Paycom Software delivered stronger-than-expected second-quarter 2026 earnings as recurring revenue growth, margin expansion, lower research spending, and a substantially reduced share count supported higher profitability.
Management said the quarterly results came in ahead of its expectations and raised the company’s full-year outlook following the performance.
Total revenue increased 9.8% to $531.2 million from $483.6 million during the prior-year quarter.
Recurring and other revenue increased 11% to $505.2 million.
That business represented 95.1% of Paycom’s total quarterly revenue, demonstrating that the company remains primarily supported by recurring software and service revenue.
Interest earned on funds held for clients declined to $26 million from $28.5 million.
The weaker interest contribution partially offset Paycom’s underlying recurring-revenue growth.
GAAP net income increased approximately 20% to $107.4 million from $89.5 million.
Net income represented 20.2% of revenue, compared with 18.5% during the prior-year period.
Diluted earnings per share surged approximately 48% to $2.34 from $1.58.
The increase in EPS substantially exceeded net-income growth because Paycom’s weighted-average diluted share count declined nearly 19% to 45.9 million from 56.5 million.
Non-GAAP net income increased approximately 9.5% to $127.7 million from $116.6 million.
Non-GAAP diluted EPS rose approximately 35% to $2.78 from $2.06, also benefiting from the lower share count.
Adjusted EBITDA increased approximately 18.5% to $235 million from $198.3 million.
Adjusted EBITDA margin expanded by 320 basis points to 44.2% from 41%.
Operating income grew even faster.
Paycom generated $168.5 million of operating income, increasing approximately 50% from $112.3 million.
Operating margin expanded to approximately 31.7% from 23.2%, based on the reported figures.
Gross profit increased to $442.1 million from $396.1 million.
GAAP gross margin improved by 130 basis points to 83.2%, while adjusted gross margin rose 40 basis points to 83.6%.
Most of the earnings acceleration came from operating-expense leverage rather than gross-margin expansion alone.
Total operating expenses declined to $362.7 million from $371.3 million despite the nearly 10% increase in revenue.
Research and development spending declined particularly sharply.
Reported R&D expense fell approximately 31% to $51.9 million from $74.8 million.
Adjusted R&D expense declined to $51 million from $62.2 million.
Paycom also reduced the amount of development spending capitalized during the quarter.
Capitalized R&D costs fell approximately 58% to $15.6 million from $36.9 million.
Total R&D costs, including capitalized development, declined approximately 39.5% to $67.6 million from $111.7 million.
Total R&D costs fell to 12.7% of revenue from 23.1%.
After excluding stock-based compensation, adjusted total R&D costs declined to $65.9 million from $90.7 million and represented 12.4% of revenue, compared with 18.8% one year earlier.
Stock-based compensation also declined substantially.
Quarterly stock compensation fell approximately 54% to $17.6 million from $38.4 million.
R&D-related stock compensation declined to $0.9 million from $12.6 million.
Sales and marketing expenses increased modestly to $118.8 million from $116 million.
However, the expense declined to 22.4% of revenue from 24%, reflecting operating leverage as revenue grew faster than sales spending.
General and administrative expenses increased to $77.3 million from $70.2 million.
Total administrative expenses nevertheless declined to 51.5% of revenue from 58.7%, supported by lower R&D expenses and reduced stock-based compensation.
Cash generation also improved during the first half of 2026.
Operating cash flow increased approximately 40% to $427.6 million from $305 million.
Free cash flow surged approximately 81% to $372.7 million from $205.6 million.
Free-cash-flow margin expanded to 33.8% from 20.3%.
The improvement reflected higher earnings, lower capital expenditures, and a $74.8 million cash benefit from changes involving income taxes.
Paycom used substantial amounts of capital to repurchase shares.
The company bought back approximately 2.57 million shares for $345.9 million during the second quarter and paid $17.9 million in dividends.
First-half share repurchases reached approximately $1.39 billion.
Paycom also borrowed $900 million under its credit facility, while cash and equivalents declined to $198 million from $370 million at the end of 2025.
The repurchases reduced common shares outstanding to 44.3 million from 54.8 million at year-end, a decline of approximately 19%.
Treasury stock increased to $2.82 billion, while total stockholders’ equity declined to $571.5 million from $1.73 billion.
Following the stronger-than-expected quarter, Paycom raised its full-year outlook.
The company now expects 2026 revenue of between $2.197 billion and $2.212 billion, representing growth of approximately 7% to 8%.
Recurring and other revenue is expected to increase between 8% and 9%.
Paycom expects approximately $105 million of full-year interest income from funds held for clients.
Adjusted EBITDA is projected at between $1.007 billion and $1.022 billion.
The midpoint implies an adjusted EBITDA margin of approximately 46%, exceeding the second-quarter margin of 44.2%.
The guidance indicates that management expects further profitability improvement during the second half, although projected full-year revenue growth remains below the second quarter’s 9.8% pace.
Paycom attributed its stronger results to automation, product innovation, and disciplined execution.
The company is continuing to expand automated HR and payroll capabilities across its single-database platform, including its IWant AI engine, which allows employees to retrieve information without navigating conventional software menus.
The second-quarter results show that Paycom is producing stronger earnings through a combination of recurring revenue growth, reduced development spending, lower stock compensation, margin expansion, and an aggressive share-repurchase program.
Future performance will depend on whether the company can maintain its operating efficiency while continuing to invest enough in product development and sales capacity to sustain longer-term revenue growth.
KEY QUOTES:
“Our strong second-quarter results came in ahead of expectations, reflecting the strength of our automation strategy and disciplined execution.”
“We are building strong momentum through new product innovation and continued automation across our platform. With these strong results we are raising our full year outlook.”
Chad Richison, Founder And Chief Executive Officer Of Paycom Software
