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 March 31, 2020

☐ 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: 53,686,172 shares of Common Stock, $0.001 par value per share, as of May 1, 2020.

Paylocity Holding Corporation

Form 10-Q

For the Quarterly Period Ended March 31, 2020

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	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

1

PART I

FINANCIAL INFORMATION

Item 1.    Financial Statements

PAYLOCITY HOLDING CORPORATION

Unaudited Consolidated Balance Sheets

(in thousands, except per share data)

	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

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				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

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 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

See accompanying notes to the unaudited consolidated financial statements.

4

PAYLOCITY HOLDING CORPORATION

Unaudited Consolidated Statements of Cash Flows

(in thousands)

	Nine Months Ended
	March 31,
	2019		2020
Cash flows from operating activities:
Net income	$	43,582	$	59,505
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense		28,837		34,348
Depreciation and amortization expense		25,213		27,832
Deferred income tax expense		4,584		1,544
Provision for doubtful accounts		220		232
Net accretion of discounts and amortization of premiums on available-for-sale securities		(1,607)		(1,673)
Amortization of debt issuance costs		—		113
Loss on disposal of equipment		399		331
Changes in operating assets and liabilities:
Accounts receivable		(1,904)		(1,635)
Deferred contract costs		(25,359)		(37,829)
Prepaid expenses and other		(1,485)		68
Accounts payable		596		863
Accrued expenses and other		5,299		3,096
Tenant improvement allowance		784		—
Net cash provided by operating activities		79,159		86,795
Cash flows from investing activities:
Purchases of available-for-sale securities and other		(210,374)		(400,343)
Proceeds from sales and maturities of available-for-sale securities		161,306		250,791
Capitalized internal-use software costs		(14,706)		(19,213)
Purchases of property and equipment		(9,621)		(14,578)
Lease allowances used for tenant improvements		(784)		—
Net cash used in investing activities		(74,179)		(183,343)
Cash flows from financing activities:
Net change in client fund obligations		496,695		334,707
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		(21,749)		(33,136)
Payment of debt issuance costs		—		(675)
Net cash provided by financing activities		442,864		304,857
Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents		447,844		208,309
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	$	1,687,575	$	1,634,452
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Purchases of property and equipment, accrued but not paid	$	3,529	$	—
Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	—	$	115
Cash paid for income taxes	$	375	$	24
Reconciliation of cash, cash equivalents and funds held for clients' cash and cash equivalents to the Consolidated Balance Sheets
Cash and cash equivalents	$	90,856	$	114,325
Funds held for clients' cash and cash equivalents		1,596,719		1,520,127
Total cash, cash equivalents and funds held for clients' cash and cash equivalents	$	1,687,575	$	1,634,452

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. In March 2020, the World Health Organization declared the outbreak of the novel coronavirus disease (“COVID-19”) as a pandemic which has caused a global slowdown of economic activity that the Company believes will unfavorably impact its business operations and financial conditions. The duration and severity of the COVID-19 pandemic, and the effect the pandemic will have on the Company’s clients and general economic conditions, remains uncertain and difficult to predict. Accounting estimates used in the preparation of these consolidated financial statements may change as new events occur, more experience and additional information is acquired, and the operating environment evolves, including the ongoing impact of COVID-19.

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 nine months ended March 31, 2019 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 nine months ended March 31, 2020 are not necessarily indicative of the results for the full year or the results for any future periods. The financial impacts from the COVID-19 pandemic became more observable in the latter half of March 2020. As a result, the impact of the COVID-19 pandemic will not be fully known or reflected in the Company’s results of operations and overall financial performance until future periods. Refer to “Item 1A. Risk Factors” in this Quarterly Report on Form 10-

6

Q for risks related to the COVID-19 pandemic on its business and financial performance. 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.

(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 nine months ended March 31, 2019.

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

(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

7

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.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional practical expedients and exceptions for applying GAAP to contracts and transactions, including debt agreements, affected by interest rate reform as regulators discontinue the use of the London Interbank Offered Rate (LIBOR) and other similar reference rates. This standard is effective for contract modifications made as of March 12, 2020 through December 31, 2022, on a prospective basis. The Company adopted this standard upon its issuance, and it did not have a material impact on the Company’s financial statements.

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				Nine Months Ended
	March 31,				March 31,
	2019		2020		2019		2020
Recurring fees	$	129,976	$	161,266	$	326,012	$	402,605
Implementation services and other		3,379		5,829		7,084		14,343
Total revenues from contracts	$	133,355	$	167,095	$	333,096	$	416,948

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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				Nine Months Ended
	March 31,				March 31,
	2019		2020		2019		2020
Balance at beginning of the period	$	3,623	$	6,853	$	—	$	6,289
Deferral of revenue		4,730		6,099		10,243		12,342
Revenue recognized		(2,354)		(3,992)		(4,244)		(9,671)
Balance at end of the period	$	5,999	$	8,960	$	5,999	$	8,960

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 $3,466 in fiscal 2020, $4,463 in fiscal 2021, $1,031 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.

9

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

	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

	Three Months Ended March 31, 2020
	Beginning		Capitalized				Ending
	Balance		Costs		Amortization		Balance
Costs to obtain a new contract	$	92,848	$	15,141	$	(5,738)	$	102,251
Costs to fulfill a contract		32,685		7,483		(1,491)		38,677
Total	$	125,533	$	22,624	$	(7,229)	$	140,928

	Nine Months Ended March 31, 2019
	Beginning		Capitalized				Ending
	Balance		Costs		Amortization		Balance
Costs to obtain a new contract	$	68,107	$	21,890	$	(12,363)	$	77,634
Costs to fulfill a contract		—		16,833		(1,001)		15,832
Total	$	68,107	$	38,723	$	(13,364)	$	93,466

	Nine Months Ended March 31, 2020
	Beginning		Capitalized				Ending
	Balance		Costs		Amortization		Balance
Costs to obtain a new contract	$	82,103	$	36,027	$	(15,879)	$	102,251
Costs to fulfill a contract		20,996		21,348		(3,667)		38,677
Total	$	103,099	$	57,375	$	(19,546)	$	140,928

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 balance of the Company’s remaining performance obligations related to minimum monthly fees on its term-based contracts was approximately $47,673 as of March 31, 2020, 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		232
Write-offs		(116)
Balance at March 31, 2020	$	589

10

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

	June 30,		March 31,
	2019		2020
Capitalized internal-use software	$	90,991	$	111,556
Accumulated amortization		(63,505)		(77,489)
Capitalized internal-use software, net	$	27,486	$	34,067

Amortization of capitalized internal-use software costs is included in Cost of revenues and amounted to $4,224 and $4,926 for the three months ended March 31, 2019 and 2020, respectively, and $12,854 and $14,073 for the nine months ended March 31, 2019 and 2020, respectively.

Property and equipment, net consist of the following:

	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