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. 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 spins, ensuring those investments are deployed, tracked, and recovered through our automated software. The launch of asset management expands our capabilities into an entirely new multi-billion 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. 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 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. With that, let me turn the call over to Shane.

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. 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 Arc release because it provides great customization and performance for their employees, managers, and organization. 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. 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, iWANT, 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 iWANT 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. iWant 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 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. During the quarter, our product and culture received several accolades. Paycom earned the 2026 top-rated award from Trust Radius, which reflects strong client satisfaction across multiple HR and payroll categories. 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. 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.

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. 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. Gap net income increased 20% in the second quarter to $107 million, or $2.34 per diluted share. based on an average of 46 million shares outstanding. Non-GAAP net income for the second quarter was $128 million, or $2.78 per diluted share. 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. 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 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 the second quarter with approximately 44 million shares outstanding and $1.66 billion remaining on our buyback authorization. We also paid approximately $18 million in cash dividends during the second quarter. On August 3rd, the Board approved our next quarterly dividend of 37.5 cents 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 the second quarter of 2026, up 9% over the prior year period. 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. 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 rate 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 first half results have bolstered our conviction in our 2026 plan and in our full solution automation strategy. 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. 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. Operator?

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. 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 Ramo Lencho from Barclays. Your line is now open. Please go ahead.

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 of 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. So what happened here? And then I had one quick follow-up for Bob.

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

Okay, perfect. And anything on the new products contributing already, or is this just – well, it seems to be almost too early for that.

Yeah, I mean, 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 have contributed a little bit. But we do look for both of those to contribute more as we move into the future.

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

Good evening and thank you for taking my questions. Chad, you guys have always had a very strong sales distribution team. I'm curious, you know, 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. And then I have one follow up.

Yes, you know, 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. You know, we are a high-touch sales organization, and so we do that high-touch, you know, sales model. I will say that, you know, over time, especially over the last couple of years, including into this year, You know, we have allowed our clients to buy in-app, 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 that allowed for that.

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. 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? Just help us think about kind of 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.

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 data centers to host our own AI models. 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. And as an added bonus, We use some of the excess capacity to improve the performance of our systems with greater processing power. 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?

Yeah, I do. Let me comment some on, 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 go ahead. That flows all the way through to free cash flows. 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. And then maybe some on the capex, approximately 6%. And then I'll give you the tax numbers too for the models. GAAP tax rates 29%, non-GAAP tax rates 27, and stock-based comp is 3% of revenues in 2026.

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

Okay, great. Thanks for taking the questions. Actually, maybe just following up on the last point on free cash flow. I guess maybe what is maybe different now that's driving the incremental and some better conversion rates coming from EBITDA this year. And I guess, how do we think about, is there like a framework for maybe what that conversion rate will look like moving forward beyond 26?

A reminder to unmute yourself locally if you are muted locally. Hi, sorry, can you hear me okay? I can hear you now.

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 improved free cash flow for this year? 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?

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. Ladies and gentlemen, we are currently experiencing technical difficulties. Please stand by as we resolve the issue. We are resuming live. Hi, everyone. Thank you so much for your patience. We will now continue the call.