Our strong results continued in Q2, with recurring and other revenue growth of 11% as our differentiated value proposition of providing the most modern software in the industry continues to resonate in the marketplace. Total revenue was $416.1 million, or 10% growth over Q2 of last year. Additionally, we recently extended our AI Assistant into HR rules and regulations, tapping into more than 200 IRS and Department of Labor knowledge sources to provide administrators with guidance on tax and labor regulations. As Steve mentioned, the momentum seen in Q1 continued into the Q2 and contributed to a strong selling season performance and increased revenue and profitability guidance for fiscal 2026.
Overall, we are pleased with our Q2 results and believe we are well-positioned heading into the back half of the year, which is reflected in our increased guidance for fiscal 2026. I would now like to pass the call to Ryan to review the financial results in detail and provide our increased fiscal 2026 guidance. Q2 recurring and other revenue was $387 million, an increase of 11%, with total revenue of $416.1 million and up 10% from the same period last year. Our adjusted gross profit was 74.4% for Q2 versus 73.8% in Q2 of last fiscal, representing 60 basis points of leverage.
On a non-GAAP basis, G&A costs were 9% of revenue in the Q2 versus 9.8% in the same period last year, representing 80 basis points of leverage. Our adjusted EBITDA for the Q2 was $142.7 million, or 34.3% margin, and exceeded the top end of our guidance by $7.2 million, resulting in increased margin guidance for fiscal 2026. I think the go-to-market teams performed really well across sales and marketing and our channel teams, and I think we saw a very stable demand environment. I think similar commentary on the demand environment from last quarter carried through to this quarter.
| Metric | Period | Current guidance |
|---|---|---|
| Fiscal 2026 revenue and profitability guidance | FY2026 | Raised; full-year guidance increased by more than the quarterly beat (Increased) |
| Adjusted EBITDA margin guidance | FY2026 | Increased following the $7.2 million EBITDA beat, with bias toward reinvesting some upside into R&D and sales and marketing (Increased) |
| Free cash flow margin target | Multi-year | 25%-30%, against a trailing-twelve-month level of nearly 24% (Updated/approaching) |
| Employment level assumption | H2 FY2026 | Flat year-over-year (Slight degradation) |
| Metric | YoY | Note |
|---|---|---|
| Recurring and other revenue | +11% to $387 million | Strong sales and operations execution, product differentiation, and broader product adoption across the suite. |
| Total revenue | +10% to $416.1 million | Solid quarter for sales and operations, beating the revenue guidance midpoint by $8.1 million. |
| Adjusted gross profit margin | +60 bps to 74.4% | Scaling operational costs while maintaining industry-leading service levels. |
| Non-GAAP G&A as % of revenue | Improved to 9.0% from 9.8% (80 bps leverage) | Operational scale and efficiencies from automation and AI investments. |
| Adjusted EBITDA | $142.7 million at 34.3% margin; margin +140 bps ex-interest income | Durable recurring revenue growth combined with expanded profitability and operating leverage. |
| Total R&D investment (expensed plus capitalized) | +10% | Continued investment to build out the platform for the modern workforce. |
| Free cash flow | +26% over trailing twelve months; ~24% FCF margin | Increased profitability, natural business scale, and benefits from recent tax legislation changes. |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Embedding AI across the platform | Discussed last quarter as embedding AI in the product suite | New Policy and Procedures Agent and HR rules and regulations capabilities launched; AI Assistant monthly usage up over 100% QoQ | Rising |
| Stable demand and employment environment | Similar stability commentary in Q1 | Stable demand, modest H1 workforce growth, flat assumed in H2 | Steady |
| Broker referral channel | Consistently over 25% of new business | Again more than 25% of new business, with momentum aided by competitor disruption and Benefits-Guided Setup | Rising |
| Paylocity for Finance (Airbase) and IT solutions | Airbase acquisition closed last October; V1 integrated product delivered in July | Tracking to expectations, aiding differentiation and ARPU; targeting 10%-20% penetration over several years | Rising |
| Profitability and free cash flow leverage | Several hundred basis points of EBITDA leverage over prior 24 months | Continued margin expansion with reinvestment bias; FCF approaching updated 25%-30% target | Rising |
| Client retention | North of 92% for over a decade | Another strong quarter, sustained above 92% | Steady |