Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with management’s perspective on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements (prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”)) and related notes included elsewhere in this Annual Report on Form 10-K (this “Form 10-K”). The following discussion contains forward-looking statements that are subject to risks and uncertainties. See “Cautionary Statements” for a discussion of the uncertainties, risks, and assumptions associated with those statements. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Form 10-K, particularly in the section entitled “Risk Factors.” Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our” and the “Company” refer to Paycom Software, Inc. and its consolidated subsidiaries. All amounts presented in tables, other than per share amounts, are in millions unless otherwise noted.
Overview
We are a leading provider of a comprehensive, cloud-based human capital management solution delivered as Software-as-a-Service. We provide functionality and data analytics that businesses need to manage the complete employment lifecycle, from recruitment to retirement. Our solution requires virtually no customization and is based on a core system of record maintained in a single database for all human capital management (“HCM”) functions, including payroll, talent acquisition, talent management, human resources (“HR”) management and time and labor management applications. Our user-friendly software allows for easy adoption of our solution by employees, enabling self-management of their HCM activities in the cloud, which reduces the administrative burden on employers and increases employee productivity.
Substantially all of our revenues are generated from (i) fixed amounts charged per billing period plus a fee per employee or transaction processed and (ii) fixed amounts charged per billing period. Our billing period varies by client and is typically based on when each client pays its employees, which may be weekly, bi-weekly, semi-monthly or monthly. Over time, an increasing number of clients will be billed on a monthly basis for certain HCM applications and services, regardless of the client’s payroll cycle. We serve a diverse client base in terms of size and industry. Our revenues are primarily generated through our sales force that solicits new clients and our client relations representatives (“CRRs”) who sell additional applications to existing clients.
Our principal marketing efforts include national and local advertising campaigns, email campaigns, social and digital media campaigns, search engine marketing methods, sponsorships, tradeshows, print advertising and outbound marketing including personalized direct mail campaigns. In addition, we generate leads and build recognition of our brand and thought leadership with relevant and informative content, such as white papers, blogs, podcast episodes and webinars.
Throughout our history, we have built strong relationships with our clients. As the HCM needs of our clients evolve, we believe that we are well-positioned to expand the HCM spending of our clients, and we believe this opportunity is significant. To be successful, we must continue to demonstrate the operational and economic benefits of our solution, as well as effectively hire, train, motivate and retain qualified personnel.
Growth Outlook, Opportunities and Challenges
As a result of our significant revenue growth and geographic expansion, we are presented with a variety of opportunities and challenges. Our payroll application is the foundation of our solution, and all of our clients are required to utilize this application in order to access our other applications. Consequently, we have historically generated the majority of our revenues from our payroll applications, although our revenue mix has evolved and will continue to evolve as we develop and add new non-payroll applications to our solution.
We believe our strategy of focusing on incorporating artificial intelligence (“AI”) and automation across our full solution is an important differentiator for attracting new clients and key to long-term client satisfaction and client retention. Our software vision is that people should not perform payroll-related and HCM-related tasks that systems can automate. We have designed our software so users do not have to be system experts or even need training to access information. For example, our industry-first command-driven AI engine, IWant, provides an easy, automated avenue for seeking information about employee data without having to navigate through the software.
Our continued growth depends on attracting new clients by continuing to leverage our sales force productivity, penetrating existing markets and expanding into new markets, targeting a high degree of client employee usage across our solution, and introducing new applications to our existing client base. Client adoption of new applications and, historically, client employee usage of both new and existing applications have been significant factors in our recurring revenue growth. We believe our ability to continue to develop new applications and to improve existing applications will enable us to increase recurring revenues in the future. In addition, we plan to open additional sales offices in the future to further expand our market presence.
The market for HCM software is highly competitive, rapidly evolving and fragmented. We expect competition to remain intense as new market entrants and disruptive technologies emerge and aggressive pricing and client retention strategies persist. These market pressures can directly affect our recurring revenue growth and our ability to attract and retain clients. We believe our long-term focused investments in automation, client ROI achievement, and world-class service can strengthen our recurring revenue growth and annual revenue retention rate.
Our target client size is organizations with 50 to 10,000 or more employees. While we continue to serve a diversified client base ranging from small businesses to organizations with many thousands of employees, the average size of our clients has grown significantly as we have organically grown our operations and increased the number of applications we offer. We believe larger employers, such as organizations with greater than 1,000 employees, represent a substantial opportunity to increase our revenues per client, with limited incremental cost to us. With the launch of our Global HCM solution and expansion of payroll services into certain international markets, we expect that our ability to serve organizations with international employees makes our solution more attractive to larger companies, many of which have a global presence. Because we charge our clients on a per employee basis for certain services we provide, any increase or decrease in the number of employees of our clients will have a positive or negative impact, respectively, on our results of operations. As a result, the performance of certain of our offerings is sensitive to changes in the labor market. In addition, a multitude of macroeconomic pressures, such as inflation and changes in interest rates, impact our clients’ hiring practices to varying degrees and, in turn, impact our revenues.
We believe the challenges of managing the ever-changing complexity of payroll and HR will continue to drive companies to turn to outsourced providers for help with their HCM needs. The HCM industry historically has been driven, in part, by legislation and regulatory action, including COBRA, changes to the minimum wage laws or overtime rules, and legislation from federal, state or municipal taxation authorities.
Growing our business has resulted in, and will continue to result in, substantial investments in sales professionals, operating expenses, system development and programming costs (including those related our full solution automation and AI initiatives) and general and administrative expenses, which have increased and will continue to increase our expenses. Historically, our revenue growth and geographic expansion have driven increases in (i) facility costs related to data centers, the expansion of our corporate headquarters, operations facilities and additional sales office leases and (ii) salaries and benefits and stock-based compensation expense. Automating our core business systems is creating new efficiencies that have led to reductions in headcount and, as a result, contributed to a decrease in certain employee-related expenses during the year ended December 31, 2025. Due to lower headcount, we expect that certain employee-related expenses will be lower in 2026 as compared to 2025.
Key Metrics
In addition to the U.S. GAAP and non-GAAP metrics discussed elsewhere in this Form 10-K, we also monitor the following metrics to evaluate our business, measure our performance and identify trends affecting our business:
Year Ended December 31,
Key performance indicators:
Clients
Clients (based on parent company grouping)
Sales teams
Annual revenue retention rate (1)
Clients. When we calculate the number of clients at period end, we treat client accounts with separate taxpayer identification numbers (or, in certain circumstances, separate client codes) as separate clients, which often separates client accounts that are affiliated with the same parent organization. We track the number of our clients to provide an accurate gauge of the size of our business. Unless we state otherwise or the context otherwise requires, references to clients throughout this Form 10-K refer to this metric.
Clients (based on parent company grouping). When we calculate the number of clients based on parent company grouping at period end, we combine client accounts that have identified the same person(s) as their decision-maker regardless of whether the client accounts have separate taxpayer identification numbers (or, in certain circumstances, separate client codes), which often combines client accounts that are affiliated with the same parent organization. We track the number of our clients based on parent company grouping to provide an alternate measure of the size of our business and clients.
Sales Teams . We monitor our sales professionals by the number of sales teams at period end. For the purposes of this metric, CRRs and emerging markets representatives are considered one sales team. Each outside sales team typically consists of a sales manager and approximately seven other sales professionals. Certain larger metropolitan areas can
support more than one outside sales team. We believe the number of sales teams is an indicator of potential revenues for future periods.
Annual Revenue Retention Rate . Our annual revenue retention rate tracks the percentage of revenues that we retain from our existing clients. We monitor this metric because it is an indicator of client satisfaction and revenues for future periods.
We calculate annual revenue retention rate for any 12-month period (a “Measurement Period”) as follows:
Recurring and Other Revenues – TTM Revenue Attrition
Recurring and Other Revenues
The trailing 12-month value of revenue from clients lost during the Measurement Period (“TTM Revenue Attrition”) is equal to the actual recurring fees paid by such lost clients during the 12 months preceding the respective dates on which they last processed payroll with us. The point at which a client is deemed “lost” is determined based on the terms of our standard services agreement with clients. As described in Note 2 “Summary of Significant Accounting Policies”, for the year ended December 31, 2024, we changed the presentation of revenues on the consolidated statements of comprehensive income to disaggregate interest on funds held for clients and combine recurring and other revenues. Reclassifications for the presentation of revenue did not impact the calculation of our annual retention rate.
Components of Results of Operations
Sources of Revenues
Revenues consist of recurring and other revenues, and interest on funds held for clients. We expect our revenues to increase as we introduce new applications, expand our client base and renew and expand relationships with existing clients.
Recurring and Other Revenues
Recurring revenues are derived primarily from our payroll, talent acquisition, talent management, HR management and time and labor management applications, fees charged for form filings and delivery of client payroll checks and reports, and revenues associated with background checks and income and employment verification services. The client’s use of our applications routinely fluctuates based upon factors that include the number of payrolls run and changes in the client’s employee population.
Substantially all of our revenues are generated from (i) fixed amounts charged per billing period plus a fee per employee or transaction processed and (ii) fixed amounts charged per billing period. Our billing period varies by client and is typically based on when each client pays its employees, which may be weekly, bi-weekly, semi-monthly or monthly. Over time, an increasing number of clients will be billed on a monthly basis for certain HCM applications and services, regardless of the client’s payroll cycle. Because recurring revenues are based, in part, on fees for use of our applications and the delivery of checks and reports that are levied on a per-employee basis, our recurring revenues can fluctuate in relation to changes to client employee count. Furthermore, because the timing of revenue recognition is driven by the processing of the client’s payroll, it can vary based upon changes in client payroll dates and the impact that weekends or public holidays may have in prompting a client to accelerate or delay the processing of payroll.
Recurring revenues include revenues relating to the annual processing of payroll tax filing forms and Affordable Care Act (“ACA”) form filing requirements and revenues from processing unscheduled payroll runs (such as bonuses) for our clients. These payroll forms are typically processed in the first quarter of the year, and many of our clients are subject to ACA form filing requirements in the first quarter, which positively impacts first quarter revenues and margins. We anticipate our revenues will continue to exhibit this seasonal pattern related to ACA form filings for so long as the ACA (or replacement legislation) includes employer reporting requirements. In addition, our recurring revenues during the fourth quarter are positively impacted by unscheduled payroll runs for our clients that occur before the end of the year. Nonetheless, we expect the magnitude of these seasonal fluctuations in our revenues to decrease to the extent clients utilize more of our non-payroll applications.
Other revenues consist of implementation fees for the deployment of our solution and revenues from sales of time clocks as part of our time and attendance services. Non-refundable implementation fees are charged to new clients at contract inception. These fees generally range from 10% to 30% of the annualized value of the transaction. Implementation fees are deferred and recognized as revenue over the life of the client, which is estimated to be 10 years. Revenues from the sale of time clocks are recognized when control is transferred to the client upon delivery of the product.
Interest on Funds Held For Clients
We earn interest income on funds held for clients. Funds held for clients are amounts collected from clients in advance of either the applicable due date for payroll tax submissions or the applicable disbursement date for employee payment services. These collections from clients are typically disbursed from one to 30 days after receipt, with some funds being held for up to 120 days. We typically invest funds held for clients in money market funds, demand deposit accounts, certificates of deposit,
commercial paper and U.S. treasury securities until they are paid to the applicable tax or regulatory agencies or to client employees. As we introduce new applications, expand our client base and renew and expand relationships with existing clients, we expect our average funds held for clients balance and, accordingly, interest earned on funds held for clients, will increase; however, the amount of interest we earn is positively or negatively impacted by changes in interest rates.
Cost of Revenues
Cost of revenues consists of expenses related to hosting and supporting our applications, hardware costs, systems support and technology and depreciation and amortization. These costs include employee-related expenses (including non-cash stock-based compensation expenses) and other expenses related to client support, bank charges for processing automated clearing house transactions, certain implementation expenses, delivery charges and paper costs. They also include our cost for time clocks sold and ongoing technology and support costs related to our systems. The amount of depreciation and amortization of property and equipment allocated to cost of revenues is determined based upon an estimate of assets used to support our operations.
Administrative Expenses
Administrative expenses consist of sales and marketing expenses, research and development expenses, general and administrative expenses and depreciation and amortization expenses. Sales and marketing expenses consist primarily of employee-related expenses for our direct sales and marketing staff (such as the amortization of commissions and bonuses and non-cash stock-based compensation expenses), marketing expenses and other related costs. Research and development expenses consist primarily of employee-related expenses (including non-cash stock-based compensation expenses) for our development staff, net of capitalized software costs for internally developed software. General and administrative expenses consist of employee-related expenses for finance and accounting, legal, human resources and management information systems personnel (including non-cash stock-based compensation expenses), legal costs, professional fees and other corporate expenses. Depreciation and amortization expenses consist of (i) the amount of depreciation and amortization of property and equipment allocated to administrative expenses (based upon an estimate of assets used to support our selling, general and administrative functions) and (ii) amortization of intangible assets.
Interest Expense
Interest expense includes interest on our long-term debt. Prior to the repayment of our long-term debt in November 2023, we capitalized interest costs incurred for indebtedness related to construction in progress. See Note 6 “Long-Term Debt” for discussion of the repayment of our debt.
Other Income, net
Other income, net includes interest earned on our own funds, any gain or loss on the sale or disposal of fixed assets, any costs associated with the early repayment of debt, any loss on the extinguishment of debt, and any gain on the modification of the naming rights agreement.
Provision for Income Taxes
Our consolidated financial statements include a provision for income taxes incurred for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for any operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. We recognize a valuation allowance to reduce deferred tax assets to the net amount we believe is more likely than not to be realized.
Results of Operations
The following table sets forth selected consolidated statements of income data and such data as a percentage of total revenues for each of the periods indicated, as well as year-over-year changes with respect to each line item. Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission (the “SEC”) on February 20, 2025 , for a discussion of results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Year Ended December 31,
% Change
Revenues
Recurring and other
Interest on funds held for clients
Total revenues
Cost of revenues
Operating expenses
Depreciation and amortization
Total cost of revenues
Administrative expenses
Sales and marketing
Research and development
General and administrative
Depreciation and amortization
Total administrative expenses
Total operating expenses
Operating income
Interest expense
Other income, net
Income before income taxes
Provision for income taxes
Net income
Revenues
Recurring and Other Revenues
The increase in recurring and other revenues for the year ended December 31, 2025 from the year ended December 31, 2024 was the result of the addition of new clients, increased revenue from sales of additional applications and services to existing clients, additions and increased usage of existing products and services, and the realization of pricing strategies. Client attrition, particularly among smaller clients, partially offset the favorable impact of these revenue drivers.
Interest on Funds Held For Clients
The impact of lower interest rates during the year ended December 31, 2025 as compared to the prior year was partially offset by an increase in average funds held for client balances, but nonetheless resulted in decreased interest earned on funds held for clients for the year ended December 31, 2025 as compared to the year ended December 31, 2024. The average daily balance of funds held for clients was $2.7 billion and $2.4 billion the years ended December 31, 2025 and 2024, respectively.
Expenses
Cost of Revenues
During the year ended December 31, 2025, operating expenses decreased from the prior year by $4.3 million, primarily due to an $8.2 million decrease in employee-related expenses, which was partially offset by a $2.5 million increase in shipping and supplies fees and a $1.1 million increase in banking related fees. Depreciation and amortization expense increased $15.2 million primarily due to the development of additional technology, purchases of other related fixed assets, and the impact of our corporate headquarters expansion that was placed into service in April 2024, which increases were partially offset by the impact of an increase in the estimated useful lives of servers and network equipment.
Administrative Expenses
Sales and marketing
During the year ended December 31, 2025, sales and marketing expenses increased from the prior year by $48.4 million due to a $40.4 million increase in marketing and advertising expense and an $8.0 million increase in employee-related expenses. Based on positive results from our advertising campaigns, we plan to continue to invest in our marketing program and may adjust spending levels in future periods as we see opportunities for favorable returns on our investments.
Research and development
During the year ended December 31, 2025, research and development expenses increased $40.8 million from the prior year primarily due to an increase in employee-related expenses.
As a result of reduced headcount, we expect research and development employee-related expenses to be lower in 2026 as compared to 2025. As is customary for our business, we expect fluctuations in research and development expense as a percentage of revenue on a quarter-to-quarter basis due to seasonal revenue trends, the introduction of new products, the amount and timing of research and development costs that may be capitalized and the timing of onboarding new hires and restricted stock vesting events.
Expenditures for software developed or obtained for internal use are capitalized and amortized over a three-year period on a straight-line basis. The nature of the development projects underway during a particular period directly impacts the timing and extent of these capitalized expenditures and can affect the amount of research and development expenses in such period. The table below sets forth the amounts of capitalized and expensed research and development costs for the years ended December 31, 2025 and 2024:
Year Ended December 31,
% Change
Capitalized portion of research and development
Expensed portion of research and development
Total research and development costs
General and administrative
During the year ended December 31, 2025, 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 and a $2.0 million increase in other employee-related expenses.
Non-Cash Stock-Based Compensation Expense
The following table presents the non-cash stock-based compensation expense that is included within the specified line items in our consolidated statements of comprehensive income:
Year Ended December 31,
% Change
Operating expenses
Sales and marketing
Research and development
General and administrative
Total non-cash stock-based compensation expense
Depreciation and Amortization
During the year ended December 31, 2025, depreciation and amortization expense increased from the prior year primarily due to the development of additional technology, purchases of other related fixed assets, and the impact of our corporate headquarters expansion that was placed into service in April 2024, which increases were partially offset by the impact of an increase in the estimated useful lives of servers and network equipment.
Interest Expense
During the year ended December 31, 2025, interest expense was flat compared to the prior year.
Other Income, net
The increase in other income, net for the year ended December 31, 2025, as compared to the prior year, was primarily attributable to a $35.6 million gain that resulted from the July 2025 amendment to the naming rights agreement. See Note 4
“Goodwill and Intangible Assets, Net”. Additionally, increases in interest earned on our corporate funds due to higher operating cash balances contributed to the increase. For the years ended December 31, 2025 and 2024, we earned interest on our corporate funds of $17.9 million and $17.3 million, respectively.
Provision for Income Taxes
The provision for income taxes is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. Our effective income tax rate was 27% and 23% for the years ended December 31, 2025 and 2024.
Liquidity and Capital Resources
Our principal sources of capital and liquidity are our operating cash flow and cash and cash equivalents. Our cash and cash equivalents consist primarily of demand deposit accounts and money market funds. Additionally, we maintain a $1.0 billion senior secured revolving credit facility (the “Revolving Credit Facility”), which can be accessed as needed to supplement our operating cash flow and cash balances. As of December 31, 2025, we did not have any outstanding borrowings under the Revolving Credit Facility.
We fund our operations primarily from cash flows generated from operations. We are funding our ongoing capital expenditures from available cash. Further, to date, all cash dividends and purchases under our stock repurchase plan have been funded from available cash, although we may determine that it is appropriate to fund future stock repurchases or other capital requirements from a combination of available cash and borrowings under the Revolving Credit Facility. We believe our existing cash and cash equivalents, cash generated from operations and available sources of liquidity will be sufficient to maintain operations, make necessary capital expenditures, pay dividends and opportunistically repurchase shares for at least the next 12 months. In addition, based on our strong profitability and continued growth, we expect to meet our longer-term liquidity needs with cash flows from operations and, as needed, financing arrangements.
Credit Agreement. We are party to a credit agreement (as amended from time to time, the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as a lender, swingline lender and issuing bank, the lenders from time to time party thereto (collectively with JPMorgan Chase Bank, N.A., the “Lenders”), and JPMorgan Chase Bank, N.A., as the administrative agent. The Credit Agreement provides for the Revolving Credit Facility in the aggregate principal amount of up to $1.0 billion. In addition, we may request an incremental facility of up to an additional $500.0 million, subject to obtaining additional lender commitments and approvals and satisfying certain other conditions. All loans under the Credit Agreement will mature on July 29, 2027 (the “Scheduled Maturity Date”). Subject to certain conditions set forth in the Credit Agreement, we may borrow, prepay and reborrow under the Revolving Credit Facility and terminate or reduce the Lenders’ commitments at any time prior to the Scheduled Maturity Date.
We are required to pay a quarterly commitment fee on the daily amount of the undrawn portion of the revolving commitments under the Revolving Credit Facility at a rate per annum of (i) 0.20% if the Company’s consolidated leverage ratio is less than 1.0 to 1.0; (ii) 0.225% if the Company’s consolidated leverage ratio is greater than or equal to 1.0 to 1.0 but less than 2.0 to 1.0; (iii) 0.25% if the Company’s consolidated leverage ratio is greater than or equal to 2.0 to 1.0 but less than 3.0 to 1.0; or (iv) 0.275% if the Company’s consolidated leverage ratio is greater than or equal to 3.0 to 1.0.
Under the Credit Agreement, we are required to maintain as of the end of each fiscal quarter a consolidated interest coverage ratio of not less than 3.0 to 1.0 and a consolidated leverage ratio of not greater than 3.0 to 1.0.
Stock Repurchase Plan and Withholding Shares to Cover Taxes. In August 2022, our Board of Directors authorized a stock repurchase plan allowing for the repurchase up to $1.1 billion of shares of our common stock in open market transactions at prevailing market prices, in privately negotiated transactions (including accelerated share repurchases) or by other means in accordance with federal securities laws, including Rule 10b5-1 programs. The stock repurchase plan was set to expire on August 15, 2024. In July 2024, our Board of Directors increased and extended the stock repurchase plan, such that $1.5 billion is available for repurchases through August 15, 2026. As of December 31, 2025, there was $1.11 billion available for repurchases under our stock repurchase plan. Our stock repurchase plan may be suspended or discontinued at any time. The actual timing, number and value of shares repurchased depends on a number of factors, including the market price of our common stock, general market and economic conditions, shares withheld for taxes associated with the vesting of equity incentive awards and other corporate considerations.
During the year ended December 31, 2025, we repurchased an aggregate of 1,730,720 shares of our common stock at an average cost of $213.81 per share, including 184,752 shares withheld to satisfy tax withholding obligations for certain individuals upon the vesting of equity incentive awards. Our payment of the taxes on behalf of those individuals resulted in an aggregate cash expenditure of $44.5 million and, as such, we generally subtract the amounts attributable to such withheld shares from the aggregate amount available for future purchases under our stock repurchase plan.
Dividends on Common Stock. For a discussion of our dividends, see “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”
Cash Flow Analysis
Our cash flows from operating activities have historically been significantly impacted by profitability, implementation revenues received but deferred, our investment in sales and marketing to drive growth, and research and development. Our ability to meet future liquidity needs will be driven by our operating performance and the extent of continued investment in our operations. Failure to generate sufficient revenues and related cash flows could have a material adverse effect on our ability to meet our liquidity needs and achieve our business objectives.
We completed an expansion of our corporate headquarters, which was placed into service in the second quarter of 2024. Our capital expenditures will fluctuate based on our strategic initiatives. Depending on certain growth opportunities, we may choose to accelerate investments in sales and marketing, acquisitions, technology and services. Actual future capital requirements will depend on many factors, including our future revenues, cash from operating activities and the level of expenditures in all areas of our business.
In addition, we purchased the naming rights to the downtown Oklahoma City arena that is currently home to the Oklahoma City Thunder National Basketball Association franchise. Under the terms of the naming rights agreement, we committed to make escalating annual sponsorship fee payments from 2021 to 2035. The payments are due in the fourth quarter of each year. In July 2025, the naming rights agreement was amended to provide, among other things, that the agreement and our obligation to make the previously disclosed annual sponsorship fee payments thereunder will terminate on the earlier of (i) September 30, 2028 or (ii) the date of the last event hosted or presented at the current arena (subject to earlier termination in certain limited circumstances), with a reduction in the sponsorship fee if the term of the agreement ends prior to September 30, 2028 and in certain other limited circumstances. The amendment did not otherwise impact our obligation to make the previously disclosed annual sponsorship fee payments for the remainder of the amended agreement term.
On July 4, 2025, H.R. 1, the “One Big Beautiful Bill Act” (the “OBBBA”) was signed into law, bringing significant amendments to the U.S. tax code. The OBBBA allows an immediate deduction for domestic research and development expenditures and reinstates 100% bonus depreciation. Our cash tax remittances decreased in the second half of 2025, and we anticipate that continued reductions will positively impact cash flows in future periods.
As part of our payroll and payroll tax filing services, we collect funds from our clients for employment taxes and payroll obligations, which we remit to the appropriate tax agencies and accounts designated by our clients. We typically invest these funds in money market funds, demand deposit accounts, certificates of deposit, commercial paper and U.S. treasury securities from which we earn interest income during the period between receipt and disbursement of such funds.
Our cash flows from investing and financing activities are influenced by the amount of funds held for clients, which can vary significantly from quarter to quarter. The balance of the funds we hold depends on our clients’ payroll calendars. As a result, the balance changes from period to period in alignment with the timing of each payroll cycle.
Our cash flows from financing activities are also affected by the extent to which we use available cash to purchase shares of common stock under our stock repurchase plan as well as equity incentive award vesting events that result in net share settlements and the Company paying withholding taxes on behalf of certain employees. Additionally, we intend to continue to pay a quarterly cash dividend, subject to the discretion of the Board of Directors.
The following table summarizes the consolidated statements of cash flows for the years ended December 31, 2025 and 2024:
Year Ended December 31,
% Change
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Increase in cash, cash equivalents, restricted cash and restricted cash equivalents
Operating Activities
Cash provided by operating activities for the year ended December 31, 2025 primarily consisted of payments received from our clients and interest earned on funds held for clients. Cash used in operating activities primarily consisted of personnel-related expenditures to support the growth and infrastructure of our business. These payments included costs of operations, advertising and other sales and marketing efforts, information technology infrastructure development, product research and development and security and administrative costs. Compared to the year ended December 31, 2024, our operating cash flows for the year ended December 31, 2025 were positively impacted by changes in working capital.
Investing Activities
Cash used in investing activities for the year ended December 31, 2025 increased from the prior year primarily due to an $811.0 million increase in purchases of investments from funds held for clients and a $78.0 million increase in purchases of property and equipment, which were partially offset by a $300.0 million increase in proceeds from investments from funds held for clients.
Financing Activities
Cash provided by financing activities for the year ended December 31, 2025 decreased from the prior year primarily due to a $202.7 million increase in repurchases of common stock and a $22.8 million increase in withholding taxes paid related to net share settlements. The decrease in cash provided by financing activities was partially offset by the impact of a $133.7 million change related to the client funds obligation, which is due to the timing of receipts from our clients and payments made to our clients’ employees and applicable taxing authorities on their behalf, and a $5.5 million increase in proceeds from the employee stock purchase plan.
Contractual Obligations
Our principal commitments primarily consist of leases for office space and the naming rights agreement. For additional information regarding our naming rights agreement, leases, and our commitments and contingencies, see Note 4 “Goodwill and Intangible Assets, Net”, Note 5 “Leases” and Note 12” Commitments and Contingencies”.
We plan to continue to lease additional office space to support our growth. In addition, many of our existing lease agreements provide us with the option to renew. When applicable, our future operating lease obligations include payments due during any renewal period provided for in the lease where the lease imposes a penalty for failure to renew. Additional details on our leases, including the related future cash outflows, are included within Note 5 “Leases” in the notes to our consolidated financial statements included elsewhere within this Form 10-K.
Critical Accounting Policies and Estimates
Our consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. Estimates made in accordance with U.S. GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition are described below. On an ongoing basis, we evaluate our estimates and assumptions to ensure that management believes them to be reasonable under the then-current facts and circumstances. Actual amounts and results may materially differ from these estimates made by management under different assumptions and conditions.
Certain accounting policies that require significant management estimates, and are deemed critical to our results of operations or financial position, are described below. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.
In the third quarter of 2025, we completed an assessment of the useful lives of our servers and network equipment. Based on this assessment, we increased the estimated useful lives of these assets from three years to six years, effective as of the beginning of the third quarter of 2025. Refer to Note 2 “Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included elsewhere in this Form 10-K for more information.
Revenue Recognition
Revenues are recognized when control of the promised goods or services is transferred to our clients in an amount that reflects the consideration we expect to be entitled to for those goods or services. Substantially all of our revenues are derived from contracts with clients. Sales and other applicable taxes are excluded from revenues.
Recurring revenues are derived primarily from our payroll, talent acquisition, talent management, HR management and time and labor management applications, fees charged for form filings and delivery of client payroll checks and reports, and revenues associated with background checks and income and employment verification services. For a description of our applications, refer to Part I, Item 1, “Business,” of this Form 10-K.
The client’s use of our applications routinely fluctuates based upon factors that include the number of payrolls run and changes in the client’s employee population. These usage-based fluctuations do not change our core performance obligation to stand ready to provide the customer with services for the remainder of the contractual term.
The performance obligations related to recurring revenues are generally satisfied and recognized during each client’s payroll period, with the agreed-upon fee being charged and collected as part of our processing of the client’s payroll. Collectability is reasonably assured as the fees are generally collected through an automated clearing house as part of the client’s payroll cycle or through direct wire transfer, which minimizes the default risk.
The contract period for the majority of contracts associated with these revenues is one month due to the fact that both we and the client typically have the unilateral right to terminate a wholly unperformed contract without compensating the other
party by providing 30 days’ notice of termination. We consider the total price charged to a client in a given period to be indicative of the standalone selling price, as the total amount charged is within a reasonable range of prices typically charged for our goods and services for comparable classes of client groups, which we periodically assess for price adjustments.
Other revenues consist of nonrefundable implementation fees, which are charged upfront to new clients to offset the expense of new client set-up, as well as revenues from the sale of time clocks as part of our time and attendance application. Although these revenues are related to our recurring revenues, they represent distinct performance obligations. The nonrefundable upfront fee charged to our clients results in an implied performance obligation in the form of a material right to the client related to the client’s option to renew at the end of the contract period. The nonrefundable upfront fee is typically collected upon contract inception and is deferred and recognized ratably over the period that our client realizes the benefits from the material right ( i.e. , 10-year estimated client life). We conduct an annual analysis of client retention data to support our client life estimate. A change in our client life estimate could have a material impact on the timing and amounts recognized as revenue for nonrefundable upfront fees.
Revenues from the sale of time clocks are recognized when control is transferred to the client upon delivery of the product. We estimate the standalone selling price for the time clocks by maximizing the use of observable inputs such as our specific pricing practices for time clocks.
Interest income on funds held for clients is earned on funds that are collected from clients in advance of either the applicable due date for payroll tax submissions or the applicable disbursement date for employee payment services. The interest earned on these funds is included in revenues in the consolidated statements of comprehensive income as the collection, holding, and remittance of these funds are essential components of providing these services.
Assets Recognized from the Costs to Obtain and Costs to Fulfill Revenue Contracts
We recognize an asset for the incremental costs of obtaining a contract with a client if we expect the amortization period to be longer than one year. We also recognize an asset for the costs to fulfill a contract with a client if such costs are specifically identifiable, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered. We have determined that substantially all costs related to implementation activities are administrative in nature and also meet the capitalization criteria under Accounting Standards Codification 340-40, “Other Assets and Deferred Costs”. These capitalized costs to fulfill principally relate to upfront direct costs that are expected to be recovered through margin and that enhance our ability to satisfy future performance obligations. The assets related to both costs to obtain, and costs to fulfill, contracts with clients are accounted for utilizing a portfolio approach and are capitalized and amortized ratably over the expected period of benefit, which we have determined to be the estimated life of the client relationship of 10 years primarily because we incur no new costs to obtain, or costs to fulfill, a contract upon renewal. A change in our client life estimate could have a material impact on the timing and amounts recognized as amortization expense.
Additional commission costs may be incurred when an existing client purchases additional applications; however, these commission costs relate solely to the additional applications purchased and are not related to contract renewal. Furthermore, additional fulfillment costs associated with existing clients purchasing additional applications are minimized by our seamless single-database platform.
The assets related to both costs to obtain, and costs to fulfill, contracts with customers are presented as deferred contract costs in the accompanying consolidated balance sheets. Amortization expense related to costs to obtain and costs to fulfill a contract is included in sales and marketing expenses and general and administrative expenses in the accompanying consolidated statements of comprehensive income. We regularly review our assets recognized from the costs to obtain and costs to fulfill client contracts for potential impairment and did not recognize an impairment loss during the years ended December 31, 2025 or December 31, 2024.
Stock-Based Compensation Awards
Historically, our stock-based compensation programs have included restricted stock awards and restricted stock unit (“RSU”) awards. We issue stock-based compensation awards with three different types of vesting requirements including awards that vest solely based on condition of service, awards that vest based on achieving certain performance metrics such as revenue or adjusted EBITDA targets, and awards that vest based on achieving certain market conditions such as relative total stockholder return or volume weighted average price targets.
We measure the fair value of awards that vest solely based on condition of service, such as our time-based shares of restricted stock and time-based RSUs, and the fair value of awards that vest based on achieving certain performance metrics, by using the closing market price on the date of grant.
We measure the fair value of awards that vest based on achieving certain market conditions, such as relative total stockholder return or volume weighted average price targets, by using a Monte Carlo simulation model. Stock-based compensation cost is recognized only for those awards expected to meet the requisite service and performance vesting conditions. Stock-based compensation cost is recognized on a straight-line basis over the requisite or derived service period of the award, which is generally the vesting period of the award, with forfeitures recognized as incurred.
The Monte Carlo simulation model used to determine the fair value of awards that vest based on market conditions considers various subjective assumptions as inputs, which involve inherent uncertainties and the application of our judgment as it relates to market volatilities, the historical volatility of our stock price, risk-free rates, expected performance period, dividend yield, and correlation to benchmark (for total stockholder return based awards). Determining these assumptions is subjective and complex, and therefore, a change in the assumptions utilized could impact the calculation of the fair value of our awards that vest based on achieving certain market conditions and the associated stock-based compensation cost. Refer to Note 11 “Stock-Based Compensation” in the notes to our consolidated financial statements for further information regarding our stock-based compensation awards.
Recent Accounting Pronouncements
Refer to Note 2 “Summary of Significant Accounting Policies” in the notes to the consolidated financial statements for a full description of recent accounting pronouncements.
Non-GAAP Financial Measures
Management uses adjusted EBITDA and non-GAAP net income as supplemental measures to review and assess the performance of our core business operations and for planning purposes. We define (i) adjusted EBITDA as net income plus interest expense, taxes, depreciation and amortization, non-cash stock-based compensation expense, certain transaction expenses that are not core to our operations (if any) and any loss on the extinguishment of debt, less any gain on modification of the naming rights agreement, and (ii) non-GAAP net income as net income plus non-cash stock-based compensation expense, certain transaction expenses that are not core to our operations (if any) and any loss on the extinguishment of debt, less any gain on modification of the naming rights agreement, all of which are adjusted for the effect of income taxes. Adjusted EBITDA and non-GAAP net income are metrics that provide investors with greater transparency to the information used by management in its financial and operational decision-making. We believe these metrics are useful to investors because they facilitate comparisons of our core business operations across periods on a consistent basis, as well as comparisons with the results of peer companies, many of which use similar non-GAAP financial measures to supplement results under U.S. GAAP. In addition, adjusted EBITDA is a measure that provides useful information to management about the amount of cash available for reinvestment in our business, paying dividends, repurchasing common stock and other purposes. Management believes that the non-GAAP measures presented in this Form 10-K, when viewed in combination with our results prepared in accordance with U.S. GAAP, provide a more complete understanding of the factors and trends affecting our business and performance.
Adjusted EBITDA and non-GAAP net income are not measures of financial performance under U.S. GAAP, and should not be considered a substitute for net income, which we consider to be the most directly comparable U.S. GAAP measure. Adjusted EBITDA and non-GAAP net income have limitations as analytical tools, and when assessing our operating performance, you should not consider adjusted EBITDA or non-GAAP net income in isolation, or as a substitute for net income or other consolidated statements of comprehensive income data prepared in accordance with U.S. GAAP. Adjusted EBITDA and non-GAAP net income may not be comparable to similarly titled measures of other companies, and other companies may not calculate such measures in the same manner as we do.
The following tables reconcile net income to adjusted EBITDA, net income to non-GAAP net income and earnings per share to non-GAAP net income per share on a basic and diluted basis. Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 20, 2025 , for a presentation of the amounts for the year ended December 31, 2023.
Year Ended December 31,
Net income to adjusted EBITDA:
Net income
Interest expense
Provision for income taxes
Depreciation and amortization
EBITDA
Non-cash stock-based compensation expense
Gain on modification of naming rights agreement
Adjusted EBITDA
Year Ended December 31,
Net income to non-GAAP net income:
Net income
Non-cash stock-based compensation expense
Gain on modification of naming rights agreement
Income tax effect on non-GAAP adjustments
Non-GAAP net income
Weighted average shares outstanding:
Basic
Diluted
Earnings per share, basic
Earnings per share, diluted
Non-GAAP net income per share, basic
Non-GAAP net income per share, diluted
Year Ended December 31,
Earnings per share to non-GAAP net income per share, basic:
Earnings per share, basic
Non-cash stock-based compensation expense
Gain on modification of naming rights agreement
Income tax effect on non-GAAP adjustments
Non-GAAP net income per share, basic
Year Ended December 31,
Earnings per share to non-GAAP net income per share, diluted:
Earnings per share, diluted
Non-cash stock-based compensation expense
Gain on modification of naming rights agreement
Income tax effect on non-GAAP adjustments
Non-GAAP net income per share, diluted
Item 7A. Quantitative and Qualitat ive Disclosures About Market Risk
Interest Rate Sensitivity
As of December 31, 2025, we had corporate cash and cash equivalents totaling $370.0 million and funds held for clients cash and cash equivalents totaling $4.8 billion. These amounts are invested primarily in demand deposit accounts and money market funds. We consider all highly liquid debt instruments with an original maturity of three months or less and SEC-registered money market mutual funds to be cash equivalents. Additionally, we had available-for-sale securities totaling $374.5 million included within funds held for clients on the consolidated balance sheets as of December 31, 2025. Our available-for-sale securities consisted of U.S. treasury securities with original maturities of two years or less and a certificate of deposit. The primary objectives of our investing activities are capital preservation, meeting our liquidity needs and, with respect to investing client funds, generating interest income while maintaining the safety of principal. We do not enter into investments for trading or speculative purposes.
Our investments are subject to market risk due to changes in interest rates. The market value of fixed rate securities may be adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes
in interest rates. We classify all debt securities with an original maturity greater than three months as available-for-sale and, as a result, no gains or losses are recognized due to changes in interest rates until such securities are sold or decreases in fair value are determined to be nonrecoverable. To date, we have not recorded any credit impairment losses on our portfolio.
As of December 31, 2025, a hypothetical increase or decrease in interest rates of 100 basis points would result in an approximately $22.1 million increase or decrease, respectively, in interest earned on funds held for clients over the ensuing 12-month period. There are no incremental costs of revenue associated with changes in interest earned on funds held for clients.
An immediate increase in interest rates of 100 basis points would have resulted in a $1.7 million reduction in the aggregate market value of our available-for-sale securities as of December 31, 2025. An immediate decrease in interest rates of 100 basis points would have resulted in a $1.7 million increase in the aggregate market value of our available-for-sale securities as of December 31, 2025. These estimates are based on a sensitivity model that measures market value changes when changes in interest rates occur.
Item 8. Financial Stateme nts and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Paycom Software, Inc.
Consolidated Annual Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 )
Consolidated Balance Sheets as of December 31, 2025 and 2024
Consolidated Statements of Comprehensive Income, Years Ended December 31, 2025, 2024 and 2023
Consolidated Statements of Stockholders’ Equity, Years Ended December 31, 2025, 2024 and 2023
Consolidated Statements of Cash Flows, Years Ended December 31, 2025, 2024 and 2023
Notes to the Consolidated Financial Statements
REPORT OF INDEPENDENT REGIST ERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Paycom Software, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Paycom Software, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 19, 2026 expressed an unqualified opinion.
Basis for opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Deferred implementation revenue and contract costs amortization period
As described further in Note 2 “Summary of Significant Accounting Policies” to the consolidated financial statements, the Company capitalizes costs associated with obtaining and fulfilling revenue contracts when it expects the amortization period to be longer than one year. The resulting assets are amortized over the expected period of benefit of 10 years, which the Company has determined to be the estimated life of a client relationship. The Company also uses the estimated client relationship period in recognizing deferred implementation revenue. We identified the amortization period of both the deferred contract costs as well as the deferred implementation revenue as a critical audit matter.
The principal considerations for our determination that the amortization period of both the deferred contract costs as well as the deferred implementation revenue is a critical audit matter are as follows. Given the materiality of the balances of deferred contract costs and deferred implementation revenue, this assumption is considered sensitive as a change could yield a material impact on the consolidated financial statements. Auditing the estimated life of the Company’s client relationships required significant auditor judgment in planning and executing the appropriate audit procedures.
Our audit procedures related to the estimated life of the Company’s client relationships included the following, among others. We tested the design and operating effectiveness of controls relating to management’s annual review of the reasonableness of the estimated life of a client relationship, including controls over the completeness of key inputs in the calculation and the review of the methodology applied by the Company’s third-party specialist. With the assistance of a valuation specialist, we tested the methodologies used in determining the appropriateness of the estimated life by evaluating the relationship between the average life of a client and the associated attrition rate for reasonableness. This included reperforming the calculation and verifying that all provided historical data was utilized in the analysis. We also performed procedures over the data utilized in the analysis, including comparing a sample of historical data to previously audited information.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2009.
Oklahoma City, Oklahoma
February 19, 2026
Paycom Software, Inc.
Consolidated B alance Sheets
(in millions, except per share amounts)
December 31, 2025
December 31, 2024
Assets
Current assets:
Cash and cash equivalents
Accounts receivable
Prepaid expenses
Inventory
Income tax receivable
Deferred contract costs
Current assets before funds held for clients
Funds held for clients
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Long-term deferred contract costs
Operating lease right-of-use assets
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued commissions and bonuses
Accrued payroll and vacation
Deferred revenue
Operating lease liabilities
Accrued expenses and other current liabilities
Current liabilities before client funds obligation
Client funds obligation
Total current liabilities
Deferred income tax liabilities, net
Long-term deferred revenue
Long-term operating lease liabilities
Other long-term liabilities
Total long-term liabilities
Total liabilities
Commitments and contingencies (Note 12 “Commitments and Contingencies”)
Stockholders’ equity:
Common stock, $ 0.01 par value ( 100.0 shares authorized , 63.6 and 63.0 shares issued at December 31, 2025 and December 31, 2024, respectively; 54.8 and 55.9 shares outstanding at December 31, 2025 and December 31, 2024, respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive earnings (loss)
Treasury stock, at cost ( 8.8 and 7.1 shares at December 31, 2025 and December 31, 2024, respectively)
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to the consolidated financial statements.
Paycom Software, Inc.
Consolidated Stat ements of Comprehensive Income
(in millions, except per share amounts)
Year Ended December 31,
Revenues
Recurring and other
Interest on funds held for clients
Total revenues
Cost of revenues
Operating expenses
Depreciation and amortization
Total cost of revenues
Administrative expenses
Sales and marketing
Research and development
General and administrative
Depreciation and amortization
Total administrative expenses
Total operating expenses
Operating income
Interest expense
Other income, net
Income before income taxes
Provision for income taxes
Net income
Earnings per share, basic
Earnings per share, diluted
Weighted average shares outstanding:
Basic
Diluted
Comprehensive earnings:
Net income
Unrealized net gains on available-for-sale securities
Tax effect
Other comprehensive income, net of tax
Comprehensive earnings
See accompanying notes to the consolidated financial statements.
Paycom Software, Inc.
Consolidated Statements of Stockholders’ Equity
(in millions)
Year Ended December 31,
Common stock:
Balance at beginning of period
Vesting of restricted stock
Balance at end of period
Additional paid-in capital:
Balance at beginning of period
Stock-based compensation
Employee stock purchase program
Balance at end of period
Retained earnings:
Balance at beginning of period
Net income
Dividends declared ($ 0.375 per share)
Balance at end of period
Accumulated other comprehensive earnings (loss):
Balance at beginning of period
Other comprehensive earnings, net of tax
Balance at end of period
Treasury stock:
Balance at beginning of period
Repurchases of common stock
Employee stock purchase program
Balance at end of period
Total stockholders’ equity
Year Ended December 31,
Common stock:
Shares at beginning of period
Vesting of restricted stock
Shares at end of period
Treasury stock:
Shares at beginning of period
Repurchases of common stock
Employee stock purchase program (1)
Shares at end of period
Shares outstanding at end of period
During the year ended December 31, 2025, we issue d 33,700 shares of common stock from treasury shares for purchases under our employee stock purchase plan. During the years ended December 31, 2024 and 2023, all shares of common stock purchased under our employee stock purchase plan were purchased in the open market.
See accompanying notes to the consolidated financial statements.
Paycom Software, Inc.
Consolidated Statem ents of Cash Flows
(in millions)
Year Ended December 31,
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation expense
Amortization of debt issuance costs
Loss on extinguishment of debt
Gain on disposition of property and equipment
Accretion of discount on available-for-sale securities
Non-cash marketing expense
Deferred income taxes, net
Gain on modification of naming rights agreement
Other
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses
Inventory
Other assets
Deferred contract costs
Income taxes, net
Accounts payable
Accrued commissions and bonuses
Accrued payroll and vacation
Deferred revenue
Accrued expenses and other liabilities
Net change in operating right-of-use assets and operating lease liabilities
Net cash provided by operating activities
Cash flows from investing activities
Purchases of investments from funds held for clients
Proceeds from investments from funds held for clients
Purchases of intangible assets
Purchases of property and equipment
Proceeds from sale of property and equipment
Net cash used in investing activities
Cash flows from financing activities
Repurchases of common stock
Withholding taxes paid related to net share settlements
Payments on long-term debt
Dividends paid
Proceeds from employee stock purchase plan
Net change in client funds obligation
Payment of debt issuance costs
Net cash provided by (used in) financing activities
Increase in cash, cash equivalents, restricted cash and restricted cash equivalents
Cash, cash equivalents, restricted cash and restricted cash equivalents
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period
See accompanying notes to the consolidated financial statements.
Paycom Software, Inc.
Consolidated Statements of Cash Flows, continued
(in millions)
Year Ended December 31,
Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents
Cash and cash equivalents
Restricted cash included in funds held for clients
Total cash, cash equivalents, restricted cash and restricted cash equivalents, end of period
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized
Cash paid for income taxes, net of income tax refunds (1)
Non-cash investing and financing activities:
Purchases of property and equipment, accrued but not paid
Stock-based compensation for capitalized software
Right-of-use assets obtained in exchange for operating lease liabilities
(1) Disclosures for cash paid for income taxes in 2024 and 2023 were reduced for net refunds received of $ 2.1 million and $ 1.1 million, respectively, due to retrospective application of ASU 2023-09, as described in Note 2 “Summary of Significant Accounting Policies.”
See accompanying notes to the consolidated financial statements.
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
ORGANIZATION AND DESCRIPTION OF BUSINESS
Description of Business
Paycom Software, Inc. (“Software”), together with its wholly owned subsidiaries (collectively, the “Company”), is a leading provider of a comprehensive, cloud-based human capital management solution (“HCM”) delivered as Software-as-a-Service. Unless we state otherwise or the context otherwise requires, the terms “we,” “our,” “us” and the “Company” refer to Software and its consolidated subsidiaries.
We provide functionality and data analytics that businesses need to manage the complete employment lifecycle, from recruitment to retirement. Our solution requires virtually no customization and is based on a core system of record maintained in a single database for all HCM functions, including payroll, talent acquisition, talent management, human resources (“HR”) management and time and labor management applications.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our consolidated financial statements include the financial results of Software and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the accompanying consolidated financial statements include all adjustments necessary for the fair presentation of our results for the periods presented.
In 2024, the Office of the Comptroller of the Currency (the “OCC”) issued final approval to Paycom National Trust Bank, National Association (the “Paycom National Trust Bank”), our wholly owned subsidiary, to operate as a national trust bank pursuant to the National Bank Act and relevant OCC regulations. The Paycom National Trust Bank is the primary trustee of Paycom Client Trust, our grantor trust (the “Client Trust”), which now holds substantially all client payroll and related funds and is responsible for the oversight and management of those client funds. We have determined that the Client Trust is a variable interest entity that meets the criteria established for consolidation in accordance with Accounting Standards Codification (“ASC”) 810, “Consolidation”. We are the sole beneficial owner of the Client Trust, and we have the power to direct its activities and a controlling financial interest in its economic performance.
For the year ended December 31, 2024, we changed the presentation of revenues on the consolidated statements of comprehensive income to disaggregate interest on funds held for clients and combine recurring and other revenues. Prior period amounts have been reclassified to conform to this presentation. Reclassifications for the presentation of revenue did not have a material impact on previously reported amounts or change total revenues.
In the fourth quarter of 2024, we adopted the presentation of dollar amounts in millions, except amounts per share. As a result, amounts presented for prior periods may differ immaterially from those reported in previous filings and some amounts may not sum or recalculate exactly due to rounding. All percentages have been calculated using unrounded amounts.
Recently Adopted Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 expands reportable segment disclosure requirements for public business entities by requiring disclosures of significant reportable segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment’s profit or loss. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We adopted this ASU retrospectively on December 31, 2024. See Note 14 “Segment Reporting” for further information.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation, as well as information on income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We adopted this ASU using a retrospective application approach on December 31, 2025. See Note 13 “Income Taxes” for further information.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates include income taxes, loss contingencies, the useful life of property and equipment and intangible assets, the life of
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
our client relationships, the fair value of our stock-based awards and the fair value of our financial instruments, intangible assets and goodwill. These estimates are based on historical experience, where applicable, and other assumptions that management believes are reasonable under the circumstances. Actual results could materially differ from these estimates.
In the third quarter of 2025, we completed an assessment of the useful lives of our servers and network equipment. Based on this assessment, we increased the estimated useful lives of these assets from three years to six years, effective as of the beginning of the third quarter of 2025. This change in accounting estimate has been applied prospectively and resulted in an immaterial decrease to depreciation and amortization expense for the year ended December 31, 2025 .
Seasonality
Our revenues are seasonal in nature. Generally, we expect our first and fourth quarter recurring revenues to be higher than other quarters during the year because payroll tax filing forms and Affordable Care Act forms are typically processed in the first quarter, and unscheduled payroll runs (such as bonuses) for our clients are typically concentrated in the fourth quarter. In addition, these seasonal fluctuations in recurring revenues impact operating income. Historical results impacted by these seasonal trends should not be considered a reliable indicator of our future results of operations.
Segment Information
We operate in a single operating segment and a single reporting segment. Operating segments are defined as components of an enterprise about which separate financial information is regularly evaluated by the CODM function (which is fulfilled by our Chief Executive Officer) in deciding how to allocate resources and in assessing performance. Our Chief Executive Officer allocates resources and assesses performance based upon financial information at the consolidated level. See Note 14 “Segment Reporting” for additional information.
Cash Equivalents
We consider all highly liquid instruments with an original maturity of three months or less and SEC-registered money market mutual funds to be cash equivalents. We maintain cash and cash equivalents in demand deposit accounts and money market funds, which may not be federally insured. The fair value of our cash and cash equivalents approximates carrying value. We have not experienced any losses in such accounts and do not believe there is exposure to any significant credit risk on such accounts.
Accounts Receivable
We generally collect revenues from our clients through an automatic deduction from the clients’ bank accounts at the time payroll processing occurs. Accounts receivable on our consolidated balance sheets generally consists of revenue-related receivables, including processing fees, interest income receivable, and revenue fees related to the last business day of the year, which are collected on the following business day. As accounts receivable are regularly collected via automatic deduction on the following business day, the Company has not recognized an allowance for doubtful accounts.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
Software and capitalized software development costs
3 years
Buildings
30 years
Computer equipment
3 to 6 years
Rental clocks
5 years
Furniture, fixtures and equipment
5 years
Land improvements
15 years
Leasehold improvements
5 years
Vehicles
3 years
During the third quarter of 2025, we completed an assessment of the useful lives of our servers and networking equipment. Based on this assessment, we increased the estimated useful lives of these assets from three years to six years , effective as of the beginning of the third quarter of 2025.
Costs incurred during construction of long-lived assets are recorded as construction in progress and are not depreciated until the asset is placed in service.
Prior to the repayment of our debt on November 21, 2023, we capitalized interest costs incurred for indebtedness related to construction in progress. For the years ended December 31, 2025, 2024 and 2023, we incurred interest costs of $ 3.4 million, $ 3.4 million and $ 5.3 million, respectively. For the years ended December 31, 2025 and 2024 , no interest costs were
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
capitalized. For the year ended December 31, 2023, interest costs of $ 3.4 million were capitalized. See Note 6 “Long-Term Debt” for discussion of repayment of our indebtedness.
Leases
Our leases primarily consist of noncancellable operating leases for office space. We recognize a right-of-use asset and operating lease liability on the lease commencement date based on the present value of the lease payments over the lease term. Operating lease liabilities are measured by discounting future lease payments at an estimated incremental borrowing rate. Right-of-use assets are amortized over the lease term and include adjustments related to prepaid rent.
Internal Use Software
Capitalized costs include costs for services associated with developing or obtaining internal use software and certain payroll and payroll-related costs for employees who are directly associated with internal use software projects. The amount of payroll costs that are capitalized with respect to these employees is limited to the time directly spent on such projects. Expenditures for software purchases and software developed or obtained for internal use are capitalized and amortized over a three-year period on a straight-line basis. Costs associated with preliminary project stage activities, training, maintenance and all other post-implementation stage activities are expensed as incurred. We also expense internal costs related to minor upgrades and enhancements, as it is impractical to separate t hese costs from normal maintenance activities.
The total capitalized software development costs were $ 152.9 million, $ 125.7 million and $ 96.7 million during the years ended December 31, 2025, 2024 and 2023 , respectively, and are included in property and equipment. Amortization expense of capitalized software development costs was $ 109.0 million, $ 83.1 million and $ 61.9 million for the years ended December 31, 2025, 2024 and 2023 , respectively .
Goodwill and Other Intangible Assets
Goodwill is not amortized, but we are required to test the carrying value of goodwill for impairment at least annually, or earlier if, at the reporting unit level, an indicator of impairment arises. Our business is largely homogeneous and, as a result, goodwill is associated with one reporting unit. We have selected June 30 as our annual goodwill impairment testing date. A review of goodwill may be initiated before or after conducting the annual analysis if events or changes in circumstances indicate the carrying value of goodwill may no longer be recoverable. The Company performed a qualitative assessment to determine if it is more-likely-than-not that the fair value of the reporting unit had declined below its carrying value. In the qualitative assessment, we consider macroeconomic conditions, including any deterioration of general economic conditions; industry and market conditions, including any deterioration in the environment where the reporting unit operates; changes in the products/services; regulatory and political developments; cost of doing business; overall financial performance; and other relevant reporting unit specific facts, such as changes in management or key personnel or pending litigation. Based on our assessment, there was no recorded as of June 30, 2025. For the years ended December 31, 2025, 2024 and 2023 , there were no indicators of . Intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives.
Impairment of Long-Lived Assets
Long-lived assets, including intangible assets with definite lives, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. We have determined that there was no impairment of long-lived assets including intangible assets with definite lives, for the years ended December 31, 2025, 2024 and 2023 .
Funds Held for Clients and Client Funds Obligation
As part of our payroll and payroll tax filing services, we collect funds from our clients for employment taxes, which we remit to the appropriate tax agencies and accounts designated by our clients. We typically invest these funds and earn interest income during the period between receipt and disbursement of such funds.
These investments are shown in our consolidated balance sheets as funds held for clients, and the associated liability for the tax filings is shown as client funds obligation. The liability is recorded in the accompanying consolidated balance sheets at the time we obtain the funds from clients. The client funds obligation represents liabilities that will be repaid within one year of the consolidated balance sheet date. We typically invest funds held for clients in money market funds, demand deposit accounts, certificates of deposit, commercial paper and U.S. treasury securities. Short-term investments in instruments with an original maturity of less than three months are classified as cash and cash equivalents within funds held for clients in the consolidated
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
balance sheets. Investments in instruments with an original maturity greater than three months are classified as available-for-sale securities and are also included within funds held for clients in the consolidated balance sheets. These available-for-sale securities are recorded at fair value, with the difference between the amortized cost and fair value of these available-for-sale securities recorded as unrealized net gains (losses) on available-for-sale securities, and are included within comprehensive earnings (loss) in the consolidated statements of comprehensive income.
Funds held for clients are classified as a current asset in the consolidated balance sheets because the funds are held solely to satisfy the client funds obligation. Additionally, the funds held for clients is classified as restricted cash and restricted cash equivalents and presented within the reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents on the consolidated statements of cash flows.
We report the cash flows related to the purchases of investments from funds held for clients and related to the proceeds from the maturities of investments from funds held for clients on a gross basis in the cash flows from investing activities section of the consolidated statements of cash flows. Additionally, we report cash flows related to cash received from and paid on behalf of clients on a net basis within net change in client funds obligation in the cash flows from financing activities section of the consolidated statements of cash flows.
Stock Repurchase Plan
In May 2016, our Board of Directors authorized a stock repurchase plan allowing for the repurchase of shares of our common stock in open market transactions at prevailing market prices, in privately negotiated transactions (including accelerated share repurchases) or by other means in accordance with federal securities laws, including Rule 10b5-1 programs. Since the initial authorization of the stock repurchase plan, our Board of Directors has amended and extended and authorized new stock repurchase plans from time to time. Most recently, in July 2024, our Board of Directors authorized the repurchase of up to $ 1.5 billion of our common stock. As of December 31, 2025, there was $ 1.11 billion available for repurchases under our stock repurchase plan. Our stock repurchase plan may be suspended or discontinued at any time. The actual timing, number and value of shares repurchased depends on a number of factors, including the market price of our common stock, general market and economic conditions, shares withheld for taxes associated with the vesting of equity incentive awards and other corporate considerations. The current stock rep urchase plan will expire on August 15, 2026 .
During the year ended December 31, 2025, we repurchased an aggregate of 1,730,720 shares of our common stock at an average cost of $ 213.81 per share, including 184,752 shares withheld to satisfy tax withholding obligations for certain individuals upon the vesting of equity incentive awards. During the year ended December 31, 2024 , we repurchased an aggregate of 924,493 shares of our common stock at an average cost of $ 156.29 per share, including 112,288 shares withheld to satisfy tax withholding obligations for certain individuals upon the vesting of equity incentive awards.
Revenue Recognition
Revenues are recognized when control of the promised goods or services is transferred to our clients in an amount that reflects the consideration we expect to be entitled to for those goods or services. Substantially all of our revenues are derived from contracts with clients. Sales and other applicable taxes are excluded from revenues.
Recurring and Other Revenues
Recurring revenues are derived primarily from our payroll, talent acquisition, talent management, HR management and time and labor management applications, fees charged for form filings and delivery of client payroll checks and reports, and revenues associated with background checks and income and employment verification services. For a description of our applications, refer to Part I, Item 1, “Business,” of this Form 10-K.
We consider our commitment in our customer contracts to be a series of distinct services that together constitute a single performance obligation that is generally satisfied over time and recognized during each client’s payroll period. The agreed-upon fee is variable consideration that is determined by client usage, billed and collected as part of our processing of the client’s payroll. The client’s use of our applications routinely fluctuates based upon factors that include the number of payrolls run and changes in the client’s employee population. These usage-based fluctuations do not change our core performance obligation to stand ready to provide the customer with services for the remainder of the contractual term. Collectability is reasonably assured as the fees are generally collected through an automated clearing house as part of the client’s payroll cycle or through direct wire transfer, which minimizes the default risk.
The contract period for the majority of contracts associated with these revenues is one month due to the fact that both we and the client typically have the unilateral right to terminate a wholly unperformed contract without compensating the other party by providing 30 days’ notice of termination. We consider the total price charged to a client in a given period to be indicative of the standalone selling price, as the total amount charged is within a reasonable range of prices typically charged for our goods and services for comparable classes of client groups, which we periodically assess for price adjustments. Because the
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
variable consideration in our client contracts is allocated entirely to a wholly unsatisfied promise to transfer a series of distinct services forming a single performance obligation, we are not required to disclose the value of unsatisfied performance obligations.
Other revenues consist of nonrefundable implementation fees, which are charged upfront to new clients to offset the expense of new client set-up as well as revenues from the sale of time clocks as part of our time and attendance application. Although these revenues are related to our recurring revenues, they represent distinct performance obligations. The nonrefundable upfront fee charged to our clients results in an implied performance obligation in the form of a material right to the client related to the client’s option to renew at the end of the contract period. The nonrefundable upfront fee is typically collected upon contract inception and is deferred and recognized ratably over the period that our client realizes the benefits from the material right ( i.e. , 10-year estimated client life). We conduct an annual analysis of client retention data to support our client life estimate. A change in our client life estimate could have a material impact on the timing and amounts recognized as revenue for nonrefundable upfront fees.
Revenues from the sale of time clocks are recognized when control is transferred to the client upon delivery of the product. We estimate the standalone selling price for the time clocks by maximizing the use of observable inputs such as our specific pricing practices for time clocks.
For additional information, see Note 14 “Segment Reporting”.
Interest on Funds Held for Clients
Interest income on funds held for clients is earned on funds that are collected from clients in advance of either the applicable due date for payroll tax submissions or the applicable disbursement date for employee payment services. The interest earned on these funds is included in revenues in the consolidated statements of comprehensive income as the collection, holding, and remittance of these funds are essential components of providing these services.
Contract Balances
The timing of revenue recognition for recurring services is consistent with the invoicing of clients as they both occur during the respective client payroll period for which the services are provided. Therefore, we generally do not recognize a contract asset or liability resulting from the timing of revenue recognition and invoicing.
Changes in deferred revenue for the years ended December 31, 2025 and 2024 were as follows:
Year Ended December 31,
Balance, beginning of period
Recognition of revenue included in beginning of period balance
Contract balance, net of revenue recognized during the period
Balance, end of period
We expect to recognize $ 29.2 million of deferred revenue in 2026 , $ 26.0 million in 2027 , and $ 95.0 million thereafter .
Assets Recognized from the Costs to Obtain and Costs to Fulfill Revenue Contracts
We recognize an asset for the incremental costs of obtaining a contract with a client if we expect the amortization period to be longer than one year. We also recognize an asset for the costs to fulfill a contract with a client if such costs are specifically identifiable, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered. We have determined that substantially all costs related to implementation activities are administrative in nature and also meet the capitalization criteria under ASC 340-40, “Other Assets and Deferred Costs”. These capitalized costs to fulfill principally relate to upfront direct costs that are expected to be recovered through margin and that enhance our ability to satisfy future performance obligations. The assets related to both costs to obtain, and costs to fulfill, contracts with clients are accounted for utilizing a portfolio approach and are capitalized and amortized ratably over the expected period of benefit, which we have determined to be the estimated life of the client relationship of 10 years, primarily because we incur no new costs to obtain, or costs to fulfill, a contract upon renewal. A change in our client life estimate could have a material impact on the timing and amounts recognized as amortization expense.
Additional commission costs may be incurred when an existing client purchases additional applications; however, these commission costs relate solely to the additional applications purchased and are not related to contract renewal. Furthermore, additional fulfillment costs associated with existing clients purchasing additional applications are minimized by our seamless single-database platform.
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
The assets related to both costs to obtain, and costs to fulfill, contracts with customers are presented as deferred contract costs in the accompanying consolidated balance sheets. Amortization expense related to costs to obtain and costs to fulfill a contract is included in sales and marketing expenses and general and administrative expenses in the accompanying consolidated statements of comprehensive income. We regularly review our assets recognized from the costs to obtain and costs to fulfill client contracts for potential impairment and did not recognize an impairment loss during the years ended December 31, 2025 or December 31, 2024.
The following tables present the asset balances and related amortization expense for these contract costs:
As of and for the Year Ended December 31, 2025
Beginning
Balance
Capitalization
of Costs
Amortization
Ending
Balance
Costs to obtain a contract
Costs to fulfill a contract
As of and for the Year Ended December 31, 2024
Beginning
Balance
Capitalization
of Costs
Amortization
Ending
Balance
Costs to obtain a contract
Costs to fulfill a contract
Cost of Revenues
Our costs and expenses applicable to total revenues represent operating expenses and systems support and technology costs, including labor and related expenses, bank fees, shipping fees and costs of paper stock, envelopes, etc. In addition, costs included to derive gross margins are comprised of support labor and related expenses, related hardware costs and applicable depreciation and amortization costs.
Advertising Costs
Advertising costs are expensed the first time that advertising takes place. Advertising costs for the years ended December 31, 2025, 2024 and 2023 were $ 125.5 million, $ 86.3 million and $ 106.8 million, respectively.
Sales Taxes
We collect and remit sales tax on sales of time clocks and on payroll and HCM services in certain states. These taxes are recognized on a net basis, and therefore, excluded from revenues. For the years ended December 31, 2025, 2024 and 2023 , sales taxes collected were $ 21.3 million, $ 19.3 m illion and $ 17.6 million, respectively.
Stock-Based Compensation
Historically, our stock-based compensation programs have included restricted stock awards and RSU awards. We issue stock-based compensation awards with three different types of vesting requirements including awards that vest solely based on condition of service, awards that vest based on achieving certain performance metrics such as revenue or adjusted EBITDA targets, and awards that vest based on achieving certain market conditions such as relative total stockholder return or volume weighted average price targets.
We measure the fair value of awards that vest solely based on condition of service, such as our time-based shares of restricted stock and time-based RSUs, and the fair value of awards that vest based on achieving certain performance metrics by using the closing market price on the date of grant.
We measure the fair value of awards that vest based on achieving certain market conditions, such as relative total stockholder return or volume weighted average price targets, by using a Monte Carlo simulation model.
Stock-based compensation cost is recognized only for those awards expected to meet the requisite service and performance vesting conditions. Stock-based compensation cost is recognized as compensation costs in the consolidated statements of comprehensive income on a straight-line basis over the requisite or derived service period of the award, which is generally the vesting period of the award, with forfeitures recognized as incurred.
For additional information, see Note 11 “Stock-Based Compensation”.
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
Employee Stock Purchase Plan
An award issued under the Paycom Software, Inc. Employee Stock Purchase Plan (the “ESPP”) is classified as a share-based liability and recognized at the fair value of the award. Expense is recognized, net of estimated forfeitures, on a straight-line basis over the requisite service period.
Income Taxes
Our consolidated financial statements include a provision for income taxes incurred for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. We recognize a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized.
We file income tax returns with the United States federal government and various state jurisdictions. We evaluate tax positions taken or expected to be taken in the course of preparing our tax returns and disallow the recognition of tax positions not deemed to meet a “more-likely-than-not” threshold of being sustained by the applicable tax authority. We believe there is one tax position taken within the consolidated financial statements that does not meet this threshold. Our policy is to recognize interest and penalties, if any, related to uncertain tax positions as a component of general and administrative expenses. With few exceptions, we are no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2022.
Recently Issued Accounting Pronouncements
In November 2024, the FASB issued ASU No. 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” (“ASU 2024-03”). ASU 2024-03 requires public business disclose additional information about specific expense categories in the notes to the financial statements. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.
In September 2025, the FASB issued ASU No. 2025-06, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software” (“ASU 2025-06”). ASU 2025-06 removes all references to software development stages and requires capitalization of software costs when management has committed to the software project and it is probable the software will be completed and perform its intended use. This ASU is effective for fiscal years beginning after December 15, 2027, and interim periods within those years, with early adoption permitted. The guidance allows for adoption using either a prospective or retrospective transition method. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.
PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation and amortization were as follows:
December 31, 2025
December 31, 2024
Property and equipment
Software and capitalized software development costs
Buildings
Computer equipment
Rental clocks
Furniture, fixtures and equipment
Other
Less: accumulated depreciation and amortization
Construction in progress
Land
Property and equipment, net
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
We capitalize software development costs related to software developed or obtained for internal use in accordance with ASC 350-40, “Other Assets and Deferred Costs”. For the years ended December 31, 2025, 2024 and 2023, we capitalized $ 152.9 million, $ 125.7 million and $ 96.7 million, respectively, of software development costs related to software developed or obtained for internal use.
Rental clocks included in property and equipment, net in the consolidated balance sheets, represent time clocks issued to clients under month-to-month operating leases. As such, these items are transferred from inventory to property and equipment and depreciated over their estimated useful lives.
Prior to the repayment of our debt on November 21, 2023, we capitalized interest costs incurred for indebtedness related to construction in progress. For the years ended December 31, 2025, 2024 and 2023 , we incurred interest costs of $ 3.4 million, $ 3.4 million and $ 5.3 million, respectively. For the years ended December 31, 2025 and 2024 , no interest costs were capitalized. For the year ended December 31, 2023 , interest costs of $ 3.4 million were capitalized. See Note 6 “Long-Term Debt” for discussion of repayment of our indebtedness.
Depreciation and amortization expense for property and equipment, net was $ 167.5 million, $ 142.0 million and $ 110.0 million for the years ended December 31, 2025, 2024 and 2023 , respectively.
GOODWILL AND INTANGIBLE ASSETS, NET
As of both December 31, 2025 and 2024 , goodwill totaled $ 51.9 million. We have selected June 30 as our annual goodwill impairment testing date. We performed a qualitative impairment test of our goodwill and concluded that, as of June 30, 2025 , it was more likely than not that the fair value exceeded the carrying value and therefore goodwill was no t impaired. As of D ecember 31, 2025 and 2024, there were no indicators of impairment.
In June 2021, in connection with our marketing initiatives, we purchased the naming rights to the downtown Oklahoma City arena that is currently home to the Oklahoma City Thunder National Basketball Association franchise. Under the terms of the naming rights agreement, we committed to make escalating annual sponsorship fee payments from 2021 to 2035. In July 2025, the naming rights agreement was amended to provide, among other things, that the agreement and our obligation to make the previously disclosed annual sponsorship fee payments thereunder will terminate on the earlier of (i) September 30, 2028 or (ii) the date of the last event hosted or presented at the current arena (subject to earlier termination in certain limited circumstances), with a reduction in the sponsorship fee if the term of the agreement ends prior to September 30, 2028 and in certain other limited circumstances. The amendment did not otherwise impact our obligation to make the previously disclosed annual sponsorship fee payments for the remainder of the amended agreement term. The cost of the naming rights has been recorded as an intangible asset with an offsetting liability as of the date of the contract. The intangible asset is being amortized over the remainder of the agreement term on a straight-line basis. The difference between the present value of the offsetting liability and actual cash payments is being relieved through sales and marketing expense using the interest method over the remainder of the agreement term.
As a result of the amendment to the naming rights agreement, the Company recognized a $ 35.6 million gain with respect to the released portion of the liability. The gain is included in other income, net in the consolidated statements of comprehensive income.
All of our intangible assets other than goodwill are considered to have definite lives and, as such, are subject to amortization. The following tables present the components of intangible assets within our consolidated balance sheets:
December 31, 2025
Weighted Average Remaining Useful Life
Gross
Accumulated Amortization
Net
(Years)
Intangibles:
Naming rights
December 31, 2024
Weighted Average Remaining Useful Life
Gross
Accumulated Amortization
Net
(Years)
Intangibles:
Naming rights
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
Amortization of intangible assets for the year ended December 31, 2025, 2024 and 2023 was $ 8.8 million, $ 3.9 million and $ 3.9 million, respectively. We estimate the aggregate amortization expense will be $ 13.6 million for each of 2026 and 2027 and $ 10.2 million for 2028.
LEASES
The Co mpany’s leases primarily consist of noncancellable operating leases for facilities with contractual terms expiring from 2026 to 2032 . All of our leases are operating leases. Th e lease term is defined as the fix ed noncancellable term of the lease plus all periods, if any, for which failure to renew the lease imposes a penalty on us in an amount that appears, at the inception of the lease, to be reasonably assured. While some of our leases include an option to extend the lease up to seven years, it is not reasonably certain that any such options will be exercised. Some of our leases contain a termination option that is not reasonably certain to be exercised. If a termination option is exercised, we remeasure the lease asset in the consolidated balance sheets using the updated lease period. None of our leases contain residual value guarantees, substantial restrictions or covenants.
The table below presents the lease assets and liabilities as of December 31, 2025 and December 31, 2024.
Balance Sheet location
December 31, 2025
December 31, 2024
Operating lease right-of-use assets
Lease liabilities:
Operating lease liabilities
Long-term operating lease liabilities
Rent expense under operating leases for the years ended December 31, 2025, 2024 and 2023 was $ 25.2 million, $ 21.7 million and $ 18.1 million, respectively. Cash paid for amounts relating to our operating leases was $ 28.9 million for the year ended December 31, 2025.
Because no implicit discount rates for our leases could be readily determined, we elected to use an estimated incremental borrowing rate to determine the present value of our leases. The weighted average discount rate related to our portfolio of leases at December 31, 2025 was 5.1 %. The weighted average remaining lease term for our leases was 3.6 years as of December 31, 2025.
The undiscounted cash flows for the future annual maturities of our operating lease liabilities and the reconciliation of those total undiscounted cash flows to our lease liabilities as of December 31, 2025 were as follows:
Thereafter
Total undiscounted cash flows
Present value discount
Lease liabilities
There were no new leases that had not yet commenced as of December 31, 2025.
LONG-TERM DEBT
On July 29, 2022 (the “Facility Closing Date”), Paycom Payroll, LLC, Software, and certain other subsidiaries of Software (collectively, the “Loan Parties”) entered into a credit agreement (as amended from time to time, the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as a lender, swingline lender and issuing bank, the lenders from time to time party thereto (collectively with JPMorgan Chase Bank, N.A., the “Lenders”), and JPMorgan Chase Bank, N.A., as the administrative agent.
The Credit Agreement initially provided for a senior secured revolving credit facility (the “Revolving Credit Facility”) in the aggregate principal amount of up to $ 650.0 million, and the ability to request an incremental facility of up to an additional $ 500.0 million, subject to obtaining additional lender commitments and approvals and satisfying certain other conditions. The Credit Agreement also initially provided for a senior secured delayed draw term loan (the “Term Loan Facility”) in the aggregate amount of up to $ 750.0 million. All loans under the Credit Agreement will mature on July 29, 2027 (the “Scheduled
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
Maturity Date”). Unamortized debt issuance costs of $ 1.5 million as of December 31, 2025, are included in other assets on our consolidated balance sheets.
On the Facility Closing Date, we borrowed $ 29.0 million under the Revolving Credit Facility to repay the outstanding indebtedness under our prior credit facility, along with accrued interest, expenses and fees. The loan bore interest at the Adjusted Term SOFR Rate (as defined below) for the interest period in effect plus 1.25 %.
On July 28, 2023 , the Loan Parties entered into Amendment No. 2 to Credit Agreement with the Lenders, pursuant to which, among other things, (i) the aggregate revolving commitments under the Revolving Credit Facility were increased from $ 650.0 million to $ 1.0 billion, (ii) the Term Loan Facility was terminated and (iii) the Credit Agreement was amended in contemplation of the formation and future operating activities of the Client Trust and Paycom National Trust Bank. This amendment did not impact our ability to request an incremental facility of up to an additional $ 500.0 million as described above. We did no t make any draws under the Term Loan Facility prior to its termination on July 28, 2023 . At the time of termination, unamortized debt issuance costs totaling $ 1.2 million were written off and recognized as a loss on extinguishment of debt, which was included in other income, net in the consolidated statements of comprehensive income.
On November 21, 2023, we fully repaid the outstanding indebtedness under the Revolving Credit Facility. As of December 31, 2025 , there was no debt outstanding under the Revolving Credit Facility.
Borrowings under the Credit Agreement bear interest at a rate per annum equal to (i) the Alternate Base Rate (“ABR”) plus an applicable margin (“ABR Loans”) or (ii) (x) the term Secured Overnight Financing Rate (“SOFR”) plus 0.10 % (the “Adjusted Term SOFR Rate”) or (y) the daily SOFR plus 0.10%, in each case plus an applicable margin (“SOFR Rate Loans”). ABR is calculated as the highest of (i) the rate of interest last quoted by The Wall Street Journal in the United States as the prime rate in effect, (ii) the federal funds rate plus 0.5 % and (iii) the Adjusted Term SOFR Rate for a one-month interest period plus 1.00 %; provided that, if the ABR as determined pursuant to the foregoing would be less than 1.00%, such rate shall be deemed to be 1.00%. The applicable margin for ABR Loans is (i) 0.25 % if the Company’s consolidated leverage ratio is less than 1.0 to 1.0; (ii) 0.50 % if the Company’s consolidated leverage ratio is greater than or equal to 1.0 to 1.0 but less than 2.0 to 1.0; (iii) 0.75 % if the Company’s consolidated leverage ratio is greater than or equal to 2.0 to 1.0 but less than 3.0 to 1.0; or (iv) 1.00 % if the Company’s consolidated leverage ratio is greater than or equal to 3.0 to 1.0. The applicable margin for SOFR Rate Loans is (i) 1.25 % if the Company’s consolidated leverage ratio is less than 1.0 to 1.0; (ii) 1.5 % if the Company’s consolidated leverage ratio is than or equal to 1.0 to 1.0 but less than 2.0 to 1.0; (iii) 1.75 % if the Company’s consolidated leverage ratio is than or equal to 2.0 to 1.0 but less than 3.0 to 1.0; or (iv) 2.00 % if the Company’s consolidated leverage ratio is than or equal to 3.0 to 1.0. Subject to certain conditions set forth in the Credit Agreement, we may borrow, prepay and reborrow under the Revolving Credit Facility and or reduce the Lenders’ commitments at any time prior to the Scheduled Maturity Date. We are required to pay a quarterly commitment fee on the daily amount of the undrawn portion of the revolving commitments under the Revolving Credit Facility at a rate per annum of (i) 0.20 % if the Company’s consolidated leverage ratio is less than 1.0 to 1.0; (ii) 0.225 % if the Company’s consolidated leverage ratio is than or equal to 1.0 to 1.0 but less than 2.0 to 1.0; (iii) 0.25 % if the Company’s consolidated leverage ratio is than or equal to 2.0 to 1.0 but less than 3.0 to 1.0; or (iv) 0.275 % if the Company’s consolidated leverage ratio is than or equal to 3.0 to 1.0.
Under the Credit Agreement, we are required to maintain as of the end of each fiscal quarter a consolidated interest coverage ratio of not less than 3.0 to 1.0 and a consolidated leverage ratio of not greater than 3.0 to 1.0. Additionally, the Credit Agreement contains customary affirmative and negative covenants, including covenants limiting our ability to, among other things, grant liens, incur debt, effect certain mergers, make investments, dispose of assets, enter into certain transactions, including swap agreements and sale and leaseback transactions, pay dividends or distributions on our capital stock, and enter into transactions with affiliates, in each case subject to customary exceptions. As of December 31, 2025 , we were in compliance with these covenants. Our obligations under the Credit Agreement are secured by a senior security interest in all personal property of the Loan Parties.
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
CORPORATE INVESTMENTS AND FUNDS HELD FOR CLIENTS
The tables below present our cash and cash equivalents, the funds held for clients cash and cash equivalents as well as the investments that were included within funds held for clients on the consolidated balance sheets:
December 31, 2025
Type of issue
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Cash and cash equivalents
Funds held for clients cash and cash equivalents
Available-for-sale securities (1) :
U.S. treasury securities
Certificates of deposit
Total investments
December 31, 2024
Type of issue
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
Cash and cash equivalents
Funds held for clients cash and cash equivalents
Available-for-sale securities (1) :
U.S. treasury securities
Total investments
All available-for-sale securities were included within the funds held for clients.
The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of December 31, 2025, are as follows:
December 31, 2025
Securities in unrealized loss position for less than 12 months
Securities in unrealized loss position for greater than 12 months
Total
Type of issue
Gross unrealized losses
Fair value
Gross unrealized losses
Fair value
Gross unrealized losses
Fair value
U.S. treasury securities
Certificates of deposit
Total
The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of December 31, 2024, are as follows:
December 31, 2024
Securities in unrealized loss position for less than 12 months
Securities in unrealized loss position for greater than 12 months
Total
Type of issue
Gross unrealized losses
Fair value
Gross unrealized losses
Fair value
Gross unrealized losses
Fair value
U.S. treasury securities
Total
We did not make any reclassification adjustments out of accumulated other comprehensive income for realized gains or losses on the sale or maturity of available-for-sale securities for the years ended December 31, 2025 or 2024 . There were no realized gains or losses on the sale of available-for-sale securities for the years ended December 31, 2025 or 2024.
We regularly review the composition of our investment portfolio and did no t recognize any credit impairment losses during the years ended December, 2025 or 2024. We believe it is probable that the principal and interest will be collected in
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
accordance with contractual terms and that the unrealized losses on these securities were due to changes in interest rates and were not due to increased credit risk. As of December 31, 2025, all of our U.S. treasury securities held a rating of AA+.
Expected maturities of available-for-sale securities at December 31, 2025 are as follows:
Expected maturity
Amortized cost
Fair value
One year or less
One year to five years
Total available-for-sale securities
FAIR VALUE OF FINANCIAL INSTRUMENTS
Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, funds held for clients and client funds obligation. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, funds held for clients and client funds obligation approximates fair value.
Our corporate investments consist primarily of money market funds and demand deposit accounts and are classified as cash and cash equivalents on the consolidated balance sheets.
As discussed in Note 2 “Summary of Significant Accounting Policies”, we typically invest the funds held for clients in money market funds, demand deposit accounts, certificates of deposit, commercial paper and U.S. treasury securities. Short-term investments in instruments with an original maturity of less than three months are classified as cash and cash equivalents within funds held for clients in the consolidated balance sheets. Investments in instruments with an original maturity greater than three months are classified as available-for-sale securities and are also included within funds held for clients in the consolidated balance sheets. These available-for-sale securities are recognized at fair value, with the difference between the amortized cost and fair value of these available-for-sale securities recorded as unrealized net gains (losses) within comprehensive earnings (loss) in our consolidated statements of comprehensive income. See Note 7 “Corporate Investments and Funds Held for Clients” for additional information.
The accounting standard for fair value measurements establishes a three-level fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 – Observable inputs such as quoted prices in active markets
Level 2 – Inputs other than quoted prices in active markets for identical assets or liabilities that are observable either directly or indirectly or quoted prices that are not active
Level 3 – Unobservable inputs in which there is little or no market data
Included in the following tables are the Company’s major categories of assets and liabilities measured at fair value on a recurring basis as of December 31, 2025 and 2024:
December 31, 2025
Level 1
Level 2
Level 3
Total
Assets:
U.S. treasury securities
Certificates of deposit
December 31, 2024
Level 1
Level 2
Level 3
Total
Assets:
U.S. treasury securities
EMPLOYEE SAVINGS PLAN AND EMPLOYEE STOCK PURCHASE PLAN
Employees over the age of 18 who have completed 30 days of service are eligible to participate in our employee savings plan (401(k) plan). We have made a Qualified Automatic Contribution Arrangement (“QACA”) election, whereby the Company matches the contribution of our employees equal to 100 % of the first 1 % of salary deferrals and 50 % of salary deferrals between 2 % and 6 %, up to a maximum matching contribution of 3.5 % of an employee’s salary each plan year. We are allowed to make additional discretionary matching contributions and discretionary profit sharing contributions. Employees are 100 % vested in
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
amounts attributable to salary deferrals and rollover contributions. The QACA matching contributions as well as the discretionary matching and profit sharing contributions vest 100 % after two years of employment from the date of hire. Matching contributions were $ 20.6 million, $ 19.1 million and $ 15.9 million for the years ended December 31, 2025, 2024 and 2023, respectively.
The ESPP has overlapping offering periods, with each offering period lasting approximately 24 months. At the beginning of each offering period, eligible employees may elect to contribute, through payroll deductions, up to 10 % of their compensation, sub ject to an annual per employee maximum of $ 25,000 . Eligible employees purchase shares of the Company’s common stock at a price equal to 85 % of the fair market value of the shares on the exercise date. The maximum number of shares that may be purchased by a participant during each offering period is 2,000 shares, subject to limits specified by the Internal Revenue Service. The maximum aggregate number of shares of the Company’s common stock that may be purchased by all participants under the ESPP is 2.0 million shares. During the year ended December 31, 2025 , eligible employees purchased 68,984 shares of common stock under the ESPP, consisting of 35,284 purchased in the open market and 33,700 shares issued from treasury stock. During the years ended December 31, 2024 and 2023 , eligible employees purchased 87,073 and 72,942 shares, respectively, of common stock under the ESPP, all of which were purchased in the open market. Compensation expense related to the ESPP is recognized on a straight-line basis over the requisite service period.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share is computed in a similar manner to basic earnings per share after assuming the issuance of shares of common stock for all potentially dilutive equity incentive awards using the treasury stock method.
The following is a reconciliation of net income and the shares of common stock used in the computation of basic and diluted earnings per share:
Year Ended December 31,
Numerator:
Net income
Denominator:
Basic weighted average shares outstanding (in thousands)
Dilutive effect of unvested restricted stock and restricted stock units (in thousands)
Diluted weighted average shares outstanding (in thousands)
Earnings per share:
Basic
Diluted
STOCK-BASED COMPENSATION
In May 2023, the stockholders of the Company approved the Paycom Software, Inc. 2023 Long-Term Incentive Plan (the “2023 LTIP”), which provides for the granting of equity-based awards to the Company’s employees, contractors and outside directors. Subject to certain adjustments, the maximum number of shares of common stock that may be delivered pursuant to awards under the 2023 LTIP is 3.6 million.
For the year ended December 31, 2025, the Company recognized non-cash stock-based compensation expense of $ 118.7 million. For the year ended December 31, 2024 , the Company recognized non-cash stock-based compensation expense, inclusive of forfeitures, that totaled a net benefit of $ 22.9 million. For the year ended December 31, 2023 , our total non-cash stock-based compensation expense was $ 129.8 million.
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
The following table presents the non-cash stock-based compensation expense that is included within the specified line items in our consolidated statements of comprehensive income:
Year Ended December 31,
Non-cash stock-based compensation expense:
Operating expenses
Sales and marketing
Research and development
General and administrative
Total non-cash stock-based compensation expense
The change in Chad Richison’s position from Chief Executive Officer to Co-Chief Executive Officer, effective February 7, 2024, triggered the forfeiture of 1,610,000 shares of restricted stock granted to him on November 23, 2020, in accordance with the terms of the award. As a result, $ 117.5 million of previously recognized compensation costs that were recorded in reporting periods prior to 2024 were reversed to additional paid-in capital in the consolidated balance sheets and to general and administrative expenses in the consolidated statements of comprehensive income.
The following table presents the unrecognized compensation cost and the related weighted average recognition period associated with unvested equity incentive awards as of December 31, 2025:
Restricted Stock
Awards
Restricted Stock
Units
Unrecognized compensation cost
Weighted average period for recognition (years)
We capitalized stock-based compensation costs related to software developed for internal use of $ 25.2 million, $ 17.5 million and $ 14.7 million for the years ended December 31, 2025, 2024 and 2023, respectively.
In May 2023, our Board of Directors adopted a dividend policy under which we intend to pay quarterly cash dividends on our common stock. All unvested equity incentive awards currently outstanding are entitled to receive dividends or dividend equivalents, provided that such dividends or dividend equivalents are withheld by the Company and distributed to the applicable holder upon the release of restrictions on such equity incentive awards ( i.e ., upon vesting).
Restricted Stock Awards
We have historically issued shares of restricted stock that are subject to either market-based vesting conditions (“Market-Based Restricted Stock Awards”) or time-based or no vesting conditions (“Time-Based Restricted Stock Awards”). The market-based vesting conditions are based on the Company’s total enterprise value or volume weighted average stock price over a specific period exceeding certain specified thresholds.
During the year ended December 31, 2025 , we issued an aggregate of 880,267 restricted shares of common stock under the 2023 LTIP, consisting of 188,370 shares underlying Market-Based Restricted Stock Awards and 691,897 shares underlying Time-Based Restricted Stock Awards. Generally, Market-Based Restricted Stock Awards will vest 50 % on the first date, if any, that the arithmetic average of the Company’s volume weighted average price on each of the 20 consecutive trading days immediately preceding such date (the “VWAP Value”) equals or exceeds $ 250 per share and 50 % on the first date, if any, that the Company’s VWAP Value equals or exceeds $ 282 per share, in each case provided that (i) such date occurs on or before the eighth anniversary of the grant date and (ii) the recipient is employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the 2023 LTIP and the applicable restricted stock award agreement. Generally, the Time-Based Restricted Stock Awards will vest over periods ranging from approximately one to four years , provided that the recipient is employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the 2023 LTIP and the applicable restricted stock award agreement.
The Time-Based Restricted Stock Awards mentioned above include an aggregate of 7,693 shares of restricted stock issued to the non-employee members of our Board of Directors in 2025 under the 2023 LTIP. Such shares of restricted stock will cliff-vest on the seventh day following the first anniversary date of the grant, provided that such director is providing services to the Company through the applicable vesting date, and subject to the terms and conditions of the 2023 LTIP and the applicable restricted stock award agreement.
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
The following table presents a summary of the grant date fair values of restricted stock granted during the years ended December 31, 2025, 2024 and 2023 and the related assumptions:
Year Ended December 31,
Grant date fair value of restricted stock
Risk-free interest rate
Estimated volatility
Expected life (in years)
The following table summarizes restricted stock award activity for the year ended December 31, 2025:
Time-Based
Restricted Stock Awards
Market-Based
Restricted Stock Awards
Shares
Weighted Average
Grant Date Fair
Value
Shares
Weighted Average
Grant Date Fair
Value
(in thousands)
(in dollars)
(in thousands)
(in dollars)
Unvested shares of restricted stock outstanding at December 31, 2024
Granted
Vested
Forfeited
Unvested shares of restricted stock outstanding at December 31, 2025
The following table presents the aggregate fair value of restricted stock awards that vested during the indicated period:
Year Ended December 31,
Time-Based Restricted Stock Awards
Market-Based Restricted Stock Awards
Restricted Stock Units
During the year ended December 31, 2025 , we issued the following RSU awards to certain of our executive officers and employees, in each case subject to the terms and conditions of the 2023 LTIP and the applicable RSU award agreement: (i) an aggregate of 80,741 time-based RSUs and (ii) an aggregate of 80,238 performance-based RSUs (“PSUs”). Generally, the number of shares deliverable upon the vesting of such PSUs was determined based on the achievement of a pre-established revenue performance goal for the one-year performance period from January 1, 2025 to December 31, 2025. The PSUs were eligible to vest following the performance period, but no later than March 1, 2026, provided that the recipient was employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the 2023 LTIP and the applicable RSU award agreement. Generally, the RSUs vest in three equal annual tranches over a period of approximately three years, provided that the recipient is employed by, or providing services to, the Company on the applicable vesting date.
During the year ended December 31, 2025 , 23,715 PSUs (consisting of PSUs granted to certain executive officers in 2024) were eligible to vest based on the Company’s performance during a performance period ended December 31, 2024 . On February 10, 2025, we issued 23,715 shares of common stock upon the vesting of PSUs. The number of shares delivered upon the vesting of such PSUs was determined based on the Compa ny’s achievement of a revenue performance goal.
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
The following table presents a summary of the grant date fair values of RSUs and PSUs granted during the years ended December 31, 2025, 2024 and 2023 and the related assumptions:
Year Ended December 31,
Grant date fair value of restricted stock
Risk-free interest rate
Estimated volatility
Expected life (in years)
The following table summarizes RSU and PSU activity for the year ended December 31, 2025:
RSUs
PSUs
Units
Weighted Average
Grant Date Fair
Value Per Unit
Units
Weighted Average
Grant Date Fair
Value Per Unit
(in thousands)
(in dollars)
(in thousands)
(in dollars)
Unvested restricted stock units outstanding at December 31, 2024
Granted
Vested
Forfeited
Unvested restricted stock units outstanding at December 31, 2025
The following table presents the aggregate fair value of RSUs and PSUs that vested during the indicated period:
Year Ended December 31,
RSUs
PSUs
COMMITMENTS AND CONTINGENCIES
Employment Agreements
We have employment agreements with certain of our executive officers. The agreements allow for annual compensation, participation in executive benefit plans, and performance-based cash bonuses.
Legal Proceedings
We are involved in various legal proceedings in the ordinary course of business. Although we cannot predict the outcome of these proceedings, legal matters are subject to inherent uncertainties, and there exists the possibility that the ultimate resolution of these matters could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
INCOME TAXES
The following table lists the components of the provision for income taxes:
Year Ended December 31,
Provision for current income taxes
Federal
State
Total provision for current income taxes
Provision for deferred income taxes
Federal
State
Total provision for deferred income taxes
Total provision for income taxes
The following schedule reconciles the statutory federal tax rate to the effective income tax rate:
Year ended December 31,
as adjusted (2)
as adjusted (2)
U.S. federal statutory tax rate
State and local income taxes, net of federal income tax effect (1)
Tax credits
Research credit, federal benefit
Nontaxable or nondeductible items
Stock-based compensation
Other
Changes in unrecognized tax benefits
Other adjustments
Effective tax rate
State taxes in Oklahoma, California, Illinois, and New York and local taxes in New York City made up the majority (greater than 50 percent) of the tax effect in this category.
Disclosures for 2024 and 2023 were adjusted for retrospective application of ASU 2023-09, as described in Note 2 “Summary of Significant Accounting Policies.”
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of our deferred tax assets and liabilities were as follows:
December 31,
Deferred income tax assets (liabilities):
Mark-to-market investments - OCI
Stock-based compensation
Investment in Paycom Payroll Holdings, LLC
Tax credits
Net operating losses
Noncurrent deferred income tax liabilities, net
At December 31, 2025 , we had net operating loss carryforwards for state income tax purposes of $ 1.3 million, which are available to offset future state taxable income that begin expiring in 2033.
Total net income tax payments, net of refunds, were $ 78.1 million in 2025 , $ 134.8 million in 2024 , and $ 138.8 million in 2023 . The following table lists the components of the payments for income taxes, net of refunds:
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
Year Ended December 31,
Federal
State
California
Oklahoma
Other
Total income tax payments, net of refunds
The following table presents a reconciliation of the total unrecognized tax benefits as of the years ended December 31, 2025, 2024 and 2023.
Year Ended December 31,
Balance at January 1
Tax positions related to current year:
Additions
(Reductions)
Balance at December 31
As of December 31, 2025, 2024 and 2023, the re were $ 3.5 million, $ 3.8 million and $ 3.8 million, respectively, of unrecognized tax benefits that, if recognized, would affect the annual effective tax rate.
Where applicable, we classify income tax-related interest and penalties as interest expense and other expense, respectively. During the years ended December 31, 2025, 2024 and 2023 , we recorded interest and penalties with regard to uncertain tax positions of $ 0.0 million, $ 0.3 million and $ 0.8 million, respectively.
We recognize tax benefits from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by taxing authorities based on the technical merits of the position. The tax benefits in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50 percent likelihood of being realized on settlement.
W e file income tax returns with the United States federal government and various state jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2022.
SEGMENT REPORTING
The Company conducts business as a single operating segment, which is based upon the Company’s current organizational and management structure, as well as information used by the CODM to allocate resources. The Company derives revenues from customers by providing a cloud-based HCM solution delivered as Software-as-a-Service. Our payroll application is the foundation of our solution and is based on a core system of record to maintain a single database for all HCM functions. The Company derives revenue primarily in North America and manages the business activities on a consolidated basis. No individual client represents 10% or more of total revenues.
The accounting policies of the segment are the same as those described in Note 2 “Summary of Significant Accounting Policies”. The Company’s CODM is our Chief Executive Officer . The CODM assesses performance for the segment and decides how to allocate resources based on net income, as reported on the consolidated statements of comprehensive income. Net income is used monthly to monitor budget versus actual results. The CODM manages the business using consolidated expense information as well as regularly provided budgeted or forecasted expense information for the single operating segment. The total assets of the segment are reported on the consolidated balance sheets. Significant non-cash items including expenditures for purchases of long-lived assets and non-cash stock-based compensation expense of the segment are reported on the consolidated statements of cash flows.
The Company does not have any intra-entity sales or transfers.
Paycom Software, Inc.
Notes to the Consolidated Financial Statements
(tabular dollars and shares in millions, except per share and per unit amounts)
The table below highlights the Company’s revenues, expenses and net income for our single reportable segment, which are consistent with amounts reported on the consolidated statements of comprehensive income for the years ended December 31, 2025, 2024 and 2023.
Year Ended December 31,
Revenues
Recurring
Implementation and other
Interest on funds held for clients
Total revenues
Cost of revenues
Operating expenses
Depreciation and amortization
Total cost of revenues
Gross profit
Administrative expenses
Sales and marketing
Research and development
General and administrative
Depreciation and amortization
Total administrative expenses
Total operating expenses
Operating income
Interest expense
Other income, net
Income before income taxes
Provision for income taxes
Net income
SUBSEQUENT EVENTS
Executive RSU and PSU Awards
Effective February 18, 2026, the Compensation Committee of the Board of Directors granted the following awards of PSUs and RSUs to the Company’s executive officers (dollars in millions):
Name
Target PSU Value (1)
RSU Value
Chad Richison
Shane Hadlock
Robert D. Foster
Jeff York
Randy Peck
“Target PSU Value” assumes achievement of the maximum performance level.
The number of PSUs that will vest and be converted into shares of common stock will be based on the achievement of a total revenues performance target. The RSUs will vest in three substantially equal tranches on February 5, 2027, February 5, 2028, and February 5, 2029, provided that the executive officer is employed by, or providing services to, the Company on the applicable vesting date.
