Paycom cut software development costs in half. What changed?
The payroll software maker is raising its profit outlook much faster than its sales forecast. Lower staff and advertising costs are a large part of the story.
Paycom's sales grew 10% in the third quarter, while operating profit rose 74%. A sharp fall in development costs helped widen the gap: the company is using a smaller workforce to support a business bringing in more revenue.
Its November forecast raises expected full-year adjusted EBITDA by $59.5 million at the midpoint compared with August, against an $11 million increase in the revenue midpoint. Adjusted EBITDA removes interest, taxes, depreciation, amortization and stock compensation, as well as specified items.
The Paycom company profile tracks the software maker's results, earlier forecasts and capital returns. Its payroll and human-resources applications generate recurring fees based on client employees and usage.
A smaller development bill
Research and development costs totaled $55.9 million in the quarter ended September 30, down from $117.6 million a year earlier. The decline reaches both costs charged immediately against profit and software development recorded as an asset and charged over time.
| Cost | 2026 | 2025 |
|---|---|---|
| Development expense | 38.5 | 74.1 |
| Capitalized development | 17.4 | 43.5 |
| Total development costs | 55.9 | 117.6 |
| Sales and marketing expense | 108.0 | 125.7 |
Lower employee costs explain most of the development-expense decline, according to Paycom's quarterly report. Sales and marketing expense fell $17.7 million, chiefly because marketing and advertising cost $15.6 million less.
Management says automating its own work has created efficiencies and allowed headcount reductions. Founder and Chief Executive Officer Chad Richison also credits earlier investments in infrastructure and development processes. The company continued launching products, including its Asset Management application in July.
Revenue is still growing
Recurring and other revenue rose 11.3% to $519.3 million. Paycom says new customers, more applications sold to existing clients and pricing helped offset customer losses, particularly among smaller businesses. Total revenue was $543.8 million; lower interest earned on client funds held back the increase.
Operating profit reached $195.8 million, compared with $112.6 million a year earlier. General and administrative expense rose, including an $11 million legal-settlement charge that remains in adjusted results.
For 2026, Paycom now expects revenue of $2.213 billion to $2.218 billion and adjusted EBITDA of $1.069 billion to $1.079 billion. August's ranges were $2.197 billion to $2.212 billion and $1.007 billion to $1.022 billion. The larger profit revision makes continued cost discipline important alongside sales growth.
Earlier buybacks add another lift
Quarterly GAAP net income rose 20% to $133.2 million, while diluted earnings per share rose 53% to $2.99. The smaller share count spreads profit across fewer shares. Prior-year net income also included a $35.6 million gain from modifying an arena naming-rights agreement, while interest expense increased this year.
Paycom spent $1.391 billion in cash on buybacks over nine months, compared with $536.5 million of free cash flow, defined as operating cash after property and equipment purchases. It borrowed $900 million earlier in the year to support repurchases, then repaid $150 million in Q3. September debt was $750 million and corporate cash was $193.9 million.
Free cash flow rose from $285.4 million a year earlier, helped by higher operating cash flow and capital spending falling to $77.4 million from $197.4 million. Tax-payment timing also benefited cash generation. The next results can show whether recurring sales keep growing with the smaller development and marketing cost base.