Paylocity Holding Corp

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 $363.0 million for the three months ended September 30, 2024 to $408.2 million for the three months ended September 30, 2025, representing a 12% 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.

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 $377.0 million for the three months ended December 31, 2024 to $416.1 million for the three months ended December 31, 2025, representing a 10% year-over-year increase. Total revenues increased from $739.9 million for the six months ended December 31, 2024 to $824.3 million for the six months ended December 31, 2025, representing an 11% 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

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% and 93% of our total revenues for the three months ended September 30, 2024 and 2025, 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% and 93% of our total revenues for the three months ended December 31, 2024 and 2025, respectively, and 92% and 93% of our total revenues for the six months ended December 31, 2024 and 2025, respectively.

Previous wording

We also capitalize a portion of our internal-use software costs, which are then primarily amortized as Cost of revenues. We amortized $13.8 million and $17.3 million of capitalized internal-use software costs during the three months ended September 30, 2024 and 2025, 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 $14.8 million and $17.7 million of capitalized internal-use software costs during the three months ended December 31, 2024 and 2025, respectively, and $28.6 million and $35.0 million of capitalized internal-use software costs for the six months ended December 31, 2024 and 2025, 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 months ended September 30, 2024 and 2025.

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 and six months ended December 31, 2024 and 2025.

Previous wording

Recurring and other revenue for the three months ended September 30, 2025 increased by $45.8 million, or 14%, to $378.9 million from $333.1 million for the three months ended September 30, 2024. 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 December 31, 2025 increased by $39.3 million, or 11%, to $387.0 million from $347.7 million for the three months ended December 31, 2024. 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

Cost of revenues for the three months ended September 30, 2025 increased by $13.4 million, or 12%, to $128.4 million from $115.0 million for the three months ended September 30, 2024. 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, $3.5 million in additional amortization of internal-use software, $2.5 million in additional amortization of certain intangible assets and $1.4 million in additional processing and delivery related costs. Gross margin increased from 68% for the three months ended September 30, 2024 to 69% for the three months ended September 30, 2025.

Current wording

Cost of revenues for the three months ended December 31, 2025 increased by $9.5 million, or 8%, to $134.0 million from $124.5 million for the three months ended December 31, 2024. Cost of revenues increased primarily as a result of the continued growth of our business, in particular, $5.9 million in additional employee-related costs, $2.9 million in additional amortization of internal-use software and $1.5 million in additional processing and delivery related costs. Gross margin increased from 67% for the three months ended December 31, 2024 to 68% for the three months ended December 31, 2025.

Previous wording

Sales and marketing expenses for the three months ended September 30, 2025 increased by $7.9 million, or 9%, to $96.4 million from $88.4 million for the three months ended September 30, 2024. The increase in sales and marketing expense was primarily due to $6.7 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 December 31, 2025 increased by $4.9 million, or 5%, to $98.1 million from $93.1 million for the three months ended December 31, 2024. The increase in sales and marketing expense was primarily due to $4.9 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 September 30, 2025 increased by $8.3 million, or 18%, to $55.6 million from $47.3 million for the three months ended September 30, 2024. The increase in research and development expenses was primarily due to $7.7 million of additional employee-related costs related to additional development personnel, net of capitalized internal-use software costs.

Current wording

Research and development expenses for the three months ended December 31, 2025 increased by $1.6 million, or 3%, to $57.7 million from $56.2 million for the three months ended December 31, 2024. The increase in research and development expenses was primarily due to $2.4 million of additional employee-related costs related to additional development personnel, net of capitalized internal-use software costs, partially offset by $1.5 million in lower stock-based compensation expense.

Previous wording

Other income for the three months ended September 30, 2025 decreased by $4.0 million as compared to the three months ended September 30, 2024. The change in other income was primarily due to $2.1 million reduction in interest earned on our cash and cash equivalents from lower average balances and $2.0 million in additional interest expense related to borrowings under our revolving credit facility.

Current wording

Other income (expense) for the three months ended December 31, 2025 decreased by $0.4 million as compared to the three months ended December 31, 2024. The change in other income was primarily due to a $3.9 million reduction in interest earned on our cash and cash equivalents from lower average balances, partially offset by a $3.6 million decrease in interest expense related to less borrowings under our revolving credit facility.

Previous wording

Interest income on funds held for clients for the three months ended September 30, 2025 decreased by $0.5 million, or 2%, to $29.3 million from $29.9 million for the three months ended September 30, 2024. Interest income on funds held for clients decreased slightly, as the negative impact from lower interest rates was mostly offset by positive impact from higher average daily balances of funds held for new and existing clients as compared to the prior fiscal year.

Current wording

Interest income on funds held for clients for the six months ended December 31, 2025 decreased by $0.6 million, or 1%, to $58.5 million from $59.1 million for the six months ended December 31, 2024. Interest income on funds held for clients decreased slightly, as the negative impact from lower interest rates was mostly offset by positive impact from higher average daily balances of funds held for new and existing clients as compared to the prior fiscal year.

Previous wording

General and administrative expenses for the three months ended September 30, 2025 increased by $5.4 million, or 11%, to $53.6 million from $48.2 million for the three months ended September 30, 2024. General and administrative expenses increased primarily due to $5.7 million in additional stock-based compensation expense largely driven by executive award forfeitures during the three months ended September 30, 2024.

Current wording

General and administrative expenses for the six months ended December 31, 2025 increased by $4.9 million, or 5%, to $109.5 million from $104.7 million for the six months ended December 31, 2024. General and administrative expenses increased primarily due to $7.0 million in additional stock-based compensation expense largely driven by executive award forfeitures during the six months ended December 31, 2024 and $3.6 million in additional employee-related costs during the six months ended December 31, 2025, partially offset by a decrease in acquisition-related costs and other non-recurring items.

Previous wording

Our effective tax rate was 28.0% and 35.9% for the three months ended September 30, 2024 and 2025, respectively. Our effective tax rate for both the three months ended September 30, 2024 was higher than the federal statutory rate of 21% primarily due to state and local income taxes. Our effective tax rate for the three months ended September 30, 2025 was higher than the federal statutory rate of 21% primarily due to stock-based compensation shortfalls realized, state and local income taxes and an increase in the valuation allowance as explained below.

Current wording

Our effective tax rate was 24.8% and 32.3% for the six months ended December 31, 2024 and 2025, respectively. Our effective tax rate for the six months ended December 31, 2024 was higher than the federal statutory rate of 21% primarily due to state and local income taxes. Our effective tax rate for the six months ended December 31, 2025 was higher than the federal statutory rate of 21% primarily due to stock-based compensation shortfalls realized, state and local income taxes and an increase to the valuation allowance as explained below.

Previous wording

On July 4, 2025, the "One Big Beautiful Bill Act" (the "Act") was enacted into law. The most significant provision applicable to us relates to accelerated tax deductions for qualified property and research expenditures. As a result of this provision, deferred tax assets and liabilities and income tax payables and receivables were impacted starting in fiscal 2026 and we expect cash tax benefits due to lower cash tax payments throughout fiscal 2026. Furthermore, we evaluated the impacts of the Act on certain state tax attributes and has determined that a valuation allowance is needed to reflect the realizability of those assets based on current federal and state law as of September 30, 2025.

Current wording

On July 4, 2025, the "One Big Beautiful Bill Act" (the "Act") was enacted into law. The most significant provision applicable to us relates to accelerated tax deductions for qualified property and research expenditures. As a result of this provision, deferred tax assets and liabilities and income tax payables and receivables were impacted starting in fiscal 2026 and we expect cash tax benefits due to lower cash tax payments throughout fiscal 2026. Furthermore, we evaluated the impacts of the Act on certain state tax attributes and determined that a valuation allowance was needed to reflect the realizability of those assets based on current federal and state law as of December 31, 2025.

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 September 30, 2025, our principal source of liquidity was $165.2 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. During fiscal 2025, we borrowed $325.0 million under this credit facility to fund the October 2024 acquisition of Airbase Inc. We had $81.3 million in outstanding borrowings under this credit facility at September 30, 2025, as we repaid $162.5 million in the second half of fiscal 2025 and an additional $81.3 million during the first quarter of fiscal 2026. Refer to Notes 4 and 8 of the Notes to the Unaudited Consolidated Financial Statements for additional details on the Airbase acquisition and credit agreement, respectively.

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 December 31, 2025, our principal source of liquidity was $162.5 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. During fiscal 2025, we borrowed $325.0 million under this credit facility to fund the October 2024 acquisition of Airbase Inc. We had $81.3 million in outstanding borrowings under this credit facility at December 31, 2025, as we repaid $162.5 million in the second half of fiscal 2025 and an additional $81.3 million during the first half of fiscal 2026. Refer to Notes 4 and 8 of the Notes to the Unaudited Consolidated Financial Statements for additional details on the Airbase acquisition and credit agreement, respectively.

Previous wording

In April 2024, our board of directors authorized the repurchase of up to $500.0 million of our common stock (the "Repurchase Program"). In July 2025, our board of directors approved a $500.0 million increase to 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. During the three months ended September 30, 2025, we repurchased an aggregate of 1.2 million shares for approximately $200.0 million at an average cost per share of $173.30 under the Repurchase Program. As of September 30, 2025, approximately $500.4 million remains authorized for repurchases under the Repurchase Program.

Current wording

In April 2024, our board of directors authorized the repurchase of up to $500.0 million of our common stock (the "Repurchase Program"). In July 2025, our board of directors approved a $500.0 million increase to 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. During the six months ended December 31, 2025, we repurchased an aggregate of 1.8 million shares for approximately $300.0 million at an average cost per share of $162.66 under the Repurchase Program.

Previous wording

Net cash provided by operating activities was $91.5 million and $86.5 million for the three months ended September 30, 2024 and 2025, respectively. The change in net cash provided by operating activities from the three months ended September 30, 2024 to the three months ended September 30, 2025 was primarily due to changes in operating assets and liabilities, partially offset 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, 2025 as compared to the three months ended September 30, 2024.

Current wording

Net cash provided by operating activities was $145.7 million and $203.5 million for the six months ended December 31, 2024 and 2025, respectively. The change in net cash provided by operating activities from the six months ended December 31, 2024 to the six months ended December 31, 2025 was primarily driven 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) and lower income tax payments resulting from the provisions of the One Big Beautiful Bill Act, partially offset by changes in operating assets and liabilities over the same period.

Previous wording

Net cash used in investing activities was $13.3 million and $17.7 million for the three months ended September 30, 2024 and 2025, 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 $301.0 million and $27.5 million for the six months ended December 31, 2024 and 2025, 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 $10.3 million increase in purchases of available-for-sale securities, partially offset by a $7.3 million increase in proceeds from the sales and maturities of available-for-sale securities during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024.

Current wording

The change in net cash used in investing activities was primarily due to $278.0 million paid for the acquisition of Airbase Inc., net of cash and funds held for clients acquired during the six months ended December 31, 2024. The change was also due to a $46.4 million increase in proceeds from the sales and maturities of available-for-sale securities, partially offset by a $49.2 million increase in purchases of available-for-sale securities during the six months ended December 31, 2025 as compared to the six months ended December 31, 2024.

Previous wording

Net cash used in financing activities was $318.3 million and $229.7 million for the three months ended September 30, 2024 and 2025, respectively. The change in net cash used in financing activities was primarily due to an increase in the net change in client fund obligations of $692.0 million due to the timing of client funds collected and related remittance of those funds to client employees and taxing authorities. This was partially offset by $325.0 million in borrowings under our credit facility during the three months ended September 30, 2024, and $200.0 million in share repurchases and $81.3 million repayment of amounts borrowed on our credit facility during the three months ended September 30, 2025.

Current wording

Net cash provided by financing activities was $835.5 million and $2,403.7 million for the six months ended December 31, 2024 and 2025, respectively. The change in net cash provided by financing activities was primarily due to the net change in client fund obligations of $2,259.0 million due to the timing of client funds collected and related remittance of those funds to client employees and taxing authorities. This was partially offset by $325.0 million in borrowings under our credit facility during the six months ended December 31, 2024 and $291.6 million in additional share repurchases and $81.3 million repayment of amounts borrowed on our credit facility during the six months ended December 31, 2025.

Previous wording

At September 30, 2025, our principal commitments consisted of $81.3 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 $63.2 million in operating lease obligations, of which $10.4 million is due in the next twelve months. We also had $84.6 million in purchase obligations, of which $55.2 million is due in the next twelve months.

Current wording

At December 31, 2025, our principal commitments consisted of $81.3 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 $60.5 million in operating lease obligations, of which $10.5 million is due in the next twelve months. We also had $143.2 million in purchase obligations, of which $73.8 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 $2.3 million and $3.8 million for the three months ended September 30, 2024 and 2025, respectively, exclusive of capitalized internal-use software costs of $15.2 million and $15.5 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 $5.3 million and $7.2 million for the six months ended December 31, 2024 and 2025, respectively, exclusive of capitalized internal-use software costs of $29.6 million and $31.4 million for the same periods, respectively.