PAYC Q3 Deep Dive: AI Rollout and Automation Drive Product Adoption, Margin Expansion

HR software provider Paycom (NYSE:PAYC) met Wall Streets revenue expectations in Q3 CY2025, with sales up 9.2% year on year to $493.3 million. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $2.05 billion at the midpoint. Its non-GAAP profit of $1.94 per share was 1.1% below analysts’ consensus estimates.

Is now the time to buy PAYC? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Paycom’s third quarter results were met with a significant negative market reaction, as investors digested both the company’s in-line revenue performance and a slight miss on non-GAAP earnings per share. Management attributed the quarter’s outcomes to expanded automation through its new AI-driven IWant product and ongoing adoption of Beti, which together reduced service costs and improved operational efficiency. CEO Chad Richison emphasized the impact of these innovations on client engagement, particularly among C-suite users, noting, “IWant has already successfully responded to millions of queries…extending the power of our full solution automation.” The company also saw lower internal support volumes, reflecting efficiency gains from automation.

Looking forward, Paycom’s outlook is anchored in the full rollout of IWant across its client base and continued automation in its human capital management platform. Management believes these advancements will drive higher client retention and increased product attach rates, with Richison stating, “We are set to deliver a milestone year with over $2 billion in total revenues, all through organic growth and near record level adjusted EBITDA margins.” The company expects that recent investments in its proprietary data centers will provide a multi-year runway for AI capabilities, while streamlined sales and service operations are aimed at capturing greater market share and supporting sustained profitability.

Key Insights from Management’s Remarks

Management pointed to the rollout of IWant and ongoing automation initiatives as critical to third quarter performance, highlighting efficiency improvements, product differentiation, and the impact of recent cost rationalization.

• AI-driven product launch: The full deployment of IWant, Paycom’s new command-driven AI interface, has changed how clients and their employees interact with HR and payroll data. Management noted especially high adoption among C-suite users, a group historically less engaged with software. This product is designed to reduce or eliminate the need for user training and has already processed millions of queries, streamlining system usage for both new and existing users.
• Beti adoption and client returns: Beti, Paycom’s payroll automation solution, played a significant role in attracting former clients back to the platform. Two notable clients—an auto group and a manufacturing company—returned after struggling with payroll accuracy elsewhere, with management highlighting Beti’s ability to deliver 100% accurate payroll and reduce correction time by up to 85%.
• Operational efficiency gains: Automation across Paycom’s offerings has led to a 20–30% year-over-year decline in internal support tickets and client call volume, driving both cost savings and higher client satisfaction. Management linked these improvements to the company’s focus on automating nonrevenue-generating administrative tasks.
• $100 million AI-focused CapEx: To support the IWant rollout and future AI developments, Paycom invested roughly $100 million in expanding data center capacity. Management described this as a front-loaded and largely one-time investment, providing scalable capacity for current and future automation initiatives.
• Cost structure optimization: The company implemented workforce reductions primarily in administrative roles after completing a backlog of development work, reducing headcount by about 500 employees. Management acknowledged the difficulty of this action but framed it as necessary for long-term efficiency, with most cost benefits expected to materialize in 2026.

Drivers of Future Performance

Paycom’s future performance will be shaped by continued automation, AI-driven product expansion, and sales execution, though cost control and market demand remain key variables.

• AI and automation expansion: Management believes that the broader rollout of IWant and ongoing automation of human capital management functions will increase product adoption, reduce client churn, and enable cross-selling of additional modules, which could support sustained double-digit recurring revenue growth.
• Sales and market share strategy: The company is prioritizing new logo acquisition and streamlined sales processes, with a particular focus on demonstrating value to prospects. CEO Chad Richison highlighted new sales management approaches and sales office openings as important levers for expanding the client base and growing market share beyond the current sub-5% penetration.
• Efficiency and margin focus: Paycom expects that the recent AI-driven data center investment will provide a long-term runway for margin expansion by enabling scalable automation. Management also flagged ongoing cost discipline, particularly in marketing and administrative spending, as critical to maintaining operating leverage even as the business continues to invest in product and sales capabilities.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) the ongoing adoption and usage patterns of IWant and Beti across both new and existing clients, (2) the impact of automation on service costs and client satisfaction metrics, and (3) the effectiveness of new sales strategies in driving client acquisition and market share gains. Trends in free cash flow following the major data center investment will also be a key indicator.

Paycom currently trades at $166.99, down from $183.73 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

Our Favorite Stocks Right Now

Fresh US-China trade tensions just tanked stocks—but strong bank earnings are fueling a sharp rebound. Don’t miss the bounce.

Don’t let fear keep you from great opportunities and take a look at Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.