Core Thesis - Paycom Software, Inc. presents a compelling investment case focused on margin expansion rather than just revenue growth, driven by its unique business model that enhances profitability over time [2][6]. Company Overview - Paycom Software, Inc. offers a cloud-based human capital management (HCM) solution as software-as-a-service for small to mid-sized companies in the U.S. [2]. Business Model and Dynamics - The company's employee self-service payroll system, Beti, allows employees to handle routine payroll corrections and HR tasks, leading to reduced support costs and stable or increasing pricing [3]. - As customers become more familiar with Paycom's workflows, the company experiences a decline in servicing costs and an increase in gross margins from approximately 70-75% at initial adoption to 80-85% for mature customers [3]. - Beti also raises switching costs for customers, as transitioning to a new vendor involves significant data migration and retraining, which can outweigh implementation costs [4]. Competitive Advantage - Paycom captures a growing share of industry profits despite overall cost reductions in payroll and HR services, benefiting from a "deflationary profit pool" [5]. - The company's model is particularly effective in the mid-market segment, where customer sophistication enhances margins and retention [6]. Market Performance - Paycom's stock price has decreased by about 40.73% since previous coverage due to valuation compression and payroll revenue pressure, but the current analysis emphasizes margin expansion and reverse operating leverage as key strengths [8].