S

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2019

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from     to     

Commission file number 001-36348

PAYLOCITY HOLDING CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	46-4066644
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

1400 American Lane Schaumburg, Illinois	60173
(Address of principal executive offices)	(Zip Code)

(847) 463-3200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ⌧  No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes ⌧  No  ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	⌧	Accelerated Filer	◻
Non-Accelerated Filer	◻	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ☐  No  ⌧

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 53,609,063 shares of Common Stock, $0.001 par value per share, as of January 29, 2020.

Paylocity Holding Corporation

Form 10-Q

For the Quarterly Period Ended December 31, 2019

TABLE OF CONTENTS

	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

1

PART I

FINANCIAL INFORMATION

Item 1.    Financial Statements

PAYLOCITY HOLDING CORPORATION

Unaudited Consolidated Balance Sheets

(in thousands, except per share data)

	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

See accompanying notes to unaudited consolidated financial statements.

2

PAYLOCITY HOLDING CORPORATION

Unaudited Consolidated Statements of Operations and Comprehensive Income

(in thousands, except per share data)

	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

See accompanying notes to unaudited consolidated financial statements.

3

PAYLOCITY HOLDING CORPORATION

Unaudited Consolidated Statement of Changes in Stockholders’ Equity

(in thousands)

	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

See accompanying notes to the unaudited consolidated financial statements.

4

PAYLOCITY HOLDING CORPORATION

Unaudited Consolidated Statements of Cash Flows

(in thousands)

	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

(1) Certain amounts have been reclassified to reflect the adoption of Accounting Standards Update (“ASU”) No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force).” Refer to Note 2 of the audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2019.

See accompanying notes to unaudited consolidated financial statements.

5

PAYLOCITY HOLDING CORPORATION

Notes to the Unaudited Consolidated Financial Statements

(all amounts in thousands, except per share data)

(1)  Organization and Description of Business

Paylocity Holding Corporation (the “Company”) is a cloud-based provider of payroll and human capital management software solutions for medium-sized organizations. Services are provided in a Software-as-a-Service (“SaaS”) delivery model utilizing the Company’s cloud-based platform. The Company’s comprehensive product suite delivers a unified platform that allows clients to make strategic decisions in the areas of payroll, core HR, workforce management, talent and benefits.

(2)  Summary of Significant Accounting Policies

(a)  Basis of Presentation, Consolidation and Use of Estimates

These unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. Accounting estimates used in the preparation of these consolidated financial statements change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes.

Beginning in fiscal 2020, the Company simplified the presentation of revenue and cost of revenues on its Unaudited Consolidated Statements of Operations and Comprehensive Income. The line items “Recurring fees” and “Implementation services and other” have been combined into one revenue line: “Recurring and other revenue”. Likewise, the line items “Cost of revenues – recurring revenues” and “Cost of revenues – implementation services and other” have been combined into one line: “Cost of revenues”. The Company changed the presentation of revenue and cost of revenues as Implementation services and other has become a smaller component of its overall revenue mix due to the human capital management (“HCM”) suite becoming a larger part of the portfolio. Previously reported results for the three and six month periods ended December 31, 2018 have been reclassified to conform to the current presentation.

(b)  Interim Unaudited Consolidated Financial Information

The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with GAAP and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the Company’s financial position, results of operations, changes in stockholders’ equity and cash flows. The results of operations for the three and six months ended December 31, 2019 are not necessarily indicative of the results for the full year or the results for any future periods. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended June 30, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC on August 9, 2019.

6

(c)  Income Taxes

Income taxes are accounted for in accordance with ASC 740, Income Taxes, using the asset and liability method. The Company’s provision for income taxes is based on the annual effective rate method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net-recorded amount, it would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

(d)  Recently Adopted Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The Company adopted the new standard on July 1, 2019 using the modified retrospective method and the transition relief guidance provided by the FASB in ASU 2018-11, Leases (Topic 842): Targeted Improvements. Consequently, the Company did not update financial information or provide disclosures required under the new standard for dates and periods prior to July 1, 2019. The Company elected the package of practical expedients and did not reassess prior conclusions on whether contracts are or contain a lease, lease classification, and initial direct costs. In addition, the Company adopted the lessee practical expedient to combine lease and non-lease components for all asset classes and elected to not recognize ROU assets and lease liabilities for leases with a term of 12 months or less.

Adoption of the new standard resulted in the Company recording operating lease ROU assets and operating lease liabilities of $52,083 and $83,852, respectively, as of July 1, 2019. The ROU assets were recorded net of $31,769 in deferred rent adjustments that were previously recorded in Accrued expenses and Deferred rent on the Consolidated Balance Sheets as of June 30, 2019. The adoption of this standard did not result in any cumulative-effect adjustments to Retained earnings. Additionally, there was no impact on the Company’s unaudited consolidated statements of operations and comprehensive income or the unaudited statement of cash flows as a result of the adoption of Topic 842 for the three and six months ended December 31, 2019.

Refer to Note 8 for additional disclosures over the Company’s leases.

7

(e)  Recently Issued Accounting Standards

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amends the requirements for fair value measurement disclosures. ASU 2018-13 removes, modifies or adds certain disclosure requirements under GAAP. This standard is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. Any new disclosure requirements must be applied on a prospective basis in the interim and annual periods of initial adoption; all removed or modified requirements must be applied retrospectively to all periods presented. The Company plans to adopt this standard on July 1, 2020 and does not expect any material impact from adoption.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”) which provides guidance to reduce complexity in certain areas of accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and simplifies various aspects of the current guidance to promote consistent application of the standard among reporting entities. This standard is effective for fiscal years beginning after December 15, 2020 with early adoption permitted. The Company is currently assessing the impact of ASU 2019-12 on its financial statements as well as the timing and method of adoption.

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of other recently issued standards that are not yet effective will not have a material impact on the Company’s consolidated financial statements upon adoption.

(3) Revenue

The Company derives its revenue from contracts predominantly from recurring and non-recurring service fees. While the majority of its agreements are generally cancellable by the client on 60 days’ notice or less, the Company also has term arrangements, which are generally two years in length. Recurring fees are derived from payroll, timekeeping, and HR-related cloud-based computing services. The majority of the Company’s recurring fees are satisfied over time as services are provided. The performance obligations related to payroll services are satisfied upon the processing of the client’s payroll with the fee charged and collected based on a per employee per payroll frequency fee. The performance obligations related to time and attendance services and HR related services are satisfied over time each month with the fee charged and collected based on a per employee per month fee. For subscription based fees which can include payroll, time and attendance, and HR related services, the Company recognizes the applicable recurring fees over time each month with the fee charged and collected based on a per employee per month fee. Non-recurring service fees consist mainly of nonrefundable implementation fees, which involve setting the client up in, and loading data into, the Company’s cloud-based modules. These implementation activities are considered set-up activities. The Company has determined that the nonrefundable upfront fees provide certain clients with a material right to renew the contract. Implementation fees are deferred and amortized generally over a period up to 24 months.

Disaggregation of revenue

The following table disaggregates revenue by Recurring fees and Implementation services and other, which the Company believes depicts the nature, amount and timing of its revenue:

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2018		2019		2018		2019
Recurring fees	$	100,275	$	123,562	$	196,036	$	241,339
Implementation services and other		2,464		4,418		3,705		8,514
Total revenues from contracts	$	102,739	$	127,980	$	199,741	$	249,853

8

Deferred revenue

The timing of revenue recognition for recurring revenue is consistent with the timing of invoicing as they occur simultaneously based on the client’s payroll frequency or by month for subscription-based fees. As such, the Company does not recognize contract assets or liabilities related to recurring revenue.

The nonrefundable upfront fees related to implementation services are invoiced with the client’s first payroll period. The Company defers and recognizes these nonrefundable upfront fees generally over a period up to 24 months based on the type of contract. The following table summarizes the changes in deferred revenue (i.e. contract liability) related to these nonrefundable upfront fees as follows:

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2018		2019		2018		2019
Balance at beginning of the period	$	2,019	$	6,580	$	—	$	6,289
Deferral of revenue		2,995		3,172		5,513		6,243
Revenue recognized		(1,391)		(2,899)		(1,890)		(5,679)
Balance at end of the period	$	3,623	$	6,853	$	3,623	$	6,853

Deferred revenue related to these nonrefundable upfront fees are recorded within Accrued expenses and Other long-term liabilities on the Unaudited Consolidated Balance Sheets. The Company expects to recognize these deferred revenue balances of $3,826 in fiscal 2020, $2,581 in fiscal 2021, $446 in fiscal 2022 and thereafter.

Deferred contract costs

The Company defers certain selling and commission costs that meet the capitalization criteria under ASC 340-40. The Company also capitalizes certain costs to fulfill a contract related to its proprietary products if they are identifiable, generate or enhance resources used to satisfy future performance obligations and are expected to be recovered under ASC 340-40. Implementation fees are treated as nonrefundable upfront fees and the related implementation costs are required to be capitalized and amortized over the expected period of benefit, which is the period in which the Company expects to recover the costs and enhance its ability to satisfy future performance obligations.

The Company utilizes the portfolio approach to account for both the cost of obtaining a contract and the cost of fulfilling a contract. These capitalized costs are amortized over the expected period of benefit, which has been determined to be over 7 years based on the Company’s average client life and other qualitative factors, including rate of technological changes. The Company does not incur any additional costs to obtain or fulfill contracts upon renewal. The Company recognizes additional selling and commission costs and fulfillment costs when an existing client purchases additional services. These additional costs only relate to the additional services purchased and do not relate to the renewal of previous services.

The following tables present the deferred contract costs and the related amortization expense for these deferred contract costs:

	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

	Three Months Ended December 31, 2019
	Beginning		Capitalized				Ending
	Balance		Costs		Amortization		Balance
Costs to obtain a new contract	$	86,688	$	11,401	$	(5,241)	$	92,848
Costs to fulfill a contract		26,398		7,499		(1,212)		32,685
Total	$	113,086	$	18,900	$	(6,453)	$	125,533

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	Six Months Ended December 31, 2018
	Beginning		Capitalized				Ending
	Balance		Costs		Amortization		Balance
Costs to obtain a new contract	$	68,107	$	11,346	$	(7,977)	$	71,476
Costs to fulfill a contract		—		11,250		(463)		10,787
Total	$	68,107	$	22,596	$	(8,440)	$	82,263

	Six Months Ended December 31, 2019
	Beginning		Capitalized				Ending
	Balance		Costs		Amortization		Balance
Costs to obtain a new contract	$	82,103	$	20,886	$	(10,141)	$	92,848
Costs to fulfill a contract		20,996		13,865		(2,176)		32,685
Total	$	103,099	$	34,751	$	(12,317)	$	125,533

Deferred contract costs are recorded within Deferred contract costs and Long-term deferred contract costs on the Unaudited Consolidated Balance Sheets. Amortization of deferred contract costs is recorded in Cost of revenues, Sales and marketing, and General and administrative in the Unaudited Consolidated Statements of Operations and Comprehensive Income.

Remaining Performance Obligations

The Company’s remaining performance obligations related to minimum monthly fees on its term based contracts was approximately $42,966 as of December 31, 2019, which will be generally recognized over the next 24 months. This balance excludes the value of unsatisfied performance obligations for contracts that have an original expected duration of one year or less and contracts for which the variable consideration is allocated entirely to wholly unsatisfied performance obligations.

(4)  Balance Sheet Information

The following tables provide details of selected consolidated balance sheet items:

Activity in the allowance for doubtful accounts was as follows:

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

Capitalized internal-use software and accumulated amortization were as follows:

	June 30,		December 31,
	2019		2019
Capitalized internal-use software	$	90,991	$	104,182
Accumulated amortization		(63,505)		(72,563)
Capitalized internal-use software, net	$	27,486	$	31,619

Amortization of capitalized internal-use software costs is included in Cost of revenues and amounted to $4,418 and $4,690 for the three months ended December 31, 2018 and 2019, respectively, and $8,630 and $9,147 for the six months ended December 31, 2018 and 2019, respectively.

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Property and equipment, net consist of the following:

	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