10-Q 1 pcty-20240331.htm 10-Q pcty-20240331
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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 March 31, 2024
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: 56,431,253 shares of Common Stock, $0.001 par value per share, as of April 26, 2024.


Paylocity Holding Corporation
Form 10-Q
For the Quarterly Period Ended March 31, 2024
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,
2023
March 31,
2024
Assets
Current assets:
Cash and cash equivalents$288,767 $492,695 
Accounts receivable, net25,085 33,714 
Deferred contract costs78,109 92,450 
Prepaid expenses and other35,061 36,476 
Total current assets before funds held for clients427,022 655,335 
Funds held for clients2,621,415 3,591,198 
Total current assets3,048,437 4,246,533 
Capitalized internal-use software, net86,127 110,681 
Property and equipment, net64,069 60,773 
Operating lease right-of-use assets44,067 35,705 
Intangible assets, net34,527 30,868 
Goodwill102,054 108,527 
Long-term deferred contract costs294,222 333,393 
Long‑term prepaid expenses and other6,331 7,404 
Deferred income tax assets15,846 19,153 
Total assets$3,695,680 $4,953,037 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$6,153 $5,181 
Accrued expenses143,287 170,575 
Total current liabilities before client fund obligations149,440 175,756 
Client fund obligations2,625,355 3,589,437 
Total current liabilities2,774,795 3,765,193 
Long-term operating lease liabilities62,471 48,888 
Other long-term liabilities3,731 6,008 
Deferred income tax liabilities11,820 33,534 
Total liabilities$2,852,817 $3,853,623 
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding at June 30, 2023 and March 31, 2024
$ $ 
Common stock, $0.001 par value, 155,000 shares authorized at June 30, 2023 and March 31, 2024; 55,912 shares issued and outstanding at June 30, 2023 and 56,427 shares issued and outstanding at March 31, 2024
56 56 
Additional paid-in capital380,632 475,414 
Retained earnings466,690 624,637 
Accumulated other comprehensive loss(4,515)(693)
Total stockholders' equity$842,863 $1,099,414 
Total liabilities and stockholders’ equity$3,695,680 $4,953,037 

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
March 31,
Nine Months Ended
March 31,
2023202420232024
Revenues:
Recurring and other revenue$314,170 $366,840 $816,010 $956,941 
Interest income on funds held for clients25,687 34,441 50,135 88,287 
Total revenues339,857 401,281 866,145 1,045,228 
Cost of revenues95,714 115,983 270,333 324,849 
Gross profit244,143 285,298 595,812 720,379 
Operating expenses:
Sales and marketing74,064 86,760 220,821 246,940 
Research and development42,323 43,386 123,445 134,130 
General and administrative47,379 48,863 145,872 142,125 
Total operating expenses163,766 179,009 490,138 523,195 
Operating income80,377 106,289 105,674 197,184 
Other income1,139 4,324 971 11,349 
Income before income taxes81,516 110,613 106,645 208,533 
Income tax expense23,900 25,299 3,077 50,586 
Net income$57,616 $85,314 $103,568 $157,947 
Other comprehensive income (loss), net of tax1,919 (1,227)63 3,822 
Comprehensive income$59,535 $84,087 $103,631 $161,769 
Net income per share:
Basic$1.03 $1.51 $1.86 $2.81 
Diluted$1.02 $1.50 $1.83 $2.77 
Weighted-average shares used in computing net income per share:
Basic55,788 56,369 55,653 56,216 
Diluted56,555 57,048 56,560 56,975 
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 March 31, 2023
Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive LossTotal
Stockholders’
Equity
SharesAmount
Balances at December 31, 202255,768 56 310,050 371,820 (4,159)$677,767 
Stock-based compensation— — 36,249 — — 36,249 
Stock options exercised11 — 188 — — 188 
Issuance of common stock upon vesting of restricted stock units55   — —  
Net settlement for taxes and/or exercise price related to equity awards(24)— (4,993)— — (4,993)
Unrealized gains on securities, net of tax— — — — 1,919 1,919 
Net income— — — 57,616 — 57,616 
Balances at March 31, 202355,810 $56 $341,494 $429,436 $(2,240)$768,746 
Three Months Ended March 31, 2024
Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Total
Stockholders’
Equity
SharesAmount
Balances at December 31, 202356,313 56 446,860 539,323 534 $986,773 
Stock-based compensation— — 39,221 — — 39,221 
Stock options exercised90 — 1,549 — — 1,549 
Issuance of common stock upon vesting of restricted stock units96   — —  
Net settlement for taxes and/or exercise price related to equity awards(72)— (12,216)— — (12,216)
Unrealized losses on securities, net of tax— — — — (1,227)(1,227)
Net income— — — 85,314 — 85,314 
Balances at March 31, 202456,427 $56 $475,414 $624,637 $(693)$1,099,414 
Nine Months Ended March 31, 2023
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— — 127,373 — — 127,373 
Stock options exercised253 — 3,129 — — 3,129 
Issuance of common stock upon vesting of restricted stock units664 1 (1)— —  
Issuance of common stock under employee stock purchase plan61 — 8,450 — — 8,450 
Net settlement for taxes and/or exercise price related to equity awards(358)— (87,300)— — (87,300)
Unrealized gains on securities, net of tax— — — — 63 63 
Net income— — — 103,568 — 103,568 
Balances at March 31, 202355,810 $56 $341,494 $429,436 $(2,240)$768,746 
Nine Months Ended March 31, 2024
Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive LossTotal
Stockholders’
Equity
SharesAmount
Balances at June 30, 202355,912 $56 $380,632 $466,690 $(4,515)$842,863 
Stock-based compensation— — 131,305 — — 131,305 
Stock options exercised118 — 2,033 — — 2,033 
Issuance of common stock upon vesting of equity awards585   — —  
Issuance of common stock upon employee stock purchase plan73 — 9,534 — — 9,534 
Net settlement for taxes and/or exercise price related to equity awards(261)— (48,090)— — (48,090)
Unrealized gains on securities, net of tax— — — — 3,822 3,822 
Net income— — — 157,947 — 157,947 
Balances at March 31, 202456,427 $56 $475,414 $624,637 $(693)$1,099,414 
See accompanying notes to the unaudited consolidated financial statements.
4

PAYLOCITY HOLDING CORPORATION
Unaudited Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended
March 31,
20232024
Cash flows from operating activities:
Net income$103,568 $157,947 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense116,002 117,165 
Depreciation and amortization expense44,481 55,779 
Deferred income tax expense1,308 18,543 
Provision for credit losses864 713 
Net accretion of discounts on available-for-sale securities(3,602)(3,688)
Other1,567 (3,111)
Changes in operating assets and liabilities:
Accounts receivable(12,548)(9,913)
Deferred contract costs(62,929)(50,807)
Prepaid expenses and other2,031 (2,191)
Accounts payable10 (554)
Accrued expenses and other15,355 24,856 
Net cash provided by operating activities206,107 304,739 
Cash flows from investing activities:
Purchases of available-for-sale securities(557,403)(231,672)
Proceeds from sales and maturities of available-for-sale securities298,113 222,712 
Capitalized internal-use software costs(30,726)(44,501)
Purchases of property and equipment(8,769)(11,701)
Acquisitions of businesses, net of cash acquired (12,031)
Other investing activities33 783 
Net cash used in investing activities(298,752)(76,410)
Cash flows from financing activities:
Net change in client fund obligations(785,361)964,082 
Proceeds from employee stock purchase plan8,450 9,534 
Taxes paid related to net share settlement of equity awards(84,174)(46,057)
Other financing activities(873)(35)
Net cash provided by (used in) financing activities(861,958)927,524 
Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents(954,603)1,155,853 
Cash, cash equivalents and funds held for clients' cash and cash equivalents—beginning of period3,793,453 2,421,312 
Cash, cash equivalents and funds held for clients' cash and cash equivalents—end of period$2,838,850 $3,577,165 
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Purchases of property and equipment and capitalized internal-use software, accrued but not paid$3,115 $2,777 
Liabilities assumed for acquisitions$117 $378 
Supplemental Disclosure of Cash Flow Information
Cash paid for interest$282 $372 
Cash paid for income taxes$573 $34,659 
Reconciliation of cash, cash equivalents and funds held for clients' cash and cash equivalents to the Consolidated Balance Sheets
Cash and cash equivalents$233,692 $492,695 
Funds held for clients' cash and cash equivalents2,605,158 3,084,470 
Total cash, cash equivalents and funds held for clients' cash and cash equivalents$2,838,850 $3,577,165 
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 and nine months ended March 31, 2024 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, 2023 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.
6

(d) Recently Issued Accounting Standards
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 primarily requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker along with other incremental segment information. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and will be applied retrospectively to all prior periods presented in the financial statements. The Company is currently assessing the impact of this ASU to its consolidated financial statements and related disclosures and is evaluating the timing of adoption.
In December 2023, the FASB issued Accounting Standards Update 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosure ("ASU 2023-09"). ASU 2023-09 mostly requires, on an annual basis, disclosure of specific categories in an entity's effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. The incremental disclosures may be presented on a prospective or retrospective basis. The ASU is effective for fiscal years beginning after December 15, 2024 with early adoption permitted. The Company is currently assessing the impact of this ASU to its consolidated financial statements and related disclosures and is evaluating the method and timing of adoption.
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 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. Implementation services and other 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 total revenues from contracts by Recurring fees and Implementation services and other, which the Company believes depicts the nature, amount and timing of its revenue:
Three Months Ended
March 31,
Nine Months Ended
March 31,
2023202420232024
Recurring fees$302,595 $352,025 $786,936 $917,064 
Implementation services and other11,575 14,815 29,074 39,877 
Total revenues from contracts$314,170 $366,840 $816,010 $956,941 
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.
7

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
March 31,
Nine Months Ended
March 31,
2023202420232024
Balance at beginning of the period$19,737$26,245$12,233$22,617
Deferral of revenue10,21110,93230,44533,164
Revenue recognized(8,589)(11,324)(21,319)(29,928)
Balance at end of the period$21,359$25,853$21,359$25,853
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 $10,442 in fiscal 2024, $13,048 in fiscal 2025 and $2,363 in fiscal 2026 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.
8

The following tables present the deferred contract costs and the related amortization expense for these deferred contract costs:
Three Months Ended March 31, 2023
Beginning BalanceCapitalized CostsAmortizationEnding Balance
Costs to obtain a new contract$200,553 $22,105 $(11,477)$211,181 
Costs to fulfill a contract130,317 19,085 (6,699)142,703 
Total$330,870 $41,190 $(18,176)$353,884 
Three Months Ended March 31, 2024
Beginning BalanceCapitalized CostsAmortizationEnding Balance
Costs to obtain a new contract$230,057 $23,878 $(13,408)$240,527 
Costs to fulfill a contract174,923 19,806 (9,413)185,316 
Total$404,980 $43,684 $(22,821)$425,843 
Nine Months Ended March 31, 2023
Beginning BalanceCapitalized CostsAmortizationEnding Balance
Costs to obtain a new contract$182,543 $61,327 $(32,689)$211,181 
Costs to fulfill a contract106,025 54,750 (18,072)142,703 
Total$288,568 $116,077 $(50,761)$353,884 
Nine Months Ended March 31, 2024
Beginning BalanceCapitalized CostsAmortizationEnding Balance
Costs to obtain a new contract$218,965 $60,214 $(38,652)$240,527 
Costs to fulfill a contract153,366 58,066 (26,116)185,316 
Total$372,331 $118,280 $(64,768)$425,843 
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 primarily recorded in Cost of revenues and Sales and marketing 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 $74,270 as of March 31, 2024, 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 Combination

On November 30, 2023, the Company acquired all of the outstanding shares of TraceHQ.com, Inc. ("Trace") through a merger of Trace with a subsidiary of the Company for cash consideration of $12,086, subject to working capital and other customary purchase price adjustments. Trace offers a headcount planning solution that expands the Company's product functionality in this area. The preliminary allocation of the purchase price for Trace was approximately $6,473 of goodwill, $4,200 of proprietary technology and other immaterial assets and liabilities which reflects certain immaterial measurement period adjustments recorded during the three months ended March 31, 2024. The Company accounted for this transaction as a business combination 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 fair values of the assets acquired and liabilities assumed are currently provisional and are subject to change over the measurement period as the Company continues to evaluate and analyze the estimates and assumptions used in the valuation. The measurement period will end no later than one year from the acquisition date.
9

The results from this acquisition have been included in the Company’s consolidated financial statements since the closing of the transaction 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 transaction 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 the Trace 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 expense in the Unaudited Consolidated Statements of Operations and Comprehensive Income.
(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, 2023$1,620
Charged to expense713
Write-offs(525)
Balance at March 31, 2024$1,808
Capitalized internal-use software and accumulated amortization were as follows:
June 30,
2023
March 31,
2024
Capitalized internal-use software$248,738 $305,763 
Accumulated amortization(162,611)(195,082)
Capitalized internal-use software, net$86,127 $110,681 
Amortization of capitalized internal-use software costs is primarily included in Cost of revenues and amounted to $7,984 and $12,260 for the three months ended March 31, 2023 and 2024, respectively, and $22,504 and $32,471 for the nine months ended March 31, 2023 and 2024, respectively.
The major classes of property and equipment, net were as follows:
June 30,
2023
March 31,
2024
Office equipment$2,508 $2,792 
Computer equipment58,670 61,624 
Furniture and fixtures12,958 12,986 
Software11,127 12,812 
Leasehold improvements48,159 48,872 
Time clocks rented by clients8,533 9,526 
Total141,955 148,612 
Accumulated depreciation(77,886)(87,839)
Property and equipment, net$64,069 $60,773 
Depreciation expense amounted to $4,633 and $5,220 for the three months ended March 31, 2023 and 2024, respectively, and $13,666 and $15,449 for the nine months ended March 31, 2023 and 2024, respectively.
10

The following table summarizes changes in goodwill during the nine months ended March 31, 2024:
March 31,
2024
Balance at June 30, 2023$102,054
Addition attributable to acquisition6,473
Balance at March 31, 2024$108,527
Refer to Note 4 for further details on current year acquisition activity.
The Company’s amortizable intangible assets and estimated useful lives are as follows:
June 30,
2023
March 31,
2024
Weighted average useful life (years)
Proprietary technology$43,129 $47,329 5.9
Client relationships22,200 22,200 7.8
Non-solicitation agreements1,600 1,600 3.1
Trade names1,640 1,640 5.0
Total68,569 72,769 
Accumulated amortization(34,042)(41,901)
Intangible assets, net$34,527 $30,868 
Amortization expense for acquired intangible assets was $2,770 and $2,798 for the three months ended March 31, 2023 and 2024, respectively, and $8,311 and $7,859 for the nine months ended March 31, 2023 and 2024, respectively, and is included in Cost of revenues and General and administrative.
Future amortization expense for acquired intangible assets as of March 31, 2024 is as follows:
Remainder of fiscal 2024
$2,577 
Fiscal 2025
9,728 
Fiscal 2026
8,109 
Fiscal 2027
5,733 
Fiscal 2028
3,869 
Thereafter852 
Total $30,868 
The components of accrued expenses were as follows:
June 30,
2023
March 31,
2024
Accrued payroll and personnel costs$85,019$95,787
Operating lease liabilities7,8008,021
Deferred revenue24,53927,544
Other25,92939,223
Total accrued expenses$143,287$170,575
11

(6) Corporate Investments and Funds Held for Clients
Corporate investments and funds held for clients consisted of the following:
June 30, 2023
Type of IssueAmortized costGross unrealized gainsGross unrealized lossesFair value
Cash and cash equivalents$288,767$$$288,767
Funds held for clients' cash and cash equivalents2,132,5452,132,545
Available-for-sale securities:
Commercial paper110,00312(138)109,877
Corporate bonds112,26218(1,867)110,413
Asset-backed securities30,06110(337)29,734
Certificates of deposit68,2475(93)68,159
U.S. treasury securities158,839(2,839)156,000
U.S government agency securities8,000(513)7,487
Other7,329(129)7,200
Total available-for-sale securities494,74145(5,916)488,870
Total investments$2,916,053$45$(5,916)$2,910,182
March 31, 2024
Type of IssueAmortized costGross unrealized gainsGross unrealized lossesFair value
Cash and cash equivalents$492,695$$$492,695
Funds held for clients' cash and cash equivalents3,084,4703,084,470
Available-for-sale securities:
Commercial paper14,343(4)14,339
Corporate bonds256,0271,557(895)256,689
Asset-backed securities38,300185(149)38,336
Certificates of deposit13,4201113,431
U.S. treasury securities164,47860(1,232)163,306
U.S government agency securities8,000(271)7,729
Other12,820119(41)12,898
Total available-for-sale securities507,3881,932(2,592)506,728
Total investments$4,084,553$1,932$(2,592)$4,083,893
All available-for-sale securities were included in Funds held for clients at June 30, 2023 and March 31, 2024.
Cash and cash equivalents and funds held for clients’ cash and cash equivalents included demand deposit accounts and money market funds at June 30, 2023 and March 31, 2024.
Classification of investments on the Unaudited Consolidated Balance Sheets was as follows:
June 30,
2023
March 31, 2024
Cash and cash equivalents$288,767$492,695
Funds held for clients2,621,4153,591,198
Total investments$2,910,182$4,083,893
12

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, 2023 and March 31, 2024 had fair market value as follows:
June 30, 2023
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$(138)$96,665$ $$(138)$96,665
Corporate bonds(695)71,089(1,172)32,807(1,867)103,896
Asset-backed securities(233)23,313(104)2,038(337)25,351
Certificates of deposit(93)52,254 (93)52,254
U.S. treasury securities(1,075)95,388(1,764)60,612(2,839)156,000
U.S. government agency securities (513)7,487(513)7,487
Other(71)5,326(58)1,874(129)7,200
Total available-for-sale securities$(2,305)$344,035$(3,611)$104,818$(5,916)$448,853
March 31, 2024
Securities in an unrealized loss
position for less than 12 months
Securities in an unrealized loss
position for greater than 12 months
Total
Gross unrealized lossesFair valueGross unrealized lossesFair valueGross unrealized lossesFair value
Commercial paper$(4)$14,339$ $$(4)$14,339
Corporate bonds(339)77,014(556)25,194(895)102,208
Asset-backed securities(2)3,877(147)8,102(149)11,979
U.S. treasury securities(506)88,119(726)68,205(1,232)156,324
U.S. government agency securities (271)7,729(271)7,729
Other(9)2,785(32)3,614(41)6,399
Total available-for-sale securities$(860)$186,134$(1,732)$112,844$(2,592)$298,978
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 or nine months ended March 31, 2023 or 2024. All securities in the Company’s portfolio held an A-1 rating or better as of March 31, 2024.
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 or nine months ended March 31, 2023 or 2024. There were no realized gains or losses on the sale of available-for-sale securities for the three or nine months ended March 31, 2023 or 2024.
13

Expected maturities of available-for-sale securities at March 31, 2024 were as follows:
Amortized costFair value
One year or less$195,435$194,520
One year to two years130,594129,364
Two years to three years57,92758,282
Three years to five years123,432124,562
Total available-for-sale securities$507,388$506,728
(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, funds held for clients' 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, 2023 and March 31, 2024 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, 2023 or March 31, 2024.
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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, 2023
TotalLevel 1Level 2Level 3
Cash and cash equivalents$288,767$288,767$$
Funds held for clients' cash and cash equivalents2,132,5452,132,545
Available-for-sale securities:
Commercial paper109,877109,877
Corporate bonds110,413110,413
Asset-backed securities29,73429,734
Certificates of deposit68,15968,159
U.S. treasury securities156,000156,000
U.S government agency securities7,4877,487
Other7,2007,200
Total available-for-sale securities488,870488,870
Total investments$2,910,182$2,421,312$488,870$
March 31, 2024
TotalLevel 1Level 2Level 3
Cash and cash equivalents$492,695$492,695$$
Funds held for clients' cash and cash equivalents3,084,4703,084,470
Available-for-sale securities:
Commercial paper14,33914,339
Corporate bonds256,689256,689
Asset-backed securities38,33638,336
Certificates of deposit13,43113,431
U.S. treasury securities163,306163,306
U.S government agency securities7,7297,729
Other12,89812,898
Total available-for-sale securities506,728506,728
Total investments$4,083,893$3,577,165$506,728$
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, 2023 or March 31, 2024.
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 Company may generally borrow, prepay and reborrow under the credit facility and terminate or reduce the lenders’
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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 March 31, 2024, the Company was in compliance with all of the aforementioned covenants.
(9) Stock-Based Compensation
In November 2023, the Company’s stockholders approved the 2023 Equity Incentive Plan (the “2023 Plan”). The 2023 Plan serves as the successor to the 2014 Equity Incentive Plan (the “2014 Plan”) and permits the granting of restricted stock units ("RSUs"), market share units ("MSUs") 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 2014 Plan since the effective date of the 2023 Plan. Outstanding awards under the 2014 Plan continue to be subject to the terms and conditions of the 2014 Plan.
As of March 31, 2024, the Company had 2,090 shares available for future grant under the 2023 Plan, and 1,766 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 granted awards that are forfeited or net settled at exercise or release may be reissued under the 2023 Plan to satisfy future issuances.
Stock-based compensation expense related to RSUs, 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 March 31,Nine Months Ended March 31,
2023202420232024
Cost of revenues$4,187 $4,527 $13,460 $14,945 
Sales and marketing8,789 9,079 29,143 28,347 
Research and development8,665 7,427 28,759 28,498 
General and administrative10,997 13,919 44,640 45,375 
Total stock-based compensation expense$32,638 $34,952 $116,002 $117,165 
In addition, the Company capitalized $2,888 and $3,470 of stock-based compensation expense in its capitalized internal-use software costs in the three months ended March 31, 2023 and 2024, respectively, and $8,984 and $11,435 for the nine months ended March 31, 2023 and 2024, respectively.
There were no stock options granted during the nine months ended March 31, 2024. The table below presents stock option activity during the nine months ended March 31, 2024:
Outstanding Options
Number of sharesWeighted average exercise priceWeighted average remaining contractual term (years)Aggregate intrinsic value
Option balance at July 1, 2023288 $23.63 1.2$46,129 
Options exercised(118)$17.24 
Option balance at March 31, 2024170 $28.09 0.7$24,268 
Options vested and exercisable at March 31, 2024170 $28.09 0.7$24,268 
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The total intrinsic value of options exercised was $2,011 and $13,476 during the three months ended March 31, 2023 and 2024, respectively, and $51,638 and $18,176 for the nine months ended March 31, 2023 and 2024, respectively.
The Company grants RSUs under its equity incentive plan with terms determined at the discretion of the compensation committee of the Company’s board of directors. RSUs generally vest over four years following the grant date and have time-based vesting conditions.
The following table represents restricted stock unit activity during the nine months ended March 31, 2024:
UnitsWeighted average grant date fair value
RSU balance at July 1, 20231,242 $225.30 
RSUs granted781 $192.77 
RSUs vested(525)$197.44 
RSUs forfeited(99)$212.77 
RSU balance at March 31, 20241,399 $218.49 
The Company also grants MSUs under its equity incentive plan with terms determined at the discretion of the compensation committee of the Company's board of directors. The actual number of MSUs that will be eligible to vest is based on the achievement of a relative total shareholder return (“TSR”) target as compared to the TSR realized by each of the companies comprising the Russell 3000 Index over an approximately three-year period. The MSUs cliff-vest at the end of the TSR measurement period, and up to 200% of the target number of shares subject to each MSU are eligible to be earned.
The following table represents market share unit activity during the nine months ended March 31, 2024:
UnitsWeighted average grant date fair value
MSU balance at July 1, 2023171$320.38
MSUs granted86$256.66
MSUs vested(60)$178.04
MSU balance at March 31, 2024197$335.79
The Company estimated the grant date fair value of the MSUs using a Monte Carlo simulation model that included the following assumptions:
Nine Months Ended
March 31,
20232024
Valuation assumptions:
Expected dividend yield%%
Expected volatility
51.0% - 52.7%
44.5%
Expected term (years)
2.75 - 3.04
3.04
Risk‑free interest rate
3.11% - 4.01%
4.58%
At March 31, 2024, there was $161,800 of total unrecognized compensation cost, net of estimated forfeitures, related to unvested RSUs and MSUs. That cost is expected to be recognized over a weighted average period of 1.8 years.
(10) Litigation
On November 16, 2020, a potential class action complaint was filed against the Company with the Circuit Court of Cook County alleging that the Company violated the Illinois Biometric Information Privacy Act. The complaint seeks
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statutory damages, attorney’s fees and other costs. On September 11, 2023, a second potential class action complaint was filed against the Company with the Circuit Court of Cook County that alleges violations of the Illinois Biometric Information Privacy Act that overlap with claims in the first action. The Company is unable to estimate any reasonably possible loss, or range of loss, with respect to these matters at this time. The Company intends to vigorously defend against these lawsuits.
From time to time, the Company is subject to litigation arising in the ordinary course of business. Many of these matters are covered in whole or in part by insurance. In the opinion of the Company’s management, the ultimate disposition of any matters currently outstanding or threatened will not have a material adverse effect on the Company’s financial position, results of operations, or liquidity. However, these matters are subject to inherent uncertainties and could materially impact the Company’s financial position, results of operations, or liquidity based on the final disposition of these matters.
(11) Income Taxes
The Company’s quarterly provision for income taxes is based on the annual effective rate method. The Company’s quarterly provision for income taxes also includes the tax impact of certain unusual or infrequently occurring items, if any, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, and other discrete items in the interim period in which they occur.
The Company's effective tax rate was 29.3% and 22.9% for the three months ended March 31, 2023 and 2024, respectively. The Company's effective tax rate for the three months ended March 31, 2023 was higher than the federal statutory rate of 21% primarily due to an increase to non-deductible stock-based compensation under Internal Revenue Code Section 162(m) and state and local income taxes. The Company's effective tax rate for the three months ended March 31, 2024 was higher than the federal statutory rate of 21% primarily due to state and local income taxes.
The Company's effective tax rate was 2.9% and 24.3% for the nine months ended March 31, 2023 and 2024, respectively. The Company's effective tax rate for the nine months ended March 31, 2023 was lower than the federal statutory rate of 21% primarily due to excess tax benefits from employee stock-based compensation, research and development tax credits, and a decrease in the valuation allowance. The Company's effective tax rate for the nine months ended March 31, 2024 was higher than the federal statutory rate of 21% primarily due to state and local income taxes.
(12) Net Income Per Share
Basic net income per common share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common shares outstanding during the period and, if dilutive, potential common shares outstanding during the period. The Company’s potential common shares consist of the incremental common shares issuable upon the exercise of stock options,
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the release of restricted stock units and market share units as of the balance sheet date. The following table presents the calculation of basic and diluted net income per share:
Three Months Ended
March 31,
Nine Months Ended
March 31,
2023202420232024
Numerator:
Net income$57,616 $85,314 $103,568 $157,947 
Denominator:
Weighted-average shares used in computing net income per share:
Basic55,788 56,369 55,653 56,216 
Weighted-average effect of potentially dilutive shares:
Employee stock options, restricted stock units and market share units767 679 907 759 
Diluted56,555 57,048 56,560 56,975 
Net income per share:
Basic$1.03 $1.51 $1.86 $2.81 
Diluted$1.02 $1.50 $1.83 $2.77 
The following table summarizes the outstanding restricted stock units and market share units as of March 31, 2023 and 2024 that were excluded from the diluted per share calculation for the periods presented because to include them would have been antidilutive:
Three Months Ended
March 31,
Nine Months Ended
March 31,
2023202420232024
Market share units2642819
Restricted stock units1945609
Total45858828
(13) Subsequent Events
On April 30, 2024, the Company's Board of Directors approved a share repurchase program (the "Repurchase Program") under which the Company is authorized to purchase (in the aggregate) up to $500,000 of its issued and outstanding common stock. Under the Repurchase Program, shares may be repurchased from time-to-time in open market transactions at prevailing market prices, privately negotiated transactions or by other means, including the use of Rule 10b5-1 trading plans entered into by the Company. The actual timing, number and value of shares repurchased under the Repurchase Program will depend on the market price of its common stock, trading volume, general market conditions and other corporate and economic considerations. The Repurchase Program does not obligate the Company to repurchase any specific number of shares and may be modified, suspended or terminated at any time.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The statements included herein that are not based solely on historical facts are “forward looking statements.” Such forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. Our actual results could differ materially from those anticipated by us in these forward-looking statements as a result of various factors, including items discussed below and under Part I, Item 1A. "Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 filed with the SEC on August 4, 2023.
Overview
We are a leading cloud-based provider of human capital management, or HCM, and payroll software solutions that deliver a comprehensive platform for the modern workforce. Our HCM and payroll platform offers an intuitive, easy-to-use product suite that helps businesses attract and retain talent, build culture and connection with their employees, and streamline and automate HR and payroll processes.
Effective management of human capital is a core function in all organizations and requires a significant commitment of resources. Our cloud-based software solutions, combined with our unified database architecture, are highly flexible and configurable and feature a modern, intuitive user experience. Our platform offers automated data integration with hundreds of third-party partner systems, such as 401(k), benefits and insurance provider systems. We plan to continue to invest in research and development efforts that will allow us to offer a broader selection of products to new and existing clients focused on experiences that solve our clients’ challenges.
We believe there is a significant opportunity to grow our business by increasing our number of clients and we intend to invest in our business to achieve this purpose. We market and sell our solutions through our direct sales force. We have increased our sales and marketing expenses as we have added sales representatives and related sales and marketing personnel. We intend to continue to grow our sales and marketing organization across new and existing geographic territories. In addition to growing our number of clients, we intend to grow our revenue over the long term by increasing the number of solutions that clients purchase from us. To do so, we must continue to enhance and grow the number of solutions we offer to advance our platform.
We also believe that delivering a positive service experience is an essential element of our ability to sell our solutions and retain our clients. We supplement our comprehensive software solutions with an integrated implementation and client service organization, all of which are designed to meet the needs of our clients and sales prospects. We expect to continue to invest in and grow our implementation and client service organization as our client base grows.
We will continue to invest across our entire organization as we continue to grow our business over the long term. These investments include increasing the number of personnel across all functional areas, along with improving our solutions and infrastructure to support our growth. The timing and amount of these investments vary based on the rate at which we add new clients and personnel and scale our application development and other activities. Many of these investments will occur in advance of experiencing any direct benefit from them, which will make it difficult to determine if we are effectively allocating our resources. We expect these investments to increase our costs on an absolute basis, but as we grow our number of clients and our related revenues, we anticipate that we will gain economies of scale and increased operating leverage. As a result, we expect our gross and operating margins will improve over the long term.
Paylocity Holding Corporation is a Delaware corporation, which was formed in November 2013. Our business operations are conducted by our wholly owned subsidiaries.
Key Metrics
We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.
Revenue Growth
Our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results and cash flow from operations. This visibility enables us to better manage and invest in our business. Total revenues increased from $339.9 million for the three months ended March 31, 2023 to $401.3 million for the three months ended March 31, 2024, representing a 18% year-over-year increase. Total revenues increased from $866.1 million for the nine months ended March 31, 2023 to $1,045.2 million for the nine months ended March 31, 2024, representing a 21% year-over-year increase. The increase in year-over-year revenue growth was driven by the strong performance by our sales team and growth in interest income on funds held for clients attributable to rising interest rates and higher average daily balances for funds held for clients due to the addition of new clients as compared to the prior fiscal year.
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Uncertainties around market and economic conditions may impact revenue growth, which we have recently experienced and may continue to experience, through fluctuations in client employee counts, elongated sales cycles, client losses, and a changing interest rate environment, among other factors.
Adjusted Gross Profit and Adjusted EBITDA
We disclose Adjusted Gross Profit and Adjusted EBITDA, which are non-GAAP measures, because we use them to evaluate our performance, and we believe Adjusted Gross Profit and Adjusted EBITDA assist in the comparison of our performance across reporting periods by excluding certain items that we do not believe are indicative of our core operating performance. We believe these metrics are commonly used in the financial community, and we present them to enhance investors’ understanding of our operating performance and cash flows.
Adjusted Gross Profit and Adjusted EBITDA are not measurements of financial performance under generally accepted accounting principles in the United States (“GAAP”), and you should not consider Adjusted Gross Profit as an alternative to gross profit or Adjusted EBITDA as an alternative to net income, in each case as determined in accordance with GAAP. In addition, our definition of Adjusted Gross Profit and Adjusted EBITDA may be different than the definition utilized for similarly-titled measures used by other companies.
We define Adjusted Gross Profit as gross profit before amortization of capitalized internal-use software costs, amortization of certain acquired intangibles, stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, and other items as defined below. We define Adjusted EBITDA as net income before interest expense, income tax expense (benefit), depreciation and amortization expense, stock-based compensation expense and employer payroll taxes related to stock releases and option exercises and other items as defined below.
Three Months Ended
March 31,
Nine Months Ended
March 31,
2023202420232024
(in thousands)(in thousands)
Reconciliation from Gross Profit to Adjusted Gross Profit
Gross profit$244,143 $285,298 $595,812 $720,379 
Amortization of capitalized internal-use software costs7,984 12,260 22,504 32,471 
Amortization of certain acquired intangibles1,854 2,136 5,561 5,843 
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises4,341 4,953 14,696 16,194 
Other items (1)— — 19 — 
Adjusted Gross Profit$258,322 $304,647 $638,592 $774,887 
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Three Months Ended
March 31,
Nine Months Ended
March 31,
2023202420232024
(in thousands)(in thousands)
Reconciliation from Net income to Adjusted EBITDA
Net income