2021
Annual
Report
“ It was everything we needed, all
in one place. Paylocity’s all-in-one
solution helped modernize the
entire employee experience.”
Chief Human Resource Officer
San Luis Valley Behavioral Health Group
“ It was everything we needed, all
in one place. Paylocity’s all-in-one
solution helped modernize the
entire employee experience.”
Chief Human Resource Officer
San Luis Valley Behavioral Health Group
About
Paylocity
Paylocity is a leading provider of cloud-based payroll and human capital management (HCM) software solutions.
Our comprehensive product suite delivers a unified platform for professionals to make strategic decisions in the areas
of benefits, core HR, payroll, talent, and workforce management, while cultivating a modern workplace and improving
employee engagement. Headquartered in Schaumburg, IL., we have consistently been recognized nationally for our
innovation, culture, and growth.
Technology
Experience
Service
Industry-leading, cloud-based
payroll and HCM software provides
clients with a robust, unified
platform to recruit, retain, and
engage employees.
Paylocity’s intuitive, user-friendly
platform helps automate daily HR
tasks, while providing a collaborative,
consumer-style work experience for
employees.
Flexible service model offers clients
timely, consultative support under
the care of an assigned account
manager and backed by a team of
highly trained experts.
Integration
Culture
Analytics
Paylocity connects with other
business systems to effortlessly flow
data across the tools our clients
use most.
By using our own technology to
connect, collaborate, and innovate
with each other, Paylocity is
constantly enriching our award-
winning culture.
Robust data analysis and reporting
capabilities that span demographics,
retention insights, turnover trends,
labor costs, and more.
Fiscal 2021 Highlights
4,150
Employees
28,750
Clients
100+
Employees
Avg. client size
18%
Client growth
92%+
Revenue retention
$632 million
Recurring and
other revenue
16%
Recurring and other
revenue YoY growth
$636 million
Total revenue
13%
Total revenue
YoY growth
27%
Adj. EBITDA margin*
* Refer to Financial Highlights and Appendix A for additional details on non-GAAP financial measures.
Paylocity 2021 Annual Report
1
Message from Our
Message from our Chief
Chief Executive
Executive Officer
Officer
Fellow Shareholders:
Fiscal 2021 provided the opportunity for Paylocity to stand apart
from the competition in serving our clients, supporting our
employees, and delivering leading technology while also driving
continued revenue and client growth. Despite the macro-
economic headwinds from COVID-19, we are very pleased with
what we accomplished in fiscal 2021 and the strong momentum
we see across our business in fiscal 2022. We ended the fiscal
year with 28,750 clients and total revenue of $635.6 million,
which represented 18% client growth and 13% revenue growth
over fiscal 2020. We have also been pleased with our ability to
maintain profitability and free cash flow in the face of the ongoing
pandemic. In fiscal 2021 we generated adjusted EBITDA of
$170.0 million or 26.7% of revenue, combined with free-cash flow of
$86.8 million or 13.7% of revenue.
Our value proposition of providing the most modern and
comprehensive product suite continues to resonate in the
marketplace as products focused on the Modern Workforce
continue to see strong utilization growth by our clients.
In Community, our social collaboration platform, we saw
an average of over 25,000 announcements per month,
and our monthly unique visitors doubled during fiscal
2021, with hundreds of thousands of user interactions per
month. Community has seen rapid adoption by companies
with dispersed workforces – including mobile and remote
employees, contractors and shift workers, who may not have
regular access to corporate email or computer terminals.
Additionally, usage of our Survey product increased significantly
in fiscal 2021, with an average of more than 1 million surveys
launched each month, while Premium Video usage surpassed
over half a million video plays across the product suite. Our
Learning Management product has similarly seen significant
growth, with over 200,000 learning courses being completed
per month by employees and nearly 90% engagement on all
video content recorded and uploaded leveraging our video
product. Lastly, the Paylocity Modern Workforce Index or MWI,
which analyzes, scores, and tracks a company’s progress in
delivering a more engaging experience to their employees, has
been instrumental in driving client conversations, and we’re very
pleased with the traction this tool is seeing in the marketplace.
Our commitment to product development continues to be
recognized by independent third parties, with Paylocity ranking
high on the G2 Crowd Summer Grid Reports during fiscal 2021,
2
Paylocity 2021 Annual Report
including being listed as a leader in 12 product categories and
being recognized in the Mid-Market and Enterprise segments.
We also continue to invest in our salesforce by adding new
sales reps, while also investing in our referral channel, digital
marketing, and digital lead generation initiatives to support our
go-to-market efforts. We believe there are significant growth
opportunities for our Company, as our core target market has
more than 1.3 million businesses.
From an operational perspective, we remain focused on
delivering world-class service to our 28,750 clients. The
pandemic brought uncertainty and a rapidly evolving regulatory
environment to our clients and their employees. I’m proud of the
efforts of our operations teams, who worked proactively with
clients during this challenging period, as well as our software
development teams, who help us provide our clients with the
most modern software in the industry. This combination of service
and technology allowed us to deliver revenue retention of greater
than 92% for fiscal 2021 – its highest level in several years.
The success we’ve had as a company would not be possible
without the dedication and commitment of our more than 4,000
employees, who worked hand-in-hand with our clients through
a very challenging year. The strong culture at Paylocity also
continues to be recognized as we were once again named a
Certified Great Place to Work while also ranking 9th in Fortune’s
100 Fastest-Growing Companies list. Another important
component of our culture is Paylocity’s commitment to being a
leader in social and environmental responsibility and corporate
governance – and we have programs in place across our
business that are showcased on the Corporate Responsibility
section of our website.
As we reflect on our performance in fiscal 2021, I would
like to thank our employees, clients, and partners for all of
their contributions!
Steve Beauchamp
Chief Executive Officer
Message from Our
Message from our Chief
Chief Executive
Executive Officer
Officer
Fiscal 2021 provided the opportunity for Paylocity to stand apart
including being listed as a leader in 12 product categories and
from the competition in serving our clients, supporting our
being recognized in the Mid-Market and Enterprise segments.
Fellow Shareholders:
employees, and delivering leading technology while also driving
continued revenue and client growth. Despite the macro-
economic headwinds from COVID-19, we are very pleased with
what we accomplished in fiscal 2021 and the strong momentum
we see across our business in fiscal 2022. We ended the fiscal
year with 28,750 clients and total revenue of $635.6 million,
which represented 18% client growth and 13% revenue growth
over fiscal 2020. We have also been pleased with our ability to
maintain profitability and free cash flow in the face of the ongoing
pandemic. In fiscal 2021 we generated adjusted EBITDA of
$170.0 million or 26.7% of revenue, combined with free-cash flow of
$86.8 million or 13.7% of revenue.
Our value proposition of providing the most modern and
comprehensive product suite continues to resonate in the
marketplace as products focused on the Modern Workforce
continue to see strong utilization growth by our clients.
In Community, our social collaboration platform, we saw
an average of over 25,000 announcements per month,
and our monthly unique visitors doubled during fiscal
2021, with hundreds of thousands of user interactions per
month. Community has seen rapid adoption by companies
with dispersed workforces – including mobile and remote
employees, contractors and shift workers, who may not have
regular access to corporate email or computer terminals.
Additionally, usage of our Survey product increased significantly
in fiscal 2021, with an average of more than 1 million surveys
launched each month, while Premium Video usage surpassed
over half a million video plays across the product suite. Our
Learning Management product has similarly seen significant
growth, with over 200,000 learning courses being completed
per month by employees and nearly 90% engagement on all
video content recorded and uploaded leveraging our video
product. Lastly, the Paylocity Modern Workforce Index or MWI,
which analyzes, scores, and tracks a company’s progress in
delivering a more engaging experience to their employees, has
been instrumental in driving client conversations, and we’re very
pleased with the traction this tool is seeing in the marketplace.
Our commitment to product development continues to be
recognized by independent third parties, with Paylocity ranking
high on the G2 Crowd Summer Grid Reports during fiscal 2021,
We also continue to invest in our salesforce by adding new
sales reps, while also investing in our referral channel, digital
marketing, and digital lead generation initiatives to support our
go-to-market efforts. We believe there are significant growth
opportunities for our Company, as our core target market has
more than 1.3 million businesses.
From an operational perspective, we remain focused on
delivering world-class service to our 28,750 clients. The
pandemic brought uncertainty and a rapidly evolving regulatory
environment to our clients and their employees. I’m proud of the
efforts of our operations teams, who worked proactively with
clients during this challenging period, as well as our software
development teams, who help us provide our clients with the
most modern software in the industry. This combination of service
and technology allowed us to deliver revenue retention of greater
than 92% for fiscal 2021 – its highest level in several years.
The success we’ve had as a company would not be possible
without the dedication and commitment of our more than 4,000
employees, who worked hand-in-hand with our clients through
a very challenging year. The strong culture at Paylocity also
continues to be recognized as we were once again named a
Certified Great Place to Work while also ranking 9th in Fortune’s
100 Fastest-Growing Companies list. Another important
component of our culture is Paylocity’s commitment to being a
leader in social and environmental responsibility and corporate
governance – and we have programs in place across our
business that are showcased on the Corporate Responsibility
section of our website.
As we reflect on our performance in fiscal 2021, I would
like to thank our employees, clients, and partners for all of
their contributions!
Gaining
Momentum
“We made changes such
as spending more time
training and investing in
our employees’ futures.
After two years with
Paylocity, our turnover
was cut by more
than 60%.”
HR Director, Vstyles, Inc.
140 employees
Product adoption highlights:
Community monthly
unique visitors doubled
in the last year.
Employees created hundreds
of thousands of interactions per
month, including reactions and
comments.
Video creation nearly
tripled on the platform
between December 2020
and June 2021.
Clients use videos across the platform
in Community, Learning Management,
Onboarding, Surveys, and Recruiting.
Millions of surveys were
completed last year.
The Paylocity platform provided
clients with popular ready-to-
use templates.
Companies with higher MWI scores show 15-25% lower attrition and 24% higher headcount growth.
Revere Plastics relies on Paylocity to create a strong culture and compete with larger chains to attract and retain
talent. Revere Plastics’ HR VP Kristi Stuetzer commented, “We needed a system that could help build our culture,
connect our 1,200 employees across nine plants, and give our HR team useful data.” Paylocity cut our HR team’s
onboarding work by 25-30% and helped us increase engagement with Surveys, Community, and Video, and our
employees have embraced these tools.”
“Paylocity is helping us build relationships with people and build our culture. And for the
first time, now we have a pulse on both.”
Steve Beauchamp
Chief Executive Officer
VP of Human Resources, Revere Plastics
1,200 employees
2
Paylocity 2021 Annual Report
Paylocity 2021 Annual Report
3
Financial
Highlights
Long-Term Financial Targets
Squarely focused on 20%+ revenue growth while
demonstrating leverage in our business model
Revenue Growth . . . . . . . . . . . . . . . . . . . . . . . . . . 20%+
Adjusted Gross Margin . . . . . . . . . . . . . . . . . 70-75%
Total R&D Investment. . . . . . . . . . . . . . . . . . . . 10-15%
Sales/Marketing . . . . . . . . . . . . . . . . . . . . . . . 20-25%
General & Administrative . . . . . . . . . . . . . . . . 10-15%
Adjusted EBITDA. . . . . . . . . . . . . . . . . . . . . . . 30-35%
Free Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . .15-20%
Note - Financial targets except revenue growth based on
percentage of total revenue.
Revenue
$ millions
2 0 % C A G R
▲ 20%
YoY growth
▲ 13%
YoY growth
▲ 26%
YoY growth
3
6
3
$
2
7
3
$
8
4
4
$
8
6
4
$
6
4
5
$
1
6
5
$
2
3
6
$
6
3
6
$
FY18
FY19
FY20
FY21
Recurring and Other Revenue
Total Revenue
Note - FY18 revenue represents pro forma non-GAAP revenue
under ASC 606. Refer to Appendix A for a reconciliation of GAAP
to non-GAAP financial measures.
Free Cash Flow*
$ millions
Adjusted EBITDA*
$ millions
2 1 % C A G R
▲ 16.3%
Margin
▲ 12.5%
Margin
▲ 13.7%
Margin
▲ 21.5%
Margin
▲ 12.9%
Margin
2 8 % C A G R
▲ 28.5%
Margin
▲ 26.7%
Margin
▲ 28.7%
Margin
9
4
$
6
7
$
0
7
$
7
8
$
1
8
$
4
3
1
$
0
6
1
$
0
7
1
$
FY18
FY19
FY20
FY21
FY18
FY19
FY20
FY21
Strong Balance Sheet - $207M Cash &
Invested Corporate Cash as of 6/30/21
* Refer to Appendix A for a reconciliation of GAAP to non-GAAP financial measures.
4
Paylocity 2021 Annual Report
Financial
Highlights
Unified Suite of Payroll, HCM, &
Modern Workforce Solutions
Long-Term Financial Targets
Squarely focused on 20%+ revenue growth while
demonstrating leverage in our business model
Revenue Growth . . . . . . . . . . . . . . . . . . . . . . . . . . 20%+
Adjusted Gross Margin . . . . . . . . . . . . . . . . . 70-75%
Total R&D Investment. . . . . . . . . . . . . . . . . . . . 10-15%
Sales/Marketing . . . . . . . . . . . . . . . . . . . . . . . 20-25%
General & Administrative . . . . . . . . . . . . . . . . 10-15%
Adjusted EBITDA. . . . . . . . . . . . . . . . . . . . . . . 30-35%
Free Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . .15-20%
Revenue
$ millions
2 0 % C A G R
▲ 20%
YoY growth
▲ 13%
YoY growth
▲ 26%
YoY growth
3
6
3
$
2
7
3
$
8
4
4
$
8
6
4
$
6
4
5
$
1
6
5
$
2
3
6
$
6
3
6
$
FY18
FY19
FY20
FY21
Recurring and Other Revenue
Total Revenue
Note - Financial targets except revenue growth based on
Note - FY18 revenue represents pro forma non-GAAP revenue
percentage of total revenue.
under ASC 606. Refer to Appendix A for a reconciliation of GAAP
to non-GAAP financial measures.
2 1 % C A G R
▲ 16.3%
Margin
▲ 12.5%
Margin
▲ 13.7%
Margin
▲ 21.5%
Margin
▲ 12.9%
Margin
2 8 % C A G R
▲ 28.5%
Margin
▲ 26.7%
Margin
▲ 28.7%
Margin
9
4
$
6
7
$
0
7
$
7
8
$
1
8
$
4
3
1
$
0
6
1
$
0
7
1
$
FY18
FY19
FY20
FY21
FY18
FY19
FY20
FY21
Strong Balance Sheet - $207M Cash &
Invested Corporate Cash as of 6/30/21
* Refer to Appendix A for a reconciliation of GAAP to non-GAAP financial measures.
Employee System of Record
Payroll
Core HR
Talent
Modern
Workforce
Workforce
Management
Benefits
• SaaS based
• Single system
• Recruiting
• Community
• Time & labor
• Benefit
payroll
for Payroll & HR
• Onboarding
• Premium Video
online tracking
• Tax filing,
• Self service
direct deposit
portal
• Performance
management
• Rewards &
recognition
• Integration
with 3rd
parties
• On-demand
pay
• HR compliance
• Learning
• Surveys
management
& record
keeping
• Document
Library
• Manage
employee
schedules
enrollment &
updates
• Advanced
reporting
• TPA solutions
Automation
Engagement
Insights
Free Cash Flow*
$ millions
Adjusted EBITDA*
$ millions
$420 PEPY
Consumer
Oriented
Experiences
Mobile and Social
Learning
Surveys
Premium Video
Journals
On-Demand Pay
Impressions
Community
4
Paylocity 2021 Annual Report
Paylocity 2021 Annual Report
5
Corporate Responsibility
Our values drive us forward
Everything we do is rooted in our shared values. They are our North Star, our guiding light. They drive how we make
decisions, treat each other, and define success.
Look deeper
Standing Up to
Mental Health
Stigmas
Mental health is an
important people and
workforce issue. We run
campaigns, promote
education, and advocate
to become a leader of
hope in all aspects of
mental health awareness.
Maximizing
Human Potential
Everyone has something
unique to offer. We work
to eliminate barriers to
success for the individuals
with disabilities, the
disadvantaged, the aging
workforce, veterans, and
for caregivers re-entering
the workplace.
Liberating
through Education
Education and literacy
can unlock the doors
to success. We work
to eliminate gaps for
disadvantaged and
differently abled children,
adults, and minority
groups, allowing all to
reach their full potential.
Environmental focus
The Sustainability Employee Resource Group is an employee group organized around
improving sustainability and conscious consumerism at Paylocity. Offering resources and
actionable ideas for employees to live greener - at work and at home.
6
Paylocity 2021 Annual Report
Corporate Responsibility
Our values drive us forward
Everything we do is rooted in our shared values. They are our North Star, our guiding light. They drive how we make
decisions, treat each other, and define success.
We champion diversity and inclusion
We believe deeply that people matter most and that differences of experience and perspective make us stronger
together. We’re committed to lead by example to forge a path forward where dignity, respect, safety, and justice are
for all. At Paylocity, diversity, equity, and inclusion are more than policies and programs. They are our values and vision
come to life.
Corporate Responsibility
Look deeper
Standing Up to
Mental Health
Stigmas
Mental health is an
important people and
workforce issue. We run
campaigns, promote
education, and advocate
to become a leader of
hope in all aspects of
mental health awareness.
Maximizing
Liberating
Human Potential
through Education
Everyone has something
Education and literacy
unique to offer. We work
can unlock the doors
to eliminate barriers to
to success. We work
success for the individuals
to eliminate gaps for
with disabilities, the
disadvantaged and
disadvantaged, the aging
differently abled children,
workforce, veterans, and
adults, and minority
for caregivers re-entering
groups, allowing all to
the workplace.
reach their full potential.
What we are doing
We’re committed to promoting and celebrating our employees’ voices across the organization, and our resolve only
grows stronger. Learn about the steps we’re taking to build a better tomorrow at Paylocity, in our local communities,
and beyond.
Environmental focus
The Sustainability Employee Resource Group is an employee group organized around
improving sustainability and conscious consumerism at Paylocity. Offering resources and
actionable ideas for employees to live greener - at work and at home.
We care for our employees, our communities, and the broader world around us.
Learn more at Paylocity.com/CSR.
6
Paylocity 2021 Annual Report
Paylocity 2021 Annual Report
7
External
Recognition
Certified
Great Place to Work
2019-2021
Flexjobs Top 100
Remote Work
2020
Fortune’s 100 Fastest Growing
Companies
2020
G2 Best Software Awards
2019-2021
Chicago’s Best and
Brightest Companies
2008-2021
Best Place to Work
by Built in Chicago
2012-2021
8
Paylocity 2021 Annual Report
External
Recognition
Certified
Great Place to Work
2019-2021
Flexjobs Top 100
Remote Work
2020
Fortune’s 100 Fastest Growing
Companies
2020
G2 Best Software Awards
2019-2021
Chicago’s Best and
Brightest Companies
2008-2021
Best Place to Work
by Built in Chicago
2012-2021
8
Paylocity 2021 Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2021
OR
☐☐ 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
(State or other jurisdiction of
incorporation or organization)
46-4066644
(I.R.S. Employer
Identification Number)
1400 American Lane
Schaumburg, Illinois 60173
(Address of principal executive offices and 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
Common Stock, par value $0.001 per share
Trading symbol(s)
PCTY
Name of Exchange on which registered
The NASDAQ Global Select Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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 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
Non-accelerated filer
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
The aggregate market value of voting stock held by non-affiliates of the registrant as of December 31, 2020, the last day of registrant’s most recently completed second fiscal
quarter, was $7.8 billion (based on the closing price for shares of the registrant’s common stock as reported by the NASDAQ Global Select Market for the last business day prior to
that date).
As of July 30, 2021, there were 54,601,434 shares of the registrant’s common stock issued and outstanding.
The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference from the Proxy Statement relating to the registrant’s 2022
annual meeting of stockholders, which shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.
DOCUMENTS INCORPORATED BY REFERENCE:
PAYLOCITY HOLDING CORPORATION
Form 10-K
For the Year Ended June 30, 2021
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16.
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Forward Looking Statements
PART 1
Except for the historical financial information contained herein, the matters discussed in this report on
Form 10-K (as well as documents incorporated herein by reference) may be considered “forward-looking” statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. All statements, other than statements of historical fact, are statements that could be deemed
forward-looking statements, including, but not limited to, statements regarding our future financial position, business
strategy and plans and objectives of management for future operations. When used in this Annual Report, the words
“believe,” “may,” “could,” “will,” “estimate,” “continue,” “intend,” “expect,” “anticipate,” “plan,” “project” and
similar expressions are intended to identify forward-looking statements.
We have based these forward-looking statements largely on our current expectations and projections about
future events and financial trends that we believe may affect our financial condition, results of operations, business
strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking
statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from
those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but
are not limited to, the impact of the novel coronavirus disease (“COVID-19”) on the U.S. economy, including changes
in interest rates, business disruptions, reductions in employment and an increase in business failures; the impact of
COVID-19 on Paylocity’s employees and clients, and other risks and potential factors discussed in this report, and in
particular, the risks discussed under Part 1, Item 1A:”Risk Factors” and those discussed in other documents we file with
the Securities and Exchange Commission. Except as required by law, we do not intend to update these forward-looking
statements publicly or to update the reasons actual results could differ materially from those anticipated in these
forward-looking statements, even if new information becomes available in the future.
In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed
in this report and in the documents incorporated in this report may not occur and actual results could differ materially
and adversely from those anticipated or implied in the forward-looking statements. Accordingly, readers are cautioned
not to place undue reliance on such forward-looking statements.
Item 1. Business.
Overview
We are a cloud-based provider of payroll and human capital management, or HCM, software solutions for
medium-sized organizations, which we define as those having between 10 and 1,000 employees. Our comprehensive
product suite delivers a unified platform to create a modern workplace for our clients and their employees through
automation, data-driven insights and engagement. Excluding clients acquired through acquisitions, as of June 30, 2021,
we provided our payroll and HCM software solutions to approximately 28,750 clients across the U.S., which on average
had over 100 employees.
Our multi-tenant software platform is highly configurable and includes a unified product suite for payroll,
human capital management, workforce management, talent management, benefits, modern workforce solutions, and
analytics & insights, to enable our clients to make strategic decisions all while promoting a modern workplace and
improving employee engagement. Our payroll and HCM modules provide robust on-demand functionality, reporting and
analytics. Our platform provides intuitive self-service functionality for employees and managers combined with
seamless integration across all our solutions. We supplement our comprehensive software platform with an integrated
implementation and client service organization, all of which are designed to meet the needs of our clients and prospects.
Effective management of human capital is a core function in all organizations and requires a significant
commitment of resources. Organizations are faced with complex and ever-changing requirements, including diverse
federal, state and local regulations across multiple jurisdictions. In addition, the workplace operating environment is
rapidly changing as employees increasingly become mobile, work remotely and expect an end user experience similar to
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that of consumer-oriented applications. Many companies also are operating without the infrastructure, expertise or
personnel to implement or support large and complex systems in today’s dynamic environment. Existing solutions
offered by third-party payroll service providers can have limited capabilities and configurability while other enterprise-
focused software vendors can be prohibitively expensive and time-consuming to implement and manage. We believe
that modern organizations are better served by modern SaaS solutions designed to meet their unique needs, deliver fast
time to value and provide their employees with the most engaging experience available.
Our solutions provide the following key benefits to our clients:
• Comprehensive payroll and HCM cloud-based platform built to connect with today’s workforce;
• Modern, intuitive user experience and self-service capabilities that significantly increase employee
engagement;
• Flexible and configurable platform that aligns with business processes and centralizes payroll and
HCM data;
• Software as a service, or “SaaS”, delivery model that reduces total cost of ownership for our clients;
and
• Seamless data integration with our extensive partner ecosystem that saves time and expense and
reduces the risk of errors.
We market and sell our products through our direct sales force. We generate sales leads through a variety of
focused marketing initiatives and from our extensive referral network of 401(k) advisors, benefits administrators,
insurance brokers, third-party administrators and HR consultants. We derive revenue from a client based on the solutions
purchased by the client, the number of client employees and the amount, type and timing of services provided with
respect to those client employees. Our annual revenue retention rate was greater than 92% in each of the fiscal years
2019, 2020 and 2021. Our total revenues increased from $467.6 million in fiscal 2019 to $561.3 million in fiscal 2020,
representing a 20% year-over-year increase and to $635.6 million in fiscal 2021, representing a 13% year-over-year
increase. While the majority of our agreements with clients are generally cancellable on 60 days’ or less notice, we also
have term agreements which are generally two years in length. Our recurring revenue model and high annual revenue
retention rates provide significant visibility into our future operating results.
Industry Background
Effective management of human capital is a core capability for all organizations. Identifying, acquiring and
retaining talent is a priority at all levels of an organization. Likewise, in today’s increasingly complex business and
regulatory environment, organizations are being pressured to manage critical payroll and HCM functions more
effectively, automate manual processes and decrease their operating costs, while at the same time successfully managing
their workforces.
Complex and Dynamic Tax and Regulatory Environment
The tax and regulatory environment in the United States is complex and dynamic. Organizations are subject to a
myriad of benefit, workers compensation, healthcare, tax and other rules, regulations and reporting obligations. In
addition to U.S. federal taxing and regulatory authorities, there are more than 10,000 state and local tax codes in the
United States. Further, federal, state and local government agencies continually enact and amend the rules, regulations
and reporting requirements with which organizations must comply. Leveraging industry leading technology and service
to meet these demands delivers critical value to organizations.
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Growing Demand for Mobility and Enhanced User Experience
Connectivity and mobility are enabling employees to spend less time in traditional office environments and
more time working remotely. This trend increases the demand for advanced and intuitive solutions that improve
collaboration and foster employee engagement, such as remote self-service access to payroll and timesheet reporting, HR
and benefits portals and other talent management applications. Given the prominence of consumer-oriented applications,
employees expect the user experience and accessibility of internal systems to be similar to those of the latest consumer
and social applications, such as LinkedIn, Amazon and Facebook.
Large Market Opportunity for Payroll and HCM Solutions
The market opportunity in the U.S. for payroll and HCM applications and services is driven by the importance
of payroll and HCM solutions to the successful management of organizations. To estimate our addressable market, we
focus our analysis on the number of U.S. medium-sized organizations and the number of their employees. According to
the U.S. Census Bureau, there were over 1.3 million firms with 10 to 1,000 employees in the U.S. in 2018, employing
over 55 million people. We estimate that if clients were to buy our entire suite of existing solutions at list prices, they
would spend approximately $420 per employee annually. Based on this analysis, we believe our current target
addressable market is approximately $23 billion. Our existing clients do not typically own our entire suite of solutions,
and as we continue to expand our product offerings, we believe that we have an opportunity to increase the amount
clients spend on payroll and HCM solutions per employee and to expand our addressable market.
Organizations Are Increasingly Transitioning to SaaS Solutions
SaaS solutions are easier and more affordable to implement and operate than those offered by traditional service
bureaus and legacy software providers. SaaS solutions also enable software updates with greater frequency and without
new hardware investments, enabling organizations to better react to changes in their environments. Many organizations
are transitioning to SaaS solutions to satisfy their software needs. Similarly, we believe organizations are adopting SaaS
applications for payroll and HCM solutions with increasing frequency.
Limitations of Legacy Competitive Solutions
We believe that legacy payroll and HCM solution providers have limitations that cause them to underserve the
unique needs of modern organizations. Existing legacy payroll and HCM solutions include:
• Traditional Payroll Service Providers. Traditional payroll service providers are primarily focused on
delivery of a variety of payroll processing services, insurance products and HR business process
outsourcing solutions. Many of these solutions offer limited capabilities and integration beyond
traditional payroll processing. The lack of a unified and configurable employee-facing payroll and
HCM suite can diminish the effectiveness of a system, detract from user experience and limit
integration with other solutions. In addition, we believe that certain traditional payroll service
providers often do not provide a high-quality technology and service experience.
• Enterprise Software Vendors. Enterprise software vendors offer solutions and services that are
designed for the complex needs and structures of very large enterprises. As a result, their solutions can
be prohibitively expensive, complex and time-consuming to implement, operate and maintain.
• HCM Point Solution Providers. Many HCM point solutions lack integrated payroll functionality. The
implementation and management of multiple point solutions and the reliance on multiple service
organizations can be challenging and expensive.
• Manual Processes for Payroll and HCM Functions. Manual payroll and HCM processes require
increased HR, payroll and finance personnel involvement, resulting in higher costs, slower processing
and greater risks of data entry errors.
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Given the challenges many organizations face operating in complex and dynamic environments and the limited
ability of traditional offerings to address these challenges, we believe there is a significant market opportunity for a
comprehensive, unified SaaS solution designed to serve the payroll and HCM needs of modern organizations.
Segment Information
Our chief operating decision maker reviews our financial results in total when evaluating financial performance
and for purposes of allocating resources. We have thus determined that we operate in a single cloud-based software
solution reporting segment.
Our Solutions
We are a cloud-based provider of payroll and HCM software solutions. Our solutions enable organizations to
more efficiently manage payroll and human capital in their complex and dynamic operating environments. Excluding
clients acquired through acquisitions, as of June 30, 2021, we provided our payroll and HCM software solutions to
approximately 28,750 clients across the U.S., which on average had over 100 employees.
The key benefits of our solutions include the following:
• Comprehensive Payroll and HCM Platform Built to Connect with Today’s Workforce. Our solutions
empower finance and HR professionals to drive strategic human capital decisions by providing
enterprise-grade payroll and HCM modules, including robust reporting and analytics. Our unified
platform fully automates payroll and HCM processes, enabling our clients to focus on core business
activities. Our solutions help our clients attract, retain and manage their employees within a single,
comprehensive system.
• Modern, Intuitive User Experience. Our intuitive, easy-to-use and mobile-centric platform provides
increased accessibility of our solutions and decreased need for training while also providing users with
an engaging mobile and self-service experience.
• Flexible and Configurable Platform. We design our solutions to be flexible and configurable,
allowing our clients to match their use of our software with their specific business processes and
workflows. Our platform has been organically developed from a common code base, data structure and
user interface, providing a consistent user experience with powerful features that are easily adaptable
to our clients’ needs. Our systems centralize payroll and HCM data, minimizing inconsistent and
incomplete information that can be produced when using multiple databases.
• Highly Attractive SaaS Solution. Our solutions are cloud-based and offered on a subscription basis,
making them easier and more affordable to implement, operate and update and thus enabling our
clients to focus less on their IT infrastructure and more on their core businesses. Our software can be
operated by a single administrator without the support of an in-house information technology
department. Our multi-tenant and modern architecture allows for frequent software enhancements
thereby enabling our clients to react to a rapidly changing and complex operating environment. Our
platform enables our clients to scale their businesses without having to acquire additional hardware or
to resolve the integration challenges that often result from traditional outsourcing solutions.
•
Seamless Integration with Extensive Ecosystem of Partners. Our platform offers our clients automated
data integration with over 400 related third-party partner systems, such as 401(k), benefits and
insurance provider systems. This integration reduces the complexity and risk of error of manual data
transfers and saves time for our clients and their employees. We integrate data with these related
systems through a secure connection, which significantly decreases the risk of unauthorized third-party
access and other security breaches. Our direct and automated data transmission improves the accuracy
of data and facilitates data collection in our partners’ systems. We believe having automated data
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integration with a payroll and HCM provider like us differentiates our partners’ product offerings,
strengthening their competitive positioning in their own markets.
Our Strategy
We intend to strengthen and extend our position as a leading provider of cloud-based payroll and HCM
software solutions. Key elements of our strategy include the following:
• Grow Our Client Base. We believe that our current client base represents only a small portion of the
organizations that could benefit from our solutions. While we provide our payroll and HCM software
solutions to approximately 28,750 clients across the U.S. (excluding clients acquired through
acquisitions) as of June 30, 2021, there are over 1.3 million businesses with 10 to 1,000 employees in
the U.S., employing more than 55 million people, according to the U.S. Census Bureau in 2018. In
order to acquire new clients, we plan to continue growing our sales organization across the U.S.
• Expand Our Product Offerings. We believe a significant part of our leadership position is the result of
our investment and innovation in our product offerings. We plan to continue to invest in product
development efforts that will allow us to offer a broader selection of products to new and existing
clients.
• Extend Technological Leadership. We believe that our organically developed cloud-based multi-tenant
software platform, combined with our unified database architecture, enhances the experience and
usability of our products, providing what we believe to be a competitive advantage over alternative
solutions. Our modern, intuitive user interface utilizes features found on many popular consumer
Internet sites, enabling users to use our solutions with limited training. We plan to continue our
technology innovation, as we have done with our mobile applications, social features and analytics
capabilities.
• Further Develop Our Referral Network. We have developed a strong network of referral participants,
such as 401(k) advisors, benefits administrators, insurance brokers, third-party administrators and HR
consultants that recommend our solutions and provide referrals. We believe that our platform’s
automated data integration with over 400 related third-party partner systems is valuable to our referral
participants, as they are able to access payroll and HR data through a single system which decreases
complexity and cost and complements their own product offerings. We plan to increase integration
with third-party providers and expand our referral network to grow our client base and lower our client
acquisition costs.
Our Products
Our comprehensive product suite delivers a unified platform to create a modern workplace for our clients
through automation, data-driven insights and engagement. Our product suite includes the following categories:
Payroll
Payroll and Tax Services – Our Payroll and Tax Services solution is designed to simplify payroll, automate
processes and manage complex compliance requirements within one system. Our payroll solution leverages
data from our Time and Attendance and Human Capital Management solutions to accurately calculate wages,
deductions and withholdings, without the need for manual reentry. Clients work with our experts to configure
general ledger integrations, accruals and complex reports to enable data-driven decision making. Our
integration capabilities also automatically transfer 401(k) information, retirement plans and benefit files to
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third-party providers. Through our Tax Services solutions, we accurately prepare and file the necessary tax
withholdings and filing documents for local, state and federal jurisdictions.
Expense Management – Our Expense Management solution enables mobile app capture of receipts and imports
transactions from credit cards, reducing manual entry errors and minimizing employee and approver paperwork,
while also eliminating spreadsheets, calculators and manual approvals through automated workflows that route
approved expenses for payroll reimbursement.
On Demand Payment – On Demand Payment provides employees with visibility into their earned wages in
between pay cycles based on their hours worked and offers financial flexibility to employees through access to
a portion of their earned wages before their scheduled payday without impacting the client’s standard payroll
process.
Garnishments – Our Garnishments solution provides the calculation, setup and maintenance of historical
deduction records and performs calculation validation against state and federal legislation to mitigate
compliance risk and prevent costly penalties and errors.
Human Capital Management
Human Capital Management – Our Human Capital Management solutions streamline HR processes using
modern, mobile-enabled tools that help save time by automating administrative tasks and providing data-driven
reporting. Clients can track headcount and status for positions, manage position and manager changes, manage
compliance tracking and reporting, and employee data and documents in one central location.
Employee Self-Service – Our Employee Self-Service module provides employees with access to their
information 24/7, which allows them to view checks, request time off, clock in and out, and update personal
data. Employees can also enroll in benefits, view coverage, access Learning Management System training or
view course completion status on-the-go via our mobile app.
Document Library – Our Document Library serves as a central location to securely store personal employee
files such as offer letters and performance reviews to help clients stay compliant and organized by replacing
manual processes and paper files. HR professionals can search electronic documents and easily upload, store
and download documents while managing access with our role-based permission settings.
Compliance Dashboard – With our Compliance Dashboard, clients save time and money by staying up to date
with new laws and regulations related to topics such as employment verification, Equal Employment
Opportunity and compensation.
HR Edge – HR Edge supports human resource leaders’ navigation through complex compliance requirements,
social issues and HR policies. Clients can also access a comprehensive library of detailed articles, guides and
other resources to make informed decisions on compliance topics such as healthcare reform, wages and hours
regulations, employee leave, state laws, discrimination and more.
Workforce Management
Time and Attendance – Our Time and Attendance solution accurately tracks time and attendance data,
eliminating the need for manual tracking of accruals and reducing administrative tasks. Employees can request
and manage time off, edit timecards and manage schedule changes. A customizable supervisor dashboard
provides at-a-glance visibility to missed punches, pending time off requests, attendance exceptions and more.
Scheduling – Clients can automate schedule tracking by creating and adjusting work schedules as needed,
including leveraging templates and building policies based on duration, time between shifts and availability
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without having to manually correct payroll data. Managers and employees can easily manage their schedules
from our mobile app to ensure the appropriate shift coverage.
Time Collection – Our wide variety of time collection devices include kiosks, state-of-the-art time clocks, and
mobile and web applications to meet unique needs of different companies while enabling employees to clock in
wherever business is conducted. Advanced features include specifying geographic parameters for mobile
punch-in, requiring employees to punch in with a photo, answering attestation prompts and temperature checks.
Talent Management
Recruiting – Recruiting helps clients find the right candidates by offering intuitive tools to streamline talent
acquisition processes from application creation to candidate acceptance. By modernizing the experience, clients
can conveniently reach candidates wherever they are, including through embedded text messaging, and
instantly track conversations in our platform. HR professionals can customize job applications and reach more
candidates by automatically posting to online job portals. Additionally, our solution provides clients with the
ability to auto-fill and simplify background checks, maintain and track personal and confidential data, and have
real-time access to candidate information to enable timely staffing decisions. Recruiters can communicate with
modern candidates in the ways they expect, including email and text messaging from right within the Paylocity
platform.
Onboarding – Onboarding enables new employees to complete all pre-hire tasks through digital data collection
to gather important personal and confidential information and documentation right through the Paylocity
platform. Clients can streamline processes such as handbook acknowledgment, tax withholding forms, I-9
document verification, E-Verify and many others. Additionally, new hires feel an instant connection to their
team and employer with welcome notes from leaders, introductory videos, company culture information and
company policies.
Learning Management – Our Learning Management solution allows clients to easily assign courses tailored to
training their employees on new skills, policies, products, and other topics with a variety of course delivery
methods including on-demand and webinars, all of which are available via our mobile app. Our clients can
create a variety of content for their employees including via a Sharable Content Object Reference Model
(SCORM), embedded video and various document types. The client’s custom content is supplemented by a
library of standard trainings provided by Paylocity to help in areas like anti-harassment, new hire, workplace
safety, diversity in recruiting and many more. Clients can also empower their employees to create trainings so
that internal subject matter experts can share their expertise with colleagues.
Performance Management – Our Performance Management tools enable transparent, two-way communication,
allowing teams to have ongoing performance conversations. With the ability to manage employee review cycles
at the center of the performance management solution, employees can also manage goals and track their career
development. Our tools help facilitate ongoing, goals-driven conversations using Journals, giving employees a
record of their tasks, goals and accomplishments. Additionally, our clients can prepare succession planning
assessments across their employee population by using our 9-box tool that provides context to employees’
performance and the ability to visualize the distribution of their workforce.
Compensation Management – Compensation Management helps clients ensure alignment between
organizational goals, budgets and participant eligibility in an efficient process that reduces manual effort and
paper-based budgeting activities. Our customized dashboards provide visibility to individual performance and
compensation history at custom permission levels and the full value of an employee’s compensation and
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benefits. Clients can create employee-facing Total Rewards Statements in bulk to demonstrate the full
compensation an employee receives—including not just pay but also benefits, time off, and more.
Benefits
Employee Benefits Management – Clients can plan and administer competitive benefits packages in one place
while offering a smooth, mobile-friendly enrollment and management experience for employees with our
Employee Benefits Management tool. Benefit administrators can add enrollment rules, manage benefit
offerings for different employee groups, customize user plan limits, and view plan documentation, among other
features. Employees can manage their own elections in Employee Self Service or via the mobile app, which
allows them to better understand their healthcare packages. Clients can also administer third-party benefit
services such as Flexible Spending Accounts (FSA), Health Savings Accounts (HSA) and Consolidated
Omnibus Budget Reconciliation Act (COBRA) with ease and supplement standard plans with complementary
programs, giving employees the benefits options they need.
Third-Party Administrative (TPA) Solutions – Our TPA solutions are designed to modernize the administration
of HSA, FSA, Health Reimbursement Arrangement (HRA), Transportation Management Account (TMA) and
Premium Only Plan (POP) benefits by providing users with a single, unified access point for payroll, HR, and
benefits administration. Our TPA solutions include mobile and web access, allowing users to view transaction
details and account balances while having the ability to submit claims from our integrated employee portal. It
also eases the administration of COBRA coverage and retiree billing.
Modern Workforce Solutions
Community – Community is our integrated, mobile-friendly social collaboration tool designed to centralize
company communications while also providing clients with an avenue to increase employee connection,
engagement and productivity. Community enables leaders, HR professionals and employees to share and
respond to meaningful, timely and relevant content in the way today’s modern workforce expects, leveraging
groups, which are Community’s foundation. Clients can create groups on topics ranging from project-related
collaboration to employee resource groups (ERGs), fostering inclusivity to special interests like music or sports.
In addition, specialized Ask an Expert group types can provide a consolidated forum between employees and
subject matter experts in areas like IT troubleshooting or open enrollment. Employees can ask questions
privately or publicly to designated group administrators who are alerted of submissions and can track questions
and status in a dashboard. Employees receive notifications when questions are addressed.
Premium Video – Premium Video provides clients the ability to record, upload and embed videos across our
HCM platform to increase collaboration, morale, engagement and productivity. Our solution enables clients to
embed videos seamlessly into tasks that are critical to their business such as employee communication,
recruiting, onboarding, performance management and surveys.
Surveys – Our Surveys tool help clients gather valuable feedback to encourage ongoing and transparent
conversations.
Peer Recognition – Peer Recognition promotes positive interactions by allowing employees to recognize and
celebrate colleagues’ achievements. It also gives employees the ability to post accolades on their profiles and
share with co-workers.
Analytics & Insights
Modern Workforce Index – The Modern Workforce Index (MWI) leverages patent-pending AI and data from
more than 25,000 clients to provide insight and actionable recommendations to improve employee sentiment
and engagement. Clients can view their overall MWI score and compare performance to peers—then break
down results across tool utilization, employee sentiment, and organizational health. This enables our clients to
improve employee engagement and productivity, lower turnover, and ultimately realize greater growth.
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Data Insights – With our Data Insights solution, our clients can evaluate the health of their organizations with
actionable insights in areas such as employee retention, composition of their employee populations and labor
costs.
Reporting – In addition to over 200 out of the box reports, dynamic reporting capabilities help clients utilize
data within the Paylocity platform, allowing them to customize and schedule reporting. New reports are added
regularly in response to regulatory changes, compliance updates and client feedback.
Client Support Teams
We supplement our comprehensive software platform with an integrated implementation and client service
organization with deep subject matter expertise. Our core operation consists of various specialists, including
implementation teams, account managers, payroll processing and tax service teams. Delivering a positive experience and
a high level of support is an essential element of our ability to sell our solutions and retain clients.
Implementation and Training Services
Our clients are typically migrating to our platform from a competitive solution or are adopting their first online
payroll and HCM solution. These organizations often have limited internal resources and rely on us to implement their
payroll and HCM solutions. We typically implement our product suite within one to eight weeks, depending on the size
and complexity of each client. Each client is guided through the implementation process by our knowledgeable
consultants for all implementation matters. We believe our ability to rapidly implement our solutions is principally due
to the combination of our emphasis on engagement with the client, our standardized methodology, our cloud-based
architecture and our highly configurable, easy-to-use products.
We offer clients the opportunity to utilize on-demand or in-class training designed to provide clients with
general knowledge on our solutions. We also host an annual client conference for clients to learn about new products and
features and allow clients to provide feedback and learn best practices.
Client Service
Our client service model is designed to serve and support the needs of our clients and to build loyalty by
developing strong relationships with clients. We strive to achieve high revenue retention, in part, by delivering high-
quality service. Our revenue retention was greater than 92% in each of fiscal 2019, 2020 and 2021. Each client is
assigned an account management team that serves as the central point of contact for any questions or support needs. We
believe this approach enhances client service by providing clients with knowledgeable resources who understand the
client’s business, respond quickly, and are accountable for the overall client experience. Account managers are
supplemented by teams with deep technical and subject matter expertise who help to expediently and effectively address
client needs. We also proactively solicit client feedback through ongoing surveys from which we receive actionable
feedback that we use to enhance our client service processes. We have also built an online knowledge repository for
clients that provide industry content and Paylocity product and service information.
Tax and Regulatory Services
Our software contains a rules engine designed to make accurate federal, state, and local tax calculations that is
continually updated to support all pertinent legislative changes across U.S. jurisdictions with the support of our tax
compliance professionals. Our tax service teams provide a variety of solutions to clients including processing payroll tax
deposits, preparing and filing quarterly and annual employment tax returns and amendments and resolving client
employment tax notices. Our tax filing and compliance departments perform multiple audits to ensure that clients remit
timely and accurate tax payments. In addition, a series of audit routines are run to ensure that quarterly tax filings are
accurate and submitted on a timely basis.
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Clients
Excluding clients acquired through acquisitions, as of June 30, 2021, we provided our payroll and HCM
software solutions to approximately 28,750 clients, across the U.S. The rate at which we add clients is variable period-
to-period and is also seasonal as many clients switch solutions during the first calendar quarter of each year. Clients
include for-profit and non-profit organizations across industries including business services, financial services,
healthcare, manufacturing, restaurants, retail, technology and others. For each of the three years ended June 30, 2019,
2020 and 2021, no client accounted for more than 1% of our revenues.
Sales and Marketing
We market and sell our products and services through our direct sales force. Our direct sales force includes
sales representatives who have defined geographic territories throughout the U.S. We seek to hire experienced sales
representatives wherever they are located and believe we have room to grow the number of sales representatives in each
of our territories.
The sales cycle begins with a sales lead generated by the sales representative, through our third-party referral
network, a client referral, our telemarketing team, our external website, e-mail marketing, or other territory-based
activities. We support our sales force with a marketing program that includes seminars and webinars, email marketing,
social media marketing, broker events and web marketing.
Referral Network
As a core element of our business strategy, we have developed a referral network of third-party service
providers, including 401(k) advisors, benefits administrators, insurance brokers, third-party administrators and HR
consultants, that recommend our solutions and provide referrals. Our referral network has become an increasingly
important component of our sales process, and in fiscal 2021, more than 25% of our new client revenue originated by
referrals from participants in our referral network.
We believe participants in our referral network refer potential clients to us because of the strength of our
products and services, the value we provide our referral partners through our broker portal, the fact that we do not
provide services that compete with our referral networks, and because we offer third parties the ability to integrate their
systems with our platform. Unlike other payroll and HCM solution providers who also provide retirement plans, health
insurance and other products and services competitive with the offerings of the participants in our referral network, we
focus only on our core business of providing payroll and HCM solutions. In some cases, we have formalized
relationships in which we are a recommended vendor of these participants. In other cases, relationships are informal. We
typically do not compensate these participants for referrals.
Partner Ecosystem
We have developed a partner ecosystem of third-party systems, such as 401(k), benefits and insurance provider
systems, with whom we provide automated data integration for their clients. These third-party providers require certain
financial, payroll and other employee demographic information from their clients to efficiently provide their respective
services. After securing authorization from the client, we exchange data with these providers. In turn, these third-party
providers supply data to us, which allows us to deliver comprehensive HR and benefit management services to our
clients. We believe our partnerships with these third parties are an important part of their service offerings. We have also
developed our solutions to integrate with a variety of other systems used by our clients, such as accounting, point of sale,
banking, expense management, recruiting, background screening and skills assessment solutions.
Paylocity’s automated data integration reduces the complexity and risk of error of manual data transfers and
saves clients and employees time. Direct and automated data transmission improves the accuracy of data and facilitates
data collection in partners’ systems. Having automated data integration with a payroll and HCM provider differentiates
partners’ product offerings, strengthening their competitive positioning in their own markets.
10
Technology
We offer our solutions on a cloud-based platform that leverages a unified architecture and a common code base
that we organically developed. Clients do not need to install our software in their data centers and can access our
solutions through any mobile device or web browser with Internet access.
• Multi-Tenant Architecture. Our software solutions were designed with a multi-tenant architecture.
This architecture gives us an advantage over many disparate traditional systems, which are less
flexible and require longer and more costly development and upgrade cycles.
• Mobile Focused. We employ mobile-centric principles in our solution design and development. We
believe that the increasing mobility of employees heightens the importance of access to our solutions
through mobile devices, including smart phones and tablets. Our mobile experience provides our
clients and their employees with access to our solutions through virtually any device having Internet
access. We bring the flexibility of a secure, cloud-based solution to users without the need to access a
traditional desktop or laptop computer.
•
Security. We maintain comprehensive security programs designed to ensure the security and integrity
of client and employee data, protect against security threats or data breaches and prevent unauthorized
access. We regulate and limit all access to servers and networks at our data centers. Our systems are
monitored for irregular or suspicious activity, and we have dedicated internal staff perform security
assessments for each release. Our systems undergo regular penetration testing and source code reviews
by an independent third-party security firm.
We use multiple cloud hosting and third-party data center providers to host our solutions, including data centers
in Franklin Park, Illinois and Kenosha, Wisconsin (for backup and disaster recovery). We supply the hardware
infrastructure and are responsible for the ongoing maintenance of our equipment at all data center locations.
Competition
The market for payroll and HCM solutions is both fragmented and highly competitive. Our competitors vary for
each of our solutions and primarily include payroll and HR service and software providers, such as Automatic Data
Processing, Inc., Paychex, Inc., Paycom Software, Inc., Paycor, Inc., Ultimate Kronos Group and other local and
regional providers.
We believe the principal competitive factors on which we compete in our market include the following:
• Solutions built to connect with today’s workforce;
• Comprehensive payroll and HCM product suite on a single platform;
• Breadth and depth of product functionality;
• Configurability and ease of use of our solutions;
• Modern, mobile, intuitive and consumer-oriented user experience;
• Benefits of a cloud-based technology platform;
• Ability to innovate and respond to client needs rapidly;
• Domain expertise in payroll and HCM;
• Quality of implementation and client service;
11
• Ease of implementation;
• Real-time web-based payroll processing; and
• Access to a wide variety of complementary third-party service providers.
We believe that we compete favorably on these factors and our ability to remain competitive will largely
depend on the success of our continued investment in sales and marketing, research and development and
implementation and client services.
Research and Development
We invest heavily in research and development to continuously introduce new modules, technologies, features
and functionality. We are organized in small product-centric teams that utilize an agile development methodology. We
focus our efforts on developing new modules and core technologies and on further enhancing the usability, functionality,
reliability, performance and flexibility of existing modules.
Research and development costs, including research and development costs that were capitalized, were $73.6
million, $91.0 million and $108.5 million for the years ended June 30, 2019, 2020 and 2021, respectively.
Intellectual Property
Our success is dependent, in part, on our ability to protect our proprietary technology and other intellectual
property rights. We rely on a combination of trade secrets, copyrights and trademarks, as well as contractual protections
to establish and protect our intellectual property rights. We require our employees, consultants and other third parties to
enter into confidentiality and proprietary rights agreements and control access to software, documentation and other
proprietary information. Although we rely on laws respecting intellectual property rights, including trade secret,
copyright and trademark laws, as well as contractual protections to establish and protect our intellectual property rights,
we believe that factors such as the technological and creative skills of our personnel, creation of new modules, features
and functionality and frequent enhancements to our modules are more essential to establishing and maintaining our
technology leadership position.
Governmental Regulation
As a provider of payroll and HCM solutions, our systems contain a significant amount of sensitive data related
to clients, employees of our clients, vendors and our employees. Data privacy has become a significant issue in the
United States and in other countries. The regulatory framework for privacy issues worldwide is rapidly evolving and is
likely to remain uncertain for the foreseeable future. Many federal and state government bodies and agencies have
adopted or are considering adopting laws and regulations affecting or regarding the collection, use and disclosure of
personal information. These include, for example, rules and regulations promulgated under the authority of the Federal
Trade Commission, the Health Insurance Portability and Accountability Act of 1996, the Family Medical Leave Act, the
Affordable Care Act, state breach notification laws and state privacy laws, such as the California Consumer Privacy Act
of 2018, the California Privacy Rights Act and the Illinois Biometric Information Privacy Act. Further, because some of
our clients have international operations, the European Union’s General Data Protection Regulation (“GDPR”) and other
foreign data privacy laws may impact our processing of certain client and employee information.
In addition, many of our solutions are designed to assist clients with their compliance with certain U.S. federal,
state and local laws and regulations that apply to them. As such, our products and services may become subject to
increasing and/or changing regulatory requirements, including changes in tax, benefit and other laws, and as these
requirements proliferate, we may be required to change or adapt our products and services to comply. Changing
regulatory requirements might reduce or eliminate the need for some of our products and services, block us from
developing new products and services or have an adverse effect on the functionality and acceptance of our solution. This
might in turn impose additional costs upon us to comply, modify or further develop our products and services. It might
also make introduction of new products and services more costly or more time-consuming than we currently anticipate
or prevent
12
introduction of such new products and services. For example, the adoption of new money transmitter or money services
business statutes in jurisdictions or changes in regulators’ interpretation of existing state and federal money transmitter
or money services business statutes or regulations, could subject us to registration or licensing or limit business activities
until we are appropriately licensed.
Our ability to comply with and address the continuously evolving requirements and regulations applicable to
our business depends on a variety of factors, including the functionality and design of our solutions and the manner in
which our clients and their employees utilize them. We have implemented operating policies and procedures to protect
the accuracy, privacy and security of our clients’ and their employees’ information and voluntarily undergo certain
periodic audits and examinations and maintain certain certifications to demonstrate our commitment to regulatory
compliance.
The foregoing description does not include an exhaustive list of the laws and regulations governing or
impacting our business. See the discussion contained in the “Risk Factors” section in Part I, Item 1A of this Annual
Report on Form 10-K for information regarding changes in laws and regulations that could have a materially adverse
effect on our business, operating results or financial condition.
Human Capital
As a leading provider of cloud-based HR and payroll software, we are committed to delivering the most modern
suite of solutions that drive employee engagement and a more connected culture for both our clients and our employees.
Our CEO, together with our senior executive team and Board of Directors, drive our human capital strategy including
key initiatives related to our employees and company culture.
For additional information regarding our human capital initiatives, we encourage investors and other users of
this Annual Report on Form 10-K to visit our Corporate Social Responsibility website at
https://www.paylocity.com/who-we-are/about-us/corporate-responsibility/. The information contained on this website is
not incorporated by reference into this Annual Report on Form 10-K.
As of June 30, 2021, our workforce consisted of approximately 4,150 employees, substantially all of which
were employed on a full-time basis in the United States.
Culture & Engagement
At Paylocity, we strive to be an organization where every employee has a voice, feels welcomed and is
empowered to do their best work. Our core values drive our culture – we believe in earning it every day, that growth
fuels opportunity, thinking next generation, living the reputation, and being unbeatable together. Our core values serve
as the foundation from which we create an engaging culture for our employees, how we train and develop our teams and
how we identify the right talent for our organization. Our approach to drive a strong culture and employee engagement
has been validated externally as Paylocity has been named a certified Great Place To Work on multiple occasions.
We support a number of employee resource groups (“ERGs”) including PCTY Equality, which focuses on
fostering a positive work environment and providing support for employees and allies of the LGBTQ+ community,
PCTY Virtual Connect, which helps bring our remote employees closer together, our PCTY OneWorld group, which
fosters an inclusive work environment and provides support for our employees of diverse ethnic backgrounds, PCTY
Sheroes, which supports and celebrates women, and PCTY Sustainability, whereby our employees promote initiatives to
operate our business and facilities to conserve energy, water and raw materials. Each of these groups are organized to
give employees the chance to build community and connections, voice their ideas and perspectives, personally develop
and grow, and shape our culture to make a difference at work and in our local communities.
Diversity & Inclusion
Dedication to diversity, equity, and inclusion (“DE&I”) is foundational to our culture. Led by our Chief
Diversity Officer and Diversity Leadership Council, we remain committed to increasing the representation of minority
13
groups within our organization, including in leadership roles, and we directly focus on these goals within our talent
acquisition and employee development efforts. Our focus includes attracting diverse candidates to our organization while
also investing in professional development and mentorship programs focused on underrepresented employee groups.
As of June 30, 2021, approximately 49% of our employees identified as female and 31% of our employees were
made up of underrepresented minorities. As of June 30, 2021, approximately 43% of director roles and above were held
by a female and 17% of our director roles and above were held by underrepresented minorities. The tables below provide
metrics regarding the composition of our workforce as of June 30, 2021.
Ethnicity
White . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hispanic & Latinx . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Black or African American . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asian & Indian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multiracial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Native Hawaiian or Pacific Islander . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
American Indian or Alaska Native . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Undisclosed* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All
Overall Workforce
Female
Male
*Undisclosed
69.0 %
11.0 %
7.4 %
5.4 %
3.5 %
0.3 %
0.3 %
3.1 %
100.0 %
47.7 %
50.8 %
59.2 %
47.5 %
52.8 %
38.5 %
53.8 %
33.3 %
48.6 %
52.3 %
49.2 %
40.8 %
52.5 %
47.2 %
61.5 %
46.2 %
63.4 %
51.3 %
— %
— %
— %
— %
— %
— %
— %
3.3 %
0.1 %
Ethnicity
White . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hispanic & Latinx . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Black or African American . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asian & Indian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multiracial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Native Hawaiian or Pacific Islander . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
American Indian or Alaska Native . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Undisclosed* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Overall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All
Leadership**
Male
Female
*Undisclosed
83.5 %
1.0 %
1.9 %
10.7 %
— %
— %
— %
2.9 %
100.0 %
43.0 %
100.0 %
100.0 %
27.3 %
— %
— %
— %
33.3 %
42.7 %
57.0 %
— %
— %
72.7 %
— %
— %
— %
66.7 %
57.3 %
— %
— %
— %
— %
— %
— %
— %
— %
— %
*
**
Individuals preferred to not disclose an ethnicity and/or gender
Defined as individuals in director-level positions and above
To support our DE&I efforts, we are launching a curriculum of learning and training content known as
“BRIDGE” (Belonging, Respect, Inclusion, Diversity, Generosity, and Equity), that delivers training content related to
topics such as unconscious bias, inclusive leadership and building diverse teams. Our curriculum is designed with the
needs of both our employees and clients in mind, with content widely available via Community, our internally developed
social collaboration platform.
Learning & Development
As a 2021 Association for Talent Development 100 Best Training organization, we are committed to creating
industry leading talent development and leadership programs that support the professional growth of our employees. In
addition to other programs throughout our organization, we provide our operations team with an immersive scenario-
based training program and our salesforce with an intensive learning experience on our go-to-market sales strategy and
process. Through our internally developed Learning Management System (“LMS”) with Video Premium, we enable
employees to share knowledge through self-recorded sessions, which complements our library of more than 600 internal
courses.
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Talent Acquisition & Compensation
We focus diligently on attracting a diverse pool of talented candidates that can help us achieve our short and
long-term goals as an organization. Our philosophy of “talent anywhere” focuses on identifying the right individuals for
our business, regardless of where they are located geographically. For Paylocity, the right talent is someone who
embodies our values, has an innate curiosity to learn and grow with our business, and has a diverse perspective on how
best to accomplish our goals.
Our compensation approach is centered around a philosophy that allows us to compete for and retain the right
talent to grow our organization, while being consistent and equitable. Our total rewards program includes competitive
pay, an employee stock purchase program, the ability to receive a portion of earned wages before the end of the payroll
cycle through our On-Demand Payment product, market competitive retirement benefits, paid time off, the ability to
consolidate and refinance federal and private student loans, interest free employee loans and many other benefits.
Retaining talent is key to our compensation strategy, and we provide time-based restricted stock grants to certain
employees based on role. We partner with best-in-class organizations to ensure that we utilize the most current data to
serve as a foundation of our compensation strategy.
We are also committed to supporting the health and wellbeing of our employees and offer a multitude of
resources to assist in these efforts. In addition to traditional benefit offerings, we provide all employees with innovative
perks and benefits that help to support their health and overall wellbeing. Such offerings include paid parental leave,
adoption assistance, health advocacy services, personalized training to measure and improve resiliency and mental
health, paid time off to volunteer, tuition reimbursement and many others.
PCTY Gives
Giving back to our local communities takes many forms at Paylocity. Through PCTY Gives, we mobilize our
technology, people and resources across the country through in-kind donations, our Elevate Your Passions (“EYP”)
Grant Program, Volunteers in Action paid time-off, signature program funding and many other initiatives. To support
our employees and their communities, each quarter we donate to a qualified 501 (c)(3) charity nominated by our
employees through the EYP program. In addition to local charities, Paylocity partners with national organizations such
as Big Brothers Big Sisters of America, Blessings in a Backpack and American Red Cross. To support the children of
Paylocity employees, the Peter J. McGrail Scholarship program, named after our late CFO, provides higher education
tuition assistance for selected participants.
Available Information
Our Internet address is www.paylocity.com and our investor relations website is located at
http://investors.paylocity.com. We make available free of charge on our investor relations website under the heading
“Financials” our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports as soon as reasonably practicable after such materials are electronically filed with (or
furnished to) the SEC. Information contained on our websites is not incorporated by reference into this Annual Report on
Form 10-K. In addition, the public may read and copy materials we file with the SEC at the SEC’s Public Reference
Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site, www.sec.gov,
that includes filings of and information about issuers that file electronically with the SEC.
15
Item 1A. Risk Factors.
Our business, prospects, financial condition or operating results could be materially adversely affected by any
of these risks, as well as other risks not currently known to us or that are currently considered immaterial. The trading
price of our common stock could decline due to any of the risks and uncertainties described below, and you may lose all
or part of your investment. In assessing these risks, you should also refer to the other information contained in this
Annual Report on Form 10-K, including our consolidated financial statements and related notes.
Risks Related to our Business and Industry
Our quarterly operating results have fluctuated in the past and may continue to fluctuate due to a variety of factors,
many of which are outside of our control.
Our number of new clients typically increases more during our third fiscal quarter ending March 31 than during
the rest of our fiscal year, primarily because many new clients prefer to start using our payroll and human capital
management, or HCM, solutions at the beginning of a calendar year. Client funds and year-end activities are also
traditionally higher during our third fiscal quarter. As a result, our total revenue and expenses have historically grown
disproportionately during our third fiscal quarter as compared to other quarters. Due to this seasonality in our business,
quarter-to-quarter comparisons of our operations are not necessarily meaningful and such comparisons should not be
relied upon as indications of future performance. Additionally, fluctuation in quarterly results may negatively impact the
price of our common stock.
In addition to other risk factors listed within this “Risk Factors” section of this Annual Report on Form 10-K,
some other important factors that may cause fluctuations in our quarterly operating results include the following:
• The extent to which our products achieve or maintain market acceptance;
• Our ability to introduce new products and enhancements and updates to our existing products on a
timely basis;
• Competitive pressures and the introduction of enhanced products and services from competitors;
• Changes in client budgets and procurement policies;
• The amount and timing of our investment in research and development activities and whether such
investments are capitalized or expensed as incurred;
• The number of our clients’ employees;
• Timing of recognition of revenues and expenses;
• Client renewal rates;
• Seasonality in our business;
• Technical difficulties with our products or interruptions in our services;
• Our ability to hire and retain qualified personnel;
• A repeal of or changes to the laws and regulations related to the products and services which we offer;
• Changes in accounting principles;
• Changes in interest rates;
• Business disruptions caused by public health issues such as the coronavirus disease (“COVID-19”)
pandemic; and
• Unforeseen legal expenses, including litigation and settlement costs.
16
In addition, a significant portion of our operating expenses are related to compensation and other items which
are relatively fixed in the short-term, and we plan expenditures based in part on our expectations regarding future needs
and opportunities. Accordingly, changes in our business or revenue shortfalls could decrease our gross and operating
margins and could negatively impact our operating results from period to period.
Changes in regulatory laws or requirements applicable to our software and services could impose increased costs on
us, delay or prevent our introduction of new products and services and impair the function or value of our existing
products and services.
Our products and services may become subject to increasing and/or changing regulatory requirements,
including changes in tax, benefit and other laws, and as these requirements proliferate, we may be required to change or
adapt our products and services to comply. Changing regulatory requirements might reduce or eliminate the need for
some of our products and services, block us from developing new products and services or have an adverse effect on the
functionality and acceptance of our solution. This might in turn impose additional costs upon us to comply, modify or
further develop our products and services. It might also make introduction of new products and services more costly or
more time-consuming than we currently anticipate or prevent introduction of such new products and services. For
example, the adoption of new money transmitter or money services business statutes in jurisdictions or changes in
regulators’ interpretation of existing state and federal money transmitter or money services business statutes or
regulations, could subject us to registration or licensing or limit business activities until we are appropriately licensed.
These occurrences could also impact how we conduct some aspects of our business or invest client funds, which could
adversely impact interest income from investing client funds. Should any state or federal regulators determine that we
have operated as an unlicensed money services business or money transmitter, we could be subject to civil and criminal
fines, penalties, costs, legal fees, reputational damage or other negative consequences. Any of these regulatory
implementations or changes could have an adverse effect on our business, operating results or financial condition.
If we do not continue to innovate and deliver high-quality, technologically advanced products and services, we will
not remain competitive and our revenue and operating results could suffer.
The market for our solutions is characterized by rapid technological advancements, changes in client
requirements, frequent new product introductions and enhancements and changing industry standards. The life cycles of
our products are difficult to estimate. Rapid technological changes and the introduction of new products and
enhancements by new or existing competitors, or development of entirely new technologies to replace existing offerings
could limit the demand for our existing or future solutions and undermine our current market position.
Our success depends in substantial part on our continuing ability to provide products and services that
organizations will find superior to our competitors’ offerings and will continue to use. We intend to continue to invest
significant resources in research and development to enhance our existing products and services and introduce new high-
quality products that clients will want. If we are unable to predict user preferences or industry changes, or if we are
unable to modify our products and services on a timely basis or to effectively bring new products to market, our revenue
and operating results may suffer.
Failure to manage our growth effectively could increase our expenses, decrease our revenue, and prevent us from
implementing our business strategy and sustaining our revenue growth rates.
We have and we believe we will continue to experience rapid revenue and client base growth. However, the
growth in our number of clients puts significant demands on our business, requires increased capital expenditures and
increases our operating expenses. To manage this growth effectively, we must attract, train, and retain a significant
number of qualified sales, implementation, client service, software development, information technology and
management personnel. We also must maintain and enhance our technology infrastructure and our financial and
accounting systems and controls. We must also expand and develop our network of third-party service providers,
including 401(k) advisors, benefits administrators, insurance brokers, third-party administrators and HR consultants,
which represent a significant source of referrals of potential clients for our products and implementation services.
Failure to effectively manage our growth could adversely impact our business and results of operations. We could also
suffer operational mistakes, a loss of business opportunities and employee losses. If our management is unable to
17
effectively manage our growth, our expenses might increase more than expected, our revenue could decline or might
grow more slowly than expected, and we might be unable to implement our business strategy.
The markets in which we participate are highly competitive, and if we do not compete effectively, our operating
results could be adversely affected.
The market for payroll and HCM solutions is fragmented, highly competitive and rapidly changing. Our
competitors vary for each of our solutions and primarily include payroll and HR service and software providers, such as
Automatic Data Processing, Inc., Paychex, Inc., Paycom Software, Inc., Paycor, Inc., Ultimate Kronos Group and other
local and regional providers.
Several of our competitors are larger, have greater name recognition, longer operating histories and
significantly greater resources than we do. Many of these competitors are able to devote greater resources to the
development, promotion and sale of their products and services. Furthermore, our current or potential competitors may
be acquired by third parties with greater available resources and the ability to initiate or withstand substantial price
competition, which may include price concessions, delayed payment terms, or other terms and conditions that are more
enticing to potential clients. As a result, our competitors may be able to develop products and services better received by
our markets or may be able to respond more quickly and effectively than we can to new or changing opportunities,
technologies, regulations, or client requirements.
In addition, current and potential competitors have established, and might in the future establish, partner or
form other cooperative relationships with vendors of complementary products, technologies or services to enable them to
offer new products and services, to compete more effectively or to increase the availability of their products in the
marketplace. New competitors or relationships might emerge that have greater market share, a larger client base, more
widely adopted proprietary technologies, greater marketing expertise, greater financial resources, and larger sales forces
than we have, which could put us at a competitive disadvantage. In light of these advantages, current or potential clients
might accept competitive offerings in lieu of purchasing our offerings. We expect competition to continue for these
reasons, and such competition could negatively impact our sales, profitability or market share.
If we fail to manage our technical operations infrastructure, including operation of our data centers, our existing
clients may experience service outages and our new clients may experience delays in the deployment of our modules.
We have experienced significant growth in the number of users, transactions and data that our operations
infrastructure supports. We seek to maintain sufficient excess capacity in our data centers and other operations
infrastructure to meet the needs of our clients. We also seek to maintain excess capacity to support new client
deployments and the expansion of existing client deployments. In addition, we need to properly manage our
technological operations infrastructure in order to support version control, changes in hardware and software parameters
and the evolution of our modules. We may experience website disruptions, outages and other performance problems.
These problems may be caused by a variety of factors, including infrastructure changes, human or software errors,
viruses, security attacks, fraud, spikes in client usage and denial of service issues. In some instances, we may not be able
to identify the cause or causes of these performance problems within an acceptable period of time. If we do not
accurately predict our infrastructure requirements, our existing clients may experience service outages that may subject
us to financial penalties, financial liabilities and client losses. If our operations infrastructure fails to keep pace with
increased sales, clients may experience delays as we seek to obtain additional capacity, which could adversely affect our
reputation and our revenues.
In addition, our ability to deliver our cloud-based modules depends on the development and maintenance of
Internet infrastructure by third parties. This includes maintenance of a reliable network backbone with the necessary
speed, data capacity, bandwidth capacity, and security. We may experience future interruptions and delays in services
and availability from time to time. Any interruption may affect the availability, accuracy, or timeliness in our services
and could damage our reputation, cause our clients to terminate their use of our software, require us to indemnify our
clients against certain losses due to our own errors and prevent us from gaining additional business from current or
future clients. In the event of a catastrophic event with respect to one or more of our systems, we may experience an
18
extended period of system unavailability, which could negatively impact our relationship with clients. To operate
without interruption, both we and our clients must guard against:
• Damage from fire, power loss, natural disasters, pandemics and other force majeure events outside our
control;
• Communications failures;
• Software and hardware errors, failures and crashes;
• Security breaches, computer viruses, hacking, worms, malware, ransomware, denial-of-service attacks
and similar disruptive problems; and
• Other potential interruptions.
We use multiple cloud hosting and third-party data center providers to host our solutions, including data centers
in Franklin Park, Illinois and Kenosha, Wisconsin (for backup and disaster recovery). We also may decide to employ
additional offsite data centers in the future to accommodate growth. Problems faced by our data center locations (such as
a hardware or other supply chain disruption), with the telecommunications network providers with whom we or they
contract, or with the systems by which our telecommunications providers allocate capacity among their clients, including
us, could adversely affect the availability and processing of our solutions and related services and the experience of our
clients. If our data centers are unable to keep up with our growing needs for capacity, this could have an adverse effect
on our business and cause us to incur additional expense. Any changes in service levels at our third-party data center or
any errors, defects, disruptions or other performance problems with our modules could adversely affect our reputation
and may damage our clients’ stored files or result in lengthy interruptions in our services. Interruptions in our services
might reduce our revenues, subject us to potential liability or other expenses or adversely affect our renewal rates.
In addition, while we own, control and have access to our servers and all of the components of our network that
are located in our backup data centers, we do not control the operation of these facilities. The operators of our third-party
data center facilities have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If
we are unable to renew these agreements on commercially reasonable terms, or if the data center operators are acquired,
we may be required to transfer our servers and other infrastructure to new data center facilities, and we may incur costs
and experience service interruption in doing so.
We typically pay client employees and may pay taxing authorities amounts due for a payroll period before a client’s
electronic funds transfers are finally settled to our account. If client payments are rejected by banking institutions or
otherwise fail to clear into our accounts, we may require additional sources of short-term liquidity and our operating
results could be adversely affected.
Our payroll processing business involves the movement of significant funds from the account of a client to
employees and relevant taxing authorities. Though we debit a client’s account prior to any disbursement on its behalf,
due to Automated Clearing House, or ACH, banking regulations, funds previously credited could be reversed under
certain circumstances and timeframes after our payment of amounts due to employees and taxing and other regulatory
authorities. There is therefore a risk that the employer’s funds will be insufficient to cover the amounts we have already
paid on its behalf. While such shortage and accompanying financial exposure has only occurred in very limited instances
in the past, should clients default on their payment obligations in the future, we might be required to advance funds to
cover such obligations. Depending on the magnitude of such an event, we may be required to seek additional sources of
short-term liquidity, which may not be available on reasonable terms, if at all, and our operating results and our liquidity
could be adversely affected and our banking relationships could be harmed.
Our business could be negatively impacted by disruptions in the operations of third-party providers.
We rely on third-party couriers such as the United Parcel Service, or UPS, to ship printed checks to our clients,
and any disruptions in their operations that impact their ability to successfully perform their tasks may negatively impact
our business.
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We also currently have agreements with eleven major U.S. banks to execute ACH and wire transfers to support
our client payroll, benefit and tax services. If one or more of the banks fails to process ACH transfers on a timely basis,
or at all, then our relationship with our clients could be harmed and we could be subject to claims by a client with respect
to the failed transfers. In addition, these banks have no obligation to renew their agreements with us on commercially
reasonable terms, if at all. If a material number of these banks terminate their relationships with us or restrict the dollar
amounts of funds that they will process on behalf of our clients, their doing so may impede our ability to process funds
and could have an adverse impact on our business.
We depend on our senior management team and other key employees, and the loss of these persons or an inability to
attract and retain highly skilled employees, including product development, sales, implementation, client service and
other technical persons, could adversely affect our business.
Our success depends largely upon the continued services of our key executive officers. We also rely on our
leadership team in the areas of product development, sales, client service, and general and administrative functions.
From time to time, there may be changes in our executive management team resulting from the hiring or departure of
executives, which could disrupt our business. While we have employment agreements with our executive officers, these
employment agreements do not require them to continue to work for us for any specified period and, therefore, they
could terminate their employment with us at any time. The loss of one or more of our executive officers or key
employees could have an adverse effect on our business.
We believe that to grow our business and be successful, we must continue to develop products that are
technologically advanced, are highly integrable with third-party services, provide significant mobility capabilities and
have pleasing and intuitive user experiences. To do so, we must attract and retain highly qualified personnel, particularly
employees with high levels of experience in designing and developing software. We must also identify, recruit and train
qualified sales, client service and implementation personnel in the use of our software. The amount of time it takes for
our sales representatives, client service and implementation personnel to be fully trained and to become productive
varies widely. Competition for skilled employees across the United States and globally is intense. If we fail to attract
new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be
severely harmed. We follow a practice of hiring the best available candidates wherever located, but as we grow our
business, the productivity of our product development and direct sales force may be adversely affected. In addition, if we
hire employees from competitors or other companies, their former employers may attempt to assert that these employees
have breached their legal obligations, resulting in a diversion of our time and resources.
Our software might not operate properly, which could damage our reputation, give rise to claims against us, or divert
application of our resources from other purposes, any of which could harm our business and operating results.
Our payroll and HCM software is complex and may contain or develop undetected defects or errors,
particularly when first introduced or as new versions are released. Despite extensive testing, from time to time, we have
discovered defects or errors in our products. In addition, because changes in employer and legal requirements and
practices relating to benefits, filing of tax returns and other regulatory reports are frequent, we may discover defects and
errors in our software and service processes in the normal course of business compared against these requirements and
practices. Defects and errors could also cause the information that we collect to be incomplete or contain inaccuracies
that our clients, their employees and taxing and other regulatory authorities regard as significant.
Defects and errors and any failure by us to identify and address them could result in delays in product
introductions and updates, loss of revenue or market share, liability to clients or others, failure to achieve market
acceptance or expansion, diversion of development and other resources, injury to our reputation, and increased service
and maintenance costs. The costs incurred in correcting any defects or errors or in responding to resulting claims or
liability might be substantial and could adversely affect our operating results. Our clients might assert claims against us
in the future alleging that they suffered damages due to a defect, error, or other failure of our product or service
processes. A product liability claim and errors or omissions claim could subject us to significant legal defense costs and
adverse publicity regardless of the merits or eventual outcome of such a claim.
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Our agreements with our clients typically contain provisions intended to limit our exposure to such claims, but
such provisions may not be effective in limiting our exposure. Contractual limitations we use may not be enforceable
and may not provide us with adequate protection against product liability claims in certain jurisdictions. A successful
claim for product or service liability brought against us could result in substantial cost to us and divert management’s
attention from our operations. We also maintain insurance, but our insurance may be inadequate or may not be available
in the future on acceptable terms, or at all. In addition, our policy may not cover all claims made against us and
defending a suit, regardless of its merit, could be costly and divert management’s attention.
If third-party software used in our products is not adequately maintained or updated, our business could be materially
adversely affected.
Some of our products utilize certain third-party software. Although we believe that there are alternatives for
these products, any significant interruption in the availability of such third-party software could have an adverse impact
on our business unless and until we can replace the functionality provided by these products at a similar cost.
Additionally, we rely, to a certain extent, upon such third parties’ abilities to enhance their current products, to develop
new products on a timely and cost-effective basis and to respond to emerging industry standards and other technological
changes. We may be unable to replace the functionality provided by the third-party software currently offered in
conjunction with our products in the event that such software becomes obsolete or incompatible with future versions of
our products or is otherwise not adequately maintained or updated.
We may acquire other companies or technologies, which could divert our management’s attention, result in
additional dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating
results.
We have acquired and may in the future seek to acquire or invest in other businesses or technologies. The
pursuit of potential acquisitions or investments may divert the attention of management and cause us to incur various
expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.
We may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively
manage the combined business following the acquisition. Factors that may negatively impact our operating results,
business and financial position, without limitation include the following:
•
Inability to integrate or benefit from acquired technologies, operations, or services in a profitable
manner;
• Unanticipated costs or liabilities associated with the acquisition;
• Difficulty converting the clients of the acquired business onto our modules and contract terms,
including disparities in the revenues, licensing, support or professional services model of the acquired
company;
• Diversion of management’s attention from other business concerns;
• Adverse effects to our existing business relationships with business partners and clients as a result of
the acquisition;
• The potential loss of key employees;
• Use of resources that are needed in other parts of our business;
• Use of substantial portions of our available cash to consummate the acquisition; and
• Dilutive issuances of equity securities or the incurrence of debt.
In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired
goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our
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acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this
impairment assessment process, which could adversely affect our results of operations.
Risks Related to Cybersecurity and Intellectual Property Rights
If our security measures are breached or unauthorized access to client data or funds is otherwise obtained, our
solutions may be perceived as not being secure, clients may reduce the use of or stop using our solutions and we may
incur significant liabilities.
Our solutions involve the storage and transmission of our clients’ and their employees’ proprietary and
confidential information. This information includes bank account numbers, tax return information, social security
numbers, benefit information, retirement account information, payroll information, system passwords, and in the case of
our benefit administration solution, BeneFLEX, health information protected by the Health Insurance Portability and
Accountability Act of 1996, as amended, or HIPAA. In addition, we collect and maintain personal information on our
own employees in the ordinary course of our business. Finally, our business involves the storage and transmission of
funds from the accounts of our clients to their employees, taxing and regulatory authorities and others. As a result,
unauthorized access or security breaches of our systems, the systems of our clients or use of confidential information we
obtain during the normal course of our business could result in the unauthorized disclosure of confidential information,
identity and financial theft, litigation, indemnity obligations and other significant liabilities. Because the techniques used
to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are
employed, we may be unable to anticipate these techniques or to implement adequate preventative measures in advance.
As cyber threats continue to evolve, we are focused on ensuring that our operating environments safeguard and protect
personal and business information. We may be required to invest significant additional resources to comply with
evolving cybersecurity regulations and to modify and enhance our information security and controls, and to investigate
and remediate any security vulnerabilities. We have security measures and controls in place to protect confidential
information, prevent data loss, theft and other security breaches, including penetration tests of our systems by
independent third parties. However, if our security measures are breached, our business could be substantially harmed,
and we could incur significant liabilities. The costs of investigating, mitigating, and reporting such a breach to affected
individuals (if required) can be substantial. In addition, if a high-profile security breach occurs with respect to an
industry peer, our clients and potential clients may generally lose trust in the security of payroll and HCM modules. Any
such breach or unauthorized access could negatively affect our ability to attract new clients, cause existing clients to
terminate their agreements with us, result in reputational damage and subject us to lawsuits, regulatory fines or other
actions or liabilities which could materially and adversely affect our business and operating results.
There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or
would otherwise protect us from any such liabilities or damages with respect to any particular claim related to a breach
or unauthorized access. We also cannot be sure that our existing general liability insurance coverage and coverage for
errors or omissions will continue to be available on acceptable terms or will be available in sufficient amounts to cover
one or more large claims, or that the insurer will not deny coverage as to any future claim. The successful assertion of
one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our
insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements,
could have a material adverse effect on our business, financial condition and results of operations.
Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology
and our brand.
Our success is dependent, in part, upon protecting our proprietary technology. We rely on a combination of
copyrights, trademarks, service marks, trade secret laws, and contractual restrictions to establish and protect our
proprietary rights in our products and services. Our proprietary technologies are not covered by any patent or patent
application. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to
protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our
intellectual property. Despite our precautions, it may be possible for unauthorized third parties to copy our products and
use information that we regard as proprietary to create products and services that compete with ours. Some license
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provisions protecting against unauthorized use, copying, transfer and disclosure of our products may be unenforceable
under the laws of certain jurisdictions and foreign countries.
We enter into confidentiality and invention assignment agreements with our employees and consultants and
enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances.
No assurance can be given that these agreements will be effective in controlling access to and distribution of our
products and proprietary information. The confidentiality agreements on which we rely to protect certain technologies
may be breached and may not be adequate to protect our proprietary technologies. Further, these agreements do not
prevent our competitors from independently developing technologies that are substantially equivalent or superior to our
solutions.
In order to protect our intellectual property rights, we may be required to spend significant resources, including
cybersecurity resources, to monitor and protect these rights. Our intellectual property could be wrongfully acquired as a
result of a cyberattack or other wrongful conduct by employees or third parties. Litigation may be necessary in the future
to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our
intellectual property rights could be costly, time consuming, and distracting to management and could result in the
impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property
rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our
intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as
well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the
implementation of our solutions, impair the functionality of our solutions, delay introductions of new solutions, result in
our substituting inferior or more costly technologies into our solutions, or damage our reputation. In addition, we may be
required to license additional technology from third parties to develop and market new solutions, and we cannot assure
you that we could license that technology on commercially reasonable terms, or at all. Although we do not expect that
our inability to license this technology in the future would have a material adverse effect on our business or operating
results, our inability to license this technology could adversely affect our ability to compete.
We may be sued by third parties for alleged infringement of their proprietary rights.
There is considerable patent and other intellectual property development activity in our industry. Our success
depends, in part, upon our not infringing upon the intellectual property rights of others. Our competitors, as well as a
number of other entities and individuals, may own or claim to own intellectual property relating to our industry. From
time to time, third parties may claim that we are infringing upon their intellectual property rights, and we may be found
to be infringing upon such rights. In the future, others may claim that our modules and underlying technology infringe or
violate their intellectual property rights. However, we may be unaware of the intellectual property rights that others may
claim cover some or all of our technology or services. Any claims or litigation could cause us to incur significant
expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty
payments, prevent us from offering our services, or require that we comply with other unfavorable terms. In connection
with any such claim or litigation, we may also be obligated to indemnify our clients or business partners or pay
substantial settlement costs, including royalty payments, and to obtain licenses, modify applications, or refund fees,
which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property
could be costly and time-consuming and divert the attention of our management and key personnel from our business
operations.
The use of open source software in our products and solutions may expose us to additional risks and harm our
intellectual property rights.
Some of our products and solutions use or incorporate software that is subject to one or more open source
licenses. Open source software is typically freely accessible, usable and modifiable. Certain open source software
licenses require a user who intends to distribute the open source software as a component of the user’s software to
disclose publicly part or all of the source code to the user’s software. In addition, certain open source software licenses
require the user of such software to make any derivative works of the open source code available to others on potentially
unfavorable terms or at no cost.
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The terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign
courts. Accordingly, there is a risk that those licenses could be construed in a manner that imposes unanticipated
conditions or restrictions on our ability to commercialize our solutions. In that event, we could be required to seek
licenses from third parties in order to continue offering our products or solutions, to re-develop our products or solutions,
to discontinue sales of our products or solutions, or to release our proprietary software code under the terms of an open
source license, any of which could harm our business. Further, given the nature of open source software, it may be more
likely that third parties might assert copyright and other intellectual property infringement claims against us based on our
use of these open source software programs.
While we monitor the use of all open source software in our products, solutions, processes and technology and
try to ensure that no open source software is used in such a way as to require us to disclose the source code to the related
product or solution when we do not wish to do so, it is possible that such use may have inadvertently occurred in
deploying our proprietary solutions. In addition, if a third-party software provider has incorporated certain types of open
source software into software we license from such third party for our products and solutions without our knowledge, we
could, under certain circumstances, be required to disclose the source code to our products and solutions. This could
harm our intellectual property position and our business, results of operations and financial condition.
Risks Related to Legal and Regulatory Matters
Privacy concerns and laws or other domestic regulations may increase the cost of our solutions or reduce the
effectiveness of our modules and adversely affect our business.
Our clients collect, use and store personal or identifying information regarding their employees and their family
members in our solutions. Federal and state government bodies and agencies have adopted, are considering adopting, or
may adopt laws and regulations regarding the collection, use, storage and disclosure of such personal information. In
addition, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its
implementing regulations, applies to our benefit administration solution, BeneFLEX, as a business associate. The costs
of compliance with, and other burdens imposed by, such laws and regulations that are applicable to our clients’
businesses may limit the use and adoption of our modules and reduce overall demand, or lead to significant fines,
penalties or liabilities for any noncompliance with such privacy laws. Even the perception of privacy concerns, whether
or not valid, may inhibit market adoption of our solutions.
Additionally, we expect that existing laws, regulations, and standards may be interpreted in new and differing
manners in the future and may be inconsistent among jurisdictions. Future laws, regulations, standards, and other
obligations, and changes in the interpretation of existing laws, regulations, standards, and other obligations could result
in increased regulation, increased costs of compliance and penalties for non-compliance, and limitations on data
collection, use, disclosure, and transfer for Paylocity and our clients. In 2016 the EU adopted a new regulation governing
data privacy called the General Data Protection Regulation (“GDPR”), which became effective in May 2018. The GDPR
establishes new requirements applicable to the handling of personal data and imposes penalties for non-compliance of up
to 4% of worldwide revenue. California also enacted legislation, the California Consumer Privacy Act of 2018
(“CCPA”), effective as of January 1, 2020, and the California Privacy Rights Act (“CPRA”), which expands upon the
CCPA, passed in November 2020, that affords California residents expanded privacy protections and a private right of
action for security breaches affecting their personal information. In addition, the Illinois Biometric Information Privacy
Act regulates the collection, use, safeguarding and storage of “biometric identifiers” or “biometric information” by
private entities, and provides a private right of action of persons who are aggrieved by violations of the regulation. All of
these legislative and regulatory initiatives may adversely affect our clients’ ability to process, handle, store, use and
transmit demographic and personal information regarding their employees and family members, which could reduce
demand for our solutions.
In addition to government activity, privacy advocacy groups and the technology and other industries are
considering various new, additional or different self-regulatory standards that may place additional burdens on us. If the
processing of personal information were to be curtailed in this manner, our products would be less effective, which may
reduce demand for our modules and adversely affect our business.
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If third parties we work with violate applicable laws or regulations or our policies, such violations may also put
our clients’ content at risk and could in turn have an adverse effect on our business. Any significant change to applicable
laws, regulations, or industry practices regarding the collection, use, retention, security, or disclosure of our clients’
content, or regarding the manner in which the express or implied consent of clients for the collection, use, retention, or
disclosure of such content is obtained, could increase our costs and require us to modify our services and features,
possibly in a material manner, which we may be unable to complete, and may limit our ability to store and transmit
client data or develop new services and features.
Adverse tax laws or regulations could be enacted or existing laws could be applied to us or our clients, which could
increase the costs of our services and adversely impact our business.
The application of federal, state, and local tax laws to services provided electronically often involve complex
issues and significant judgment. New or changes to existing income, sales, use or other tax laws, statutes, rules,
regulations or ordinances could be enacted at any time, possibly with retroactive effect, and could be applied solely or
disproportionately to services provided over the Internet. These enactments could adversely affect our business, results
of operations and financial condition due to the inherent cost increase.
Moreover, each state has different rules and regulations governing sales and use taxes, and these rules and
regulations are subject to varying interpretations that change over time. We review these rules and regulations
periodically and, when we believe we are subject to sales and use taxes in a particular state, we may voluntarily engage
state tax authorities to determine how to comply with that state’s rules and regulations. We cannot, however, assure you
that we will not be subject to sales and use taxes or related penalties for past sales in states where we currently believe no
such taxes are required. If one or more taxing authorities determines that taxes should have, but have not, been paid with
respect to our services, we might be liable for past taxes and the associated interest and penalty charges, in addition to
taxes going forward, which will adversely affect our business, sales activity, results of operations and financial
condition.
Any future litigation against us could be costly and time-consuming to defend.
We may become subject, from time to time, to legal proceedings and claims that arise in the ordinary course of
business such as claims brought by our clients in connection with commercial disputes, employment claims made by our
current or former employees, or lawsuits related to breaches of personal information. Litigation might result in
substantial costs and may divert management’s attention and resources, which might seriously harm our business, overall
financial condition, and operating results. Insurance might not cover such claims, might not provide sufficient payments
to cover all the costs to resolve one or more such claims and might not continue to be available on terms acceptable to
us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby harming our
operating results and leading analysts or potential investors to lower their expectations of our performance, which could
reduce the trading price of our stock.
Risks Related to Financial Matters
Certain of our debt agreements contain covenants that may constrain the operation of our business, and our failure
to comply with these covenants could have a material adverse effect on our financial condition.
The five-year revolving credit agreement that we entered into in July 2019 contains restrictive covenants
including restrictions regarding the incurrence of liens and indebtedness, substantial changes in the general nature of our
business and our subsidiaries (taken as a whole), certain merger transactions, certain sales of assets and other matters, all
subject to certain exceptions. Failure to comply with these covenants could have a negative impact on our business and
financial condition.
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Corporate investments and client funds that we hold are subject to market, interest rate, credit and liquidity risks. The
loss of these funds could have an adverse impact on our business.
We invest portions of excess cash and cash equivalents and funds held for our clients in liquid, investment-
grade marketable securities such as corporate bonds, commercial paper, asset-backed securities, U.S. treasury securities,
money market securities, and other cash equivalents. We follow an established investment policy and set of guidelines to
monitor and help mitigate our exposure to liquidity and credit risks. Nevertheless, our corporate investments and client
fund assets are subject to general market, interest rate, credit, and liquidity risks. These risks may be exacerbated,
individually or in unison, during periods of unusual financial market volatility. Any loss of or inability to access our
corporate investments or client funds could have adverse impacts on our business, results of operations, financial
condition and liquidity.
In addition, funds held for clients are deposited in consolidated accounts on behalf of our clients, and as a
result, the aggregate amounts in the accounts exceed the applicable federal deposit insurance limits. We believe that
since such funds are deposited in trust on behalf of our clients, the Federal Deposit Insurance Corporation, or the FDIC,
would treat those funds as if they had been deposited by each of the clients themselves and insure each client’s funds up
to the applicable deposit insurance limits. If the FDIC were to take the position that it is not obligated to provide deposit
insurance for our clients’ funds or if the reimbursement of these funds were delayed, our business and our clients could
be materially harmed.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in
the United States.
Generally accepted accounting principles in the United States are subject to interpretation by the Financial
Accounting Standards Board, or FASB, the Securities and Exchange Commission, or SEC, and various bodies formed to
promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a
significant effect on our reported financial results, including increased volatility, and could affect the reporting of
transactions completed before the announcement of a change. Our accounting policies that have been or may be affected
by changes in accounting principles include, but are not limited to, revenue recognition and accounting for leases.
Risks Related to Ownership of Our Common Stock
Insiders have substantial control over us, which may limit our stockholders’ ability to influence corporate matters
and delay or prevent a third party from acquiring control over us.
As of July 30, 2021, our directors, executive officers and holders of more than 5% of our common stock,
together with their respective affiliates, beneficially owned, in the aggregate, approximately 29.1% of our outstanding
common stock. This significant concentration of ownership may adversely affect the trading price for our common stock
because investors often perceive disadvantages in owning stock in companies with controlling stockholders. In addition,
these stockholders will be able to exercise influence over all matters requiring stockholder approval, including the
election of directors and approval of corporate transactions, such as a merger or other sale of our company or its assets.
This concentration of ownership could limit the ability of our other stockholders to influence corporate matters and may
have the effect of delaying or preventing a change in control, including a merger, consolidation, or other business
combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to
obtain control, even if that change in control would benefit our other stockholders.
Our stock price may be subject to wide fluctuations.
The market price of our common stock has experienced, and may continue to experience, wide fluctuations and
increased volatility. Factors that may impact our performance and market price include those discussed elsewhere in this
“Risk Factors” section of this Annual Report on Form 10-K and others such as:
• Our operating performance and the operating performance of similar companies;
• Announcements by us or our competitors of acquisitions, business plans or commercial relationships;
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• Any major change in our board of directors or senior management;
• Publication of research reports or news stories about us, our competitors, or our industry, or positive or
negative recommendations or withdrawal of research coverage by securities analysts;
• The public’s reaction to our press releases, our other public announcements and our filings with the
SEC;
• Sales of our common stock by our directors, executive officers and affiliates;
• Adverse market reaction to any indebtedness we may incur or securities we may issue in the future;
• Short sales, hedging and other derivative transactions in our common stock;
• Threatened or actual litigation;
• Public health issues such as the COVID-19 pandemic; and
• Other events or factors, including changes in general conditions in the United States and global
economies or financial markets (including acts of God, war, incidents of terrorism, or other
destabilizing events and the resulting responses to them).
In addition, the stock market in general and the market for software or technology-related companies in
particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to
the operating performance of those companies. Securities class action litigation has often been instituted against
companies following periods of volatility in the overall market and in the market price of a company’s securities. This
litigation, if instituted against us, could result in substantial costs, divert our management’s attention and resources, and
harm our business, operating results, and financial condition.
We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return
on your investment will depend on appreciation in the price of our common stock.
We have not declared or paid dividends on our common stock in the past three fiscal years and do not currently
intend to do so for the foreseeable future. We currently intend to invest our future earnings to fund our growth and other
corporate initiatives. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable
future, and the success of an investment in shares of our common stock will depend upon future appreciation in its value,
if any. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at
which our stockholders purchased their shares.
Future sales of shares of our common stock by existing stockholders could depress the market price of our common
stock.
As of July 30, 2021, we had an aggregate of 54,601,434 outstanding shares of common stock. The 17,362,750
shares sold in our initial public offering, follow-on offering and secondary offering can be freely sold in the public
market without restriction. The remaining shares can be freely sold in the public market, subject in some cases to volume
and other restrictions under Rule 144 and 701 under the Securities Act of 1933, as amended, and various agreements.
In addition, we have registered 19,253,893 shares of common stock that we have issued and may issue under
our equity plans. These shares can be freely sold in the public market upon issuance, subject in some cases to volume
and other restrictions under Rules 144 and 701 under the Securities Act, and various vesting agreements. In addition,
some of our employees, including our executive officers, have entered into 10b5-1 trading plans regarding sales of
shares of our common stock. These plans provide for sales to occur from time to time. If any of these additional shares
are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could
decline.
Also, in the future, we may issue additional securities in connection with investments and acquisitions. The
amount of our common stock issued in connection with an investment or acquisition could constitute a material portion
27
of our then outstanding stock. Due to these factors, sales of a substantial number of shares of our common stock in the
public market could occur at any time. These sales, or the perception in the market that the holders of a large number of
shares intend to sell shares, could reduce the market price of our common stock.
Anti-takeover provisions in our charter documents and Delaware law could discourage, delay, or prevent a change in
control of our company and may affect the trading price of our common stock.
We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law,
which apply to us, may discourage, delay or prevent a change in control by prohibiting us from engaging in a business
combination with an interested stockholder for a period of three years after the stockholder becomes an interested
stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our amended and
restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a change in our
management or control over us that stockholders may consider favorable. Our amended and restated certificate of
incorporation and bylaws:
• Authorize the issuance of “blank check” convertible preferred stock that could be issued by our board
of directors to thwart a takeover attempt;
• Establish a classified board of directors, as a result of which the successors to the directors whose
terms have expired will be elected to serve from the time of election and qualification until the third
annual meeting following their election;
• Require that directors only be removed from office for cause and only upon a supermajority
stockholder vote;
• Provide that vacancies on the board of directors, including newly-created directorships, may be filled
only by a majority vote of directors then in office rather than by stockholders;
• Prevent stockholders from calling special meetings; and
• Prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the
stockholders.
Our bylaws provide that the state and federal courts located within the state of Delaware are the sole and exclusive
forums for certain legal actions involving the company or our directors, officers and employees.
On February 2, 2016, we amended our bylaws to designate the state and federal courts located within the state
of Delaware as the sole and exclusive forums for claims arising derivatively, pursuant to the Delaware General
Corporation Law or governed by the internal affairs doctrine. The choice of forum provision is expressly authorized by
the Delaware General Corporation Law, which was amended so that companies would not have to litigate internal claims
in more than one jurisdiction. If a court were to find the exclusive forum provision contained in our bylaws to be
inapplicable or unenforceable, we may incur additional costs associated with resolving such extra-forum claims, which
could adversely affect our business and financial condition. This bylaws provision, therefore, may dissuade or
discourage claimants from initiating lawsuits or claims against us or our directors and officers in forums other than
Delaware.
General Risk Factors
Our business, results of operations and financial condition have been, and will continue to be, adversely impacted by
the uncertainties and consequences stemming from the COVID-19 pandemic.
The spread of COVID-19 has continued to cause economic and individual uncertainty and disruption across the
country and world. Many of our clients have also been unfavorably impacted by the COVID-19 pandemic, which is
outside of our control, and as a result some clients have reduced employee headcount. If a significant number of our
clients are unable to continue as viable businesses or otherwise are required to further reduce headcount, or we
experience longer sales cycles, reduced demand for our solutions, clients failing to pay us under the terms of our
agreements, lower renewal rates by our clients and increased competition, such factors could have an adverse impact on
28
our business and financial condition. If the COVID-19 pandemic has a prolonged substantial impact on our employees,
partners or clients, our results of operations and overall financial performance may be unfavorably impacted.
Our business depends on the overall demand for payroll and HCM software and services, and on the economic
health of our current and prospective clients. The impacts of the COVID-19 pandemic on our business, clients, partners,
employees, markets and financial results and condition are uncertain, evolving and dependent on numerous
unpredictable factors outside of our control, including:
• The spread, duration and severity of the pandemic as a public health matter and its impact on
governments, businesses, society, our clients, our partners and our business;
• The measures being taken by governments, businesses and society in response to the pandemic and
their effectiveness, including the effectiveness of vaccine availability, distribution and adoption;
• The scope and effectiveness of fiscal and monetary stimulus programs (such as the Payroll Protection
Program) and other legislative and regulatory measures being implemented by federal, state and local
governments;
• The increase in business failures among our clients and other businesses;
• The pace and extent to which our clients and other businesses recover and add employees and other
compensated individuals; and
• The willingness of current and prospective clients to invest in our products and services.
Any of these factors may impact our business unfavorably. While economic conditions have begun improving
as vaccine distribution has accelerated in the United States, there can be no assurance that the economic recovery will
continue or offset the uncertainty and instability resulting from the COVID-19 pandemic. Even after the COVID-19
pandemic has subsided, we may continue to experience adverse impacts to our business as a result of its global economic
impact, including any recession, economic downturn, or increased unemployment that has occurred or may occur in the
future.
If we are unable to maintain effective internal controls over financial reporting, investors may lose confidence in the
accuracy and completeness of our financial reports and the market price of our common stock may be negatively
affected.
As a public company, we are required to maintain internal controls over financial reporting and to report any
material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley
Act, requires that we evaluate and determine the effectiveness of our internal controls over financial reporting and
provide a management report on the internal controls over financial reporting. In addition, the Sarbanes-Oxley Act
requires that our management report on the internal controls over financial reporting be attested to by our independent
registered public accounting firm. If we have a material weakness in our internal controls over financial reporting, we
may not detect errors on a timely basis and our financial statements may be materially misstated. Compliance with these
public company requirements has made some activities more time-consuming, costly and complicated. If we identify
material weaknesses in our internal controls over financial reporting, if we are unable to assert that our internal controls
over financial reporting are effective, or if our independent registered public accounting firm is unable to express an
opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the
accuracy and completeness of our financial reports and the market price of our common stock could be negatively
affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the
SEC or other regulatory authorities, which could require additional financial and management resources.
Item 1B. Unresolved Staff Comments.
None.
29
Item 2. Properties.
As of June 30, 2021, our corporate headquarters occupied approximately 326,000 square feet in Schaumburg,
Illinois under leases with final expiration in October 2032. We also utilize office spaces consisting of
approximately 92,000 square feet in Lake Mary, Florida and approximately 69,000 square feet in Meridian, Idaho as
other major operations centers. We lease other smaller facilities across the U.S. that serve as data centers, sales offices
and distribution centers.
For additional information regarding obligations under operating leases, see Note 12 of the Notes to the
Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” of this
Annual Report on Form 10-K.
Item 3. Legal Proceedings.
From time to time, we may become involved in litigation related to claims arising from the ordinary course of
our business. We believe that there are no claims or actions pending or threatened against us, the ultimate disposition of
which would have a material adverse effect on us.
Item 4. Mine Safety Disclosures.
Not applicable.
30
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common stock is listed on the NASDAQ Global Select Market under the symbol “PCTY”.
On July 30, 2021, the last reported sale price of our common stock on the NASDAQ Global Select Market was
$207.46 per share, and there were 13 holders of record of our common stock. The actual number of holders of common
stock is greater than these numbers of record holders and includes stockholders who are beneficial owners, but whose
shares are held in street name by brokers and nominees. The number of holders of record also does not include
stockholders whose shares may be held in trust by other entities.
Use of Proceeds from Initial Public Offering of Common Stock
On March 24, 2014, we completed our initial public offering, or IPO, of 8,101,750 shares of common stock, at
a price of $17.00 per share, before underwriting discounts and commissions. We sold 5,366,667 of such shares and
existing shareholders sold an aggregate of 2,735,083 of such shares. The offer and sale of all of the shares in the IPO
were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-193661), which
was declared effective by the SEC on March 18, 2014.
With the proceeds of the IPO, we repaid amounts outstanding under a note issued by us to Commerce Bank &
Trust Company on March 9, 2011, which totaled $1.1 million, paid $9.4 million for the purchase of substantially all of
the assets of BFKMS Inc., and paid $9.5 million for the purchase of substantially all of the assets of Synergy
Payroll LLC.
Use of Proceeds from Follow-On Offering of Common Stock
On December 17, 2014, we completed a follow-on offering of 4,960,000 shares of common stock at a price of
$26.25 per share, before underwriting discounts and commissions. We sold 750,000 of such shares and existing
shareholders sold an aggregate of 4,210,000 of such shares. The offer and sale of all of the shares in the follow-on
offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-200448)
which was declared effective by the SEC on December 11, 2014. There have been no material changes in the planned
use of proceeds from the follow-on offering as described in the final prospectus filed with the SEC pursuant to
Rule 424(b) on December 12, 2014.
Use of Proceeds from Secondary Offering of Common Stock
On September 30, 2015, we completed a secondary offering of 4,301,000 shares of common stock at a price of
$29.75 per share, before underwriting discounts and commissions. The offer and sale of all of the shares in the secondary
offering were registered under the Securities Act pursuant to a registration statement on Form S-3 (File No. 333-206941)
which was declared effective by the SEC on September 25, 2015. The Company did not receive any proceeds from the
sale of common stock, as all the shares were sold by shareholders of the Company.
Dividend Policy
We have not declared or paid dividends on our common stock since our IPO. Neither Delaware law nor our
amended and restated certificate of incorporation requires our board of directors to declare dividends on our common
stock. Any future determination to declare cash dividends on our common stock will be made at the discretion of our
board of directors and will depend on our financial condition, results of operations, capital requirements, general
business conditions and other factors that our board of directors may deem relevant. We do not anticipate paying cash
dividends on our common stock for the foreseeable future.
31
Equity Compensation Plan Information
Information regarding the securities authorized for issuance under our equity compensation plans will be
included in our Proxy Statement relating to our 2022 annual meeting of stockholders to be filed with the SEC within
120 days after the end of our fiscal year ended June 30, 2021 and is incorporated herein by reference.
Performance Graph
Notwithstanding any statement to the contrary in any of our filings with the SEC, the following information
shall not be deemed “filed” with the SEC or “soliciting material” under the Securities Exchange Act of 1934 and shall
not be incorporated by reference into any such filings irrespective of any general incorporation language contained in
such filing.
The following graph compares the total cumulative stockholder return on our common stock with the total
cumulative return of the S&P 500 Index and the S&P 1500 Application Software Index during the period commencing
on June 30, 2016 and ending on June 30, 2021. The graph assumes that $100 was invested at the beginning of the period
in our common stock and in each of the comparative indices, and the reinvestment of any dividends. Historical stock
price performance should not be relied upon as an indication of future stock price performance.
Comparison of Cumulative Total Return
$450.00
$400.00
$350.00
$300.00
$250.00
$200.00
$150.00
$100.00
$50.00
$0.00
6/30/2016
6/30/2017
6/30/2018
6/30/2019
6/30/2020
6/30/2021
PCTY
S&P 500 Index
S&P 1500 Application Software Index
Item 6. [Reserved]
32
Item 7. 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 those discussed below and under Part I, Item 1A. “Risk Factors.”
The following discussion of our financial condition and results of operations covers fiscal 2021 and 2020 items and
year-over-year comparisons between fiscal 2021 and 2020. Discussion of fiscal 2019 items and year-over-year
comparisons between fiscal 2020 and 2019 that are not included in this Form 10-K can be found in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on
Form 10-K for the fiscal year ended June 30, 2020 that was filed with the SEC on August 7, 2020.
Overview
We are a cloud-based provider of payroll and human capital management (“HCM”) software solutions. Our
comprehensive product suite delivers a unified platform to create a modern workplace for our clients through
automation, data-driven insights and engagement. Our product suite enables professionals to make strategic decisions in
the areas of payroll, human capital management, workforce management, talent management, benefits, modern
workforce solutions and analytics & insights, all while promoting a modern workplace and improving employee
engagement.
Effective management of human capital is a core function in all organizations and requires a significant
commitment of resources. We believe payroll is the most critical system of record for organizations and an essential
gateway to other HCM functionalities. We designed our cloud-based platform to provide a unified suite of modules
using a multi-tenant architecture. Our solutions are highly flexible and configurable and feature a modern, intuitive user
experience. Our platform offers automated data integration with over 400 related third-party systems, such as 401(k),
benefits and insurance provider systems. We have invested in, and we intend to continue to invest in, research and
development to expand our product offerings and advance our platform.
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 and quality of products 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 seek to develop deep relationships with our clients through our unified service
model, which has been designed to meet the service needs of mid-market organizations. We expect to continue to invest
in and grow our implementation and client service organization as our client base grows.
In order to continue to grow our business over the long term, we will continue to invest, across our entire
organization. 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, add new 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.
33
COVID-19 Impact
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus disease
(“COVID-19”) as a pandemic which has caused a global slowdown of economic activity. The duration and severity of
the COVID-19 pandemic, and the long-term effects the pandemic will have on our clients and general economic
conditions, remain uncertain and difficult to predict. Many of our prospective and existing clients’ businesses have been
impacted by stay-at-home, business closure and other restrictive orders, which has resulted in reduced employee
headcount, temporary and permanent business closures, and/or delayed sales/starts. Our business and financial
performance may continue to be unfavorably impacted in future periods by a reduction in client employee counts,
reduction in business confidence and activity, a decrease in payroll and HCM solutions spending by organizations, the
pace of the macro-economic recovery or a continued low interest rate environment, among other factors. Refer to
“Item 1A. Risk Factors” in this Annual Report on Form 10-K for risks related to the COVID-19 pandemic to our
business and financial performance.
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 $467.6 million in fiscal 2019 to $561.3 million in fiscal 2020, representing a
20% year-over-year increase. Total revenues increased from $561.3 million in fiscal 2020 to $635.6 million in fiscal
2021, representing a 13% year-over-year increase. During fiscal 2021, total revenue growth was impacted by the
ongoing effects from the COVID-19 pandemic. Our revenue growth in future periods may continue to be impacted by a
reduction in client employee counts, potential increases in client losses, a continued low interest rate environment and
the pace of the macro-economic recovery, among other factors.
Client Count Growth
We believe there is a significant opportunity to grow our business by increasing our number of clients.
Excluding clients acquired through acquisitions, we have increased the number of clients using our payroll and HCM
software solutions from approximately 20,200 as of June 30, 2019 to approximately 28,750 as of June 30, 2021,
representing a compound annual growth rate of approximately 19%. The table below sets forth the total number of
clients using our payroll and HCM software solutions for the periods indicated, rounded to the nearest fifty.
Client Count . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended June 30,
2020
24,450
2019
20,200
2021
28,750
The rate at which we add clients is highly variable period-to-period and highly seasonal as many clients switch
solutions during the first calendar quarter of each year. Although many clients have multiple divisions, segments or
locations, we only count such clients once for these purposes.
Annual Revenue Retention Rate
Our annual revenue retention rate has been in excess of 92% during each of the past three fiscal years. We
calculate our annual revenue retention rate as our total revenue for the preceding 12 months, less the annualized value of
revenue lost during the preceding 12 months, divided by our total revenue for the preceding 12 months. We calculate the
annualized value of revenue lost by summing the recurring fees paid by lost clients over the previous twelve months
34
prior to their termination if they have been a client for a minimum of twelve months. For those lost clients who became
clients within the last twelve months, we sum the recurring fees for the period that they have been a client and then
annualize the amount. We exclude interest income on funds held for clients from the revenue retention calculation. We
believe that our annual revenue retention rate is an important metric to measure overall client satisfaction and the general
quality of our product and service offerings.
Adjusted Gross Profit and Adjusted EBITDA
We use Adjusted Gross Profit and Adjusted EBITDA to evaluate our operating results. We prepare Adjusted
Gross Profit and Adjusted EBITDA to eliminate the impact of items we do not consider indicative of our ongoing
operating performance. However, Adjusted Gross Profit and Adjusted EBITDA are not measurements of financial
performance under generally accepted accounting principles in the United States, or GAAP, and these metrics may not
be comparable to similarly titled measures of other companies.
We define Adjusted Gross Profit as gross profit before amortization of capitalized internal-use software costs
and stock-based compensation expense and employer payroll taxes related to stock releases and option exercises. 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.
We disclose Adjusted Gross Profit and Adjusted EBITDA, which are non-GAAP measures, because we believe
these metrics assist investors and analysts in comparing our performance across reporting periods on a consistent basis
by excluding items that we do not believe are indicative of our core operating performance. We believe these metrics are
commonly used in the financial community to aid in comparisons of similar companies, and we present them to enhance
investors’ understanding of our operating performance and cash flows.
Adjusted Gross Profit and Adjusted EBITDA have limitations as analytical tools. Some of these limitations
include the following:
• Adjusted EBITDA does not reflect our ongoing or future requirements for capital expenditures;
• Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
• Adjusted EBITDA does not reflect our income tax expense or the cash requirement to pay our taxes;
• Although depreciation and amortization are non-cash charges, the assets being depreciated and
amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect any cash
requirements for such replacements; and
• Other companies in our industry may calculate Adjusted Gross Profit and Adjusted EBITDA
differently than we do, limiting their usefulness as a comparative measure.
Additionally, stock-based compensation will continue to be an element of our overall compensation strategy,
although we exclude it from Adjusted Gross Profit and Adjusted EBITDA as an expense when evaluating our ongoing
operating performance for a particular period.
Because of these limitations, you should not consider Adjusted Gross Profit as an alternative to gross profit or
Adjusted EBITDA as an alternative to net income or net cash provided by operating activities, in each case as
determined in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results,
and we use Adjusted Gross Profit and Adjusted EBITDA only as supplemental information.
35
Directly comparable GAAP measures to Adjusted Gross Profit and Adjusted EBITDA are gross profit and net income,
respectively. We reconcile Adjusted Gross Profit and Adjusted EBITDA as follows:
Adjusted Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 336,247 $ 404,797 $ 447,904
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 134,047 $ 159,775 $ 170,028
2019
Year Ended June 30,
2020
(in thousands)
2021
2019
Year Ended June 30,
2020
(in thousands)
2021
Reconciliation from Gross Profit to Adjusted Gross Profit
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 313,782 $ 379,319 $ 416,329
23,227
Amortization of capitalized internal-use software costs . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense and employer payroll taxes related to stock
16,921
19,261
releases and option exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,348
Adjusted Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 336,247 $ 404,797 $ 447,904
5,544
6,217
Reconciliation from Net Income to Adjusted EBITDA
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53,823 $ 64,455 $ 70,819
1,002
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13,715)
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,972
101,078
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
695
2,663
37,913
105,726
—
4,223
34,564
92,610
Stock-based compensation expense and employer payroll taxes related to stock
2019
Year Ended June 30,
2020
(in thousands)
2021
releases and option exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67,059
1,891
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 134,047 $ 159,775 $ 170,028
41,014
423
50,364
3,685
* Represents nonrecurring costs including lease exit and acquisition-related costs of $0.4 million, $1.6 million and $1.9
million incurred during the years ended June 30, 2019, 2020 and 2021, respectively, and the settlement of a certain legal
matter and related litigation costs of $2.1 million during the year ended June 30, 2020.
Basis of Presentation
Revenues
Recurring and Other Revenue
Beginning in fiscal 2020, we simplified the presentation of revenue. Recurring fees and Implementation
services and other have been combined into one revenue line: Recurring and other revenue. We changed the presentation
of revenue as Implementation services and other has become a smaller component of our overall revenue mix as our
HCM suite has become a larger part of the portfolio. Previously reported results for the year ended June 30, 2019 have
been reclassified to conform to the current presentation.
We derive the majority of our revenues from recurring fees attributable to our cloud-based payroll and HCM
software solutions. Recurring fees for each client generally include a base fee in addition to a fee based on the number of
client employees and the number of products a client uses. We also charge fees attributable to our preparation of W-2
documents and annual required filings on behalf of our clients. We charge implementation fees for professional services
provided to implement our payroll and HCM solutions. Implementations of our payroll solutions typically require only
one to eight weeks, depending on the size and complexity of each client, at which point the new client’s payroll is first
36
processed using our solution. We implement additional HCM products as requested by clients and leverage the data
within our payroll solution to accelerate our implementation processes. Our average client size has continued to be over
100 employees.
While the majority of our agreements with clients are generally cancellable by the client on 60 days’ notice or
less, we also have entered into term agreements, which are generally two years in length. Our agreements do not include
general rights of return and do not provide clients with the right to take possession of the software supporting the
services being provided. We recognize recurring fees in the period in which services are provided and the related
performance obligations have been satisfied. We defer implementation fees related to our proprietary products over a
period generally up to 24 months. Recurring and other revenue accounted for approximately 96%, 97% and 99% of our
total revenues during the years ended June 30, 2019, 2020 and 2021, respectively.
Interest Income on Funds Held for Clients
We earn interest income on funds held for clients. We collect funds for employee payroll payments and related
taxes in advance of remittance to employees and taxing authorities. Prior to remittance to employees and taxing
authorities, we earn interest on these funds through demand deposit accounts with financial institutions with which we
have automated clearing house, or ACH, arrangements. We also earn interest by investing a portion of funds held for
clients in highly liquid, investment-grade marketable securities.
Cost of Revenues
To correspond with the simplification of the presentation of revenue discussed above, we also simplified the
presentation of cost of revenue beginning in fiscal 2020. As a result, Cost of revenues - recurring revenues and Cost of
revenues - implementation services and other have been combined into one line: Cost of revenues. Cost of revenues
includes costs to provide our payroll and other HCM solutions which primarily consists of employee-related expenses,
including wages, stock-based compensation, bonuses and benefits, relating to the provision of ongoing client support and
implementation activities, payroll tax filing, distribution of printed checks and other materials as well as delivery costs,
computing costs, and bank fees associated with client fund transfers. Costs related to recurring support are generally
expensed as incurred. Implementation costs related to our proprietary products are capitalized and amortized over a
period of 7 years. Our cost of revenues is expected to increase in absolute dollars for the foreseeable future as we
increase our client base. However, we expect to realize cost efficiencies over the long term as our business scales,
resulting in improved operating leverage and increased margins.
We also capitalize a portion of our internal-use software costs, which are then all amortized as Cost of revenues.
We amortized $16.9 million, $19.3 million and $23.2 million of capitalized internal-use software costs in fiscal 2019,
2020 and 2021, respectively.
Operating Expenses
Sales and Marketing
Sales and marketing expenses consist primarily of employee-related expenses for our direct sales and marketing
staff, including wages, commissions, stock-based compensation, bonuses, benefits, marketing expenses and other related
costs. Our sales personnel earn commissions and bonuses for attainment of certain performance criteria based upon new
sales throughout the fiscal year. We capitalize certain selling and commission costs related to new contracts or purchases
of additional services by our existing clients and amortize them over a period of 7 years.
We will seek to grow our number of clients for the foreseeable future and therefore our sales and marketing
expense is expected to continue to increase in absolute dollars as we grow our sales organization and expand our
marketing activities.
37
Research and Development
Research and development expenses consist primarily of employee-related expenses for our research and
development and product management staff, including wages, stock-based compensation, bonuses and benefits.
Additional expenses include costs related to the development, maintenance, quality assurance and testing of new
technologies and ongoing refinement of our existing solutions. Research and development expenses, other than internal-
use software costs qualifying for capitalization, are expensed as incurred.
We capitalize a portion of our development costs related to internal-use software. The timing of our capitalized
development projects may affect the amount of development costs expensed in any given period. The table below sets
forth the amounts of capitalized and expensed research and development expenses for each of fiscal 2019, 2020 and
2021.
2019
Year Ended June 30,
2020
(in thousands)
2021
Capitalized portion of research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,313 $ 28,187 $ 31,744
Expensed portion of research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76,707
Total research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 73,642 $ 90,953 $ 108,451
50,329
62,766
We expect to grow our research and development efforts as we continue to broaden our product offerings and
extend our technological leadership by investing in the development of new technologies and introducing them to new
and existing clients. We expect research and development expenses to continue to increase in absolute dollars but to vary
as a percentage of total revenue on a period-to-period basis.
General and Administrative
General and administrative expenses consist primarily of employee-related costs, including wages, stock-based
compensation, bonuses and benefits for our finance and accounting, legal, information systems, human resources and
other administrative departments. Additional expenses include consulting and professional fees, occupancy costs,
insurance and other corporate expenses. We expect our general and administrative expenses to continue to increase in
absolute dollars as our company continues to grow.
Other Income (Expense)
Other income (expense) generally consists of interest income related to interest earned on our cash and cash
equivalents and corporate investments, net of losses on disposals of property and equipment and interest expense related
to our revolving credit facility.
38
Results of Operations
The following table sets forth our statements of operations data for each of the periods indicated.
Consolidated Statements of Operations Data:
Revenues:
2019
Year Ended June 30,
2020
(in thousands)
2021
Recurring and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 447,752 $ 546,212 $ 631,725
Interest income on funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,902
635,627
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
219,298
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
416,329
Operating expenses:
19,881
467,633
153,851
313,782
15,117
561,329
182,010
379,319
161,808
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76,707
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
119,771
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
358,286
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58,043
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(939)
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57,104
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13,715)
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53,823 $ 64,455 $ 70,819
112,599
50,329
94,630
257,558
56,224
1,822
58,046
4,223
145,134
62,766
105,248
313,148
66,171
947
67,118
2,663
The following table sets forth our statements of operations data as a percentage of total revenue for each of the
periods indicated.
2019
Year Ended June 30,
2020
2021
Consolidated Statements of Operations Data:
Revenues:
Recurring and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income on funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96 %
4 %
100 %
33 %
67 %
97 %
3 %
100 %
32 %
68 %
99 %
1 %
100 %
35 %
65 %
24 %
11 %
20 %
55 %
12 %
0 %
12 %
0 %
12 %
26 %
11 %
19 %
56 %
12 %
0 %
12 %
1 %
11 %
25 %
12 %
19 %
56 %
9 %
0 %
9 %
(2)%
11 %
39
Comparison of Fiscal Years Ended June 30, 2019, 2020 and 2021
Revenues
($ in thousands)
Recurring and other revenue . . . . $ 447,752
2019
Year Ended June 30,
2020
$ 546,212
Change from
2019 to 2020
Change from
2020 to 2021
$
%
2021
$ 631,725
$
$ 98,460
%
22 % $ 85,513
16 %
Percentage of total revenues .
96 %
97 %
99 %
Interest income on funds held
for clients . . . . . . . . . . . . . . . . . $ 19,881
Percentage of total revenues .
4 %
$ 15,117
$
3 %
3,902
$ (4,764)
(24)% $ (11,215)
(74) %
1 %
Recurring and Other Revenue
Recurring and other revenue for the year ended June 30, 2021 increased by $85.5 million, or 16%, to
$631.7 million from $546.2 million for the year ended June 30, 2020. Recurring and other revenue increased primarily
as a result of incremental revenues from new and existing clients, partially offset by a reduction in client employees on
our platform due to the ongoing impact from COVID-19. Excluding clients acquired through acquisitions, the number of
clients using our payroll and HCM software solutions at June 30, 2021 increased by 18% to approximately 28,750 from
approximately 24,450 at June 30, 2020.
Interest Income on Funds Held for Clients
Interest income on funds held for clients for the year ended June 30, 2021 decreased by $11.2 million, or 74%,
to $3.9 million from $15.1 million for the year ended June 30, 2020. Interest income on funds held for clients decreased
primarily as a result of lower average interest rates due to the interest rate cuts by the Federal Reserve in response to the
COVID-19 pandemic. The impact from the reduction in interest rates was partially offset by higher average daily
balances for funds held due to the addition of new clients to our client base.
Cost of Revenues
($ in thousands)
2019
Cost of revenues . . . . . . . . . . . . . $ 153,851
Year Ended June 30,
2020
$ 182,010
Change from
2019 to 2020
Change from
2020 to 2021
$
%
2021
$ 219,298
$
$ 28,159
%
18 % $ 37,288
20 %
Percentage of total revenues .
Gross margin . . . . . . . . . . . . . . . .
33 %
67 %
32 %
68 %
35 %
65 %
Cost of revenues for the year ended June 30, 2021 increased by $37.3 million, or 20%, to $219.3 million from
$182.0 million for the year ended June 30, 2020. Cost of revenues increased primarily as a result of the continued growth
of our business, in particular, $25.9 million in additional employee-related costs resulting from additional personnel
necessary to provide services to new and existing clients, $5.4 million in delivery and other processing-related fees, $4.0
million in increased internal-use software amortization and $2.0 million of additional stock-based compensation
associated with our equity plan. Gross margin decreased from 68% in fiscal 2020 to 65% in fiscal 2021, primarily due to
COVID-19 related headwinds and a near zero interest rate environment.
40
Operating Expenses
($ in thousands)
Sales and Marketing
2019
Sales and marketing . . . . . . . . . . $ 112,599
Percentage of total revenues . . . .
24 %
26 %
25 %
Year Ended June 30,
2020
$ 145,134
Change from
2019 to 2020
Change from
2020 to 2021
$
%
2021
$ 161,808
$
$ 32,535
%
29 % $ 16,674
11 %
Sales and marketing expenses for the year ended June 30, 2021 increased by $16.7 million, or 11%, to
$161.8 million from $145.1 million for the year ended June 30, 2020. The increase in sales and marketing expense was
primarily the result of additional employee-related costs, including those incurred to expand our sales team, partially
offset by reduced overall spending on travel and entertainment.
Research and Development
2019
Research and development . . . . . $ 50,329
Percentage of total revenues . . . .
11 %
11 %
12 %
Year Ended June 30,
2020
$ 62,766
Change from
2019 to 2020
Change from
2020 to 2021
$
%
2021
$ 76,707
$
$ 12,437
%
25 % $ 13,941
22 %
Research and development expenses for the year ended June 30, 2021 increased by $13.9 million, or 22%, to
$76.7 million from $62.8 million for the year ended June 30, 2020. The increase in research and development expenses
was primarily the result of $13.0 million of additional employee-related costs related to additional development
personnel and $3.0 million of additional stock-based compensation associated with our equity incentive plan, partially
offset by higher year-over-year capitalized internal-use software costs of $2.9 million.
General and Administrative
2019
General and administrative . . . . . . $ 94,630
Percentage of total revenues . . . . .
20 %
19 %
19 %
Year Ended June 30,
2020
$ 105,248
Change from
2019 to 2020
Change from
2020 to 2021
$
%
2021
$ 119,771
$
$ 10,618
%
11 % $ 14,523
14 %
General and administrative expenses for the year ended June 30, 2021 increased by $14.5 million, or 14%, to
$119.8 million from $105.2 million for the year ended June 30, 2020. The increase in general and administrative expense
was primarily the result of $8.8 in additional stock-based compensation associated with our equity incentive plan, $3.6
million of additional employee-related costs, $1.3 million in additional amortization of acquired intangible assets and
$1.2 million of increased occupancy costs. Stock-based compensation expense for the year ended June 30, 2021 was
higher than the year ended June 30, 2020 due to the impact of COVID-19 on performance targets starting from the third
quarter of fiscal 2020 and the modification of certain performance awards during the first quarter of fiscal 2021. See
Note 15 of the Notes to Consolidated financial Statements included in Part II, Item 8: “Financial Statements and
Supplementary Data” of this annual Report on Form 10-K for further details.
41
Other Income (Expense)
Other income (expense) . . . . . . . . $
Percentage of total revenues . . . . .
Year Ended June 30,
2020
2021
2019
1,822
$
0 %
947
$
0 %
(939)
$
0 %
Change from
2019 to 2020
Change from
2020 to 2021
$
(875)
%
$
(48)% $ (1,886) (199)%
%
Other income (expense) for the year ended June 30, 2021 decreased by $1.9 million as compared to the year
ended June 30, 2020. The change in other income (expense) was primarily due to lower interest income earned on our
cash and cash equivalents and corporate investments and increased interest expense related to our revolving credit
facility.
Income Tax Expense (Benefit)
2019
4,223
Year Ended June 30,
2020
2,663
2021
$ (13,715)
$
0 %
1 %
(2)%
Change from
2019 to 2020
$
$ (1,560)
%
Change from
2020 to 2021
$
%
(37)% $ (16,378)
*
Income tax expense (benefit) . . . $
Percentage of total revenues . . . .
* Not Meaningful
The difference in income tax expense (benefit) for the year ended June 30, 2021 as compared to the year ended
June 30, 2020 was primarily due to increased deductions related to stock-based compensation and research and
development credits, partially offset by an increase to the valuation allowance.
See Note 13 of the Notes to Consolidated Financial Statements included in Part II, Item 8: “Financial
Statements and Supplementary Data” of this Annual Report on Form 10-K for further details on the components of
income tax and a reconciliation of the U.S. federal statutory rate to the effective tax rate.
Critical Accounting Policies and Significant Judgments and Estimates
In preparing our financial statements and accounting for the underlying transactions and balances in accordance
with GAAP, we apply various accounting policies that require our management to make estimates, judgments and
assumptions that affect the amounts reported in our financial statements. We consider the policies discussed below
critical to understanding our financial statements, as their application places the most significant demands on
management’s judgment. Management bases its estimates, judgments and assumptions on historical experience, current
economic and industry conditions and on various other factors deemed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Because the use of estimates is an integral part of the financial reporting process,
actual results could differ, and such differences could be material.
Revenue Recognition
We apply Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers
(“Topic 606”), whereby we recognize revenue when we transfer control of goods or services to our customers in an
amount that reflects the consideration to which we expect to be entitled to for those goods or services.
We derive our revenue from contracts with clients predominantly from recurring and non-recurring service fees.
Recurring fees are derived from payroll and HR related services including time and attendance, employee administration
and benefits enrollment and administration services. Payroll services are delivered on a weekly, biweekly, semi-monthly,
or monthly basis depending upon the payroll frequency of the client and on an annual basis if a client selects W-2
preparation and processing services. HR related services are typically delivered on a monthly basis.
42
The majority of our recurring fees are satisfied over time as services are provided. The performance obligations
related to payroll services are satisfied upon the processing of a 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, we
recognize the applicable recurring fees over time each month with the fee charged and collected based on a per employee
per month fee. We believe that the total fees charged to our clients is indicative of the standalone selling price as these
fees are within the range of prices typically charged for our services to our clients. Even though our subscription-based
services include multiple performance obligations, we do not believe it is meaningful to determine the standalone selling
price for each service separately since these services are delivered and related revenue recognized within the same
period.
We have certain optional performance obligations that are satisfied at a point in time including the sales of time
clocks and W-2 preparation services.
Non-recurring service fees consist mainly of nonrefundable implementation fees, which involve setting up the
client in, and loading data into, our cloud-based modules. These implementation activities are considered set-up
activities. We have determined that the nonrefundable upfront fees provide certain clients with a material right to renew
the contract. Implementation fees are deferred and amortized generally over a period up to 24 months.
Capitalized Internal-Use Software Costs
We apply ASC 350-40, Intangibles—Goodwill and Other—Internal-Use Software, to the accounting for costs
of internal-use software. Software development costs are capitalized when module development begins, it is probable
that the project will be completed, and the software will be used as intended. Costs associated with preliminary project
stage activities, training, maintenance and all other post implementation stage activities are expensed as incurred. We
also capitalize certain costs related to specific upgrades and enhancements when it is probable the expenditures will
result in significant additional functionality. The capitalization policy provides for the capitalization of certain payroll
costs for employees who are directly associated with developing internal-use software as well as certain external direct
costs. Capitalized employee costs are limited to the time directly spent on such projects.
Internal-use software is amortized on a straight-line basis, generally over a 24 or 36-month period. We evaluate
the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances
occur that could impact the recoverability of these assets. There was no impairment to capitalized internal-use software
during the years ended June 30, 2019, 2020 or 2021. We capitalized $23.3 million, $28.2 million, and $31.7 million of
internal-use software costs for the years ended June 30, 2019, 2020 and 2021, respectively, including stock-based
compensation costs of $2.8 million, $2.4 million and $2.6 million for the years ended June 30, 2019, 2020 and 2021,
respectively. We amortized $16.9 million, $19.3 million, and $23.2 million of capitalized internal-use software costs for
the years ended June 30, 2019, 2020 and 2021, respectively. In fiscal 2019, fiscal 2020 and fiscal 2021, we developed
significant additional functionality in several of our modules. This development resulted in an increase in capitalized
internal-use software costs in fiscal 2021 as compared to fiscal 2020 and in fiscal 2020 as compared to fiscal 2019.
Goodwill and Intangible Assets
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business
combination that are not individually identified and separately recognized. Goodwill is not amortized, but instead is
tested for impairment at the reporting unit level. If the fair value of the reporting unit is less than its carrying amount, we
would record an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.
We perform our annual impairment review of goodwill in our fiscal fourth quarter or when a triggering event occurs
between annual impairment tests. No impairment was recorded in fiscal 2019, 2020 or 2021 as a result of our qualitative
assessments over our single reporting segment.
Intangible assets are primarily comprised of acquired client relationships, proprietary technology, trade name
and non-solicitation agreements and are reported net of accumulated amortization on the Consolidated Balance Sheets.
43
Client relationships use the straight-line method of amortization over a five to nine-year time frame from the date of
acquisition, while proprietary technology and trade names use the straight-line method of amortization over a five-year
period from the date of acquisition. Non-solicitation agreements use the straight-line method of amortization over the
term of the related agreements. Amortization expense associated with our intangible assets was $2.3 million, $2.5
million and $3.8 million during the years ended June 30, 2019, 2020 and 2021, respectively. We test intangible assets for
potential impairment when events or changes in circumstances indicate that the carrying value of such assets may not be
recoverable. There were no such events or changes in circumstances during the years ended June 30, 2019, 2020 or
2021.
Income Taxes
We account for federal income taxes under the asset and liability 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.
Deferred tax assets may be reduced by a valuation allowance to the extent we determine it is more likely than
not that some portion or all of the deferred tax assets will not be realized. The valuation of deferred tax assets requires
judgment in assessing the likely future tax consequences of events that have been recognized in our financial statements
or tax returns and future profitability. Our accounting for deferred tax consequences represents the best estimate of those
future events.
In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the
likelihood of realization of the deferred tax assets. The weight given to positive and negative evidence is commensurate
with the extent to which the evidence may be objectively verified.
We recognize the effect of income tax positions only if those positions are more likely than not of being
sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being
realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Liquidity and Capital Resources
Our primary liquidity needs are related to the funding of general business requirements, including working
capital requirements, research and development, and capital expenditures. As of June 30, 2021, our principal sources of
liquidity were $202.3 million of cash and cash equivalents and $4.5 million of total corporate investments. In July 2019,
we entered into and currently maintain a five-year revolving credit agreement. This credit agreement provides for a
$250.0 million senior revolving credit facility which may be increased up to $375.0 million. In the fourth quarter of
fiscal 2020, we borrowed $100.0 million under this credit facility, which we repaid in the third quarter of fiscal 2021.
Refer to Note 11 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: “Financial Statements
and Supplementary Data” for additional details on the credit agreement and borrowing activity.
We invest portions of our excess cash and cash equivalents in highly liquid, investment-grade marketable
securities. These investments consist of commercial paper, asset-backed debt securities, corporate debt issuances and
U.S. Treasury securities with credit quality ratings of A-1 or higher. We had no investments in unrealized loss positions
as of June 30, 2021.
In order to grow our business, we intend to increase our personnel and related expenses and to make significant
investments in our platform, data centers and general infrastructure. The timing and amount of these investments will
vary based on our financial condition, the rate at which we add new clients and new personnel and the scale of our
module development, data centers and other activities. Many of these investments will occur in advance of our
experiencing any direct benefit from them, which could negatively impact our liquidity and cash flows during any
particular period and may make it difficult to determine if we are effectively allocating our resources. However, we
44
expect to fund our operations, capital expenditures and other investments principally with cash flows from operations,
and to the extent that our liquidity needs exceed our cash from operations, we would look to our cash on hand and
corporate investments or utilize the borrowing capacity under our credit facility to satisfy those needs.
Funds held for clients and client fund obligations will vary substantially from period to period as a result of the
timing of payroll and tax obligations due. Our payroll processing activities involve the movement of significant funds
from accounts of employers to employees and relevant taxing authorities. Though we debit a client’s account prior to
any disbursement on its behalf, there is a delay between our payment of amounts due to employees and taxing and other
regulatory authorities and when the incoming funds from the client to cover these amounts payable actually clear into
our operating accounts. We currently have agreements with eleven major U.S. banks to execute ACH and wire transfers
to support our client payroll and tax services. We believe we have sufficient capacity under these ACH arrangements to
handle all transaction volumes for the foreseeable future. We primarily collect fees for our services via ACH transactions
at the same time we debit the client’s account for payroll and tax obligations and thus are able to reduce collectability
and accounts receivable risks.
We believe our current cash and cash equivalents, corporate investments, future cash flow from operations, and
access to our credit facility will be sufficient to meet our ongoing working capital, capital expenditure and other liquidity
requirements for at least the next 12 months, and thereafter, for the foreseeable future.
Cash Flows
The following table sets forth data regarding cash flows for the periods indicated:
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash flows from investing activities:
Purchases of available-for-sale securities and other . . . . . . . . . . . . . . .
Proceeds from sales and maturities of available-for-sale securities . .
Capitalized internal-use software costs . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease allowances used for tenant improvements . . . . . . . . . . . . . . . . .
Acquisition of business, net of cash acquired . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . .
Cash flows from financing activities:
Net change in client fund obligations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings under credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from employee stock purchase plan . . . . . . . . . . . . . . . . . . . .
Taxes paid related to net share settlement of equity awards . . . . . . . . .
Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . .
2019
115,032 $
Year Ended June 30,
2020
112,655 $
(250,685)
246,243
(20,142)
(11,280)
(7,480)
—
(43,344)
168,855
—
—
(1,000)
(34,991)
85
5,982
(24,207)
—
114,724
(400,343)
410,593
(25,715)
(16,578)
—
(16,714)
(48,757)
(67,165)
100,000
—
—
—
—
8,901
(38,943)
(701)
2,092
2021
124,850
—
101,467
(28,594)
(9,461)
—
(14,992)
48,420
432,373
—
(100,000)
—
—
146
12,214
(64,191)
(64)
280,478
Net change in cash, cash equivalents and funds held for clients' cash
and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
186,412 $
65,990 $
453,748
Operating Activities
Net cash provided by operating activities was $115.0 million, $112.7 million and $124.9 million for the years
ended June 30, 2019, 2020 and 2021, respectively.
45
The increase in net cash provided by operating activities from fiscal 2020 to fiscal 2021 was primarily due to
improved operating results after adjusting for non-cash items including stock-based compensation expense, depreciation
and amortization expense and deferred income tax expense (benefit).
Investing Activities
Net cash provided by (used in) investing activities was $(43.3) million, ($48.8) million and $48.4 million, for
the years ended June 30, 2019, 2020 and 2021, respectively. The net cash used in investing activities is significantly
impacted by the timing of purchases and sales and maturities of investments as we invest a portion of our excess cash
and cash equivalents and funds held for clients in highly liquid, investment-grade marketable securities. The amount of
funds held for clients invested will vary based on timing of client funds collected and payments due to client employees
and taxing and other regulatory authorities.
The increase in net cash provided by (used in) investing activities from fiscal 2020 to fiscal 2021 was primarily
due to a decrease in purchases of available-for-sale securities and other of $400.3 million during the year ended June 30,
2021 as compared to the year ended June 30, 2020 and $7.1 million in fewer purchases of purchases of property and
equipment, partially offset by a decrease in proceeds from sales and maturities of available-for-sale securities of $309.1
million.
Financing Activities
Net cash provided by financing activities was $114.7 million, $2.1 million and $280.5 million for the years
ended June 30, 2019, 2020 and 2021, respectively. The change in net cash provided by financing activities from fiscal
2020 to fiscal 2021 was primarily the result of an increase of $499.5 million due to the timing of client funds collected
and related remittance of those funds to client employees and taxing authorities, partially offset by certain borrowing
activities and $25.2 million in additional taxes paid related to net share settlement of equity awards during the year
ended June 30, 2021 as compared to the year ended June 30, 2020. In fiscal 2020, we borrowed $100.0 million under our
credit facility that we fully repaid in fiscal 2021. We did not borrow any additional amounts during fiscal 2021.
Contractual Obligations and Commitments
Our principal commitments consist of operating lease obligations. The following table summarizes our
contractual obligations at June 30, 2021:
Payment Due By Fiscal Period
5 Years
Operating lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 90,008 $ 10,192 $ 19,392 $ 18,459 $ 41,965
—
Purchase obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 113,587 $ 26,080 $ 26,296 $ 19,246 $ 41,965
15,888
23,579
6,904
787
3-5 Years
1-3 Years
Total
Less than 1
Year
More than
Capital Expenditures
We expect to continue to invest in capital spending as we continue to grow our business and expand and
enhance our operating facilities, data centers and technical infrastructure. Future capital requirements will depend on
many factors, including our rate of sales growth. In the event that our sales growth or other factors do not meet our
expectations, we may eliminate or curtail capital projects in order to mitigate the impact on our use of cash. Capital
expenditures were $11.3 million, $16.6 million and $9.5 million for the years ended June 30, 2019, 2020 and 2021,
respectively, exclusive of capitalized internal-use software costs of $20.1 million, $25.7 million, and $28.6 million for
the same periods, respectively. We also spent $7.5 million in fiscal 2019 on capital expenditures for which we received
reimbursement for tenant improvement allowances.
46
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or
future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that may be material to investors.
New Accounting Pronouncements
Refer to Note 2 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: “Financial
Statements and Supplementary Data” for a discussion of recently issued accounting standards.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We have operations solely in the United States and are exposed to market risks in the ordinary course of our
business. These risks primarily include interest rate and certain other exposures as well as risks relating to changes in the
general economic conditions in the United States. We have not used, nor do we intend to use, derivatives to mitigate the
impact of interest rate or other exposure or for trading or speculative purposes.
Interest Rate Risk
As of June 30, 2021, we had cash and cash equivalents of $202.3 million, total corporate investments of $4.5
million and funds held for clients of $1,759.7 million. We deposit our cash and cash equivalents and significant portions
of our funds held for clients in demand deposit accounts with various financial institutions. We invest portions of our
excess cash and cash equivalents and funds held for clients in marketable securities including asset-backed securities and
corporate debt securities which were classified as available-for-sale securities as of June 30, 2021. Our investment
policy is focused on generating higher yields from these investments while preserving liquidity and capital. However, as
a result of our investing activities, we are exposed to changes in interest rates that may materially affect our financial
statements.
In a falling rate environment, a decline in interest rates would decrease our interest income earned on both cash
and cash equivalents and funds held for clients. An increase in the overall interest rate environment may cause the
market value of our investments in fixed rate available-for-sale securities to decline. If we are forced to sell some or all
of these securities at lower market values, we may incur investment losses. However, because we classify all marketable
securities as available-for-sale, no gains or losses are recognized due to changes in interest rates until such securities are
sold or decreases in fair value are deemed due to expected credit losses. We have not recorded credit impairment losses
on our portfolio to date.
Based upon a sensitivity model that measures market value changes caused by interest rate fluctuations, an
immediate 100-basis point change in interest rates would have had an immaterial effect on the market value of our
available-for-sale securities as of June 30, 2021. Fluctuations in the value of our available-for-sale securities caused by
changes in interest rates are recorded in other comprehensive income and are only realized if we sell the underlying
securities.
Additionally, as described in Note 11 of the Notes to the Consolidated Financial Statements included in Part II,
Item 8: “Financial Statements and Supplementary Data”, we entered into a credit agreement that provides for a revolving
credit facility (“credit facility”) in the aggregate amount of $250.0 million, which may be increased up to $375.0 million.
Borrowings under the credit facility generally bear interest at a rate based upon the London Interbank Offered Rate
(“LIBOR”) (or a replacement rate for LIBOR) or, at our sole option, an adjusted base rate plus an applicable margin
based on our then-applicable net senior secured leverage ratio. As of June 30, 2021, there were no amounts drawn on the
credit facility as we had repaid $100.0 million in borrowings previously outstanding. To the extent that we draw
additional amounts under the credit facility, we may be exposed to increased market risk from changes in the underlying
index rates, which affects our interest expense.
47
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of
operations. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to
fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial
condition and results of operations.
Item 8. Financial Statements and Supplementary Data.
The information required by this item is incorporated by reference to the consolidated financial statements and
accompanying notes set forth on pages F-1 through F-28 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act refers to controls and procedures that are designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a
company’s management, including its principal executive and principal financial officers, as appropriate to allow timely
decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2021, the end of the period covered
by this Annual Report on Form 10-K. Based upon such evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures were effective as of such date.
Management’s Report on Internal Control Over Financial Reporting and Attestation Report of the Registered Public
Accounting Firm
Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for
establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being
made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a
material effect on the financial statements.
Under the supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting
as of June 30, 2021, based on the framework in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) (2013 framework). Based on this evaluation under the
Internal Control—Integrated Framework our Chief Executive Officer and Chief Financial Officer have concluded that
our internal control over financial reporting was effective as of June 30, 2021.
48
Our independent registered public accounting firm, which has audited our financial statements, has also audited
the effectiveness of our internal control over financial reporting as of June 30, 2021, as stated in their report, which is
included in Item 15(a)(1) of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the fiscal quarter ended
June 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Limitations on Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide
reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our
disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and
fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can
provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can
provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances
of fraud, if any, within the Company have been detected.
Item 9B. Other Information.
None.
49
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information required by Part III, Item 10, will be included in our Proxy Statement relating to our 2022 annual
meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended June 30, 2021,
and is incorporated herein by reference.
Item 11. Executive Compensation
Information required by Part III, Item 11, will be included in our Proxy Statement relating to our 2022 annual
meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended June 30, 2021,
and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information required by Part III, Item 12, will be included in our Proxy Statement relating to our 2022 annual
meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended June 30, 2021,
and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information required by Part III, Item 13, will be included in our Proxy Statement relating to our 2022 annual
meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended June 30, 2021,
and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
Information required by Part III, Item 14, will be included in our Proxy Statement relating to our 2022 annual
meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended June 30, 2021,
and is incorporated herein by reference.
50
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents Filed with Report
(1) Financial Statements.
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of June 30, 2020 and 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Operations and Comprehensive Income for the years ended June 30, 2019, 2020
and 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-6
Consolidated Statements of Changes in Stockholders’ Equity for the years ended June 30, 2019, 2020 and 2021 . . . F-7
Consolidated Statements of Cash Flows for the years ended June 30, 2019, 2020 and 2021 . . . . . . . . . . . . . . . . . . . . . F-8
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
(2) Exhibits.
The information required by this Item is set forth on the Exhibit Index immediately following this page.
Item 16. Form 10-K Summary
None.
51
EXHIBIT INDEX
Exhibit Description
Form File No.
Exhibit
Filing Date
Incorporated by Reference
Share Exchange Agreement, dated November 7, 2013.
S-1
333-193661 2.1
January 30, 2014
First Amended and Restated Certificate of Incorporation of the
S-1/A
333-193661 3.2
February 14, 2014
Registrant.
Amended and Restated By-Laws of the Registrant.
10-K
001-36348
3.2
August 11, 2017
Amended and Restated Investor Rights Agreement, dated June 29,
S-1
333-193661 4.1
January 30, 2014
Exhibit
Number
2.1
3.1
3.2
4.1
2012.
4.2*
Description of Securities.
10.1
Form of Indemnification Agreement for directors and officers.
S-1
333-193661 10.2 January 30, 2014
10.2†
10.2.1†
10.2.2†
10.3†
10.3.1†
10.4†
10.5†
2008 Equity Incentive Plan and forms of agreement thereunder.
S-1
333-193661 10.3 January 30, 2014
First Amendment to the 2008 Equity Incentive Plan, dated August 5,
S-1
333-193661 10.3.1 January 30, 2014
2010.
Second Amendment to the 2008 Equity Incentive Plan, dated
S-1
333-193661 10.3.2 January 30, 2014
June 29, 2012.
2014 Equity Incentive Plan and forms of agreement thereunder.
S-1/A
333-193661 10.4 February 14, 2014
Form of Market Stock Units Notice of Grant and Award Agreement
8-K
001-36348
10.1
August 18, 2020
under the 2014 Equity Incentive Plan.
Third Amended and Restated Executive Employment Agreement
between Paylocity Corporation and Steven R. Beauchamp, dated
February 7, 2014.
S-1/A
333-193661 10.5 February 14, 2014
Second Amended and Restated Executive Employment Agreement
S-1/A
333-193661 10.7 February 14, 2014
between Paylocity Corporation and Michael R. Haske, dated
February 7, 2014.
10.6
Office Lease between 3850 Wilke LLC and Paylocity Corporation,
S-1
333-193661 10.8 January 30, 2014
dated January 12, 2007.
10.7.1
Amendment to Office Lease, dated January 5, 2011.
S-1
333-193661 10.8.1 January 30, 2014
10.7.2
Amendment to Office Lease, dated May 6, 2013.
S-1
333-193661 10.8.2 January 30, 2014
10.7.3
Multi-Tenant Office Lease Agreement, dated June 1, 2016, by and
between Paylocity Corporation and RPAI Schaumburg American
Lane, L.L.C.
8-K
001-36348
10.1
June 2, 2016
52
Exhibit
Number
10.8†
Exhibit Description
Form File No.
Exhibit
Filing Date
Incorporated by Reference
2014 Employee Stock Purchase Plan.
S-1/A
333-193661 10.9 February 14, 2014
10.9†
Executive Employment Agreement between Paylocity Corporation
10-K
001-36348
10.11 August 12, 2016
and Mark S. Kinsey, dated May 1, 2015.
10.10†
Executive Employment Agreement between Paylocity Corporation
8-K
001-36348
10.1 August 9, 2016
and Edward W. Gaty, dated August 8, 2016.
10.11†
Executive Employment Agreement between Paylocity Corporation
10-Q
001-36348
10.1
November 3, 2017
and Toby J. Williams, dated September 18, 2017.
14.1
Code of Business Conduct and Ethics.
10-K
001-36348
14.1 August 22, 2014
21.1*
List of Subsidiaries of the Registrant.
23.1*
Consent of KPMG LLP, Independent Registered Public Accounting
Firm.
24.1*
Power of Attorney (see page 56 to this Annual Report on
Form 10-K).
31.1*
Certification of Principal Executive Officer Required Under
Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of
1934, as amended.
31.2*
Certification of Principal Financial Officer Required Under
Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of
1934, as amended.
32.1**
Certification of Chief Executive Officer Under Rule 13a-14(a) and
15d-14(a) of the Securities Exchange Act of 1934, as amended, and
18 U.S.C. §1350 as adopted pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002.
32.2**
Certification of Chief Financial Officer Required Under
Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of
1934, as amended, and 18 U.S.C. §1350 as adopted pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002.
101.INS* Inline XBRL Instance Document (the instance document does not
appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document).
101.SCH* Inline XBRL Taxonomy Extension Schema.
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase.
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase.
53
Form File No.
Exhibit
Filing Date
Incorporated by Reference
Exhibit
Number
Exhibit Description
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase.
104*
Cover Page Interactive Data File (Formatted as Inline XBRL and
contained in Exhibit 101).
† Management contract, compensatory plan or arrangement.
Filed herewith.
*
** Furnished herewith.
54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 6, 2021
PAYLOCITY HOLDING CORPORATION
By:
/s/ Steven R. Beauchamp
Steven R. Beauchamp
Chief Executive Officer (Principal Executive
Officer) and Director
55
SIGNATURES AND POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and appoints Steven R. Beauchamp and
Toby J. Williams, and each of them, with full power of substitution and resubstitution and full power to act without the
other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in
the name and on behalf of each person, individually and in each capacity stated below, and to file any and all
amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-
fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated.
Signature
Title
Date
/s/ Steven R. Beauchamp
Steven R. Beauchamp
/s/ Toby J. Williams
Toby J. Williams
/s/ Andrew Cappotelli
Andrew Cappotelli
/s/ Steven I. Sarowitz
Steven I. Sarowitz
/s/ Virginia G. Breen
Virginia G. Breen
/s/ Ellen Carnahan
Ellen Carnahan
/s/ Jeffrey T. Diehl
Jeffrey T. Diehl
/s/ Robin L. Pederson
Robin L. Pederson
/s/ Andres D. Reiner
Andres D. Reiner
/s/ Kenneth B. Robinson
Kenneth B. Robinson
/s/ Ronald V. Waters, III
Ronald V. Waters, III
Chief Executive Officer (Principal Executive
Officer) and Director
August 6, 2021
Chief Financial Officer (Principal Financial
Officer)
August 6, 2021
Chief Accounting Officer (Principal Accounting
Officer)
August 6, 2021
Chairman of the Board of Directors
August 6, 2021
Director
Director
Director
Director
Director
Director
Director
56
August 6, 2021
August 6, 2021
August 6, 2021
August 6, 2021
August 6, 2021
August 6, 2021
August 6, 2021
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of June 30, 2020 and 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Operations and Comprehensive Income for the years ended June 30, 2019, 2020
and 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-6
Consolidated Statements of Changes in Stockholders’ Equity for the years ended June 30, 2019, 2020 and 2021 . . F-7
Consolidated Statements of Cash Flows for the years ended June 30, 2019, 2020 and 2021 . . . . . . . . . . . . . . . . . . . . F-8
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
Page
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Paylocity Holding Corporation:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Paylocity Holding Corporation and subsidiaries (the
Company) as of June 30, 2021 and 2020, the related consolidated statements of operations and comprehensive income,
changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended June 30, 2021, and
the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal
control over financial reporting as of June 30, 2021, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for
each of the years in the three-year period ended June 30, 2021, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of June 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for
leases due to the adoption of Accounting Standard Update (ASU) No. 2016-02, Leases, effective July 1, 2019.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control Over Financial Reporting and Attestation
Report of the Registered Public Accounting Firm. Our responsibility is to express an opinion on the Company’s
consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was
maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
F-2
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates
to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way
our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it
relates.
Capitalized internal-use software development costs
As discussed in Notes 2(h) and 7 to the consolidated financial statements, the Company capitalizes certain internal-
use software costs related to new products as well as existing products when those costs will result in significant
additional functionality. The Company's capitalized internal-use software asset, net of accumulated amortization
was $45 million as of June 30, 2021. The Company capitalized $32 million of internal-use software costs during
the year ended June 30, 2021.
We identified the determination of capitalized internal-use software development costs as a critical audit matter
because of the degree of subjectivity involved in assessing which projects met the capitalization criteria.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the
design and tested the operating effectiveness of an internal control related to the critical audit matter. This control
related to the determination of which software development projects met the capitalization criteria. For a selection
of current year capitalized software costs, we evaluated the Company's determination to capitalize the costs by
reading the Company's analysis and discussing the objective and status of the projects with IT department
management. We also assessed a sample of the Company's capitalized costs by confirming the nature of the
activities performed with individual software developers.
/s/ KPMG LLP
We have served as the Company’s auditor since 2013.
Chicago, Illinois
August 6, 2021
F-3
PAYLOCITY HOLDING CORPORATION
Consolidated Balance Sheets
(in thousands, except per share data)
As of June 30,
2020
2021
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Corporate investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets before funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized internal-use software, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long - term prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
202,287
4,456
6,267
44,230
15,966
273,206
1,759,677
2,032,883
45,018
59,835
43,984
13,027
33,650
170,663
4,223
11,602
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,985,648 $ 2,414,885
250,851 $
34,556
4,923
32,332
13,188
335,850
1,327,304
1,663,154
36,501
66,737
48,658
13,360
21,655
125,711
4,917
4,955
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities before client fund obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Client fund obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,230
103,109
107,339
1,759,677
1,867,016
—
67,201
1,958
1,780
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,592,740 $ 1,937,955
1,755 $
79,881
81,636
1,327,304
1,408,940
100,000
73,299
1,747
8,754
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding
at June 30, 2020 and June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
—
Common stock, $0.001 par value, 155,000 shares authorized at June 30, 2020 and
June 30, 2021; 53,792 shares issued and outstanding at June 30, 2020 and 54,594
shares issued and outstanding at June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
55
241,718
235,091
66
476,930
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,985,648 $ 2,414,885
54
227,907
164,272
675
392,908 $
See accompanying notes to consolidated financial statements.
F-5
PAYLOCITY HOLDING CORPORATION
Consolidated Statements of Operations and Comprehensive Income
(in thousands, except per share data)
For the Years Ended June 30,
2020
2021
2019
Revenues:
Recurring and other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 447,752 $ 546,212 $ 631,725
3,902
Interest income on funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . .
635,627
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
219,298
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
416,329
Operating expenses:
15,117
561,329
182,010
379,319
19,881
467,633
153,851
313,782
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
112,599
50,329
94,630
257,558
56,224
1,822
58,046
4,223
53,823 $
251
54,074 $
145,134
62,766
105,248
313,148
66,171
947
67,118
2,663
64,455 $
563
65,018 $
161,808
76,707
119,771
358,286
58,043
(939)
57,104
(13,715)
70,819
(609)
70,210
Net income per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.02 $
0.97 $
1.20 $
1.15 $
1.30
1.26
Weighted-average shares used in computing net income per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52,914
55,414
53,547
55,807
54,318
56,305
See accompanying notes to consolidated financial statements.
F-6
PAYLOCITY HOLDING CORPORATION
Consolidated Statements of Changes in Stockholders’ Equity
(in thousands)
Stockholders' Equity
Balances at June 30, 2018
Cumulative effect of change in accounting
Additional
Common Stock
Paid-in
Shares Amount Capital
52,758 $ 53 $ 219,588 $
Retained
Earnings
Accumulated
Other
(Accumulated Comprehensive Stockholders’
Total
Deficit)
Income (Loss) Equity
(6,678) $
(139) $ 212,824
—
—
—
—
—
52,672
41,525
4,882
—
5,982
—
—
251
—
(29,004)
(34,991)
251
53,823
112 $ 307,964
49,890
3,079
—
—
—
—
—
8,901
—
563
—
(41,944)
563
64,455
675 $ 392,908
65,662
—
3,313
—
—
—
—
12,214
(67,377)
—
(609)
(609)
70,819
—
66 $ 476,930
policy (adoption of Topic 606) . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . .
Stock options exercised . . . . . . . . . . . . . . . . . .
Issuance of common stock upon vesting of
—
—
378
—
—
—
—
41,525
4,882
52,672
—
—
restricted stock units . . . . . . . . . . . . . . . . . . .
660
—
—
Issuance of common stock under employee
stock purchase plan . . . . . . . . . . . . . . . . . . .
116
—
5,982
Net settlement for taxes and/or exercise
price related to equity awards . . . . . . . . . . .
Repurchases of common shares . . . . . . . . . . .
Unrealized gains on securities, net of tax . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balances at June 30, 2019 . . . . . . . . . . . . . . . 53,075 $ 53 $ 207,982 $
Stock-based compensation . . . . . . . . . . . . . . .
Stock options exercised . . . . . . . . . . . . . . . . . .
Issuance of common stock upon vesting of
(29,004)
(34,991)
—
—
(395)
(442)
—
—
—
—
—
—
49,890
3,079
—
270
—
—
restricted stock units . . . . . . . . . . . . . . . . . . .
735
1
(1)
Issuance of common stock under employee
stock purchase plan . . . . . . . . . . . . . . . . . . .
97
—
8,901
Net settlement for taxes and/or exercise
—
—
—
—
—
53,823
99,817 $
—
—
—
—
price related to equity awards . . . . . . . . . . .
Unrealized gains on securities, net of tax . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balances at June 30, 2020 . . . . . . . . . . . . . . . 53,792 $ 54 $ 227,907 $ 164,272 $
Stock-based compensation . . . . . . . . . . . . . . .
Stock options exercised . . . . . . . . . . . . . . . . . .
Issuance of common stock upon vesting of
(41,944)
—
—
—
—
64,455
(385)
—
—
65,662
3,313
—
—
—
—
490
—
—
—
—
restricted stock units . . . . . . . . . . . . . . . . . . .
644
1
(1)
Issuance of common stock under employee
stock purchase plan . . . . . . . . . . . . . . . . . . .
104
—
12,214
—
—
Net settlement for taxes and/or exercise
price related to equity awards . . . . . . . . . . .
Unrealized losses on securities, net of tax . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balances at June 30, 2021 . . . . . . . . . . . . . . . 54,594 $ 55 $ 241,718 $ 235,091 $
(67,377)
—
—
—
—
70,819
(436)
—
—
—
—
—
See accompanying notes to consolidated financial statements.
F-7
PAYLOCITY HOLDING CORPORATION
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net income to net cash provided by operating activities:
53,823 $
64,455 $
70,819
For the Years Ended June 30,
2020
2021
2019
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net accretion of discounts and amortization of premiums on available-for-sale securities . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tenant improvement allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Purchases of available-for-sale securities and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales and maturities of available-for-sale securities . . . . . . . . . . . . . . . . . . . . .
Capitalized internal-use software costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease allowances used for tenant improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of business, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,765
34,564
4,134
283
(2,230)
—
454
(1,188)
(34,992)
389
(75)
13,625
7,480
115,032
(250,685)
246,243
(20,142)
(11,280)
(7,480)
—
(43,344)
Cash flows from financing activities:
Net change in client fund obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings under credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from employee stock purchase plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes paid related to net share settlement of equity awards . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents . . . . . .
Cash, cash equivalents and funds held for clients' cash and cash equivalents—beginning of year . .
Cash, cash equivalents and funds held for clients' cash and cash equivalents—end of year . . . . . . . $ 1,426,143 $
Supplemental Disclosure of Non-Cash Investing and Financing Activities
168,855
—
—
(1,000)
(34,991)
85
5,982
(24,207)
—
114,724
186,412
1,239,731
Build-out allowances received from landlords . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Purchases of property and equipment and internal-use software, accrued but not paid . . . . . . . $
Liabilities assumed for acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,264 $
4,260 $
— $
Supplemental Disclosure of Cash Flow Information
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash paid (refunds received) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
412 $
Reconciliation of cash, cash equivalents and funds held for clients' cash and cash equivalents to
the Consolidated Balance Sheets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Funds held for clients' cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash, cash equivalents and funds held for clients' cash and cash equivalents . . . . . . . . . . . . . $ 1,426,143 $
132,476 $
1,293,667
47,493
37,913
2,754
309
(1,836)
154
395
(732)
(54,944)
(196)
(806)
17,696
—
112,655
(400,343)
410,593
(25,715)
(16,578)
—
(16,714)
(48,757)
63,052
42,972
(13,642)
316
347
171
632
(1,654)
(56,850)
(4,004)
2,394
20,297
—
124,850
—
101,467
(28,594)
(9,461)
—
(14,992)
48,420
(67,165)
100,000
—
—
—
—
8,901
(38,943)
(701)
2,092
65,990
1,426,143
1,492,133 $
432,373
—
(100,000)
—
—
146
12,214
(64,191)
(64)
280,478
453,748
1,492,133
1,945,881
— $
164 $
674 $
438 $
84 $
—
581
281
870
(136)
250,851 $
1,241,282
1,492,133 $
202,287
1,743,594
1,945,881
See accompanying notes to consolidated financial statements.
F-8
PAYLOCITY HOLDING CORPORATION
Notes to the 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
The accompanying consolidated financial statements of the Company have been prepared pursuant to the rules
and regulations of the United States Securities and Exchange Commission (the “SEC”).
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting
principles (“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 change
as new events occur, as more experience is acquired, as additional information is obtained and as the operating
environment changes.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.
All intercompany accounts and transactions have been eliminated in consolidation.
Beginning in fiscal 2020, the Company simplified the presentation of revenue and cost of revenues on its
Consolidated Statements of Operations and Comprehensive Income. The line items “Recurring fees” and
“Implementation services and other” have been combined into one revenue line: “Recurring and other revenue”.
Likewise, the line items “Cost of revenues - recurring revenues” and “Cost of revenues - implementation services and
other” have been combined into one line: “Cost of revenues”. The Company changed the presentation of revenue and
cost of revenues as Implementation services and other has become a smaller component of its overall revenue mix due to
the human capital management (“HCM”) suite becoming a larger part of the portfolio. Previously reported results for the
year ended June 30, 2019 have been reclassified to conform to the current presentation.
(b) Concentrations of Risk
The Company regularly maintains cash balances that exceed Federal Depository Insurance Corporation limits.
No individual client represents 10% or more of total revenues. For all periods presented, substantially all of total
revenues were generated by clients in the United States.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when
purchased to be cash equivalents.
(d) Funds Held For Clients, Corporate Investments and Client Fund Obligations
The Company obtains funds from clients in advance of performing payroll and payroll tax filing services on
behalf of those clients. Funds held for clients represent assets that are used solely for the purposes of satisfying the
obligations to remit funds relating to payroll and payroll tax filing services. The Company has classified Funds held for
F-9
clients as a current asset since these funds are held solely for the purposes of satisfying the client fund obligations. Funds
held for clients is primarily comprised of cash and cash equivalents invested in demand deposit accounts. The Company
also invests a portion of its funds held for clients and corporate funds in marketable securities.
Marketable securities classified as available-for-sale are recorded at fair value on the Consolidated Balance
Sheets. Unrealized gains and losses, net of applicable income taxes, are reported as Other comprehensive income (loss)
in the Consolidated Statements of Operations and Comprehensive Income. Interest on marketable securities included in
Funds held for clients is reported as Interest income on funds held for clients and interest on Corporate investments is
reported as Other income on the Consolidated Statements of Operations and Comprehensive income, respectively.
The Company evaluates whether a decline in an individual security’s fair value as compared to its amortized
cost basis resulted from credit loss or other factors by comparing the present value of cash flows expected to be collected
from the impaired security with its amortized cost basis. If the security’s amortized cost basis exceeds the present value
of expected cash flows, the Company records credit impairment loss through an allowance for credit loss. The Company
did not recognize any credit impairment losses during the years ended June 30, 2019, 2020 or 2021.
Client fund obligations represent the Company’s contractual obligations to remit funds to satisfy clients’ payroll
and tax payment obligations and are recorded in the accompanying balance sheets at the time that the Company obtains
funds from clients. The client fund obligations represent liabilities that will be repaid within one year of the balance
sheet date.
(e) Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade
accounts receivable are included in Net cash provided by operating activities in the Consolidated Statements of Cash
Flows. The Company maintains an allowance for credit losses reflecting expected credit losses in its accounts receivable
portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account
current market conditions and the Company’s clients’ financial conditions, the amount of receivables in dispute, the
current receivables aging and current payment patterns. The Company reviews its allowance for credit losses quarterly.
Past due balances over 60 days and over a specified amount are reviewed individually for collectability. All other
balances are reviewed on a pooled basis. Account balances are charged off against the allowance after all commercially
reasonable means of collection have been exhausted and the potential for recovery is considered remote. The Company
does not have any off-balance-sheet credit exposure related to its clients.
Activity in the allowance for credit losses related to accounts receivable was as follows:
For the Years Ended June 30,
2020
2021
2019
Balance at the beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Charged to expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
375 $
283
(185)
473 $
473 $
309
(165)
617 $
617
316
(133)
800
(f) 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
F-10
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.
(g) Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist primarily of prepaid licensing fees, prepaid insurance premiums,
deposits with vendors and time clocks available for sale or lease.
(h) Capitalized Internal-Use Software
The Company applies Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 350-40, Intangibles—Goodwill and Other—Internal-Use Software, to the accounting for costs of
internal-use software. Internal-use software costs are capitalized when module development begins, it is probable that
the project will be completed, and the software will be used as intended. Costs associated with preliminary project stage
activities, training, maintenance and all other post implementation stage activities are expensed as incurred. The
Company also capitalizes certain costs related to specific upgrades and enhancements when it is probable the
expenditures will result in significant additional functionality. The capitalization policy provides for the capitalization of
certain payroll costs for employees who are directly associated with developing internal-use software as well as certain
external direct costs, such as consulting fees. Capitalized employee costs are limited to the time directly spent on such
projects.
Capitalized internal-use software costs are amortized on a straight-line basis over the estimated useful lives,
generally over a 24 or 36-month period. Management evaluates the useful lives of these assets on an annual basis and
tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these
assets.
(i) Property and Equipment and Long-Lived Assets
Property and equipment are stated at cost. Depreciation on property and equipment is calculated on the straight-
line method over the estimated useful lives of the assets, generally three to seven years for most classes of assets, or over
the term of the related lease for leasehold improvements.
Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived
asset or asset group to be tested for possible impairment, the Company first compares the undiscounted cash flows
expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived
asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that
the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including
discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
(j) Intangible Assets, Net of Accumulated Amortization
Intangible assets are comprised primarily of acquired client relationships, proprietary technology, trade name
and non-solicitation agreements and are reported net of accumulated amortization on the Consolidated Balance Sheets.
Client relationships use the straight-line method of amortization over a five to nine-year time frame from the date of
acquisition, while proprietary technology and trade name use the straight-line method of amortization over a five-year
period from the date of acquisition. Non-solicitation agreements use the straight-line method of amortization over the
term of the related agreements. The Company tests intangible assets for potential impairment when events or changes in
circumstances indicate that the carrying value of such assets may not be recoverable.
(k) Goodwill
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business
combination that are not individually identified and separately recognized. Goodwill is not amortized, but instead is
tested for impairment at the reporting unit level. If the fair value of the reporting unit is less than its carrying amount, the
Company would record an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s
fair value, but the loss recognized should not exceed the amount of goodwill allocated to the reporting unit.
F-11
The Company performs its annual impairment review of goodwill in its fiscal fourth quarter or when a
triggering event occurs between annual impairment tests. No impairment was recorded in fiscal 2019, 2020 or 2021 as a
result of the Company’s qualitative assessments over its single reporting segment.
(l) Leases
The Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“Topic 842”),
effective July 1, 2019. The Company determines if an arrangement is a lease at agreement inception. Operating leases
are included in Operating lease right-of-use assets, Accrued expenses, and Long-term operating lease liabilities in the
Consolidated Balance Sheets. Right-of-use assets represent the Company’s right to use an underlying asset for the lease
term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating
lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of
lease payments over the lease term. In determining the present value of lease payments, the Company uses its
incremental borrowing rate based on the information available at the lease commencement date. The operating lease
right-of-use assets also include any lease payments made at or before the commencement date and are reduced by any
lease incentives received. The Company’s lease terms may include options to renew or extend a lease. The Company
recognizes amounts in Operating lease right-of-use assets and Operating lease liabilities when it is reasonably certain it
will exercise such options. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease
expense is recognized on a straight-line basis over the expected lease term.
The Company’s most significant leases are real estate leases of office space. The remaining operating leases are
primarily comprised of leases of printers and other equipment. For all leases, the Company has elected the practical
expedient permitted under Topic 842 to combine lease and non-lease components. As a result, non-lease components,
such as common area or equipment maintenance charges, are accounted for as a single lease element. The Company
does not have any material finance leases.
Fixed lease expense payments are recognized on a straight-line basis over the lease term. Variable lease
payments vary because of changes in facts or circumstances occurring after the commencement date, other than the
passage of time, and are often due to changes in an external market rate or the value of an index (e.g. Consumer Price
Index). Certain of the Company’s operating lease agreements include variable payments that are passed through by the
landlord, such as insurance, taxes, and common area maintenance, payments based on the usage of the asset, and rental
payments adjusted periodically for inflation. Variable payments are expensed as incurred and included within variable
rent expense.
The Company’s lease agreements do not contain material residual value guarantees, restrictions, or covenants.
(m) Income Taxes
Income taxes are accounted for under the asset and liability 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.
Deferred tax assets may be reduced by a valuation allowance to the extent we determine it is more likely than
not that some portion or all of the deferred tax assets will not be realized. Management judgment is required in
determining the period in which the reversal of a valuation allowance should occur. The Company is required to consider
all available evidence, both positive and negative, such as historical levels of income and future forecasts of taxable
income among other items, in determining whether a full or partial release of its valuation allowance is required. The
Company is also required to schedule future taxable income in accordance with accounting standards that address
income taxes to assess the appropriateness of a valuation allowance, which further requires the exercise of significant
management judgment. The Company’s accounting for deferred tax consequences represents the best estimate of those
future events.
F-12
The Company recognizes the effect of income tax positions only if those positions are more likely than not of
being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of
being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment
occurs. When applicable, the Company records interest and penalties as an element of income tax expense.
Refer to Note 13 for additional information on income taxes.
(n) Revenue Recognition
The Company applies Accounting Standards Codification Topic 606, Revenue from Contracts with Customers
(“Topic 606”). Topic 606 requires revenue to be recognized when an entity transfers control of goods or services to a
customer in an amount that reflects the consideration to which a company also expects to be entitled to for those goods
or services. To achieve this core principle, the Company recognizes revenue from contracts with customers based on the
following five steps:
Identify the contract with a customer;
Identify the performance obligations in the contract;
1)
2)
3) Determine the transaction price;
4) Allocate the transaction price to performance obligations in the contract; and
5) Recognize revenue when or as the Company satisfies a performance obligation.
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
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 as follows:
• Payroll processing and related services, including payroll reporting and tax filing services are delivered on
a weekly, biweekly, semi-monthly, or monthly basis depending upon the payroll frequency of the client
and on an annual basis if a client selects W-2 preparation and processing services,
• Time and attendance reporting services, including time clock rentals, are delivered on a monthly basis, and
• Cloud-based HR software solutions, including employee administration and benefits enrollment and
administration, are delivered on a monthly basis.
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.
The Company has certain optional performance obligations that are satisfied at a point in time including the
sales of time clocks and W-2 services.
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. Implementation fees are deferred and amortized generally over a period up to 24 months.
Sales taxes collected from clients and remitted to governmental authorities where applicable are accounted for
on a net basis and therefore are excluded from revenues in the Statements of Operations and Comprehensive Income.
Interest income earned on funds held for clients is recognized in Interest income on funds held for clients when
earned as the collection, holding and remittance of these funds are components of providing services to clients.
F-13
(o) Cost of Revenues
Cost of revenues consists primarily of costs to provide payroll and HCM solutions relating to the provision of
ongoing client support and implementation activities and also includes amortization of capitalized internal-use software.
The Company generally expenses these costs when incurred except for costs related to the implementation of the
Company’s proprietary products. These costs are capitalized and amortized over a period of 7 years.
(p) Advertising
Advertising costs are expensed as incurred. Advertising costs amounted to $283, $1,023 and $3,189 for the
June 30, 2019, 2020 and 2021, respectively.
(q) Stock-Based Compensation
The Company recognizes all employee stock-based compensation as a cost in the financial statements. Equity-
classified awards, including those under the 2014 Employee Stock Purchase Plan (“ESPP”), are measured at the grant
date fair value of the award and expense is recognized, net of assumed forfeitures, on a straight-line basis over the
requisite service period for each separately vesting portion of the award. For market share units, the Company estimates
grant date fair value using a discrete model based on multiple stock price-paths developed through the use of Monte
Carlo simulation. For estimated shares purchasable under the ESPP, the Company estimates grant date fair value using
the Black-Scholes option-pricing model. The Company periodically updates the assumed forfeiture rates for actual
experience over award vesting term.
(r) Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other
sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Legal costs incurred in connection with loss contingencies are expensed as incurred.
(s) Segment Information
The Company’s chief operating decision maker reviews the financial results of the Company in total when
evaluating financial performance and for purposes of allocating resources. The Company has thus determined that it
operates in a single reporting segment.
(t) Recently Adopted Accounting Standards
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize
leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-
of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all
leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting
the pattern and classification of expense recognition in the income statement.
The Company adopted the new standard on July 1, 2019 using the modified retrospective method and the
transition relief guidance provided by the FASB in ASU 2018-11, Leases (Topic 842): Targeted Improvements.
Consequently, the Company did not update financial information or provide disclosures required under the new standard
for dates and periods prior to July 1, 2019. The Company elected the package of practical expedients and did not
reassess prior conclusions on whether contracts are or contain a lease, lease classification, and initial direct costs. In
addition, the Company adopted the lessee practical expedient to combine lease and non-lease components for all asset
classes and elected to not recognize ROU assets and lease liabilities for leases with a term of 12 months or less.
Adoption of the new standard resulted in the Company recording operating lease ROU assets and operating
lease liabilities of $52,083 and $83,852, respectively, as of July 1, 2019. The ROU assets were recorded net of
$31,769 in deferred rent adjustments that were previously recorded in Accrued expenses and Deferred rent on the
Consolidated Balance Sheets as of June 30, 2019. The adoption of this standard did not result in any cumulative-effect
adjustments to Retained earnings. Additionally, there was no impact on the Company’s Consolidated Statements of
Operations and Comprehensive Income or the Consolidated Statements of Cash Flows as a result of the adoption of
F-14
Topic 842 for the year ended June 30, 2019. Refer to Note 2(l) and Note 12 for additional disclosures over the
Company’s leases.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for
financial instruments held at amortized cost, including trade receivables. Under ASU 2016-13, the Company assesses its
allowance for credit losses on accounts receivable by taking into consideration current economic conditions, reasonable
and supportable forecasts, as well as past experience including historical write-off trends and client-specific
circumstances. The new standard also eliminated the concept of other-than-temporary impairment and requires expected
credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than
as a reduction in the amortized cost basis of the securities. The Company adopted this standard effective July 1, 2020,
using a modified retrospective approach, and the adoption did not have a material impact on the Company’s financial
statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure
Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amends the
requirements for fair value measurement disclosures. ASU 2018-13 removes, modifies or adds certain disclosure
requirements under GAAP. The Company adopted this standard on July 1, 2020, and removed or modified disclosure
requirements retrospectively to all periods presented, whereas any new requirements are being applied prospectively
from the adoption date. The adoption of this standard did not have a material impact on the Company’s financial
statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes (“ASU 2019-12”) which provides guidance to reduce complexity in certain areas of accounting for
income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and simplifies various
aspects of the current guidance to promote consistent application of the standard among reporting entities. The Company
adopted ASU 2019-12 on July 1, 2020, and the adoption of this standard did not have a material impact on the
Company’s financial statements.
(u) Recently Issued Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB 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 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:
Year Ended
June 30,
2020
2021
2019
Recurring fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 436,955 $ 526,267 $ 609,658
Implementation services and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,067
Total revenues from contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 447,752 $ 546,212 $ 631,725
19,945
10,797
Deferred revenue
The timing of revenue recognition for recurring revenue is consistent with the timing of invoicing as they occur
simultaneously upon the client payroll-processing period or by month. As such, the Company does not recognize
contract assets or liabilities related to recurring revenue.
F-15
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:
Balance at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferral of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2020
6,289
15,998
(13,853)
8,434
2021
$
8,434
16,106
(15,806)
8,734
$
Deferred revenue related to these nonrefundable upfront fees are recorded within accrued expenses and other
long-term liabilities on the consolidated balance sheets. The Company expects to recognize these deferred revenue
balances of $7,068 in fiscal 2022, $1,600 in fiscal 2023, and $66 thereafter.
Year Ended
June 30,
Deferred contract costs
The following tables present the deferred contract costs balances and the related amortization expense for these
deferred contract costs:
Year Ended June 30, 2020
Beginning
Balance
82,103 $ 53,529 $ (22,057) $ 113,575
Costs to obtain a new contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Costs to fulfill a contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44,468
20,996
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,099 $ 82,422 $ (27,478) $ 158,043
Ending
Amortization Balance
Capitalized
Costs
28,893
(5,421)
Year Ended June 30, 2021
Beginning
Balance
Capitalized
Costs
Amortization
Ending
Balance
Costs to obtain a new contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 113,575 $ 60,833 $ (28,690) $ 145,718
Costs to fulfill a contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69,175
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 158,043 $ 95,407 $ (38,557) $ 214,893
34,574
44,468
(9,867)
Deferred contract costs are recorded within Deferred contract costs and Long-term deferred contract costs on
the Consolidated Balance Sheets. Amortization of deferred contract costs is recorded in Cost of revenues, Sales and
marketing, and General and administrative in the Consolidated Statements of Operations and Comprehensive Income.
The Company did not record any impairment losses associated with its deferred contract costs during the years ended
June 30, 2019, 2020 or 2021.
Remaining Performance Obligations
The Company has applied the practical expedients as allowed under Topic 606 and elects not to disclose 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. The
Company’s remaining performance obligations related to minimum monthly fees on its term-based contracts was
approximately $47,854 as of June 30, 2021, which will be generally recognized over the next 24 months.
F-16
(4) Corporate Investments and Funds Held for Clients
Corporate investments and funds held for clients consist of the following:
Type of Issue
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Funds held for clients' cash and cash equivalents . . . . . . . . . . . . . . . . .
Available-for-sale securities:
June 30, 2020
Gross
unrealized unrealized
Gross
Amortized
cost
250,851 $
1,241,282
gains
losses
Fair value
— $
—
— $ 250,851
1,241,282
—
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total available-for-sale securities (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,614,399 $
6,643
44,343
49,978
21,302
122,266
6
414
424
67
911
911 $
6,649
—
44,757
—
50,402
—
21,369
—
—
123,177
— $ 1,615,310
(1) Included within the fair value of total available-for-sale securities above is $37,155 of Corporate
investments and $86,022 of Funds held for clients.
Type of Issue
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Funds held for clients' cash and cash equivalents . . . . . . . . . . . . . . . . .
Available-for-sale securities:
June 30, 2021
Gross
unrealized unrealized
Gross
Amortized
cost
202,287 $
1,743,594
gains
losses
Fair value
— $
—
— $ 202,287
1,743,594
—
13,390
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,062
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,452
Total available-for-sale securities (2) . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,966,333 $
70
17
87
87 $
13,460
—
7,079
—
—
20,539
— $ 1,966,420
(2) 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.
Cash and cash equivalents and funds held for clients’ cash and cash equivalents included demand deposit
accounts and money market funds as of June 30, 2020 and 2021. All of the Company’s available-for-sale securities had
expected maturities of one year or less at June 30, 2021.
Classification of investments on the consolidated balance sheets is as follows:
June 30,
2021
202,287
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4,456
Corporate investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,759,677
Funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,615,310 $ 1,966,420
June 30,
2020
250,851 $
34,556
1,327,304
2,599
There were no available-for sale securities in an unrealized loss position as of June 30, 2020 or 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 years ended June 30, 2019, 2020 or 2021. All
securities in the Company's portfolio held an A- rating or better as of June 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 years ended June 30, 2019,
F-17
2020 or 2021. Gross realized gains and losses on the sale of available-for-sale securities were immaterial for the years
ended June 30, 2019, 2020 and 2021.
(5) 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 any 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, 2020 and
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, 2020 or
2021.
The fair value level for the Company’s cash and cash equivalents and available-for-sale securities is as follows:
June 30, 2020
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Funds held for clients' cash and cash equivalents . . . . . . . . .
Available-for-sale securities:
Total
250,851 $
Level 1
250,851 $
1,241,282
1,241,282
Level 2
Level 3
— $
—
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total available-for-sale securities . . . . . . . . . . . . . . . . . . . . .
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,615,310 $ 1,492,133 $ 123,177 $
6,649
44,757
50,402
21,369
123,177
6,649
44,757
50,402
21,369
123,177
—
—
—
—
—
F-18
—
—
—
—
—
—
—
—
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Funds held for clients' cash and cash equivalents . . . . . . . . .
Available-for-sale securities:
Total
202,287 $
Level 1
202,287 $
1,743,594
1,743,594
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total available-for-sale securities . . . . . . . . . . . . . . . . . . . . .
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,966,420 $ 1,945,881 $
13,460
7,079
20,539
—
—
—
Level 2
Level 3
— $
—
13,460
7,079
20,539
20,539 $
—
—
—
—
—
—
June 30, 2021
The Company determined that the carrying value of long-term debt under its revolving credit facility
approximated fair value, which was classified as Level 2 as of June 30, 2020, because interest rates associated with the
borrowings reflected market rates.
(6) Business Combinations
The Company accounts for business combinations in accordance with ASC 805, Business Combinations. The
Company recorded the acquisitions disclosed below using the acquisition method of accounting and recognized assets
and liabilities at their fair values as of the date of acquisitions, with the excess recorded to goodwill.
In April 2020, the Company acquired all of the shares outstanding of VidGrid, Inc. (“VidGrid”) through a
merger for purchase price consideration of $17,256, which was paid in cash upon closing. VidGrid, Inc. is a leading
video platform provider that enables peer-to-peer video learning courses, transforming video into two-way
communication. This transaction expands the Company’s product functionality around workplace video communication
and reaffirms its commitment to stronger employee collaboration, engagement and retention while helping clients
prepare for the workplaces of the future. The allocation of the purchase price for VidGrid is approximately $12,065 of
goodwill, $2,962 of proprietary technology and other immaterial assets and liabilities.
In November 2020, the Company acquired all of the shares outstanding of Samepage Labs Inc. (“Samepage”)
through a merger for purchase price consideration of $15,018, which was paid in cash upon closing. Samepage offers
digital collaboration tools including task management, file sharing, real-time collaboration and more. This transaction
expands the Company’s product functionality in these areas and demonstrates its commitment to building a modern
workforce suite of solutions that meet the needs of HR teams and employees. The allocation of the purchase price for
Samepage is approximately $11,995 of goodwill, $3,167 of proprietary technology and other immaterial assets and
liabilities.
The results from these acquisitions have been included in the Company’s consolidated financial statements
since the closing of the acquisitions. Pro forma information was not presented because the effect of the acquisitions was
not material to the Company’s consolidated financial statements. The goodwill associated with these acquisitions is not
deductible for income tax purposes. Direct costs related to the acquisition were recorded as General and administrative
expenses as incurred.
(7) Capitalized Internal-Use Software
Capitalized internal-use software and accumulated amortization were as follows:
Capitalized internal-use software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 119,178 $ 150,922
(105,904)
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,018
Capitalized internal-use software, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(82,677)
36,501 $
Amortization of capitalized internal-use software amounted to $16,921, $19,261 and $23,227 for the
June 30, 2019, 2020 and 2021, respectively and is included in Cost of revenues.
Year ended June 30,
2021
2020
F-19
(8) Property and Equipment
The major classes of property and equipment are as follows as of June 30:
Office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Computer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time clocks rented by clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year ended June 30,
2021
2020
5,211
4,619 $
45,420
42,936
13,104
12,723
6,641
6,609
46,814
46,192
5,399
4,967
122,589
118,046
(62,754)
(51,309)
59,835
66,737 $
Depreciation expense amounted to $15,392, $16,129 and $15,905 for the June 30, 2019, 2020 and 2021,
respectively.
(9) Goodwill and Intangible Assets
The following table summarizes changes in goodwill during the years presented below:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Additions attributable to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year ended June 30,
2021
2020
21,655
9,590 $
11,995
12,065
33,650
21,655 $
Refer to Note 6 for further details on the acquisitions during the years ended June 30, 2020 and 2021.
The Company’s amortizable intangible assets and estimated useful lives are as follows:
Year ended June 30,
2021
2020
Weighted
average
useful
life (years)
Client relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,200 $ 19,200
6,129
Proprietary technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,600
Non-solicitation agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
440
Trade name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,369
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(14,342)
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,360 $ 13,027
2,962
1,350
350
23,862
(10,502)
8.2
5.0
3.1
5.0
Amortization expense for acquired intangible assets was $2,251, $2,523 and $3,840 for the June 30, 2019, 2020
and 2021, respectively. Future amortization expense for acquired intangible assets is as follows, as of June 30, 2021:
Fiscal 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
4,093
3,919
2,914
1,860
241
13,027
F-20
(10) Accrued Expenses
The components of accrued expenses are as follows:
Accrued payroll and personnel costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Year ended June 30,
2021
2020
73,969
53,284 $
7,549
8,083
9,442
8,777
12,149
9,737
79,881 $ 103,109
(11) Debt
In July 2019, the Company entered into a five-year 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. The revolving credit agreement provides for a senior secured revolving credit facility (the “credit facility”)
under which the Company may borrow up to $250,000, which may be increased to up to $375,000, subject to obtaining
additional lender commitments and certain approvals and satisfying other requirements. The credit facility is scheduled
to expire in July 2024, and any borrowings outstanding will mature and be payable upon such expiration. In April 2020,
the Company borrowed $100,000 under the credit facility, which the Company repaid during the third quarter of fiscal
2021. The Company incurred interest expense related to this borrowing at an average interest rate of 1.04%.
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’ commitments at any time prior to revolving credit facility expiration without a premium or a penalty, other
than customary “breakage” costs with respect to London Interbank Offered Rate (“LIBOR”) revolving loans.
Any borrowings under the credit facility generally bear interest, at the Company’s option, at a rate per annum
determined by reference to either the LIBOR (or a replacement index for the LIBOR rate) or an adjusted base rate, in
each case plus an applicable margin ranging from 0.875% to 1.375% and 0.0% to 0.375%, respectively, based on the
then-applicable net senior secured 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.
Under 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, a
maximum net senior secured leverage ratio of not greater than 3.50 to 1.00 and a minimum interest coverage ratio of not
less than 3.00 to 1.00. As of June 30, 2021, the Company was in compliance with all of the aforementioned covenants.
(12) Leases
The Company primarily leases office space under non-cancellable operating leases expiring on various dates
from July 2021 through October 2032. The leases provide for increasing annual base rents and oblige the Company to
fund its proportionate share of operating expenses and, in certain cases, real estate taxes. The Company also leases
various types of office and production related equipment under non-cancellable operating leases expiring on various
dates from November 2021 through July 2024.
The components of operating lease expense were as follows:
Year ended June 30,
2021
2020
9,139
9,686 $
Operating lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
75
40
Short-term lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,796
3,167
Total lease costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,893 $ 14,010
F-21
The classification of the Company’s operating lease right-of-use assets, operating lease liabilities and other
supplemental information related to the Company’s operating leases are as follows:
Year ended June 30,
2021
2020
Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,658 $ 43,984
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
7,549
Long-term operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 73,299 $ 67,201
9.6
Weighted-average remaining lease term (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.83 %
Weighted-average discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.3
3.83 %
8,083 $
The following table summarizes supplemental cash flow information related to the Company’s operating leases:
Cash paid for amounts included in the measurement of operating lease liabilities . . . . . . . . . $
Operating lease assets obtained in exchange for new liabilities . . . . . . . . . . . . . . . . . . . . . . . . $
Year ended June 30,
2021
2020
11,093
10,374 $
1,682
3,123 $
The undiscounted cash flows for future maturities of the Company’s operating lease liabilities and the
reconciliation to the balance of operating lease liabilities reflected on the Company’s balance sheet are as follows as of
June 30, 2021:
Fiscal 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total undiscounted cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Present value discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
10,192
9,798
9,594
9,392
9,067
41,965
90,008
(15,258)
74,750
As of June 30, 2021, the Company had not entered into any leases that had not yet commenced.
(13) Income Taxes
(a) Income Taxes
Income tax expense (benefit) for the June 30, 2019, 2020 and 2021 consists of the following:
Current taxes
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— $
90
— $
(92)
—
(75)
Deferred taxes:
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5,449
(1,316)
4,223 $
(10,476)
403
2,352
(3,164)
2,663 $ (13,715)
Year ended June 30,
2020
2021
2019
F-22
(b) Tax Rate Reconciliation
Income tax expense (benefit) differed from the amounts computed by applying the U.S. federal income tax rate
of 21% for the years ended June 30, 2019, 2020 and 2021 to pretax income as a result of the following:
Income tax expense (benefit) at statutory federal rate . . . . . . . . . . . . . . . . . . . . . .
Increase (reduction) in income taxes resulting from:
Research and development credit and other credits . . . . . . . . . . . . . . . . . . . . . .
Non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local income taxes, net of federal income tax benefit . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended June 30,
2020
21.0 %
2019
21.0 %
2021
21.0 %
(3.0)
1.3
0.3
(10.4)
(2.0)
0.1
7.3 %
(3.2)
1.6
5.2
(18.3)
(1.8)
(0.5)
4.0 %
(7.1)
1.4
2.8
(35.0)
(6.7)
(0.4)
(24.0)%
The effective tax rate for the years ended June 30, 2019, 2020 and 2021 was 7.3%, 4.0% and (24.0)%,
respectively, on pre-tax income of $58,046, $67,118 and $57,104, respectively. The decrease in the effective tax rate is
primarily due to increased deductions related to stock compensation and research and development credits, partially
offset by an increase to the valuation allowance.
(c) Components of Deferred Tax Assets and Liabilities
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities at June 30, 2020 and 2021 are presented below.
Year ended June 30,
2021
2020
Deferred tax assets:
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal and state tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,041 $
9,915
13,351
13,596
16,714
—
74,617
(3,967)
70,650
19,415
13,559
15,835
32,812
23,105
179
104,905
(5,584)
99,321
Deferred tax liabilities:
Deferred contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(41,229)
(12,607)
(8,563)
(781)
(11,269)
(74,449)
(3,799) $
(56,618)
(11,460)
(10,664)
(994)
(9,763)
(89,499)
9,822
On March 11, 2021, the President signed the American Rescue Plan Act, 2021 into law. The bill complements
the provisions set forth in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the
Consolidated Appropriations Act, 2021, which were signed into law on March 27, 2020, and December 27, 2020,
respectively. The provisions of the legislation do not have a significant impact on the Company’s income taxes.
As of June 30, 2021, the Company maintains a valuation allowance of $5,584 for certain state tax benefits
which may not be realized. Such assessment may change in the future as further evidence becomes available.
F-23
At June 30, 2021, the Company has gross net operating loss carryforwards for federal income tax purposes of
approximately $129,406, of which $37,525 expire between 2034 to 2038. The Company has gross net operating loss
carryforwards for state income tax purposes of approximately $98,721, of which $73,751 expire from 2021 to 2040. The
remaining $116,851 federal and state net operating loss carryforwards have an indefinite utilization period. The
Company also has gross federal and state research and development tax credits and other state credit carryforwards of
approximately $23,639, which expire between 2022 and 2041.
As of June 30, 2021, the Company’s liabilities for unrecognized tax benefits, which would impact the
Company’s effective tax rate if recognized, are presented below. The Company will include applicable penalties and
interest when the benefit is recognized:
Year ended June 30,
2021
Unrecognized tax benefits at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Additions for tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions of prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized tax benefit at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
—
84
450
534
The Company files income tax returns with the United States federal government and various state
jurisdictions. Certain tax years remain open for federal and state tax reporting jurisdictions in which the Company does
business due to net operating loss carryforwards and tax credits unutilized from such years or utilized in a period
remaining open for audit under normal statute of limitations relating to income tax liabilities. The Company, including
its domestic subsidiaries, files a consolidated federal income tax return. For years before fiscal year ended June 30, 2018,
the Company is no longer subject to U.S. federal examination; however, the Internal Revenue Service (IRS) has the
ability to review years prior to fiscal year 2018 to the extent the Company utilized tax attributes carried forward from
those prior years. The statute of limitations on state filings is generally three to four years.
(14) Stockholders’ Equity
Common Stock
Holders of common stock are entitled to one vote per share and to receive dividends, when declared. The
holders have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with
respect to such shares.
(15) Benefit Plans
(a) Equity Incentive Plans
The Company maintains a 2008 Equity Incentive Plan (the “2008 Plan”) and a 2014 Equity Incentive Plan (the
“2014 Plan”) pursuant to which the Company has reserved shares of its common stock for issuance to its employees,
directors and non-employee third parties. The 2014 Plan serves as the successor to the 2008 Plan and permits the
granting of restricted stock units and other equity incentives at the discretion of the compensation committee of the
Company’s board of directors (“the Committee”). No new awards have been or will be issued under the 2008 Plan since
the effective date of the 2014 Plan. Outstanding awards under the 2008 Plan continue to be subject to the terms and
conditions of the 2008 Plan. The number of shares of common stock reserved for issuance under the 2014 Plan may
increase each calendar year, continuing through and including January 1, 2024. The number of shares added each year
may be equal to the lesser of (a) four and five tenths percent (4.5%) of the number of shares of common stock of the
Company issued and outstanding on the immediately preceding December 31, or (b) an amount determined by the
Company’s board of directors. The Company’s board of directors approved the increase in the number of common
shares in reserve for issuance under the 2014 Plan by 1,000 shares, effective January 1, 2021.
As of June 30, 2021, the Company had 12,523 shares allocated to the plans, of which 2,211 shares were subject
to outstanding options or awards. Generally, the Company issues previously unissued shares for the exercise of stock
options or vesting of awards; however, shares previously subject to 2014 Plan grants or awards that are forfeited or net
settled at exercise or release may be reissued to satisfy future issuances.
F-24
The following table summarizes the changes in the number of shares available for grant under the Company’s
equity incentive plans during the year ended June 30, 2021:
Available for grant at July 1, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 1, 2021 Evergreen provision increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSUs granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MSUs granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares withheld in settlement of taxes and/or exercise price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares removed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available for grant at June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
9,519
1,000
(494)
(58)
436
88
(179)
10,312
Shares removed represents forfeitures of shares and shares withheld in settlement of taxes and/or payment of
exercise price related to grants made under the 2008 Plan. As noted above, no new awards will be issued under the 2008
Plan.
Stock-based compensation expense related to stock options, restricted stock units (“RSUs”), market share units
(“MSUs”) and the Employee Stock Purchase Plan (as described below) is included in the following line items in the
accompanying Consolidated Statements of Operations and Comprehensive Income:
2021
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
7,687
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,658
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,192
29,515
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,765 $ 47,493 $ 63,052
2019
5,027 $
7,631
5,325
20,782
13,960
7,182
20,714
Year ended June 30,
2020
5,637 $
In addition, the Company capitalized $2,760, $2,397 and $2,610 of stock-based compensation expense in its
capitalized internal-use software costs in the years ended June 30, 2019, 2020 and 2021, respectively.
In August 2020, the Company’s board of directors approved the Company’s fiscal 2021 annual operating plan
to reflect the operating and financial impacts of the COVID-19 pandemic. In connection and alignment with the board’s
approval of the updated operating plan, the Committee approved the modification of the performance targets for vesting
of the performance-based restricted stock units granted in fiscal 2020 to certain executives. The Company recorded
$6,423 during the year ended June 30, 2021 related to these modified performance-based restricted stock units.
Stock option activity during the periods indicated is as follows:
Outstanding Options
Balance at July 1, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options vested and exercisable at June 30, 2021 . . . . . . . . . . . . . . . . . . . . .
Weighted
average
Weighted
average
exercise
price
Number of
shares
1,255 $ 12.43
(490) $ 6.76
765 $ 16.06
765 $ 16.06
remaining Aggregate
intrinsic
contractual
value
term (years)
3.0 $ 167,406
2.4 $ 133,550
2.4 $ 133,550
There were no stock options granted during the years ended June 30, 2019, 2020 or 2021. The total intrinsic
value of options exercised during the years ended June 30, 2019, 2020 and 2021 was $24,920, $29,791 and $84,072,
respectively.
The Company may also grant RSUs under the 2014 Plan with terms determined at the discretion of the
Committee. RSUs generally vest over three or four years following the grant date. Certain RSU awards have time-based
F-25
vesting conditions while other RSUs vest based on the achievement of certain revenue and Adjusted EBITDA targets in
current and future fiscal years. For these performance-based RSUs, the Company recognizes stock-based compensation
expense based upon the probable achievement of these aforementioned performance metrics. The following table
represents restricted stock unit activity during the year ended June 30, 2021:
RSU balance at July 1, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSUs granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSUs vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSUs forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSU balance at June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSUs expected to vest at June 30, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted
average
grant date
fair value
73.96
135.17
65.46
91.46
100.33
99.53
Units
1,626 $
494 $
(644) $
(88) $
1,388 $
1,314 $
At June 30, 2021, there was $55,289 of total unrecognized compensation cost, net of estimated forfeitures,
related to unvested restricted stock units granted. That cost is expected to be recognized over a weighted average period
of 1.8 years.
The Company also grants MSUs under the 2014 Plan with terms determined at the discretion of the Committee.
In August 2020, the Company granted approximately 58 MSUs with a grant date fair value of $178.04. 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 Company estimated the grant date fair value of the MSUs using a Monte Carlo simulation model that
included the following assumptions:
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk - free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0 %
52.0 %
3.04
0.18 %
At June 30, 2021, there was $6,608 of total unrecognized compensation cost, net of estimated forfeitures,
related to unvested MSUs. That cost is expected to be recognized over a period of 2.2 years.
The total of excess income tax benefits for stock-based compensation arrangements was $41,195, $67,816 and
$128,229 for the years ended June 30, 2019, 2020 and 2021, respectively, and were recognized through Income tax
expense (benefit).
(b) Employee Stock Purchase Plan
Under the Company’s Employee Stock Purchase Plan (“ESPP”), the Company can grant stock purchase rights
to all eligible employees during specific offering periods not to exceed twenty-seven months. Each offering period will
begin on the trading day closest to May 16 and November 16 of each year. Shares are purchased through employees’
payroll deductions, up to a maximum of 10% of employees’ compensation for each purchase period, at a purchase price
equal to 85% of the lesser of the fair market value of the Company’s common stock at the first trading day of the
applicable offering period or the purchase date. Participants may purchase up to $25 worth of common stock or 2 shares
of common stock in any one year. The ESPP is considered compensatory and results in compensation expense.
As of June 30, 2021, a total of 1,194 shares of common stock were reserved for future issuances under the
ESPP. The number of shares of common stock reserved for issuance under the ESPP may increase each calendar year,
continuing through and including January 1, 2024. The number of shares added each year may be equal to the lesser of
(a) 400, (b) seventy-five one hundredths percent (0.75%) of the number of shares of common stock of the Company
issued and outstanding on the immediately preceding December 31, or (c) an amount determined by the Company’s
F-26
board of directors. The Company’s board of directors approved the increase in the number of common shares in reserve
for issuance under the ESPP by 400 shares, effective January 1, 2021.
The Company issued a total of 104 shares upon the completion of its six-month offering periods ending
November 13, 2020 and May 14, 2021. The Company recorded compensation expense attributable to the ESPP of
$1,949, $3,235 and $4,570 for the years ended June 30, 2019, 2020 and 2021, respectively, which is included in the
summary of stock-based compensation expense above. The grant date fair value of the ESPP offering periods was
estimated using the following weighted average assumptions:
2019
Year ended June 30,
2020
2021
Valuation assumptions:
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0 %
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.5 - 38.6 % 38.6 - 72.2 % 42.2 - 72.2 %
Expected term (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk - free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.10 - 2.48 % 0.15 - 2.44 % 0.04 - 0.15 %
0.5
0.5
0 %
0 %
0.5
(c) 401(k) Plan
The Company maintains a 401(k) plan with a matching provision that covers all eligible employees. The
Company matches 50% of employees’ contributions up to 8% of their gross pay. Contributions were $5,693, $7,914 and
$2,658 for the years ended June 30, 2019, 2020 and 2021, respectively. In response to the uncertainties presented by the
COVID-19 pandemic, the Company temporarily suspended 401(k) plan matching contributions during the first three
quarters of fiscal 2021. The Company reinstated contributions during the fourth quarter of fiscal 2021.
(16) Commitments and Contingencies
(a) Employment Agreements
The Company has employment agreements with certain of its key officers. The agreements allow for annual
compensation increases, participation in equity incentive plans and bonuses for annual performance as well as certain
change of control events as defined in the agreements.
(b) Litigation
On July 12, 2019, a former employee filed a class and collective action complaint under federal and state law
alleging that certain employees of the Company were misclassified as salaried exempt employees. The complaint sought
unpaid overtime and other damages. The Company reached an agreement, without admitting any liability or
wrongdoing, to settle this matter. The settlement of this claim did not have a material impact to the Company’s financial
position, results of operations, or liquidity.
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
statutory damages, attorney’s fees and other costs. This claim is still in its earliest stages and the Company is unable to
estimate any reasonably possible loss, or range of loss, with respect to this matter. The Company intends to vigorously
defend against this lawsuit.
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.
F-27
(17) Net Income Per Share
Basic net income per 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, the
release of restricted stock units and market share units and the shares purchasable via the employee stock purchase plan
as of the balance sheet date.
The following table presents the calculation of basic and diluted net income per share:
Year ended June 30,
2020
2021
2019
Numerator:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53,823 $ 64,455 $ 70,819
Denominator:
Weighted-average shares used in computing net income per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52,914
53,547
54,318
Weighted-average effect of potentially dilutive shares:
Employee stock options, restricted stock units, market share units and
employee stock purchase plan shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,500
55,414
2,260
55,807
1,987
56,305
Net income per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.02 $
0.97 $
1.20 $
1.15 $
1.30
1.26
The following table summarizes the outstanding restricted stock units, market share units and employee stock
purchase plan shares as of the balance sheet date that were excluded from the diluted per share calculation for the
periods presented because to include them would have been anti-dilutive:
Market share units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee stock purchase plan shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended June 30,
2020
2019
2021
—
69
13
82
—
23
—
23
38
6
—
44
In August 2018, the Company announced that its board of directors approved a program to repurchase up to
$35,000 of the Company’s common stock, with authorization through August 14, 2019. During the first quarter of fiscal
2019, the Company completed the repurchase program and repurchased 442 shares for $34,991. All shares of common
stock repurchased were retired.
F-28
DESCRIPTION OF SECURITIES
Exhibit 4.2
The following is a summary of our capital stock and certain provisions of our amended and restated certificate of
incorporation (“Certificate of Incorporation”) and amended and restated bylaws (“Bylaws”). This summary does not
purport to be complete and is qualified by the provisions of our Certificate of Incorporation and Bylaws.
Authorized Capitalization
Our authorized capital stock consists of 155,000,000 shares of common stock, $0.001 par value, and 5,000,000
shares of undesignated preferred stock, $0.001 par value.
Listing
Our common stock is listed on the NASDAQ Global Select Market under the symbol "PCTY."
Common Stock
The holders of common stock are entitled to one vote per share on all matters submitted to a vote of our stockholders
and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled
to vote in any election of directors may elect all of the directors standing for election. Subject to preferences that
may be applicable to any preferred stock outstanding at the time, the holders of outstanding shares of common stock
are entitled to receive ratably any dividends declared by our board of directors out of assets legally available. See the
section titled "Dividend Policy." Upon our liquidation, dissolution or winding up, holders of our common stock are
entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then
outstanding shares of preferred stock. Holders of common stock have no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions applicable to the common stock.
Preferred Stock
Pursuant to our Certificate of Incorporation, our board of directors has the authority, without further action by the
stockholders, to issue from time to time up to 5,000,000 shares of preferred stock, in one or more series. Our board
will determine the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of any series, any or all of which may be greater than or senior to
the rights of the common stock. The issuance of preferred stock could adversely affect the voting power of holders
of common stock and reduce the likelihood that such holders will receive dividend payments and payments upon
liquidation, and the likelihood that holders of preferred stock will receive dividend payments and payments upon
liquidation may have the effect of delaying, deterring or preventing a change in control, which could depress the
market price of our common stock. We have no current plan to issue any shares of preferred stock.
Dividend Policy
Neither Delaware law nor our Certificate of Incorporation requires our board of directors to declare dividends on our
common stock. Any future determination to declare cash dividends on our common stock will be made at the
discretion of our board of directors and will depend on our financial condition, results of operations, capital
requirements, general business conditions and other factors that our board of directors may deem relevant. We do
not anticipate paying cash dividends on our common stock for the foreseeable future.
Investor Rights Agreement
We are party to an amended and restated investor rights agreement with certain of our stockholders. The amended
and restated investor rights agreement grants such stockholders certain registration rights, which include demand
registration rights, piggyback registration rights and short-form registration rights, with respect to shares of our
common stock. This summary does not purport to be complete and is qualified by the provisions of the amended
and restated investor rights agreement.
Anti-Takeover Provisions
General
Our Certificate of Incorporation and Bylaws contain certain provisions that may be deemed to have an anti-
takeover effect and may delay, deter or prevent a tender offer or take-over attempt that a stockholder might consider
in its best interest, including those attempts that might result in a premium over the market price for the shares held
by stockholders.
Advance Notice Bylaws
Our Bylaws provide that any stockholder who wishes to bring business before a meeting of our
stockholders, or to nominate candidates for election as directors at a meeting of our stockholders, must deliver
advance notice of their proposals to us before the meeting.
Amendment of Bylaws
Our Certificate of Incorporation and Bylaws grant our board of directors the power to adopt, amend or
repeal the Bylaws.
List of Subsidiaries
Exhibit 21.1
Paylocity Corporation, an Illinois corporation
Benefit Administration Technologies, Inc., a Delaware corporation
•
•
• VidGrid Inc., a Delaware corporation
•
•
Samepage Labs Inc., a Delaware corporation
Samepage s.r.o., a Czech Republic company
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements (No. 333-194840, No. 333-201983, No. 333-209520,
No. 333-216001, No. 333-222959 and No. 333-252779) on Form S-8 of our report dated August 6, 2021, with respect to the
consolidated financial statements of Paylocity Holding Corporation and the effectiveness of internal control over financial reporting.
Our report refers to a change in method of accounting for leases as a result of the adoption of Accounting Standards Update (ASU)
No. 2016-02, Leases.
/s/ KPMG LLP
Chicago, Illinois
August 6, 2021
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Steven R. Beauchamp, certify that:
1. I have reviewed this annual report on Form 10-K of Paylocity Holding Corporation (the “Company”) for
the year ended June 30, 2021;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s fiscal year ended June 30, 2021 that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: August 6, 2021
Name:
Title: Chief Executive Officer (Principal Executive
/s/ Steven R. Beauchamp
Steven R. Beauchamp
Officer) and Director
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Toby J. Williams, certify that:
1. I have reviewed this annual report on Form 10-K of Paylocity Holding Corporation (the “Company”) for
the year ended June 30, 2021;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s fiscal year ended June 30, 2021 that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: August 6, 2021
Name:
Title: Chief Financial Officer (Principal Financial
/s/ Toby J. Williams
Toby J. Williams
Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
The undersigned, the Chief Executive Officer of Paylocity Holding Corporation (the “Company”), does hereby
certify under the standards set forth and solely for the purposes of 18 U.S.C. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of the Company for the year ended June 30, 2021
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information
contained in that Form 10-K fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date: August 6, 2021
Name:
Title: Chief Executive Officer (Principal Executive
/s/ Steven R. Beauchamp
Steven R. Beauchamp
Officer) and Director
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
The undersigned, the Chief Financial Officer of Paylocity Holding Corporation (the “Company”), does hereby
certify under the standards set forth and solely for the purposes of 18 U.S.C. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of the Company for the year ended June 30, 2021
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information
contained in that Form 10-K fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date: August 6, 2021
Name:
Title: Chief Financial Officer (Principal Financial
/s/ Toby J. Williams
Toby J. Williams
Officer)
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Appendix A:
Reconciliation of GAAP to
Non-GAAP Financial Measures
Long-Term Financial Targets
We are unable to reconcile the forward-looking non-GAAP financial measures of Adjusted Gross Margin, Total
R&D Investment, Sales/Marketing, General & Administrative, Adjusted EBITDA, and Free Cash Flow to their directly
comparable GAAP financial measures because the information which is needed to complete a reconciliation is
unavailable at this time without unreasonable effort.
Revenue
$ in Millions
Reconciliation of GAAP to non-GAAP revenue:
Recurring fees
Interest income on funds held for clients
Total recurring revenues
Implementation services and other
Total revenue
Adjusted EBITDA
$ in Millions
12 months ended June 30, 2018
As reported
Non-GAAP
adjustments(1)
As adjusted
$ 354.4
9.1
363.5
14.0
$ 377.5
$ —
—
—
(5.5)
$ (5.5)
$ 354.4
9.1
363.5
8.5
$ 372.0
For the Years Ended June 30,
2018
2019
2020
2021
Reconciliation from net income to Adjusted EBITDA:
Net income
Interest expense
Income tax expense (benefit)
Depreciation and amortization expense
EBITDA
Stock-based compensation expense and employer payroll taxes related to
stock releases and option exercises
Other items(2)
Adjusted EBITDA
$ 38.6
—
(21.8)
30.2
47.0
31.8
2.5
$ 81.3
$ 53.8 $ 64.5 $ 70.8
1.0
(13.7)
43.0
101.1
0.6
2.7
37.9
105.7
—
4.2
34.6
92.6
41.0
0.4
67.0
1.9
$ 134.0 $159.8 $170.0
50.4
3.7
(1) As adjusted implementation revenue as if we recognized implementation revenue ratably over a period of up to 24 months for
fiscal 2018.
(2) Other items represents nonrecurring costs including lease exit and acquisition related costs and settlement of legal matter and
related litigation.
Free Cash Flow
$ in Millions
Reconciliation of Free Cash Flow:
Net cash provided by operating activities
Capitalized internal-use software costs
Purchases of property and equipment
Lease allowances used for tenant improvements
Free Cash Flow
For the Years Ended June 30,
2018
2019
2020
2021
$ 97.9
(15.6)
(21.7)
(11.8)
$ 48.8
$ 115.0
(20.1)
(11.3)
(7.5)
$ 76.1
$ 112.7
(25.7)
(16.6)
—
$ 70.4
$124.9
(28.6)
(9.5)
—
$ 86.8
Paylocity 2021 Annual Report
A-1
1400 American Lane
Schaumburg, IL 60173
paylocity.com
investors.paylocity.com