10-Q 1 pcty-20210930x10q.htm 10-Q
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S

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2021

Transition 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)

Delaware

46-4066644

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

1400 American Lane

SchaumburgIllinois

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 class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

PCTY

The 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   No 

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   No 

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

Accelerated Filer

 

Non-Accelerated Filer

  

Smaller Reporting Company

 

Emerging Growth Company

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   No 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 55,026,308 shares of Common Stock, $0.001 par value per share, as of October 29, 2021.

Paylocity Holding Corporation

Form 10-Q

For the Quarterly Period Ended September 30, 2021

TABLE OF CONTENTS

     

Page

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Unaudited Consolidated Balance Sheets

2

Unaudited Consolidated Statements of Operations and Comprehensive Income

3

Unaudited Consolidated Statement of Changes in Stockholders’ Equity

4

Unaudited Consolidated Statements of Cash Flows

5

Notes to the Unaudited Consolidated Financial Statements

6

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

19

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

30

ITEM 4. CONTROLS AND PROCEDURES

31

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

32

ITEM 1A. RISK FACTORS

32

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

32

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

32

ITEM 4. MINE SAFETY DISCLOSURES

32

ITEM 5. OTHER INFORMATION

32

ITEM 6. EXHIBITS

32

SIGNATURES

34

1

PART I

FINANCIAL INFORMATION

Item 1.    Financial Statements

PAYLOCITY HOLDING CORPORATION

Unaudited Consolidated Balance Sheets

(in thousands, except per share data)

June 30, 

September 30, 

    

2021

    

2021

Assets

Current assets:

Cash and cash equivalents

$

202,287

$

66,431

Corporate investments

4,456

3,151

Accounts receivable, net

 

6,267

 

8,094

Deferred contract costs

44,230

46,928

Prepaid expenses and other

 

15,966

 

21,903

Total current assets before funds held for clients

 

273,206

 

146,507

Funds held for clients

 

1,759,677

 

3,185,520

Total current assets

 

2,032,883

 

3,332,027

Capitalized internal-use software, net

 

45,018

 

48,719

Property and equipment, net

 

59,835

 

62,265

Operating lease right-of-use assets

43,984

44,249

Intangible assets, net

 

13,027

 

37,175

Goodwill

 

33,650

 

68,022

Long-term deferred contract costs

170,663

179,079

Long‑term prepaid expenses and other

 

4,223

 

7,399

Deferred income tax assets

11,602

32,602

Total assets

$

2,414,885

$

3,811,537

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

4,230

$

6,910

Accrued expenses

 

103,109

 

81,017

Total current liabilities before client fund obligations

 

107,339

 

87,927

Client fund obligations

 

1,759,677

 

3,185,520

Total current liabilities

 

1,867,016

 

3,273,447

Long-term operating lease liabilities

67,201

66,684

Other long-term liabilities

1,958

1,905

Deferred income tax liabilities

 

1,780

 

1,928

Total liabilities

$

1,937,955

$

3,343,964

Stockholders’ equity:

Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding at June 30, 2021 and September 30, 2021

$

$

Common stock, $0.001 par value, 155,000 shares authorized at June 30, 2021 and September 30, 2021; 54,594 shares issued and outstanding at June 30, 2021 and 55,019 shares issued and outstanding at September 30, 2021

 

55

 

55

Additional paid-in capital

 

241,718

 

201,504

Retained earnings

 

235,091

 

266,023

Accumulated other comprehensive income (loss)

66

(9)

Total stockholders' equity

$

476,930

$

467,573

Total liabilities and stockholders’ equity

$

2,414,885

$

3,811,537

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, 

    

2020

    

2021

Revenues:

Recurring and other revenue

$

134,875

$

180,824

Interest income on funds held for clients

 

919

 

873

Total revenues

 

135,794

 

181,697

Cost of revenues

49,380

63,249

Gross profit

 

86,414

 

118,448

Operating expenses:

Sales and marketing

 

37,674

 

49,885

Research and development

 

18,647

 

23,076

General and administrative

 

26,644

 

35,235

Total operating expenses

82,965

 

108,196

Operating income

 

3,449

 

10,252

Other expense

 

(257)

 

(117)

Income before income taxes

 

3,192

 

10,135

Income tax benefit

 

(9,268)

(20,797)

Net income

$

12,460

$

30,932

Other comprehensive loss, net of tax

(223)

(75)

Comprehensive income

$

12,237

$

30,857

Net income per share:

Basic

$

0.23

$

0.56

Diluted

$

0.22

$

0.55

Weighted-average shares used in computing net income per share:

Basic

 

54,015

 

54,810

Diluted

 

56,050

 

56,506

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, 2020

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

Shares

Amount

Capital

Earnings

Income

Equity

Balances at June 30, 2020

 

53,792

$

54

$

227,907

$

164,272

$

675

$

392,908

Stock-based compensation

 

 

15,046

 

 

 

15,046

Stock options exercised

88

 

 

529

 

 

529

Issuance of common stock upon vesting of restricted stock units

599

 

 

 

 

 

Net settlement for taxes and/or exercise price related to equity awards

 

(256)

(33,900)

 

(33,900)

Unrealized losses on securities, net of tax

(223)

(223)

Net income

12,460

12,460

Balances at September 30, 2020

54,223

$

54

$

209,582

$

176,732

$

452

$

386,820

Three Months Ended September 30, 2021

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

Shares

Amount

Capital

Earnings

Income (Loss)

Equity

Balances at June 30, 2021

 

54,594

$

55

$

241,718

$

235,091

$

66

$

476,930

Stock-based compensation

 

 

21,106

 

 

 

21,106

Stock options exercised

151

 

 

1,429

 

 

 

1,429

Issuance of common stock upon vesting of restricted stock units

524

 

 

 

 

 

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, 2021

 

55,019

$

55

$

201,504

$

266,023

$

(9)

$

467,573

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, 

2020

2021

Cash flows from operating activities:

Net income

$

12,460

$

30,932

Adjustments to reconcile net income to net cash used in operating activities:

Stock-based compensation expense

 

14,277

 

19,559

Depreciation and amortization expense

 

10,235

 

11,322

Deferred income tax benefit

 

(9,268)

 

(20,827)

Provision for credit losses

 

56

 

38

Net accretion of discounts and amortization of premiums on available-for-sale securities

133

90

Amortization of debt issuance costs

37

44

Other

 

31

 

27

Changes in operating assets and liabilities:

Accounts receivable

 

195

 

(173)

Deferred contract costs

(10,409)

(11,114)

Prepaid expenses and other

 

(2,144)

 

(9,807)

Accounts payable

 

1,611

 

1,567

Accrued expenses and other

 

(18,781)

 

(25,790)

Net cash used in operating activities

 

(1,567)

 

(4,132)

Cash flows from investing activities:

Purchases of available-for-sale securities

(135,849)

Proceeds from sales and maturities of available-for-sale securities

37,493

9,648

Capitalized internal-use software costs

 

(7,884)

 

(9,159)

Purchases of property and equipment

 

(2,045)

 

(3,220)

Acquisition of business, net of cash acquired

 

 

(59,581)

Net cash provided by (used in) investing activities

 

27,564

 

(198,161)

Cash flows from financing activities:

Net change in client fund obligations

 

51,671

 

1,425,782

Taxes paid related to net share settlement of equity awards

(33,402)

(60,809)

Payment of debt issuance costs

(9)

(9)

Net cash provided by financing activities

 

18,260

 

1,364,964

Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents

 

44,257

 

1,162,671

Cash, cash equivalents and funds held for clients' cash and cash equivalents—beginning of period

 

1,492,133

 

1,945,881

Cash, cash equivalents and funds held for clients' cash and cash equivalents—end of period

$

1,536,390

$

3,108,552

Supplemental Disclosure of Non-Cash Investing and Financing Activities

Purchases of property and equipment and internal-use software, accrued but not paid

$

1,479

$

3,079

Liabilities assumed for acquisition

$

$

2,165

Supplemental Disclosure of Cash Flow Information

Cash paid for interest

$

311

$

63

Cash paid (refunds received) for income taxes

$

(119)

$

13

Reconciliation of cash, cash equivalents and funds held for clients' cash and cash equivalents to the Consolidated Balance Sheets

Cash and cash equivalents

$

221,514

$

66,431

Funds held for clients' cash and cash equivalents

1,314,876

3,042,121

Total cash, cash equivalents and funds held for clients' cash and cash equivalents

$

1,536,390

$

3,108,552

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 payroll and human capital management software solutions. Services are provided in a Software-as-a-Service (“SaaS”) delivery model utilizing the Company’s cloud-based platform. The Company’s comprehensive product suite, comprised of payroll, human capital management, workforce management, talent management, benefits, modern workforce solutions and analytics & insights, delivers a unified platform that allows clients to make strategic decisions while promoting a modern workplace and improving employee engagement.

(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 three months ended September 30, 2021 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, 2021 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

6

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.

(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 HR 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, 

    

2020

    

2021

Recurring fees

 

$

129,692

 

$

174,697

Implementation services and other

 

    

5,183

 

    

6,127

Total revenues from contracts

 

$

134,875

 

$

180,824

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’s payroll frequency or by month for subscription-based fees. As such, the Company does not recognize contract assets or liabilities related to recurring revenue.

7

The nonrefundable upfront fees related to implementation services are invoiced with the client’s first payroll period. The Company defers and amortizes these nonrefundable upfront fees 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, 

    

2020

    

2021

Balance at beginning of the period

$

8,434

$

8,734

Deferral of revenue

     

3,130

     

4,353

Revenue recognized

(3,894)

(4,370)

Balance at end of the period

$

7,670

$

8,717

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 $6,231 in fiscal 2022, $2,351 in fiscal 2023 and $135 in fiscal 2024 and thereafter.

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, 2020

Beginning

Capitalized

Ending

    

Balance

    

Costs

    

Amortization

    

Balance

Costs to obtain a new contract

$

113,575

$

11,641

$

(6,572)

$

118,644

Costs to fulfill a contract

     

44,468

     

7,361

     

(2,021)

     

49,808

Total

$

158,043

$

19,002

$

(8,593)

$

168,452

Three Months Ended September 30, 2021

Beginning

Capitalized

Ending

    

Balance

    

Costs

    

Amortization

    

Balance

Costs to obtain a new contract

$

145,718

$

11,737

$

(8,233)

$

149,222

Costs to fulfill a contract

     

69,175

     

10,940

      

(3,330)

     

76,785

Total

$

214,893

$

22,677

$

(11,563)

$

226,007

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.

8

Remaining Performance Obligations

The balance of the Company’s remaining performance obligations related to minimum monthly fees on its term-based contracts was approximately $45,484 as of September 30, 2021, 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 August 31, 2021, the Company entered into an Equity Purchase Agreement (the “Purchase Agreement”) with Blue Marble Payroll, LLC (“Blue Marble”) and its equity holders and acquired all of the issued and outstanding equity interests of Blue Marble for cash consideration of $60,309, subject to working capital and certain other customary purchase price adjustments. Blue Marble’s payroll platform enables U.S.-based companies to manage payroll for employees outside the U.S. in line with complex local and country-specific requirements across many countries. This acquisition enables the Company to better serve its clients in managing their international workforces through a unified solution to pay employees, automate processes and stay compliant with regulations in other countries.

An entity affiliated with Steven I. Sarowitz, the Chairman of the Board of Directors and the largest shareholder of the Company, was the largest equity holder of Blue Marble. The Board of Directors of the Company appointed the Audit Committee, which is comprised solely of directors who are independent of the management of Blue Marble, the Blue Marble equity holders and the Company, to evaluate, assess and negotiate on its behalf the terms and conditions in the Purchase Agreement. The Audit Committee and the disinterested directors of the Company’s Board of Directors unanimously approved the Purchase Agreement and transactions specified within it.

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 acquisition with the excess consideration paid recorded as goodwill. The fair values of assets acquired and liabilities assumed are currently provisional and may change as the estimates and assumptions are subject to change over the measurement period as the Company continues to evaluate and analyze the transaction. The measurement period will end no later than one year from the acquisition date.

The preliminary allocation of the purchase price for Blue Marble is as follows:

August 31, 2021

Proprietary technology

$

21,200

Client relationships

 

3,100

Trade names

1,200

Goodwill

34,372

Other assets acquired

2,602

Liabilities assumed

(2,165)

Total purchase price

$

60,309

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 was not presented because the effect of the acquisition was not material to the Company’s consolidated financial statements. The goodwill related to this transaction is primarily related to the assembled workforce and growth opportunities from the expansion of the Company’s product offerings. The goodwill associated with this acquisition is deductible for income tax purposes. Direct costs related to the acquisition were immaterial and recorded as General and administrative expenses as incurred.

9

(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, 2021

$

800

Charged to expense

 

38

Write-offs

 

(44)

Balance at September 30, 2021

$

794

Capitalized internal-use software and accumulated amortization were as follows:

June 30, 

September 30, 

    

2021

    

2021

Capitalized internal-use software

$

150,922

$

160,751

Accumulated amortization

    

(105,904)

 

(112,032)

Capitalized internal-use software, net

$

45,018

$

48,719

Amortization of capitalized internal-use software costs is included in Cost of revenues and amounted to $5,386 and $6,128 for the three months ended September 30, 2020 and 2021, respectively.

Property and equipment, net consist of the following:

June 30, 

September 30, 

    

2021

    

2021

Office equipment

$

5,211

$

5,327

Computer equipment

     

45,420

 

50,055

Furniture and fixtures

 

13,104

 

13,350

Software

 

6,641

 

7,091

Leasehold improvements

 

46,814

 

47,191

Time clocks rented by clients

 

5,399

 

5,769

Total

 

122,589

 

128,783

Accumulated depreciation

 

(62,754)

 

(66,518)

Property and equipment, net

$

59,835

$

62,265

Depreciation expense amounted to $4,005 and $3,842 for the three months ended September 30, 2020 and 2021, respectively.

The following table summarizes changes in goodwill during the three months ended September 30, 2021:

September 30, 

    

2021

Balance at June 30, 2021

$

33,650

Additions attributable to acquisition

34,372

Balance at September 30, 2021

$

68,022

Refer to Note 4 for further details on the current year acquisition.

10

The Company’s amortizable intangible assets and estimated useful lives are as follows:

    

    

    

Weighted

average

June 30, 

September 30, 

useful

    

2021

    

2021

    

life (years)

Proprietary technology

$

6,129

$

27,329

6.6

Client relationships

19,200

22,300

7.8

Non-solicitation agreements

 

1,600

1,600

3.1

Trade names

440

1,640

5.0

Total

 

27,369

52,869

Accumulated amortization

 

(14,342)

(15,694)

Intangible assets, net

$

13,027

$

37,175

Amortization expense for acquired intangible assets was $844 and $1,352 for the three months ended September 30, 2020 and 2021, respectively.

Future amortization expense for acquired intangible assets as of September 30, 2021 is as follows:

Remainder of fiscal 2022

$

5,981

Fiscal 2023

 

7,808

Fiscal 2024

6,803

Fiscal 2025

 

5,748

Fiscal 2026

 

4,129

Thereafter

 

6,706

Total

$

37,175

The components of accrued expenses were as follows:

June 30, 

September 30, 

    

2021

    

2021

Accrued payroll and personnel costs

$

73,969

$

46,220

Operating lease liabilities

    

7,549

    

7,729

Deferred revenue

9,442

10,167

Other

 

12,149

 

16,901

Total accrued expenses

$

103,109

$

81,017

(6) Corporate Investments and Funds Held for Clients

Corporate investments and funds held for clients consist of the following:

June 30, 2021

Gross

Gross

Amortized

unrealized

unrealized

Type of Issue

cost

gains

    

losses

    

Fair value

Cash and cash equivalents

$

202,287

$

$

$

202,287

Funds held for clients' cash and cash equivalents

1,743,594

1,743,594

Available-for-sale securities:

Corporate bonds

13,390

70

13,460

Asset-backed securities

7,062

17

7,079

Total available-for-sale securities (1)

20,452

87

20,539

Total investments

$

1,966,333

$

87

$

$

1,966,420

(1)Included within the fair value of total available-for-sale securities above is $4,456 of corporate investments and $16,083 of funds held for clients.

11

September 30, 2021

Gross

Gross

Amortized

unrealized

unrealized

Type of Issue

cost

gains

    

losses

    

Fair value

Cash and cash equivalents

$

66,431

$

$

$

66,431

Funds held for clients' cash and cash equivalents

3,042,121

3,042,121

Available-for-sale securities:

Commercial paper

70,166

5

(1)

70,170

Corporate bonds

44,305

24

(26)

44,303

Asset-backed securities

7,836

5

(1)

7,840

Certificates of deposit

15,376

2

15,378

U.S government agency securities

7,000

(18)

6,982

Other

1,880

(3)

1,877

Total available-for-sale securities (2)

146,563

36

(49)

146,550

Total investments

$

3,255,115

$

36

$

(49)

$

3,255,102

(2)Included within the fair value of total available-for-sale securities above is $3,151 of corporate investments and $143,399 of funds held for clients.

Cash and cash equivalents and funds held for clients’ cash and cash equivalents include demand deposit accounts, money market funds and commercial paper at June 30, 2021 and September 30, 2021.

Classification of investments on the unaudited consolidated balance sheets is as follows:

June 30, 

September 30, 

2021

    

2021

Cash and cash equivalents

$

202,287

$

66,431

Corporate investments

4,456

3,151

Funds held for clients

1,759,677

3,185,520

Total investments

$

1,966,420

$

3,255,102

Available-for-sale securities that have been in an unrealized loss position for a period of less than 12 months as of September 30, 2021 had fair market value as follows:

September 30, 2021

Securities in an unrealized loss

position for less than 12 months

Gross

unrealized

Fair

losses

    

Value

Commercial paper

$

(1)

$

20,239

Corporate bonds

     

(26)

     

27,743

Asset-backed securities

(1)

3,009

U.S. government agency securities

(18)

6,982

Other

(3)

1,877

Total available-for-sale securities

$

(49)

$

59,850

There were no available-for-sale securities in an unrealized loss position at June 30, 2021. As a result, no securities have been in an unrealized loss position for more than 12 months as of September 30, 2021.

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, 2020 or 2021. All securities in the Company’s portfolio held an A-1 rating or better as of September 30, 2021.

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

12

September 30, 2020 or 2021. There were no realized gains or losses on the sale of available-for-sale securities for the three months ended September 30, 2020 and 2021.

Expected maturities of available-for-sale securities at September 30, 2021 are as follows:

Amortized

Fair

cost

value

One year or less

$

102,679

$

102,708

One year to two years

25,865

25,855

Two years to three years

9,958

9,941

Three years to five years

8,061

8,046

Total available-for-sale securities

$

146,563

$

146,550

(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, 2021 and September 30, 2021 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 and U.S. treasury 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, 2021 or September 30, 2021.

13

The fair value level for the Company’s cash and cash equivalents and available-for-sale securities is as follows:

June 30, 2021

Total

Level 1

    

Level 2

    

Level 3

Cash and cash equivalents

$

202,287

$

202,287

$

$

Funds held for clients' cash and cash equivalents

1,743,594

1,743,594

Available-for-sale securities:

Corporate bonds

13,460

13,460

Asset-backed securities

7,079

7,079

Total available-for-sale securities

20,539

20,539

Total investments

$

1,966,420

$

1,945,881

$

20,539

$

September 30, 2021

Total

Level 1

    

Level 2

    

Level 3

Cash and cash equivalents

$

66,431

$