Paycom (PAYC) Q3 2026 Earnings Call Transcript

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DATE

Wednesday, Nov. 4, 2026

CALL PARTICIPANTS

• Head of investor relations - James Samford
• Founder and CEO - Chad R. Richison
• President - Terrell Hadlock
• Chief Financial Officer - Robert D. Foster

TAKEAWAYS

• Total Revenue -- $543.8 million, representing a 10.2% increase driven by continued demand for automation and human capital management solutions.
• Recurring and Other Revenue -- $519.3 million, up 11.3% and constituting 95.5% of total quarterly revenue.
• GAAP Net Income -- $133.2 million, or $2.99 per diluted share, up from $110.7 million in the third quarter of 2025.
• Non-GAAP Net Income -- $150.0 million, an increase of 37% year over year reflecting improved operational efficiency.
• Adjusted EBITDA -- $268.1 million, representing a 49.3% margin driven by expanding gross margins and reductions in operating costs.
• Diluted Non-GAAP EPS -- $3.37, an increase of 74% year over year aided by strong earnings growth and a lower share count.
• Shares Outstanding -- 44.3 million, a 19.5% reduction from 55 million shares at the end of the comparable prior year period.
• Share Repurchases -- 11.5 million shares repurchased over the last 12 months, with $1.65 billion remaining on the current buyback authorization.
• Debt Repayment -- $150.0 million, paid down on the company's revolving credit facility during the third quarter.
• Free Cash Flow -- $536.5 million for the first nine months of 2026, representing a significant increase over $285.4 million in the prior year period.
• Quarterly Dividend -- $0.375 per share, approved by the Board of Directors for payment in early December.
• Average Daily Client Funds -- $2.7 billion, up 7% year over year during the third quarter.
• Full Year Revenue Guidance -- $2.213 billion to $2.218 billion, representing approximately 8% year-over-year growth.
• Full Year Adjusted EBITDA Guidance -- $1.069 billion to $1.079 billion, raised following strong performance in the first nine months of the year.
• Adjusted EBITDA Margin Guidance -- 48.5% at the midpoint, an increase of 550 basis points over the 2025 full-year margin.
• 2026 Interest Guidance -- $107.0 million expected from interest on funds held for clients for the full year.
• Capital Expenditures Guidance -- 6% of revenue for the full year, focused on data center infrastructure and artificial intelligence capabilities.
• IWant Engagement -- usage of the AI solution increased 65% as of the third quarter versus the end of 2025.
• Asset Management Adoption -- 300 clients currently utilize the new tool, which was launched within the previous quarter.
• Dawn Product Impact -- $360,000 in unmanaged PTO eliminated for one client through automated decisioning logic across 73 locations.
• GAAP Research and Development Expense -- $38.5 million, a decrease from $74.1 million in the third quarter of 2025 as the company gains efficiency in software development.
• Non-GAAP Tax Rate Guidance -- approximately 27% for the full year 2026.
• Operating Cash Flow Margin -- 37.3% for the first nine months of 2026, up from 32.0% in the comparable prior year period.

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RISKS

• Foster stated, "last year was a good quarter, so it is a little bit more of a tougher comp going forward," noting that the year-over-year comparison in the fourth quarter may reflect a relative deceleration.

SUMMARY

Paycom Software, Inc. (NYSE:PAYC) reported third quarter results that surpassed internal expectations, leading to an upward revision of its full-year revenue and profitability guidance. Management stated that the company is prioritizing full-solution automation and the deployment of its artificial intelligence engine, IWant, to drive client return on investment. The company reported a significant reduction in its total share count following an active repurchase program over the last 12 months. Management indicated that its proprietary Tier 4 data center infrastructure provides a competitive advantage in security and operational economics, particularly as it expands AI and GPU capabilities. The company is also expanding its international footprint, highlighted by recent client adoptions in Mexico and Europe.

• CEO Richison stated, "Our clients are not paying for tokens on our system," regarding the cost structure of Paycom's integrated AI solutions.
• President Hadlock noted that mid-market organizations using the IWant solution can save as many as 3,600 employee hours and 600 manager hours annually.
• Richison indicated that 2027 "will hold a different transformation time period" for the company based on the current product pipeline.
• Foster reported that the company is the "biggest user of our products," which allows Paycom to realize the same internal ROI as its clients.
• Hadlock highlighted that one large enterprise client in Mexico recently saw a fourfold increase in performance following the implementation of the company's enhanced platform architecture.
• Richison stated that the sales group was revamped this year to shift focus entirely toward automation utilization among prospects and clients.

INDUSTRY GLOSSARY

• HCM: Human Capital Management, a comprehensive suite of applications for managing the entire employee life cycle from recruitment to retirement.
• Tier 4 Data Center: The highest level of data center reliability, requiring 99.995% availability and completely redundant infrastructure.
• IWant: Paycom's proprietary AI engine that provides employees and managers immediate access to critical data without manual navigation.
• Dawn: A Paycom solution that uses decisioning logic to automate time-off requests and eliminate unmanaged PTO.
• Asset Management: A tool within the Paycom platform used to track, recover, and deploy corporate equipment and software licenses.
• TAM: Total Addressable Market, representing the total revenue opportunity available for a specific product or service.
• Basis Points: A standard unit of measure for interest rates and percentages, where 100 basis points equals one percentage point.

Full Conference Call Transcript

Operator: Good afternoon. My name is Hillary and I will be your conference operator today. At this time, I would like to welcome everyone to Paycom's third quarter 2026 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, please press the star key followed by the number 1. Thank you. I will now turn the call over to James Samford, Head of investor relations. You may begin.

James Samford: Thank you, and welcome to Paycom's earnings conference call for the third quarter of 2026. Certain statements made on this call that are not historical facts including those related to our future plans, objectives, and expected performance, are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 2000. These forward looking statements represent our outlook only as of the date of this conference call. While we believe any forward looking statements made on this call are reasonable, actual results may differ materially because the statements are based on our current expectations and subject to risks and uncertainties.

These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on Form 10-K. You should refer to and consider these factors when relying on such forward looking information. Any forward looking statement made speaks only as of the date on which it is made, we do not undertake and expressly disclaim any obligation to update, or alter our forward looking statements. Whether as a result of new information, future events, or otherwise, except as required by applicable law. Also during today's call, we will refer to certain non GAAP financial measures. Including adjusted EBITDA, non GAAP net income, and free cash flow.

We use these non GAAP financial measures to review and assess our performance, and for planning purposes. A reconciliation schedule showing GAAP versus non GAAP results is included in the press release that we issued after the close of the market today and is available on our website at investors.paycom.com. I will now turn the call over to Chad R. Richison, Paycom's founder and CEO. Chad?

Chad R. Richison: Thanks, James, and thank you to everyone joining our call today. I will briefly comment on current trends and recent achievements. Then I will pass the call over to our president, Terrell Hadlock, before Bob reviews our third quarter results and full year guidance. We will then take questions. Let's get started. Third quarter results continued to demonstrate the strength of our platform coming in ahead of our expectations. Our focus on full solution automation, world class service, and ROI achievement is resonating in the market. Thanks to our strong performance year to date, we are once again raising our full year outlook for both revenue and profitability.

Are seeing greater adoption of automation across our client base as we continue to expand automated decisioning logic and AI capabilities. For any business, AI adoption starts with delivering real value at an affordable cost. Our early investments in data centers, AI technology, and GPUs are paying off for our clients and ourselves. Our clients are not paying for tokens on our system. That creates a powerful economic advantage as we continue to deliver. More automation at a lower cost, creating greater value for our clients, and stronger returns on Paycom's investments. On the product side, we continue to innovate and drive even more automation.

Our clients appreciate the decisioning logic that is built into our platform as it allows them to incorporate their company policies such as PTO, payroll, scheduling, onboarding, and more directly into the system. This allows for accurate and consistent decisions generates tremendous ROI across an organization. 1 of the most recent products we launched with built in decision logic is asset management, and the response to this new tool has been excellent. Through our research, we found that companies are buying assets they already own.

We have seen companies hiring 50 new employees and then buying 50 new laptops, phones, tools, badges, software licenses, and other equipment while perfectly good ones sit unused in storage and others remain unreturned by former employees. Our asset management platform helps clients track, recover, and deploy their assets, reducing unnecessary spending and giving them control over what they already own. Demand for automation is accelerating, and Paycom continues to lead the industry with the most intelligent for automating decisions across an organization. Our ability to develop, release, post, distribute, and service our technology gives us a powerful advantage. I am very excited about our upcoming product pipeline.

Which will add even more value to businesses across our large and expanding TAM. Now I would like to turn the call over to Terrell Hadlock.

Terrell Hadlock: Thanks, Chad. We delivered excellent third quarter results thanks to our dedicated employees and their relentless focus on our client's success. Throughout 2026, we released many powerful solutions and client response to these releases has been incredibly positive. Our award winning AI solution, IWant, continues to accelerate speed to value for our clients by giving employees, managers, and executives immediate access to critical data. IWant is enabled across our client base and it successfully responded to millions of queries. In fact, I want usages up approximately 65% today versus the end of 2025. Our AI is creating meaningful value for our clients and without any incremental cost to them.

In fact, Forrester found that organizations in the mid market using IWant can achieve greater than 400% ROI and save as many as 3.6 thousand employee hours, 600 manager hours, and 60 executive hours annually. Another example of client ROI achievement is a business that used our product, Don, to eliminate $360 thousand in unmanaged PTO. This company had hundreds of employees across 73 locations in 12 states. Prior to using Dawn, 1-fifth of their PTO was approved manually after the day it had already been taken.

And the majority of their employees had negative time off balance Thanks to Don, the system makes the decisions which helps eliminate time theft and ensures the workforce is operating at peak efficiency, driving more to the bottom line. that is the power of decisioning logic our clients are realizing. Expanding on Chad's comments, owning and operating our data center infrastructure is a significant competitive advantage. We are 1 of only a handful of companies in The US operate a Tier 4 data center. That infrastructure gives us greater control over our technology, and the economics behind it, which increases the ROI our clients realize.

This also drives operational efficiencies across R&D and service operations to drive even more internal value. Strong usage of our products and investments in customer service are resulting in increasing client satisfaction and are driving higher net promoter scores. This is related to the investments we have been making in automation, product innovation, and our team's ability to deliver world class service. I am proud of what our teams have achieved year, focusing on strengthening client ROI and expanding the value of our platform. With that, let me turn the call over to Bob.

Robert D. Foster: Thank you, Terrell. Third quarter results came in strong with total revenues of $544 million, up 10% over the comparable prior year period and recurring and other revenues of $519 million, up 11% year over year. Our continued focus on process automation and on leveraging our own technology is driving increased productivity across the organization. Fundamentally strengthening our business. Our efforts over the last several quarters are driving durable, revenue growth sustainable margins, and rapid earnings growth. GAAP net income in the third quarter was $133 million or $2.99 per diluted share based on an average of 44.5 million shares outstanding.

Non GAAP net income increased 37% year over year in the third quarter to $150 million or $3.37 per diluted share. Diluted non GAAP EPS increased 74% year over year reflecting strong earnings growth and the benefits of our capital allocation strategy. Adjusted EBITDA in the third quarter came in very strong at $268 million or 49.3% of revenues driven by expanding gross margin and reductions in operating costs. The investments we made in data centers AI technology, and product development processes are paying off and driving our expanded adjusted EBITDA margin. Based on the strength of our year to date results, we are raising our outlook for full year revenue and adjusted EBITDA. Turning to capital allocation.

We ended the third quarter with approximately 44 million shares outstanding, down nearly 20% from approximately 55 million shares at the end of the third quarter of 2025. During that same time period, we repurchased approximately 11.5 million shares. We bought back $3 million of stock in the third quarter and have $1.65 billion remaining on our buyback authorization as of the end of Q3. During the quarter, we paid down $150 million of our balance on a revolving credit facility. We ended the quarter with cash and cash equivalents of $194 million and an outstanding balance of $750 million under our revolving credit facility.

We generated free cash flow of $536 million in the first 9 months of 2026 and continue to expect to deliver very strong full year free cash flow. We expect even stronger free cash flow in 2027. In the third quarter, we paid approximately $17 million in cash dividends And on November 2, the Board approved our next quarterly dividend of $0.375 per share payable in early December. The average daily balance of funds held for clients was approximately $2.7 billion in the third quarter of 26 up 7% over the prior year period.

Now let me turn to guidance for 2026, Based on the strength of our year to date results, we are increasing our revenue and adjusted EBITDA guidance ranges. We expect total revenues to be between $2.213 billion and $2.218 billion or approximately 8% year over year growth. We now expect full year recurring and other revenue to be up nearly 9% year over year. Included in our total revenue outlook is interest on funds held for clients of approximately $107 million. Full year adjusted EBITDA is now expected to be between $1.069 billion and $1.079 billion.

Representing an industry leading adjusted EBITDA margin of 48.5%, at the midpoint of the range, a full 550 basis points higher than 2025 adjusted EBITDA margin. Modeling purposes, stock based comp is expected to be approximately 3% of revenues in 2026, and CapEx is expected to be approximately 6% of revenues. We expect 2026 GAAP tax rate to be 29% and our 2026 non GAAP tax rate to be approximately 27%. We are executing well against our 2026 plan which is flowing through to the bottom line. Our clients are increasingly pleased with our expanding intelligent platform and the value they are achieving. We would like to thank our employees for their contributions to today's results.

With that, let's open the line for questions. Operator?

Operator: Thank you. At this time, I would like to remind everyone in order to ask a question, please press star. Then the number 1 on your telephone keypad. In the interest of time, we ask that you please limit yourself to 1 question and 1 follow-up. We will pause just a moment to compile the Q&A roster. Your first question comes from the line of Raimo Lenschow. From Barclays. Your line is open. Please go ahead.

Raimo Lenschow: Perfect. Thank you. Congrats. I have 2 questions. Chad, 1 for you. If you think about you guys doing more automation that is getting broader than, like, the core HR payroll platform, etcetera. How do you think about the monetization strategy for you in terms of making sure you are obviously delivering value to clients because they like it and seem to be adopting it, but also making sure that you guys are participating in the value created here. And then the follow-up is on the margin side. Obviously, very, very strong margins this quarter. Do you think about the leverage from here going forward? Thank you.

Chad R. Richison: Yeah. I will let Bob take the second part of that. I will take the first. We create solutions for clients and sometimes, you know, we participate in that through products that we release that are billable items such as asset management. Being 1 of the latest products that we have actually brought to market. We have got 300 or so or more clients on it. We do continue to, and it just came out, last quarter. And so, we do continue to provide that value We have been working a lot, on products. You know? AI has had a massive impact on our business. You know, especially our ability to create solutions for our clients.

You know, we released IWant to all of our clients last fall. In the last year, we have released more solutions than any previous 12-month period. Have enough product in testing right now or are already in use by select clients to have confidence that, 2027 will not be any different.

Robert D. Foster: And Raimo, on the margins, you know, we believe that they are sustainable. We continue to find efficiencies in our business. And the way that we process and use automation. We are biggest user of our products, so we get the same ROI that our clients are getting. So we feel comfortable about that.

Operator: Your next question comes from the line of Mark Marcon from Baird. Your line is open. Please go ahead.

Mark Marcon: Let me add my congratulations. Mean, the quarterly performance was really strong, particularly in terms of recurring revenue growth and in terms of going out to various, you know, HR and IT conferences. It seems like you are getting a lot of traction. I am wondering just a little bit about the guide as it relates to for the full year seems to imply a bit of a deceleration And so I am wondering if you can explain that given that seems like the momentum is really quite strong. And then the second question is, Chad, you mentioned you are gonna have a big release, and you have got an upcoming product pipeline.

I am wondering when that will be and, you know, to what extent will we see even, you know, greater AI capabilities? Because a, I want great about summarizing the existing data, but like, actually doing the kind of what ifs I am wondering if that is going to be part of the plan. Thank you.

Chad R. Richison: Yeah, Mark. We are pleased with our guidance for the whole year. We put our plan in place at the beginning of the year. We were fortunate enough to exceed that plan and raise our guide twice during the year. And as you know, the quarterly, there can be all kinds of fluctuations and fourth quarter was a tough comp compared to last year as well. So pleased with where we sit right now. To kinda follow-up on that, you know, we are creating solutions with greater velocity and quality. Expanded our decision logic throughout our system You know, now we can decision your expenses, time cards, time off. Request, assets, and a lot more.

Now I see 2027 as being transformative for us as far as the technologies that we have in the hopper right now. And, again, once those are ready and I do believe that we have a strong trusted brand to be able to go out and provide a lot of these technologies. You know, we have got several of them in testing. And so, you know, we will release them, over the next year and, I think 2027 will hold a different transformation time period. For us.

Operator: Your next question comes from the line of Steven Enders from Citi. Your line is open. Please go ahead.

Steven Enders: Okay. Great. Thanks for thanks for taking the questions here. Maybe just to start, we would care to kind of get your view on how, I guess, bookings or new bookings and sales execution this quarter and maybe how you are kind of seeing the environment today and how that compares to some of the prior. Some of the past few quarters?

Chad R. Richison: Sure. So we have a lot of new salespeople. You know, we revamped the group as we shifted our entire organization toward automation. We wanna make sure the clients are also utilizing automation and the products that we have. And so we have had some new sales reps. I can tell you that the sales group that we have right now, the new are doing better than any groups done in the past. They are doing, very well, and sales overall is hitting the mark that we needed them to hit. For this year.

You know, we are excited about all the opportunities next year and the discussions we are having as more and more prospects kind of get to the table on being willing to automate more and more of their decisions.

Steven Enders: Okay. Great. To hear. And then maybe just a follow-up on some of the free cash flow commentary. I guess, the last quarter, you kind of gave a framework for how to think about where free cash flow could be for this year. Want to see if there is any update on that and I guess, you know, dovetailing off of that when you are talking about expecting free cash flow to be kind of stronger next year, Any way to maybe kind of you know, directionally kinda put us in the right place for how to think about what that could look like?

From either a margin perspective or you know, factors that could impact incremental dollars for next year?

Robert D. Foster: Steven, we, you know, made that onetime comment. We comfortable with that comment on where we were. The comment about next year being stronger is the comment more about it is sustainable and durable. Free cash flow that this business generates.

Operator: Your next question comes from the line of Jason Celino from KeyBanc Capital Markets. Your line is open. Please go ahead.

Jason Celino: Great. Thank you. Wanted to ask about CapEx. So I think the 6% of CapEx for the full. Of revenue for the full year, kind of unchanged from last quarter. It looks like you are kind of running you know, 20 ish type million of CapEx for about 2 quarters. So the. It would kind of imply, like, a little bit of a step in Q4. Maybe can you just speak to what some of your priorities would be for Q4? Kind of implied in that framework, Bob.

Robert D. Foster: Yeah. So the 6% again, we wanna be flexible there so that we can do what is right for our clients. When we think about how we are going to provide the ROI. So there is nothing really important to point out there yet, but we did wanna have that flexibility.

Jason Celino: Okay. And then Chad, you know, it is not lost on me that your R&D in Q3 is down. You know, obviously, sequentially and year over year. So you are you are seemingly getting a lot of efficiency from you know, AI and AI coding. And I hear you on the product hopper. Know, for next year. And the paid SKUs that you have launched this year. But maybe can you elaborate a little bit more on what gives you the confidence that you know, you are spending enough on R&D?

I know it is a silly question given kind of the amount of leverage you are seeing, but within this forum, you know, I am happy to hear your thoughts.

Chad R. Richison: Well, it is the result. it is the result that the R&D that we are spending delivering right now. You know, I would say both within our current product that we continue to develop and innovate create all the automation available, I think people would be hard pressed to find a better product and ours has just gotten a lot better this year with that lower spend and a greater focus. You know, I would also say that with the new technologies and the other spend that we are able to do and more of a greenfield type opportunity for us that did not previously exist. You know, we are just. We have a lot of quality right now.

And so, that is what we focused on, not necessarily the spend. that is not to say that if we needed to spend more that we would not. it is just that is where we are at right now. We feel really good with, the result that R&D spend has delivered.

Operator: Your next question comes from the line of Jacob Smith from Guggenheim. Your line is open. Please go ahead.

Jacob Smith: Hey. Thanks for taking my question. Chad, you have always emphasized the benefits of owning your own data centers from reliability to cost efficiency. I think the security benefits of controlling your own technology stack are especially relevant right now. The growing concern about cyber risk is AI models become more capable Are customers and prospects placing more value on that control? And is that becoming a bigger selling point against competitors that rely on third party infrastructure in integrations?

Chad R. Richison: I will let Terrell take that 1. he is been instrumental in this process for a long time.

Terrell Hadlock: Yeah. Absolutely. Security is top of mind for everyone, and them knowing exactly where their data resides is a big positive. They do not have to guess. They know exactly where it resides, and feel confident in our ability to do that. it is something we have done since the inception of Paycom. And, we are very confident in that.

Jacob Smith: And as a follow-up there, you mentioned last quarter that customers can increasingly buy additional products directly within the Paycom platform. How meaningful is that self-service motion becoming, to bookings? And do you expect that to increase going forward?

Chad R. Richison: Yeah. I mean, I think it is becoming more and more meaningful. You know, as we continue to release, products and things that someone can buy through the app. I will say that, you know, in the perfect world, you have a person influencing, the purchasing decision there. And in so many of our products, it is really important, that we continue to do that. You know, to obviously hit volume that we hit, but as well as just to make sure that clients are utilizing the product the right way to get that ROI. Some things we sell are, you know, they do not require a large amount of influence.

They are somewhat necessary, for a client or an additional add on to, you know, something that they already have and they just need more of. So. And I do not want to go through all of our in-app type opportunities there, but I would say that is that is an amount that continues to grow, but it is still quite small compared to the opportunities that our CRRs have. As they go out to our current clients.

Operator: The next question comes from the line of Patrick O'Neil from Wolfe Research. Your line is open. Please go ahead.

Patrick O'Neill: Hey, guys. Thanks for taking my question. Just as you all continue to roll out more functionality into the platform that helps customers drive more automation efficiencies within their business. Are you seeing or maybe anticipating to see the opportunity to potentially capture some of the labor pool spending that customers might be saving as a result. And how do you think about that opportunity long term?

Chad R. Richison: Again, I really think this, it really just depends on the ROI delivered. I. We are looking to expand into other ROI cases that drive significant value for our client's bottom line, and, you know, we would hope to share in some of that And that is been our focus. And I think we have done a really good job this year of doing that, making sure that, you know, a client value. That was 1 of our core goals coming into this year. We have been working on that now for a couple of years. To make sure clients, get the full value of what they purchased.

And, you know, there is a lot of things we have been able to develop that makes it easier for a client to get that value. You know, 1 thing was I want but we have developed a lot and automated a lot of workflows within our system that really help, limit profit gaps, that a business would otherwise have without. And so we continue to focus on that, and we see more of that going forward. And, yes, I absolutely do believe in the future, as we have seen, currently, with asset management and others, that there will be opportunity. In the future.

Operator: Your next question comes from the line of Daniel Jester from BMO Capital Markets. Your line is open. Please go ahead.

Daniel Jester: Great. Thank you for taking my question. So I got to see, the asset management tool first hand recently. And that was nice to see. Maybe can you help us understand sort of the ramp of either attach rate since you have launched that or how would that compare to some of the other products you have launched recently? And are there any learnings you would share with us about how to sell a product like that compared to the core HR?

Chad R. Richison: Sure. Well, part of this product sale was, you know, kind of created within its development. You know, we really go to. We really try to create products that will drive immediate ROI for clients. For instance, our research, told us that clients were buying assets that they had already owned. They just did not know where they were. They did not know what rooms they were in. They did not know what employees they had handed them out to. And, you know, with our system and through automated decisioning, we are able to track all those. We are able to sign all assets that someone has. We are able to find where the other assets are.

You know, you are able to track assets, whether they have been handed to an employee or whether they are just sitting in a building in Toledo. You know, we are able to track all of those assets, and that is a important part of all business to be able to know where their assets are. So and especially the ones that also get deployed to employees. You wanna make sure you get those back. And so this has been a really good product for us. It does fit in. With the other things that, that we are selling. And CRRs have had a hard push on that, I would say, for about the last month in a concerted effort.

To make sure that all of our clients understand, the value that can be delivered with this product.

Daniel Jester: Okay. that is great. Yeah. And then for my follow-up, so, I mean, clearly, the profitability of the business has improved significantly. Maybe, Chad, you can in the past you have shared that, you know, you have got 5% of the TAMs. So there is still a lot of the market to go after. So what is your latest thinking about balancing productivity and growth? And as we think about 2027, any change in sort of how you would expect to invest in sales and go to market to capture more of the TAM? Thank you.

Chad R. Richison: Sales and marketing is a large focus for us. it is been a large focus for us this year. And as we look into next year, I would say our focus is going to be significant there. We have like I said, we have an ambitious pipeline of products. Some of these products will require different type of sales group to do that. And so you will see both sales and marketing, you know, with a strong focus, next year. And, again, technology service hosting and all other things that we do. Your next question comes from the line of Jared Levine.

Operator: From TD Cohen. Your line is open. Please go ahead.

Jared Levine: Thank you. To start, I wanted to talk about your hiring here. It does look like you are hiring some sales folks in Europe here. Can you talk. Give us an update in terms of, you know, where you are in terms of international expansion efforts and, I guess, what the plan is here over the near term?

Terrell Hadlock: Yeah. This is Terrell, and I will I will take that 1. You know, international is an integral part of what we have been doing and continue to do. Yes. We are expanding that. We are seeing many new adoptions. For instance, we just brought on a large enterprise client in Mexico. And, that has been going very well. And it is a strategic direction for us going forward.

Jared Levine: Got it. And then for my follow-up here, I think some were expecting a little bit more of a recurring acceleration in 3Q here just given the actual Wednesday dynamic. Anything to call out in terms of, you know, deferral revenue or other kind of 1 time impacts that might have, you know, impacted the level of growth here? In 3 q?

Robert D. Foster: Yeah. James, nothing particular to call out other than, you know, the calendar kinda anomalies that you all know so well and last year was a good quarter, so it is a little bit more of a tougher comp. Going forward.

Jared Levine: Okay. Thank you. Pardon me. Thank you.

Operator: Your next question comes from the line of Bhavin Shah from Deutsche Bank. Your line is open. Please go ahead.

Bhavin Shah: Great. Thanks for taking my questions. Chad, you spoke a little bit about the service organizations you are seeing. Where are you kinda seeing that most play out? How sustainable are these kind of given some thoughts you have had in the past of making sure you have enough investments going to the service organization?

Chad R. Richison: Yeah. I do not know that you kind of broke up there at the end, but, you were talking about our service organization and how we are gaining efficiencies there and how we see this playing out in the future, I believe. Is what you are saying. Just greater efficiencies. I mean, you know, when we make a product more automated, that gets a client out of it more. I think if you guys kind of listen to some of my calls in the past, I have said the perfect world, our product would just work for you, and you would never have to log in.

And so when you automate a lot of these very important workflows, you know, you are able to actually achieve a lot of that. And so that does. You know, when you make something easier to use and easier for someone to get the result, you know, you do supply less service. When you set somebody up, correct, from the beginning, with that automation, you are going to be able to provide less service. You know, receiving a service call on how to do something that is really an old model.

And, you know, when you are using self-service technology, especially in our case, automated technologies with layers of AI, you know, you would expect, to make that easier to service. And that is been the case. And, actually, what it allows our service individuals to do is shift toward a more value for that client. We are able to do more analysis of how they are using the system and what areas of the system that you know, we could impact for them for even greater ROI.

So I guess to answer that, it turns into more outbound calls for us in proactive service based on analysis versus inbound calls waiting for a client to call us you know, to be able to ask a question about how to use something.

Bhavin Shah: that is helpful. And just a quick follow-up for Bob. Just based on the last question, as you have kind of hired a dedicated sales team in Europe, how do we think about the level of investment going into this initiative? and how do we think about CapEx, especially as it relates to data centers and data sovereignty?

Robert D. Foster: Yeah. So this is Bob. I will answer that question. You know, as with anything, we look at the investment and what it is going to pay off over the long term. You know, we do play the long game, and we are in it for that. So, as you see, while we are expanding those offices, and we are having some success over there, Your data. The data center investment question, I think you asked about how do we see that We see that as a critical value for our clients and for Paycom itself. And we will continue to monitor those investments. Last year, as you all know, we made a big investment in that.

We are not afraid to do that again. If it makes sense for our clients.

Operator: Your next question comes from the line of Patrick McIlwee from William Blair. Your line is open. Please go ahead.

Patrick: Hi guys, thanks for taking the question. Just a 2-parter here. So to continue on the comments you were you were just making on the data center investment. So last quarter, you highlighted some big numbers, you know, 100 million in R&D savings and like, another 30 and avoided third party fees from some of the infrastructure investments you made last year. Just wanted to ask how much of that leverage or opportunity do you feel like you have already realized versus what incremental efficiencies we might expect heading into 2027?

Chad R. Richison: I think there is a lot more internal efficiency. To be gained. I think we just kinda scratched the surface. You know, we did not set up these data centers for GPUs and AI. Set up our data centers for security, uptime, speed, and all the things that we had been doing prior to. You know, having the chance to purchase the GPUs. And going ahead and hosting that. But it is just something we have done for a long time, and we are good at. You know, to Bob's last comments that we are not afraid to continue to spend data center. We will continue to spend on data center, but it will also be more incremental.

You know, over time. Kind of how we go through that process. And so we feel good about where we are at with our CapEx spend and guide right now and then you know, as we look into 2027, Bob's already given kind of a directional comment in regards to free cash flow. And so that might let you know that where we sit, where we feel like we sit from a capex perspective in those areas.

Patrick: Okay. Got it. that is great. Thank you. And switching gears on project ARC, just following the rollout of that functionality, that enhanced scalability, have you seen any meaningful change in your win rates thus far or sales cycles thus far? And I know it is early, but just wanted to ask if you feel like that enhanced platform, has opened up any opportunities that you previously felt might have been difficult to pursue?

Chad R. Richison: Yes. I think, well, both Project Arc as well as a lot of the, products that came out around the same time You know, during that time, we also produced a greater data lake. We produced a lot of automation. I mean, I cannot speak enough about. We did not really release it to the market from a conversational perspective, but we did to our clients. And so you know, now clients are. They have automated, punch changes time card approvals, expenses. If someone goes into an expense to actually expense something, the system can decision it.

And so we have been able to remove inconsistent decisioning in many of the areas that produce, you know, profit leaks, reduces revenue opportunities. For our clients. And so we will continue to focus on that, as we move. We are definitely-- Project Arc kind of built a foundation through which all that can be realized.

Terrell Hadlock: Yeah. I would say in addition to that, we talked about the speed, and that really played out for more enterprise clients where we had 1 that saw kind of a 4x increase in performance. And, so that was a big enhancement you know, across the board.

Operator: This concludes the question-and-answer portion of today's call. I will now turn the call back over to Mr. Chad R. Richison for closing remarks.

Chad R. Richison: All right. I just want to thank everyone for joining the call today. We look forward to speaking with many of you at the UBS conference on December 1 in Phoenix. and the Barclays conference in San Francisco on December 9. Our people have done a great job transforming our products and processes toward automation. I wanna thank our software teams, our sales and conversion teams, our service organization, really everyone. 2026 has been a year of pride as we get back to our old selves. And prepare for an exciting future. With that, operator, you may end the call.

Operator: This concludes today's conference call. You may now disconnect.

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