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 September 30, 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: 54,245,719 shares of Common Stock, $0.001 par value per share, as of October 30, 2020.

Paylocity Holding Corporation

Form 10-Q

For the Quarterly Period Ended September 30, 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	18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	29
ITEM 4. CONTROLS AND PROCEDURES	30
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	31
ITEM 1A. RISK FACTORS	31
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	31
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	31
ITEM 4. MINE SAFETY DISCLOSURES	31
ITEM 5. OTHER INFORMATION	31
ITEM 6. EXHIBITS	32
SIGNATURES	34

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PART I

FINANCIAL INFORMATION

Item 1.    Financial Statements

PAYLOCITY HOLDING CORPORATION

Unaudited Consolidated Balance Sheets

(in thousands, except per share data)

	June 30,		September 30,
	2020		2020
Assets
Current assets:
Cash and cash equivalents	$	250,851	$	221,514
Corporate investments		34,556		18,554
Accounts receivable, net		4,923		4,672
Deferred contract costs		32,332		34,124
Prepaid expenses and other		13,188		15,202
Total current assets before funds held for clients		335,850		294,066
Funds held for clients		1,327,304		1,378,975
Total current assets		1,663,154		1,673,041
Capitalized internal-use software, net		36,501		39,231
Property and equipment, net		66,737		66,068
Operating lease right-of-use assets		48,658		47,080
Intangible assets, net		13,360		12,516
Goodwill		21,655		21,655
Long-term deferred contract costs		125,711		134,328
Long-term prepaid expenses and other		4,917		5,016
Deferred income tax assets		4,955		5,916
Total assets	$	1,985,648	$	2,004,851
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,755	$	3,209
Accrued expenses		79,881		62,343
Total current liabilities before client fund obligations		81,636		65,552
Client fund obligations		1,327,304		1,378,975
Total current liabilities		1,408,940		1,444,527
Long-term debt		100,000		100,000
Long-term operating lease liabilities		73,299		71,460
Other long-term liabilities		1,747		1,676
Deferred income tax liabilities		8,754		368
Total liabilities	$	1,592,740	$	1,618,031
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding at June 30, 2020 and September 30, 2020	$	—	$	—
Common stock, $0.001 par value, 155,000 shares authorized at June 30, 2020 and September 30, 2020; 53,792 shares issued and outstanding at June 30, 2020 and 54,223 shares issued and outstanding at September 30, 2020		54		54
Additional paid-in capital		227,907		209,582
Retained earnings		164,272		176,732
Accumulated other comprehensive income		675		452
Total stockholders’ equity	$	392,908	$	386,820
Total liabilities and stockholders’ equity	$	1,985,648	$	2,004,851

See accompanying notes to unaudited consolidated financial statements.

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PAYLOCITY HOLDING CORPORATION

Unaudited Consolidated Statements of Operations and Comprehensive Income

(in thousands, except per share data)

	Three Months Ended
	September 30,
	2019		2020
Revenues:
Recurring and other revenue	$	121,873	$	134,875
Interest income on funds held for clients		4,847		919
Total revenues		126,720		135,794
Cost of revenues		42,630		49,380
Gross profit		84,090		86,414
Operating expenses:
Sales and marketing		36,957		37,674
Research and development		14,394		18,647
General and administrative		26,739		26,644
Total operating expenses		78,090		82,965
Operating income		6,000		3,449
Other income (expense)		474		(257)
Income before income taxes		6,474		3,192
Income tax benefit		(7,432)		(9,268)
Net income	$	13,906	$	12,460
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on securities, net of tax		4		(223)
Total other comprehensive income (loss), net of tax		4		(223)
Comprehensive income	$	13,910	$	12,237
Net income per share:
Basic	$	0.26	$	0.23
Diluted	$	0.25	$	0.22
Weighted-average shares used in computing net income per share:
Basic		53,287		54,015
Diluted		55,713		56,050

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 September 30, 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	—		—		12,718		—		—		12,718
Stock options exercised	8		—		120		—		—		120
Issuance of common stock upon vesting of restricted stock units	677		1		(1)		—		—		—
Net settlement for taxes and/or exercise price related to equity awards	(249)		—		(25,253)		—		—		(25,253)
Unrealized gains on securities, net of tax	—		—		—		—		4		4
Net income	—		—		—		13,906		—		13,906
Balances at September 30, 2019	53,511	$	54	$	195,566	$	113,723	$	116	$	309,459

	Three Months Ended September 30, 2020
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Retained		Comprehensive		Stockholders’
	Shares	Amount		Capital		Earnings		Income		Equity
Balances at June 30, 2020	53,792	$	54	$	227,907	$	164,272	$	675	$	392,908
Stock-based compensation	—		—		15,046		—		—		15,046
Stock options exercised	88		—		529		—		—		529
Issuance of common stock upon vesting of restricted stock units	599		—		—		—		—		—
Net settlement for taxes and/or exercise price related to equity awards	(256)		—		(33,900)		—		—		(33,900)
Unrealized losses on securities, net of tax	—		—		—		—		(223)		(223)
Net income	—		—		—		12,460		—		12,460
Balances at September 30, 2020	54,223	$	54	$	209,582	$	176,732	$	452	$	386,820

See accompanying notes to the unaudited consolidated financial statements.

4

PAYLOCITY HOLDING CORPORATION

Unaudited Consolidated Statements of Cash Flows

(in thousands)

	Three Months Ended
	September 30,
	2019		2020
Cash flows from operating activities:
Net income	$	13,906	$	12,460
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Stock-based compensation expense		12,062		14,277
Depreciation and amortization expense		8,933		10,235
Deferred income tax benefit		(7,431)		(9,268)
Provision for credit losses		—		56
Net accretion of discounts and amortization of premiums on available-for-sale securities		(485)		133
Amortization of debt issuance costs		33		37
Loss on disposal of equipment		85		31
Changes in operating assets and liabilities:
Accounts receivable		452		195
Deferred contract costs		(9,987)		(10,409)
Prepaid expenses and other		(89)		(2,144)
Accounts payable		39		1,611
Accrued expenses and other		(9,253)		(18,781)
Net cash provided by (used in) operating activities		8,265		(1,567)
Cash flows from investing activities:
Purchases of available-for-sale securities and other		(63,621)		—
Proceeds from sales and maturities of available-for-sale securities		45,154		37,493
Capitalized internal-use software costs		(6,714)		(7,884)
Purchases of property and equipment		(8,033)		(2,045)
Net cash provided by (used in) investing activities		(33,214)		27,564
Cash flows from financing activities:
Net change in client fund obligations		(239,942)		51,671
Taxes paid related to net share settlement of equity awards		(24,749)		(33,402)
Payment of debt issuance costs		(669)		(9)
Net cash provided by (used in) financing activities		(265,360)		18,260
Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents		(290,309)		44,257
Cash, cash equivalents and funds held for clients' cash and cash equivalents—beginning of period		1,426,143		1,492,133
Cash, cash equivalents and funds held for clients' cash and cash equivalents—end of period	$	1,135,834	$	1,536,390
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Purchases of property and equipment, accrued but not paid	$	1,249	$	1,479
Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	—	$	311
Cash paid (refunds received) for income taxes	$	11	$	(119)
Reconciliation of cash, cash equivalents and funds held for clients' cash and cash equivalents to the Consolidated Balance Sheets
Cash and cash equivalents	$	100,529	$	221,514
Funds held for clients' cash and cash equivalents		1,035,305		1,314,876
Total cash, cash equivalents and funds held for clients' cash and cash equivalents	$	1,135,834	$	1,536,390

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, including the impact from the outbreak of the novel coronavirus disease (“COVID-19”), 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 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.

(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 months ended September 30, 2020 are not necessarily indicative of the results for the full year or the results for any future periods. 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 “Part I. Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K filed with the SEC on August 7, 2020 for risks related to the COVID-19 pandemic and its impact on the Company’s 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, 2020 included in the Company’s Annual Report on Form 10-K.

(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. 

6

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 June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial instruments held at amortized cost, including trade receivables. Under ASU 2016-13, the Company assesses its allowance for credit losses on accounts receivable by taking into consideration current economic conditions, reasonable and supportable forecasts, as well as past experience including historical write-off trends and client-specific circumstances. The new standard also eliminated the concept of other-than-temporary impairment and requires expected credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The Company adopted this standard effective July 1, 2020, using a modified retrospective approach, and the adoption did not have a material impact on the Company’s financial statements.

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. The Company adopted this standard on July 1, 2020, and removed or modified disclosure requirements retrospectively to all periods presented, whereas any new requirements are being applied prospectively from the adoption date. The adoption of this standard did not have a material impact on the Company’s financial statements.

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. The Company adopted ASU 2019-12 on July 1, 2020, and the adoption of this standard did not have a material impact on the Company’s financial statements.

(e)  Recently Issued Accounting Standards

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

7

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
	September 30,
	2019		2020
Recurring fees	$	117,777	$	129,692
Implementation services and other		4,096		5,183
Total revenues from contracts	$	121,873	$	134,875

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 amortizes 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
	September 30,
	2019		2020
Balance at beginning of the period	$	6,289	$	8,434
Deferral of revenue		3,071		3,130
Revenue recognized		(2,780)		(3,894)
Balance at end of the period	$	6,580	$	7,670

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 $5,320 in fiscal 2021, $2,116 in fiscal 2022 and $234 in fiscal 2023 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.

8

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

	Three Months Ended September 30, 2019
	Beginning		Capitalized				Ending
	Balance		Costs		Amortization		Balance
Costs to obtain a new contract	$	82,103	$	9,486	$	(4,901)	$	86,688
Costs to fulfill a contract		20,996		6,366		(964)		26,398
Total	$	103,099	$	15,852	$	(5,865)	$	113,086

	Three Months Ended September 30, 2020
	Beginning		Capitalized				Ending
	Balance		Costs		Amortization		Balance
Costs to obtain a new contract	$	113,575	$	11,641	$	(6,572)	$	118,644
Costs to fulfill a contract		44,468		7,361		(2,021)		49,808
Total	$	158,043	$	19,002	$	(8,593)	$	168,452

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 $45,647 as of September 30, 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 credit losses related to accounts receivable was as follows:

Balance at June 30, 2020		617
Charged to expense		56
Write-offs		(22)
Balance at September 30, 2020	$	651

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

	June 30,		September 30,
	2020		2020
Capitalized internal-use software	$	119,178	$	127,294
Accumulated amortization		(82,677)		(88,063)
Capitalized internal-use software, net	$	36,501	$	39,231

Amortization of capitalized internal-use software costs is included in Cost of revenues and amounted to $4,457 and $5,386 for the three months ended September 30, 2019 and 2020, respectively.

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Property and equipment, net consist of the following:

	June 30,		September 30,
	2020		2020
Office equipment	$	4,619	$	4,843
Computer equipment		42,936		44,885
Furniture and fixtures		12,723		13,151
Software		6,609		6,585
Leasehold improvements		46,192		46,615
Time clocks rented by clients		4,967		4,927
Total		118,046		121,006
Accumulated depreciation		(51,309)		(54,938)
Property and equipment, net	$	66,737	$	66,068

Depreciation expense amounted to $3,913 and $4,005 for the three months ended September 30, 2019 and 2020, respectively.

In April 2020, the Company acquired all of the shares outstanding of VidGrid, Inc. (“VidGrid”). During the three months ended September 30, 2020, the Company completed its purchase accounting for this acquisition and did not record any changes to the preliminary purchase price allocation. Accordingly, goodwill did not change during the three months ended September 30, 2020. Refer to Note 6 of the audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2020 for additional details on the acquisition of VidGrid.

The Company’s amortizable intangible assets and estimated useful lives are as follows:

	June 30,		September 30,		Useful
	2020		2020		Life
Client relationships	$	19,200	$	19,200	5 - 9 years
Proprietary technology		2,962		2,962	5 years
Non-solicitation agreements		1,350		1,350	2 - 4 years
Trade name		350		350	5 years
Total		23,862		23,862
Accumulated amortization		(10,502)		(11,346)
Intangible assets, net	$	13,360	$	12,516

Amortization expense for acquired intangible assets was $563 and $844 for the three months ended September 30, 2019 and 2020, respectively.

Future amortization expense for acquired intangible assets as of September 30, 2020 is as follows:

Remainder of fiscal 2021	$	2,533
Fiscal 2022		3,358
Fiscal 2023		3,185
Fiscal 2024		2,232
Fiscal 2025		1,208
Total	$	12,516

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The components of accrued expenses were as follows:

	June 30,		September 30,
	2020		2020
Accrued payroll and personnel costs	$	53,284	$	35,444
Operating lease liabilities		8,083		7,977
Deferred revenue		8,777		8,784
Other		9,737		10,138
Total accrued expenses	$	79,881	$	62,343

(5) Corporate Investments and Funds Held for Clients

Corporate investments and funds held for clients consist of the following:

	June 30, 2020
			Gross		Gross
	Amortized		unrealized		unrealized
Type of Issue	cost		gains		losses		Fair value
Cash and cash equivalents	$	250,851	$	—	$	—	$	250,851
Funds held for clients' cash and cash equivalents		1,241,282		—		—		1,241,282
Available-for-sale securities:
Commercial paper		6,643		6		—		6,649
Corporate bonds		44,343		414		—		44,757
Asset-backed securities		49,978		424		—		50,402
U.S. treasury securities		21,302		67		—		21,369
Total available-for-sale securities (1)		122,266		911		—		123,177
Total investments	$	1,614,399	$	911	$	—	$	1,615,310

(1) Included within the fair value of total available-for-sale securities above is $37,155 of corporate investments and $86,022 of funds held for clients.

	September 30, 2020
			Gross		Gross
	Amortized		unrealized		unrealized
Type of Issue	cost		gains		losses		Fair value
Cash and cash equivalents	$	221,514	$	—	$	—	$	221,514
Funds held for clients' cash and cash equivalents		1,314,876		—		—		1,314,876
Available-for-sale securities:
Corporate bonds		42,270		311		—		42,581
Asset-backed securities		38,220		292		—		38,512
U.S. treasury securities		4,150		5		—		4,155
Total available-for-sale securities (2)		84,640		608		—		85,248
Total investments	$	1,621,030	$	608	$	—	$	1,621,638

(2) Included within the fair value of total available-for-sale securities above is $21,149 of corporate investments and $64,099 of funds held for clients.

Cash and cash equivalents and funds held for clients’ cash and cash equivalents include demand deposit accounts and money market funds at June 30, 2020 and September 30, 2020.

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Classification of investments on the unaudited consolidated balance sheets is as follows:

	June 30,		September 30,
	2020		2020
Cash and cash equivalents	$	250,851	$	221,514
Corporate investments		34,556		18,554
Funds held for clients		1,327,304		1,378,975
Long-term prepaid expenses and other		2,599		2,595
Total investments	$	1,615,310	$	1,621,638

There were no available-for-sale securities in an unrealized loss position at June 30, 2020 or September 30, 2020. The Company regularly reviews the composition of its portfolio to determine the existence of credit impairment. The Company did not recognize any credit impairment losses during the three months ended September 30, 2020. All securities in the Company’s portfolio held an A-1 rating or better as of September 30, 2020.

The Company did not make any material reclassification adjustments out of accumulated other comprehensive income for realized gains and losses on the sale of available-for-sale securities during the three months ended September 30, 2019 or 2020. Gross realized gains and losses on the sale of available-for-sale securities were immaterial for both the three months ended September 30, 2019 and 2020.

Expected maturities of available-for-sale securities at September 30, 2020 are as follows:

	Amortized
	cost		Fair value
One year or less	$	75,701	$	76,152
One year to two years		8,939		9,096
Total available-for-sale securities	$	84,640	$	85,248

(6)  Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

● Level 1—Quoted prices in active markets for identical assets and liabilities.

● Level 2—Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

● Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The Company measures certain cash and cash equivalents, accounts receivable, accounts payable and client fund obligations at fair value on a recurring basis using Level 1 inputs. The Company considers the recorded value of these financial assets and liabilities to approximate the fair value of the respective assets and liabilities at June 30, 2020 and September 30, 2020 based upon the short-term nature of these assets and liabilities.

Marketable securities, consisting of securities classified as available-for-sale as well as certain cash equivalents, are recorded at fair value on a recurring basis using Level 2 inputs obtained from an independent pricing service. Available-for-sale securities include commercial paper, corporate bonds, asset-backed securities and U.S. treasury securities. The independent pricing service utilizes a variety of inputs including benchmark yields, broker/dealer quoted prices, reported trades, issuer spreads as well as other available market data. The Company, on a sample basis, validates the pricing from the independent pricing service against another third-party pricing source for reasonableness. The

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Company has not adjusted any prices obtained by the independent pricing service, as it believes they are appropriately valued. There were no available-for-sale securities classified in Level 3 of the fair value hierarchy at June 30, 2020 or September 30, 2020.

The fair value level for the Company’s cash and cash equivalents and available-for-sale securities is as follows:

	June 30, 2020
	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	250,851	$	250,851	$	—	$	—
Funds held for clients' cash and cash equivalents		1,241,282		1,241,282		—		—
Available-for-sale securities:
Commercial paper		6,649		—		6,649		—
Corporate bonds		44,757		—		44,757		—
Asset-backed securities		50,402		—		50,402		—
U.S. treasury securities		21,369		—		21,369		—
Total available-for-sale securities		123,177		—		123,177		—
Total investments	$	1,615,310	$	1,492,133	$	123,177	$	—

	September 30, 2020
	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	221,514	$	221,514	$	—	$	—
Funds held for clients' cash and cash equivalents		1,314,876		1,314,876		—		—
Available-for-sale securities:
Corporate bonds		42,581		—		42,581		—
Asset-backed securities		38,512		—		38,512		—
U.S. treasury securities		4,155		—		4,155		—
Total available-for-sale securities		85,248		—		85,248