Paylocity Holding Corp

Previous wording

We are a leading cloud-based provider of HR, finance and IT software solutions that deliver a comprehensive platform for the modern workforce. Our platform offers an intuitive, easy-to-use product suite that helps businesses automate and streamline HR, finance and IT processes, attract and retain talent, and build culture and connection with their employees. We are expanding the spend management capabilities of our platform beyond expense management to include accounts payable automation, corporate cards, and procurement capabilities through the acquisition of Airbase Inc. in October 2024. This integrated platform will enable HR and finance leaders to manage all their spend, including payroll, on a single platform.

Current wording

We are a leading cloud-based provider of HR, finance and IT software solutions that deliver a comprehensive platform for the modern workforce. Our platform offers an intuitive, easy-to-use product suite that helps businesses automate and streamline HR, finance and IT processes, attract and retain talent, and build culture and connection - with artificial intelligence ("AI") embedded directly into everyday workflows to save time, reduce manual effort, and support better decisions.

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 $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.

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 $454.5 million for the three months ended March 31, 2025 to $502.3 million for the three months ended March 31, 2026, representing an 11% year-over-year increase. Total revenues increased from $1,194.5 million for the nine months ended March 31, 2025 to $1,326.6 million for the nine months ended March 31, 2026, 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 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.

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 93% and 94% of our total revenues for the three months ended March 31, 2025 and 2026, respectively, and 92% and 93% of our total revenues for the nine months ended March 31, 2025 and 2026, 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 $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.

Current wording

We also capitalize a portion of our internal-use software costs, which are then primarily amortized as Cost of revenues. We amortized $15.2 million and $17.2 million of capitalized internal-use software costs during the three months ended March 31, 2025 and 2026, respectively, and $43.9 million and $52.2 million of capitalized internal-use software costs for the nine months ended March 31, 2025 and 2026, 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 six months ended December 31, 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 nine months ended March 31, 2025 and 2026.

Previous 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.

Current wording

Recurring and other revenue for the three months ended March 31, 2026 increased by $48.8 million, or 12%, to $469.9 million from $421.1 million for the three months ended March 31, 2025. 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 December 31, 2025 was flat as compared to the three 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.

Current wording

Interest income on funds held for clients for the three months ended March 31, 2026 decreased by $1.1 million, or 3%, as compared to the three months ended March 31, 2025. The slight decrease in Interest income on funds held for clients was the result of the negative impact from lower interest rates, 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

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.

Current wording

Cost of revenues for the three months ended March 31, 2026 increased by $9.2 million, or 7%, to $139.1 million from $129.9 million for the three months ended March 31, 2025. Cost of revenues increased primarily as a result of the continued growth of our business, in particular, $4.4 million in additional employee-related costs, $4.2 million in additional processing and delivery-related costs and $2.0 million in additional amortization of internal-use software. Gross margin increased from 71% for the three months ended March 31, 2025 to 72% for the three months ended March 31, 2026.

Previous 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.

Current wording

Sales and marketing expenses for the three months ended March 31, 2026 increased by $4.0 million, or 4%, to $95.7 million from $91.8 million for the three months ended March 31, 2025. The increase in sales and marketing expense was primarily due to $4.3 million of additional employee-related costs.

Previous 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.

Current wording

Research and development expenses for the three months ended March 31, 2026 increased by $1.1 million, or 2%, to $52.5 million from $51.4 million for the three months ended March 31, 2025. The increase in research and development expenses was primarily due to $2.6 million of additional employee-related costs related to additional development personnel, net of capitalized internal-use software costs, partially offset by $1.8 million in lower stock-based compensation expense.

Previous 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.

Current wording

Other income (expense) for the three months ended March 31, 2026 did not materially change as compared to the three months ended March 31, 2025. The change in other income (expense) was primarily due to a $3.6 million reduction in interest earned on our cash and cash equivalents from lower average balances and lower interest rates, partially offset by a $3.3 million decrease in interest expense related to less borrowings under our revolving credit facility.

Previous wording

Our effective tax rate was 20.0% and 28.5% for the three months ended December 31, 2024 and 2025, respectively. Our effective tax rate for the three months ended December 31, 2024 was lower than the federal statutory rate of 21% primarily due to excess tax benefit from stock-based compensation. Our effective tax rate for the three months ended December 31, 2025 was higher than the federal statutory rate of 21% primarily due to stock-based compensation shortfalls realized and state and local income taxes.

Current wording

Our effective tax rate was 27.7% and 29.2% for the three months ended March 31, 2025 and 2026, respectively. Our effective tax rate for the three months ended March 31, 2025 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, 2026 was higher than the federal statutory rate of 21% primarily due to stock-based compensation shortfalls realized and state and local income taxes.

Previous wording

Recurring and other revenue for the six months ended December 31, 2025 increased by $85.0 million, or 12%, to $765.8 million from $680.8 million for the six 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.

Current wording

Recurring and other revenue for the nine months ended March 31, 2026 increased by $133.9 million, or 12%, to $1,235.8 million from $1,101.9 million for the nine months ended March 31, 2025. 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 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.

Current wording

Interest income on funds held for clients for the nine months ended March 31, 2026 decreased by $1.7 million, or 2%, to $90.8 million from $92.6 million for the nine months ended March 31, 2025. 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

Cost of revenues for the six months ended December 31, 2025 increased by $22.9 million, or 10%, to $262.4 million from $239.5 million for the six months ended December 31, 2024. Cost of revenues increased primarily as a result of the continued growth of our business, in particular, $12.3 million in additional employee-related costs, $6.3 million in additional amortization of internal-use software, $3.0 million in additional processing and delivery related costs and $2.3 million in additional amortization of certain intangible assets. Gross margin remained consistent at 68% for both the six months ended December 31, 2024 and 2025.

Current wording

Cost of revenues for the nine months ended March 31, 2026 increased by $32.1 million, or 9%, to $401.5 million from $369.4 million for the nine months ended March 31, 2025. Cost of revenues increased primarily as a result of the continued growth of our business, in particular, $16.6 million in additional employee-related costs, $8.3 million in additional amortization of internal-use software and $7.2 million in additional processing and delivery-related costs. Gross margin increased from 69% for the nine months ended March 31, 2025 to 70% for the nine months ended March 31, 2026.

Previous wording

Sales and marketing expenses for the six months ended December 31, 2025 increased by $12.9 million, or 7%, to $194.4 million from $181.6 million for the six months ended December 31, 2024. The increase in sales and marketing expense was primarily due to $11.6 million of additional employee-related costs, including those incurred to expand our sales team.

Current wording

Sales and marketing expenses for the nine months ended March 31, 2026 increased by $16.8 million, or 6%, to $290.2 million from $273.3 million for the nine months ended March 31, 2025. The increase in sales and marketing expense was primarily due to $15.9 million of additional employee-related costs.

Previous wording

Research and development expenses for the six months ended December 31, 2025 increased by $9.9 million, or 10%, to $113.3 million from $103.4 million for the six months ended December 31, 2024. The increase in research and development expenses was primarily due to $10.1 million of additional employee-related costs related to additional development personnel, net of capitalized internal-use software costs, partially offset by $2.0 million in lower stock-based compensation expense.

Current wording

Research and development expenses for the nine months ended March 31, 2026 increased by $11.1 million, or 7%, to $165.9 million from $154.8 million for the nine months ended March 31, 2025. The increase in research and development expenses was primarily due to $12.7 million of additional employee-related costs related to additional development personnel, net of capitalized internal-use software costs, partially offset by $3.8 million in lower stock-based compensation expense.

Previous 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.

Current wording

General and administrative expenses for the nine months ended March 31, 2026 increased by $8.3 million, or 5%, to $167.5 million from $159.2 million for the nine months ended March 31, 2025. General and administrative expenses increased primarily due to $6.9 million in additional stock-based compensation expense as compared to the prior fiscal year period, largely driven by executive award forfeitures during the nine months ended March 31, 2025, and $5.2 million in additional employee-related costs during the nine months ended March 31, 2026, partially offset by a $2.3 million decrease in acquisition-related costs and other non-recurring items.

Previous wording

Other income for the six months ended December 31, 2025 decreased by $4.4 million as compared to the six months ended December 31, 2024. The change in other income was primarily due to $5.9 million reduction in interest earned on our cash and cash equivalents from lower average balances, partially offset by a $1.7 million decrease in interest expense related to less borrowings under our revolving credit facility.

Current wording

Other income for the nine months ended March 31, 2026 decreased by $3.9 million as compared to the nine months ended March 31, 2025. The change in other income was primarily due to a $9.5 million reduction in interest earned on our cash and cash equivalents from lower average balances and lower interest rates, partially offset by a $5.0 million decrease in interest expense due to less borrowings under our revolving credit facility.

Previous 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.

Current wording

Our effective tax rate was 26.3% and 30.7% for the nine months ended March 31, 2025 and 2026, respectively. Our effective tax rate for the nine months ended March 31, 2025 was higher than the federal statutory rate of 21% primarily due to state and local income taxes. Our effective tax rate for the nine months ended March 31, 2026 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

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.

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 March 31, 2026, our principal source of liquidity was $299.7 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. 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 March 31, 2026, as we repaid $162.5 million in the second half of fiscal 2025 and an additional $81.3 million during the first nine months 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 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.

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 nine months ended March 31, 2026, we repurchased an aggregate of 2.3 million shares for approximately $350.0 million at an average cost per share of $153.10 under the Repurchase Program. As of March 31, 2026, approximately $350.4 million remains authorized for repurchases under the Repurchase Program. In April 2026, our board of directors authorized an additional $1 billion of our common stock for repurchase under the Repurchase Program. Refer to Note 14 of the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1: “Financial Statements” for additional detail on our Repurchase Program.

Previous 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.

Current wording

Net cash provided by operating activities was $331.7 million and $421.4 million for the nine months ended March 31, 2025 and 2026, respectively. The change in net cash provided by operating activities from the nine months ended March 31, 2025 to the nine months ended March 31, 2026 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 $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.

Current wording

Net cash used in investing activities was $328.5 million and $53.7 million for the nine months ended March 31, 2025 and 2026, 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 $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.

Current wording

The change in net cash used in investing activities was primarily due to $277.9 million paid for the acquisition of Airbase Inc., net of cash and funds held for clients acquired during the nine months ended March 31, 2025. The change was also due to a $145.7 million increase in proceeds from the sales and maturities of available-for-sale securities, partially offset by a $138.2 million increase in purchases of available-for-sale securities, during the nine months ended March 31, 2026 as compared to the nine months ended March 31, 2025.

Previous 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.

Current wording

Net cash provided by financing activities was $543.6 million and $680.5 million for the nine months ended March 31, 2025 and 2026, respectively. The change in net cash provided by financing activities was primarily due to the net change in client fund obligations of $709.2 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 nine months ended March 31, 2025 and $258.9 million in additional share repurchases during the nine months ended March 31, 2026.

Previous 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.

Current wording

At March 31, 2026, 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 $61.8 million in operating lease obligations, of which $11.1 million is due in the next twelve months. We also had $139.6 million in purchase obligations, of which $76.2 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 $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.

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 $7.6 million and $15.5 million for the nine months ended March 31, 2025 and 2026, respectively, exclusive of capitalized internal-use software costs of $45.6 million and $49.1 million for the same periods, respectively.