Paycom Software [PAYC]
Every figure below is derived from SEC XBRL companyfacts (CIK 0001590955) or from the primary document of a named filing. Nothing is taken from the screen. Nothing is estimated where a filed figure exists.
Filings used, with recency asserted:
| Filing | Accession | Filed | Age at 2026-07-29 |
|---|---|---|---|
| 10-Q, Q1 FY2026 (period 2026-03-31) | 0001193125-26-211926 | 2026-05-07 | 83 days — current |
| 10-K, FY2025 (period 2025-12-31) | 0001193125-26-059372 | 2026-02-19 | 160 days |
| 10-Q, Q3 FY2025 | 0001193125-25-269543 | 2025-11-06 | |
| 10-K, FY2024 | 0000950170-25-024136 | 2025-02-20 | (source of the FY2022 float split) |
| 8-K | 0001193125-26-299695 | 2026-07-09 | most recent filing of any kind |
| Paylocity 10-K, FY2025 | 0001591698-25-000087 | 2025-08-06 | (peer cross-check only) |
All values $m. Q4 derived by subtraction (FY less 9M) where the quarter is not separately tagged; that derivation is checked to sum exactly to the filed annual figure in every year.
| Quarter | Revenue | Operating income | Net income |
|---|---|---|---|
| 2022-03-31 | 353.5 | 126.3 | 91.9 |
| 2022-06-30 | 316.9 | 72.3 | 57.4 |
| 2022-09-30 | 334.2 | 74.3 | 52.2 |
| 2022-12-31 | 370.6 | 105.9 | 80.0 |
| 2023-03-31 | 451.6 | 160.4 | 119.3 |
| 2023-06-30 | 401.1 | 87.3 | 64.5 |
| 2023-09-30 | 406.3 | 96.9 | 75.2 |
| 2023-12-31 | 434.6 | 106.7 | 81.8 |
| 2024-03-31 | 499.9 | 285.8 | 247.2 |
| 2024-06-30 | 437.5 | 95.1 | 68.0 |
| 2024-09-30 | 451.9 | 104.9 | 73.3 |
| 2024-12-31 | 493.9 | 148.5 | 113.6 |
| 2025-03-31 | 530.5 | 185.1 | 139.4 |
| 2025-06-30 | 483.6 | 112.3 | 89.5 |
| 2025-09-30 | 493.3 | 112.6 | 110.7 |
| 2025-12-31 | 544.3 | 157.1 | 113.8 |
| 2026-03-31 | 571.9 | 210.2 | 155.7 |
Q1 is structurally the peak quarter (W-2 / year-end tax form filings). Any sequential read that ignores this is wrong: Q1'26 revenue of $571.9m is +5.1% on Q4'25, but +7.8% on Q1'25, and only the year-on-year comparison is meaningful.
TTM (Q2 FY2025 → Q1 FY2026):
| $m | |
|---|---|
| Revenue | 2,093.0 |
| — recurring & other | 1,982.7 |
| — interest on funds held for clients | 110.3 |
| Operating income | 592.3 (28.30%) |
| Operating income ex-float | 482.0 (24.31% of ex-float revenue) |
| Net income | 469.7 |
| Operating cash flow | 710.2 |
| Capital expenditure | 264.4 |
| Free cash flow | 445.8 (21.3% of revenue) |
| FCF less SBC | ~327 (15.6% of revenue) |
| FY | Recurring & other | Interest on funds held for clients | Total | Float % | Recurring growth | Total growth |
|---|---|---|---|---|---|---|
| 2022 | 1,342.5 | 32.7 | 1,375.2 | 2.38% | — | +30.29% |
| 2023 | 1,585.7 | 108.0 | 1,693.7 | 6.38% | +18.12% | +23.16% |
| 2024 | 1,758.3 | 124.9 | 1,883.2 | 6.63% | +10.89% | +11.19% |
| 2025 | 1,938.7 | 113.0 | 2,051.7 | 5.51% | +10.26% | +8.95% |
| Q1'26 | 544.0 | 27.8 | 571.9 | 4.86% | +8.80% | +7.80% |
Quarterly float income: $30.5m (Q1'25), $28.5m (Q2'25), $26.8m (Q3'25), $27.2m (Q4'25), $27.8m (Q1'26). Trough Q3 2025; up two quarters since.
Average daily client-fund balance: $2.7bn (FY2025), $2.4bn (FY2024) — MD&A. Implied FY2025 yield 4.19%. Balance-sheet funds held for clients swings enormously with the calendar ($5,137.0m at 2025-12-31 vs $2,624.6m at 2026-03-31) — the point-in-time balance is not the earning asset; the average daily balance is, and only the average is disclosed, annually.
Modelling rule adopted: float income is projected separately from recurring revenue, at a flat ~$28.4m/quarter, with no growth assumption embedded in the software line. It is capitalised at 10x (not the 15x used for the software) in the ex-float valuation run, because it carries no growth, no operating leverage and no pricing power.
| $m | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Cost of revenue — operating expenses | 223.7 | 267.4 | 263.0 |
| Cost of revenue — D&A | 52.6 | 67.2 | 82.4 |
| Total cost of revenue | 276.3 | 334.6 | 345.4 |
| Gross profit | 1,417.4 | 1,548.6 | 1,706.3 |
| Gross margin | 83.7% | 82.2% | 83.2% |
| Sales & marketing | 417.6 | 434.4 | 482.8 |
| Research & development (expensed) | 199.0 | 242.6 | 283.4 |
| General & administrative | 288.1 | 158.6 | 279.0 |
| Administrative D&A | 61.4 | 78.7 | 93.9 |
| Operating income | 451.3 | 634.3 | 567.2 |
| Operating margin (reported) | 26.65% | 33.68% | 27.65% |
| Operating margin (adjusted) | 26.65% | 27.44% | 27.65% |
The single adjustment, and it is the largest number in the model:
FY2025 10-K, MD&A: "general and administrative expenses increased $120.4 million from the prior year primarily due to a $117.5 million reversal of previously recognized stock-based compensation expense related to the forfeiture of a restricted stock award upon Chad Richison's transition to Co-Chief Executive Officer in February 2024."
Non-cash SBC by year: FY2024 = −$22.9m (a net credit), FY2025 = +$118.7m. FY2025 split: operating expenses $15.7m, S&M $28.8m, R&D $34.7m, G&A $39.5m.
Consequences that must be carried into any model: 1. FY2024 operating income of $634.3m is overstated by $117.5m. Adjusted: $516.8m, 27.44%. 2. Reported FY2025 operating income fell 10.6%. Adjusted, it rose 9.8% — in line with revenue. 3. The screen's 27.6% terminal margin is right, and it is right for the wrong reason — it happens to equal FY2025 GAAP, which happens to equal the four-year adjusted mean (27.55 / 26.65 / 27.44 / 27.65 / 28.30). Any model anchored on the reported FY2024 33.7% builds ~6pp of phantom margin into terminal value. 4. SBC at 5.8% of revenue is added back in Paycom's own non-GAAP measures. FCF less SBC is $327m, not $446m — a 26% haircut, and the number a valuation should use.
Capitalised R&D. $152.9m capitalised in FY2025 (FY2024: $125.7m) against $283.4m expensed — total R&D $436.3m, +18% YoY against +8.8% revenue growth, with 35% of the spend capitalised. This flows through capex, so EBITDA materially overstates economics on this name and is not used anywhere in this memo. FCF (which charges capex) is used throughout.
| $m | 2025-12-31 | 2026-03-31 | Change |
|---|---|---|---|
| Cash & equivalents | 370.0 | 153.9 | −216.1 |
| Long-term debt | 0.0 | 675.0 | +675.0 |
| Net cash / (net debt) | +370.0 | −521.1 | −891.1 |
| Funds held for clients | 5,137.0 | 2,624.6 | (offset by client funds obligation 2,624.7 — never in EV) |
| Treasury stock, at cost | 1,403.4 | 2,469.4 | +1,066.0 |
| Treasury shares | 8.8m | 17.1m | +8.3m |
| Shares outstanding | 54.8m | 46.6m | −8.2m (−15.0%) |
| Total stockholders' equity | 1,731.5 | 811.7 | −919.8 |
| Deferred contract costs (current + LT) | 1,017.0 | 1,036.9 |
Implied average repurchase price in Q1 FY2026: $1,066.0m ÷ 8.3m = ~$128.4/share, against $170.67 today. Cash repurchases in the quarter were $1,054.3m — versus $325.5m in all of FY2025 and $122.8m in all of FY2024.
Cover-page share counts (the authoritative outstanding series): 57,264,718 (2025-02-11) → 57,819,755 (2025-04-29) → 57,876,797 (2025-07-29) → 56,269,005 (2025-10-28) → 54,275,097 (2026-02-10) → 47,631,450 (2026-04-28).
Credit Agreement terms that constrain the buyback (10-Q Note 6): revolver with JPMorgan as administrative agent; pricing grid 1.00%–2.00% over the benchmark by leverage; commitment fee 0.20%–0.25%; maintenance covenants at 3.0x / 3.5x consolidated leverage; Restricted Payments (dividends and repurchases) permitted above $50.0m/year only if pro-forma consolidated leverage is below 3.0x. At ~$770m TTM EBITDA, the 3.0x test allows roughly $2.3bn of debt — so the $2.0bn authorisation is financeable, but not without materially changing the capital structure.
| Metric | Value | Working |
|---|---|---|
| ROIC | ~22.7% | NOPAT $450m (TTM EBIT $592.3m × 0.76) ÷ invested capital ~$1,982m (total assets $4,821.8m − funds held for clients $2,624.6m − non-debt current liabilities $214.8m) |
| WACC | 9.10% | built in PAYC_Valuation.md §1.2 |
| ROIC − WACC | +13.6pp | |
| Gross margin | 83.2% | |
| Accruals | strongly negative | OCF $710.2m vs NI $469.7m — cash exceeds earnings by 51% |
| DSO | 8.9 days | AR $51.3m ÷ ($2,093.0m / 365) |
| Goodwill | $51.9m, unchanged across 2023-12-31, 2024-12-31, 2025-12-31, 2026-03-31 | confirms 100% organic growth — no acquisitions in the window |
| Annual revenue retention rate | 91% (FY2025), 90% (FY2024) | gross, excludes upsell; not NRR |
| Clients | ~39,200 | FY2025 10-K |
The quality question that is not resolved. Total R&D spend rose 18% and capex rose 40% in FY2025 to deliver 8.8% revenue growth. ROIC on the installed base is excellent (22.7%); ROIC on incremental capital is visibly falling and cannot be computed precisely from the disclosure. This is the Quality Criteria's own warning — "a compounder that cannot reinvest is a bond and should be valued as one" — approaching from a distance, not yet arrived.
| Screen input | Screen | This model | Cause of the difference |
|---|---|---|---|
| Net cash | implied ≥ 0 | −$521.1m | Revolver drawn 2026-Q1; screen's balance sheet is one quarter stale |
| EV/Sales | 3.9x | 4.16x | net debt + a moved share price |
| Terminal margin | 27.6% | 27.6% ✓ | agrees — but it is a trailing margin adopted as terminal |
| Demonstrated CAGR | 14.3% | 8.80% | screen's window straddles the 2023-11-01 break and includes +1.21pp/yr of float income |
| Required CAGR | 1.8% | 9.22% | screen's implied exit multiple is 21.3x EBIT (p64 of PAYC's own post-break range); this model uses 15.0x (p27) |
| Margin | +12.5pp | −0.42pp | both of the above |
No screen number was silently adopted and no screen number was silently discarded. Every one is reported with its delta.