Paylocity Holding Corp 10-Q for FY2020 Q2

Paylocity Holding Corp (PCTY)

10-Q 2020-02-05 For: 2019-12-31

Added on April 11, 2026

About this 10-Q

Paylocity Holding Corp filed this 10-Q on February 5, 2020, covering the quarter ended December 31, 2019 (FY2020 Q2).

Headline figures

Quarter ended December 31, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $132.37M; up 23.5% from $107.2M a year earlier
Net income: $5.47M; down 4.2% from net income of $5.7M a year earlier
Diluted EPS: $0.10; unchanged from $0.10 a year earlier

Search and read filings like this one from Claude or ChatGPT with the SEC filings MCP server →


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		35

ITEM 4. CONTROLS AND PROCEDURES		36

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS		37

ITEM 1A. RISK FACTORS		37

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		55

ITEM 3. DEFAULTS UPON SENIOR SECURITIES		56

ITEM 4. MINE SAFETY DISCLOSURES		56

ITEM 5. OTHER INFORMATION		56

ITEM 6. EXHIBITS		56

SIGNATURES		58


	June 30,		December 31,
	2019		2019
Assets
Current assets:
Cash and cash equivalents	$	132,476	$	75,900
Corporate investments		29,314		69,849
Accounts receivable, net		4,358		4,348
Deferred contract costs		21,677		26,150
Prepaid expenses and other		13,895		12,876
Total current assets before funds held for clients		201,720		189,123
Funds held for clients		1,394,469		1,845,294
Total current assets		1,596,189		2,034,417
Capitalized internal-use software, net		27,486		31,619
Property and equipment, net		70,056		71,090
Operating lease right-of-use assets		—		51,659
Intangible assets, net		10,751		9,626
Goodwill		9,590		9,590
Long-term deferred contract costs		81,422		99,383
Long-term prepaid expenses and other		1,975		8,290
Deferred income tax assets		6,472		7,758
Total assets	$	1,803,941	$	2,323,432

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,954	$	3,714
Accrued expenses		57,625		62,853
Total current liabilities before client fund obligations		61,579		66,567
Client fund obligations		1,394,469		1,845,294
Total current liabilities		1,456,048		1,911,861
Deferred rent		31,263		—
Long-term operating lease liabilities		—		76,929
Other long-term liabilities		1,723		1,360
Deferred income tax liabilities		6,943		1,718
Total liabilities	$	1,495,977	$	1,991,868
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding at June 30, 2019 and December 31, 2019	$	—	$	—
Common stock, $0.001 par value, 155,000 shares authorized at June 30, 2019 and December 31, 2019; 53,075 shares issued and outstanding at June 30, 2019 and 53,573 shares issued and outstanding at December 31, 2019		53		54
Additional paid-in capital		207,982		212,240
Retained earnings		99,817		119,190
Accumulated other comprehensive income		112		80
Total stockholders’ equity	$	307,964	$	331,564
Total liabilities and stockholders’ equity	$	1,803,941	$	2,323,432


	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2018		2019		2018		2019
Revenues:
Recurring and other revenue	$	102,739	$	127,980	$	199,741	$	249,853
Interest income on funds held for clients		4,465		4,394		7,967		9,241
Total revenues		107,204		132,374		207,708		259,094
Cost of revenues		38,070		45,424		74,012		88,054
Gross profit		69,134		86,950		133,696		171,040
Operating expenses:
Sales and marketing		26,570		37,293		52,988		74,250
Research and development		12,798		15,410		24,198		29,804
General and administrative		22,739		28,133		45,707		54,872
Total operating expenses		62,107		80,836		122,893		158,926
Operating income		7,027		6,114		10,803		12,114
Other income		346		285		615		759
Income before income taxes		7,373		6,399		11,418		12,873
Income tax expense (benefit)		1,669		932		(4,138)		(6,500)
Net income	$	5,704	$	5,467	$	15,556	$	19,373
Other comprehensive loss, net of tax
Unrealized losses on securities, net of tax		(15)		(36)		—		(32)
Total other comprehensive loss, net of tax		(15)		(36)		—		(32)
Comprehensive income	$	5,689	$	5,431	$	15,556	$	19,341

Net income per share:
Basic	$	0.11	$	0.10	$	0.29	$	0.36
Diluted	$	0.10	$	0.10	$	0.28	$	0.35

Weighted-average shares used in computing net income per share:
Basic		52,842		53,542		52,853		53,415
Diluted		55,081		55,826		55,232		55,692


	Three Months Ended December 31, 2018
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Retained		Comprehensive		Stockholders’
	Shares	Amount		Capital		Earnings		Loss		Equity
Balances at September 30, 2018	52,796	$	53	$	176,851	$	55,846	$	(124)	$	232,626
Stock-based compensation	—		—		10,795		—		—		10,795
Stock options exercised	30		—		416		—		—		416
Issuance of common stock upon vesting of restricted stock units	25		—		—		—		—		—
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	(22)		—		(1,413)		—		—		(1,413)
Unrealized losses on securities, net of tax	—		—		—		—		(15)		(15)
Net income	—		—		—		5,704		—		5,704
Balances at December 31, 2018	52,887	$	53	$	189,473	$	61,550	$	(139)	$	250,937


	Three Months Ended December 31, 2019
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Retained		Comprehensive		Stockholders’
	Shares	Amount		Capital		Earnings		Income		Equity
Balances at September 30, 2019	53,511	$	54	$	195,566	$	113,723	$	116	$	309,459
Stock-based compensation	—		—		13,422		—		—		13,422
Stock options exercised	15		—		269		—		—		269
Issuance of common stock upon vesting of restricted stock units	11		—		—		—		—		—
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	(9)		—		(978)		—		—		(978)
Unrealized losses on securities, net of tax	—		—		—		—		(36)		(36)
Net income	—		—		—		5,467		—		5,467
Balances at December 31, 2019	53,573	$	54	$	212,240	$	119,190	$	80	$	331,564


	Six Months Ended December 31, 2018
						Retained		Accumulated
				Additional		Earnings		Other		Total
	Common Stock			Paid-in		(Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit)		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	—		—		20,845		—		—		20,845
Stock options exercised	212		—		2,657		—		—		2,657
Issuance of common stock upon vesting of restricted stock units	604		—		—		—		—		—
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	(303)		—		(21,450)		—		—		(21,450)
Repurchases of common shares	(442)		—		(34,991)		—		—		(34,991)
Net income	—		—		—		15,556		—		15,556
Balances at December 31, 2018	52,887	$	53	$	189,473	$	61,550	$	(139)	$	250,937


	Six Months Ended December 31, 2019
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Retained		Comprehensive		Stockholders’
	Shares	Amount		Capital		Earnings		Income		Equity
Balances at June 30, 2019	53,075	$	53	$	207,982	$	99,817	$	112	$	307,964
Stock-based compensation	—		—		26,140		—		—		26,140
Stock options exercised	23		—		389		—		—		389
Issuance of common stock upon vesting of restricted stock units	688		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	(258)		—		(26,231)		—		—		(26,231)
Unrealized losses on securities, net of tax	—		—		—		—		(32)		(32)
Net income	—		—		—		19,373		—		19,373
Balances at December 31, 2019	53,573	$	54	$	212,240	$	119,190	$	80	$	331,564


	Six Months Ended
	December 31,
	2018 ⁽¹⁾		2019
Cash flows from operating activities:
Net income	$	15,556	$	19,373
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense		19,524		24,832
Depreciation and amortization expense		16,801		18,261
Deferred income tax benefit		(4,139)		(6,500)
Provision for doubtful accounts		112		63
Net accretion of discounts and amortization of premiums on available-for-sale securities		(893)		(1,052)
Amortization of debt issuance costs		—		73
Loss on disposal of equipment		357		250
Changes in operating assets and liabilities:
Accounts receivable		(926)		(53)
Deferred contract costs		(14,156)		(22,434)
Prepaid expenses and other		635		773
Accounts payable		147		261
Accrued expenses and other		1,027		2,231
Tenant improvement allowance		251		—
Net cash provided by operating activities		34,296		36,078
Cash flows from investing activities:
Purchases of available-for-sale securities and other		(117,053)		(253,950)
Proceeds from sales and maturities of available-for-sale securities		88,879		124,780
Capitalized internal-use software costs		(9,425)		(12,139)
Purchases of property and equipment		(7,532)		(12,398)
Lease allowances used for tenant improvements		(251)		—
Net cash used in investing activities		(45,382)		(153,707)
Cash flows from financing activities:
Net change in client fund obligations		33,159		450,825
Repurchases of common shares		(34,991)		—
Proceeds from exercise of stock options		85		—
Proceeds from employee stock purchase plan		2,824		3,961
Taxes paid related to net share settlement of equity awards		(18,878)		(25,954)
Payment of debt issuance costs		—		(675)
Net cash provided by (used in) financing activities		(17,801)		428,157
Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents		(28,887)		310,528
Cash, cash equivalents and funds held for clients' cash and cash equivalents—beginning of period		1,239,731		1,426,143
Cash, cash equivalents and funds held for clients' cash and cash equivalents—end of period	$	1,210,844	$	1,736,671
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Purchases of property and equipment, accrued but not paid	$	252	$	—
Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	—	$	53
Cash paid for income taxes, net of refunds	$	357	$	19
Reconciliation of cash, cash equivalents and funds held for clients' cash and cash equivalents to the Consolidated Balance Sheets
Cash and cash equivalents	$	84,114	$	75,900
Funds held for clients' cash and cash equivalents		1,126,730		1,660,771
Total cash, cash equivalents and funds held for clients' cash and cash equivalents	$	1,210,844	$	1,736,671


	Three Months Ended December 31, 2018
	Beginning		Capitalized				Ending
	Balance		Costs		Amortization		Balance
Costs to obtain a new contract	$	69,933	$	5,635	$	(4,092)	$	71,476
Costs to fulfill a contract		5,343		5,776		(332)		10,787
Total	$	75,276	$	11,411	$	(4,424)	$	82,263


Balance at June 30, 2019	$	473
Charged to expense		63
Write-offs		(48)
Balance at December 31, 2019	$	488



	June 30,		December 31,		Useful
	2019		2019		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)		(9,104)
Intangible assets, net	$	10,751	$	9,626


Remainder of fiscal 2020	$	1,126
Fiscal 2021		2,251
Fiscal 2022		2,232
Fiscal 2023		2,118
Fiscal 2024		1,356
Thereafter		543
Total	$	9,626


	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


	June 30,		December 31,
	2019		2019
Office equipment	$	4,406	$	4,490
Computer equipment		36,798		42,344
Furniture and fixtures		11,857		12,682
Software		6,332		6,638
Leasehold improvements		44,350		44,697
Time clocks rented by clients		4,679		4,893
Total		108,422		115,744
Accumulated depreciation		(38,366)		(44,654)
Property and equipment, net	$	70,056	$	71,090


	Amortized
	cost		Fair value
One year or less	$	232,303	$	232,346
One year to two years		28,583		28,652
Total available-for-sale securities	$	260,886	$	260,998


	December 31, 2019
			Gross		Gross
	Amortized		unrealized		unrealized
Type of Issue	cost		gains		losses		Fair value
Cash and cash equivalents	$	75,902	$	1	$	(3)	$	75,900
Funds held for clients' cash and cash equivalents		1,660,771		1		(1)		1,660,771
Available-for-sale securities:
Commercial paper		148,627		7		(8)		148,626
Corporate bonds		22,511		54		(1)		22,564
Asset-backed securities		55,857		68		(14)		55,911
U.S. treasury securities		33,891		9		(3)		33,897
Total available-for-sale securities (2)		260,886		138		(26)		260,998
Total investments	$	1,997,559	$	140	$	(30)	$	1,997,669


	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	$	—


	Six Months Ended
	December 31, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	5,088
Operating lease assets obtained in exchange for new liabilities	$	2,627


Remainder of fiscal 2020	$	5,378
Fiscal 2021		10,839
Fiscal 2022		9,574
Fiscal 2023		9,227
Fiscal 2024		9,209
Thereafter		60,026
Total undiscounted cash flows		104,253
Less: Present value discount		(19,630)
Total operating lease liabilities	$	84,623


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		(638)
Shares withheld in settlement of taxes and/or exercise price		258
Forfeitures		80
Shares removed		(1)
Available for grant at December 31, 2019		9,458


	Three Months Ended December 31,				Six Months Ended December 31,
	2018		2019		2018		2019
Cost of revenues	$	1,304	$	1,446	$	2,542	$	2,695
Sales and marketing		2,000		3,379		3,697		7,347
Research and development		1,460		1,768		2,738		3,046
General and administrative		5,335		6,177		10,547		11,744
Total stock-based compensation expense	$	10,099	$	12,770	$	19,524	$	24,832


	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	(23)	$	17.35
Balance at December 31, 2019	1,502	$	12.17	3.43	$	163,219
Options vested and exercisable at December 31, 2019	1,502	$	12.17	3.43	$	163,219


	Units	Weighted average grant date fair value
RSU balance at July 1, 2019	1,813	$	53.78
RSUs granted	638	$	99.48
RSUs vested	(688)	$	49.43
RSUs forfeited	(80)	$	57.65
RSU balance at December 31, 2019	1,683	$	73.21
RSUs expected to vest at December 31, 2019	1,553	$	72.66


	Three Months Ended
	December 31,						Change
	2018			2019			$		%
Recurring and other revenue	$	102,739		$	127,980		$	25,241	25	%
Percentage of total revenues		96	%		97	%
Interest income on funds held for clients	$	4,465		$	4,394		$	(71)	(2)	%
Percentage of total revenues		4	%		3	%


	Six Months Ended
	December 31,
	2018⁽¹⁾		2019
Net cash provided by operating activities	$	34,296	$	36,078
Cash flows from investing activities:
Purchases of available-for-sale securities and other		(117,053)		(253,950)
Proceeds from sales and maturities of available-for-sale securities		88,879		124,780
Capitalized internal-use software costs		(9,425)		(12,139)
Purchases of property and equipment		(7,532)		(12,398)
Lease allowances used for tenant improvements		(251)		—
Net cash used in investing activities		(45,382)		(153,707)
Cash flows from financing activities:
Net change in client fund obligations		33,159		450,825
Repurchases of common shares		(34,991)		—
Proceeds from exercise of stock options		85		—
Proceeds from employee stock purchase plan		2,824		3,961
Taxes paid related to net share settlement of equity awards		(18,878)		(25,954)
Payment of debt issuance costs		—		(675)
Net cash provided by (used in) financing activities		(17,801)		428,157
Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents	$	(28,887)	$	310,528


	Payment Due By Fiscal Period
			Less than 1						More than
	Total		Year		1-3 Years		3-5 Years		5 Years
Operating lease obligations	$	104,253	$	10,715	$	19,703	$	18,354	$	55,481
Unconditional purchase obligations		12,049		6,563		4,557		929		—
	$	116,302	$	17,278	$	24,260	$	19,283	$	55,481


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.

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.

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:	February 5, 2020	By:	/s/ Steven R. Beauchamp
		Name:	Steven R. Beauchamp
		Title:	Chief Executive Officer (Principal Executive Officer) and Director


Date:	February 5, 2020	By:	/s/ Toby J. Williams
		Name:	Toby J. Williams
		Title:	Chief Financial Officer (Principal Financial Officer)