Core Insights - Paycom Software (PAYC) was identified as significantly undervalued when trading at approximately $205 per share prior to its Q4 2024 earnings call [1] Company Analysis - The analyst has over 10 years of experience in the investment arena, starting as an analyst and progressing to a management role, indicating a strong background in financial analysis [1] - The analyst holds a master's degree in Analytics and a bachelor's degree in Accounting, suggesting a solid educational foundation for evaluating financial performance [1] Investment Perspective - There is a potential interest in initiating a long position in PAYC through stock or call options within the next 72 hours, indicating a bullish outlook on the company's future performance [2]

Core Insights - Paycom Software (PAYC) was identified as significantly undervalued when trading at approximately $205 per share prior to its Q4 2024 earnings call [1] Company Analysis - The analyst has a strong educational background with a master's degree in Analytics and a bachelor's degree in Accounting, contributing to a decade of experience in the investment sector [1] - The analyst has progressed from an analyst role to a management position, indicating a deep understanding of market dynamics and investment strategies [1] Investment Perspective - The analyst expresses a personal interest in dividend investing, suggesting a focus on long-term value and income generation from investments [1]

Core Insights - Paycom Software, Inc. (PAYC) stock has dropped over $70 or 30% in just three months, leading to a reassessment of its investment rating [1] Company Overview - The article discusses the recent performance of Paycom Software, highlighting a significant decline in stock value [1] Market Context - The analysis reflects on the broader market conditions affecting Paycom, indicating a need for investors to reconsider their positions [1]

Revenue Growth and Client Base - The company reported significant revenue growth, with a focus on expanding its client base and increasing recurring revenues through new applications and improved client usage [114]. - The average client size has increased significantly, with a target focus on organizations with 50 to 10,000 or more employees, presenting substantial revenue opportunities [116]. - The company plans to open additional sales offices to enhance market presence and leverage sales force productivity for attracting new clients [114]. - Recurring and other revenues increased by 10.6% to $466.5 million for the three months ended September 30, 2025, and by 9.9% to $1.4216 billion for the nine months ended September 30, 2025, compared to the same periods in 2024 [121]. - Total revenues for the three months ended September 30, 2025, were $493.3 million, a 9.1% increase from $451.9 million in 2024; for the nine months, total revenues rose 8.5% to $1.5074 billion from $1.3893 billion [121]. Operating Income and Expenses - Operating income for the three months ended September 30, 2025, was $112.6 million, a 7.3% increase from $104.9 million in 2024; for the nine months, operating income decreased by 15.6% to $410.1 million from $485.8 million [121]. - Sales and marketing expenses increased by 20.3% to $125.7 million for the three months ended September 30, 2025, and by 7.9% to $352.6 million for the nine months [127][128]. - Research and development expenses rose by 17.6% to $74.1 million for the three months ended September 30, 2025, and by 20.1% to $211.2 million for the nine months [129]. - General and administrative expenses increased by $1.3 million for the three months ended September 30, 2025, and by $115.2 million for the nine months, primarily due to a reversal of previously recognized stock-based compensation [132][133]. Net Income and Earnings - Net income for the three months ended September 30, 2025, was $110.7 million, a 51.1% increase from $73.3 million in 2024; for the nine months, net income decreased by 12.6% to $339.6 million from $388.4 million [121]. - For the three months ended September 30, 2025, net income was $110.7 million, compared to $73.3 million for the same period in 2024, representing a 50.5% increase [168]. - Adjusted EBITDA for the three months ended September 30, 2025, was $194.3 million, up from $171.3 million in 2024, reflecting a 13.9% growth [168]. - Non-GAAP net income for the three months ended September 30, 2025, was $109.6 million, compared to $93.4 million in 2024, indicating a 17.3% increase [169]. - Earnings per share (basic) for the three months ended September 30, 2025, was $1.97, compared to $1.31 in 2024, marking a 50.4% rise [169]. Cash Flow and Investments - Cash provided by operating activities increased by 29% to $482.8 million for the nine months ended September 30, 2025, compared to $373.5 million in 2024 [158]. - Cash used in investing activities saw a significant increase of 2065%, totaling $(659.2) million for the nine months ended September 30, 2025, primarily due to increased purchases of investments [158]. - Cash used in financing activities increased by 99% to $(2,168.2) million for the nine months ended September 30, 2025, driven by changes related to client funds obligations and increased stock repurchases [158]. - As of September 30, 2025, corporate cash and cash equivalents totaled $375.0 million, with funds held for clients amounting to $1.3 billion [170]. - The average daily balance of funds held for clients was $2.7 billion for the nine months ended September 30, 2025, compared to $2.4 billion in 2024 [124]. Tax and Financial Position - The effective income tax rate for the nine months ended September 30, 2025, was 26.2%, up from 21.9% in 2024, primarily due to a tax benefit related to a restricted stock award forfeiture [139]. - The company expects to meet its longer-term liquidity needs through cash flows from operations and financing arrangements [142]. - The recent tax code amendments allow for immediate deductions for domestic R&D expenditures, which are expected to positively impact cash flows in future periods [154]. - As of September 30, 2025, the company had $1.0 billion available under its Revolving Credit Facility, with no outstanding borrowings [140]. AI and Automation Initiatives - The company is investing heavily in automation and AI initiatives, which are expected to create efficiencies and reduce certain employee-related expenses [120]. - The introduction of the industry-first command-driven AI engine, IWant™, aims to enhance user experience by automating information retrieval about employee data [113]. - The company spent approximately $100 million on AI-focused capital expenditures from May 2025 through October 2025 to enhance data center capabilities [152]. Market Conditions and Competitive Landscape - The market for HCM software remains highly competitive, with ongoing pressures from new entrants and disruptive technologies impacting client retention and revenue growth [115]. - The company anticipates that its ability to develop and maintain client relationships will be crucial for expanding HCM spending among existing clients [109]. - Seasonal fluctuations in recurring revenues are expected, with higher revenues typically in the first and fourth quarters due to payroll tax filings and unscheduled payroll runs [119]. Other Financial Metrics - Other income increased significantly due to a $35.6 million gain from a naming rights agreement amendment, with total other income of $41.3 million for the three months ended September 30, 2025 [138]. - Depreciation and amortization expense increased by $3.8 million for the three months ended September 30, 2025, primarily due to technology development and fixed asset purchases [135]. - Non-cash stock-based compensation expense for the three months ended September 30, 2025, was $31.1 million, compared to $24.2 million in 2024, reflecting a 28.6% increase [169]. - Available-for-sale securities as of September 30, 2025, totaled $496.7 million, primarily consisting of U.S. treasury securities with original maturities of two years or less [170]. - A hypothetical increase or decrease in interest rates of 100 basis points would result in an approximately $21.5 million increase or decrease in interest earned on funds held for clients over the next 12 months [172]. - An immediate increase in interest rates of 100 basis points would have led to a $2.0 million reduction in the aggregate market value of available-for-sale securities as of September 30, 2025 [173].

Core Insights - The human resources software company has met earnings expectations for the third quarter [1] Financial Performance - The company reported earnings that align with market expectations, indicating stable financial performance [1]

Core Insights - Paycom's shares fell 13.3% after disappointing third-quarter earnings, despite meeting revenue expectations [1] - Adjusted earnings per share were $1.94, below the consensus estimate of $1.96, while revenue was $493.3 million, reflecting a 9.2% year-over-year growth [1] - The company reaffirmed its full-year revenue guidance, but investor sentiment was not positively impacted, indicating a desire for a stronger outlook [1] - Billings growth of 9.5% suggests increasing competition and challenges in sales momentum [1] Market Reaction - Paycom's stock is not very volatile, with only 7 moves greater than 5% in the past year, indicating significant market impact from the recent news [3] - The stock has decreased 19.8% year-to-date and is trading 39.2% below its 52-week high of $265.71 [5] - An investment of $1,000 in Paycom shares five years ago would now be worth $416.03, highlighting a significant decline in value [5]

Core Insights - Paycom Software, Inc. (PAYC) shares fell 8.5% after reporting lower-than-expected Q3 2025 results, with non-GAAP earnings of $1.94 per share, missing the Zacks Consensus Estimate of $1.96, although this represented a 16.2% year-over-year increase driven by higher revenues [1][10] Financial Performance - Paycom reported revenues of $493.3 million, exceeding the consensus estimate of $492.4 million, marking a 9.1% year-over-year increase due to sales momentum, international expansion, and AI integration [2][10] - Recurring revenues, which account for 94.6% of total revenues, rose 10.6% to $466.5 million, surpassing the estimate of $464.5 million [3] - Adjusted gross profits increased 11.9% year-over-year to $411.3 million, with the adjusted gross margin expanding by 210 basis points to 83.4% [4] - Adjusted EBITDA grew 13.4% year-over-year to $194.3 million, with the adjusted EBITDA margin improving from 37.9% to 39.4% [4][10] Cash Flow and Balance Sheet - As of September 30, 2025, Paycom had cash and cash equivalents of $375 million, down from $532.2 million in the previous quarter, and no debt [5] - In Q3, the company generated operating cash flow of approximately $177.8 million, paid $21.1 million in dividends, and repurchased $223.4 million of its common stock [6] - Paycom had $927 million remaining under its buyback authorization as of September 30, 2025, and declared a quarterly dividend of 37.5 cents per share payable on December 8, 2025 [7] Guidance - Paycom reiterated its 2025 revenue guidance, forecasting revenues between $2.045 billion and $2.055 billion, indicating an 8.9% year-over-year growth, with recurring revenues expected to grow 10% year-over-year [8] - The company maintains its adjusted EBITDA guidance for 2025 between $872 million and $882 million, translating to an approximate EBITDA margin of 43% at the midpoint [9][10]

Core Viewpoint - Paycom Software reported quarterly earnings of $1.94 per share, missing the Zacks Consensus Estimate of $1.96 per share, but showing an increase from $1.67 per share a year ago, indicating a mixed performance in earnings despite revenue growth [1][2]. Financial Performance - Paycom's revenues for the quarter ended September 2025 were $493.3 million, surpassing the Zacks Consensus Estimate by 0.19% and up from $451.93 million year-over-year [2]. - The company has exceeded consensus revenue estimates four times over the last four quarters [2]. Stock Performance - Paycom shares have declined approximately 11.3% since the beginning of the year, contrasting with the S&P 500's gain of 15.1% [3]. - The stock currently holds a Zacks Rank 3 (Hold), suggesting it is expected to perform in line with the market in the near future [6]. Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $2.48 on revenues of $543.09 million, and for the current fiscal year, it is $9.25 on revenues of $2.05 billion [7]. - The trend of earnings estimate revisions for Paycom was mixed ahead of the earnings release, which may influence future stock performance [6]. Industry Context - The Internet - Software industry, to which Paycom belongs, is currently ranked in the top 34% of over 250 Zacks industries, indicating a favorable outlook compared to lower-ranked industries [8].

Financial Data and Key Metrics Changes - Total revenues for Q3 2025 reached $493 million, an increase of 9.1% year-over-year [14] - Recurring and other revenues amounted to $467 million, up 10.6% year-over-year [14] - GAAP net income was $111 million, or $1.96 per diluted share, including a one-time gain of approximately $26 million [14] - Non-GAAP net income increased 17% year-over-year to $110 million, or $1.94 per diluted share [15] - Adjusted EBITDA rose 13% year-over-year to $194 million, with an adjusted EBITDA margin of 39%, a 150 basis point increase from the prior year [15] Business Line Data and Key Metrics Changes - The launch of the AI product "Iwant" has led to significant engagement, particularly among C-suite executives, enhancing user interaction with HR and payroll data [6][7] - The payroll automation solution "Betty" has reduced payroll processing labor by up to 90% and has attracted former clients back to Paycom [8][9] Market Data and Key Metrics Changes - The average daily balance on funds held for clients was approximately $2.5 billion, up 9% year-over-year [18] - Interest on funds held for clients declined 11% year-over-year to $27 million in Q3 2025 [14] Company Strategy and Development Direction - The company is focused on automation and product innovation, with significant investments in data centers to support AI initiatives [10][17] - Paycom aims to capture more of the total addressable market, currently at less than 5% in the U.S., by enhancing sales strategies and product offerings [38][49] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year revenue guidance of $2.45 billion to $2.55 billion, representing a 9% year-over-year increase at the midpoint [19] - The company anticipates continued strong demand and retention, with a focus on enhancing client value and operational efficiencies [38][49] Other Important Information - The company repurchased $319 million of common stock in Q3 2025, returning over $1 billion to shareholders since the beginning of 2023 [17] - A quarterly dividend of $0.37 per share was approved, payable in mid-December [18] Q&A Session Summary Question: Concerns about Beti levels and economic impact - Management acknowledged changes in guidance and emphasized strong performance despite concerns, indicating a solid foundation for future growth [24] Question: Impact of Iwant on lead generation and sales - Management reported increased engagement from C-suite executives and noted that Iwant is changing user behavior positively [26][27] Question: Cost of service efficiencies - Management indicated that operational efficiencies are expected to materialize in 2026, with a focus on automation [33][34] Question: Demand environment and sales cycles - Management confirmed strong demand and a differentiated product offering, with expectations for improved retention over time [38] Question: CapEx investments and free cash flow - Management clarified that the $100 million CapEx for data centers and AI is largely complete, with no major CapEx expected in the near future [40][51] Question: Opportunities for new product development - Management affirmed ongoing efforts to build more products on the platform to serve broader use cases [53] Question: Iwant's impact on product attach rates - Management confirmed that Iwant is driving increased product utilization and reducing the need for training [59] Question: Layoff impact and cost savings - Management discussed the potential for annualized cost savings from recent layoffs, emphasizing a focus on automation without displacing employees unnecessarily [61] Question: Q4 growth expectations - Management indicated that Q4 growth is expected to be above Q3, with no significant concerns impacting future performance [65] Question: Marketing spend effectiveness - Management highlighted strategic marketing efforts and the expectation of returns from these investments [67] Question: Revenue translation from strong bookings - Management clarified that the timing of deal starts impacts revenue recognition, with no significant changes expected [70] Question: Demand dynamics between customer segments - Management noted that demand remains strong across both high-end and mid-market segments [72] Question: Monetization of Iwant - Management indicated that Iwant is expected to drive increased sales and retention rather than direct monetization [75]

Financial Data and Key Metrics Changes - Total revenues for Q3 2025 reached $493 million, representing a 9.1% increase year-over-year [14] - Recurring and other revenues amounted to $467 million, up 10.6% year-over-year [14] - GAAP net income was $111 million, or $1.96 per diluted share, including a one-time gain of approximately $26 million [14] - Non-GAAP net income increased 17% year-over-year to $110 million, or $1.94 per diluted share [15] - Adjusted EBITDA rose 13% year-over-year to $194 million, with an adjusted EBITDA margin of 39%, a 150 basis point increase from the prior year [15] Business Line Data and Key Metrics Changes - The launch of the AI product IWant has led to a significant increase in user engagement, particularly among C-suite executives [6][7] - Beti, another automation solution, has shown to reduce payroll processing labor by up to 90% and has attracted former clients back to the company [8][9] Market Data and Key Metrics Changes - The average daily balance on funds held for clients was approximately $2.5 billion in Q3 2025, up 9% year-over-year [18] - Interest on funds held for clients declined 11% year-over-year to $27 million in Q3 2025 [14] Company Strategy and Development Direction - The company is focused on enhancing automation and product innovation, with significant investments in data centers and AI capabilities [10][17] - A $100 million investment in AI-focused CapEx has been made to support the rollout of IWant and future AI developments [10][17] - The company aims to capture more market share, with less than 5% penetration of the total addressable market in the U.S. [38] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving double-digit organic recurring revenue growth and expanding adjusted EBITDA margins for the full year [15][19] - The demand environment remains strong, with expectations for continued growth and retention improvements [38] Other Important Information - The company repurchased $319 million of common stock in the open market, returning over $1 billion to shareholders since the beginning of 2023 [17] - The board approved a quarterly dividend of $0.37 per share, payable in mid-December [18] Q&A Session Summary Question: Concerns about Beti levels - Management acknowledged changes in guidance and emphasized strong performance despite concerns about Beti levels [24] Question: Impact of IWant on sales - Management reported increased engagement from C-suite executives and noted that IWant is driving new user adoption [27] Question: Cost of service efficiencies - Management indicated that operational efficiencies are expected to materialize in 2026, with a focus on automation [34] Question: Demand environment characterization - Management confirmed strong demand and noted that they create their own demand with less than 5% market penetration [38] Question: CapEx investments and free cash flow - Management stated that the $100 million CapEx investment is largely complete and does not expect similar spending in the near future [51] Question: Opportunities for new product development - Management confirmed ongoing efforts to build more products on the platform to serve broader use cases [53] Question: IWant's impact on product attach rates - Management noted that IWant is driving increased product utilization and reducing the need for training [59] Question: Layoff impact on cost savings - Management indicated that cost savings from layoffs will be part of future guidance, focusing on automation without displacing employees unnecessarily [61] Question: Q4 growth expectations - Management expressed confidence in Q4 growth, noting that it is expected to be above Q3 levels [65] Question: Marketing spend effectiveness - Management emphasized strategic marketing spend and the expectation of returns from these investments [67] Question: Revenue translation from strong bookings - Management clarified that the timing of deal starts affects revenue recognition, with no significant changes expected [70] Question: Demand dynamics between customer segments - Management confirmed that demand remains strong across both high-end and mid-market segments [72] Question: Monetization of IWant - Management indicated that IWant will primarily drive increased sales and retention rather than direct monetization [75] Question: Execution catalysts for stock performance - Management highlighted a focus on revenue growth and capturing market share as key execution catalysts [81] Question: Stickiness of IWant - Management reported consistent usage of IWant, noting its ease of access and the removal of previous usage impediments [88]