Asked if capital allocation would be more balanced going forward or if buybacks remain the top priority, considering the aggressive buyback in H1.

Chad Richison highlighted prior year's $100M investment in data centers for AI models, which is now saving $100M in R&D and $30M+ in IWant fees. Robert Foster added that free cash flow is expected to exceed $650M in 2026, and capital allocation is focused on sustainable growth and efficiency. “What I would tell you is that based on the strong first half results and what we have visibility into for the rest of 2026, we do expect free cash flow to exceed $650 million in 2026.”

Sought to understand what is driving the improved free cash flow outlook for the year and a framework for EBITDA to FCF conversion rates moving forward.

Robert Foster attributed the improved FCF to broad-based efficiencies in processes and labor workforce, which are sustainable. He mentioned the company's conscious effort to bring EBITDA and FCF margins closer. “So that -- what was driving it this year and it is sustainable, was it was broad-based, too. It was efficiencies in how we do our processes and it was efficiencies in our labor workforce. And we'll continue to drive those efficiencies in the future.”

Asked how much of the acceleration in recurring revenue was due to better sales training from last year and expanded headcount.

Chad Richison stated that bookings came in as expected. He noted that new reps are getting to productivity much faster, and the additional headcount is expected to be accretive to future book sales as pipelines grow. “But what I will say this is, yes, bookings came in as expected. And also, just a stat to share is that our new reps coming out of training are getting up to productivity much faster than they ever have in the past and we're having great success with that. And so all this bodes well as we look into the future.”

PAYC

Paycom (PAYC) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Information Technology· Aug 5, 2026

Source: earnings call transcript

Executive summary

Paycom Q2 FY26 — Strong Revenue Growth and Margin Expansion

Paycom delivered a strong second quarter, exceeding revenue and profitability expectations driven by consistent product demand and increased client satisfaction. The company continues to leverage its automation initiatives and internal AI models to drive efficiencies and expand margins, while also returning significant capital to shareholders through aggressive share repurchases. New product launches and enhanced system performance are expected to further automate client processes and contribute to future growth.

Highlights

Total revenue grew 10% year-over-year to $531 million.
Adjusted EBITDA increased to $235 million, representing a 320 basis point year-over-year margin expansion to 44.2%.
Non-GAAP net income reached $128 million or $2.78 per diluted share.
The company repurchased 2.6 million shares for $346 million in Q2, reducing shares outstanding by approximately 6%.
Full-year 2026 revenue guidance was raised to between $2.197 billion and $2.212 billion, and adjusted EBITDA guidance to between $1.007 billion and $1.022 billion.

Guidance & targets

Category	Target	Timeline	Confidence
Total revenues	$2.197 billion and $2.212 billion high materiality	FY26 · 2026	High
Recurring and other revenue growth	up 8% to 9% year-over-year medium materiality	FY26 · 2026	High
Interest on funds held for clients	approximately $105 million medium materiality	FY26 · 2026	High
Adjusted EBITDA	$1.007 billion and $1.022 billion high materiality	FY26 · 2026	High
Free cash flow	exceed $650 million high materiality	FY26 · 2026	High
GAAP tax rate	29% low materiality	FY26 · 2026	High
Non-GAAP tax rate	27% low materiality	FY26 · 2026	High
Stock-based compensation as % of revenues	3% of revenues low materiality	FY26 · 2026	High

PAYC operating KPIs by quarter

PAYC operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Mar 2026 Q1 FY26	This call Jun 2026 Q2 FY26	Change vs prior quarter
Average daily balance on funds held for clients	~$3.1B The average daily balance on funds held for clients was approximately $3.1 billion in the first quarter of 2026, up 8% over the prior year period. Source: earnings call transcript	~$2.9B The average daily balance of funds held for clients was approximately $2.9 billion in the second quarter of 2026, up 9% over the prior year period. Source: earnings call transcript	—

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Product announcements

Product	Type	Timeline
Career and Succession Planning	launch	Earlier this year
Asset Management	launch	July
Project Arc	launch	This quarter
IWant (AI solution)	update	Ongoing

Capital programs

Data centers for AI models completed $100M+

Spent to date: $100M+

Start: FY25

Benefit:Host own AI models, improve system performance, greater processing power, $100M R&D savings, $30M+ IWant response fees savings

Investment made last year to prepare data centers to host Paycom's own AI models. This investment is expected to lead to significant savings in R&D and third-party IWant response fees in FY26, and also improved system performance.

What to watch in Q3 FY26

New product contribution to revenue

Future quarters

Current Minimal contribution in Q2 FY26

Target Increased contribution

Why it matters

New products like Asset Management and Career and Succession Planning expand TAM and are expected to drive future growth.

I would say their contribution to this quarter wouldn't have been meaningful but they would -- one of them would have contributed a little bit. But we do look for both of those to contribute more as we move into the future.

Find out whether PAYC delivers this. Inve re-checks your case every morning.

Q&A highlights

Inquired about the significant revenue beat and whether there were any one-off factors or new product contributions driving the strength.

Chad Richison stated the strength was broad-based with no one-off factors, coming from the same buckets as always. He noted some products from the previous year contributed, but new Q2 products had minimal impact, though expected to contribute more in the future.

“No, it was broad-based, nothing new, all from the same buckets that we've always had in the past.”

asked by Raimo Lenschow · answered by Chad Richison

2 min read 6 chapters

Detailed narrative

Product Innovation and Automation

Paycom continues to expand its automation capabilities with AI and automated decisioning, delivering increased value to clients. Recent product releases include Career and Succession Planning, which equips leaders to identify and develop talent, and Asset Management, launched in July, which manages physical and digital assets.

Asset Management expands Paycom's capabilities into a new multibillion-dollar Total Addressable Market (TAM) and is the 45th product developed, hosted, distributed, and serviced by the company.

Project Arc and System Performance

The company released Project Arc, its largest system-wide release, fundamentally changing the client and employee experience. This update enhances customization, performance, scalability, and functionality, with one client reporting a 4x increase in system performance. Paycom's award-winning AI solution, IWant, continues to accelerate speed to value by providing system intelligence that automates events and tasks, making the system easier for new users.

Sales Productivity and Headcount Expansion

Paycom's sales organization is experiencing improved productivity, with new representatives ramping up faster than in previous classes. The company expanded its sales teams from 8 to 10 members, adding over 100 new sales reps. This additional headcount is expected to be accretive to future book sales as their pipelines mature, contributing to continued growth throughout the year and into next year.

Capital Allocation Strategy

The company executed aggressive share repurchases, buying back 2.6 million shares for $346 million in Q2 FY26 and a total of 11 million shares for $1.4 billion in the first half of the year, reducing shares outstanding by 20%. This strategy reflects management's view of a valuation disconnect and commitment to returning value to shareholders.

The Board also approved a quarterly dividend of $0.375 per share, payable in early September.

Efficiency and Margin Expansion

Efforts over the past several quarters, including process automation and leveraging internal technology, are driving increased productivity and sustainable margin expansion. Investments made in FY25 to prepare data centers for hosting AI models are now yielding significant savings, including approximately $100 million in R&D and over $30 million in IWant response fees for FY26, contributing to a record adjusted EBITDA margin of 46% at the midpoint of the full-year guidance.

Client Employment Stability

Client employment growth has remained stable, consistent with historical trends, excluding the significant decline during the COVID-19 pandemic and subsequent recovery. This stability is factored into the company's guidance, indicating no significant changes in client workforce sizes are anticipated to impact revenue. Paycom's focus remains on client ROI achievement through automation, rather than solely on headcount growth.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.