Paycom Slows 2026 Growth Guidance Amid Automation Gains

Date of Call: Feb 11, 2026

Financials Results

• Revenue: $2.05 billion for full year 2025, up 10.2% year-over-year
• EPS: GAAP: $8.08 per diluted share for full year 2025. Non-GAAP: $9.24 per diluted share for full year 2025, up 4% year-over-year in Q4.
• Operating Margin: Adjusted EBITDA margin for full year 2025 was 43%, representing 180 basis point year-over-year margin expansion. Q4 adjusted EBITDA margin was 43.4%.

Guidance:

• Total revenue for 2026 expected to be between $2.175 billion and $2.195 billion, representing 6% to 7% year-over-year growth.
• Recurring and other revenues expected to be up between 7% and 8% year-over-year.
• Adjusted EBITDA expected to be in the range of $950 million to $970 million, representing an adjusted EBITDA margin of approximately 44% at the midpoint of the range.
• Interest on funds held for clients expected to be approximately $103 million, based on the assumption of 2 rate cuts in 2026.

Business Commentary:

Revenue Growth and Automation:

• Paycom Software reported total revenue of $2.05 billion for 2025, with recurring and other revenue growth of 10% year-over-year.
• The growth was driven by strong automation initiatives and client retention improvements, with a focus on full solution automation.

Strong Profit Margins:

• The company achieved an adjusted EBITDA margin of 43% for the full year 2025, representing a 180 basis point year-over-year margin expansion.
• This was attributed to operational efficiencies gained from automation and disciplined cost management.

Client Retention and ROI:

• Paycom's annual revenue retention rate improved to 91% in 2025, up from 90% in the previous year.
• The increase in retention was due to the success of automation solutions and world-class service, enhancing client ROI.

Guidance for 2026:

• For 2026, Paycom expects total revenue to be between $2.175 billion and $2.195 billion, representing 6% to 7% year-over-year growth.
• The guidance reflects the company's continued focus on automation, sales capacity expansion, and capturing opportunities in the remaining addressable market.

Investment in AI and Automation:

• Paycom continues to invest in AI solutions such as IWant, which automates decision-making processes, contributing to significant ROI for clients.
• The company is focused on expanding its technological lead and delivering unparalleled value through AI and automation advancements.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted exceeding strategic and financial goals with double-digit recurring revenue growth and near-record adjusted EBITDA margins. They emphasized strong client retention (91%), record client returns, and the momentum from full solution automation. The tone was confident in future growth, citing a large addressable market opportunity and ongoing innovation in AI and automation.

Q&A:

• Question from Raimo Lenschow (Barclays Bank PLC): Chad, like there's a lot of positive things on the product side coming out of you with kind of IWant, et cetera. Customer retention got better. But your guidance growth looks a little bit like a slowdown for many people. Can you just kind of bring these 2 kind of sites together? On the one hand, a lot of positivity, positive news. On the other hand, it looks -- is that kind of macro? Or how should we think about that?
  Response: Growth was solid but has sales focus and inflection opportunities; clients are happy with retention improving, and the product automation is a key differentiator.

• Question from Raimo Lenschow (Barclays Bank PLC): And then the follow-up I had was like with the change in sales leadership at the beginning of the year, should we think about like significant changes of go-to-market, et cetera? Or is this just fine-tuning? I know you have a very good sales organization in place anyway. But like -- how do we think about changes with the new leadership?
  Response: Primarily replating product value and training sales on new automation enhancements to better communicate the product's decisioning capabilities.

• Question from Samad Samana (Jefferies LLC): Maybe sticking on the guidance theme. Just as I think about the recurring revenue outlook and contextualize that last year, the initial guide was for 9%, and you guys ended up doing about 1 point and change better than that. So as I think about this year's 7% to 8% outlook, is there any change to the guidance methodology? Should we think about it as a similar construct? And then kind of similarly thinking about maybe what are the upside nodes maybe as the year progresses? And then I have one follow-up.
  Response: Guidance methodology unchanged; last year exceeded guide due to sales and value achievement, this year's guide is slightly lower but with similar execution focus and potential inflection points.

• Question from Samad Samana (Jefferies LLC): Understood. And then maybe just understanding just kind of the growth algorithm. If I think about that the client count growth in '25 being around 5% and use that kind of as a unit growth number and if I think about the '26 growth kind of that, again, 7% to 8% of recurring revenue, should we think about that kind of similar unit growth and then any ARPU expansion opportunities? Just help us understand what the different contributors are to that 7% to 8% growth and maybe where you see the room for either most conservatism or outperformance?
  Response: New logo adds are the biggest growth opportunity, with focus on outside sales organization; adjacencies also available but not primary driver.

• Question from Mark Marcon (Robert W. Baird & Co. Incorporated): So you're coming off of a quarter where sequentially, your year-over-year growth rate ended up accelerating, at 11.3% on the recurring side against a tough comp, which was up 14.5% the year before. And the guide basically does imply a bit of a slowdown. I'm wondering what are you seeing in the field? And you did make a change with regards to sales leadership. So I'm wondering, what are you seeing in the field? Obviously, all of the stocks across all of SaaS have been hit. Are clients expressing any sort of hesitation or longer decision cycles anything that you're seeing that's different or that would suggest that things are going to slow down? Perhaps it's employment and just fewer seats, I don't know. Just wondering if you can give us any sense there.
  Response: Not seeing client hesitation or longer decision cycles; sales team is trained on new automation, and the product's decisioning capabilities are a strong selling point.

• Question from Mark Marcon (Robert W. Baird & Co. Incorporated): That's great. And can you talk a little bit about the usage with regards to IWant at this point? I mean it looks really slick. So I'm just wondering what the usage patterns are there and what the customer feedback has been?
  Response: IWant usage up 80% in January; it is a primary access point for employees and C-suite, contributing to retention and value realization.

• Question from Steven Enders (Citigroup Inc.): Okay. Great. And then I guess just in terms of the guide, just wondering what you're assuming from an underlying kind of employee level perspective? And maybe how does that compare versus what you saw in Q4?
  Response: Expectation is stabilization in employee levels, similar to Q4, with impact primarily from execution and not dramatic unemployment changes.

• Question from Jason Celino (KeyBanc Capital Markets Inc.): This was the biggest new customer adds here since I think, 2022. How much of this is maybe due to those new sales offices that have been ramping or for those new returning customers that you talked about? And then what are some new incremental initiatives that are targeted toward new customers for 2026, if you have anything to share?
  Response: New offices ramped quickly but were not the largest contributor; sales performance varies by office and rep; focus is on maximizing existing opportunities and pockets of success.

• Question from Jason Celino (KeyBanc Capital Markets Inc.): Okay. And then retention, 91%, nice to see the improvement. I think with IWant, part of that product was to improve retention. So it's nice to see. But maybe it was unrealistic for me to have wanted to see more improvement, no pun intended. And it sounds like you're doing some training, but you might have some more room to chop on getting kind of retention back to it was in years past. But maybe talk about the strategy there and how to think about improvement in the years to come?
  Response: Retention has room to improve further; focus on world-class service and client value realization is key, with momentum in the right direction.

• Question from Patrick O'Neill (Wolfe Research): Can you just elaborate a little bit on how AI is improving internal productivity and efficiencies and maybe which areas you are specifically seeing improvement? And then how are you thinking about sort of balancing the benefits between bottom line expansion and reinvesting in the business for growth?
  Response: AI improves speed of processing and development; it is a friend, enabling faster development and expansion into adjacent industries, balancing reinvestment with profitability.

• Question from Daniel Jester (BMO Capital Markets Equity Research): I think maybe I'll just piggyback a little bit off the answer that you just gave there, Chad. I think in your prepared remarks, you talked about building some tools maybe around IWant. And so if there's any examples you could share there, that would be great. And I know that part of the thesis, though not the biggest ones, was about the ability to cross-sell as customers use IWant and want access to all the data and functionality. So are you seeing any evidence of that?
  Response: IWant allows easy access to value without training; functionality is continuously added, and the focus is on full solution automation to drive ROI, with cross-sell opportunities emerging as clients use more products.

• Question from Daniel Jester (BMO Capital Markets Equity Research): That's great. And then maybe, Bob, to you, I know that there was a lot of onetime capital spending this past year. Any color you can share with us about how we should expect CapEx and free cash flow to look in 2026?
  Response: Onetime CapEx was for client ROI; the business is run long-term with opportunity to invest again if it enhances ROI; EBITDA margins and cash allow for such investments.

• Question from Jared Levine (TD Cowen): Can you give us a sense in terms of your January retention performance, just given the significance of that churn for the full year? And then as we kind of look at the '26 guidance here, what are you assuming in terms of retention versus '25? Are you assuming any improvement or relatively stable?
  Response: Retention disclosed annually at 91% for 2025; focus on usage and value will support retention into 2026, with no expectation of reversal.

• Question from Jared Levine (TD Cowen): Got it. And then can you give us your latest thoughts in terms of new sales office openings here? Is the kind of change in sales leadership going to impact potentially the pace of additional sales office this year over the near term?
  Response: Sales team expanded from 8 to 10, adding 100 salespeople; training is ongoing, and future office openings are a goal to capture market opportunity.

• Question from Kevin McVeigh (UBS Investment Bank): Chad, your comments on GenAI were pretty helpful. I wonder, could you give us a sense of have you seen client behavior patterns in terms of consumption across any modules change as a result of the GenAI adoption? I mean, obviously, one of the questions we get a lot is the perpetual displacement risk, which we don't subscribe to. But is there anything you can help kind of the market understand that helps alleviate some of that concern, whether it's clients that have these tools that are still using Paycom or leveraging different parts of your platform that they haven't in the past, just to help dimensionalize and calibrate some of this concern.
  Response: Some clients move toward full automation, but it's critical to bridge understanding gaps; Paycom makes it easy to digest and achieve value, reducing displacement risk.

• Question from Kevin McVeigh (UBS Investment Bank): That's helpful. And then just one quick question on the guidance. What retention numbers embedded in the '26 guidance? And then how much buyback do you have in the '26 estimates as well?
  Response: Retention not specified in guidance but expected to be stable; buybacks are opportunistic and not included in guidance.

• Question from Bhavin Shah (Deutsche Bank AG): Chad or Bob, there's clearly a lot of positives here with better client growth versus last year, along with an improvement in retention. But I'm just trying to reconcile that with the recurring revenue guide for next year that would imply the smaller dollar adds in several years. Is there a change in sales training or an increased emphasis on client service impacting growth next year? Or is it maybe I want slowing down decision-making processes? Any insights in terms of what could be impacting growth would be helpful, especially as industry dynamics seem to be somewhat stable.
  Response: Guide is similar to last year's, with inflection opportunities; sales focus and training on product value are unchanged, and execution is expected to drive results.

• Question from Jacob Cody Smith (Guggenheim Securities, LLC): You talked about seeing momentum upmarket and winning larger deals, which is really encouraging to see. First, is this an area where you're expanding sales capacity for 2026? Also, as you move upmarket to organizations that often have greater integration needs, is there a road map to expand API access while also balancing your core single database advantages? And do you view monetization of APIs as a growth lever in the future?
  Response: Upmarket focus is on helping digest full solution automation; sales capacity expanded with 100 new salespeople; core single database architecture remains, with evaluation process simplified for clients.

• Question from Joshua Reilly (Needham & Company, LLC): Most of my questions have been asked, but any update on how the CRR team performed in 2025 relative to 2024 sales productivity? And how much room do you see for improvement in 2026 cross-sell activity?
  Response: CRR team performed as expected; cross-sell opportunities exist as clients move toward full solution automation with new products being released.

• Question from Joshua Reilly (Needham & Company, LLC): Got it. And then just on the overall competitive landscape, just curious, have you seen any impact on just your overall win rates or price competition from the marketplace as growth hasn't really decelerated significantly in the industry, but it's kind of I would say, gone sideways. And just curious if that's leading to any changes in competitive dynamics.
  Response: Win rates consistent with past; bullish on opportunities due to product differentiation and easier selling process from full solution automation.

• Question from Sitikantha Panigrahi (Mizuho Securities USA LLC): Chad, just a follow-up to the prior question. ADP also talked about improving their retention rate slightly. How is that -- are you seeing any kind of changes to your business from that?
  Response: No impact observed from ADP's retention improvements.

• Question from Sitikantha Panigrahi (Mizuho Securities USA LLC): Okay. And then other question that investors says is the AI impact to overall employment. How do you see that impacting Paycom business? Are you well diversified? Do you expect it to be more in certain kind of industry? Any color would be helpful.
  Response: Not seeing AI impact on employment; company is diversified with no overexposure to any industry, and automation provides ongoing opportunities.

• Question from Allan M. Verkhovski (BTIG, LLC): Strong margins. Can you share what the size and scope of the layoffs you did the past month was as well as how you're thinking about the company's headcount trajectory over the next year in the context of just realizing more and more AI efficiencies over time?
  Response: Restructuring announced last year; ended year with ~5,800 employees; internal employment trends not discussed, but headcount trajectory will be reflected in filings.

Contradiction Point 1

AI-Related Cost Structure and Investment

Contradiction on whether AI costs are a past investment or an ongoing, significant expense.

Can you explain how AI enhances internal productivity and efficiencies and how you balance bottom-line growth with reinvestment for expansion? - Patrick O'Neill (Wolfe Research)

2025Q4: AI is a tool for expansion, not a threat. It enables Paycom to develop new products... The balance is on leveraging these capabilities to drive growth while maintaining strong profit margins. - Chad Richison(CEO)

How does the new AI product drive additional conversations and impact lead generation pipeline growth? - Raimo Lenschow (Barclays)

20251106-2025 Q3: AI initiatives cost about $25 million a quarter, and Paycom spent ~$100 million this year to set up its own data centers... - Chad Richison(CEO)

Contradiction Point 2

Future Capital Expenditure Outlook

Contradiction on the timing and expectation of future large-scale capital spending.

How will the one-time 2025 capital spending affect 2026 CapEx and free cash flow? - Daniel Jester (BMO Capital Markets) - Follow-up

2025Q4: The company invests for the long-term. If another opportunity arises to invest in client ROI, they would take it, given the strong EBITDA margins and available cash. - Robert Foster(CFO)

How should the $100 million AI-related CapEx impact free cash flow, and what are the key components and duration of this investment? - George Croson for Steven Enders (Citi)

20251106-2025 Q3: No similar spend is expected over the next couple of years. - Chad Richison(CEO)

Contradiction Point 3

Recurring Revenue Growth Guidance and Confidence

Contradiction in the tone and confidence level regarding the 2026 recurring revenue growth guidance.

Given last year's recurring revenue exceeded guidance by 1% and this year's 7-8% guidance is more conservative, has the guidance methodology changed? - Samad Samana (Jefferies LLC)

2025Q4: The 2026 guide (6-7% total revenue growth) is about 1% below the 2025 guide, reflecting a focus on sales and client value/retention. - Chad Richison(CEO)

What changes have you observed in beat levels compared to historical trends? - Raimo Lenschow (Barclays)

20251106-2025 Q3: We didn't guide to beat by certain amounts, but we feel 2025 will be a good year. - Chad Richison(CEO)

Contradiction Point 4

Characterization of Q4 Recurring Revenue Growth

Contradiction on whether Q4 growth was above or below expectations.

Q4 recurring revenue growth accelerated, but the 2026 guide implies a slowdown. What are current trends in the field? - Mark Marcon (Robert W. Baird & Co.)

2025Q4: Q4 recurring revenue growth accelerated sequentially... The 2026 guide implies a slowdown. - Chad Richison(CEO)

Could you clarify the Q3 recurring revenue results and whether the deceleration was due to softer workforce levels or one-time factors? - Zane Meehan (KeyBanc Capital Markets Inc.)

2025Q3: Recurring revenue growth was slightly above expectations, aligning with the forecast of around 11% for Q4. - Robert Foster(CFO)

Contradiction Point 5

IWant's Indirect vs. Direct Monetization Strategy

Contradiction on whether IWant is a free tool meant to drive indirect value or a revolutionary product that could be directly monetized.

Given the accelerated Q4 recurring revenue growth (11.3% vs. 14.5% prior year) and the 2026 guide’s implied slowdown, are clients showing hesitation or longer decision cycles, and what are current IWant usage patterns and customer feedback? - Mark Marcon (Robert W. Baird & Co.)

2025Q4: The focus remains on ensuring clients achieve full value from the product. - Chad Richison(CEO)

Why not directly monetize IWant (e.g., usage-based pricing) instead of via improved sales and attach rates? - Bhavin Shah (Deutsche Bank AG)

2025Q2: The company believes every client should have free access to this revolutionary way of accessing their data. - Chad R. Richison(CEO)