Paycom Software, Inc.

Previous wording

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with management’s perspective on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) the accompanying unaudited consolidated financial statements and notes thereto for the three and six months ended June 30, 2026, (ii) the audited consolidated financial statements and notes thereto for the year ended December 31, 2025 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on February 19, 2026 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K. Except for certain information as of December 31, 2025, all amounts herein are unaudited. Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our” and the “Company” refer to Paycom Software, Inc. and its consolidated subsidiaries. All amounts presented in tables, other than per share amounts, are in millions unless otherwise noted.

Current wording

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with management’s perspective on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) the accompanying unaudited consolidated financial statements and notes thereto for the three and nine months ended September 30, 2026, (ii) the audited consolidated financial statements and notes thereto for the year ended December 31, 2025 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on February 19, 2026 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K. Except for certain information as of December 31, 2025, all amounts herein are unaudited. Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our” and the “Company” refer to Paycom Software, Inc. and its consolidated subsidiaries. All amounts presented in tables, other than per share amounts, are in millions unless otherwise noted.

Previous wording

Our target client size is organizations with 50 to 10,000 or more employees. While we continue to serve a diversified client base ranging from small businesses to organizations with many thousands of employees, the average size of our clients has grown significantly as we have organically grown our operations and increased the number of applications we offer. We believe larger employers, such as organizations with greater than 1,000 employees, represent a substantial opportunity to increase our revenues per client, with limited incremental cost to us. With the launch of our Global HCM solution and expansion of payroll services into certain international markets, we expect that our ability to serve organizations with international employees makes our solution more attractive to larger companies, many of which have a global presence. Because we charge our clients on a per employee basis for certain services we provide, any increase or decrease in the number of employees of our clients will have a positive or negative impact, respectively, on our results of operations. As a result, the performance of certain of our offerings is sensitive to changes in the labor market. In addition, a multitude of macroeconomic pressures, such as inflation and changes in interest rates, impact our clients’ hiring practices to varying degrees and, in turn, impact our revenues.

Current wording

Our target client size is organizations with 50 to 10,000 or more employees. While we continue to serve a diversified client base ranging from small businesses to organizations with many thousands of employees, the average size of our clients has grown significantly as we have organically grown our operations and increased the number of applications we offer. We believe larger employers, such as organizations with greater than 1,000 employees, represent a substantial opportunity to increase our revenues per client, with limited incremental cost to us. With our Global HCM solution and expansion of payroll services into certain international markets, we believe that our ability to serve organizations with international employees makes our solution more attractive to larger companies, many of which have a global presence. Because we charge our clients on a per employee basis for certain services we provide, any increase or decrease in the number of employees of our clients will have a positive or negative impact, respectively, on our results of operations. As a result, the performance of certain of our offerings is sensitive to changes in the labor market. In addition, a multitude of macroeconomic pressures, such as inflation and changes in interest rates, impact our clients’ hiring practices to varying degrees and, in turn, impact our revenues.

Previous wording

Growing our business has resulted in, and may continue to result in, substantial investments in sales professionals, operating expenses, system development and programming costs (including those related to our full solution automation and AI initiatives) and general and administrative expenses. Historically, our revenue growth and geographic expansion have driven increases in (i) facility costs related to data centers, the expansion of our corporate headquarters, operations facilities and additional sales office leases and (ii) salaries and benefits and stock-based compensation expense. Automating our core business systems is creating new efficiencies that have led to reductions in headcount and, as a result, contributed to decreases in certain employee-related expenses during the three and six months ended June 30, 2026, as compared to the prior year periods.

Current wording

Growing our business has resulted in, and may continue to result in, substantial investments in sales professionals, operating expenses, system development and programming costs (including those related to our full solution automation and AI initiatives) and general and administrative expenses. Historically, our revenue growth and geographic expansion have driven increases in (i) facility costs related to data centers, the expansion of our corporate headquarters, operations facilities and additional sales office leases and (ii) salaries and benefits and stock-based compensation expense. Automating our core business systems is creating new efficiencies that have led to reductions in headcount and, as a result, contributed to decreases in certain employee-related expenses during the three and nine months ended September 30, 2026, as compared to the prior year periods.

Previous wording

The increase in recurring and other revenues for the three and six months ended June 30, 2026 compared to the respective prior year periods was the result of the addition of new clients, increased revenue from sales of additional applications and services to existing clients, additions and increased usage of existing products and services, and the realization of pricing strategies. Client attrition, particularly among smaller clients, partially offset the favorable impact of these revenue drivers.

Current wording

The increase in recurring and other revenues for the three and nine months ended September 30, 2026 compared to the respective prior year periods was the result of the addition of new clients, increased revenue from sales of additional applications and services to existing clients, additions and increased usage of existing products and services, and the realization of pricing strategies. Client attrition, particularly among smaller clients, partially offset the favorable impact of these revenue drivers.

Previous wording

The impact of lower interest rates during the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025 was partially offset by an increase in average funds held for client balances, but nonetheless resulted in decreased interest earned on funds held for clients for the three and six months ended June 30, 2026 as compared to the prior year periods. The average daily balance of funds held for clients was $3.0 billion and $2.8 billion for the six months ended June 30, 2026 and 2025, respectively.

Current wording

The impact of lower interest rates during the three and nine months ended September 30, 2026 compared to the three and nine months ended September 30, 2025 was partially offset by an increase in average funds held for client balances, but nonetheless resulted in decreased interest earned on funds held for clients for the three and nine months ended September 30, 2026 as compared to the prior year periods. The average daily balance of funds held for clients was $2.9 billion and $2.7 billion for the nine months ended September 30, 2026 and 2025, respectively.

Previous wording

During the three months ended June 30, 2026, operating expenses decreased from the comparable prior year period by $3.8 million, primarily due to an $8.1 million decrease in employee-related expenses attributable to lower headcount, partially offset by increases in other categories of service costs, none of which were individually material. Depreciation and amortization expense increased $5.4 million from the comparable prior year period, primarily due to the development of additional technology and purchases of other related fixed assets, partially offset by the impact of an increase in the estimated useful lives of servers and network equipment implemented in the third quarter of 2025.

Current wording

During the three months ended September 30, 2026, operating expenses decreased from the comparable prior year period by $1.4 million, primarily due to a $4.7 million decrease in employee-related expenses attributable to lower headcount, partially offset by a $2.1 million increase in banking-related fees and increases in other categories of service costs, none of which were individually material. Depreciation and amortization expense increased $3.3 million from the comparable prior year period, primarily due to the development of additional technology and purchases of other fixed assets.

Previous wording

During the six months ended June 30, 2026, operating expenses decreased from the comparable prior year period by $7.2 million, primarily due to a $12.7 million decrease in employee-related expenses attributable to lower headcount, partially offset by increases in other categories of service costs, none of which were individually material. Depreciation and amortization expense increased $11.5 million from the comparable prior year period, primarily due to the development of additional technology and purchases of other related fixed assets, partially offset by the impact of an increase in the estimated useful lives of servers and network equipment implemented in the third quarter of 2025.

Current wording

During the nine months ended September 30, 2026, operating expenses decreased from the comparable prior year period by $8.7 million, primarily due to a $17.4 million decrease in employee-related expenses attributable to lower headcount, partially offset by a $4.1 million increase in banking-related fees, a $1.1 million increase in shipping and supplies fees, and increases in other categories of service costs, none of which were individually material. Depreciation and amortization expense increased $14.7 million from the comparable prior year period, primarily due to the development of additional technology and purchases of other fixed assets, partially offset by the immaterial impact of an increase in the estimated useful lives of servers and network equipment implemented at the beginning of the third quarter of 2025.

Previous wording

During the three months ended June 30, 2026, sales and marketing expenses increased from the comparable prior year period by $2.8 million, primarily due to a $4.6 million increase in marketing and advertising expense, partially offset by a decrease in employee-related expenses attributable to, among other things, lower headcount.

Current wording

During the three months ended September 30, 2026, sales and marketing expenses decreased from the comparable prior year period by $17.7 million, primarily due to a $15.6 million decrease in marketing and advertising expenses and a $3.4 million decrease in employee-related expenses attributable to, among other things, lower headcount. These decreases were partially offset by increases in other categories of costs, none of which were individually material.

Previous wording

During the six months ended June 30, 2026, sales and marketing expenses increased from the comparable prior year period by $9.5 million, primarily due to an $11.7 million increase in marketing and advertising expense, partially offset by a decrease in employee-related expenses attributable to, among other things, lower headcount.

Current wording

During the nine months ended September 30, 2026, sales and marketing expenses decreased from the comparable prior year period by $8.2 million, primarily due to a $5.7 million decrease in employee-related expenses attributable to, among other things, lower headcount and a $3.9 million decrease in marketing and advertising expenses. These decreases were partially offset by increases in other categories of costs, none of which were individually material.

Previous wording

During the three and six months ended June 30, 2026, research and development expenses decreased from the comparable prior year periods primarily due to a decrease in employee-related expenses.

Current wording

During the three and nine months ended September 30, 2026, research and development expenses decreased from the comparable prior year periods primarily due to a decrease in employee-related expenses.

Previous wording

As a result of reduced headcount, we expect research and development employee-related expenses to be lower in 2026 as compared to 2025. As is customary for our business, we also expect fluctuations in research and development expense as a percentage of revenue on a quarter-to-quarter basis due to seasonal revenue trends, the introduction of new products, the amount and timing of research and development costs that may be capitalized and the timing of onboarding new hires and restricted stock vesting events.

Current wording

As a result of reduced headcount, research and development employee-related expenses have been lower in 2026 as compared to 2025. As is customary for our business, we expect fluctuations in research and development expenses as a percentage of revenue on a quarter-to-quarter basis due to seasonal revenue trends, the introduction of new products, the amount and timing of research and development costs that may be capitalized and the timing of onboarding new hires and restricted stock vesting events.

Previous wording

Expenditures for software developed or obtained for internal use are capitalized and amortized over a three-year period on a straight-line basis. The nature of the development projects underway during a particular period directly impacts the timing and extent of these capitalized expenditures and can affect the amount of research and development expenses in such period. The table below sets forth the amounts of capitalized and expensed research and development costs for the three and six months ended June 30, 2026 and 2025:

Current wording

Expenditures for software developed or obtained for internal use are capitalized and amortized over a three-year period on a straight-line basis. The nature of the development projects underway during a particular period directly impacts the timing and extent of these capitalized expenditures and can affect the amount of research and development expenses in such period. The table below sets forth the amounts of capitalized and expensed research and development costs for the three and nine months ended September 30, 2026 and 2025:

Previous wording

During the six months ended June 30, 2026, general and administrative expenses increased $10.6 million from the comparable prior year period primarily due to a $6.0 million increase in technology and communications expenses and a $3.9 million increase in professional fees. The remaining increase was attributable to various other cost categories, none of which were individually material. These increases were partially offset by a decrease in employee-related expenses attributable to lower headcount.

Current wording

During the three months ended September 30, 2026, general and administrative expenses increased $16.2 million from the comparable prior year period, primarily due to an $11.0 million charge related to a legal settlement, a $3.9 million increase in employee-related expenses, and a $3.0 million increase in technology and communications expenses, partially offset by decreases in other cost categories, none of which were individually material.

Previous wording

During the three months ended June 30, 2026, general and administrative expenses increased $7.2 million from the comparable prior year period primarily due to a $4.2 million increase in professional fees and a $1.9 million increase in technology and communications expenses.

Current wording

During the nine months ended September 30, 2026, general and administrative expenses increased $26.9 million from the comparable prior year period, primarily due to an $11.0 million charge related to a legal settlement, a $9.0 million increase in technology and communications expenses, and a $4.0 million increase in professional fees. The remainder of the increase was attributable to other cost categories, none of which were individually material.

Previous wording

During the six months ended June 30, 2026, depreciation and amortization expense increased from the comparable prior year period primarily due to the development of additional technology and purchases of other related fixed assets, which was partially offset by the impact of an increase in the estimated useful lives of servers and network equipment implemented in the third quarter of 2025.

Current wording

During the three months ended September 30, 2026, depreciation and amortization expense increased from the comparable prior year period primarily due to the development of additional technology and purchases of other fixed assets.

Previous wording

During the three months ended June 30, 2026, depreciation and amortization expense increased from the comparable prior year period primarily due to the development of additional technology and purchases of other related fixed assets, which was partially offset by the impact of an increase in the estimated useful lives of servers and network equipment implemented in the third quarter of 2025.

Current wording

During the nine months ended September 30, 2026, depreciation and amortization expense increased from the comparable prior year period primarily due to the development of additional technology and purchases of other fixed assets, which was partially offset by the impact of an increase in the estimated useful lives of servers and network equipment implemented at the beginning of the third quarter of 2025.

Previous wording

The increase in interest expense for the three and six months ended June 30, 2026, as compared to the prior year periods, was primarily due to the timing and amount of borrowings outstanding under the Revolving Credit Facility.

Current wording

The increase in interest expense for the three and nine months ended September 30, 2026, as compared to the prior year periods, was primarily due to the timing and amount of borrowings outstanding under the Revolving Credit Facility.

Previous wording

Other income (expense), net decreased for the three and six months ended June 30, 2026 compared to the prior year periods, primarily due to lower interest income earned on corporate funds and higher losses on dispositions of property and equipment. For the six months ended June 30, 2026, this decrease was partially offset by a $9.0 million gain recognized during the three months ended March 31, 2026 as a result of the July 2025 amendment to the naming rights agreement. See Note 5 “Goodwill and Intangible Assets, Net” for further discussion of this gain. For the three and six months ended June 30, 2026, interest income earned on corporate funds was $1.5 million and $3.5 million, respectively, compared to $5.5 million and $10.3 million for the corresponding prior year periods.

Current wording

Other income, net decreased for the three and nine months ended September 30, 2026, as compared to the prior year periods, primarily due to the timing of gains related to the naming rights agreement. See Note 5, “Goodwill and Intangible Assets, Net,” for further discussion of these gains. For the three and nine months ended September 30, 2026, interest income earned on corporate funds was $2.1 million and $5.6 million, respectively, compared to $5.1 million and $15.4 million for the corresponding prior year periods. The decreases in other income, net were also attributable to losses on dispositions of property and equipment during the 2026 periods.

Previous wording

The provision for income taxes is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. Our 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.

Current wording

The provision for income taxes is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. Our effective income tax rate was 28.9% and 26.2% for the nine months ended September 30, 2026 and 2025, respectively. The higher effective tax rate for the nine months ended September 30, 2026 was primarily attributable to a decrease in excess tax benefits from stock-based compensation and reduced research and development credits.

Previous wording

Our principal sources of capital and liquidity are our operating cash flow and cash and cash equivalents. Our cash and cash equivalents consist primarily of demand deposit accounts and money market funds. Additionally, we maintain a $2.125 billion Revolving Credit Facility, which can be accessed as needed to supplement our operating cash flow and cash balances. As of June 30, 2026, we had $900.0 million of outstanding borrowings under the Revolving Credit Facility, and we used these borrowings to fund stock repurchases.

Current wording

Our principal sources of capital and liquidity are our operating cash flow and cash and cash equivalents. Our cash and cash equivalents consist primarily of demand deposit accounts and money market funds. Additionally, we maintain a $2.125 billion Revolving Credit Facility, which can be accessed as needed to supplement our operating cash flow and cash balances.

Previous wording

We fund our operations primarily from cash flows generated from operations. Prior to 2026, we funded all ongoing capital expenditures, cash dividends and stock repurchases from available cash. During the six months ended June 30, 2026, we borrowed $900.0 million under the Revolving Credit Facility to support our stock repurchase program. We may determine that it is appropriate to fund future stock repurchases or other capital requirements in the future from a combination of available cash and additional borrowings under the Revolving Credit Facility. We believe our existing cash and cash equivalents, cash generated from operations and available sources of liquidity will be sufficient to maintain operations, make necessary capital expenditures, service debt, pay dividends and opportunistically repurchase shares for at least the next 12 months. In addition, based on our strong profitability and continued growth, we expect to meet our longer-term liquidity needs with cash flows from operations and, as needed, financing arrangements. To the extent we elect to finance our long-term liquidity needs, we believe that the potential financing capital available to us in the future will be sufficient.

Current wording

We fund our operations primarily from cash flows generated from operations. Prior to 2026, we funded all ongoing capital expenditures, cash dividends and stock repurchases from available cash. During the nine months ended September 30, 2026, we borrowed $900.0 million under our Revolving Credit Facility to support our stock repurchase program and repaid $150.0 million of those borrowings. As of September 30, 2026, $750.0 million remained outstanding. We may determine that it is appropriate to fund future stock repurchases or other capital requirements in the future from a combination of available cash and additional borrowings under the Revolving Credit Facility. We believe our existing cash and cash equivalents, cash generated from operations and available sources of liquidity will be sufficient to maintain operations, make necessary capital expenditures, service debt, pay dividends and opportunistically repurchase shares for at least the next 12 months. In addition, based on our strong profitability and continued growth, we expect to meet our longer-term liquidity needs with cash flows from operations and, as needed, financing arrangements. To the extent we elect to finance our long-term liquidity needs, we believe that the potential financing capital available to us in the future will be sufficient.

Previous wording

Stock Repurchase Plan and Withholding Shares to Cover Taxes. 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, the Board of Directors authorized the repurchase of up to an additional $200.0 million of shares of our common stock. On March 12, 2026, the 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, the 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.

Current wording

Stock Repurchase Plan and Withholding Shares to Cover Taxes. 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, the Board of Directors authorized the repurchase of up to an additional $200.0 million of shares of our common stock. On March 12, 2026, the 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, the 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 September 30, 2026, there was $1,652.7 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.

Previous wording

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. Our payment of the taxes on behalf of those individuals resulted in an aggregate cash expenditure of $16.6 million. We deduct the value of such withheld shares from the amount available for future repurchases under our stock repurchase plan.

Current wording

During the nine months ended September 30, 2026, we repurchased an aggregate of 10,960,280 shares of our common stock at an average cost of $128.56 per share, including 134,128 shares withheld to satisfy tax withholding obligations for certain individuals upon the vesting of equity incentive awards. Our payment of the taxes on behalf of those individuals resulted in an aggregate cash expenditure of $18.2 million. We deduct the value of such withheld shares from the amount available for future repurchases under our stock repurchase plan.

Previous wording

In addition, 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. The payments are due in the fourth quarter of each year. 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 during the three months ended March 31, 2026, which is included in other income (expense), net in the consolidated statements of comprehensive income for the six months ended June 30, 2026.

Current wording

In addition, 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. The payments are due in the fourth quarter of each year. 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, we 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, we recognized a $9.0 million gain during the three months ended March 31, 2026, which is included in other income, net in the consolidated statements of comprehensive income for the nine months ended September 30, 2026.

Previous wording

On July 4, 2025, H.R. 1, the “One Big Beautiful Bill Act” (the “OBBBA”) was signed into law, bringing significant amendments to the U.S. tax code. The OBBBA allows an immediate deduction for domestic research and development expenditures and reinstates 100% bonus depreciation. These provisions reduced our cash tax remittances during the second half of 2025 and the first half of 2026, which favorably impacted operating cash flows, and we expect they will continue to provide a benefit in future periods, although to a lesser extent.

Current wording

On July 4, 2025, H.R. 1, the “One Big Beautiful Bill Act” (the “OBBBA”) was signed into law, bringing significant amendments to the U.S. tax code. The OBBBA allows an immediate deduction for domestic research and development expenditures and reinstates 100% bonus depreciation. These provisions reduced our cash tax remittances during the second half of 2025 and the first nine months of 2026, which favorably impacted operating cash flows, and we expect they will continue to provide a benefit in future periods, although to a lesser extent.

Previous wording

The following table summarizes the consolidated statements of cash flows for the six months ended June 30, 2026 and 2025:

Current wording

The following table summarizes the consolidated statements of cash flows for the nine months ended September 30, 2026 and 2025:

Previous wording

Cash provided by operating activities for the six months ended June 30, 2026 primarily consisted of payments received from our clients and interest earned on funds held for clients. Cash used in operating activities primarily consisted of personnel-related expenditures to support the growth and infrastructure of our business. These payments included costs of operations, advertising and other sales and marketing efforts, information technology infrastructure development, product research and development and security and administrative costs. Compared to the three and six months ended June 30, 2025, our operating cash flows for the three and six months ended June 30, 2026 were positively impacted by favorable changes in operating assets and liabilities.

Current wording

Cash provided by operating activities for the nine months ended September 30, 2026 primarily consisted of payments received from our clients and interest earned on funds held for clients. Cash used in operating activities primarily consisted of personnel-related expenditures and other expenditures to support the growth and infrastructure of our business. These other expenditures included costs of operations, advertising and other sales and marketing efforts, information technology infrastructure development, product research and development and security and administrative costs. Compared to the nine months ended September 30, 2025, operating cash flows for the nine months ended September 30, 2026 benefited from favorable changes in working capital.

Previous wording

Cash used in investing activities for the six months ended June 30, 2026 decreased from the comparable prior year period due to a $299.2 million decrease in purchases of investments from funds held for clients, a $167.0 million increase in proceeds from investments from funds held for clients, and a $44.6 million decrease in purchases of property and equipment.

Current wording

Cash used in investing activities for the nine months ended September 30, 2026 decreased from the comparable prior year period, primarily due to a $253.9 million decrease in purchases of investments from funds held for clients, a $209.0 million increase in proceeds from the maturities of investments from funds held for clients, and a $120.0 million decrease in purchases of property and equipment.

Previous wording

Cash used in financing activities for the six months ended June 30, 2026 increased from the comparable prior year period due to a $1,389.7 million increase in repurchases of common stock, the impact of an $82.4 million change related to the client funds obligation, which reflects the timing of receipts from our clients and payments made on their behalf to employees and applicable taxing authorities, and an $8.1 million increase in the payment of debt issuance costs. These increases were partially offset by $900.0 million of borrowings under the Revolving Credit Facility, a $21.2 million decrease in withholding taxes paid related to net share settlements, a $7.4 million decrease in dividends paid, and a $4.4 million increase in proceeds from the employee stock purchase plan.

Current wording

Cash used in financing activities for the nine months ended September 30, 2026 decreased from the comparable prior year period due to $900.0 million of borrowings under the Revolving Credit Facility, the impact of a $600.1 million change related to the client funds obligation, which reflects the timing of receipts from our clients and payments made on their behalf to employees and applicable taxing authorities, a $24.2 million decrease in withholding taxes paid related to net share settlement, an $11.9 million decrease in dividends paid due to fewer shares outstanding, and a $2.7 million increase in proceeds from the employee stock purchase plan. These decreases were partially offset by a $1,172.0 million increase in repurchases of common stock, a $150.0 million increase in payments on long-term debt, and an $8.1 million increase in the payment of debt issuance costs.

Previous wording

Our principal commitments primarily consist of long-term debt, leases for office space and the naming rights agreement. For additional information regarding our naming rights agreement, leases, and our commitments and contingencies, see Note 4 “Goodwill and Intangible Assets, Net”, Note 5 “Leases” and Note 12 “Commitments and Contingencies” in the Form 10-K and Note 5 “Goodwill and Intangible Assets, Net” and Note 12 “Commitments and Contingencies” in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Current wording

Our principal commitments primarily consist of long-term debt, leases for office space and the naming rights agreement. For additional information regarding our naming rights agreement, leases, long-term debt, and our commitments and contingencies, see Note 4 “Goodwill and Intangible Assets, Net”, Note 5 “Leases”, Note 6 “Long-Term Debt” and Note 12 “Commitments and Contingencies” in the Form 10-K and Note 5 “Goodwill and Intangible Assets, Net”, Note 6 “Long-Term Debt” and Note 12 “Commitments and Contingencies” in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q.