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 artificial intelligence ("AI") embedded directly into everyday workflows to save time, reduce manual effort, and support better decisions.

Current wording

We are a leading cloud-based provider of HCM, 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 decision-making.

Previous wording

Effective management of human capital and business-related spend is a core function in all organizations and requires a significant commitment of resources. Our cloud-based software solutions, combined with our unified database architecture, are highly flexible and configurable and feature a modern, intuitive user experience. Our platform offers automated data integration with hundreds of third-party partner systems, such as 401(k), benefits and insurance provider systems. We plan to continue to invest in research and development efforts that will allow us to offer a broader selection of products to new and existing clients focused on experiences that solve our clients’ challenges.

Current wording

Effective management of human capital, finance and IT operations is a core function in all organizations and requires a significant commitment of resources. Our cloud-based software solutions, combined with our unified database architecture, are highly flexible and configurable and feature a modern, intuitive user experience. The platform is built on a single employee record with workflows and integrations designed to automate processes across teams and systems. AI, analytics and reporting capabilities are embedded throughout the platform to deliver value with intelligent automation, tailored insights, and real-time guidance to administrators and employees. Our platform also offers automated data integration with hundreds of third-party partner systems, such as 401(k), benefits and insurance provider systems. We plan to continue to invest in research and development efforts that will allow us to offer a broader selection of products to new and existing clients focused on experiences that solve our clients’ challenges.

Previous wording

We also believe that delivering a positive service experience is an essential element of our ability to sell our solutions and retain our clients. We supplement our comprehensive software solutions with an integrated implementation and client service organization, all of which are designed to meet the needs of our clients and sales prospects. We expect to continue to invest in and grow our implementation and client service organization as our client base grows.

Current wording

We also believe that delivering a positive service experience is an essential element of our ability to sell our solutions and retain our clients. We supplement our comprehensive software solutions with an integrated implementation and client service organization designed to meet the needs of our clients and sales prospects. We expect to continue to invest in and grow our implementation and client service organization as our client base grows.

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 $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.

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 $408.2 million for the three months ended September 30, 2025 to $451.7 million for the three months ended September 30, 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 through fluctuations in client employee counts, elongated sales cycles, client losses, and a changing interest rate environment, among other factors.

Previous wording

We define Adjusted Gross Profit as gross profit before amortization of capitalized internal-use software costs, amortization of certain acquired intangibles, stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, and other items as described below. We define Adjusted EBITDA as net income before interest expense, income tax expense, depreciation and amortization expense, stock-based compensation expense and employer payroll taxes related to stock releases and option exercises and other items as described below.

Current wording

We define Adjusted Gross Profit as gross profit before amortization of capitalized internal-use software costs, amortization of certain acquired intangibles, stock-based compensation expense and employer payroll taxes related to stock releases, and other items as described below. We define Adjusted EBITDA as net income before interest expense, income tax expense, depreciation and amortization expense, stock-based compensation expense and employer payroll taxes related to stock releases and other items as described below.

Previous wording

(2)Represents acquisition and 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.

Current wording

(1)Represents acquisition and 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 generate substantially all of our recurring and other revenue from ongoing subscriptions to our cloud-based 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 for 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 software solutions.

Current wording

We generate substantially all of our recurring and other revenue from ongoing subscriptions to our cloud-based 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 software 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 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.

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 September 30, 2025 and 2026, respectively.

Previous wording

Cost of revenues consists primarily of employee-related expenses, including wages, stock-based compensation, bonuses and benefits, relating to the provision of ongoing client support and implementation activities, payroll tax filing, distribution of printed checks and other materials as well as delivery costs, computing costs, amortization of certain acquired intangibles and bank fees associated with client fund transfers. Costs related to recurring support are generally expensed as incurred. Implementation costs related to our proprietary products are capitalized and generally amortized over a period of 7 years. Our cost of revenues is expected to increase in absolute dollars for the foreseeable future as we increase our client base. However, we expect to realize cost efficiencies over the long term as our business scales, resulting in improved operating leverage and increased margins.

Current wording

Cost of revenues consists primarily of employee-related expenses, including wages, stock-based compensation, bonuses and benefits, and costs related to ongoing client support and implementation activities, payroll tax filing, distribution of printed checks and other materials as well as delivery and computing costs, amortization of certain acquired intangible assets and bank fees associated with client fund transfers. Costs related to recurring support are generally expensed as incurred. We capitalize implementation costs related to our proprietary products. For the year ended June 30,

Previous 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.

Current wording

We also capitalize a portion of our internal-use software costs, which are then primarily amortized as Cost of revenues. We amortized $17.3 million and $18.6 million of capitalized internal-use software costs for the three months ended September 30, 2025 and 2026, respectively.

Previous wording

Sales and marketing expenses consist primarily of employee-related expenses for our direct sales and marketing staff, including wages, commissions, stock-based compensation, bonuses, benefits, marketing expenses and other related costs. Our sales personnel earn commissions and bonuses for attainment of certain performance criteria based upon new sales throughout the fiscal year. We capitalize certain selling and commission costs related to new contracts or purchases of additional services by our existing clients and generally amortize them over a period of 7 years.

Current wording

Sales and marketing expenses consist primarily of employee-related expenses for our direct sales and marketing staff, including wages, commissions, stock-based compensation, bonuses, and benefits, and marketing expenses and other related costs. Our sales personnel earn commissions and bonuses for attainment of certain performance criteria based upon new sales throughout the fiscal year. We capitalize certain selling and commission costs related to new contracts or purchases of additional services by our existing clients. For the year ended June 30, 2026 and earlier, we generally amortized these costs over a period of 7 years. At the end of fiscal 2026, we reassessed the expected period of benefit and, effective June 30, 2026, extended the amortization period to 8 years on a prospective basis.

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, 2025 and 2026.

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, 2025 and 2026.

Previous 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.

Current wording

Recurring and other revenue for the three months ended September 30, 2026 increased by $45.6 million, or 12%, to $424.5 million from $378.9 million for the three months ended September 30, 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 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.

Current wording

Interest income on funds held for clients for the three months ended September 30, 2026 decreased by $2.1 million, or 7%, to $27.2 million from $29.3 million for the three months ended September 30, 2025. Interest income on funds held for clients decreased due to lower interest rates partially offset by 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 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.

Current wording

Cost of revenues for the three months ended September 30, 2026 increased by $19.2 million, or 15%, to $147.6 million from $128.4 million for the three months ended September 30, 2025. Cost of revenues increased primarily as a result of the continued growth of our business, in particular, $14.3 million in additional employee-related costs, which were partially offset by $1.6 million in additional contract cost deferrals and $1.6 million in lower deferred contract cost amortization attributable to the extension of the amortization period of such deferrals from 7 years to 8 years effective June 30, 2026. The increase is also the result of $5.5 million in additional processing and delivery-related costs. Gross margin decreased from 69% for the three months ended September 30, 2025 to 67% for the three months ended September 30, 2026.

Previous 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.

Current wording

Sales and marketing expenses for the three months ended September 30, 2026 increased by $4.8 million, or 5%, to $101.1 million from $96.4 million for the three months ended September 30, 2025. The increase in sales and marketing expense was primarily due to $7.6 million of additional employee-related costs, which was partially offset by $3.1 million in additional contract cost deferrals and $2.3 million in lower deferred contract cost amortization attributable to the extension of the amortization period of such deferrals from 7 years to 8 years effective June 30, 2026.

Previous 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.

Current wording

Research and development expenses for the three months ended September 30, 2026 increased by $3.4 million, or 6%, to $59.0 million from $55.6 million for the three months ended September 30, 2025. The increase in research and development expenses was primarily due to $7.1 million of additional employee-related costs related to additional development personnel partially offset by $5.3 million higher capitalization of employee-related internal-use software costs.

Previous wording

General and administrative expenses for the three months ended March 31, 2026 increased by $3.5 million, or 6%, to $58.0 million from $54.5 million for the three months ended March 31, 2025. General and administrative expenses increased largely due to $1.6 million in additional employee-related costs.

Current wording

General and administrative expenses for the three months ended September 30, 2026 increased by $8.1 million, or 15%, to $61.7 million from $53.6 million for the three months ended September 30, 2025. General and administrative expenses increased primarily due to $4.2 million in additional stock-based compensation expense and $2.1 million in additional employee-related costs during the three months ended September 30, 2026.

Previous 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.

Current wording

Our effective tax rate was 35.9% and 30.2% for the three months ended September 30, 2025 and 2026, respectively. 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. Our effective tax rate for the three months ended September 30, 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

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.

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, 2026, our principal source of liquidity was $194.5 million of cash and cash equivalents. In September 2026, we entered into an amended and restated revolving credit agreement, which replaced our previous credit agreement. The amended and restated credit agreement provides for a$1,750.0 million revolving credit facility, which may be increased up to$2,625.0 million. At June 30, 2026, we had $81.3 million in outstanding borrowings under the credit facility. During the three months ended September 30, 2026, we borrowed $50.0 million to fund share repurchases as discussed further below. Consequently, we had $131.3 million in outstanding borrowings under this credit facility at September 30, 2026. Refer to Note 8 of the Notes to the Unaudited Consolidated Financial Statements for additional details on the credit agreement.

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 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.

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 and April 2026, our board of directors approved $500.0 million and $1.0 billion increases, respectively, 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, 2026, we repurchased an aggregate of 1.1 million shares for approximately $152.5 million at an average cost per share of $138.66 under the Repurchase Program. As of September 30, 2026, approximately $1,149.8 million remains authorized for repurchases under the Repurchase Program.

Previous wording

We believe our current cash and cash equivalents, future cash flow from operations, and access to our credit facility will be sufficient to meet our ongoing working capital, capital expenditure and other liquidity requirements for at least the next 12 months, and thereafter, for the foreseeable future.

Current wording

We believe our current cash and cash equivalents, future cash flow from operations, and access to our credit facility will be sufficient to meet our ongoing working capital, capital expenditure, share repurchase and other liquidity requirements for at least the next 12 months, and thereafter, for the foreseeable future.

Previous 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.

Current wording

Net cash provided by operating activities was $86.5 million and $79.7 million for the three months ended September 30, 2025 and 2026, respectively. The change in net cash provided by operating activities from the three months ended September 30, 2025 to the three months ended September 30, 2026 was primarily driven by changes in operating assets and liabilities and lower income tax payments resulting from the provisions of the One Big Beautiful Bill Act during the three months ended September 30, 2025, 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, 2026 as compared to the three months ended September 30, 2025.

Previous 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.

Current wording

Net cash used in investing activities was $17.7 million and $30.6 million for the three months ended September 30, 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 $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.

Current wording

The change in net cash used in investing activities was primarily due to a $26.4 million decrease in proceeds from the sales and maturities of available-for-sale securities and $10.6 million paid for acquisitions, net of cash acquired, partially offset by a $30.5 million decrease in purchases of available-for-sale securities during the three months ended September 30, 2026 as compared to the three months ended September 30, 2025.

Previous 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.

Current wording

Net cash used in financing activities was $229.7 million and $430.2 million for the three months ended September 30, 2025 and 2026, respectively. The change in net cash used in financing activities was primarily due to the net change in client fund obligations of $380.0 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 an $81.3 million repayment of borrowings under our credit facility during the three months ended September 30, 2025, and $50.0 million of borrowings under our credit facility and $47.5 million of lower share repurchases during the three months ended September 30, 2026.

Previous 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.

Current wording

At September 30, 2026, our principal commitments consisted of $131.3 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 $64.8 million in operating lease obligations, of which $12.1 million is due in the next twelve months. We also had $131.6 million in purchase obligations, of which $69.6 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 $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.

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 $3.8 million and $3.1 million for the three months ended September 30, 2025 and 2026, respectively, exclusive of capitalized internal-use software costs of $15.5 million and $20.5 million for the same periods, respectively.