PAYC earnings call transcript, November 4, 2026

After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star. Followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the star key followed by the number one. Thank you. I will now turn the call over to James Samford.

Thank you and welcome to PAYCOM's earnings conference call for the third 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. Our 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 findings. Actors 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 free cash flow. 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 Richeson, Paycom.

Thanks to our strong performance year-to-date, we are once again raising our full-year outlook for both revenue and profitability. We are seeing greater adoption of automation across our client base as we continue to expand automated decisioning logic and AI capabilities. For any business, AI adoption starts with delivering real value at an affordable cost. Our early investments in data centers, AI technology, and GPUs are paying off for our clients and ourselves. Our clients are not paying for tokens on our system. That creates a powerful economic advantage as we continue to deliver more automation at a lower cost, creating greater value for our clients and stronger returns on PAYCOM's investments. On the product side, we continue to innovate and drive even more automation. Our clients appreciate the decision logic that is built into our platform is it allows them to incorporate their company policies such as PTO, payroll, scheduling, onboarding, and more directly into the system. This allows for accurate and consistent decisions that generate tremendous ROI across an organization. One of the most recent products we launched with built-in decision logic is asset management and the response to this new tool has been excellent. Through our research we found that companies are buying assets they already own. We've seen companies hiring 50 new employees and then buying 50 new laptops, phones, tools, badges, software licenses, and other

equipment while perfectly good ones sit unused in storage and others remain unreturned by former employees. Our asset management platform helps clients track, recover, and deploy their assets. Reducing unnecessary spending and giving them control over what they already own. Demand for automation is accelerating and Paycom continues to lead the industry with the most intelligent platform for automating. Decisions across an organization. Our ability to develop, release, host, distribute, and service our technology gives us a powerful advantage. I'm very excited about our upcoming product. Pipeline, which will add even more value to businesses across our large and expanding TAM. Now, I would like to turn the call over to Shane Hadlock.

Thanks, Chad.

We delivered excellent third quarter.

Thanks to our dedicated employees and their relentless focus on our client success. Throughout 2026, we released many powerful solutions and client response to these releases has been incredibly positive. Our award-winning AI solution, iWant, continues to accelerate speed to value for our clients by giving employees, managers, and executives immediate access to critical data. It's been able to cross our client base and it successfully responded to millions of queries. In fact, I want usages up approximately 65% today versus the end of 2025. Our AI is creating means for our clients and without any incremental cost to them. In fact, Forrester found that organizations in the mid-market using iWANT can achieve greater than 400% ROI and save as many as 3600 employee hours 600 manager hours and 60 executive hours annually. Another example of client ROI achievement is a business that used our product gone to eliminate $360,000 in unmanaged PTO. This company had hundreds of employees across 73 locations in 12 states. Prior to using gone, one fifth of their PTO was approved manually after the day it had already been taken. The majority of their employees had negative time off balances.

Thanks to gone, the system makes the decisions which helps eliminate time theft and ensures the workforce is operating at peak efficiency driving more to the bottom line. That's the power of decision logic our clients are realizing. Expanding on Chad's comments, owning and operating our data center infrastructure is a significant competitive advantage. We are one of only a handful of companies in the US to operate a tier four data center. That infrastructure gives us greater control over our technology and the economics behind it, which increases the ROI our clients realize. This also drives operational efficiencies across R&D and service operations to drive even more internal value. Strong usage of our products and investments in customer service are resulting in increasing client satisfaction and are driving higher net promoter scores. This is related to the investments we have been making in automation, product innovation, and our team's ability to deliver world-class service. I am proud of what our teams have achieved this year, focusing on strengthening client ROI and expanding the value of our platform. With that, let me turn the call over to Bob.

Came in strong with total revenues of $544 million, up 10% over the comparable prior year period, and recurring and other revenues of $519 million. Up 11% year over year. Our continued focus on process automation and on leveraging our own technology is driving increased productivity across the organization. Fundamentally strengthening our business. Our efforts over the last several quarters are driving durable revenue growth, sustainable margins, and rapid earnings growth. Gap net income in the third quarter was $130,000. $33 million or $2.99 per diluted share based on an average of 44.5 million shares outstanding. Non-gap net income increased 37% year over year. In the third quarter to $150 million or $3.37 per diluted share. Diluted non-gap EPS increased 74%. Year over year. Reflecting strong earnings growth and the benefits of our capital allocation strategy. Adjusted EBITDA in the third quarter came in very strong at $268 million or $49. 0.3% of revenues driven by expanding gross margin and reductions in operating costs. The investments we made in data centers, AI technology, and product development processes are paying. off and driving our expanded adjusted EBITDA margin. Based on the strength of our year to date results, we are raising our outlook for full year revenue and adjusted EBITDA. Turning to capital. allocation. We ended the third quarter with approximately 44 million shares outstanding down nearly 20% from approximately 55 million shares at the end of the third quarter of 2025.

During that same time period we repurchased approximately 11.5 million shares. We bought back three million dollars of stock in the third quarter and have 1.65 billion shares. We paid $150 million remaining on our buyback authorization as of the end of Q3. During the quarter we paid down $150 million of our balance on a revolving credit facility. We ended the quarter with cash and cash equivalents of $194 million and an outstanding balance of $750 million under our revolving credit facility. We generated $150 million. We generated free cash flow of $536 million in the first nine months of 2026 and continue to expect to deliver very strong full year free cash flow. We expect even stronger free cash flow. In the third quarter, we paid approximately $17 million in cash dividends, and on November 2nd, the board approved our next quarterly dividend of $0.37.5 per share payable in early December. The average daily balance of funds held for clients was approximately $2.7 billion in the third quarter of 2026, up 7% over the prior year period. Now let me turn to guidance for 2026. Based on the strength of our year-to-date results, we are increasing our revenue and adjusted EBITDA guidance ranges. We expect total revenues to be between $2.213 billion and $2.218 billion. Or approximately 8% year-over-year growth. We now expect full-year recurring and other revenue to be up nearly 9% year-over-year. Included in our total revenue outlook...

...is interest on funds held for clients of approximately 107 million dollars. Full-year adjusted EBITDA is now expected to be between 1.069 billion dollars. ...and 1.079 billion dollars, representing an industry-leading adjusted EBITDA margin of 48.5% at the midpoint of the range. A full 500-year adjusted EBITDA margin of 48.5% at the midpoint of the range. ...and 250 basis points higher than 2025 adjusted EBITDA margin. For modeling purposes, stock-based comp is expected to be approximately 3% of revenues in 2026. ...and CAPEX is expected to be approximately 6% of revenues. We expect 2026 GAAP tax rate to be 29% and 2026 non-GAAP tax rate to be approximately... ...27%. We are executing well against our 2026 plan, which is flowing through to the bottom line. Our clients are increasingly pleased with our expanding intelligent platform.

Your first question comes from the line of Raymo Lencho from Barclays. Your line is open.

Please go ahead.

up on the line of Jason Chilino from KeyBank Capital Markets. Your line is open. Please go ahead.

From Guggenheim. Your line is open. Please go ahead.

Wolf Research. Your line is open. Please go ahead.

Mike McKilvey from William Blair. Your line is open. Please go ahead.

This concludes today's conference call.

You may now disconnect.