Paycom Software, Inc.

ORGANIZATION AND DESCRIPTION OF BUSINESS

Paycom Software, Inc. (“Software”), together with its wholly owned subsidiaries (collectively, the “Company”), is a leading provider of a comprehensive, cloud-based human capital management (“HCM”) solution delivered as Software-as-a-Service. Unless we state otherwise or the context otherwise requires, the terms “we,” “our,” “us” and the “Company” refer to Software and its consolidated subsidiaries.

We provide functionality and data analytics that businesses need to manage the complete employment lifecycle, from recruitment to retirement. Our solution requires virtually no customization and is based on a core system of record maintained in a single database for all HCM functions, including payroll, talent acquisition, talent management, human resources (“HR”) management and time and labor management applications.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are discussed in Note 2 “Summary of Significant Accounting Policies” in the notes to our audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2025 (the “Form 10-K”) filed with the Securities and Exchange Commission (“SEC”) on February 19, 2026.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements include the financial results of Software and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the SEC regarding interim financial statements that permit reduced disclosure for interim periods. Intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments of a normal recurring nature that are necessary for the fair presentation of our results for the interim periods presented. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes presented in the Form 10-K. The results of operations for the three and six months ended June 30, 2026 are not necessarily indicative of the results expected for the full year.

In 2024, the Office of the Comptroller of the Currency (the “OCC”) issued final approval to Paycom National Trust Bank, National Association (the “Paycom National Trust Bank”), our wholly owned subsidiary, to operate as a national trust bank pursuant to the National Bank Act and relevant OCC regulations. The Paycom National Trust Bank is the primary trustee of Paycom Client Trust, our grantor trust (the “Client Trust”), which now holds substantially all client payroll and related funds and is responsible for the oversight and management of those client funds. We have determined that the Client Trust is a variable interest entity that meets the criteria established for consolidation in accordance with Accounting Standards Codification (“ASC”) 810. We are the sole beneficial owner of the Client Trust, and we have the power to direct its activities and a controlling financial interest in its economic performance.

Dollar amounts are presented in millions, except amounts per share. As a result, some amounts may not sum or recalculate exactly due to rounding. All percentages have been calculated using unrounded amounts.

Recently Adopted Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation, as well as information on income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We adopted this ASU using a retrospective application approach on December 31, 2025. See Note 13 “Income Taxes” for further information.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates include income taxes, loss contingencies, the useful life of property and equipment and intangible assets, the life of our client relationships, the fair value of our stock-based awards and the fair value of our financial instruments, intangible assets and goodwill. These estimates are based on historical experience, where applicable, and other assumptions that management believes are reasonable under the circumstances. Actual results could materially differ from these estimates.

In the third quarter of 2025, we completed an assessment of the useful lives of our servers and network equipment. Based on this assessment, we increased the estimated useful lives of these assets from three years tosix years, effective as of the beginning of the third quarter of 2025. This change in accounting estimate has been applied prospectively and resulted in an immaterial decrease to depreciation and amortization expense for thethree and six months ended June 30, 2026.

Seasonality

Our revenues are seasonal in nature. Generally, we expect our first and fourth quarter recurring revenues to be higher than other quarters during the year because payroll tax filing forms and Affordable Care Act forms are typically processed in the first quarter, and unscheduled payroll runs (such as bonuses) for our clients are typically concentrated in the fourth quarter. In addition, these seasonal fluctuations in recurring revenues impact operating income. Historical results impacted by these seasonal trends should not be considered a reliable indicator of our future results of operations.

Segment Information

We operate in asingle operating segment and asingle reporting segment. Operating segments are defined as components of an enterprise about which separate financial information is regularly evaluated by the chief operating decision maker (“CODM”) function (which is fulfilled by our Chief Executive Officer) in deciding how to allocate resources and in assessing performance. Our Chief Executive Officer allocates resources and assesses performance based upon financial information at the consolidated level. See Note 14 “Segment Reporting” for additional information.

Funds Held for Clients and Client Funds Obligation

As part of our payroll and payroll tax filing services, we collect funds from our clients for employment taxes and payroll obligations, which we remit to the appropriate tax agencies and accounts designated by our clients. We typically invest these funds and earn interest income during the period between receipt and disbursement of such funds.

These investments are shown in our consolidated balance sheets as funds held for clients, and the associated liability for the tax filings is shown as client funds obligation. The liability is recorded in the accompanying consolidated balance sheets at the time we obtain the funds from clients. The client funds obligation represents liabilities that will be repaid within one year of the consolidated balance sheet date. We typically invest funds held for clients in money market funds, demand deposit accounts, certificates of deposit, commercial paper and U.S. treasury securities. Short-term investments in instruments with an original maturity of less than three months are classified as cash and cash equivalents within funds held for clients in the consolidated balance sheets. Investments in instruments with an original maturity greater than three months are classified as available-for-sale securities and are also included within funds held for clients in the consolidated balance sheets. These available-for-sale securities are recorded at fair value, with the difference between the amortized cost and fair value of these available-for-sale securities recorded as unrealized net gains (losses) on available-for-sale securities, and are included within comprehensive earnings (loss) in the consolidated statements of comprehensive income.

Funds held for clients are classified as a current asset in the consolidated balance sheets because the funds are held solely to satisfy the client funds obligation. Additionally, the funds held for clients is classified as restricted cash and restricted cash equivalents and presented within the reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents on the consolidated statements of cash flows.

We report the cash flows related to the purchases of investments from funds held for clients and related to the proceeds from the maturities of investments from funds held for clients on a gross basis in the cash flows from investing activities section of the consolidated statements of cash flows. Additionally, we report cash flows related to cash received from and paid on behalf of clients on a net basis within net change in client funds obligation in the cash flows from financing activities section of the consolidated statements of cash flows.

Stock Repurchase Plan

Our Board of Directors has authorized stock repurchase plans from time to time allowing for the repurchase of shares of our common stock in open market transactions at prevailing market prices, in privately negotiated transactions (including accelerated share repurchases) or by other means in accordance with federal securities laws, including Rule 10b5-1 programs. In July 2024, our Board of Directors authorized the repurchase of up to $1.5 billion of our common stock. On March 5, 2026, our Board of Directors authorized the repurchase of up to an additional $200.0 million of shares of our common stock, and on March 12, 2026, our Board of Directors replenished the stock repurchase plan such that the aggregate value of shares of common stock that could be repurchased under the stock repurchase plan was $750.0 million. On May 4, 2026, our Board of Directors approved a new stock repurchase plan authorizing the Company to repurchase up to $2.0 billion of shares of common stock. The new stock repurchase plan replaced the prior authorization and has no expiration date. As of June 30, 2026, there was $1,655.5 million available for repurchases under the stock repurchase plan. Our stock repurchase plan may be suspended or discontinued at any time. The actual timing, number and value of shares repurchased depends on a number of factors, including the market price of our common stock, general market and economic conditions, shares withheld for taxes associated with the vesting of equity incentive awards and other corporate considerations.

During the six months ended June 30, 2026, we repurchased an aggregate of 10,945,515 shares of our common stock at an average cost of $128.48 per share, including 125,148 shares withheld to satisfy tax withholding obligations for certain individuals upon the vesting of equity incentive awards.

Recently Issued Accounting Pronouncements

In November 2024, the FASB issued ASU No. 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” (“ASU 2024-03”). ASU 2024-03 requires public business entities to disclose additional information about specific expense categories in the notes to the financial statements. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company expects the adoption of this ASU to result in additional disclosures in the notes to its consolidated financial statements and does not expect the adoption to have a material impact on its consolidated results of operations, financial position or cash flows.

In September 2025, the FASB issued ASU No. 2025-06, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software” (“ASU 2025-06”). ASU 2025-06 removes references to software development stages and requires capitalization of software costs when management has committed to the software project and it is probable the software will be completed and perform its intended use. This ASU is effective for fiscal years beginning after December 15, 2027, and interim periods within those years, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and related disclosures.

REVENUE RECOGNITION

Revenues are recognized when control of the promised goods or services is transferred to our clients in an amount that reflects the consideration we expect to be entitled to for those goods or services. Substantially all of our revenues are derived from contracts with clients. Sales and other applicable taxes are excluded from revenues.

Recurring and Other Revenues

Recurring revenues are derived primarily from our payroll, talent acquisition, talent management, HR management and time and labor management applications, fees charged for form filings and delivery of client payroll checks and reports, and revenues associated with background checks and income and employment verification services. For a description of our applications, refer to Part I, Item 1, “Business,” in the Form 10-K.

We consider our commitment in our client contracts to be a series of distinct services that together constitute a single performance obligation that is generally satisfied over time and recognized during each client’s payroll period. The agreed-upon fee is variable consideration that is determined by client usage, billed and collected as part of our processing of the client’s payroll. The client’s use of our applications routinely fluctuates based upon factors that include the number of payrolls run and changes in the client’s employee population. These usage-based fluctuations do not change our core performance obligation to stand ready to provide the client with services over the contractual term. Collectability is reasonably assured as fees are generally collected through an automated clearing house as part of the client’s payroll cycle or through direct wire transfer, which minimizes default risk.

We consider the total price charged to a client in a given period to be indicative of the standalone selling price, as the total amount charged is within a reasonable range of prices typically charged for our goods and services for comparable classes of client groups, which we periodically assess for price adjustments.

Client contracts associated with these revenues vary in duration, with many contracts terminable upon 30 days’ notice and an increasing portion containing longer contractual terms. Substantially all recurring revenue contracts contain consideration that is variable and allocated entirely to a wholly unsatisfied promise to transfer a series of distinct services that forms a single performance obligation. Accordingly, we have elected the practical expedient under ASC 606 and therefore do not disclose the amount of the transaction price allocated to the remaining performance obligations associated with those contracts.

Other revenues consist of nonrefundable implementation fees, which are charged upfront to new clients to offset the expense of new client set-up as well as revenues from the sale of time clocks as part of our time and attendance application. These revenues represent distinct performance obligations from our recurring services. The implementation fee charged to our clients results in an implied performance obligation in the form of a material right to the client related to the client’s option to renew at the end of the contract period. The implementation fee is typically collected upon contract inception and is deferred and recognized ratably over the period in which the client benefits from the material right (currently estimated to be 10 years). We perform an annual analysis of client retention data to support this estimate, and changes in the estimate could materially affect the timing and amount of revenue recognized from these fees.

Revenues from the sale of time clocks are recognized when control is transferred to the client upon delivery of the product. We estimate the standalone selling price for the time clocks by maximizing the use of observable inputs such as our specific pricing practices for time clocks.

For additional information, see Note 14 “Segment Reporting.”

Interest on Funds Held for Clients

Interest income on funds held for clients is earned on funds that are collected from clients in advance of either the applicable due date for payroll tax submissions or the applicable disbursement date for employee payment services. The interest earned on these funds is included in revenues in the consolidated statements of comprehensive income as the collection, holding, and remittance of these funds are essential components of providing these services.

Contract Balances

The timing of revenue recognition for recurring services is consistent with the invoicing of clients as they both occur during the respective client payroll period for which the services are provided. Therefore, we generally do not recognize a contract asset or liability resulting from the timing of revenue recognition and invoicing.

Changes in deferred revenue for thethree and six months ended June 30, 2026 and 2025 were as follows:

We expect to recognize $17.9 million of deferred revenue in the remainder of 2026, $25.0 million in 2027, $22.8 million in 2028, and $87.2 million thereafter over the remaining estimated client life. The Company’s deferred revenue balance primarily relates to implementation fees and other performance obligations that are recognized over time and are not subject to the practical expedient described above. These amounts represent unsatisfied performance obligations as defined in ASC 606.

Assets Recognized from the Costs to Obtain and Costs to Fulfill Revenue Contracts

We recognize an asset for the incremental costs of obtaining a contract with a client if we expect the amortization period to exceed one year. We also recognize an asset for costs to fulfill a contract when such costs are specifically identifiable, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered. We have determined that substantially all costs related to implementation activities meet the capitalization criteria under ASC 340-40.

The assets related to both costs to obtain and costs to fulfill contracts with clients are accounted for utilizing a portfolio approach and are capitalized and amortized ratably over the expected period of benefit, which we have determined to be the estimated life of the client relationship of 10 years, primarily because we incur no new costs to obtain or fulfill a contract upon renewal. Additional commission costs incurred when existing clients purchase additional applications relate solely to those applications and are not associated with contract renewals. Furthermore, additional fulfillment costs associated with the implementation of additional applications for existing clients are generally minimal. A change in our client life estimate could have a material impact on the timing and amounts recognized as amortization expense.

The assets related to both costs to obtain and costs to fulfill contracts with clients are presented as deferred contract costs in the accompanying consolidated balance sheets. Amortization expense related to costs to obtain and costs to fulfill contracts is included in sales and marketing expenses and general and administrative expenses in the accompanying consolidated statements of comprehensive income. We regularly review our assets recognized from the costs to obtain and costs to fulfill client contracts for potential impairment and did not recognize an impairment loss during the six months ended June 30, 2026 or 2025.

The following tables present the asset balances and related amortization expense for these contract costs:

PROPERTY AND EQUIPMENT

Property and equipment and accumulated depreciation and amortization were as follows:

We capitalize software development costs related to software developed or obtained for internal use in accordance with ASC 350-40. For the three and six months ended June 30, 2026, we capitalized $15.6 million and $41.0 million, respectively, of software development costs related to software developed or obtained for internal use. For the three and six months ended June 30, 2025, we capitalized $36.9 million and $70.7 million, respectively, of software development costs related to software developed or obtained for internal use.

Rental clocks included in property and equipment, net in the consolidated balance sheets, represent time clocks issued to clients under month-to-month operating leases. As such, these items are transferred from inventory to property and equipment and depreciated over their estimated useful lives.

For the three and six months ended June 30, 2026, we incurred interest costs of $10.5 million and $14.5 million, respectively, none of which was capitalized. For thethree and six months ended June 30, 2025, we incurred interest costs of $0.8 million and $1.6 million, respectively, none of which was capitalized.

Depreciation and amortization expense for property and equipment was $46.7 million and $94.4 million for the three and six months ended June 30, 2026, respectively. Depreciation and amortization expense for property and equipment was $41.0 million and $80.0 million for thethree and six months ended June 30, 2025, respectively.

GOODWILL AND INTANGIBLE ASSETS, NET

As of both June 30, 2026 and December 31, 2025, goodwill totaled $51.9 million. We have selected June 30 as our annual goodwill impairment testing date. We performed a qualitative impairment test of our goodwill and concluded that, as of June 30,2026, it was more likely than not that the fair value exceeded the carrying value and therefore goodwill wasnot impaired. As of June 30, 2026 and December 31, 2025, there were no indicators of impairment.

In June 2021, in connection with our marketing initiatives, we purchased the naming rights to the downtown Oklahoma City arena that is currently home to the Oklahoma City Thunder National Basketball Association franchise. Under the terms of the naming rights agreement, we committed to make escalating annual sponsorship fee payments from 2021 to 2035.

In July 2025, the naming rights agreement was amended to provide, among other things, that the agreement and our obligation to make the previously disclosed annual sponsorship fee payments thereunder will terminate on the earlier of (i) September 30, 2028 or (ii) the date of the last event hosted or presented at the current arena (subject to earlier termination in certain limited circumstances), with a reduction in the sponsorship fee if the term of the agreement ends prior to September 30, 2028 and in certain other limited circumstances. As a result of the July 2025 amendment to the naming rights agreement, the Company recognized a $35.6 million gain during the quarter ended September 30, 2025 with respect to the released portion of the liability. In March 2026, a contingency specified in the July 2025 amendment was met, resulting in a reduction in the annual sponsorship fee for the remainder of the amended agreement term. As a result, the Company recognized a $9.0 million gain, which is included in other income (expense), net in the consolidated statements of comprehensive income for thesix months ended June 30, 2026.

The cost of the naming rights has been recorded as an intangible asset with an offsetting liability as of the date of the contract. The intangible asset is being amortized over the remainder of the agreement term on a straight-line basis. The difference between the present value of the offsetting liability and actual cash payments is being relieved through sales and marketing expense using the effective interest method over the remainder of the agreement term.

All of our intangible assets other than goodwill are considered to have definite lives and, as such, are subject to amortization. The following tables present the components of intangible assets within our consolidated balance sheets:

Amortization of intangible assets for the three and six months ended June 30, 2026, was $3.4 million and $6.8 million, respectively. Amortization of intangible assets for the three and six months ended June 30, 2025, was $1.0 million and $2.0 million, respectively. We estimate the aggregate amortization expense will be $6.8 million for the remainder of 2026, $13.6 million for 2027, and $10.2 million for 2028.

LONG-TERM DEBT

Paycom Payroll, LLC (the “Borrower”), Software, and certain other subsidiaries of Software (collectively, the “Loan Parties”) are party to a credit agreement (as amended or amended and restated from time to time, the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (the “Administrative Agent”), as a lender, the administrative agent, the swingline lender and the issuing bank, and the lenders from time to time party thereto (collectively with JPMorgan Chase Bank, N.A., the “Lenders”), which provides for a senior secured revolving credit facility (the “Revolving Credit Facility”) in the aggregate principal amount of up to $2.125 billion as of June 30, 2026.

The Credit Agreement includes a $25.0 million sublimit for swingline loans and a $6.5 million sublimit for letters of credit. All loans under the Credit Agreement will mature on April 23, 2031 (the “Scheduled Maturity Date”). The Revolving Credit Facility provides for no scheduled principal amortization, with all outstanding borrowings due at the Scheduled Maturity Date. Borrowings under the Credit Agreement are secured by a senior security interest in all personal property of the Loan Parties.

The proceeds of the loans and letters of credit under the Credit Agreement are to be used for ongoing working capital and general corporate purposes, including permitted acquisitions and share repurchases.

The Credit Agreement also permits the Borrower to request an incremental facility of up to an additional $750.0 million, subject to obtaining additional lender commitments and satisfying certain conditions.

Borrowings under the Credit Agreement bear interest, at the Borrower’s election, at either (i) the Alternate Base Rate (“ABR”) plus an applicable margin or (ii) the term Secured Overnight Financing Rate (“Term SOFR Rate”) plus an applicable margin or, if the Term SOFR Rate is unavailable, the daily SOFR plus an applicable margin. The applicable margin is determined based on the Company’s consolidated leverage ratio and ranges from 0.25% to 1.00% for ABR borrowings and from 1.25% to 2.00% for SOFR-based borrowings. ABR is calculated as the highest of (i) the prime rate, (ii) the federal funds rate plus 0.5% and (iii) the Term SOFR Rate for a one-month interest period plus 1.00%; provided that, if the ABR would be less than 1.00%, such rate shall be deemed to be 1.00%.

We are required to pay a quarterly commitment fee on the unused portion of the Revolving Credit Facility. The applicable commitment fee rate is determined based on the Company’s consolidated leverage ratio and ranges from 0.20% to 0.275% per annum.

Subject to certain conditions set forth in the Credit Agreement, we may borrow, prepay and reborrow under the Revolving Credit Facility and terminate or reduce the Lenders’ commitments at any time prior to the Scheduled Maturity Date.

The Credit Agreement requires us to maintain as of the end of each fiscal quarter a consolidated interest coverage ratio of not less than 3.0 to 1.0 and a consolidated leverage ratio of not greater than 3.5 to 1.0. In addition, certain Restricted Payments (as defined in the Credit Agreement), including dividend payments and share repurchases, are permitted if certain conditions are met. Restricted Payments that do not exceed $50.0 million in any fiscal year are permitted. In addition, Restricted Payments are permitted if immediately before and after giving pro forma effect to such Restricted Payment, our consolidated leverage ratio on a pro forma basis is less than 3.0 to 1.0. The Credit Agreement contains customary affirmative and negative covenants, including covenants limiting our ability to, among other things, grant liens, incur debt, effect certain mergers, make investments, dispose of assets, enter into certain transactions (including swap agreements and sale and leaseback transactions), pay dividends or distributions on our capital stock and enter into transactions with affiliates, in each case subject to customary exceptions.

The events of default under the Credit Agreement include, among others, payment defaults, breaches of covenants, defaults under the related loan documents, material misrepresentations, cross defaults with certain other material indebtedness, bankruptcy and insolvency events, judgment defaults, certain events related to plans subject to the Employee Retirement Income Security Act of 1974, as amended, invalidity of the Credit Agreement or the related loan documents and change in control events. The occurrence of an event of default could result in the acceleration of our obligations under the Credit Agreement, the requirement to post cash collateral with respect to letters of credit, the termination of the Lenders’ commitments and a 2.0% increase in the rate of interest.

As of June 30, 2026, we were in compliance with these covenants.

As of June 30, 2026, there was $900.0 million outstanding under the Revolving Credit Facility. The carrying value of our total long-term debt approximated its fair value. The fair value of our long-term debt is estimated based on the borrowing rates currently available to us for bank loans with similar terms and maturities. Unamortized debt issuance costs of $8.9 million as of June 30, 2026 are included in other assets on our consolidated balance sheets.

CORPORATE INVESTMENTS AND FUNDS HELD FOR CLIENTS

The tables below present our cash and cash equivalents, the funds held for clients cash and cash equivalents as well as the investments that were included within funds held for clients on the consolidated balance sheets:

(1)

All available-for-sale securities were included within the funds held for clients.

The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of June 30, 2026, were as follows:

The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of December 31, 2025, were as follows:

We did not make any reclassification adjustments out of accumulated other comprehensive income for realized gains or losses on the sale or maturity of available-for-sale securities for the six months ended June 30, 2026 or 2025. There wereno realized gains or losses on the sale of available-for-sale securities for thesix months ended June 30, 2026 or 2025.

We regularly review the composition of our investment portfolio and didnot recognize any credit impairment losses during thesix months ended June 30, 2026 or 2025. We believe it is probable that the principal and interest will be collected in accordance with contractual terms and that the unrealized losses on these securities were due to changes in interest rates and were not due to increased credit risk. As of June 30, 2026, our U.S. treasury securities held a rating of AA+.

Expected maturities of available-for-sale securities at June 30, 2026 were as follows:

FAIR VALUE OF FINANCIAL INSTRUMENTS

Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, funds held for clients, client funds obligation and long-term debt. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, funds held for clients and client funds obligation approximates fair value. See Note 6 “Long-Term Debt” for discussion of the fair value of our debt.

Our corporate investments consist primarily of money market funds and demand deposit accounts and are classified as cash and cash equivalents on the consolidated balance sheets.

As discussed in Note 2 “Summary of Significant Accounting Policies”, we typically invest the funds held for clients in money market funds, demand deposit accounts, certificates of deposit, commercial paper and U.S. treasury securities. Short-term investments in instruments with an original maturity of less than three months are classified as cash and cash equivalents within funds held for clients in the consolidated balance sheets. Investments in instruments with an original maturity greater than three months are classified as available-for-sale securities and are also included within funds held for clients in the consolidated balance sheets. These available-for-sale securities are recognized at fair value, with the difference between the amortized cost and fair value of these available-for-sale securities recorded as unrealized net gains (losses) within comprehensive earnings (loss) in our consolidated statements of comprehensive income. See Note 7 “Corporate Investments and Funds Held for Clients” for additional information.

The accounting standard for fair value measurements establishes a three-level fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

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Level 1 – Observable inputs such as quoted prices in active markets

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Level 2 – Inputs other than quoted prices in active markets for identical assets or liabilities that are observable either directly or indirectly or quoted prices that are not active

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Level 3 – Unobservable inputs in which there is little or no market data

Included in the following tables are the Company’s major categories of assets and liabilities measured at fair value on a recurring basis as of June 30, 2026 and December 31, 2025:

EMPLOYEE SAVINGS PLAN AND EMPLOYEE STOCK PURCHASE PLAN

Employees who meet eligibility requirements may participate in our employee savings plan (401(k) plan). Matching contributions were $3.2 million and $8.3 million for the three and six months ended June 30, 2026, respectively. Matching contributions were $4.2 million and $10.4 million for thethree and six months ended June 30, 2025, respectively.

Eligible employees may participate in the Paycom Software, Inc. Employee Stock Purchase Plan (the “ESPP”), which allows employees to purchase shares of the Company’s common stock through payroll deductions at a price equal to 85% of the fair market value of the shares on the exercise date. During thesix months ended June 30, 2026, eligible employees purchased 40,864 shares of common stock under the ESPP, all of which were issued from treasury stock. During the six months ended June 30, 2025, eligible employees purchased 35,284 shares of common stock under the ESPP, all of which were purchased in the open market.

EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share is computed in a similar manner to basic earnings per share after assuming the issuance of shares of common stock for all potentially dilutive equity incentive awards using the treasury stock method.

The following is a reconciliation of net income and the shares of common stock used in the computation of basic and diluted earnings per share:

STOCK-BASED COMPENSATION

The Company recognizes stock-based compensation expense related to awards of (i) restricted stock subject to time-based or no vesting conditions (“Time-Based Restricted Stock Awards”), (ii) restricted stock subject to market-based vesting conditions (“Market-Based Restricted Stock Awards”), (iii) restricted stock units subject to time-based vesting conditions (“RSUs”) and (iv) restricted stock units subject to performance-based vesting conditions (“PSUs”). During the three and six months ended June 30, 2026, awards were granted pursuant to the Paycom Software, Inc. 2023 Long-Term Incentive Plan.

The following table presents the non-cash stock-based compensation expense that is included within the specified line items in our consolidated statements of comprehensive income:

The following table presents the unrecognized compensation cost and the related weighted average recognition period associated with unvested equity incentive awards as of June 30, 2026:

We capitalized stock-based compensation costs related to software developed for internal use of $0.8 million and $1.1 million for the three and six months ended June 30, 2026, respectively. We capitalized stock-based compensation costs related to software developed for internal use of $8.5 million and $13.7 million for thethree and six months ended June 30, 2025, respectively.

In May 2023, our Board of Directors adopted a dividend policy under which we intend to pay quarterly cash dividends on our common stock. All unvested equity incentive awards currently outstanding are entitled to receive dividends or dividend equivalents, provided that such dividends or dividend equivalents are withheld by the Company and distributed to the applicable holder upon the release of restrictions on such equity incentive awards (i.e., upon vesting).

The following table summarizes restricted stock awards activity for thesix months ended June 30, 2026:

The following table summarizes restricted stock unit awards activity for the six months ended June 30, 2026:

COMMITMENTS AND CONTINGENCIES

We are involved in various legal proceedings in the ordinary course of business. Although we cannot predict the outcome of these proceedings, legal matters are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of these matters could have a material adverse effect on our business, financial condition, results of operations and cash flows.

INCOME TAXES

The Company’s effective income tax rate was 29.3% and 25.6% for the six months ended June 30, 2026 and 2025, respectively. The higher effective tax rate for the six months ended June 30, 2026 was primarily attributable to a decrease in excess tax benefits from stock-based compensation and a reduction of research and development credits.

SEGMENT REPORTING

The Company conducts business as asingle operating segment, which is based upon the Company’s current organizational and management structure, as well as information used by the CODM to allocate resources. The Company derives revenues from customers by providing a cloud-based HCM solution delivered as Software-as-a-Service. Our payroll application is the foundation of our solution and is based on a core system of record to maintain a single database for all HCM functions. The Company derives revenue primarily in North America and manages the business activities on a consolidated basis. No individual client represents 10% or more of total revenues.

The accounting policies of the segment are the same as those described in Note 2 “Summary of Significant Accounting Policies”. The Company’s CODM is our Chief Executive Officer. The CODM assesses performance for the segment and decides how to allocate resources based on net income, as reported on the consolidated statements of comprehensive income. Net income is used monthly to monitor budget versus actual results. The CODM manages the business using consolidated expense information as well as regularly provided budgeted or forecasted expense information for the single operating segment. The total assets of the segment are reported on the consolidated balance sheets. Significant non-cash items including expenditures for purchases of long-lived assets and non-cash stock-based compensation expense of the segment are reported on the consolidated statements of cash flows.

The Company does not have any intra-entity sales or transfers.

The table below highlights the Company’s revenues, expenses and net income for our single reportable segment, which are consistent with amounts reported on the consolidated statements of comprehensive income for thethree and six months ended June 30, 2026 and 2025.