year period.

During the 2025, we paid approximately $22,000,000 in cash dividends. Earlier this week, the Board approved our quarterly dividend of $0.03 $75 per share payable in mid September. We also purchased roughly $33,000,000 of common stock through net downs on vested stock during the 2025 and we still have $1,440,000,000 remaining under our stock repurchase plan. Now, let me turn to guidance for 2025. We continue to have success selling and onboarding new logos.

Based on our strong first half results and our outlook for the remainder of the year, we are raising our full year revenue and adjusted EBITDA guidance ranges. We now expect total revenue to be between $2,045,000,000 and $2,055,000,000 up 9% year over year at the midpoint of the range. For the full year 2025, we expect recurring and other revenue to be up 10% year over year, including quarterly growth of approximately 10.511% year over year in Q3 and Q4 respectively. Our revenue expectation for interest on funds held for clients is now $113,000,000 in 2025, down 10% year over year assuming two rate cuts later this year. Revenue upside along with continued automation of HCM and payroll manual tasks is driving margin improvement for Paycom.

As a result, we are raising our full year adjusted EBITDA guidance range to between $872,000,000 and $882,000,000 This represents a second increase to our prior adjusted EBITDA margin guidance to approximately 43% at the midpoint of the range. We plan to increase our marketing and R and D budgets in the back half of the year in support of the IWONT product launch and additional innovation focused on AI and automation. Other forward looking items include full year GAAP and non GAAP tax rates of 2726% respectively and stock compensation of approximately 7% of revenues. We are pleased to see employees across the organization executing very well, which is driving our solid performance year to date. Our go to market and product strategies are working and we are well positioned to deliver on our raised expectations for the year.

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

Tamiya, Conference Operator: Thank you. The first question comes from Raimo Lenschow with Barclays (LON:BARC). You may proceed.

Raimo Lenschow, Analyst, Barclays: Thanks. Two quick questions and congrats from me as well. The first chat is, if I think about IWant, how do should we think about that in terms of, you know, driver for the overall business? Is it just like, you know, it’s just a differentiation tool and that basically helps you kind of against someone that doesn’t have that enough clean data structure that you guys have. So then you kind of, you know, sell better.

And as far as I remember, there’s not that many guys out there as clean as you. Or do you think eventually down the road there will be some monetization offerings as well? And then one for Bob. If you think about more AI, probably means you need to some GPUs, etcetera. How should we think about gross margin impacts that potentially could come there?

Because, obviously, they they need a lot more money in computer. Thank you.

Chad Richison, CEO and President, Paycom: Yeah. I’ll start, Raimo. You know, I want is Paycom’s, you know, voice command driven AI tool, and it really just revolution revolutionizes how people actually access and navigate a system now. And so think of any piece of software, any system in your life that you have to navigate. Imagine just commanding it.

And we found we find that that makes it easier for the employees. They don’t have to learn a system. They can just go in and command what they need or ask what they need. You know, employees don’t enroll in benefits all the time. There are certain things in our system that they don’t do all the time, and so there’s not a need for them to be experts at it.

So on the employee side, it automates everything. Same thing on the client side. You know, for me, I’m not a daily user in our applicant tracking system. So if I wanted to get a resume, I had to make a phone call. I’m not a daily user in our benefits administration system.

And because I’m not a daily user, because I’m not set up as a user in those systems, I couldn’t get access to certain information without contacting people. Well, now I can get access to anything. I just ask I want, it’ll go pull someone’s resume for me. It’ll pull all their past job history, pay history. It’ll tell me who’s all clocked in right now, who’s late for work today.

So basically, right now, I’m an I’m an expert in our system because I’m utilizing the I want command driven tool, which allows me to interact with our system differently. And so what’s happening is, as we turn this on and activated this for clients, more and more users and executives are actually engaging with the system, And it’s eliminating the need for them to communicate with others in their organization or slow down the chain of data moving. And then I’ll let Bob take and then as far as from a monetization process, I mean, is everything. This is a different way to utilize software. I’m unfamiliar with any other SaaS company that has a command driven navigation throughout their system.

And so I do think this is going to be, you know, a thing for not only our industry, but any type of software where users are currently navigating it. So I’ll stop that and let Bob answer the GPU question.

Bob, CFO, Paycom: Thank you, Raimo. Yeah. We we see that there’ll be a need. So we are going to use we’re expanding margins as we’ve talked about. And those we expect those to be up several percentage points throughout the rest of the year.

And we’re going to take that and reinvest that back into CapEx, AI and equipment. And as a result, we do expect free cash flow to be similar to last year.

Tamiya, Conference Operator: You. The next question comes from Mark Marcon with Baird. You may proceed.

Mark Marcon, Analyst, Baird: Good afternoon. Thanks for taking my questions and congratulations on the strong quarter. Chad, the product is really slick. I like it. I’m wondering if you can talk a little bit about what the marketing plan is.

Is it already turned on with all of your existing clients? If not, what do they need to do? What’s the training, you know, methodology just in terms of making them all aware of it and how they can use it? And and then how are you going to unfold that in terms of, you know, national advertising? Are you gonna switch your your your campaign in order to focus on this?

Chad Richison, CEO and President, Paycom: Alright. So, you know, the marketing plan for IWant, first of all, we turned on we started turning on our first clients on July 31. We’ve turned on 10% of our clients so far this week. I would say by the end of this week, we’re at 15 to 20% activated. And by turning on, you know, IWant doesn’t you you can still navigate our system if you want to.

I mean, you know, you can still navigate it if you want to. But most people, once they get on I want, they stop navigating it at the employee and other levels. And so it doesn’t if if someone wants to keep using the system after IWant the way they used to use it, they can. But once IWant’s there, we found that people don’t. And so activation is about turning it on and making sure people understand what IWant does.

You know, if you ask it where the closest gas station is to your location, you’re not gonna get a good response. You know, so it’s important that people understand how to use I want. And so we go through a list of about 20 prompts once we turn people on and they understand it, and then they’re off to the races. And so we do expect to be able to activate all of our clients throughout the remainder of this corn this quarter. You know, there’s not really any lift for the client on this.

This is gets them easy access. I mean, it’s almost a reward. It’s a reward for our sales reps for all the hard work they’ve been doing to get us to this point, to reward for our service individuals for all the hard work they’ve been doing. Now they’re calling clients with very positive positive news. It’s a reward for these clients that have implemented these different modules, believed in the single database system, and now they get instant access to all of it without having to be trained or what have you.

And so this will be everything for us in the future. And and, really, I do see this being the way that every company, and I mean every company that has business to business type software, even consumer software, I see this is the way it’s going because there’s just no need to be trained in a software, you know, now that we have new tools available to us. As far as the training, there’s not much to it. And as far as the national advertising, you know, our we’re doing a lot of full solution automation. So I want think of that as a way that you access it.

You know? You still wanna be set up on Gong. You wanna be having decisioning logic. You wanna be set up on Beti. And then I want is just how you get to access all You don’t have to become an expert.

And so we’re really excited about it into the future. And, you know, everything we develop now will have an I want component to make sure we keep it clean.

Tamiya, Conference Operator: Thank you. The next question comes from Kevin McVeigh with UBS. You may proceed.

Kevin McVeigh, Analyst, UBS: Great. Thanks so much. May I add my congratulations as well? I guess in terms of IWant, how are you going to monetize it, Jed? Is it kind of part of kind of a base platform?

Is it an individual? Or is it just a core package you have to adopt based on a certain number of modules? Any way to think about just the the pricing and and go to market motion on it?

Chad Richison, CEO and President, Paycom: Yeah. So, you know, I I was with somebody in the elevator earlier, and I wanted to look them up and see how long they’ve been here and what the resume looked like and their job history and everything at Paycom. Well, that requires me to have some modules. So one way that I want you know, I want will also expose data that, you know, maybe you haven’t looked at in a long time so you’re able to see it. But, you know, if I’m asking I want if one of our clients is asking I want for resume information, you know, or if they ask them for prior work history information and they’re not on our applicant tracking system, you know, they’re not gonna have success pulling that information.

And so and one way it’ll help us is, you know, I I do think there’ll be more full solution deployments across our client base so that you get access to it. Another way is we do expect it to increase our sales volume. It’s a revolutionary product. It’s easy to use. And I do think it’s going to, you know, over time impact our retention as these clients become more engaged in the software and get the full value available to them.

I want removes all the impediments to value. So now you just get it. You didn’t have to work for it as much. And so, you know, we’re really excited about what it can do for us on all those fronts.

Tamiya, Conference Operator: Thank you. The next question comes from Steve Enders with Citi. You may proceed.

Kevin McVeigh, Analyst, UBS: Okay, great. Thanks for taking the question here. I guess just to start, I just want to understand like what actually maybe was different versus what you were expecting coming into the quarter because it looks like the upside looks pretty solid versus maybe what we’ve seen in the past few quarters. I guess, a, what just kind of happened there? And then I guess secondly, just as we think about IWant and and what that means, is there any implications for what that means for, you know, Beti adoption or really need, you know, need to adopt Beti to get the kind of full functionality of of IWant?

Chad Richison, CEO and President, Paycom: Yeah. I mean, I I think as far as the quarter, you know, we’ve been talking about record sales and eventually those things materialize and they turn into revenue as they start. You know, that’s something that we’ve been focused on. I would say our sales organization’s been doing a great job. And, you know and so we’ve had some outperformance there, and I I think you’re seeing some of that here.

And then as well as, you know, on the margin side, I mean, you know, we continue to see efficiency through our full automation goals. You know what? And and it does slow our pace of hiring a bit and and also our willingness to backfill some open positions just because of all of the automation. So, you know, we’re some more efficiencies on that too. As far as implement for Beti adoption, it’s not required that you’ve implemented Beti to get value out of I want.

I do think that, you know, the more of Paycom’s products that you use, which would include Beti, the greater the value you’re gonna get from it. And the more questions it will answer for you, the more insight it will give you. And so I do think I want makes it easier to use all that additional functionality, but there’s not a requirement that someone would have Beti. Although, will say, I believe Beti is a very important product, and I still say that it’s the best way to do payroll for employees. And actually, we have a lot of clients that boomerang back to us because they felt it when they left, and the need for having accurate payrolls to prevent errors before they become problems.

Tamiya, Conference Operator: Thank you. The following comes from Jason Celino with KeyBanc. You may proceed.

Jason Celino, Analyst, KeyBanc: Yep. So, you know, I admittingly, I looked at the demo, you know, thirty minutes before this, and it looks pretty intuitive and helpful. But, Chad, I mean, I I think you’re calling it the biggest release since the company’s founding. You know, that’s quite, you know, a bold statement, but you’re obviously not charging for it. How do you how do you envision, you know, recognizing the full value, that you’re providing here?

I hear you on the full platform sales, but know, what are some other mile markers we we can kinda think about?

Chad Richison, CEO and President, Paycom: Well, I mean, I I just mean what I said. It is the biggest. I mean, you know, an f 16 is hard to fly. I mean, sometimes you can have a lot of different people that know it the more you add to it, you know. But we’ve made it one button or a command that now you can fly the whole thing.

So that’s what I mean is it’s our biggest development. I mean, we’ve removed the barriers to value. You know, the more you add, the more functionality you have in these types of systems and enterprise type systems. You know, it does require a level of training for someone to really to be able to deploy it. Even some employees require some level of training.

This removes all of it. And so, you know, it’s the biggest it’s the biggest innovation that we’ve ever done at our company since its founding just because of the impact that it has. I mean, you know, I’m actually I mean, clients are just overjoyed by it. I mean, they’re really overjoyed. You walk the floor here in service and you hear them talking to our clients.

I mean, they’re just they’re amazed and it’s working very well for them. And they and they deserve to have it. So I’m gonna really stand by that. Not only is it the biggest development, I think by the time we do version two and three,

Kevin McVeigh, Analyst, UBS: I don’t

Chad Richison, CEO and President, Paycom: even know what else I could develop after that as we have the full solution automation on the back end. So, you know, I’m gonna I’m gonna really stick by that. And then how we’re going to recognize the full value, I think, was your was your other part, you know, is obviously in our go to market. It impacts that. And then again, when you remove barrier to value, that increases the value that your clients are getting.

And so when you can do that and they don’t have to do that work, we do think that that’s going to create a more meaningful relationships with our clients, more meaningful relationships they have with our system, and we do think that that will impact retention.

Jason Celino, Analyst, KeyBanc: And and then just a quick follow-up for Bob. You know, the 12% you saw in recurring in the quarter, you know, very impressive. Hear you on the on the back half, you know, the the slight decel. But was there anything in second quarter from, a onetime perspective that that that or timing related? It’s just I’m trying to understand the beat and then the implied decel in the second half.

Thanks.

Bob, CFO, Paycom: Yes. Thanks, Jason. No, there wasn’t anything on a onetime beat other than the timing of the marketing spend that we’ve been pretty consistent about in in in the first and second quarter. And then, obviously, we never know what we can anticipate in the fourth quarter for bonus runs and etcetera.

Tamiya, Conference Operator: Thank you. The next question comes from Daniel Jester with BMO Capital Markets. You may proceed.

Daniel Jester, Analyst, BMO Capital Markets: Hey. Good afternoon. Thank you for taking my question. Bob, I wanted to go back to a question earlier in the comment you made about free cash flow. I just wanted to clarify.

Is that free cash flow dollars, or is that free cash flow margin? And I wanted to see if that contemplated any sort of tax benefits from new tax bill.

Bob, CFO, Paycom: Yes, Daniel. So that was margin, and we are evaluating the BBB now. There will be some cash flow benefit from that in 2025, and that’s built into our guidance.

Daniel Jester, Analyst, BMO Capital Markets: Okay. And then just on the sales and marketing investment, I guess, should we anticipate you know, this is a very intuitive product, but but maybe you you wanna devote a little more resource back to the base to to sort of help people out in those initial phases. You know, is that is that where is this maybe temporary investment that we’re going to be able to harvest in 2026, or do you think there’s gonna be more substantial push? Thank you.

Chad Richison, CEO and President, Paycom: I think you’re talking about our sales and marketing spend as we look into the remainder of the year. You know, we did know iOne was coming out, and so we have been preparing for that spend in third and fourth quarter. You know, I’ve always said with marketing, you know, you don’t just throw dollars at it. You have to measure it. It’s gotta be having a return.

So we’re always cautious on marketing spend, and we measure it. But it’s our intent right now to, you know, maximize our budget in the third and fourth quarter from marketing just because of the opportunity that we have right now with this.

Tamiya, Conference Operator: Thank you. The next question comes from Jared Levine with TD Cowen. You may proceed.

Mark Marcon, Analyst, Baird: Thank you. I just wanted to dig in, in terms of 2Q. You had a pretty notable sequential increase in the within CapEx, specifically on PP and E, and it sounds like you’re contemplating pretty healthy spend there as well for the remainder of the year. Can you dig into what exactly you’re spending there and kind of when potentially that could taper off?

Chad Richison, CEO and President, Paycom: Yeah. I mean, I can take a little bit of this, Bob, and then you can jump in. You know, we’ve always said developed and hosted our own platforms. And Right. As we move into AI, it does require, you know, a certain level of spend.

You know? So as we look at that, I do believe it to be more transitory in nature. But as we look at that, you know, that’s gonna be front end loaded for us right now, and and that’s really what we’re looking at. And a lot of that’s going to be, you know, through CapEx. I think Bob explained kind of, we do expect to take the benefit that we’re receiving in the additional margin creation right now and put that into some of these, CapEx expenditures.

And then we would expect our margin for free cash flow to be not dissimilar this year to what it was last year. Again, I do believe these spends will be more front end loaded and transitory. So, you know, we’ll go from there. I don’t know, Bob, if you have anything to add to it.

Bob, CFO, Paycom: No. The only one thing I’ll add, Chad, is that, you know, we see this as a growth opportunity for us, and we have, we have the capital to take advantage of it right now, and that’s what we’re doing.

Mark Marcon, Analyst, Baird: Got it. And then just one more here. Can you talk about your back to base sales productivity by CRRs year to date?

Chad Richison, CEO and President, Paycom: I mean, they’ve been back in the field. So as I’ve mentioned before, it’s kind of a per territory basis. So we did kinda change, you know, the way that group books and starts deals a while back that I’d mentioned, and that really became the new normal. But they are having success. They’re more successful this year than what they were last year.

And, you know, we’ll just see how time works those out. I do think I one’s gonna help them quite a bit because, again, in order for you to get the full solution automation, you need to have the full solution. And, you know, there there’s no better way to get it than just asking for it, and that’s what iOne helps you with.

Tamiya, Conference Operator: Thank you. The following question comes from Alex Zukin with Wolf Wolf Research. You may proceed.

Alex Zukin, Analyst, Wolf Research: Yeah. Hey, guys. So maybe on IWant specifically, when you think about how it fits into the overall product strategy with Beti, maybe help us a little bit where you’re getting the most customer interest. What does success look like for IWant? And also, update or or mix around retention with Beti and kind of as you see that mix with Beti and IWant across your customers growing, kind of where is the opportunity for for retention in that world to go to?

Chad Richison, CEO and President, Paycom: Yeah. I think both produce significant retention opportunities. I mean, I think they’re both the best way to do something. You know? But the way to think of IWant, I mean, it just it it it runs through our entire system.

So, you know, Beti touches multiple modules. I want touches every module and every piece of data in our system, every field, everywhere. So it’s it’s quite a bit different. You know, your users of I want is gonna be everyone. Your users are Beti.

You know, you’re gonna obviously have the employee at the time where they’re doing payroll, and then you have the payroll department and what have you. Both significant and very important. But but think of IWant as just a new way to access information. I mean, you know, you could you could look at this the way you access your bank, the way you would just talk to it and tell it what you need. Like, I can go into IWant right now and say, you know, I had a baby.

Need to add them. It’ll add them. I’m going to I want right now and ask who somebody’s spouse or wife is, and it does it. I mean, it’ll bring it up for me. So I can ask it anything.

If the data’s in our system, it’s gonna respond and give me that data. And so, you know, we’re really excited. And that’s that’s really a giant change in our industry, but really any industry where you use software, where you’re now voice activated, command driven throughout the software. So they work a little bit different than each other, but I one’s just gonna make Beti sweeter, I guess, would be a a better way to put that.

Tamiya, Conference Operator: Thank you. The following comes from Bhavan Shah with Deutsche Bank (ETR:DBKGn). You may proceed.

James Sanford, Head of Investor Relations, Paycom0: Great. Thanks for taking my questions. Chad, you just kind of mentioned earlier that you think the CapEx will be a little bit more transitory as you build this out. And kind of with you owning the entire tech stack and and once the entire customer base is up and running on I one and and extending usage, why shouldn’t there be more continued spend from a CapEx perspective as users kind of use it more and you’re kind of running through GPU cycles?

Chad Richison, CEO and President, Paycom: Well, I mean, I think there’s a certain amount of spend you have to do just to get to the starting line, you know. And then I think on on an ongoing, it becomes more incremental. But I think as you’re looking at rolling out massive usage, you know, like I said, I mean, we would expect to activate all of our clients this quarter. So, you know, there’s gonna be a certain level of first hit as they’re using it, which we’re already seeing. And then, you know, in in subsequent quarters and in years, you know, of course, we will add to that.

You know, also kinda you see it over time, the cost of technology comes down, but the cost of power doesn’t. You know? And so there’s just different things you have to look at as you go through building these things out. We’ve incorporated all of that in our guidance and in our, you know, on our comments today.

James Sanford, Head of Investor Relations, Paycom0: And and just I guess, following on that, just given how, like, useful iWAP looks and and how intuitive it is, like, why not more directly monetize it on a type of basis or a usage basis versus kind of indirectly monetizing it on better sales and and driving a patch of other modules?

Chad Richison, CEO and President, Paycom: I believe that every client should access their data this way. And, you know, we’ve had clients that have been with us a long time, and there’s no reason to make them pay to get the value that’s available for them where I really think that this is just gonna take off for us. So, you know, I really just don’t think we need to do that. Plus, I don’t wanna spend a lot of time having to go out and sell clients and charge them on things that I can really get them to use the full utilization of the system. And I believe that will create other opportunities for us, both with these clients and definitely with prospects.

So, you know, I I I think we have to be careful to to to stop and pick up the change on the ground when there’s opportunities out there if we remain disciplined and really help the clients achieve the value available to them.

Tamiya, Conference Operator: Yeah. The next question comes from Joshua Riley with Needham. You may proceed.

James Sanford, Head of Investor Relations, Paycom1: Thanks for taking my question. I was just curious, maybe a little different angle and some of the other things we’ve been talking about. But how are you adjusting your sales and marketing processes internally with all the new different AI sales tools that are out there for, front end lead automation? And then also along with that, the way that customers find you might be changing as well with organic, Google search traffic declining kind of on a secular basis over time. How do you kind of square all these items up to manage, sales efficiency over the next few years?

Chad Richison, CEO and President, Paycom: Yeah. I mean, I would divide marketing separate from sales. I would share marketing groups been using those tools efficiently for quite some time and continue, you know, the tools available to them and continue to seek more to that. I mean, from a sales process, you know, we went right back to the way we were selling back in February. We went right back to that type of training, leverage, and influence when Amy took over, and that’s been working very well.

You know, I’ve I’ve I’d love to think a product sells itself, but that’s not true. At the end of the day, you have to have great salespeople who are out there working with the client to help them understand the value that’s gonna be created, and you have to have a very strong ROI case. So, you know, we’re gonna continue to sell the way we’ve been selling. But I would think about this as a just it it just changes. I mean, it’s night and day, you know.

We rolled this out on July to our very first client. I mean, it’s night and day how you utilize our system on a go forward from a simplicity standpoint. And I do think that that’s gonna weave itself into sales. I mean, again and by the way, we turned our first client on July 23. I don’t even think we gave it to sales until last Monday.

You know? So, you know, they’re just now a weekend maybe at the most to, to actually being able to go out there and talk about it. So we’ll kind of see the impact that I want has on the sales organization here over the coming quarters and years for sure.

James Sanford, Head of Investor Relations, Paycom1: Just a quick follow-up. Is it fair to say that the new sales activity was up, sequentially from q one to q two? And how do you think about that in terms of, visibility for revenue in the second half, and how you know, level of visibility that you have into the, updated revenue guidance? Thanks, guys.

Alex Zukin, Analyst, Wolf Research: I mean,

Chad Richison, CEO and President, Paycom: what I would say is, you know, we’re talking about record sales in first quarter and, you know, we just reported second quarter, and now we’ve talked about record sales in second quarter. So, you know, obviously, those haven’t really a lot of those haven’t started yet. So, you know, let’s say most of those haven’t started yet. And so, you know, those will be reflected in subsequent quarters. And then, you know, we always guide to what we can see, but I would say there’s an a level there’s a level of excitement across Fatecom right now that’s different than it’s been in a long time.

And, you know, we’ve always been a pretty exciting company anyway.

Tamiya, Conference Operator: Thank you. The following comes from Siti Panisrahi with Mizuho (NYSE:MFG). You may proceed.

Raimo Lenschow, Analyst, Barclays: Thanks for taking my question.

Kevin McVeigh, Analyst, UBS: And Chad, I want to ask

James Sanford, Head of Investor Relations, Paycom2: about the demand environment, how you’re seeing you know, in the first half and your expectation for second half? And then are you seeing any kind of changes, you know, in the competitive landscape, especially with all the consolidation that happened recently in your space?

Chad Richison, CEO and President, Paycom: Yeah. I mean, I would say our demand environment remains strong. I’ve always said we also create demand. And remember, we have less than 5% of the total addressable market just in The US even. And so, you know, there’s many opportunities from a change in the competitive market.

I think they all got a lot less competitive a couple of weeks ago, to be honest with you. And and this is gonna be a thing. I mean, you you guys will kinda see this will be a thing moving forward. I mean, our client feedback’s been really good. I think that I know competitors will say they have the most automated, the most this, the most that.

But if you can’t talk to it, it’s not the most automated. It’s not the most modern. You know? People might wanna drive an old car or motorcycle or fly an old plane. I mean, those things are nostalgic and cool.

You know? But driving an old HCM system around, it’s not cool. It’s just sad. So, you know, I I do think that you’re gonna see a lot of clients gravitate toward this type of experience because why should they work extra hard to get the value? And which is why we created it in the first place.

James Sanford, Head of Investor Relations, Paycom2: Great. Thank you.

Tamiya, Conference Operator: Thank you. The final question comes from Jake Roberts with William Blair. You may proceed.

Chad Richison, CEO and President, Paycom: Yes. Thanks for taking

James Sanford, Head of Investor Relations, Paycom3: the questions. When you talk about I want taking off for you, where do you think it shows up most? Is that new logos? Retention? Is it new product adoption?

I get I guess, what should we be looking for on our end? And when do you think it actually starts showing up more meaningfully in the numbers?

Chad Richison, CEO and President, Paycom: I mean, I think it’s gonna start showing up in all those areas. I mean, you know, I’m I’m very bullish on it showing up in all those areas. Obviously, new sales, new logo ads is is always been the the largest opportunity we have to increase and drive revenue growth. So, you know, I would I would definitely expect that to be probably the largest bucket of that. But I will also tell you, I expect to have a huge impact on our retention over time as people are using it, becoming more acclimated to it.

And I also think it’s gonna have an impact on our CRRs being able to go out there and and be able to talk to someone about you know, if you want to be able to pull data from the complete employee life cycle, if you want your employees to actually be able to leverage all this, you know, it’s really important that you have these other modules that we have. And so I also think it’s gonna make an impact there. And and I believe win backs, you know, We’re already seeing that. I mean, we’re seeing clients that were gone from us a really short period of time come right back because of it or gone or some of these other things or just client service that they like. You know?

And this just changes all of that. I mean, I don’t know how you go from being used to commanding a system and just telling it your problem that it solves. I don’t know how you go back to navigating and trying to find out how to fix your own problem. It just seems like you know, people don’t usually go backwards in technology. They don’t do that too well.

None of us even our consumer lives, none of us go backwards in technology very well. And I think that I one has made it easier to access all the automation, and I I just I think it would be very difficult for clients once they’re getting full value to, you know, wanna have less.

James Sanford, Head of Investor Relations, Paycom3: Okay. That’s helpful. And then can can you talk about how the initial rollout of the new offices in LA, Raleigh, and Providence have been going? And now it feels like the the business is in a much healthier place. Should we expect a a more regular cadence of office launches moving forward?

Chad Richison, CEO and President, Paycom: Yeah. I mean, you know, I don’t know that we’ve had as much of a regular cadence. Maybe there for a while when we’re doing three or four. Know, our sales organization is doing very well right now. In fact, one of those offices, I’ll go ahead and call them out.

I think it’s Providence, had a million dollars in new sales faster than anybody’s any of our offices have ever gotten to it. So, you know, they’re ramping up well. And again, the more successful offices we have, the more successful managers we have. The more successful backfill for those managers we have, the better the opportunity we have to open up additional markets. And so that is a part of what we’re doing as well as increasing the dollar volume in every territory that kind of gets us to those next levels.

Tamiya, Conference Operator: Thank you. This concludes the question and answer portion of today’s call. I will now turn the call back over to Mr. Chad Richardson for closing remarks.

Chad Richison, CEO and President, Paycom: Well, I want to thank everyone for joining the call today. We look forward to speaking with many of you over the coming months. We will be participating in several investor events this quarter, including Deutsche Bank Technology Conference on August 27 in Dana Point. Then on September 3, we will be attending the Citi Global TMT Conference in New York City. We will also be hosting meetings at the Wolf TMT Conference in San Francisco on September 10.

With the strong results and the recent launch of iWon, I’m even more excited about how the future is shaping up for Paycom. I want to thank all of our employees for their contributions to our success. And with that, operator, you may end the call. Thank you.

Tamiya, Conference Operator: This concludes today’s conference call. You may now disconnect.

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