Q2 2026 Paycom Software Inc Earnings Call

August 5, 2026

Hillary: Good afternoon. My name is Hillary, and I will be your conference operator today. At this time, I would like to welcome everyone to Paycom's Q2 2026 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I will now turn the call over to James Samford, Head of Investor Relations. You may begin.

Operator: Good afternoon. My name is Hillary, and I will be your conference operator today. At this time, I would like to welcome everyone to Paycom's Q2 2026 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I will now turn the call over to James Samford, Head of Investor Relations. You may begin.

Speaker #1: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press * followed by the number 1 on your telephone keypad.

Speaker #1: If you would like to withdraw your question, please press *1 again. Thank you. I will now turn the call over to James Samford, Head of Investor Relations you may begin...

Speaker #2: Thank you, and welcome to Paycom's earnings conference call for the second quarter of 2026. Certain statements made on this call that are not historical facts, including those related to our future plans, objectives, and expected performance, are forward-looking statements within the meaning of the private securities litigation reform act of statements represent our outlook only as of the date of this conference call.

James Samford: Thank you. Welcome to Paycom's earnings conference call for Q2 2026. Certain statements made on this call that are not historical facts, including those related to our future plans, objectives, and expected performance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this conference call. While we believe any forward-looking statements made on this call are reasonable, actual results may differ materially because the statements are based on our current expectations and are subject to risks and uncertainties. These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on Form 10-K. You should refer to and consider these factors when relying on such forward-looking information.

Speaker #2: While we believe any forward-looking statements made on this call are reasonable, actual results may differ materially because the statements are based on our current expectations and subject to risks and uncertainties.

Speaker #2: These risks and uncertainties are discussed in our filings with the ICC, including our most recent annual report on Form 10-K. You should refer to and consider these factors when relying on such forward-looking information.

Speaker #2: Any forward-looking statement made speaks only as of the date on which it is made, and we do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements.

James Samford: Any forward-looking statement made speaks only as of the date on which it is made. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. Also, during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income, and certain adjusted expenses. We use these non-GAAP financial measures to review and assess our performance and for planning purposes. A reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of the market today and is available on our website at investors.paycom.com. I will now turn the call over to Chad Richison, Paycom's Founder and CEO. Chad?

Speaker #2: Whether as a result of new information, future events, or otherwise, except as required by applicable law. Also, during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income, and certain adjusted expenses.

Speaker #2: We use these non-GAAP financial measures to review and assess our performance and for planning purposes. A reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of the market today and is available on our website at investors.paycom.com.

Speaker #2: I will now turn the call over to Chad Richison, Paycom's founder and CEO. Chad?

Speaker #3: Thanks, James, and thank you to everyone joining our call today. I'll briefly comment on some of the new product launches and achievements so far this year, then I will pass the call over to our president, Shane Hadlock, and then Bob will review our second quarter results and full year guidance.

Chad Richison: Thanks, James. Thank you to everyone joining our call today. I'll briefly comment on some of the new product launches and achievements so far this year. I will pass the call over to our President, Shane Hadlock. Bob will review our Q2 results and full year guidance. We will then take questions. Let's get started. We delivered another solid quarter with results coming in ahead of expectations. The benefit of our software's full solution automation, coupled with world-class service, continue to drive industry-leading ROI, which is resonating in the market. With our strong H1 results, we are well-positioned to exceed our initial 2026 plan on both a revenue and profitability basis. Demand for automation is increasing. Our platform remains the most intelligent solution in the industry.

Speaker #3: We will then take questions. Let's get started. We delivered another solid quarter with results coming in ahead of expectations. The benefit of our software's full solution automation, coupled with world-class service, continued to drive industry-leading ROI, which is resonating in the market.

Speaker #3: With our strong first-half results, we are well-positioned to exceed our initial 2026 plan on both the revenue and profitability basis. Demand for automation is increasing, and our platform remains the most intelligent solution in the industry.

Speaker #3: Thanks to our early focus on data integrity and consolidation, we continue to expand our automation capabilities with AI and automated decisioning to deliver even more value to our clients.

Chad Richison: Thanks to our early focus on data integrity and consolidation, we continue to expand our automation capabilities with AI and automated decisioning to deliver even more value to our clients. Earlier this year, we announced the release of our Career and Succession Planning solution, and we are seeing solid client adoption. This is another automated product that equips leaders with a solution to more easily identify and develop talent, ensuring organizations are better prepared for the future. With this product, organizations have reliable data to discover workforce talent gaps and assess talent readiness. A client of ours with over 500 employees who is already using our performance and Paycom Learning products added Career and Succession Planning, and for the first time, they have all key positions and successors identified.

Speaker #3: Earlier this year, we announced the release of our career and succession planning solution, and we are seeing solid client adoption. This is another automated product that equips leaders with the solution to more easily identify and develop talent, ensuring organizations are better prepared for the future.

Speaker #3: With this product, organizations have reliable data to discover workforce talent gaps and assess talent readiness. A client of ours with over 500 employees who has already using our performance and Paycom learning products added career and succession planning, and for the first time, they have all key positions and successors identified.

Speaker #3: They were very pleased with how quickly they could identify leadership gaps and fill them with people who were developed to step into the roles.

Chad Richison: They were very pleased with how quickly they could identify leadership gaps and fill them with people who were developed to step into the roles. Clients are thrilled with this new functionality and the automation it creates for career development and succession. In July, we released our latest automated product, Asset Management. This solution enables businesses to manage their physical and digital assets, which represent one of their largest budgetary spends, ensuring those investments are deployed, tracked, and recovered through our automated software. The launch of Asset Management expands our capabilities into an entirely new multibillion-dollar TAM that fits perfectly within our software ecosystem. By combining Asset Management with the automated tools already in the Paycom system, we help our clients strengthen the security of their assets, bolster compliance, and reduce lost property.

Speaker #3: Clients are thrilled with this new functionality and the automation it creates for career development and succession. In July, we released our latest automated product, Asset Management.

Speaker #3: This solution enables businesses to manage their physical and digital assets which represent one of their largest budgetary spends, ensuring those investments are deployed tracked and recovered through our automated software.

Speaker #3: The launch of Asset Management expands our capabilities into an entirely new multibillion-dollar TAM that fits perfectly within our software ecosystem. By combining Asset Management with the automated tools already in the Paycom system, we help our clients strengthen the security of their assets bolster compliance and reduce lost property.

Speaker #3: Not only can organizations track all of their assets across their locations, but they can also identify the exact resources a position requires, which ensures consistent deployment and retrieval of all company assets.

Chad Richison: Not only can organizations track all of their assets across their locations, they can also identify the exact resources a position requires, which ensures a consistent deployment and retrieval of all company assets. Even though it was just released a few weeks ago, client feedback has been very strong, and they're already adopting this new technology. Asset Management marks the 45th product we have developed, hosted, distributed, and serviced over our nearly 28 years in business. We take great pride in our ability to consistently release industry-leading technology that generates tremendous ROI for our clients. Now I would like to turn the call over to Shane Hadlock. Prior to his role as our president, he served as our chief client officer, where he was instrumental in increasing retention, driving world-class service, building strong groups of leaders, and delivering tremendous automation across the organization.

Speaker #3: Even though it was just released a few weeks ago, client feedback has been very strong and there are already adopting this new technology. Asset Management marks the 45th product we have developed, hosted, distributed, and serviced over our nearly 28 years in business.

Speaker #3: We take great pride in our ability to consistently release industry-leading technology that generates tremendous ROI for our clients. Now I would like to turn the call over to Shane Hadlock, prior to his role as our president, he served as our Chief Client Officer where he was instrumental in increasing retention, driving world-class service, building strong groups of leaders, and delivering tremendous automation across the organization.

Speaker #3: With that, let me turn the call over to Shane.

Chad Richison: With that, let me turn the call over to Shane.

Speaker #4: Thanks, Chad. We are driving innovation across our industry and this quarter we released Project ARC. Project ARC was the largest system-wide release we have had in our company's history.

Shane Hadlock: Thanks, Chad. We are driving innovation across our industry. This quarter, we released Project Ark. Project Ark was the largest system-wide release we have had in our company's history. This new release fundamentally changes the way clients and their employees experience Paycom. Clients love the new scalability and customization. This new release gives each user a unique experience, helping them quickly find the information and action items most relevant to them. Our clients say that their managers are raving about how customizable the system is, making it easier for them to do their jobs. One of our clients with a few thousand employees said that they were impressed with the new Ark release because it provides great customization and performance for their employees, managers, and organization. In addition to the new customizable features, Project Ark included significant updates to enhance the performance, scalability, and functionality of our software.

Speaker #4: This new release fundamentally changes the way clients and their employees experience Paycom. Clients love the new scalability and customization. This new release gives each user a unique experience helping them quickly find the information and action items most relevant to them.

Speaker #4: Our clients say that their managers are raving about how customizable the system is, making it easier for them to do their jobs. One of our clients with a few thousand employees said that they were impressed with the new ARC release because it provides great customization and performance for their employees, managers, and organization.

Speaker #4: In addition to the new customizable features, Project ARC included significant updates to enhance the performance, scalability, and functionality of our software. These changes to system performance and scalability have produced an experience for our clients that is much more efficient.

Shane Hadlock: These changes to system performance and scalability have produced an experience for our clients that is much more efficient. In fact, a client of ours with over 10,000 employees reported their system performance increased by 4x. Client feedback has been incredible, and they are enjoying the benefits of this customization and improved scale, making the industry's most intelligent solution even more powerful. Our award-winning AI solution, I Want, continues to accelerate speed to value for our clients by providing them with system intelligence that automates events and tasks within the system. For many new employees and new users of our software, utilizing I Want is their first interaction of our software, making it easier than ever to use. As we roll out more AI and automation across the platform, we are driving measurable value for our clients and their employees.

Speaker #4: In fact, a client of ours with over 10,000 employees reported their system performance increased by 4X. Client feedback has been incredible and they are enjoying the benefits of this customization and improved scale.

Speaker #4: Making the industry's most intelligent solution even more powerful. Our award-winning AI solution, I Want, continues to accelerate speed-to-value for our clients by providing them with system intelligence that automates events and tasks within the system.

Speaker #4: For many new employees and new users of our software, utilizing I Want is their first interaction of our software making it easier than ever to use.

Speaker #4: As we roll out more AI and automation across the platform, we are driving measurable value for our clients and their employees. I Want has been a game changer for our clients and the industry.

Shane Hadlock: I Want has been a game changer for our clients and the industry. I am proud of our team and all the work we have accomplished over the course of the year to drive efficiency and client satisfaction. Across the board, we have great talent at Paycom, especially in the leadership team. We have a deep and experienced bench with institutional knowledge and a competitive mindset that sets us apart. I would like to thank our employees for their contributions to an excellent H1 of 2026 and the robust results year to date. We are building strong momentum on a variety of new products to further automate businesses. During the quarter, our product and culture received several accolades. Paycom earned the 2026 Top Rated award from TrustRadius, which reflects strong client satisfaction across multiple HR and payroll categories.

Speaker #4: I am proud of our team and all the work we have accomplished over the course of the year to drive efficiency and client satisfaction.

Speaker #4: Across the board, we have great talent at Paycom, especially in the leadership team. We have a deep and experienced bench with institutional knowledge and a competitive mindset that sets us apart.

Speaker #4: I would like to thank our employees for their contributions to an excellent first half of 2026 and the robust results year to date. We are building strong momentum on a variety of new products to further automate businesses.

Speaker #4: During the quarter, our product and culture received several accolades. Paycom earned the 2026 Top Rated Award from TrustRadius, which reflects strong client satisfaction across multiple HR and payroll categories.

Speaker #4: I was also pleased to see Paycom was named to Newsweek's Greatest Workplaces in Tech and our sales organization was included in selling powers 60 Best Companies to Sell For.

Shane Hadlock: I was also pleased to see Paycom was named to Newsweek's Greatest Workplaces in Tech. Our sales organization was included in Selling Power's 60 Best Companies to Sell For. These awards highlight our differentiated product set, client satisfaction, and elite sales program. This is an exciting time to be part of Paycom. With that, let me turn the call over to Bob.

Speaker #4: These awards highlight our differentiated product set, client satisfaction, and elite sales program. This is an exciting time to be part of Paycom. With that, let me turn the call over to Bob.

Speaker #4: Thank you, Shane. Second quarter results were strong, with total revenue of $531 million, up 10% over the comparable prior-year period, and recurring and other revenue of $505 million, up 11% year over year.

Bob Foster: Thank you, Shane. Q2 results were strong, with total revenue of $531 million, up 10% over the comparable prior year period, and recurring and other revenue of $505 million, up 11% year over year. Revenue strength in the quarter was broad-based, reflecting consistent product demand conditions and increased client satisfaction. Our focus on process automation and leveraging our own technology is driving increased productivity across the organization that is fundamentally strengthening our business. Our efforts over the last several quarters are driving sustainable margin expansion and earnings growth. GAAP net income increased 20% in Q2 to $107 million, or $2.34 per diluted share, based on an average of 46 million shares outstanding. Non-GAAP net income for Q2 was $128 million, or $2.78 per diluted share.

Speaker #4: Revenue strengthened the quarter with broad-based reflecting consistent product demand conditions and increased client satisfaction. Our focus on process automation and leveraging our own technology is driving increased productivity across the organization that is fundamentally strengthening our business.

Speaker #4: Our efforts over the last several quarters are driving sustainable margin expansion and earnings growth. Gap net income increased 20% in the second quarter to $107 million.

Speaker #4: Or $2.34 per diluted share based on an average of 46 million shares outstanding. Non-gap net income for the second quarter was $128 million or $2.78 per diluted share.

Speaker #4: Adjusted EBITDA in the second quarter came in at $235 million representing a 320 basis point year over year margin expansion to 44.2%. Based on the strength of our results in the first half, we are well positioned to deliver industry leading EBITDA margins, record free cash flow, and accelerated earnings per share growth in 2026.

Bob Foster: Adjusted EBITDA in Q2 came in at $235 million, representing a 320 basis point year over year margin expansion to 44.2%. Based on the strength of our results in H1, we are well-positioned to deliver industry-leading EBITDA margins, record free cash flow, and accelerated earnings per share growth in 2026. Opportunistically repurchased approximately 2.6 million shares of common stock or approximately 6% of our shares outstanding for a total of $346 million. Over the first six months of the year, we reduced shares outstanding by 20% by repurchasing nearly 11 million shares of common stock, returning approximately $1.4 billion to stockholders. We ended Q2 with approximately 44 million shares outstanding and $1.66 billion remaining on our buyback authorization.

Speaker #4: We continue to identify what we view as a valuation disconnect in the market during the second quarter and opportunistically repurchased approximately 2.6 million shares of common stock, or approximately 6% of our shares outstanding.

Speaker #4: For a total of 346 million dollars. Over the first six months of the year, we reduced shares outstanding by 20% by repurchasing nearly 11 million shares of common stock.

Speaker #4: Returning approximately 1.4 billion dollars to stockholders. We ended the second quarter with approximately 44 million shares outstanding and 1.66 billion dollars remaining on our buyback authorization.

Speaker #4: We also paid approximately $18 million in cash dividends during the second quarter. On August 3rd, the board approved our next quarterly dividend of $37.50 per share payable in early September.

Bob Foster: We also paid approximately $18 million in cash dividends during Q2. On 03 August, the board approved our next quarterly dividend of $0.375 per share, payable in early September. Turning to the balance sheet, we continue to enjoy a very strong liquidity position. We ended the quarter with cash and cash equivalents of $198 million and have drawn down a total of $900 million on our $2.1 billion revolving credit facility to support our year-to-date stock repurchases. The average daily balance of funds held for clients was approximately $2.9 billion in Q2 2026, up 9% over the prior year period. Let me turn to guidance for 2026. Based on the strength of our H1 results and more visibility heading into H2, we can confidently increase our revenue and adjusted EBITDA guidance ranges.

Speaker #4: Turning to the balance sheet, we continue to enjoy a very strong liquidity position. We ended the quarter with cash and cash equivalents of $198 million and have drawn down a total of $900 million on our 2.1 billion dollar revolving credit facility.

Speaker #4: To support our year to date stock repurchases. 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.

Speaker #4: Now, let me turn to guidance for 2026. Based on the strength of our first half results, and more visibility heading into the second half, we can confidently increase our revenue and adjusted EBITDA guidance ranges.

Speaker #4: We expect total revenues to be between $2.197 billion and $2.212 billion or between 7 and 8 percent year over year growth. We now expect full year recurring and other revenue to be up 8 to 9 percent year over year.

Bob Foster: We expect total revenues to be between $2.197 billion and $2.212 billion, or between 7% and 8% year over year growth. We now expect full-year recurring and other revenue to be up 8% to 9% year over year. Included in total revenue outlook is interest on funds held for clients of approximately $105 million, which assumes current rates hold for the remainder of the year. Finally, as we continue to benefit from the impact of our automation initiatives, full year adjusted EBITDA is now expected to be between $1.007 billion and $1.022 billion, representing a record adjusted EBITDA margin of 46% at the midpoint of the range. Our strong H1 results have bolstered our conviction in our 2026 plan and in our full solution automation strategy. We are executing well across the organization.

Speaker #4: Included in total revenue outlook is interest on funds held for clients of approximately $105 million which assumes current rate hold for the remainder of the year.

Speaker #4: Finally, as we continue to benefit from the impact of our automation initiatives, full year adjusted EBITDA is now expected to be between $1.007 billion and $1.022 billion.

Speaker #4: Representing a record adjusted EBITDA margin of 46% at the midpoint of the range. Our strong first half results have bolstered our conviction in our 2026 plan and in our full solution automation strategy.

Speaker #4: We are executing well across the organization. Our clients are increasingly pleased with our platform and their ROI achievement. And we continue to opportunistically return value to stockholders through our capital allocation strategy.

Bob Foster: Our clients are increasingly pleased with our platform and their ROI achievement. We continue to opportunistically return value to stockholders through our capital allocation strategy. We'd like to thank our employees for their commitment to our vision and their contribution to our strong H1 results. With that, let's open the line for questions. Operator?

Speaker #4: We'd like to thank our employees for their commitment to our vision and their contribution to our strong first half results. With that, let's open the line for questions.

Speaker #4: Operator.

Speaker #2: At this time, I would like to remind everyone in order to ask a question, please press star and then the number one on your telephone keypad.

Hillary: At this time, I would like to remind everyone, in order to ask a question, please press star and then one on your telephone keypad. In the interest of time, we ask that you please limit yourself to one question and one follow-up. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Raimo Lenschow from Barclays. Your line is now open. Please go ahead.

Operator: At this time, I would like to remind everyone, in order to ask a question, please press star and then one on your telephone keypad. In the interest of time, we ask that you please limit yourself to one question and one follow-up. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Raimo Lenschow from Barclays. Your line is now open. Please go ahead.

Speaker #2: In the interest of time, we ask that you please limit yourself to one question and one follow-up. We'll pause for just a moment to compile the Q&A roster.

Speaker #2: Your first question comes from the line of Raymo Lencho from Barclays. Your line is now open. Please go ahead.

Speaker #5: Perfect. Thank you. Congrats from me. It's a great quarter. If I look through my model chat, it's like the biggest beat you had for a while revenue accelerated very nicely.

Raimo Lenschow: Perfect. Thank you. Congrats from me. It's a great quarter. If I look through my model, Chad, it's like the biggest beat you had for a while. Revenue accelerated very nicely. Was there anything special in this quarter, like one-off factors or something that drove that? Can you speak to that strength? You gave some of the pointers already, but I have a lot of clients kind of wondering, Wow, this is really, really good, so what happened here? I have one quick follow-up for Bob.

Speaker #5: Was there anything special in this quarter? Like one-off factors or something that drove that? Can you speak to that strength? I mean, you gave some of the pointers already, but I have a lot of clients kind of wondering, well, this is really, really good.

Speaker #5: So what happened here? And then I had one quick follow-up about.

Speaker #4: No. It was broad-based. Nothing new. All from the same buckets that we've always had in the past.

Chad Richison: No, it was broad-based, nothing new. All from the same buckets that we've always had in the past.

Speaker #5: Okay, perfect. And is there anything from a new product contributing already, or is it just—well, it seems almost too early for that?

Raimo Lenschow: Okay, perfect. Anything on the new products contributing already? Is this just Well, this seems to be almost too early for that.

Speaker #4: Yeah. I mean, obviously some of the products that we produced last year starting to contribute to that, we did release to significant products. I would say in the last three months, one of them in the last couple of weeks.

Chad Richison: Yeah. Obviously, some of the products that we produced last year are starting to contribute to that. We did release two significant products, I would say, in the last three months, one of them in the last couple of weeks. I would say their contribution to this quarter wouldn't have been meaningful, but one of them would've contributed a little bit. We do look for both of those to contribute more as we move into the future.

Speaker #4: I would say their contribution to this quarter wouldn't have been meaningful, but 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.

Speaker #2: Thank you for your question. Your next question comes from the line of Samad Samana from Jefferies. Your line is now open.

Hillary: Thank you for your question. Your next question comes from the line of Samad Samana from Jefferies. Your line is now open.

Operator: Thank you for your question. Your next question comes from the line of Samad Samana from Jefferies. Your line is now open.

Speaker #6: Hi. Good evening. And thanks for taking my questions. Chad, you guys have always had a very strong sales distribution team. I'm curious, you've talked a lot about AI and the impact of solutions you're creating for clients.

Samad Samana: Hi, good evening, and thanks for taking my questions. Chad, you guys have always had a very strong sales distribution team. You've talked a lot about AI and the impact of solutions you're creating for clients. I'm curious what you guys are doing from an internal AI enablement perspective for your sales organization, and how that's driving productivity and how you might think about that influencing sales office expansion or headcount growth. Then I have one follow-up.

Speaker #6: I'm curious what you guys are doing from an internal AI enablement perspective for your sales organization. And how that's driving productivity and how you might think about that influencing sales office expansion or headcount growth.

Speaker #6: And then I have one follow-up.

Speaker #4: Yes. I don't know that I would say AI as much. Definitely AI helps us in the prospecting and identifying certain prospects and maybe what trends they had before.

Chad Richison: Yes. I don't know that I would say AI as much. Definitely AI helps us in the prospecting and identifying certain prospects and maybe what trends they had before. We are a high-touch sales organization, so we do that high-touch sales model. I will say that over time, especially over the last couple of years, including into this year, we have allowed our clients to buy in-app. So it does somewhat circumvent the book sales process as they can buy directly from us. Career and Succession Planning was actually a product that allowed for that.

Speaker #4: We are a high-touch sales organization. And so we do that high-touch sales model. I will say that over time, especially over the last couple of years, including into this year, we have allowed our clients to buy in-app.

Speaker #4: And so it does somewhat circumvent the book sales process as they can buy directly from us. Career and succession planning was actually a product.

Speaker #4: That allowed for that.

Speaker #6: Understood. And maybe just a follow-up in terms of the capital allocation. Especially given kind of the very aggressive buyback in the first half of the year.

Samad Samana: Understood. Maybe just a follow-up in terms of the capital allocation, especially given the very aggressive buyback in the H1, I think that's paid off in spades. Should we think about capital allocation being a bit more balanced going forward? Should we think that the buyback remains the top priority? Just help us think about building dry powder versus the level of buybacks we've seen in the H1. Thank you again for taking my questions.

Speaker #6: And I think that's paid off in spades. Should we think about capital allocation being a bit more balanced going forward? Should we think that the buyback remains the top priority?

Speaker #6: Just help us think about building dry powder versus the level of buybacks we've seen in the first half of the year. Thank you again for taking my questions.

Speaker #4: You bet. When you think of CapEx, first, I mean, I kind of want to frame it this way. Last year, we spent over $100 million to prepare a data center to host our own AI models.

Chad Richison: You bet. When you think of CapEx, first, I want to frame it this way. Last year we spent over $100 million to prepare data centers to host our own AI models. This year alone, that spend will lead to about $100 million savings in R&D and another $30 million or more in IWant response fees that would've come from a third party. As an added bonus, we used some of the excess capacity to improve the performance of our systems with greater processing power. We do believe last year's investments will produce even greater value as we move into 2027. Then Bob, you want to comment on the CapEx?

Speaker #4: And this year alone, that spend will lead to about $100 million savings in R&D and another $30 million or more in I want response fees that would have come from a third party.

Speaker #4: And as an added bonus, we use some of the excess capacity to improve the performance of our systems with greater processing power.

Speaker #4: So we do believe last year's investments will produce even greater value as we move into 2027. And then Bob, you want to comment on the CapEx?

Speaker #3: Yeah, I do. Let me comment, Samad, too, on the CapEx. It will be a little more normalized than in the past. But when we look at the results, especially as it flows down through EBITDA, I want to make sure that flows all the way through to free cash flow.

Bob Foster: I do. Let me comment, Samad, too, on the CapEx. It will be a little more normalized than in the past, but when we look at the results, especially as it flows down through EBITDA, that flows all the way through to free cash flow. I want to make a one-time comment on free cash flow, given how the market has consistently underestimated the strength of our business model over the last few quarters. What I would tell you is that based on the strong H1 results and what we have visibility into for the rest of 2026, we do expect free cash flow to exceed $650 million in 2026. Then maybe, Samad, on the CapEx, approximately 6%. Then I'll give you the tax numbers too, for the models.

Speaker #3: So I want to kind of make a one-time comment on free cash flow. Given how the market has consistently underestimated the strength of our business model, over the last few quarters, 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.

Speaker #3: And then maybe, Samad, on the CapEx, approximately 6%. And then I'll give you the tax numbers too for the models. Gap tax rates, 29%.

Bob Foster: GAAP tax rates, 29%, non-GAAP tax rates, 27%, and stock-based comp is 3% of revenues in 2026.

Speaker #3: Non-gap tax rates, 27. And stock-based comp is 3%. Of revenues in 2026.

Speaker #2: Thank you for your question. Your next question comes from the line of Steve Enders from Citibank. Your line is now open.

Hillary: Thank you for your question. Your next question comes from the line of Steven Enders from Citigroup. Your line is now open.

Operator: Thank you for your question. Your next question comes from the line of Steven Enders from Citigroup. Your line is now open.

Speaker #6: Okay. Great. Thanks for taking the questions. Actually, maybe just following up on the last points on free cash flow. I guess maybe what is maybe different now that's driving the incremental free cash flow in some better conversion rates coming from EBITDA this year?

Raimo Lenschow: Okay, great. Thanks for taking the questions. Actually, maybe just following up on the last point on free cash flow. I guess, what is maybe different now that's driving the incremental free cash flow and some better conversion rates coming from EBITDA this year? I guess, how do we think about, is there a framework for maybe what that conversion rate will look like moving forward beyond 2026?

Steven Enders: Okay, great. Thanks for taking the questions. Actually, maybe just following up on the last point on free cash flow. I guess, what is maybe different now that's driving the incremental free cash flow and some better conversion rates coming from EBITDA this year? I guess, how do we think about, is there a framework for maybe what that conversion rate will look like moving forward beyond 2026?

Speaker #6: And I guess how do we think about is there a framework for maybe what that conversion rate will look like moving forward beyond '26?

Speaker #2: A reminder to unmute yourself locally if you are muted locally.

Hillary: A reminder to unmute yourself locally if you are muted locally.

Operator: A reminder to unmute yourself locally if you are muted locally.

Speaker #6: Hi. Sorry. Can you hear me okay?

Steven Enders: Hi. Sorry. Can you hear me okay?

Speaker #2: I can hear you now.

Hillary: I can hear you now.

Operator: I can hear you now.

Speaker #6: Okay. Great. Yeah. Maybe just following up on the last point on free cash flow. I guess I just want to get a better sense for what is driving the, I guess, improved free cash flow for this year.

Steven Enders: Hello? Okay, great. Yeah. Maybe just following up on the last point on free cash flow.

Steven Enders: I just want to get a better sense for what is driving the improved free cash flow for this year. What are the levers that are coming through right now? How should we think about maybe a framework moving forward for free cash flow conversion rates from EBITDA, or just what that trend will look like going into the future?

Speaker #6: What are the levers that are coming through right now? And then I guess how should we think about maybe a framework moving forward for free cash flow conversion rates from EBITDA or just what that trend will look like going into the future?

Speaker #2: Thank you so much for your question. We're just dealing with a very brief technical difficulty. Please stand by as we reconnect. If you could unmute yourself locally, speakers of the management team, you should be connected now.

Hillary: Thank you so much for your question. We are just dealing with a very brief technical difficulty. Please stand by as we reconnect. If you could unmute yourself locally, speakers of the management team, you should be connected now. Ladies and gentlemen, we are currently experiencing technical difficulties. Please stand by as we resolve the issue.

Operator: Thank you so much for your question. We are just dealing with a very brief technical difficulty. Please stand by as we reconnect. If you could unmute yourself locally, speakers of the management team, you should be connected now. Ladies and gentlemen, we are currently experiencing technical difficulties. Please stand by as we resolve the issue.

Speaker #2: Ladies and gentlemen, we are currently experiencing technical difficulties. Please stand by as we resolve the issue.

Speaker #5: We are experiencing technical difficulties and have placed the call on hold. Please stay on the line. The event will resume shortly.

Operator 1: We are experiencing technical difficulties and have placed the call on hold. Please stay on the line. The event will resume shortly.

Operator: We are experiencing technical difficulties and have placed the call on hold. Please stay on the line. The event will resume shortly.

Speaker #7: Hi, everyone. Thank you so much for your patience. We will now continue the call. I would like to ask, Steve Enders, to please re-ask your question.

Hillary: Hi, everyone. Thank you so much for your patience. We will now continue the call. I would like to ask Steven Enders to please re-ask your question. Steve, I am just connecting your call. If you could please re-ask your question. Thank you.

Operator: Hi, everyone. Thank you so much for your patience. We will now continue the call. I would like to ask Steven Enders to please re-ask your question. Steve, I am just connecting your call. If you could please re-ask your question. Thank you.

Speaker #7: Steve? I am just connecting your call. If you could please re-ask your question. Thank you.

Speaker #6: Okay. Great. Thanks for taking the questions here. Yeah. I guess I just want to follow up on the free cash flow commentary that you just gave.

Steven Enders: Okay. Great. Thanks for taking the questions here. I just want to follow up on the free cash flow commentary that you just gave. I want to understand what are the levers that are really supporting the improved free cash flow outlook for this year? Similarly, is there a framework to maybe think about EBITDA to free cash flow moving forward into future years?

Speaker #6: I guess I want to understand, I guess, what are the levers that are really, I guess, kind of supporting the improved free cash flow outlook for this year?

Speaker #6: And then I guess similarly, is there a framework to maybe think about EBITDA to free cash flow moving forward into future years?

Speaker #3: Yeah, Steve. So last year, actually at your conference, we talked about — we were conscious of the fact that EBITDA margin and free cash flow margin had to begin to get closer and closer.

Bob Foster: Yeah, Steve. Last year, actually, at your conference, we talked about we were conscious of the fact that EBITDA margin and free cash flow margin had to begin to get closer and closer. 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. We'll continue to drive those efficiencies in the future.

Speaker #3: So what was driving it this year? And is it sustainable? It was broad-based, too. It was efficiencies in how we do our processes.

Speaker #3: And it was efficiencies in our labor workforce, and we'll continue to drive those efficiencies in the future.

Speaker #6: Okay. That's helpful. And then on just, I guess, sales productivity rates I know there was a big focus tailing the last year or two, to retrain the sales force.

Steven Enders: Okay. That's helpful. Then on just sales productivity rates, I know there was a big focus tail end of last year to retrain the sales force. Just where are we at in terms of sales productivity trends and the impact that retraining is having? Would you say we're back to typical levels at this point, or just how are you thinking about the incremental improvement that can come from the sales productivity?

Speaker #6: Just, I guess, where are we at in terms of sales productivity trends and the impact that retraining is having? And would you say we're kind of back to typical levels at this point, or just how are you kind of thinking about the incremental improvement that can come from the sales productivity?

Speaker #3: Sure. With an enhanced system, it did require somewhat of an enhanced sales process just to make sure that our clients are able to achieve the full ROI that's available to them.

Chad Richison: Sure. With an enhanced system, it did require somewhat of an enhanced sales process just to make sure that our clients are able to achieve the full ROI that's available to them, and we want to make sure we're presenting that to them on first call. Sales has been doing great. As a reminder, we have many reps still going through training. Also, as a reminder, we expanded our teams of eight to teams of 10. You have 100 of our new sales reps. Over 100 of the new sales reps are also additional headcount for sales.

Speaker #3: And we want to make sure we're presenting that to them on first call. And so we have sales has been doing great. As a reminder, we have many reps still going through training.

Speaker #3: And also, as a reminder, we expanded our teams of eight to teams of 10. So you have 100 of our new sales reps over 100 of the new sales reps are also additional headcount for sales.

Speaker #6: Okay. Great.

Speaker #2: Thank you very much.

Steven Enders: Okay. Great. Thanks so much for the questions.

Speaker #6: Thanks for taking the questions.

Speaker #2: Thank you very much for your questions. Your next question comes to the line of Raymond Lenshaw from Barclays. Please go ahead.

Hillary: Thank you very much for your questions. Your next question comes from the line of Raimo Lenschow from Barclays. Please go ahead.

Operator: Thank you very much for your questions. Your next question comes from the line of Raimo Lenschow from Barclays. Please go ahead.

Speaker #8: Hey, I think I asked my question already, but the follow-up question I wanted to ask was if you could talk about the rate assumptions for the year. Obviously, there's a debate around what's going to happen to the rates.

Raimo Lenschow: Hey. I think I asked my question already, but the follow-up questions I wanted to have for Bob was, if you think about your rate assumptions for the year, obviously there's a debate around what's going to happen to the rates. What's driving your thinking about a stable rate, like using the current rate for the year there? Thank you.

Speaker #8: What's driving your thinking about a stable rate using the current rates for the year there? Thank you.

Speaker #3: Sure, Raymond. We in our assumptions that there would not be any kind of rate increase or cut through the rest of the year. Even if there were, it would have a minimal impact on this year.

Bob Foster: Sure, Remo. We, in our assumptions, that there would not be any kind of rate increase or cut through the rest of the year. Even if there were, it would have a minimal impact on this year.

Speaker #2: Your next question comes from the line of Jason Salino from KeyBanc Capital Markets. Your line is now open. Please go ahead.

Hillary: Your next question comes from the line of Jason Celino from KeyBanc Capital Markets. Your line is now open. Please go ahead.

Operator: Your next question comes from the line of Jason Celino from KeyBanc Capital Markets. Your line is now open. Please go ahead.

Speaker #8: Great. Thank you. Maybe just following up on Enders' last question around sales productivity. With the acceleration that we're seeing in recurring, how much would you credit the performance in second quarter being from the better training from last year and the expanded headcount?

Jason Celino: Great. Thank you. Maybe just following up on Enders' last question around sales productivity. With the acceleration that we're seeing in recurring, how much would you credit the performance in the Q2 being from the better training from last year and the expanded headcount?

Speaker #3: Bookings came in as expected. We have two categories of booked sales: one is sales to new prospects, and we also have sales to current clients.

Chad Richison: Bookings came in as expected. We have two categories of booked sales. One is sales to new prospects, and we also have sales to current clients. As I mentioned earlier at the beginning of the call, over the last couple of years, we've implemented more in-app purchase capabilities, and that somewhat skips the booked sales process. Bookings have come in as expected, and we would expect as we add more and more reps to the field, and as they grow those pipelines, we would expect that the additional rep headcount would be accretive to future booked sales.

Speaker #3: As I kind of call, over the last couple of years we've implemented more in-app purchase capabilities. And that somewhat skips the booked sales process.

Speaker #3: But bookings have come in as expected, and we would expect, as we add more and more reps to the field and as they grow those pipelines, that the additional rep headcount would be accretive to future booked sales.

Speaker #8: Great. And then maybe just a quick one for Bob. When we think about the second half, the recurring growth profile, is there anything we should think about in terms of seasonality with Q3 or Q4?

Jason Celino: Great. Maybe just a quick one for Bob. When we think about the H2, the recurring growth profile, anything we should think about in terms of seasonality with Q3 or Q4? Thank you.

Speaker #8: Thank you.

Speaker #3: No. This is my favorite question. Thanks, Jason. The calendars. The seasonality you have probably one more Wednesday, maybe in the third quarter. And then you have a little bit of tough comp in the fourth quarter.

Bob Foster: No, this is my favorite question. Thanks, Jason. The calendars. The seasonality, you have probably one more Wednesday, maybe in the Q3, and then you have a little bit of tough comp in the Q4. As you know, we look at that and smooth that out over the two quarters, so we look at it six months.

Speaker #3: But as you know, we look at that and smooth that out over the two quarters. So we look at it six months, so.

Speaker #8: Perfect. Thanks, Chad. Thanks, Bob.

Jason Celino: Perfect. Thanks, Chad. Thanks, Bob.

Speaker #2: Thank you for your question. Your next question comes from the line of Mark Markham from Baird.

Hillary: Thank you for your question. Your next question comes from the line of Mark Marcon from Baird.

Operator: Thank you for your question. Your next question comes from the line of Mark Marcon from Baird.

Speaker #5: Hey. Good afternoon. And congratulations on the strong results. I had a couple of questions. One, Chad, and Shane, I was just wondering how would you describe the current pipeline?

Mark Marcon: Hey, good afternoon. Congratulations on the strong results. Had a couple of questions. One, Chad and Shane, I was just wondering, how would you describe the current pipeline? I went to SHRM, I've gone to a couple of other smaller conferences where you appeared, and your booth was just packed, and it seems like there's a lot of interest in the automation story. I'm wondering, what's the shape of the pipeline now? Your revenue projections assume a little bit of decel relative to the H1, and I know you're trying to be conservative, but it seems like you've got a lot of really good momentum right now. I was just wondering if you could talk about that, and potentially also along those lines, what you would expect from the new products in terms of what they can add.

Speaker #5: I went to SHRM. I've gone to a couple of other smaller conferences. And where you appeared, and your booth—was it packed? It seems like there's a lot of interest in the automation story.

Speaker #5: And so I'm wondering, what's the shape of the pipeline now? Your revenue projections, assume a little bit of decel relative to the first half.

Speaker #5: And I know you're trying to be conservative, but it seems like you've got a lot of really good momentum right now. So I was just wondering if you could talk about that and potentially also along those lines, what you would expect from the new products in terms of what they can add.

Speaker #5: And then I've got a follow-up, just on the financials.

Mark Marcon: I've got a follow-up just on the financials.

Speaker #3: Yeah, sure. Pipelines remain very strong. In a perfect world, your pipeline turns into a backlog of clients ready to implement. And so, that's what we look for.

Chad Richison: Yeah, sure. Pipelines remain very strong. In a perfect world, your pipeline turns into backlog of clients ready to implement, and so that's what we look for. Pipelines remain strong, and they'll continue to build as more and more reps enter their territory. As far as product contributions into the future, we've done a lot of development in the last year, and we've got a lot more that'll be coming out in the next year. The one thing that hosting our own models has done is really allowed us to move very quickly in dev. It's also saved us on token expense, which we do have token expense, but we have a lot less of it now that we run our own models internally. It's also allowed us to deploy our AI engine like IWant, if you will.

Speaker #3: But pipelines remain strong. And they'll continue to build as more reps enter their territory. As far as product contributions into the future, we've done a lot of development in the last year.

Speaker #3: And we've got a lot more that'll be coming out in the next year. The one thing that hosting our own models has done is really allowed us to move very quickly in dev.

Speaker #3: It's also saved us on token expense, which we do have, token expense. But we have a lot less of it now that we run our own models internally.

Speaker #3: And it’s also allowed us to deploy our AI engine LIKE I Want, if you will. And I think someone would be hard-pressed to find a client of ours that hasn’t used I Want.

Chad Richison: I think someone would be hard-pressed to find a client of ours that hasn't used IWant. I think as you look into the future, we'll continue to be adding products that add value to the client, and then those, of course, will be hosted by us. We've had 45 products now that we've developed, released, hosted, distributed, and serviced. We've gotten really good at that process, and I think that it's become a little bit easier to do some of those things. It's an opportunity for us to accelerate that as we look into the future.

Speaker #3: And so I think as you look into the future, we'll continue to be adding products that add value to the client. And then those, of course, will be hosted by us.

Speaker #3: We've had 45 products now that we've developed, released, hosted, distributed, and serviced. And so we've gotten really good at that process. And I think that it's become a little bit easier to do some of those things.

Speaker #3: And so it's an opportunity for us to accelerate that as we look into the future.

Speaker #5: That's great. And then just as a follow-up, can you talk a little bit about the R&D expense? It went down fairly significantly here in Q2.

Mark Marcon: That's great. Just as a follow-up, can you talk a little bit about the R&D expense? It went down fairly significantly here in Q2 at the same time that the G&A actually went up a little bit, and I was just wondering, is that just a change in the allocation, or are you getting more efficiencies? Obviously, the whole total, you're seeing great improvement in terms of the margins, which is terrific. Just wondering about the pieces moving around.

Speaker #5: At the same time that the G&A actually went up a little bit. And I was just wondering, is that just a change in the allocation, or are you getting more efficiencies?

Speaker #5: Obviously, the whole total you're seeing great improvement in terms of the margins and which is terrific. But just wondering about the pieces moving around.

Speaker #3: Yeah. From an R&D perspective, I can take that. Let Bob more take the G&A. I mean, we are developing differently than what we ever have in the past.

Chad Richison: From an R&D perspective, I can take that, let Bob take the G&A. We are developing differently than what we ever have in the past. We're organized differently. Our structure's different. The process that product goes through is different, that a product would go through to get all the way through to release is different. I would say that's quite a bit different for us, and our performance is very high. We've been able to do all of this and increase productivity and client satisfaction with the product. From an R&D perspective, I would say that we've become much more effective. That has also led to great efficiencies on that line. Then Bob, if you want to-

Speaker #3: I mean, we're organized differently. Our structure is different. The process that product goes through is different. That a product would go through to get all the way through to release is different.

Speaker #3: And so I would say that's quite a bit different for us. And our performance is very high. So we've been able to do all of this.

Speaker #3: And increased productivity and client satisfaction with the product. And so from an R&D perspective, I would say that we've become much more effective and that has also led to great efficiencies on that line.

Speaker #3: And then Bob, if you want to.

Speaker #4: Yeah, on the G&A, it did go up a little bit. Biggest category is probably around professional services, and some of that was related to a one-time expense.

Bob Foster: On the G&A, it did go up a little bit. Biggest category is probably around professional services and some of that was related to a one-time expense. We expanded and renewed our line of credit. There was a great interest in that, we were proud that people believe in a robust business model, that's what led to some of that in the G&A.

Speaker #4: We expanded and renewed our line of credit. There was great interest in that, so we were proud that people believe in our robust business model.

Speaker #4: And that's what led to some of that in the G&A.

Speaker #2: Thank you for your questions. Your next question comes from the line of Jared Levine from TD Cohen. Your line is now open.

Hillary: Thank you for your questions. Your next question comes from the line of Jared Levine from TD Cowen. Your line is now open.

Operator: Thank you for your questions. Your next question comes from the line of Jared Levine from TD Cowen. Your line is now open.

Speaker #5: Thank you. It was good to hear that bookings came in line with your expectations in Q2. I guess—have you seen that inflection that you were hoping for when you went into this year?

Jared Levine: Thank you. It was good to hear that bookings came in line with your expectations in Q2. I guess, have you seen that inflection that you were hoping for in terms of when you went into this year? Just directionally, any kind of color in terms of the momentum here would be helpful on the bookings front, how you're seeing things progress into Q3 so far.

Speaker #5: Just directionally, any kind of color in terms of kind of the momentum here would be helpful on the bookings front and how you're kind of seeing things progress into 3Q so far.

Speaker #3: Yeah. I mean, I would say that my expectations are always higher than what could maybe even reasonably be achieved. But what I will say this is, yes, bookings came in as expected.

Chad Richison: Yeah, I would say that my expectations are always higher than what could maybe even reasonably be achieved. What I will say this is, yes, bookings came in as expected. 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, we're having great success with that. All this bodes well as we look into the future.

Speaker #3: And also, just to share, our new reps coming out of training are getting up to productivity much faster than they ever have in the past.

Speaker #3: And we're having great success with that. And so all this bodes well as we look into the future.

Speaker #5: Got it. And then in terms of we've seen multiple of your competitors pushing more into managed services, I guess, how are you thinking about this opportunity if at all?

Jared Levine: Got it. Then, in terms of, we've seen multiple of your competitors pushing more into managed services. I guess, how are you thinking about this opportunity, if at all?

Speaker #3: I think we look at everything that has a positive impact on a client and can produce a strong ROI for them. And we also try to automate.

Chad Richison: I think we look at everything that has a positive impact on a client and can produce a strong ROI for them. We also try to automate everything that we can. We think that's very important, asking the questions why and what are you going to do with that, so that we can go ahead and complete it for them. We're going to continue to focus on that. We do have pre-employment services. I think we're probably one of the largest pre-employment service companies in the US. I think at one time we were about fourth. That side of our service business continues to be very strong, and it's up a measurable amount for this year.

Speaker #3: We’re doing everything that we can, and we think that's very important—asking the questions: why, and what are you going to do with that? That way, we can go ahead and complete it for them.

Speaker #3: So, we're going to continue to focus on that. We do have pre-employment services. I think we're probably one of the largest pre-employment service companies in the U.S.

Speaker #3: I think at one time, we were about fourth that side of our service business continues to be very strong and is up a measurable amount for this year.

Speaker #2: Your next question comes from the line of Daniel Jester from BMO Capital Markets. Your line is now open. Please go ahead.

Hillary: Your next question comes from the line of Daniel Jester from BMO Capital Markets. Your line is now open. Please go ahead.

Operator: Your next question comes from the line of Daniel Jester from BMO Capital Markets. Your line is now open. Please go ahead.

Speaker #1: Great. Well, thank you for taking my question. Maybe first on I want, is there anything you can share about sort of how that ramped from a usage perspective in the quarter and as you go back to customers that have been with you for a long time?

Daniel Jester: Great. Well, thank you for taking my question. Maybe first on IWant. Is there anything you can share about how that ramped from a usage perspective in the quarter? As you go back to customers that have been with you for a long time, have you seen any change in their willingness to adopt IWant and all of the functionality it provides?

Speaker #1: Have you seen any change in their willingness to adopt I Want and all of the functionality it provides?

Speaker #3: Yeah, not really any change. I would say the more you work with a consistent model that delivers accurate responses, the better you get at knowing how to ask it a question.

Chad Richison: Yeah, not really any change. I would say the more you work with a consistent model that delivers accurate responses, the better you get at knowing how to ask it a question. The better you get at asking questions, the less time it takes for you to get that response. In our environment, your consecutive responses per second, that helps that become more efficient as well. Yes, we continue to see great uptake. Nobody goes backwards in technology once you are used to using something. Once you are there, nobody steps away and goes backwards from that. We have said in the past that IWant is the predominant way that new employees experience our system. As we completed Project Arc, it put that even more in the spotlight. IWant will continue to grow in capability, but it is very also important that we be accurate.

Speaker #3: And the better you get at asking questions, the less time it takes for you to get that response. And in our environment, you're looking at consecutive responses per second.

Speaker #3: That helps that become more efficient as well. But yes, we continue to see great uptake. Nobody goes backwards in technology once you're used to using something.

Speaker #3: Once you're there, nobody steps away and goes backwards from that. We've said in the past that 'I Want' is the predominant way that new employees experience our system.

Speaker #3: As we completed project ARC, it put that even more in the spotlight. I want will continue to grow in capability, but it's very also important that we be accurate.

Speaker #3: We come up with AI functionality all the time, and agents all the time. And I always have the same question for the people that create it.

Chad Richison: We come up with AI functionality all the time and agents all the time, I always have the same question for the people that create it. I am like, Well, is it cool or is it accurate? If I do not get an accurate response, we continue to work until we can produce that. We have been focused on that, IWant does deliver a very reliable, efficient way for someone to achieve all the value that is available to them in the Paycom system.

Speaker #3: I'm like, well, is it cool or is it accurate? And if I don't get an accurate response, I mean, we continue to work until we can produce that.

Speaker #3: And so we've been focused on that. And I want does deliver a very reliable efficient way for someone to achieve all the value that's available to them in the Paycom system.

Speaker #2: Your next question comes from the line of Jacob Smith from Guggenheim. Your line is now open. Please go ahead.

Hillary: Your next question comes from the line of Jacob Smith from Guggenheim. Your line is now open. Please go ahead.

Operator: Your next question comes from the line of Jacob Smith from Guggenheim. Your line is now open. Please go ahead.

Speaker #1: Hey. Thanks for taking my question. Revenue from customers above 1,000 employees was growing faster than total in past quarters. So I was wondering if you could provide an update in what you're seeing there.

Jacob Smith: Hey, thanks for taking my question. Revenue from customers above 1,000 employees has grown faster than total in past quarters, I was wondering if you could provide an update in what you are seeing there. As the sales org goes to market with the full solution automation pitch, are you seeing average deal size or module count at initial entry and higher this quarter, particularly up market?

Speaker #1: And as the sales org goes to market with a full solution, automation pitch, are you seeing average deal size or module count at initial entry and higher this quarter?

Speaker #1: Particularly up market?

Speaker #4: I wouldn't say that the.

Chad Richison: I wouldn't say that the profile of size of clients changed in the Q2 here. I think we continue to produce value across the board regardless of the client size, industry, or location.

Speaker #3: Profile of size of clients changed in the second quarter here. I think we continue to produce value across the board regardless of a client's size, industry, or location.

Speaker #1: Okay. And just as a quick follow-up, Chad, you talked about, at the beginning of the year, the goal of expanding sales capacity across offices. On the last call, you mentioned new reps were coming through training and ramping faster than pretty much any class in a number of years.

Operator 2: Okay. Just as a quick follow-up, Chad, you talked about, at the beginning of the year, the goal of expanding sales capacity across offices. On the last call, you mentioned new reps were coming through training and ramping faster than pretty much any class in a number of years. Can you give us an update on where you stand on that capacity expansion? Are you at the pace of hiring you'd like to be? Is this year more about driving productivity higher with existing reps or ramping new reps?

Jacob Smith: Okay. Just as a quick follow-up, Chad, you talked about, at the beginning of the year, the goal of expanding sales capacity across offices. On the last call, you mentioned new reps were coming through training and ramping faster than pretty much any class in a number of years. Can you give us an update on where you stand on that capacity expansion? Are you at the pace of hiring you'd like to be? Is this year more about driving productivity higher with existing reps or ramping new reps?

Speaker #1: Can you give us an update on where you stand on that capacity expansion? Are you at the pace of hiring you'd like to be?

Speaker #1: And is this year more about driving productivity higher with existing reps or ramping new reps ?

Speaker #2: , both . I would say it's both . Definitely productivity with existing reps . , continues to increase , you know , with new reps .

Chad Richison: Both. I would say it's both. Definitely productivity with existing reps continues to increase. With new reps, it takes a second. Your initial productivity gains you're going to get are always going to be with your current reps. New reps, it takes a second. They can get the value proposition, they understand the pitch. Then you go out there and you run into some situations that you have to get through, and it takes sometimes a new rep a little bit longer to get that. They stay in the game, and then they start having success, and then that confidence starts to build, and then they start selling more and more. Our existing reps are going to obviously outsell a lot more than our new reps.

Speaker #2: It takes a second . I mean , you're initial productivity gains , you're going to get are always going to be with your current reps , new reps .

Speaker #2: It takes a second . You know , they can get the value proposition . They understand the pitch . But you know , then you go out there and you run into some , , , you know , situations that you have to get through .

Speaker #2: And it takes sometimes a new rep a little bit longer to get that . So they stay in the game and then they start having success .

Speaker #2: And then that confidence starts to build . And then they start selling more and more and more . And so , , you know , our , our , our existing reps are going to obviously outsell a lot more than our new reps , but we do have so many new reps that we've put in the field that we're very excited about .

Chad Richison: We do have so many new reps that we put in the field that we're very excited about what that's going to mean for us as we head both throughout this year, and then as well as we go into next year.

Speaker #2: You know what that's going to mean for us as we head throughout this year, and then as well as we go into next year.

Speaker #3: Your next question comes from the line of Kevin McVeigh from UBS. Your line is now open.

Hillary: Your next question comes from the line of Kevin McVeigh from UBS. Your line is now open.

Operator: Your next question comes from the line of Kevin McVeigh from UBS. Your line is now open.

Speaker #4: Great , thanks . And congratulations on the results . I mean , it feels like the business is structurally different , right ? I mean , the pacing of the margin , the revenue , you're delivering is , is that , you know , primarily the stand up of the data centers .

Kevin McVeigh: Great, thanks. Congratulations on the results. It feels like the business is structurally different, right? The pacing of the margin, the revenue you're delivering. Is that primarily the stand-up of the data centers last year? Were you in the early phases of the AI across the expense structure with more to come? From a revenue perspective going forward, is it going to shift for more of a fixed with a variable component as opposed to PEPM? Any way to think about how the business model will be impacted? Clearly, you're in a good position and able to leverage it, just anything that we can help because the results have been and continue to be exceptional.

Speaker #4: Last year . Are you in the early phases of a , a , I across the expense structure with more to come . And , you know , from a revenue perspective , going forward , is it going to shift to from more of a fixed to with a variable component as opposed to PFM , any way to think about how the business model will be impacted ?

Speaker #4: Clearly, you're in a good position and able to leverage it. Is there anything that we can help with? Because the results have been and continue to be exceptional.

Speaker #2: Yeah . I mean , I would say that the whole world's probably still a little bit in the early stages of AI . I would say we jumped in head first with everything we had last year .

Chad Richison: Yeah. I would say that the whole world's probably still a little bit in the early stages of AI. I would say we jumped in headfirst with everything we had last year. Not just in product, but in infrastructure and everything else. Then we started using it to develop and become a lot stronger at that. We started using it in areas of our service to how to identify things. So, we're becoming better and better at it. I wouldn't say we use AI for AI's sake. Automation matters and there's a great amount of accuracy you get with automation. In our industry, you only get points for being accurate. So that's always been a focus of ours. We see that to continue. What was the other question, from a fixed, variable?

Speaker #2: , not just in product , but in infrastructure and everything else . And then , you know , then we started using it to develop and become a lot stronger at that .

Speaker #2: And we started using it in areas of our service that identify things . And so , you know , we're becoming better and better at it .

Speaker #2: , I wouldn't say we use AI for AI sake . I mean , automation matters . And , , you know , there's a great amount of accuracy you get with automation .

Speaker #2: And in our industry , , you know , you only get points for being accurate . And so that's always been a focus of ours .

Speaker #2: You know , , so we see that to continue , , what's the other , , question from a fixed variable ? I don't , I'm not , I'm not 100% sure on your revenue .

Chad Richison: I'm not 100% sure on your revenue question except to say, our pricing model does follow somewhat industry norm. It is proprietary to us. It does follow industry norms, we do look to deliver to our clients the greatest amount of ROI for that spend with us.

Speaker #2: Question except to say , , , you know , our pricing model , , does follow somewhat industry norm . It is proprietary to us .

Speaker #2: , but does follow industry norms . And we do look to deliver to our clients the greatest amount of ROI for that spend with us

Speaker #3: Thank you for your question. Your next question comes from the line of Bhavin Shah from Deutsche Bank. Your line is now open.

Hillary: Thank you for your question. Your next question comes from the line of Bhavin Shah from Deutsche Bank. Your line is now open.

Operator: Thank you for your question. Your next question comes from the line of Bhavin Shah from Deutsche Bank. Your line is now open.

Speaker #5: Great . Thanks for taking my question and congrats on the strong quarter . It's nice to see all the new product releases as you move into other adjacencies , such as asset management .

Bhavin Shah: Great. Thanks for taking my question, congrats on the strong quarter. It's nice to see all the new product releases. As you move into other adjacencies, such as Asset Management, how do you have to think about adjusting maybe the go-to-market motion to account for the different potential end buyers that you might be dealing with outside of just the HR departments?

Speaker #5: How do you have to think about adjusting maybe the go to market motion to account for the different potential end buyers that you might be dealing with outside of just the HR departments

Speaker #2: Yeah . I mean , you know , we've had , , spin management for a while . We have other areas that impact , , you know , the , , the , the accounting department or the office of the CFO , if you will .

Chad Richison: Yeah. We've had spend management for a while. We have other areas that impact the accounting department or the office of the CFO, if you will. There's never been a deal that we've ever done where we weren't integrating with a general ledger system and what have you. CFOs care about labor and what HCM system is deployed because for a lot of companies anyway, labor is one of their largest expenses. Asset Management does flow naturally into what we already do. Our same sales organization that we have now are well equipped to go sell our Asset Management, as it both has a impact in provisioning for employees, then it also has a total asset tracking system as well. We feel like that folds in nicely with what we're selling anyway.

Speaker #2: I mean , there's , there's never been a deal that we've ever done where we weren't integrating with a general ledger system . And , and what have you .

Speaker #2: Also , I mean , CFOs care , , about labor and what HCM system is deployed because for most , for a lot of companies , anyway , labor is one of their largest , , expenses .

Speaker #2: And so asset management does flow naturally into what we already do . , our same sales organization that we have now are well equipped to go sell our asset management as it both has a , , impact in provisioning , , for employees .

Speaker #2: And , and then it also has a total asset , , tracking system as well . And so we feel like that folds in nicely with , , with what we're selling .

Speaker #2: , anyway .

Speaker #5: Got it . And maybe just a quick follow up for Bob , just in terms of the strength you saw in the first half of the year , especially on the growth side , why not invest more into the business just given what you're seeing happening versus kind of float to the bottom line and that strong EBITDA that we saw you guys guide to ?

Bhavin Shah: Got it. Maybe just a quick follow for Bhav. Just in terms of the trends you saw in H1 of the year, especially on the growth side, why not invest more into the business, just given what you're seeing happening versus flow to the bottom line and that strong EBITDA that you guys guide to?

Speaker #6: Yeah , well , we are continuing to invest in the business in different ways . So and you'll see that . And that's why , you know , we believe it's we're just smart about how we do it .

Chad Richison: Well, we are continuing to invest in the business in different ways, and you'll see that. That's why we believe that we're just smart about how we do it, and it's sustainable. Again, we are worried about the growth side and the efficiency side.

Speaker #6: And it's sustainable. So, again, we are worried about the growth side and the efficiency side.

Speaker #3: Thank you for your question . Your next question comes from the line of Patrick O'Neil from Wolfe Research . Your line is now open

Hillary: Thank you for your question. Your next question comes from the line of Patrick O'Neil from Wolfe Research. Your line is now open.

Operator: Thank you for your question. Your next question comes from the line of Patrick O'Neil from Wolfe Research. Your line is now open.

Speaker #7: Hey guys , thanks for taking my question . , just a quick one for me . How would you characterize the client employment growth in the first half of the year ?

Patrick O'Neil: Hey, guys. Thanks for taking my question. Just a quick one for me. How would you characterize the client employment growth in H1 of the year? Then, maybe if the growth was positive, what was the benefit in H1? What's implied in the guidance from here following the impressive raise for the full-year outlook? Thanks.

Operator: Hey, guys. Thanks for taking my question. Just a quick one for me. How would you characterize the client employment growth in H1 of the year? Then, maybe if the growth was positive, what was the benefit in H1? What's implied in the guidance from here following the impressive raise for the full-year outlook? Thanks.

Speaker #7: And then maybe if the growth , growth was positive , what was the benefit in the first half ? And what's implied in the guidance from here following the impressive race for the full year outlook ?

Speaker #7: Thanks .

Speaker #2: I mean , client employment growth would have just been stable . Same consistent with as it's been every year in the past , with the exception of , you know , when it went down about 14% during Covid .

Chad Richison: Client employment growth would've just been stable, same consistent with as it's been every year in the past, with the exception of when it went down about 14% during COVID. Then it came right back not long after that. May have been a little more than 14% that it went down. Really since that time, we've had stability, and we would expect that, and all of our guidance going forward would expect stability in that.

Speaker #2: And then it came right back not long after that may have been a little more than 14% than it went down , but really since that time , we've had stability and , and we would expect that and all of our guidance going forward would expect stability in that

Speaker #7: Thank you .

Patrick O'Neil: Thank you.

Chad Richison: Thank you.

Speaker #3: Your next question comes from the line of Alan Verkhovsky from U.S. Bancorp. We are just opening your line. Your line is now open.

Hillary: Your next question comes from the line of Allan Verkhovski from U.S. Bancorp. We are just opening your line. Your line is now open.

Operator: Your next question comes from the line of Allan Verkhovski from U.S. Bancorp. We are just opening your line. Your line is now open.

Speaker #8: Hey , guys . Given the sequential decline in opex , how are you thinking about headcount growth through year end ? You mentioned earlier you're seeing labor efficiencies .

Allan Verkhovski: Hey, guys. Given the sequential decline in OpEx, how are you thinking about Paycom's headcount growth through year-end? More color there would be helpful.

Speaker #8: So a little more color there would be helpful.

Speaker #2: Sure . So you know , our focus is product automation . And you know that drives cost efficiencies in many areas . You know , including labor , you know , we update our employment numbers annually .

Chad Richison: Sure. Our focus is product automation, and that drives cost efficiencies in many areas, including labor. We update our employment numbers annually, and we had 5,770 employees as of our last update that we gave on the February earnings call. We're focused on client ROI achievement, not necessarily our cost. The ROI achievement is higher with automation. While there's no limit to what can be automated, there is a limit on labor efficiency, as we do believe there's a strong human aspect to developing, selling, converting, and servicing business.

Speaker #2: And we had 500 or 5770 employees as of our last update that we gave on the February earnings call . You know , we're focused on client ROI achievement , not necessarily our cost .

Speaker #2: You know , the , the , the ROI achievement is higher with automation . And , you know , while there's no limit to what can be automated , you know , there is a limit on labor efficiency as we do believe there's a strong human aspect to developing , selling , converting and servicing business

Speaker #3: Thank you for your questions. This concludes the question and answer portion of today's call. I will now turn the call back to Mr. Chad Richison for closing remarks.

Hillary: Thank you for your questions. This concludes the question and answer portion of today's call. I will now turn the call back to Mr. Chad Richison for closing remarks. Thank you.

Operator: Thank you for your questions. This concludes the question and answer portion of today's call. I will now turn the call back to Mr. Chad Richison for closing remarks. Thank you.

Speaker #3: Thank you

Speaker #2: Thanks, everyone, for joining the call today. We look forward to speaking with many of you at the Deutsche Bank Conference on August 26 in Dana Point and the Citi Conference in New York City on September 8.

Chad Richison: Thanks everyone for joining the call today. We look forward to speaking with many of you at the Deutsche Bank Conference on 26 August in Dana Point and the Citi Conference in New York City on 8 September. I want to thank our employees for their contributions over H1. With that, operator, you may end the call.

Speaker #2: I want to thank our employees for their contributions over the first half of the year. With that, operator, you may end the call.

Hillary: This concludes today's conference call. You may now disconnect.

Operator: This concludes today's conference call. You may now disconnect.

Q2 2026 Paycom Software Inc Earnings Call

Request DemoDemo

Paycom Software

Earnings