Summary
Paycom Software reported first-quarter fiscal 2026 revenue of $571.9 million, up 7.8% from the prior-year quarter. Gross profit rose 8.7% to $484.5 million, and gross margin reached 84.7%, up 0.7 percentage points. Operating income increased 13.6% to $210.2 million, lifting operating margin to 36.8%, up 1.9 percentage points. Net income rose 11.7% to $155.7 million, and diluted earnings per share rose 22.6% to $3.04. The first quarter is seasonally strong for Paycom because payroll tax filing forms and Affordable Care Act forms are typically processed then. Management tied the results to full-solution automation, client ROI achievement, and world-class service.
Cash generation improved. Operating cash flow rose 17.2% to $213.8 million. Capital expenditures fell 17.2% to $31.2 million. Deferred revenue rose 3.6% to $154.1 million. On a non-GAAP basis, adjusted EBITDA was $275.4 million, or 48.2% of revenue, up from $253.2 million. Non-GAAP net income was $161.3 million, or $3.15 per diluted share, up from $157.7 million, or $2.80 per diluted share. Free cash flow was $182.7 million, a 31.9% margin, compared with $144.8 million and a 27.3% margin. The company also reported lower non-cash stock-based compensation expense, which helped the non-GAAP profit measures.
Operational highlights centered on automation. Paycom's AI engine IWant, along with Beti and GONE, are part of its push to automate payroll and HCM tasks. The CEO said Paycom serves only about 5% of the total addressable market. The 10-Q notes that automating core business systems created efficiencies and led to reductions in headcount, which contributed to lower employee-related expenses in the quarter. Client attrition, particularly among smaller clients, partially offset revenue growth from new clients and additional applications. Average daily funds held for clients rose to $3.1 billion from $2.9 billion, though lower interest rates reduced interest earned on those funds. Higher interest expense and a lower research and development credit also weighed on the quarter.
Capital allocation was active. During the quarter, Paycom paid $17.7 million in cash dividends and repurchased 8,375,443 shares for $1.060 billion. It borrowed $675.0 million under its revolving credit facility to help fund those repurchases. On May 4, 2026, the board approved a new $2.0 billion stock repurchase plan and declared a quarterly dividend of $0.375 per share payable on June 8, 2026 to stockholders of record on May 26, 2026. For the full fiscal year 2026, Paycom guided recurring and other revenue growth between 7% and 8% and total revenue growth between 6% and 7%. Full-year adjusted EBITDA is guided to a range of $950 million to $970 million, a margin of approximately 44% at the midpoint. Paycom did not reconcile the forward-looking adjusted EBITDA range to net income because certain items are not readily available.
The quarter carries several risks. The 10-Q lists security vulnerabilities, cyberattacks, network disruptions, and data privacy compliance as key concerns. It also flags changes in laws and government regulations, the ability to develop new applications and keep pace with emerging technologies, and intense competition in the HCM market. Paycom faces risks tied to attracting and retaining larger clients, dependence on key executives, personnel retention, growth management, and its automation strategy. Macroeconomic pressures such as inflation and interest rate changes could affect client hiring and, in turn, revenue. Seasonality, client attrition among smaller clients, and the lower research and development credit are additional headwinds. Management expects research and development employee-related expenses to be lower in 2026 than 2025 because of reduced headcount.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2026 | Q4 FY2025 | QoQ | Q1 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $571.9M | $544.3M | +5.1% | $530.5M | +7.8% |
| Gross profit | $484.5M | $456.5M | +6.1% | $445.9M | +8.7% |
| Gross margin | 84.7% | 83.9% | +0.8 pp | 84.0% | +0.7 pp |
| Research & development | $60.7M | $72.2M | -15.9% | $62.3M | -2.6% |
| Sales & marketing | $274.3M | $299.4M | -8.4% | $260.8M | +5.2% |
| Total operating expenses | $361.7M | $387.2M | -6.6% | $345.4M | +4.7% |
| Operating income (loss) | $210.2M | $157.1M | +33.8% | $185.1M | +13.6% |
| Operating margin | 36.8% | 28.9% | +7.9 pp | 34.9% | +1.9 pp |
| Net income (loss) | $155.7M | $113.8M | +36.8% | $139.4M | +11.7% |
| Net margin | 27.2% | 20.9% | +6.3 pp | 26.3% | +0.9 pp |
| Diluted EPS | $3.04 | $2.03 | +$1.01 | $2.48 | +$0.56 |
Risks
The company borrowed $675.0 million under the Revolving Credit Facility during the first quarter of 2026 to fund stock repurchases, and interest expense increased 416.3% for the three months ended March 31, 2026 versus the prior year period. The Credit Agreement requires a consolidated interest coverage ratio of at least 3.0 to 1.0 and a consolidated leverage ratio of no greater than 3.5 to 1.0, with restricted payments above $50.0 million in any fiscal year permitted only if pro forma leverage is below 3.0 to 1.0.
Interest on funds held for clients decreased 8.9% for the three months ended March 31, 2026 compared to the same period in 2025, as the impact of lower interest rates was only partially offset by an increase in average funds held for clients balances (average daily balance of $3.1 billion versus $2.9 billion). Interest income earned on corporate funds also fell to $1.9 million from $4.7 million, leaving results exposed to further rate declines.
A significant portion of revenue remains tied to the payroll application, which every client must use to access other applications. Management notes the revenue mix has evolved and will continue to evolve, but dependence on payroll and per-employee billing keeps results sensitive to client headcount and hiring trends.
Recurring and other revenues rose 8.8% for the three months ended March 31, 2026 versus the prior year period on new clients and additional application sales, but client attrition, particularly among smaller clients, partially offset those drivers, pointing to elevated churn pressure at the low end of the client base.
MD&A states the HCM market is highly competitive, rapidly evolving and fragmented, with expected continued intensity from new entrants and disruptive technologies plus aggressive pricing and client retention strategies. Management positions AI and automation across the full solution, including the IWant command-driven engine, as a key differentiator, implying competitive pressure to keep investing in this area.
Financing cash used increased to $2,911.8 million for the three months ended March 31, 2026 from $1,452.3 million in the prior year period, driven by a $1,054.3 million increase in repurchases of common stock, and the company repurchased 8,375,443 shares at an average cost of $126.61 per share. On May 4, 2026 the Board approved a new $2.0 billion repurchase authorization that replaced the prior plan and has no expiration date.
The MD&A flags regulatory and compliance risk in the background checks business, changes in laws and interpretations including data privacy requirements, and an HCM industry historically driven by legislation such as COBRA, minimum wage, overtime rules and federal, state or municipal tax authority rules. The effective income tax rate rose to 27.7% for the three months ended March 31, 2026 from 26.8% in the prior year period, primarily on a decreased research and development credit.
Automation of core business systems produced headcount reductions that lowered certain employee-related expenses during the three months ended March 31, 2026, including a decrease in cost of revenues operating expenses and research and development expenses. Management expects research and development employee-related expenses to be lower in 2026 as compared to 2025, which concentrates execution risk in retaining and motivating remaining personnel.
SaaS KPIs
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Summary, forecast, risks and KPIs are extracted from Paycom Software, Inc.'s SEC filings for Q1 FY2026 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.