UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

________________________________________________________________________

Form 10-Q

________________________________________________________________________

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

For the quarterly period ended December 31, 2022

o 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 x No o

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 x No o

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	x	Accelerated Filer	o
Non-Accelerated Filer	o	Smaller Reporting Company	o
		Emerging Growth Company	o

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. o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 55,769,718 shares of Common Stock, $0.001 par value per share, as of January 27, 2023.

Paylocity Holding Corporation

Form 10-Q

For the Quarterly Period Ended December 31, 2022

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	20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	33
ITEM 4. CONTROLS AND PROCEDURES	34
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	35
ITEM 1A. RISK FACTORS	35
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	35
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	35
ITEM 4. MINE SAFETY DISCLOSURES	35
ITEM 5. OTHER INFORMATION	35
ITEM 6. EXHIBITS	35
SIGNATURES	37

1

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

PAYLOCITY HOLDING CORPORATION

Unaudited Consolidated Balance Sheets

(in thousands, except per share data)

	June 30, 2022		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	139,756	$	120,053
Accounts receivable, net	15,754		24,540
Deferred contract costs	59,501		68,557
Prepaid expenses and other	28,896		30,175
Total current assets before funds held for clients	243,907		243,325
Funds held for clients	3,987,776		3,065,697
Total current assets	4,231,683		3,309,022
Capitalized internal-use software, net	61,985		71,083
Property and equipment, net	62,839		59,506
Operating lease right-of-use assets	49,210		46,604
Intangible assets, net	45,475		39,934
Goodwill	101,949		102,054
Long-term deferred contract costs	229,067		262,313
Long‑term prepaid expenses and other	7,746		6,727
Deferred income tax assets	19,060		40,530
Total assets	$	4,809,014	$	3,937,773
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	8,374	$	7,611
Accrued expenses	124,384		115,795
Total current liabilities before client fund obligations	132,758		123,406
Client fund obligations	3,987,776		3,065,697
Total current liabilities	4,120,534		3,189,103
Long-term operating lease liabilities	69,119		65,353
Other long-term liabilities	3,681		3,333
Deferred income tax liabilities	2,217		2,217
Total liabilities	$	4,195,551	$	3,260,006
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding at June 30, 2022 and December 31, 2022	$	—	$	—
Common stock, $0.001 par value, 155,000 shares authorized at June 30, 2022 and December 31, 2022; 55,190 shares issued and outstanding at June 30, 2022 and 55,768 shares issued and outstanding at December 31, 2022	55		56
Additional paid-in capital	289,843		310,050
Retained earnings	325,868		371,820
Accumulated other comprehensive loss	(2,303)		(4,159)
Total stockholders' equity	$	613,463	$	677,767
Total liabilities and stockholders’ equity	$	4,809,014	$	3,937,773

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 December 31,				Six Months Ended December 31,
	2021		2022		2021		2022
Revenues:
Recurring and other revenue	$	195,041	$	256,434	$	375,865	$	501,840
Interest income on funds held for clients	996		16,574		1,869		24,448
Total revenues	196,037		273,008		377,734		526,288
Cost of revenues	70,821		90,076		134,070		174,619
Gross profit	125,216		182,932		243,664		351,669
Operating expenses:
Sales and marketing	52,219		75,694		102,104		146,757
Research and development	25,278		41,029		48,354		81,122
General and administrative	39,581		48,001		74,816		98,493
Total operating expenses	117,078		164,724		225,274		326,372
Operating income	8,138		18,208		18,390		25,297
Other expense	(372)		(5)		(489)		(168)
Income before income taxes	7,766		18,203		17,901		25,129
Income tax expense (benefit)	(2,087)		2,603		(22,884)		(20,823)
Net income	$	9,853	$	15,600	$	40,785	$	45,952
Other comprehensive income (loss), net of tax	(335)		516		(410)		(1,856)
Comprehensive income	$	9,518	$	16,116	$	40,375	$	44,096
Net income per share:
Basic	$	0.18	$	0.28	$	0.74	$	0.83
Diluted	$	0.17	$	0.28	$	0.72	$	0.81
Weighted-average shares used in computing net income per share:
Basic	55,067		55,721		54,938		55,587
Diluted	56,468		56,474		56,486		56,559

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, 2021
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount
Balances at September 30, 2021	55,019	$	55	$	201,504	$	266,023	$	(9)	$	467,573
Stock-based compensation	—	—		28,122		—		—		28,122
Stock options exercised	44	—		383		—		—		383
Issuance of common stock upon vesting of restricted stock units	12	—		—		—		—		—
Issuance of common stock under employee stock purchase plan	53	—		7,216		—		—		7,216
Net settlement for taxes and/or exercise price related to equity awards	(23)	—		(6,119)		—		—		(6,119)
Unrealized losses on securities, net of tax	—	—		—		—		(335)		(335)
Net income	—	—		—		9,853		—		9,853
Balances at December 31, 2021	55,105	$	55	$	231,106	$	275,876	$	(344)	$	506,693

	Three Months Ended December 31, 2022
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount
Balances at September 30, 2022	55,664	56		259,245		356,220		(4,675)		$	610,846
Stock-based compensation	—	—		47,653		—		—		47,653
Stock options exercised	7	—		109		—		—		109
Issuance of common stock upon vesting of restricted stock units	60	—		—		—		—		—
Issuance of common stock under employee stock purchase plan	61	—		8,450		—		—		8,450
Net settlement for taxes and/or exercise price related to equity awards	(24)	—		(5,407)		—		—		(5,407)
Unrealized gains on securities, net of tax	—	—		—		—		516		516
Net income	—	—		—		15,600		—		15,600
Balances at December 31, 2022	55,768	$	56	$	310,050	$	371,820	$	(4,159)	$	677,767

	Six Months Ended December 31, 2021
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balances at June 30, 2021	54,594	$	55	$	241,718	$	235,091	$	66	$	476,930
Stock-based compensation	—	—		49,228		—		—		49,228
Stock options exercised	195	—		1,812		—		—		1,812
Issuance of common stock upon vesting of restricted stock units	536	—		—		—		—		—
Issuance of common stock under employee stock purchase plan	53	—		7,216		—		—		7,216
Net settlement for taxes and/or exercise price related to equity awards	(273)	—		(68,868)		—		—		(68,868)
Unrealized losses on securities, net of tax	—	—		—		—		(410)		(410)
Net income	—	—		—		40,785		—		40,785
Balances at December 31, 2021	55,105	$	55	$	231,106	$	275,876	$	(344)	$	506,693

	Six Months Ended December 31, 2022
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount
Balances at June 30, 2022	55,190	$	55	$	289,843	$	325,868	$	(2,303)	$	613,463
Stock-based compensation	—	—		91,124		—		—		91,124
Stock options exercised	242	—		2,941		—		—		2,941
Issuance of common stock upon vesting of restricted stock units	609	1		(1)		—		—		—
Issuance of common stock upon employee stock purchase plan	61	—		8,450		—		—		8,450
Net settlement for taxes and/or exercise price related to equity awards	(334)	—		(82,307)		—		—		(82,307)
Unrealized losses on securities, net of tax	—	—		—		—		(1,856)		(1,856)
Net income	—	—		—		45,952		—		45,952
Balances at December 31, 2022	55,768	$	56	$	310,050	$	371,820	$	(4,159)	$	677,767

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,
	2021		2022
Cash flows from operating activities:
Net income	$	40,785	$	45,952
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	45,802		83,364
Depreciation and amortization expense	23,383		29,094
Deferred income tax benefit	(22,952)		(20,856)
Provision for credit losses	103		602
Net accretion of discounts and amortization of premiums on available-for-sale securities	221		(2,039)
Amortization of debt issuance costs	90		157
Other	247		1,253
Changes in operating assets and liabilities:
Accounts receivable	(916)		(9,377)
Deferred contract costs	(26,786)		(40,638)
Prepaid expenses and other	(10,008)		616
Accounts payable	1,403		(392)
Accrued expenses and other	(24,514)		(8,979)
Net cash provided by operating activities	26,858		78,757
Cash flows from investing activities:
Purchases of available-for-sale securities	(190,000)		(296,060)
Proceeds from sales and maturities of available-for-sale securities	60,391		190,253
Capitalized internal-use software costs	(17,966)		(19,740)
Purchases of property and equipment	(10,528)		(6,663)
Acquisitions of businesses, net of cash acquired	(60,234)		—
Other investing activities	—		29
Net cash used in investing activities	(218,337)		(132,181)
Cash flows from financing activities:
Net change in client fund obligations	160,325		(922,079)
Proceeds from employee stock purchase plan	7,216		8,450
Taxes paid related to net share settlement of equity awards	(67,109)		(79,369)
Payment of debt issuance costs	(41)		(864)
Net cash provided by (used in) financing activities	100,391		(993,862)
Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents	(91,088)		(1,047,286)
Cash, cash equivalents and funds held for clients' cash and cash equivalents—beginning of period	1,945,881		3,793,453
Cash, cash equivalents and funds held for clients' cash and cash equivalents—end of period	$	1,854,793	$	2,746,167
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Purchases of property and equipment, accrued but not paid	$	125	$	—
Liabilities assumed for acquisitions	$	1,874	$	117
Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	126	$	157
Refunds received for income taxes	$	(115)	$	(158)
Reconciliation of cash, cash equivalents and funds held for clients' cash and cash equivalents to the Consolidated Balance Sheets
Cash and cash equivalents	$	84,104	$	120,053
Funds held for clients' cash and cash equivalents	1,770,689		2,626,114
Total cash, cash equivalents and funds held for clients' cash and cash equivalents	$	1,854,793	$	2,746,167

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 human capital management and payroll software solutions that deliver a comprehensive platform for the modern workforce. Services are provided in a Software-as-a-Service (“SaaS”) delivery model. The Company’s comprehensive product suite delivers a unified platform that helps businesses attract and retain talent, build culture and connection with their employees, and streamline and automate HR and payroll processes.

(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 may change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes.

(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, 2022 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, 2022 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.

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.

6

(d) Recently Issued Accounting Standards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board 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 offers term agreements to its clients, 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 other HCM 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.

Disaggregation of revenue

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

	Three Months Ended December 31,				Six Months Ended December 31,
	2021		2022		2021		2022
Recurring fees	$	188,159	$	247,522	$	362,856	$	484,341
Implementation services and other	6,882		8,912		13,009		17,499
Total revenues from contracts	$	195,041	$	256,434	$	375,865	$	501,840

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 payroll processing period or by month. As such, the Company does not recognize contract assets or liabilities related to recurring revenue.

The Company defers and amortizes nonrefundable upfront fees related to implementation services 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 December 31,				Six Months Ended December 31,
	2021		2022		2021		2022
Balance at beginning of the period	$	8,717	$	14,195	$	8,734	$	12,233
Deferral of revenue	5,407		12,002		9,760		20,234
Revenue recognized	(4,783)		(6,460)		(9,153)		(12,730)
Balance at end of the period	$	9,341	$	19,737	$	9,341	$	19,737

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 $12,680 in fiscal 2023, $6,102 in fiscal 2024 and $955 in fiscal 2025 and thereafter.

7

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, 2021
	Beginning Balance		Capitalized Costs		Amortization		Ending Balance
Costs to obtain a new contract	$	149,222	$	14,929	$	(8,587)	$	155,564
Costs to fulfill a contract	76,785		13,100		(3,770)		86,115
Total	$	226,007	$	28,029	$	(12,357)	$	241,679

	Three Months Ended December 31, 2022
	Beginning Balance		Capitalized Costs		Amortization		Ending Balance
Costs to obtain a new contract	$	191,088	$	20,310	$	(10,845)	$	200,553
Costs to fulfill a contract	117,524		18,803		(6,010)		130,317
Total	$	308,612	$	39,113	$	(16,855)	$	330,870

	Six Months Ended December 31, 2021
	Beginning Balance		Capitalized Costs		Amortization		Ending Balance
Costs to obtain a new contract	$	145,718	$	26,666	$	(16,820)	$	155,564
Costs to fulfill a contract	69,175		24,040		(7,100)		86,115
Total	$	214,893	$	50,706	$	(23,920)	$	241,679

	Six Months Ended December 31, 2022
	Beginning Balance		Capitalized Costs		Amortization		Ending Balance
Costs to obtain a new contract	$	182,543	$	39,222	$	(21,212)	$	200,553
Costs to fulfill a contract	106,025		35,665		(11,373)		130,317
Total	$	288,568	$	74,887	$	(32,585)	$	330,870

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 primarily recorded in Cost of revenues and Sales and marketing 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 $53,940 as of December 31, 2022, which will be generally recognized over the next 24

8

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) Business Combinations

On January 18, 2022, the Company acquired all of the shares outstanding of Cloudsnap, Inc., ("Cloudsnap") through a merger for cash consideration of $50,002, which was paid upon closing. Cloudsnap is a provider of a flexible, low-code solution for integrating disparate business applications. This transaction enables the Company to deliver modern integrations and seamless data sharing between critical systems more efficiently and effectively, while helping to unify and automate business processes across clients' HR, finance, benefits, and other systems.

The allocation of the purchase price for Cloudsnap is as follows:

	January 18, 2022
Proprietary technology	$	15,800
Goodwill	33,628
Other assets acquired	3,398
Liabilities assumed	(2,824)
Total purchase price	$	50,002

The Company did not record any material purchase accounting adjustments for Cloudsnap during the six months ended December 31, 2022. The Company accounts for business combinations in accordance with ASC 805, Business Combinations. The Company applied the acquisition method of accounting and recorded the assets acquired and liabilities assumed at their respective estimated fair values as of the date of the acquisition with the excess consideration paid recorded as goodwill.

The results from this acquisition have been included in the Company’s consolidated financial statements since the closing of the acquisition and are not material to the Company. Pro forma information is not presented because the effects of the acquisition are not material to the Company’s consolidated financial statements. The goodwill related to this acquisition is primarily attributable to the assembled workforce and growth opportunities from the expansion and enhancement of the Company’s product offerings. The goodwill associated with this acquisition is not deductible for income tax purposes. Direct costs related to the acquisition were immaterial and were expensed as incurred as General and administrative.

(5) 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, 2022	$	841
Charged to expense	602
Write-offs	(130)
Balance at December 31, 2022	$	1,313

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

	June 30, 2022		December 31, 2022
Capitalized internal-use software	$	193,156	$	216,774
Accumulated amortization	(131,171)		(145,691)
Capitalized internal-use software, net	$	61,985	$	71,083

9

Amortization of capitalized internal-use software costs is primarily included in Cost of revenues and amounted to $6,087 and $7,478 for the three months ended December 31, 2021 and 2022, respectively, and $12,215 and $14,520 for the six months ended December 31, 2021 and 2022, respectively.

The major classes of property and equipment, net were as follows:

	June 30, 2022		December 31, 2022
Office equipment	$	4,365	$	4,367
Computer equipment	55,495		54,065
Furniture and fixtures	12,791		12,790
Software	8,785		9,808
Leasehold improvements	47,521		47,723
Time clocks rented by clients	6,711		7,463
Total	135,668		136,216
Accumulated depreciation	(72,829)		(76,710)
Property and equipment, net	$	62,839	$	59,506

Depreciation expense amounted to $3,974 and $4,579 for the three months ended December 31, 2021 and 2022, respectively, and $7,816 and $9,033 for the six months ended December 31, 2021 and 2022, respectively.

The following table summarizes changes in goodwill during the six months ended December 31, 2022:

	December 31, 2022
Balance at June 30, 2022	$	101,949
Measurement period adjustments	105
Balance at December 31, 2022	$	102,054

Refer to Note 4 for further details on current year acquisition activity.

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

	June 30, 2022		December 31, 2022		Weighted average useful life (years)
Proprietary technology	$	43,129	$	43,129	6.0
Client relationships	22,200		22,200		7.8
Non-solicitation agreements	1,600		1,600		3.1
Trade names	1,640		1,640		5.0
Total	68,569		68,569
Accumulated amortization	(23,094)		(28,635)
Intangible assets, net	$	45,475	$	39,934

Amortization expense for acquired intangible assets was $2,000 and $2,770 for the three months ended December 31, 2021 and 2022, respectively, and $3,352 and $5,541 for the six months ended December 31, 2021 and 2022, respectively, and is included in Cost of revenues and General and administrative.

10

Future amortization expense for acquired intangible assets as of December 31, 2022 is as follows:

Remainder of fiscal 2023	$	5,407
Fiscal 2024	9,943
Fiscal 2025	8,888
Fiscal 2026	7,269
Fiscal 2027	4,893
Thereafter	3,534
Total	$	39,934

The components of accrued expenses were as follows:

	June 30, 2022		December 31, 2022
Accrued payroll and personnel costs	$	84,897	$	62,092
Operating lease liabilities	8,399		8,507
Deferred revenue	13,548		23,538
Other	17,540		21,658
Total accrued expenses	$	124,384	$	115,795

(6) Corporate Investments and Funds Held for Clients

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

	June 30, 2022
Type of Issue	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Cash and cash equivalents	$	139,756	$	—	$	—	$	139,756
Funds held for clients' cash and cash equivalents	3,653,699		—		(2)		3,653,697
Available-for-sale securities:
Commercial paper	58,166		—		(126)		58,040
Corporate bonds	59,568		—		(1,715)		57,853
Asset-backed securities	9,843		2		(141)		9,704
Certificates of deposit	31,879		—		(43)		31,836
U.S. treasury securities	167,566		12		(591)		166,987
U.S government agency securities	8,000		—		(451)		7,549
Other	2,181		—		(71)		2,110
Total available-for-sale securities	337,203		14		(3,138)		334,079
Total investments	$	4,130,658	$	14	$	(3,140)	$	4,127,532

11

	December 31, 2022
Type of Issue	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
Cash and cash equivalents	$	120,053	$	—	$	—	$	120,053
Funds held for clients' cash and cash equivalents	2,626,112		3		(1)		2,626,114
Available-for-sale securities:
Commercial paper	97,440		48		(65)		97,423
Corporate bonds	78,757		25		(2,005)		76,777
Asset-backed securities	27,984		17		(333)		27,668
Certificates of deposit	40,449		27		(14)		40,462
U.S. treasury securities	187,671		59		(2,480)		185,250
U.S government agency securities	8,000		—		(601)		7,399
Other	4,730		—		(126)		4,604
Total available-for-sale securities	445,031		176		(5,624)		439,583
Total investments	$	3,191,196	$	179	$	(5,625)	$	3,185,750

All available-for-sale securities were included in Funds held for clients at June 30, 2022 and December 31, 2022

Cash and cash equivalents and funds held for clients’ cash and cash equivalents included demand deposit accounts, money market funds, commercial paper and certificates of deposit at June 30, 2022 and December 31, 2022.

Classification of investments on the Unaudited Consolidated Balance Sheets was as follows:

	June 30, 2022		December 31, 2022
Cash and cash equivalents	$	139,756	$	120,053
Funds held for clients	3,987,776		3,065,697
Total investments	$	4,127,532	$	3,185,750

Available-for-sale securities that had been in an unrealized loss position for a period of less and greater than 12 months as of June 30, 2022 and December 31, 2022 had fair market value as follows:

	June 30, 2022
	Securities in an unrealized loss position for less than 12 months				Securities in an unrealized loss position for greater than 12 months				Total
	Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value
Commercial paper	$	(126)	$	53,756	$	—	$	—	$	(126)	$	53,756
Corporate bonds	(1,715)		57,853		—		—		(1,715)		57,853
Asset-backed securities	(141)		7,354		—		—		(141)		7,354
Certificates of deposit	(43)		27,086		—		—		(43)		27,086
U.S. treasury securities	(591)		129,943		—		—		(591)		129,943
U.S. government agency securities	(451)		7,549		—		—		(451)		7,549
Other	(71)		2,110		—		—		(71)		2,110
Total available-for-sale securities	$	(3,138)	$	285,651	$	—	$	—