Summary
Paycom Software reported second-quarter fiscal 2026 revenue of $531.2 million, an increase of 9.8% from the prior-year quarter. Year-to-date revenue reached $1.10 billion, up 8.8%. The top line was driven by new clients, additional applications sold to existing clients, and pricing, while client attrition among smaller clients partly offset those gains. Interest on funds held for clients declined because of lower interest rates, though higher average client fund balances provided some offset. The company continues to lean on its automation strategy, including the IWant AI engine and broader AI initiatives, to differentiate its single-database HCM platform. Paycom targets organizations with 50 to 10,000 or more employees and is expanding its Global HCM solution to attract larger employers.
Profitability improved sharply. Gross profit rose 11.6% to $442.1 million, and gross margin expanded 1.3 percentage points to 83.2%. Operating income climbed 50.0% to $168.5 million, lifting operating margin 8.5 percentage points to 31.7%. Net income was $107.4 million, up 20.0%, and diluted EPS rose 48.1% to $2.34. On a non-GAAP basis, net income was $127.7 million, or $2.78 per diluted share, and adjusted EBITDA was $235.0 million, or 44.2% of revenue. Year to date, revenue was $1.10 billion, up 8.8%, gross profit was $926.6 million, up 10.1%, operating income was $378.7 million, up 27.3%, and net income was $263.1 million, up 14.9%. Diluted EPS for the first half was $5.43, up 33.7%. Year-to-date gross margin was 84.0%, up 1.0 percentage point, and operating margin was 34.3%, up 5.0 percentage points. Management attributed the margin gains to automation-driven efficiencies and lower headcount, which reduced employee-related expenses. Research and development spending fell as the company capitalized less software development cost and carried fewer employees.
Cash generation was strong. Operating cash flow for the quarter was $213.8 million, up 74.5%, and year-to-date operating cash flow reached $427.6 million, up 40.2%. Capital expenditures fell 61.6% to $23.7 million in the quarter, and year-to-date capital expenditures declined 44.8% to $54.9 million. Free cash flow for the first half was $372.7 million, compared with $205.6 million in the prior-year period, and free cash flow margin was 33.8% versus 20.3%. Adjusted EBITDA for the first half was $510.4 million, up from $451.6 million, and non-GAAP net income was $289.0 million, up from $274.3 million. Deferred revenue stood at $152.9 million, up 2.1% from the prior-year quarter. The company used borrowings under its revolving credit facility to fund share repurchases, and it announced a new $2.0 billion stock repurchase authorization in May 2026. During the quarter it repurchased 2,570,072 shares for $345.9 million and paid $17.9 million in cash dividends.
For the full year 2026, Paycom raised its outlook. Total revenue is guided to $2.197 billion to $2.212 billion, representing growth of 7% to 8%. Recurring and other revenue growth is expected between 8% and 9%, interest on funds held for clients is projected at about $105 million, and adjusted EBITDA is guided to $1.007 billion to $1.022 billion, a margin of about 46% at the midpoint. The guidance assumes the automation strategy continues to drive efficiency. Risks include intense competition in HCM software, security vulnerabilities and cyber attacks, data privacy and regulatory changes, macroeconomic pressures that affect client hiring, and sensitivity to labor market trends because Paycom charges per employee for certain services. Client attrition, especially among smaller clients, remains a headwind. The company also faces execution risk as it expands internationally and targets larger employers, and its results can fluctuate with interest rates and seasonal payroll patterns. The HCM market is highly competitive, fragmented, and evolving, and aggressive pricing and client retention strategies persist. Paycom expects research and development employee-related expenses to be lower in 2026 than in 2025 as a result of reduced headcount. Seasonal payroll patterns typically make the first and fourth quarters stronger for recurring revenues.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2026 | Q1 FY2026 | QoQ | Q2 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $531.2M | $571.9M | -7.1% | $483.6M | +9.8% |
| Gross profit | $442.1M | $484.5M | -8.8% | $396.1M | +11.6% |
| Gross margin | 83.2% | 84.7% | -1.5 pp | 81.9% | +1.3 pp |
| Research & development | $51.9M | $60.7M | -14.5% | $74.8M | -30.6% |
| Sales & marketing | $273.6M | $274.3M | -0.3% | $283.8M | -3.6% |
| General & administrative | $77.3M | — | — | — | — |
| Total operating expenses | $362.7M | $361.7M | +0.3% | $371.3M | -2.3% |
| Operating income (loss) | $168.5M | $210.2M | -19.8% | $112.3M | +50.0% |
| Operating margin | 31.7% | 36.8% | -5.0 pp | 23.2% | +8.5 pp |
| Net income (loss) | $107.4M | $155.7M | -31.0% | $89.5M | +20.0% |
| Net margin | 20.2% | 27.2% | -7.0 pp | 18.5% | +1.7 pp |
| Diluted EPS | $2.34 | $3.04 | -$0.70 | $1.58 | +$0.76 |
Risks
Interest on funds held for clients fell 8.5% in the quarter and 8.7% year to date versus the prior year periods as lower interest rates more than offset an increase in average funds held for client balances ($3.0 billion for the six months ended June 30, 2026). Continued rate declines would further pressure this revenue stream, and other income (expense), net also decreased on lower interest income earned on corporate funds ($3.5 million year to date versus $10.3 million in the prior year period).
MD&A describes the HCM market as highly competitive, rapidly evolving and fragmented, and expects competition to remain intense as new market entrants and disruptive technologies emerge and aggressive pricing and client retention strategies persist, which can directly affect recurring revenue growth and the ability to attract and retain clients.
The company borrowed $900.0 million under its $2.125 billion Revolving Credit Facility during the six months ended June 30, 2026 to fund stock repurchases, driving interest expense up 1245.1% in the quarter and 833.0% year to date. The Credit Agreement requires a consolidated interest coverage ratio of at least 3.0 to 1.0 and a leverage ratio no greater than 3.5 to 1.0, and conditions dividend payments and share repurchases on those thresholds.
Growth in recurring and other revenues from new clients, additional application sales and pricing strategies was partially offset by client attrition, particularly among smaller clients, for both the three and six months ended June 30, 2026.
Because the company charges on a per-employee basis for certain services, results are sensitive to changes in the labor market; inflation, interest rates and other macroeconomic pressures affect clients' hiring practices and therefore revenues, and interest on funds held for clients depends on interest rate levels.
The effective income tax rate rose to 29.3% for the six months ended June 30, 2026 from 25.6% in the prior year period, primarily due to a decrease in excess tax benefits from stock-based compensation and a reduction of research and development credits; the provision for income taxes increased 78.6% in the quarter.
MD&A lists managing risks associated with the automation strategy as a risk factor. Automating core business systems produced headcount reductions and lower employee-related expenses, with total research and development costs down 40% in the quarter and 26% year to date and capitalized R&D down 58% and 42%, respectively, which raises execution and product-development risk.
The company cites changes in laws, government regulations and policies, compliance with data privacy laws, and regulatory and compliance risks related to its background checks business. Payroll and HCM demand is also driven by legislation and regulatory action such as COBRA, minimum wage and overtime rule changes and federal, state or municipal tax legislation.
Revenues are seasonal, with first and fourth quarter recurring revenues generally higher because payroll tax filing and Affordable Care Act forms are processed in the first quarter and unscheduled payroll runs concentrate in the fourth quarter, which also drives quarter-to-quarter fluctuations in operating income.
SaaS KPIs
All quarters →Adjusted EBITDA margin
Adjusted EBITDA
Non-GAAP Net Income
Non-GAAP Net Income per Diluted Share
Summary, forecast, risks and KPIs are extracted from Paycom Software, Inc.'s SEC filings for Q2 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.