Summary
Paycom Software reported second quarter fiscal 2025 revenue of $483.6 million, up 10.5% from the prior-year quarter. Recurring and other revenue did the heavy lifting, rising 12.2% to $455.1 million and accounting for 94.1% of the top line. Interest on funds held for clients moved the other way, falling 10.9% to $28.5 million, as lower interest rates offset a larger average balance. Paycom said the average daily balance of funds held for clients was $2.8 billion in the first half of 2025 and $2.5 billion a year earlier.
Profitability improved on a GAAP basis. Gross profit was $396.1 million, up 12.0%, and gross margin rose 1.1 points to 81.9%. Operating income climbed 18.1% to $112.3 million, lifting operating margin 1.5 points to 23.2%. GAAP net income reached $89.5 million, or $1.58 per diluted share, up 31.6% from $68.0 million, or $1.20 per diluted share, in the same quarter last year. Non-GAAP net income was $116.6 million, or $2.06 per diluted share, and adjusted EBITDA was $198.3 million, equal to 41.0% of revenue against 36.5% a year ago. Non-cash stock-based compensation expense of $38.4 million, up from $24.1 million, explains much of the distance between the GAAP and non-GAAP numbers.
The first half of the year tells a different story. Revenue for the six months ended June 30, 2025 was $1,014.1 million, up 8.2%. Operating income, though, fell 21.9% to $297.5 million, and net income dropped 27.4% to $228.9 million. Diluted EPS for the six months was $4.06, down $1.51 from a year earlier. The swing traces to the prior-year period, when Paycom reversed $117.5 million of previously recognized stock-based compensation after Chad Richison's restricted stock award was forfeited when he moved into the Co-Chief Executive Officer role in February 2024. Operating margin for the first half was 29.3%, down from 40.6% a year ago, and the effective income tax rate was 25.6%, up from 19.0%.
Cash generation was mixed. Operating cash flow for the quarter was $122.5 million, down 7.3% from a year earlier, while operating cash flow for the first half rose 8.7% to $305.0 million. Capital expenditures were $61.7 million in the quarter, up 35.3%, and $99.4 million for the first half, up 6.5%. Free cash flow for the six months was $205.6 million, a 20.3% margin. Deferred revenue stood at $149.7 million, up 5.1% from the prior-year quarter, and the company carries no total debt. Paycom paid a quarterly dividend of $0.375 per share in June 2025 and declared another $0.375 per share dividend in August.
Management raised its targets for the full fiscal year 2025. Revenue guidance is $2.045 billion to $2.055 billion, which the release characterizes as roughly 9% growth at the midpoint. Recurring and other revenue growth is expected near 10% for the year. Interest on funds held for clients is pegged at about $113.0 million. Adjusted EBITDA guidance of $872.0 million to $882.0 million works out to a margin of roughly 43% at the midpoint. Paycom expects a significant increase in capital expenditures in the third quarter of 2025 and a smaller step-up in the fourth quarter to support IWant and other AI and automation work. The company also said the One Big Beautiful Bill Act, signed into law on July 4, 2025, should reduce future cash tax remittances beginning in the third quarter of 2025.
Executive commentary leaned on product and sales. Founder and CEO Chad Richison pointed to robust new logo adds and to IWant, which Paycom calls the industry's first command-driven AI engine. The risks in the filing are familiar but substantive: cyber-attacks and data breaches, intense competition and aggressive pricing across human capital management, attrition among smaller clients, sensitivity to client headcount because much of the billing is per employee, interest rate swings that move client funds income, regulatory and compliance changes, and seasonality that lifts first and fourth quarter recurring revenue above other periods. The soft spot this quarter was interest on client funds, which fell even as client balances grew. Stock-based compensation also remains a large reconciling item between GAAP and adjusted results.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2025 | Q1 FY2025 | QoQ | Q2 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $483.6M | $530.5M | -8.8% | $437.5M | +10.5% |
| Gross profit | $396.1M | $445.9M | -11.2% | $353.6M | +12.0% |
| Gross margin | 81.9% | 84.0% | -2.1 pp | 80.8% | +1.1 pp |
| Research & development | $74.8M | $62.3M | +20.1% | $62.4M | +19.9% |
| Sales & marketing | $283.8M | $260.8M | +8.8% | $258.5M | +9.8% |
| Total operating expenses | $371.3M | $345.4M | +7.5% | $342.4M | +8.4% |
| Operating income (loss) | $112.3M | $185.1M | -39.3% | $95.1M | +18.0% |
| Operating margin | 23.2% | 34.9% | -11.7 pp | 21.8% | +1.5 pp |
| Net income (loss) | $89.5M | $139.4M | -35.8% | $68.0M | +31.7% |
| Net margin | 18.5% | 26.3% | -7.8 pp | 15.5% | +3.0 pp |
| Diluted EPS | $1.58 | $2.48 | -$0.90 | $1.20 | +$0.38 |
Risks
The filing expands economic risk to include changes in global trade policies and tariffs, increased unemployment, inflation, interest rates, and geopolitical conflicts. Such conditions could cause clients to reduce headcount, delay HCM spending, cut unscheduled payroll runs, renegotiate contracts, and increase price competition, affecting revenue and operating results.
MD&A states the HCM market is highly competitive, rapidly evolving, and fragmented, with new entrants and disruptive technologies, aggressive pricing, and client retention strategies. These pressures can directly affect recurring revenue growth and the ability to attract and retain clients.
MD&A reports interest on funds held for clients decreased 10.9% for the three months ended June 30, 2025 and 10.3% for the six months ended June 30, 2025 due to lower interest rates, partially offset by higher average funds held. A decreasing interest rate environment could compress additional interest earnings and adversely affect operating results.
The risk factors note uncertainty over federal budgetary agreements and possible government shutdowns. Because certain clients rely on government resources to fund operations, a prolonged shutdown may affect their ability to make timely payments to the company.
MD&A says client attrition, particularly among smaller clients, partially offset revenue growth. Because certain services are charged per employee, changes in client headcount and macroeconomic pressures on hiring practices can directly affect results.
MD&A says planned investments in infrastructure for IWant and other AI and automation initiatives will result in a significant increase in capital expenditures in Q3 2025 and, to a lesser extent, Q4 2025. R&D expenses increased 19.9% for Q2 2025 and 21.4% for the first half of 2025, which may pressure margins and cash flow.
SaaS KPIs
All quarters →Adjusted EBITDA margin
Adjusted EBITDA
Adjusted gross margin
Non-GAAP Net Income
Non-GAAP Net Income per Diluted Share
Recurring and other revenues
Recurring and other revenues as % of total revenues
Summary, forecast, risks and KPIs are extracted from Paycom Software, Inc.'s SEC filings for Q2 FY2025 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.