Summary
Paycom Software closed its third quarter with revenue of $451.9 million, up 11.2% from the prior-year quarter. Year-to-date revenue of $1.39 billion climbed 10.3%. Recurring revenue reached $445.0 million, up 11.6%, and made up 98.5% of the total. Quarterly gross profit was $363.6 million, good for an 80.5% gross margin; on a year-to-date basis, gross margin was 81.9%.
Recurring revenue carried the quarter. Management credited new clients in its target market range, pricing strategies, and higher interest earned on funds held for clients. The average daily balance of client funds was $2.4 billion for the first nine months of 2024, compared with $2.2 billion a year earlier. Those client funds are typically disbursed one to 30 days after receipt, with some held up to 120 days, and they are invested in money market funds, demand deposit accounts, treasuries, certificates of deposit and commercial paper.
Profitability was mixed. Operating income of $104.87 million rose 8.2% in the quarter, and year-to-date operating income of $485.83 million jumped 41.0%. Net income of $73.28 million fell 2.6% year over year, while year-to-date net income of $388.44 million rose 50.0%. Diluted earnings per share were $1.31 versus $1.30. Operating margin of 23.2% was down 0.6 percentage points from the prior-year quarter, and year-to-date operating margin of 35.0% was up 7.6 percentage points. The year-to-date profit gain owes a lot to a $117.5 million reversal of previously recognized stock-based compensation tied to the forfeiture of the 2020 CEO Performance Award after Chad Richison moved to Co-Chief Executive Officer. Excluding stock compensation and other items, non-GAAP net income was $93.4 million, or $1.67 per diluted share, down from $102.4 million, or $1.77. Adjusted EBITDA was $171.3 million, or 37.9% of revenue, compared with $165.6 million.
Cash generation lagged the profit line in the quarter. Operating cash flow was $92.78 million, down 5.9% from the prior-year quarter, while year-to-date operating cash flow of $373.51 million was up 6.5%. Capital expenditures totaled $48.21 million in the quarter, down 7.8%, and $141.55 million year to date, up 4.3%. Deferred revenue stood at $142.26 million, up 10.9%. Paycom held $325.8 million in cash and cash equivalents at September 30, 2024, compared with $294.0 million at December 31, 2023, and carried total debt of $0. The quarter included $21.0 million in cash dividends paid and the repurchase of 303,245 shares for $44.0 million. Over the first nine months, the company repurchased 892,669 shares at an average cost of $153.70.
Guidance points to a stronger fourth quarter. For the quarter ending December 31, 2024, Paycom expects adjusted EBITDA of $184.5 million to $191.5 million. For the full fiscal year 2024, the company guided to adjusted EBITDA of $745 million to $752 million.
The bigger question is growth durability. Management said its revenue growth rate and annual revenue retention rate declined in 2023 and have remained under pressure throughout 2024. Beti, the company's automated payroll tool, is built to eliminate billable corrections and unscheduled payroll runs, which removes revenue those activities once produced. Competition in HCM is intense, and pricing and retention pressure keeps building as new entrants and disruptive technologies emerge. Macro conditions and client hiring trends feed straight into per-employee billing. Research and development costs keep climbing, totaling $96.4 million in the quarter, up 23%. Paycom also flagged security and data privacy risks, regulatory change, and the difficulty of attracting and retaining larger clients as persistent exposures.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2024 | Q2 FY2024 | QoQ | Q3 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $451.9M | $437.5M | +3.3% | $406.3M | +11.2% |
| Gross profit | $363.6M | $353.6M | +2.8% | $337.4M | +7.8% |
| Gross margin | 80.5% | 80.8% | -0.4 pp | 83.0% | -2.6 pp |
| Research & development | $63.0M | $62.4M | +1.1% | $51.9M | +21.6% |
| Sales & marketing | $258.7M | $258.5M | +0.1% | $240.5M | +7.6% |
| Total operating expenses | $347.1M | $342.4M | +1.4% | $309.4M | +12.2% |
| Operating income (loss) | $104.9M | $95.1M | +10.2% | $96.9M | +8.2% |
| Operating margin | 23.2% | 21.8% | +1.5 pp | 23.9% | -0.6 pp |
| Net income (loss) | $73.3M | $68.0M | +7.8% | $75.2M | -2.6% |
| Net margin | 16.2% | 15.5% | +0.7 pp | 18.5% | -2.3 pp |
| Diluted EPS | $1.31 | $1.20 | +$0.11 | $1.30 | +$0.01 |
Risks
MD&A states the HCM software market is highly competitive, rapidly evolving and fragmented, with new market entrants and disruptive technologies and increasingly aggressive pricing and client retention strategies that directly affect Paycom's revenue growth and ability to attract and retain clients.
MD&A discloses that Paycom's revenue growth rate and annual revenue retention rate declined in 2023 and have remained under pressure throughout 2024, and these trends may continue in the near term despite long-term focused investments in automation, client ROI and service.
MD&A states Paycom has experienced and expects to continue to experience pressure on margins as it hires to support growth and invests in sales, R&D, operations and G&A; current-quarter revenue rose 11.2% to $451.93M, but net income fell 2.6% to $73.28M and operating margin declined 0.6 pp to 23.2%.
Beti, Paycom's automated payroll technology, is designed to eliminate payroll errors that lead to billable corrections and unscheduled payroll runs, and MD&A states this has caused a reduction in these activities that historically would otherwise generate additional revenue.
MD&A states macroeconomic pressures such as inflation and changes in interest rates affect clients' hiring practices and therefore revenues; pre-employment services are sensitive to hiring trends and would reflect any slowdown in U.S. hiring, while interest earned on funds held for clients can move with interest-rate changes.
MD&A notes that execution of Paycom's international expansion strategy requires considerable investment and that Global HCM and expanded international payroll services are intended to attract larger companies, adding execution, regulatory and operational risks.
MD&A reports that nine-month G&A decreased $120.8M due to a $117.5M reversal of previously recognized stock-based compensation related to forfeiture of the 2020 CEO Performance Award upon Chad Richison's transition to Co-Chief Executive Officer; this helped drive year-to-date operating income up 41.0% and net income up 50.0%, and the benefit may not repeat.
MD&A states revenues are seasonal, with first and fourth quarter recurring revenues generally higher because payroll tax filing forms, Affordable Care Act forms and unscheduled payroll runs such as bonuses are concentrated in those periods, and these seasonal fluctuations impact operating income.
Summary, forecast, risks and KPIs are extracted from Paycom Software, Inc.'s SEC filings for Q3 FY2024 (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.