A maker of cloud-based payroll and human-resources software, Paycom lets businesses run hiring, benefits, time tracking, and paychecks from one online platform. One of the first companies to process payroll entirely over the internet, it was founded in 1998 in Oklahoma City by Chad Richison, who often had to demo his newfangled web system in person to win over skeptical clients. Its Beti feature lets employees double-check and approve their own pay before it's finalized.
Paycom drew $225M more in floating-rate debt to fund buybacks, lifting interest expense to $10.5M while operating income rose 50% on lower R&D and stock-based compensation.
Paycom took on more debt to buy back stock. rose 9.8% to $531.2 million and climbed 50% to $168.5 million as R&D expense fell 30.6% and dropped 54%, but rose to $10.5 million from $0.8 million a year ago after the company increased its borrowings to $900 million. The cost structure is leaner, but the company is now funding shareholder returns with .
Key takeaways
rose 50% to $168.5 million, and widened 8.5 points to 31.7%, driven by a 30.6% decline in R&D expense from lower headcount and reduced , plus a 54% drop in non-cash to $17.6 million.
grew 9.8% to $531.2 million, with recurring and other revenue up 11%, supported by new client additions, expanded services, and pricing, partially offset by attrition among smaller clients.
Section summaries
Management's Discussion and Analysis
Q2 FY2026 revenue rose 9.8% to $531.2M, operating income surged 50% on lower R&D and stock-based compensation, while interest expense spiked on new borrowings.
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Total revenues grew 9.8% to $531.2M in Q2, driven by 11% growth in recurring and other from new clients, expanded services, and pricing, partially offset by client attrition among smaller clients.
Interest on funds held for clients fell 8.5% to $26.0M as lower interest rates more than offset a higher average daily balance of $3.0B.
rose to $10.5 million from $0.8 million a year ago, reflecting $900 million in borrowings under the used to fund stock repurchases; a 100-basis-point rate increase would add $5.9 million in annual interest cost.
rose 1.3 points to 83.2%, as cost of revenues grew 2.1% — well below the 9.8% increase — continuing the recovery that began in FY2025.
Interest on funds held for clients fell 8.5% to $26.0 million as lower interest rates more than offset a higher average daily balance of $3.0 billion; a 100-basis-point rate shift would now change this income by $25.7 million over 12 months.
rose 20% to $107.4 million, and rose 48.1% to $2.34, with the growth rate exceeding net income growth due to a lower share count from repurchases.
What changed
The Q1 FY2026 watch item on whether the $675 million would grow further was answered: borrowings rose to $900 million in Q2, and climbed to $10.5 million from $4.0 million in Q1.
The Q1 watch item on whether headcount reductions and automation-driven cost savings were sustainable saw further evidence: R&D expense fell 30.6% in Q2, an even steeper decline than the prior quarter, and dropped 54%.
The FY2025 watch item on whether could hold above 83% was met: Q2 gross margin reached 83.2%, up 1.3 points , as cost of revenues growth remained well below growth.
The FY2025 watch item on whether elevated sales and marketing spend would compress did not materialize in Q2: operating margin widened 8.5 points to 31.7% as expense reductions in R&D and more than offset any sales and marketing pressure.
What to watch
Whether the $900 million in floating-rate borrowings grows further and how the $5.9 million per 100-basis-point sensitivity affects if the Federal Reserve raises or holds rates.
Whether the 30.6% decline in R&D expense is a one-time reset from headcount reductions or the start of a sustained lower run rate, and if it affects product development or international expansion.
The pace of share repurchases under the new $2.0 billion authorization and whether additional debt is drawn to fund them, given cash and equivalents fell to $198.0 million.
The trajectory of interest income on client funds now that the average balance has reached $3.0 billion, and whether the $25.7 million rate sensitivity per 100 becomes a larger factor if the Fed changes course.
jumped 50% to $168.5M, as total operating expenses declined 2.3%, led by a 30.6% drop in R&D expense due to lower headcount and reduced .
Non-cash expense fell 54% to $17.6M, with the steepest decline in R&D, contributing to .
surged to $10.5M from $0.8M a year ago, reflecting $900M in borrowings under the used to fund stock repurchases.
The rose to 29.3% for the six-month period, up from 25.6%, due to lower and reduced R&D credits.
Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk arises from corporate cash, client funds, available-for-sale securities, and floating-rate debt; a 100 bps shift would change client-fund interest income by $25.7M.
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Corporate cash ($198.0M) and client-fund cash ($2.6B) are held mainly in demand deposits and money market funds, prioritizing capital preservation and liquidity.
of $375.1M consist of short-dated U.S. Treasuries and a certificate of deposit; unrealized gains/losses from rate changes bypass earnings unless sold or impaired.
A hypothetical 100 parallel shift in rates would alter interest earned on client funds by approximately $25.7M over the next 12 months, with no associated cost of impact.
The same 100 rate move would change the market value of by about $0.9M, based on a sensitivity model.
Floating-rate borrowings of $900.0M under the expose the company to higher ; a 100 change would shift annual interest expense by $5.9M.
From time to time, we are involved in various disputes, claims, suits, investigations and legal proceedings arising in the ordinary course of business. “Item 3. Legal Proceedings” of the Form 10-K includes a discussion of legal proceedings. There have been no material changes fr…
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From time to time, we are involved in various disputes, claims, suits, investigations and legal proceedings arising in the ordinary course of business. “Item 3. Legal Proceedings” of the Form 10-K includes a discussion of legal proceedings. There have been no material changes from the information set forth in “Item 3. Legal Proceedings” of the Form 10-K. We believe that the resolution of current pending legal matters will not have a material adverse effect on our business, financial condition, results of operations or cash flows. Nonetheless, we cannot predict the outcome of these proceedings, as legal matters are subject to inherent uncertainties, and there exists the possibility that the ultimate resolution of these matters could have a material adverse effect on our business, financial condition, results of operations or cash flows.
There have been no material changes from the information set forth in “Item 1A. Risk Factors” in the Form 10-K filed with the SEC on February 19, 2026.
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There have been no material changes from the information set forth in “Item 1A. Risk Factors” in the Form 10-K filed with the SEC on February 19, 2026.