Paylocity Holding Corp 10-Q for FY2020 Q3

Paylocity Holding Corp (PCTY)

10-Q 2020-05-08 For: 2020-03-31

Added on April 11, 2026

About this 10-Q

Paylocity Holding Corp filed this 10-Q on May 8, 2020, covering the quarter ended March 31, 2020 (FY2020 Q3).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $171.65M; up 23.0% from $139.55M a year earlier
Net income: $40.13M; up 43.2% from net income of $28.03M a year earlier
Diluted EPS: $0.72; up 41.2% from $0.51 a year earlier

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Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	PCTY	The NASDAQ Global Select Market LLC


Large Accelerated Filer	☒	Accelerated Filer	☐

Non-Accelerated Filer	☐	Smaller Reporting Company	☐

		Emerging Growth Company	☐


		Page

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Unaudited Consolidated Balance Sheets		2

Unaudited Consolidated Statements of Operations and Comprehensive Income		3

Unaudited Consolidated Statement of Changes in Stockholders’ Equity		4

Unaudited Consolidated Statements of Cash Flows		5

Notes to the Unaudited Consolidated Financial Statements		6

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		22

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		36

ITEM 4. CONTROLS AND PROCEDURES		37

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS		38

ITEM 1A. RISK FACTORS		38

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		57

ITEM 3. DEFAULTS UPON SENIOR SECURITIES		58

ITEM 4. MINE SAFETY DISCLOSURES		58

ITEM 5. OTHER INFORMATION		58

ITEM 6. EXHIBITS		58

SIGNATURES		60


	June 30,		March 31,
	2019		2020
Assets
Current assets:
Cash and cash equivalents	$	132,476	$	114,325
Corporate investments		29,314		66,308
Accounts receivable, net		4,358		5,761
Deferred contract costs		21,677		29,086
Prepaid expenses and other		13,895		13,337
Total current assets before funds held for clients		201,720		228,817
Funds held for clients		1,394,469		1,729,176
Total current assets		1,596,189		1,957,993
Capitalized internal-use software, net		27,486		34,067
Property and equipment, net		70,056		68,698
Operating lease right-of-use assets		—		50,180
Intangible assets, net		10,751		9,063
Goodwill		9,590		9,590
Long-term deferred contract costs		81,422		111,842
Long-term prepaid expenses and other		1,975		8,266
Deferred income tax assets		6,472		7,229
Total assets	$	1,803,941	$	2,256,928

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,954	$	3,626
Accrued expenses		57,625		64,002
Total current liabilities before client fund obligations		61,579		67,628
Client fund obligations		1,394,469		1,729,176
Total current liabilities		1,456,048		1,796,804
Deferred rent		31,263		—
Long-term operating lease liabilities		—		74,912
Other long-term liabilities		1,723		1,668
Deferred income tax liabilities		6,943		9,169
Total liabilities	$	1,495,977	$	1,882,553
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding at June 30, 2019 and March 31, 2020	$	—	$	—
Common stock, $0.001 par value, 155,000 shares authorized at June 30, 2019 and March 31, 2020; 53,075 shares issued and outstanding at June 30, 2019 and 53,660 shares issued and outstanding at March 31, 2020		53		54
Additional paid-in capital		207,982		215,101
Retained earnings		99,817		159,322
Accumulated other comprehensive income (loss)		112		(102)
Total stockholders’ equity	$	307,964	$	374,375
Total liabilities and stockholders’ equity	$	1,803,941	$	2,256,928


	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2019		2020		2019		2020
Revenues:
Recurring and other revenue	$	133,355	$	167,095	$	333,096	$	416,948
Interest income on funds held for clients		6,197		4,551		14,164		13,792
Total revenues		139,552		171,646		347,260		430,740
Cost of revenues		39,745		48,081		113,757		136,135
Gross profit		99,807		123,565		233,503		294,605
Operating expenses:
Sales and marketing		27,699		37,801		80,687		112,051
Research and development		12,688		15,612		36,886		45,416
General and administrative		23,208		22,411		68,915		77,283
Total operating expenses		63,595		75,824		186,488		234,750
Operating income		36,212		47,741		47,015		59,855
Other income		540		435		1,155		1,194
Income before income taxes		36,752		48,176		48,170		61,049
Income tax expense		8,726		8,044		4,588		1,544
Net income	$	28,026	$	40,132	$	43,582	$	59,505
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on securities, net of tax		161		(182)		161		(214)
Total other comprehensive income (loss), net of tax		161		(182)		161		(214)
Comprehensive income	$	28,187	$	39,950	$	43,743	$	59,291

Net income per share:
Basic	$	0.53	$	0.75	$	0.82	$	1.11
Diluted	$	0.51	$	0.72	$	0.79	$	1.07

Weighted-average shares used in computing net income per share:
Basic		52,934		53,629		52,880		53,486
Diluted		55,465		55,953		55,280		55,760


	Three Months Ended March 31, 2019
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Retained		Comprehensive		Stockholders’
	Shares	Amount		Capital		Earnings		Income (Loss)		Equity
Balances at December 31, 2018	52,887	$	53	$	189,473	$	61,550	$	(139)	$	250,937
Stock-based compensation	—		—		9,972		—		—		9,972
Stock options exercised	117		—		1,483		—		—		1,483
Issuance of common stock upon vesting of restricted stock units	19		—		—		—		—		—
Net settlement for taxes and/or exercise price related to equity awards	(59)		—		(4,354)		—		—		(4,354)
Unrealized gains on securities, net of tax	—		—		—		—		161		161
Net income	—		—		—		28,026		—		28,026
Balances at March 31, 2019	52,964	$	53	$	196,574	$	89,576	$	22	$	286,225


	Three Months Ended March 31, 2020
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Retained		Comprehensive		Stockholders’
	Shares	Amount		Capital		Earnings		Income (Loss)		Equity
Balances at December 31, 2019	53,573	$	54	$	212,240	$	119,190	$	80	$	331,564
Stock-based compensation	—		—		10,051		—		—		10,051
Stock options exercised	130		—		1,318		—		—		1,318
Issuance of common stock upon vesting of restricted stock units	20		—		—		—		—		—
Net settlement for taxes and/or exercise price related to equity awards	(63)		—		(8,508)		—		—		(8,508)
Unrealized losses on securities, net of tax	—		—		—		—		(182)		(182)
Net income	—		—		—		40,132		—		40,132
Balances at March 31, 2020	53,660	$	54	$	215,101	$	159,322	$	(102)	$	374,375


	Nine Months Ended March 31, 2019
						Retained		Accumulated
				Additional		Earnings		Other		Total
	Common Stock			Paid-in		(Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit)		Income (Loss)		Equity
Balances at June 30, 2018	52,758	$	53	$	219,588	$	(6,678)	$	(139)	$	212,824
Cumulative effect of change in accounting policy (adoption of Topic 606)	—		—		—		52,672		—		52,672
Stock-based compensation	—		—		30,817		—		—		30,817
Stock options exercised	329		—		4,140		—		—		4,140
Issuance of common stock upon vesting of restricted stock units	623		—		—		—		—		—
Issuance of common stock under employee stock purchase plan	58		—		2,824		—		—		2,824
Net settlement for taxes and/or exercise price related to equity awards	(362)		—		(25,804)		—		—		(25,804)
Repurchases of common shares	(442)		—		(34,991)		—		—		(34,991)
Unrealized gains on securities, net of tax	—		—		—		—		161		161
Net income	—		—		—		43,582		—		43,582
Balances at March 31, 2019	52,964	$	53	$	196,574	$	89,576	$	22	$	286,225


	Nine Months Ended March 31, 2020
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Retained		Comprehensive		Stockholders’
	Shares	Amount		Capital		Earnings		Income (Loss)		Equity
Balances at June 30, 2019	53,075	$	53	$	207,982	$	99,817	$	112	$	307,964
Stock-based compensation	—		—		36,191		—		—		36,191
Stock options exercised	153		—		1,707		—		—		1,707
Issuance of common stock upon vesting of restricted stock units	708		1		(1)		—		—		—
Issuance of common stock under employee stock purchase plan	45		—		3,961		—		—		3,961
Net settlement for taxes and/or exercise price related to equity awards	(321)		—		(34,739)		—		—		(34,739)
Unrealized losses on securities, net of tax	—		—		—		—		(214)		(214)
Net income	—		—		—		59,505		—		59,505
Balances at March 31, 2020	53,660	$	54	$	215,101	$	159,322	$	(102)	$	374,375


	Three Months Ended March 31, 2019
	Beginning		Capitalized				Ending
	Balance		Costs		Amortization		Balance
Costs to obtain a new contract	$	71,476	$	10,544	$	(4,386)	$	77,634
Costs to fulfill a contract		10,787		5,583		(538)		15,832
Total	$	82,263	$	16,127	$	(4,924)	$	93,466


Balance at June 30, 2019	$	473
Charged to expense		232
Write-offs		(116)
Balance at March 31, 2020	$	589



	June 30,		March 31,		Useful
	2019		2020		Life
Client relationships	$	18,130	$	18,130	7 - 9 years
Non-solicitation agreements		600		600	2 - 4 years
Total		18,730		18,730
Accumulated amortization		(7,979)		(9,667)
Intangible assets, net	$	10,751	$	9,063


Remainder of fiscal 2020	$	563
Fiscal 2021		2,251
Fiscal 2022		2,232
Fiscal 2023		2,118
Fiscal 2024		1,356
Thereafter		543
Total	$	9,063


	June 30, 2019
			Gross		Gross
	Amortized		unrealized		unrealized
Type of Issue	cost		gains		losses		Fair value
Cash and cash equivalents	$	132,478	$	—	$	(2)	$	132,476
Funds held for clients' cash and cash equivalents		1,293,673		—		(6)		1,293,667
Available-for-sale securities:
Commercial paper		63,397		33		(2)		63,428
Corporate bonds		27,044		59		(4)		27,099
Asset-backed securities		26,488		55		(3)		26,540
U.S. treasury securities		13,736		21		—		13,757
Total available-for-sale securities (1)		130,665		168		(9)		130,824
Total investments	$	1,556,816	$	168	$	(17)	$	1,556,967


	March 31, 2020
			Gross		Gross
	Amortized		unrealized		unrealized
Type of Issue	cost		gains		losses		Fair value
Cash and cash equivalents	$	114,323	$	3	$	(1)	$	114,325
Funds held for clients' cash and cash equivalents		1,520,105		23		(1)		1,520,127
Available-for-sale securities:
Commercial paper		150,388		50		(1)		150,437
Corporate bonds		52,587		18		(357)		52,248
Asset-backed securities		57,612		64		(90)		57,586
U.S. treasury securities		21,302		155		—		21,457
Total available-for-sale securities (2)		281,889		287		(448)		281,728
Total investments	$	1,916,317	$	313	$	(450)	$	1,916,180


	June 30,		March 31,
	2019		2020
Office equipment	$	4,406	$	4,491
Computer equipment		36,798		42,478
Furniture and fixtures		11,857		12,764
Software		6,332		6,603
Leasehold improvements		44,350		45,366
Time clocks rented by clients		4,679		4,907
Total		108,422		116,609
Accumulated depreciation		(38,366)		(47,911)
Property and equipment, net	$	70,056	$	68,698


	June 30, 2019
	Securities in an				Securities in an
	unrealized loss				unrealized loss
	position for less				position for greater
	than 12 months				than 12 months				Total
	Gross				Gross				Gross
	unrealized				unrealized				unrealized
	losses		Fair value		losses		Fair value		losses		Fair value
Commercial paper	$	(2)	$	19,055	$	—	$	—	$	(2)	$	19,055
Corporate bonds		(1)		1,500		(3)		3,701		(4)		5,201
Asset-backed securities		(1)		386		(2)		2,958		(3)		3,344
Total available-for-sale securities	$	(4)	$	20,941	$	(5)	$	6,659	$	(9)	$	27,600


	June 30, 2019
	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	132,476	$	116,387	$	16,089	$	—
Funds held for clients' cash and cash equivalents		1,293,667		1,244,856		48,811		—
Available-for-sale securities:
Commercial paper		63,428		—		63,428		—
Corporate bonds		27,099		—		27,099		—
Asset-backed securities		26,540		—		26,540		—
U.S. treasury securities		13,757		—		13,757		—
Total available-for-sale securities		130,824		—		130,824		—
Total investments	$	1,556,967	$	1,361,243	$	195,724	$	—


	Nine Months Ended
	March 31, 2020
Cash paid for amounts included in the measurement of operating lease liabilities	$	7,716
Operating lease assets obtained in exchange for new liabilities	$	2,723


Remainder of fiscal 2020	$	2,755
Fiscal 2021		10,890
Fiscal 2022		9,609
Fiscal 2023		9,229
Fiscal 2024		9,210
Thereafter		60,026
Total undiscounted cash flows		101,719
Less: Present value discount		(18,852)
Total operating lease liabilities	$	82,867


Fiscal 2020	$	10,449
Fiscal 2021		11,150
Fiscal 2022		9,500
Fiscal 2023		8,840
Fiscal 2024		8,838
Thereafter		59,401
Total minimum lease payments	$	108,178


		Number of Shares
Available for grant at July 1, 2019		9,759
RSUs granted		(642)
Shares withheld in settlement of taxes and/or exercise price		321
Forfeitures		93
Shares removed		(39)
Available for grant at March 31, 2020		9,492


	Three Months Ended March 31,				Nine Months Ended March 31,
	2019		2020		2019		2020
Cost of revenues	$	1,192	$	1,362	$	3,734	$	4,057
Sales and marketing		1,799		3,466		5,496		10,813
Research and development		1,287		1,899		4,025		4,945
General and administrative		5,035		2,789		15,582		14,533
Total stock-based compensation expense	$	9,313	$	9,516	$	28,837	$	34,348


	Outstanding Options
				Weighted
		Weighted		average
		average		remaining	Aggregate
	Number of	exercise		contractual	intrinsic
	shares	price		term (years)	value
Balance at July 1, 2019	1,525	$	12.24	3.95	$	124,373
Options exercised	(153)	$	11.15
Balance at March 31, 2020	1,372	$	12.37	3.20	$	104,172
Options vested and exercisable at March 31, 2020	1,372	$	12.37	3.20	$	104,172


	Units	Weighted average grant date fair value
RSU balance at July 1, 2019	1,813	$	53.78
RSUs granted	642	$	99.72
RSUs vested	(708)	$	49.75
RSUs forfeited	(93)	$	59.72
RSU balance at March 31, 2020	1,654	$	73.57
RSUs expected to vest at March 31, 2020	1,442	$	71.83


	Three Months Ended
	March 31,						Change
	2019			2020			$		%
Recurring and other revenue	$	133,355		$	167,095		$	33,740	25	%
Percentage of total revenues		95	%		97	%
Interest income on funds held for clients	$	6,197		$	4,551		$	(1,646)	(27)	%
Percentage of total revenues		5	%		3	%


	Payment Due By Fiscal Period
			Less than 1						More than
	Total		Year		1-3 Years		3-5 Years		5 Years
Operating lease obligations	$	101,719	$	10,901	$	19,294	$	18,348	$	53,176
Unconditional purchase obligations		12,151		6,797		4,557		797		—
	$	113,870	$	17,698	$	23,851	$	19,145	$	53,176


Exhibit Nos.		Description

3.1		First Amended and Restated Certificate of Incorporation (filed as Exhibit 3.2 of Paylocity Holding Corporation’s Form S-1 Registration Statement (Registration No. 333-193661)).

3.2		Amended and Restated Bylaws of Paylocity Holding Corporation (filed as Exhibit 3.2 of Paylocity Holding Corporation’s Annual Report on Form 10-K for the year ended June 30, 2017 (File No. 001-36348)).

31.1*		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-4 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-4 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification pursuant to 18 U.S.C. 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Chief Executive Officer.

32.2**		Certification pursuant to 18 U.S.C. 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Chief Financial Officer.

101.INS*		XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

101.SCH*		XBRL Taxonomy Extension Schema Document.

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.

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101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

104*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


		PAYLOCITY HOLDING CORPORATION

Date:	May 8, 2020	By:	/s/ Steven R. Beauchamp
		Name:	Steven R. Beauchamp
		Title:	Chief Executive Officer (Principal Executive Officer) and Director


Date:	May 8, 2020	By:	/s/ Toby J. Williams
		Name:	Toby J. Williams
		Title:	Chief Financial Officer (Principal Financial Officer)