10-Q 1 pcty-20220930.htm 10-Q pcty-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
________________________________________________________________________
Form 10-Q
________________________________________________________________________
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2022
oTransition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 001-36348
________________________________________________________________________
PAYLOCITY HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
________________________________________________________________________
Delaware46-4066644
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
1400 American Lane
Schaumburg, Illinois
60173
(Address of principal executive offices)(Zip Code)
(847) 463-3200
(Registrant’s telephone number, including area code)
________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per sharePCTYThe NASDAQ Global Select Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
xAccelerated Filer
o
Non-Accelerated FileroSmaller Reporting Company
o
Emerging Growth Company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 55,673,889 shares of Common Stock, $0.001 par value per share, as of October 28, 2022.


Paylocity Holding Corporation
Form 10-Q
For the Quarterly Period Ended September 30, 2022
TABLE OF CONTENTS
Page
1

PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
PAYLOCITY HOLDING CORPORATION
Unaudited Consolidated Balance Sheets
(in thousands, except per share data)
June 30,
2022
September 30,
2022
Assets
Current assets:
Cash and cash equivalents$139,756 $65,484 
Accounts receivable, net15,754 21,519 
Deferred contract costs59,501 64,058 
Prepaid expenses and other28,896 29,122 
Total current assets before funds held for clients243,907 180,183 
Funds held for clients3,987,776 2,299,437 
Total current assets4,231,683 2,479,620 
Capitalized internal-use software, net61,985 66,693 
Property and equipment, net62,839 60,943 
Operating lease right-of-use assets49,210 47,614 
Intangible assets, net45,475 42,704 
Goodwill101,949 102,054 
Long-term deferred contract costs229,067 244,554 
Long‑term prepaid expenses and other7,746 7,624 
Deferred income tax assets19,060 43,303 
Total assets$4,809,014 $3,095,109 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$8,374 $6,235 
Accrued expenses124,384 105,907 
Total current liabilities before client fund obligations132,758 112,142 
Client fund obligations3,987,776 2,299,437 
Total current liabilities4,120,534 2,411,579 
Long-term operating lease liabilities69,119 67,040 
Other long-term liabilities3,681 3,427 
Deferred income tax liabilities2,217 2,217 
Total liabilities$4,195,551 $2,484,263 
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding at June 30, 2022 and September 30, 2022
$ $ 
Common stock, $0.001 par value, 155,000 shares authorized at June 30, 2022 and September 30, 2022; 55,190 shares issued and outstanding at June 30, 2022 and 55,664 shares issued and outstanding at September 30, 2022
55 56 
Additional paid-in capital289,843 259,245 
Retained earnings325,868 356,220 
Accumulated other comprehensive loss(2,303)(4,675)
Total stockholders' equity$613,463 $610,846 
Total liabilities and stockholders’ equity$4,809,014 $3,095,109 
See accompanying notes to unaudited consolidated financial statements.
2

PAYLOCITY HOLDING CORPORATION
Unaudited Consolidated Statements of Operations and Comprehensive Income
(in thousands, except per share data)
Three Months Ended
September 30,
20212022
Revenues:
Recurring and other revenue$180,824 $245,406 
Interest income on funds held for clients873 7,874 
Total revenues181,697 253,280 
Cost of revenues63,249 84,543 
Gross profit118,448 168,737 
Operating expenses:
Sales and marketing49,885 71,063 
Research and development23,076 40,093 
General and administrative35,235 50,492 
Total operating expenses108,196 161,648 
Operating income10,252 7,089 
Other expense(117)(163)
Income before income taxes10,135 6,926 
Income tax benefit(20,797)(23,426)
Net income$30,932 $30,352 
Other comprehensive loss, net of tax(75)(2,372)
Comprehensive income$30,857 $27,980 
Net income per share:
Basic$0.56 $0.55 
Diluted$0.55 $0.54 
Weighted-average shares used in computing net income per share:
Basic54,810 55,453 
Diluted56,506 56,664 
See accompanying notes to unaudited consolidated financial statements.
3

PAYLOCITY HOLDING CORPORATION
Unaudited Consolidated Statement of Changes in Stockholders’ Equity
(in thousands)


Three Months Ended September 30, 2021
Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Total
Stockholders’
Equity
SharesAmount
Balances at June 30, 202154,594 $55 $241,718 $235,091 $66 $476,930 
Stock-based compensation— — 21,106 — — 21,106 
Stock options exercised151 — 1,429 — — 1,429 
Issuance of common stock upon vesting of restricted stock units524 — — — — — 
Net settlement for taxes and/or exercise price related to equity awards(250)— (62,749)— — (62,749)
Unrealized losses on securities, net of tax— — — — (75)(75)
Net income— — — 30,932 — 30,932 
Balances at September 30, 202155,019 $55 $201,504 $266,023 $(9)$467,573 

Three Months Ended September 30, 2022
Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive LossTotal
Stockholders’
Equity
SharesAmount
Balances at June 30, 202255,190 $55 $289,843 $325,868 $(2,303)$613,463 
Stock-based compensation— — 43,471 — — 43,471 
Stock options exercised235 — 2,832 — — 2,832 
Issuance of common stock upon vesting of restricted stock units549 1 (1)— —  
Net settlement for taxes and/or exercise price related to equity awards(310)— (76,900)— — (76,900)
Unrealized losses on securities, net of tax— — — — (2,372)(2,372)
Net income— — — 30,352 — 30,352 
Balances at September 30, 202255,664 $56 $259,245 $356,220 $(4,675)$610,846 



See accompanying notes to the unaudited consolidated financial statements.
4

PAYLOCITY HOLDING CORPORATION
Unaudited Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended
September 30,
20212022
Cash flows from operating activities:
Net income$30,932 $30,352 
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Stock-based compensation expense19,559 39,813 
Depreciation and amortization expense11,322 14,267 
Deferred income tax benefit(20,827)(23,415)
Provision for credit losses38 266 
Net accretion of discounts and amortization of premiums on available-for-sale securities90 (842)
Amortization of debt issuance costs44 94 
Other27 125 
Changes in operating assets and liabilities:
Accounts receivable(173)(6,020)
Deferred contract costs(11,114)(19,328)
Prepaid expenses and other(9,807)614 
Accounts payable1,567 (1,805)
Accrued expenses and other(25,790)(17,734)
Net cash provided by (used in) operating activities(4,132)16,387 
Cash flows from investing activities:
Purchases of available-for-sale securities(135,849)(118,926)
Proceeds from sales and maturities of available-for-sale securities9,648 42,850 
Capitalized internal-use software costs(9,159)(9,953)
Purchases of property and equipment(3,220)(3,447)
Acquisitions of businesses, net of cash acquired(59,581) 
Net cash used in investing activities(198,161)(89,476)
Cash flows from financing activities:
Net change in client fund obligations1,425,782 (1,688,339)
Taxes paid related to net share settlement of equity awards(60,809)(74,071)
Payment of debt issuance costs(9)(855)
Net cash provided by (used in) financing activities1,364,964 (1,763,265)
Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents1,162,671 (1,836,354)
Cash, cash equivalents and funds held for clients' cash and cash equivalents—beginning of period1,945,881 3,793,453 
Cash, cash equivalents and funds held for clients' cash and cash equivalents—end of period$3,108,552 $1,957,099 
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Purchases of property and equipment, accrued but not paid$3,079 $ 
Liabilities assumed for acquisitions$2,165 $117 
Supplemental Disclosure of Cash Flow Information
Cash paid for interest$63 $62 
Cash paid for income taxes$13 $19 
Reconciliation of cash, cash equivalents and funds held for clients' cash and cash equivalents to the Consolidated Balance Sheets
Cash and cash equivalents$66,431 $65,484 
Funds held for clients' cash and cash equivalents3,042,121 1,891,615 
Total cash, cash equivalents and funds held for clients' cash and cash equivalents$3,108,552 $1,957,099 
See accompanying notes to unaudited consolidated financial statements.
5

PAYLOCITY HOLDING CORPORATION
Notes to the Unaudited Consolidated Financial Statements
(all amounts in thousands, except per share data)
(1) Organization and Description of Business
 
Paylocity Holding Corporation (the “Company”) is a cloud-based provider of human capital management and payroll software solutions that deliver a comprehensive platform for the modern workforce. Services are provided in a Software-as-a-Service (“SaaS”) delivery model. The Company’s comprehensive product suite delivers a unified platform that helps businesses attract and retain talent, build culture and connection with their employees, and streamline and automate HR and payroll processes.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation, Consolidation and Use of Estimates
These unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. Accounting estimates used in the preparation of these consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes.
(b) Interim Unaudited Consolidated Financial Information
 
The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with GAAP and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the Company’s financial position, results of operations, changes in stockholders’ equity and cash flows. The results of operations for the three months ended September 30, 2022 are not necessarily indicative of the results for the full year or the results for any future periods. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended June 30, 2022 included in the Company’s Annual Report on Form 10-K.
(c) Income Taxes
Income taxes are accounted for in accordance with ASC 740, Income Taxes, using the asset and liability method. The Company’s provision for income taxes is based on the annual effective rate method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net-recorded amount, it would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
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(d) Recently Issued Accounting Standards
 
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of other recently issued standards that are not yet effective will not have a material impact on the Company’s consolidated financial statements upon adoption.
(3) Revenue
The Company derives its revenue from contracts predominantly from recurring and non-recurring service fees. While the majority of its agreements are generally cancellable by the client on 60 days’ notice or less, the Company also offers term agreements to its clients, which are generally two years in length. Recurring fees are derived from payroll, timekeeping, and HR-related cloud-based computing services. The majority of the Company’s recurring fees are satisfied over time as services are provided. The performance obligations related to payroll services are satisfied upon the processing of the client’s payroll with the fee charged and collected based on a per employee per payroll frequency fee. The performance obligations related to time and attendance services and HR related services are satisfied over time each month with the fee charged and collected based on a per employee per month fee. For subscription-based fees which can include payroll, time and attendance, and other HCM related services, the Company recognizes the applicable recurring fees over time each month with the fee charged and collected based on a per employee per month fee. Non-recurring service fees consist mainly of nonrefundable implementation fees, which involve setting the client up in, and loading data into, the Company’s cloud-based modules. These implementation activities are considered set-up activities. The Company has determined that the nonrefundable upfront fees provide certain clients with a material right to renew the contract.
Disaggregation of revenue
The following table disaggregates revenue by Recurring fees and Implementation services and other, which the Company believes depicts the nature, amount and timing of its revenue:
Three Months Ended
September 30,
20212022
Recurring fees$174,697 $236,819 
Implementation services and other6,127 8,587 
Total revenues from contracts$180,824 $245,406 
Deferred revenue
The timing of revenue recognition for recurring revenue is consistent with the timing of invoicing as they occur simultaneously based on the client payroll processing period or by month. As such, the Company does not recognize contract assets or liabilities related to recurring revenue.
The Company defers and amortizes nonrefundable upfront fees related to implementation services generally over a period up to 24 months based on the type of contract. The following table summarizes the changes in deferred revenue (i.e., contract liability) related to these nonrefundable upfront fees as follows:
Three Months Ended
September 30,
20212022
Balance at beginning of the period$8,734$12,233
Deferral of revenue4,3538,232
Revenue recognized(4,370)(6,270)
Balance at end of the period$8,717$14,195
Deferred revenue related to these nonrefundable upfront fees are recorded within Accrued expenses and Other long-term liabilities on the Unaudited Consolidated Balance Sheets. The Company expects to recognize these deferred revenue balances of $10,462 in fiscal 2023, $3,518 in fiscal 2024 and $215 in fiscal 2025 and thereafter.
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Deferred contract costs
The Company defers certain selling and commission costs that meet the capitalization criteria under ASC 340-40. The Company also capitalizes certain costs to fulfill a contract related to its proprietary products if they are identifiable, generate or enhance resources used to satisfy future performance obligations and are expected to be recovered under ASC 340-40. Implementation fees are treated as nonrefundable upfront fees and the related implementation costs are required to be capitalized and amortized over the expected period of benefit, which is the period in which the Company expects to recover the costs and enhance its ability to satisfy future performance obligations.
The Company utilizes the portfolio approach to account for both the cost of obtaining a contract and the cost of fulfilling a contract. These capitalized costs are amortized over the expected period of benefit, which has been determined to be over 7 years based on the Company’s average client life and other qualitative factors, including rate of technological changes. The Company does not incur any additional costs to obtain or fulfill contracts upon renewal. The Company recognizes additional selling and commission costs and fulfillment costs when an existing client purchases additional services. These additional costs only relate to the additional services purchased and do not relate to the renewal of previous services.
The following tables present the deferred contract costs and the related amortization expense for these deferred contract costs:
Three Months Ended September 30, 2021
Beginning balanceCapitalized costsAmortizationEnding balance
Costs to obtain a new contract$145,718 $11,737 $(8,233)$149,222 
Costs to fulfill a contract69,175 10,940 (3,330)76,785 
Total$214,893 $22,677 $(11,563)$226,007 
Three Months Ended September 30, 2022
Beginning balanceCapitalized costsAmortizationEnding balance
Costs to obtain a new contract$182,543 $18,912 $(10,367)$191,088 
Costs to fulfill a contract106,025 16,862 (5,363)117,524 
Total$288,568 $35,774 $(15,730)$308,612 
Deferred contract costs are recorded within Deferred contract costs and Long-term deferred contract costs on the Unaudited Consolidated Balance Sheets. Amortization of deferred contract costs is recorded in Cost of revenues, Sales and marketing, and General and administrative in the Unaudited Consolidated Statements of Operations and Comprehensive Income.
Remaining Performance Obligations
The balance of the Company’s remaining performance obligations related to minimum monthly fees on its term-based contracts was approximately $52,591 as of September 30, 2022, which will be generally recognized over the next 24 months. This balance excludes the value of unsatisfied performance obligations for contracts that have an original expected duration of one year or less and contracts for which the variable consideration is allocated entirely to wholly unsatisfied performance obligations.
(4) Business Combinations
On January 18, 2022, the Company acquired all of the shares outstanding of Cloudsnap, Inc., ("Cloudsnap") through a merger for cash consideration of $50,002, which was paid upon closing. Cloudsnap is a provider of a flexible, low-code solution for integrating disparate business applications. This transaction enables the Company to deliver modern integrations and seamless data sharing between critical systems more efficiently and effectively, while helping to unify and automate business processes across clients' HR, finance, benefits, and other systems.
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The allocation of the purchase price for Cloudsnap is as follows:
January 18, 2022
Proprietary technology$15,800 
Goodwill33,628 
Other assets acquired3,398 
Liabilities assumed(2,824)
Total purchase price$50,002 
The Company did not record any material purchase accounting adjustments for Cloudsnap during the three months ended September 30, 2022. The Company accounts for business combinations in accordance with ASC 805, Business Combinations. The Company applied the acquisition method of accounting and recorded the assets acquired and liabilities assumed at their respective estimated fair values as of the date of the acquisition with the excess consideration paid recorded as goodwill.
The results from this acquisition have been included in the Company’s consolidated financial statements since the closing of the acquisition and are not material to the Company. Pro forma information is not presented because the effects of the acquisition are not material to the Company’s consolidated financial statements. The goodwill related to this acquisition is primarily attributable to the assembled workforce and growth opportunities from the expansion and enhancement of the Company’s product offerings. The goodwill associated with this acquisition is not deductible for income tax purposes. Direct costs related to the acquisition were immaterial and were expensed as incurred as General and administrative.
(5) Balance Sheet Information
The following tables provide details of selected consolidated balance sheet items:
Activity in the allowance for credit losses related to accounts receivable was as follows:
Balance at June 30, 2022$841
Charged to expense266
Write-offs(48)
Balance at September 30, 2022$1,059
Capitalized internal-use software and accumulated amortization were as follows:
June 30,
2022
September 30,
2022
Capitalized internal-use software$193,156 $204,906 
Accumulated amortization(131,171)(138,213)
Capitalized internal-use software, net$61,985 $66,693 
Amortization of capitalized internal-use software costs is primarily included in Cost of revenues and amounted to $6,128 and $7,042 for the three months ended September 30, 2021 and 2022, respectively.
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The major classes of property and equipment, net were as follow:
June 30,
2022
September 30,
2022
Office equipment$4,365 $4,365 
Computer equipment55,495 56,157 
Furniture and fixtures12,791 12,801 
Software8,785 8,518 
Leasehold improvements47,521 47,722 
Time clocks rented by clients6,711 7,039 
Total135,668 136,602 
Accumulated depreciation(72,829)(75,659)
Property and equipment, net$62,839 $60,943 
Depreciation expense amounted to $3,842 and $4,454 for the three months ended September 30, 2021 and 2022, respectively.
The following table summarizes changes in goodwill during the three months ended September 30, 2022:
September 30,
2022
Balance at June 30, 2022$101,949
Measurement period adjustments105
Balance at September 30, 2022$102,054
Refer to Note 4 for further details on current year acquisition activity.
The Company’s amortizable intangible assets and estimated useful lives were as follows:
June 30,
2022
September 30,
2022
Weighted average useful life (years)
Proprietary technology$43,129 $43,129 6.0
Client relationships22,200 22,200 7.8
Non-solicitation agreements1,600 1,600 3.1
Trade names1,640 1,640 5.0
Total68,569 68,569 
Accumulated amortization(23,094)(25,865)
Intangible assets, net$45,475 $42,704 
Amortization expense for acquired intangible assets was $1,352 and $2,771 for the three months ended September 30, 2021 and 2022, respectively, and is included in Cost of revenues and General and administrative.
Future amortization expense for acquired intangible assets as of September 30, 2022 is as follows:
Remainder of fiscal 2023
$8,177 
Fiscal 2024
9,943 
Fiscal 2025
8,888 
Fiscal 2026
7,269 
Fiscal 2027
4,893 
Thereafter3,534 
Total $42,704 
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The components of accrued expenses were as follows:
June 30,
2022
September 30,
2022
Accrued payroll and personnel costs$84,897$61,104
Operating lease liabilities8,3998,365
Deferred revenue13,54816,810
Other17,54019,628
Total accrued expenses$124,384$105,907
(6) Corporate Investments and Funds Held for Clients
Corporate investments and funds held for clients consisted of the following:
June 30, 2022
Type of IssueAmortized costGross unrealized gainsGross unrealized lossesFair value
Cash and cash equivalents$139,756$$$139,756
Funds held for clients' cash and cash equivalents3,653,699(2)3,653,697
Available-for-sale securities:
Commercial paper58,166(126)58,040
Corporate bonds59,568(1,715)57,853
Asset-backed securities9,8432(141)9,704
Certificates of deposit31,879(43)31,836
U.S. treasury securities167,56612(591)166,987
U.S government agency securities8,000(451)7,549
Other2,181(71)2,110
Total available-for-sale securities337,20314(3,138)334,079
Total investments$4,130,658$14$(3,140)$4,127,532
September 30, 2022
Type of IssueAmortized costGross unrealized gainsGross unrealized lossesFair value
Cash and cash equivalents$65,484$$$65,484
Funds held for clients' cash and cash equivalents1,891,6151,891,615
Available-for-sale securities:
Commercial paper47,3181(112)47,207
Corporate bonds67,696(2,428)65,268
Asset-backed securities18,875(327)18,548
Certificates of deposit28,1846(20)28,170
U.S. treasury securities239,246(2,656)236,590
U.S government agency securities8,000(612)7,388
Other4,784(133)4,651
Total available-for-sale securities414,1037(6,288)407,822
Total investments$2,371,202$7$(6,288)$2,364,921
All available-for-sale securities were included in Funds held for clients at June 30, 2022 and September 30, 2022
Cash and cash equivalents and funds held for clients’ cash and cash equivalents included demand deposit accounts, money market funds, commercial paper and certificates of deposit at June 30, 2022 and September 30, 2022.
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Classification of investments on the Unaudited Consolidated Balance Sheets was as follows:
June 30, 2022September 30, 2022
Cash and cash equivalents$139,756$65,484
Funds held for clients3,987,7762,299,437
Total investments$4,127,532$2,364,921
Available-for-sale securities that had been in an unrealized loss position for a period of less and greater than 12 months as of June 30, 2022 and September 30, 2022 had fair market value as follows:
June 30, 2022
Securities in an unrealized loss
position for less than 12 months
Securities in an unrealized loss
position for greater than 12 months
Total
Gross unrealized lossesFair valueGross unrealized lossesFair valueGross unrealized lossesFair value
Commercial paper$(126)$53,756$ $$(126)$53,756
Corporate bonds(1,715)57,853 (1,715)57,853
Asset-backed securities(141)7,354 (141)7,354
Certificates of deposit(43)27,086 (43)27,086
U.S. treasury securities(591)129,943 (591)129,943
U.S. government agency securities(451)7,549 (451)7,549
Other(71)2,110 (71)2,110
Total available-for-sale securities$(3,138)$285,651$ $$(3,138)$285,651
September 30, 2022
Securities in an unrealized loss
position for less than 12 months
Securities in an unrealized loss
position for greater than 12 months
Total
Gross unrealized lossesFair valueGross unrealized lossesFair valueGross unrealized lossesFair value
Commercial paper$(112)$46,207$ $$(112)$46,207
Corporate bonds(1,849)52,213(579)13,055(2,428)65,268
Asset-backed securities(314)16,871(13)1,419(327)18,290
Certificates of deposit(20)16,913 (20)16,913
U.S. treasury securities(2,656)236,590 (2,656)236,590
U.S. government agency securities(34)966(578)6,422(612)7,388
Other(78)3,732(55)864(133)4,596
Total available-for-sale securities$(5,063)$373,492$(1,225)$21,760$(6,288)$395,252
The Company regularly reviews the composition of its portfolio to determine the existence of credit impairment. The Company did not recognize any credit impairment losses during the three months ended September 30, 2021 or 2022. All securities in the Company’s portfolio held an A-1 rating or better as of September 30, 2022.
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The Company did not make any material reclassification adjustments out of accumulated other comprehensive income for realized gains and losses on the sale of available-for-sale securities during the three months ended September 30, 2021 or 2022. There were no realized gains or losses on the sale of available-for-sale securities for the three months ended September 30, 2021 or 2022.
Expected maturities of available-for-sale securities at September 30, 2022 were as follows:
Amortized costFair value
One year or less$275,556$274,072
One year to two years74,83672,546
Two years to three years61,70859,442
Three years to five years2,0031,762
Total available-for-sale securities$414,103$407,822
(7) Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
Level 1—Quoted prices in active markets for identical assets and liabilities.
Level 2—Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The Company measures certain cash and cash equivalents, accounts receivable, accounts payable and client fund obligations at fair value on a recurring basis using Level 1 inputs. The Company considers the recorded value of these financial assets and liabilities to approximate the fair value of the respective assets and liabilities at June 30, 2022 and September 30, 2022 based upon the short-term nature of these assets and liabilities.
Marketable securities, consisting of securities classified as available-for-sale as well as certain cash equivalents, are recorded at fair value on a recurring basis using Level 2 inputs obtained from an independent pricing service. Available-for-sale securities include commercial paper, corporate bonds, asset-backed securities, certificates of deposit, U.S. treasury securities, U.S. government agency and other securities. The independent pricing service utilizes a variety of inputs including benchmark yields, broker/dealer quoted prices, reported trades, issuer spreads as well as other available market data. The Company, on a sample basis, validates the pricing from the independent pricing service against another third-party pricing source for reasonableness. The Company has not adjusted any prices obtained by the independent pricing service, as it believes they are appropriately valued. There were no available-for-sale securities classified in Level 3 of the fair value hierarchy at June 30, 2022 or September 30, 2022.
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The fair value level for the Company’s cash and cash equivalents and available-for-sale securities was as follows:
June 30, 2022
TotalLevel 1Level 2Level 3
Cash and cash equivalents$139,756$139,756$$
Funds held for clients' cash and cash equivalents3,653,6973,640,42713,270
Available-for-sale securities:
Commercial paper58,04058,040
Corporate bonds57,85357,853
Asset-backed securities9,7049,704
Certificates of deposit31,83631,836
U.S. treasury securities166,987166,987
U.S government agency securities7,5497,549
Other2,1102,110
Total available-for-sale securities334,079334,079
Total investments$4,127,532$3,780,183$347,349$
September 30, 2022
TotalLevel 1Level 2Level 3
Cash and cash equivalents$65,484$65,484$$
Funds held for clients' cash and cash equivalents1,891,6151,887,4944,121
Available-for-sale securities:
Commercial paper47,20747,207
Corporate bonds65,26865,268
Asset-backed securities18,54818,548
Certificates of deposit28,17028,170
U.S. treasury securities236,590236,590
U.S government agency securities7,3887,388
Other4,6514,651
Total available-for-sale securities407,822407,822
Total investments$2,364,921$1,952,978$411,943$
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis
The Company records assets acquired and liabilities assumed in business combinations at fair value. Refer to Note 4 for further details on the fair value measurements of certain assets and liabilities recorded at fair value on a non-recurring basis.

(8) Debt
In July 2019, the Company entered into a revolving credit agreement with PNC Bank, National Association, and other lenders, which is secured by substantially all of the Company’s assets, subject to certain restrictions. In August 2022, the Company entered into a first amendment to the aforementioned credit agreement to increase the borrowing capacity of our revolving credit facility ("credit facility") to $550,000, which may be increased up to $825,000, subject to obtaining additional lender commitments and certain approvals and satisfying other requirements. The amended credit agreement extends the maturity date of the credit facility to August 2027 and replaces the interest rate based on London Interbank Offered Rate with an interest rate based on secured overnight financing rate ("SOFR"). The Company had no borrowings at June 30, 2022 or September 30, 2022.
The proceeds of any borrowings are to be used to fund working capital, capital expenditures and general corporate purposes, including permitted acquisitions, permitted investments, permitted distributions and share repurchases. The
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Company may generally borrow, prepay and reborrow under the credit facility and terminate or reduce the lenders’ commitments at any time prior to revolving credit facility expiration without a premium or a penalty, other than customary “breakage” costs.
Any borrowings under the credit facility will generally bear interest, at the Company’s option, at a rate per annum determined by reference to either the Term SOFR rate plus the SOFR Adjustment or an adjusted base rate, in each case plus an applicable margin ranging from 0.875% to 1.500% and 0.0% to 0.500%, respectively, based on the then-applicable net total leverage ratio. Additionally, the Company is required to pay certain commitment, letter of credit fronting and letter of credit participation fees on available and/or undrawn portions of the credit facility.
The Company is required to comply with certain customary affirmative and negative covenants, including a requirement to maintain a maximum net total leverage ratio of not greater than 4.00 to 1.00, (with a step up to 4.50 to 1.00 for the 4 consecutive fiscal quarters following a fiscal quarter in which certain permitted acquisitions are consummated), and a minimum interest coverage ratio of not less than 2.00 to 1.00. As of September 30, 2022, the Company was in compliance with all of the aforementioned covenants.
(9) Stock-Based Compensation
The Company maintains a 2008 Equity Incentive Plan (the “2008 Plan”) and a 2014 Equity Incentive Plan (the “2014 Plan”) pursuant to which the Company has reserved shares of its common stock for issuance to its employees, directors and non-employee third parties. The 2014 Plan serves as the successor to the 2008 Plan and permits the granting of restricted stock units and other equity incentives at the discretion of the compensation committee of the Company’s board of directors. No new awards have been or will be issued under the 2008 Plan since the effective date of the 2014 Plan. Outstanding awards under the 2008 Plan continue to be subject to the terms and conditions of the 2008 Plan. The number of shares of common stock reserved for issuance under the 2014 Plan may increase each calendar year, continuing through and including January 1, 2024. The number of shares added each year may be equal to the lesser of (a) four and five tenths percent (4.5%) of the number of shares of common stock of the Company issued and outstanding on the immediately preceding December 31, or (b) an amount determined by the Company’s board of directors.
As of September 30, 2022, the Company had 13,827 shares allocated to the plans, of which 1,909 shares were subject to outstanding options or awards. Generally, the Company issues previously unissued shares for the exercise of stock options or vesting of awards; however, shares previously subject to 2014 Plan grants or awards that are forfeited or net settled at exercise or release may be reissued to satisfy future issuances.
The following table summarizes changes in the number of shares available for grant under the Company’s equity incentive plans during the three months ended September 30, 2022:
Number of
Shares
Available for grant at July 1, 202212,393 
RSUs granted(702)
MSUs granted(78)
Shares withheld in settlement of taxes and/or exercise price310 
Forfeitures63 
Shares removed(68)
Available for grant at September 30, 202211,918 
Shares removed represents forfeitures of shares and shares withheld in settlement of taxes and/or payment of exercise price related to grants made under the 2008 Plan. As noted above, no new awards will be issued under the 2008 Plan.
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Stock-based compensation expense related to restricted stock units (“RSUs”), market share units (“MSUs”) and the Employee Stock Purchase Plan is included in the following line items in the accompanying unaudited consolidated statements of operations and comprehensive income:
Three Months Ended September 30,
20212022
Cost of revenues$2,607 $4,041 
Sales and marketing5,159 9,559 
Research and development3,702 8,802 
General and administrative8,091