Episode Details

Paycom (PAYC) Q2 2026 — Q2 2026 (quarter ended June 30, 2026): revenue $531.2M vs $483.6M, +9.8%, against a ~$513.1M Street bar. Recurring and other revenue $505.2M, +11.0%, 95.1% of the total; interest on funds held for clients $26.0M vs $28.5M, DOWN 8.8%. GAAP net income $107.4M / $2.34 diluted EPS vs $89.5M / $1.58. Non-GAAP net income $127.7M / $2.78 diluted EPS vs $116.6M / $2.06, against a $2.28 consensus bar. Adjusted EBITDA $235.0M vs $198.3M, a 44.2% margin vs 41.0%. Diluted shares 45.9M vs 56.5M. FY2026 guidance RAISED: revenue $2.197-$2.212B (from $2.175-$2.195B) and adjusted EBITDA $1.007-$1.022B (from $950-$970M). The 8-K was accepted at 4:10 p.m. ET Wednesday Aug 5 (after the close); the stock closed Thursday Aug 6 at $215.97 vs $174.80, up 23.55%, and $214.99 on Friday Aug 7. Paycom beat the bar by fifty cents - $2.78 non-GAAP against $2.28 - raised full-year guidance, and the stock added 23.55% in a single session. Then divide the very same profit by last year's share count and the number comes out at $2.26, which is UNDER the bar. Non-GAAP net income rose 9.5%, from $116.6M to $127.7M. Non-GAAP diluted EPS rose 35.0%, from $2.06 to $2.78. Everything between those two numbers is the denominator: diluted shares fell 18.8%, from 56.5 million to 45.9 million, because Paycom borrowed $900 million (long-term debt was ZERO on December 31) and retired 10.9 million shares in six months for $1.414 billion at an average price of $129.72 - 19.9% of the company. Of the 72 cents of year-over-year EPS growth, roughly 52 cents is share count and roughly 20 cents is the business. The second surprise: total R&D costs (expensed plus capitalized) fell from $111.7M to $67.6M, down 39.5% - 23.1% of revenue to 12.7%. The guidance raise reflects it. The adjusted EBITDA midpoint rose $54.5M on a revenue midpoint raise of only $19.5M, a 280% flow-through that cannot come from revenue. THE CALL: HOLD (3/5, A REAL BEAT, MOSTLY BOUGHT - AND THE 23.6% POP ALREADY PAID YOU FOR THE RAISE) — base-case value ~$227.0 vs ~$214.99 today. KEY METRICS: - CALL: HOLD 3/5, fair value ~$227 vs the $214.99 Aug 7 close (+5.6%). Bull $309, base $234, bear $160. Street: Hold, 36 analysts, avg target $200.67 - BELOW the tape. - Non-GAAP EPS $2.78 vs a $2.28 bar (+35.0%), but non-GAAP net income rose just 9.5% to $127.7M. Revenue $531.2M, +9.8%. Adj EBITDA $235.0M, margin 44.2% vs 41.0%. - Diluted shares fell 18.8% to 45.9M. $127.7M on last year's 56.5M shares is $2.26 - UNDER the bar. FY26 EBITDA guide +$54.5M on a +$19.5M revenue raise. What to watch: UP: a Q3 that holds the ~46% adjusted EBITDA margin without another cut to technology spend; recurring revenue accelerating above 11.0%; a Q4 guide above the implied 6%; 10-Q evidence that the R&D reduction is genuine automation-driven efficiency. DOWN: total R&D snapping back toward 16% of revenue; recurring growth slipping under 8%; the share count flattening because the stock is too expensive to retire; interest on funds held for clients guided down a fourth straight year. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.