Paylocity Holding Corp
For the period ended Sep 30, 2024. Filed Oct 31, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Oct 31, 2024
PCTY$173.15+2.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-03.
0001591698-24-000100
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-10-31.
0001591698-24-000277
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 86 previous paragraphs and 91 current paragraphs.
47 unchanged; 25 reworded; 17 added; 10 removed; 4 previous and 2 current paragraphs rearranged.
Tables are not compared: 16 previous and 11 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (17)
Current report
(1)Represents severance cost adjustments related to certain roles that have been eliminated. We exclude one-off severance costs that we incur as part of the normal course of our business operations.
Current report
Revenues
Current report
Cost of Revenues
Current report
Operating Expenses
Current report
Sales and Marketing
Current report
Research and Development
Current report
General and Administrative
Current report
Other Income (Expense)
Current report
Revenues
Current report
Cost of Revenues
Current report
Operating Expenses
Current report
Sales and Marketing
Current report
Research and Development
Current report
General and Administrative
Current report
General and administrative expenses for the three months ended September 30, 2024 decreased by $1.8 million, or 4%, to $48.2 million from $49.9 million for the three months ended September 30, 2023. General and administrative expenses decreased primarily due to a $4.9 million reduction in stock-based compensation expense attributable to executive award forfeitures, partially offset by $1.9 million in additional employee-related costs.
Current report
Other Income (Expense)
Current report
In April 2024, our board of directors authorized the repurchase of up to $500.0 million of our common stock (the "Repurchase Program"). The extent to which we repurchase shares, the number and price of any shares repurchased and the timing of any repurchases depends on the market price of our common stock, trading volume, general market conditions and other corporate and economic considerations. As of September 30, 2024, approximately $350.0 million remains authorized for repurchases under the Repurchase Program, and there were no repurchases of our common stock during the three months ended September 30, 2024.
Removed paragraphs (10)
Previous report
(1)Represents acquisition-related costs.
Previous report
Cost of revenues for the three months ended March 31, 2024 increased by $20.3 million, or 21%, to $116.0 million from $95.7 million for the three months ended March 31, 2023. Cost of revenues increased primarily as a result of the continued growth of our business, in particular, $11.1 million in additional employee-related costs resulting from additional personnel necessary to provide services to new and existing clients, $4.3 million in additional processing and delivery related costs and $4.3 million in additional amortization of internal use software. Gross margin decreased from 72% for the three months ended March 31, 2023 to 71% for the three months ended March 31, 2024.
Previous report
General and administrative expenses for the three months ended March 31, 2024 increased by $1.5 million, or 3%, to $48.9 million from $47.4 million for the three months ended March 31, 2023. General and administrative expenses increased primarily due to $2.9 million of additional stock-based compensation expense, partially offset by $1.5 million in lower occupancy costs.
Previous report
Comparison of Nine Months Ended March 31, 2023 and 2024
Previous report
Recurring and Other Revenue
Previous report
Interest income on funds held for clients for the nine months ended March 31, 2024 increased by $38.2 million, or 76%, to $88.3 million from $50.1 million for the nine months ended March 31, 2023. Interest income on funds held for clients increased primarily due to higher interest rates and higher average daily balances for funds held due to the addition of new clients to our client base as compared to the prior fiscal year.
Previous report
Sales and marketing expenses for the nine months ended March 31, 2024 increased by $26.1 million, or 12%, to $246.9 million from $220.8 million for the nine months ended March 31, 2023. The increase in sales and marketing expense was primarily due to $19.9 million of additional employee-related costs, including those incurred to expand our sales team.
Previous report
Research and development expenses for the nine months ended March 31, 2024 increased by $10.7 million, or 9%, to $134.1 million from $123.4 million for the nine months ended March 31, 2023. The increase in research and development expenses was primarily due to $24.0 million of additional employee-related costs related to additional development personnel, partially offset by $14.6 million in higher period-over-period capitalized internal-use software costs.
Previous report
General and administrative expenses for the nine months ended March 31, 2024 decreased by $3.7 million, or 3%, to $142.1 million from $145.9 million for the nine months ended March 31, 2023. General and administrative expenses decreased primarily due to a $4.3 million gain related to lease exit activity during the nine months ended March 31, 2024. Excluding the gain on lease exit activity, general and administrative expenses remained relatively flat year over year as we continue to focus on achieving cost efficiencies as our business scales.
Reworded paragraphs (25)
Previous wording
We believe there is a significant opportunity to grow our business by increasing our number of clients and we intend to invest in our business to achieve this purpose. We market and sell our solutions through our direct sales force. We have increased our sales and marketing expenses as we have added sales representatives and related sales and marketing personnel. We intend to continue to grow our sales and marketing organization across new and existing geographic territories. In addition to growing our number of clients, we intend to grow our revenue over the long term by increasing the number of solutions that clients purchase from us. To do so, we must continue to enhance and grow the number of solutions we offer to advance our platform.
Current wording
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. Our sales and marketing expenses have increased as we have added sales representatives and related sales and marketing personnel. We intend to continue to grow our sales and marketing organization across new and existing geographic territories. In addition to growing our number of clients, we intend to grow our revenue over the long term by increasing the number of solutions that clients purchase from us. To do so, we must continue to enhance and grow the number of solutions we offer to advance our platform.
Previous wording
We will continue to invest across our entire organization as we continue to grow our business over the long term. These investments include increasing the number of personnel across all functional areas, along with improving our solutions and infrastructure to support our growth. The timing and amount of these investments vary based on the rate at which we add new clients and personnel and scale our application development and other activities. Many of these investments will occur in advance of experiencing any direct benefit from them, which will make it difficult to determine if we are effectively allocating our resources. We expect these investments to increase our costs on an absolute basis, but as we grow our number of clients and our related revenues, we anticipate that we will gain economies of scale and increased operating leverage. As a result, we expect our gross and operating margins will improve over the long term.
Current wording
We continue to invest across our entire organization as we continue to grow our business over the long term. These investments include increasing the number of personnel across all functional areas, along with improving our solutions and infrastructure to support our growth. The timing and amount of these investments will vary based on the rate at which we add new clients and personnel and scale our application development and other activities. Many of these investments will occur in advance of experiencing any direct benefit from them, which will make it difficult to determine if we are effectively allocating our resources. We expect these investments to increase our costs on an absolute basis, but as we grow our number of clients and our related revenues, we anticipate that we will gain economies of scale and increased operating leverage. As a result, we expect our gross and operating margins will improve over the long term.
Previous wording
Our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results and cash flow from operations. This visibility enables us to better manage and invest in our business. Total revenues increased from $339.9 million for the three months ended March 31, 2023 to $401.3 million for the three months ended March 31, 2024, representing a 18% year-over-year increase. Total revenues increased from $866.1 million for the nine months ended March 31, 2023 to $1,045.2 million for the nine months ended March 31, 2024, representing a 21% year-over-year increase. The increase in year-over-year revenue growth was driven by the strong performance by our sales team and growth in interest income on funds held for clients attributable to rising interest rates and higher average daily balances for funds held for clients due to the addition of new clients as compared to the prior fiscal year.
Current wording
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 $317.6 million for the three months ended September 30, 2023 to $363.0 million for the three months ended September 30, 2024, representing a 14% year-over-year increase. The increase in year-over-year revenue growth was driven by the strong performance by our sales team. Uncertainties around market and economic conditions may impact revenue growth, which we have recently experienced and may continue to experience, through fluctuations in client employee counts, elongated sales cycles, client losses, and a changing interest rate environment, among other factors.
Previous wording
(2)Represents acquisition and other nonrecurring transaction-related costs and lease exit activity.
Current wording
(2)Represents acquisition and nonrecurring transaction-related costs and severance costs related to certain roles that have been eliminated. We exclude one-off severance costs that we incur as part of the normal course of our business operations.
Previous wording
We derive the majority of our revenues from recurring fees attributable to our cloud-based HCM and payroll 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 HCM and payroll solutions.
Current wording
We generate substantially all of our recurring and other revenue from ongoing subscriptions to our cloud-based HCM and payroll software solutions, which are recurring in nature. 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 HCM and payroll solutions.
Previous wording
The number of client employees on our platform and the mix of products purchased by a client as well as the timing of services provided with respect to those client employees can vary each period. As such, the number of client employees on our system is not a good indicator of our financial results in any given period. Recurring and other revenue accounted for 92% and 91% of our total revenues for the three months ended March 31, 2023 and 2024, respectively, and 94% and 92% of our total revenues for the nine months ended March 31, 2023 and 2024, respectively.
Current wording
The number of client employees on our platform and the mix of products purchased by a client as well as the timing of services provided with respect to those client employees can vary each period. As such, the number of client employees on our system is not necessarily a good indicator of our financial results in any given period. Recurring and other revenue accounted for 92% of our total revenues for both the three months ended September 30, 2023 and 2024.
Previous wording
We also capitalize a portion of our internal-use software costs, which are then primarily amortized as Cost of revenues. We amortized $8.0 million and $12.3 million of capitalized internal-use software costs during the three months ended March 31, 2023 and 2024, respectively, and $22.5 million and $32.5 million of capitalized internal-use software costs for the nine months ended March 31, 2023 and 2024, respectively.
Current wording
We also capitalize a portion of our internal-use software costs, which are then primarily amortized as Cost of revenues. We amortized $9.5 million and $13.8 million of capitalized internal-use software costs during the three months ended September 30, 2023 and 2024, respectively.
Previous wording
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 the three and nine months ended March 31, 2023 and 2024.
Current wording
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 the three months ended September 30, 2023 and 2024.
Previous wording
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. While we expect our general and administrative expenses to continue to increase in absolute dollars as our company continues to grow, we expect to realize cost efficiencies as our business scales.
Current wording
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. While we expect our general and administrative expenses to increase in absolute dollars as our company continues to grow, we expect to realize cost efficiencies as our business scales.
Previous wording
Recurring and other revenue for the three months ended March 31, 2024 increased by $52.7 million, or 17%, to $366.8 million from $314.2 million for the three months ended March 31, 2023. Recurring and other revenue increased primarily as a result of incremental revenues from new and existing clients due to the strong performance by our sales team.
Current wording
Recurring and other revenue for the three months ended September 30, 2024 increased by $41.4 million, or 14%, to $333.1 million from $291.7 million for the three months ended September 30, 2023. Recurring and other revenue increased primarily as a result of incremental revenues from new and existing clients due to the strong performance by our sales team.
Previous wording
Interest income on funds held for clients for the three months ended March 31, 2024 increased by $8.8 million, or 34%, to $34.4 million from $25.7 million for the three months ended March 31, 2023. Interest income on funds held for clients increased primarily due to higher interest rates and higher average daily balances for funds held due to the addition of new clients to our client base as compared to the prior fiscal year.
Current wording
Interest income on funds held for clients for the three months ended September 30, 2024 increased by $4.0 million, or 15%, to $29.9 million from $25.9 million for the three months ended September 30, 2023. Interest income on funds held for clients increased primarily due to higher average daily balances for funds held due to the addition of new clients to our client base as compared to the prior fiscal year.
Previous wording
Cost of revenues for the nine months ended March 31, 2024 increased by $54.5 million, or 20%, to $324.8 million from $270.3 million for the nine months ended March 31, 2023. Cost of revenues increased primarily as a result of the continued growth of our business, in particular, $32.8 million in additional employee-related costs resulting from additional personnel necessary to provide services to new and existing clients, $10.1 million in additional processing and delivery related costs and $10.0 million in additional amortization of internal use software. Gross margin was 69% for both the nine months ended March 31, 2023 and 2024.
Current wording
Cost of revenues for the three months ended September 30, 2024 increased by $13.5 million, or 13%, to $115.0 million from $101.5 million for the three months ended September 30, 2023. Cost of revenues increased primarily as a result of the continued growth of our business, in particular, $6.4 million in additional employee-related costs, $4.2 million in additional amortization of internal use software, and $3.2 million in additional processing and delivery related costs. Gross margin remained consistent at 68% for both the three months ended September 30, 2023 and 2024.
Previous wording
Sales and marketing expenses for the three months ended March 31, 2024 increased by $12.7 million, or 17%, to $86.8 million from $74.1 million for the three months ended March 31, 2023. The increase in sales and marketing expense was primarily due to $9.2 million of additional employee-related costs, including those incurred to expand our sales team.
Current wording
Sales and marketing expenses for the three months ended September 30, 2024 increased by $8.0 million, or 10%, to $88.4 million from $80.4 million for the three months ended September 30, 2023. The increase in sales and marketing expense was primarily due to $7.9 million of additional employee-related costs, including those incurred to expand our sales team.
Previous wording
Research and development expenses for the three months ended March 31, 2024 increased by $1.1 million, or 3%, to $43.4 million from $42.3 million for the three months ended March 31, 2023. The increase in research and development expenses was primarily due to $6.9 million of additional employee-related costs related to additional development personnel, partially offset by $3.9 million in higher period-over-period capitalized internal-use software costs.
Current wording
Research and development expenses for the three months ended September 30, 2024 increased by $2.7 million, or 6%, to $47.3 million from $44.6 million for the three months ended September 30, 2023. The increase in research and development expenses was primarily due to $3.2 million of additional employee-related costs related to additional development personnel.
Previous wording
Other income for the three months ended March 31, 2024 increased by $3.2 million as compared to the three months ended March 31, 2023. The change in other income was primarily due to higher interest income earned on our cash and cash equivalents as a result of higher interest rates and higher average daily balances of those corporate cash and cash equivalents.
Current wording
Other income for the three months ended September 30, 2024 increased by $1.5 million as compared to the three months ended September 30, 2023. The change in other income was primarily due to higher interest income earned on our cash and cash equivalents as a result of higher average daily balances of those corporate cash and cash equivalents.
Previous wording
Our effective tax rate was 29.3% and 22.9% for the three months ended March 31, 2023 and 2024, respectively. Our effective tax rate for the three months ended March 31, 2023 was higher than the federal statutory rate of 21% primarily due to an increase to non-deductible stock-based compensation under Internal Revenue Code Section 162(m) and state and local income taxes. Our effective tax rate for the three months ended March 31, 2024 was higher than the federal statutory rate of 21% primarily due to state and local income taxes.
Current wording
Our effective tax rate was 22.3% and 28.0% for the three months ended September 30, 2023 and 2024, respectively. Our effective tax rate for the three months ended September 30, 2023 was higher than the federal statutory rate of 21% primarily due to state and local income taxes, partially offset by federal research and development credits. Our effective tax rate for the three months ended September 30, 2024 was higher than the federal statutory rate of 21% primarily due to state and local income taxes.
Previous wording
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 March 31, 2024, our principal source of liquidity was $492.7 million of cash and cash equivalents. We maintain a credit agreement that provides for a$550.0 million revolving credit facility, which may be increased up to$825.0 million. No amounts were drawn on the revolving credit facility as of March 31, 2024. Refer to Note 8 of the Notes to the Unaudited Consolidated Financial Statements for additional detail on the credit agreement.
Current wording
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 September 30, 2024, our principal source of liquidity was$453.5 million of cash and cash equivalents, excluding the proceeds drawn from our credit facility further described below. We maintain a credit agreement that provides for a$550.0 million revolving credit facility, which may be increased up to$825.0 million. In September 2024, we borrowed $325.0 million under this credit facility to fund the acquisition of Airbase Inc. in October 2024, which remained outstanding at September 30, 2024. Refer to Notes 8 and 13 of the Notes to the Unaudited Consolidated Financial Statements for additional detail on the credit agreement and Airbase acquisition, respectively.
Previous wording
We may invest portions of our excess cash and cash equivalents in highly liquid, investment-grade marketable securities. These investments may consist of money market funds, commercial paper, corporate debt issuances, asset-backed debt securities, certificates of deposit, U.S. treasury securities, U.S. government agency securities and other securities with credit quality ratings of A-1 or higher. As of March 31, 2024, we did not have any corporate investments classified as available-for-sale securities.
Current wording
We may invest portions of our excess cash and cash equivalents in highly liquid, investment-grade marketable securities. These investments may consist of commercial paper, corporate bonds, asset-backed securities, certificates of deposit, U.S. treasury securities, and other securities with credit quality ratings of A-1 or higher as well as in money market funds. As of September 30, 2024, we did not have any corporate investments classified as available-for-sale securities.
Previous wording
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 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 expect to fund our operations, capital expenditures, acquisitions 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 or utilize the borrowing capacity under our credit facility to satisfy those needs.
Current wording
In order to grow our business, we intend to increase our personnel and related expenses and to make investments in our platform, data centers and general infrastructure, some of which may be significant. 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 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 expect to fund our operations, capital expenditures, acquisitions, share repurchases 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 or utilize the remaining borrowing capacity under our credit facility to satisfy those needs.
Previous wording
Net cash provided by operating activities was $206.1 million and $304.7 million for the nine months ended March 31, 2023 and 2024, respectively. The change in net cash provided by operating activities from the nine months ended March 31, 2023 to the nine months ended March 31, 2024 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 during the nine months ended March 31, 2024 as compared to the nine months ended March 31, 2023.
Current wording
Net cash provided by operating activities was $62.1 million and $91.5 million for the three months ended September 30, 2023 and 2024, respectively. The change in net cash provided by operating activities from the three months ended September 30, 2023 to the three months ended September 30, 2024 was primarily due to net changes in operating assets and liabilities, accompanied by improved operating results after adjusting for non-cash items including stock-based compensation expense, depreciation and amortization expense and deferred income tax expense (benefit) during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.
Previous wording
Net cash used in investing activities was $298.8 million and $76.4 million for the nine months ended March 31, 2023 and 2024, 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 portions of 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.
Current wording
Net cash used in investing activities was $9.4 million and $13.3 million for the three months ended September 30, 2023 and 2024, 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 portions of 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.
Previous wording
The change in net cash used in investing activities was primarily due to a $325.7 million decrease in purchases of available-for-sale securities, partially offset by $75.4 million less proceeds from the sales and maturities of available-for- sale securities, $12.0 million in additional amounts paid for acquisitions, net of cash acquired and $13.8 million in additional capitalized internal-use software costs during the nine months ended March 31, 2024 as compared to the nine months ended March 31, 2023.
Current wording
The change in net cash used in investing activities was primarily due to $76.2 million in less proceeds from the sales and maturities of available-for-sale securities, partially offset by a $72.4 million decrease in purchases of available-for-sale securities during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.
Previous wording
Net cash provided by (used in) financing activities was $(862.0) million and $927.5 million for the nine months ended March 31, 2023 and 2024, respectively. The change in net cash provided by (used in) financing activities was primarily the result of an increase in the net change in client fund obligations of $1,749.4 million due to the timing of client funds collected and related remittance of those funds to client employees and taxing authorities during the nine months ended March 31, 2024 as compared to the nine months ended March 31, 2023.
Current wording
Net cash used in financing activities was $122.4 million and $318.3 million for the three months ended September 30, 2023 and 2024, respectively. The change in net cash used in financing activities was primarily the result of an increase in the net change in client fund obligations of $528.2 million due to the timing of client funds collected and related remittance of those funds to client employees and taxing authorities, partially offset by $325.0 million in borrowings under our credit facility during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.
Previous wording
At March 31, 2024, our principal commitments consisted of $67.2 million in operating lease obligations, of which $10.3 million is due in the next twelve months. We also had $56.0 million in purchase obligations, of which $36.9 million is due in the next twelve months.
Current wording
At September 30, 2024, our principal commitments consisted of $325.0 million in borrowings on our revolving credit facility, which is contractually not due in the next twelve months, and related interest payments, as well as $62.5 million in operating lease obligations, of which $9.8 million is due in the next twelve months. We also had $70.9 million in purchase obligations, of which $41.7 million is due in the next twelve months.
Previous wording
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 $8.8 million and $11.7 million for the nine months ended March 31, 2023 and 2024, respectively, exclusive of capitalized internal-use software costs of $30.7 million and $44.5 million for the same periods, respectively.
Current wording
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 $3.5 million and $2.3 million for the three months ended September 30, 2023 and 2024, respectively, exclusive of capitalized internal-use software costs of $14.2 million and $15.2 million for the same periods, respectively.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
Interest Income on Funds Held for Clients
Current report — wording carried from elsewhere
Interest Income on Funds Held for Clients
Rearranged previous paragraphs (4)
Previous report — wording carried elsewhere
Uncertainties around market and economic conditions may impact revenue growth, which we have recently experienced and may continue to experience, through fluctuations in client employee counts, elongated sales cycles, client losses, and a changing interest rate environment, among other factors.
Previous report — wording carried elsewhere
Recurring and other revenue for the nine months ended March 31, 2024 increased by $140.9 million, or 17%, to $956.9 million from $816.0 million for the nine months ended March 31, 2023. Recurring and other revenue increased primarily as a result of incremental revenues from new and existing clients due to the strong performance by our sales team.
Previous report — wording carried elsewhere
Other income for the nine months ended March 31, 2024 increased by $10.4 million as compared to the nine months ended March 31, 2023. The change in other income was primarily due to higher interest income earned on our cash and cash equivalents as a result of higher interest rates and higher average daily balances of those corporate cash and cash equivalents.
Previous report — wording carried elsewhere
Our effective tax rate was 2.9% and 24.3% for the nine months ended March 31, 2023 and 2024, respectively. Our effective tax rate for the nine months ended March 31, 2023 was lower than the federal statutory rate of 21% primarily due to excess tax benefits from employee stock-based compensation, research and development tax credits, and a decrease in the valuation allowance. Our effective tax rate for the nine months ended March 31, 2024 was higher than the federal statutory rate of 21% primarily due to state and local income taxes.