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What changed in Paylocity Holding Corp's 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Paylocity Holding Corp's 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+277 added−286 removedSource: 10-K (2025-08-06) vs 10-K (2024-08-02)

Top changes in Paylocity Holding Corp's 2025 10-K

277 paragraphs added · 286 removed · 244 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

88 edited+15 added−20 removed38 unchanged
Biggest changeClients can create employee-facing Total Rewards Statements in bulk to demonstrate the full compensation an employee receives—including not just pay, but also benefits, time off, and more. Benefits Benefit Enrollment & Updates – Clients can plan and administer competitive benefits packages in one place while offering a smooth, mobile-friendly enrollment and management experience for employees with our tool.
Biggest changeOur customized dashboards provide visibility to individual performance and compensation history at custom permission levels and the full value of an employee’s compensation and benefits. Clients can create employee-facing Total Rewards Statements in bulk to demonstrate the full compensation an employee receives, including not just pay, but also benefits, time off, and more.
We believe that our platform’s automated data integration with hundreds of related third-party partner systems is valuable to our referral participants, as they are able to access payroll and HR data through a single system which decreases complexity and cost and complements their own product offerings.
We believe that our platform’s automated data integration with hundreds of related third-party partner systems is valuable to our referral participants, as they are able to access payroll, HR and finance data through a single system which decreases complexity and cost and complements their own product offerings.
We bring the flexibility of a secure, cloud-based solution to users without the need to access a traditional desktop or laptop computer. • Security. We maintain comprehensive security programs designed to ensure the security and integrity of client and employee data, protect against security threats or data breaches and prevent unauthorized access.
We bring the flexibility of a secure, cloud-based solution to users without the need to access a traditional desktop or laptop computer. • Security. We maintain comprehensive security programs designed to protect the security and integrity of client and employee data, protect against security threats or data breaches and prevent unauthorized access.
Item 1. Business. Overview We are a leading cloud-based provider of human capital management, or HCM, and payroll software solutions that deliver a comprehensive platform for the modern workforce.
Item 1. Business. Overview We are a leading cloud-based provider of human capital management, or HCM, payroll and spend management software solutions that deliver a comprehensive platform for the modern workforce.
We have developed a strong network of referral participants, such as 401(k) advisors, benefits administrators, insurance brokers, third-party administrators and HR consultants that recommend our solutions and provide referrals.
We have developed a strong network of referral participants, such as 401(k) advisors, benefits administrators, insurance brokers, third-party administrators, HR consultants and accountants that recommend our solutions and provide referrals.
Time & Labor Time and Attendance – Our Time and Attendance solution accurately tracks time and attendance data, eliminating the need for manual tracking of accruals and reducing administrative tasks. Employees can request and manage time off, edit timecards and manage schedule changes.
Time & Labor Time and Attendance – Our Time and Attendance solution accurately tracks time and attendance data, eliminating the need for manual tracking of accruals and reducing administrative tasks. Employees and supervisors can request and manage time off, edit timecards and manage schedule changes.
We generate sales leads through a variety of focused marketing initiatives and from our extensive referral network of 401(k) advisors, benefits administrators, insurance brokers, third-party administrators and HR consultants.
We generate sales leads through a variety of focused marketing initiatives and from our extensive referral network of 401(k) advisors, benefits administrators, insurance brokers, third-party administrators, HR consultants and accountants.
Market Pay – Market Pay provides real time insights for HR, leaders and managers making it easy for them to understand their local market, identify trends, and make data-driven decisions about employee compensation so they can pay employees fairly, stay ahead of competitors to attract and retain top talent, and remain compliant with laws and regulations. 5 Table of Contents Learning – Our Learning tools allow clients to easily assign courses tailored to training their employees on new skills, policies, products, and other topics with a variety of course delivery methods including on-demand and webinars, all of which are available via our mobile app.
Market Pay – Market Pay provides real time insights for HR, leaders and managers making it easy for them to understand their local market, identify trends, and make data-driven decisions about employee compensation so they can pay employees fairly, outpace competitors to attract and retain top talent, and remain compliant with laws and regulations. 5 Table of Contents Learning – Our Learning tools allow clients to easily assign courses tailored to training their employees on new skills, policies, products, and other topics with a variety of course delivery methods including on-demand and webinars, all of which are available via our mobile app.
We offer professional development courses to all employees including topics like preparing for an interview, building a career path, as well as leadership topics like delegation and leading a hybrid team. Through our internally developed Learning tool with Video, we enable employees to share knowledge through self-recorded sessions, which complements our library consisting of hundreds of internal courses.
We offer professional development courses to all employees including topics like preparing for an interview, building a career path, as well as leadership topics like delegation and leading a hybrid team. Through our internally developed Learning tool with Video, we enable employees to share knowledge through self-recorded sessions, which complement our library consisting of hundreds of internal courses.
We believe the principal factors on which we compete in our market include the following: • Solutions built to connect with today’s modern workforce; • Comprehensive HCM and payroll product suite on a single platform; • Breadth and depth of product functionality; • Configurability and ease of use of our solutions; • Modern, mobile, intuitive and consumer-oriented user experience; • Benefits of a cloud-based technology platform; • Ability to innovate and respond to client needs rapidly; • Domain expertise in HCM and payroll; • Quality of implementation and client service; • Ease of implementation; • Real-time web-based payroll processing; and • Access to a wide variety of complementary third-party service providers.
We believe the principal factors on which we compete in our market include the following: • Solutions built to connect with today’s modern workforce; • Comprehensive product suite on a single platform; • Breadth and depth of product functionality; • Configurability and ease of use of our solutions; • Modern, mobile, intuitive and consumer-oriented user experience; • Benefits of a cloud-based technology platform; • Ability to innovate and respond to client needs rapidly; • Domain expertise in HCM and payroll; • Quality of implementation and client service; • Ease of implementation; • Real-time web-based payroll processing; and 10 Table of Contents • Access to a wide variety of complementary third-party service providers.
We strive to achieve high revenue retention, in part, by delivering high-quality service. Our revenue retention was greater than 92% in each of fiscal 2022, 2023 and 2024. Each client is assigned an account management team that serves as the central point of contact for any questions or support needs.
We strive to achieve high revenue retention, in part, by delivering high-quality service. Our revenue retention was greater than 92% in each of fiscal 2023, 2024 and 2025. Each client is assigned an account management team that serves as the central point of contact for any questions or support needs.
For each of the three years ended June 30, 2022, 2023 and 2024, no client accounted for more than 1% of our revenues. Sales and Marketing We market and sell our products and services through our direct sales force. Our direct sales force includes sales representatives who have defined geographic territories throughout the U.S.
For each of the three years ended June 30, 2023, 2024 and 2025, no client accounted for more than 1% of our revenues. Sales and Marketing We market and sell our products and services through our direct sales force. Our direct sales force includes sales representatives who have defined geographic territories throughout the U.S.
We derive revenue from a client based on the solutions purchased by the client, the number of client employees and the amount, type and timing of services provided with respect to those client employees. Our annual revenue retention rate was greater than 92% in each of the fiscal years 2022, 2023 and 2024.
We derive revenue from a client based on the solutions purchased by the client, the number of client employees and the amount, type and timing of services provided with respect to those client employees. Our annual revenue retention rate was greater than 92% in each of the fiscal years 2023, 2024 and 2025.
We plan to increase integration with third-party providers and expand our referral network to grow our client base and lower our client acquisition costs. 3 Table of Contents Our Products Our HCM and payroll software solutions deliver a unified platform for the modern workplace.
We plan to increase integration with third-party providers and expand our referral network to grow our client base and lower our client acquisition costs. 3 Table of Contents Our Products Our HCM, payroll and spend management software solutions deliver a unified platform for the modern workplace.
Human Capital As a leading provider of cloud-based HCM and payroll software solutions, we are committed to delivering the most modern suite of solutions that drive employee engagement and a more connected culture for both our clients and our employees.
Human Capital As a leading provider of cloud-based HCM, payroll and spend management software solutions, we are committed to delivering the most modern suite of solutions that drive employee engagement and a more connected culture for both our clients and our employees.
Employee Self-Service – Our Employee Self-Service module provides employees with access to their information 24/7, which allows them to view checks, request time off, clock in and out, update personal data and collaborate with teammates. Employees can also enroll in benefits, view coverage, access Learning Management System training or view course completion status on-the-go via our mobile app.
Employee Self-Service – Our Employee Self-Service module provides employees with access to their information 24/7, which allows them to view checks, request time off, clock in and out, update personal data and collaborate with teammates. Employees can also enroll in benefits, view coverage, access training or view course completion status on-the-go via our mobile app.
Unlike other HCM and payroll solution providers who also provide retirement plans, health insurance and other products and services competitive with the offerings of the participants in our referral network, we focus only on our core business of providing HCM and payroll solutions. In some cases, we have formalized relationships in which we are a recommended vendor of these participants.
Unlike other providers who also provide retirement plans, health insurance and other products and services competitive with the offerings of the participants in our referral network, we focus only on our core business of providing HCM, payroll and spend management solutions. In some cases, we have formalized relationships in which we are a recommended vendor of these participants.
Culture & Engagement At Paylocity, we strive to be an organization where every employee has a voice, feels welcomed and is empowered to do their best work. Our core values drive our culture – we believe in earning it every day, that growth fuels opportunity, thinking next generation, living the reputation, and being unbeatable together.
Culture & Engagement At Paylocity, we strive to be an organization where every employee feels welcomed and is empowered to do their best work. Our core values drive our culture – we believe in earning it every day, that growth fuels opportunity, thinking next generation, living the reputation, and being unbeatable together.
Our Strategy We intend to strengthen and extend our position as a leading provider of cloud-based HCM and payroll software solutions. Key elements of our strategy include the following: • Extend Technological Leadership .
Our Strategy We intend to strengthen and extend our position as a leading provider of cloud-based HCM, payroll and spend management software solutions. Key elements of our strategy include the following: • Extend Technological Leadership .
Video – Video provides clients the ability to record, upload and embed videos across our HCM platform to increase collaboration, morale, engagement and productivity. Clients can embed videos seamlessly into tasks that are critical to their business such as leadership announcements, job postings, onboarding, performance journals, surveys and more.
Video – Our Video tools provide clients the ability to record, upload and embed videos across our HCM platform to increase collaboration, morale, engagement and productivity. Clients can embed videos seamlessly into tasks that are critical to their business such as leadership announcements, job postings, onboarding, performance journals, surveys and more.
Our referral network has become an increasingly important component of our sales process, and in fiscal 2024, more than 25% of our new client revenue originated by referrals from participants in our referral network.
Our referral network has become an increasingly important component of our sales process, and in fiscal 2025, more than 25% of our new client revenue originated by referrals from participants in our referral network.
Our tax service teams provide a variety of solutions to clients, including processing payroll tax deposits, preparing and filing quarterly and annual employment tax returns and amendments and resolving client employment tax notices. Our tax filing and compliance departments perform multiple audits to ensure that clients remit timely and accurate tax payments.
Our tax service teams provide a variety of solutions to clients, including processing payroll tax deposits, preparing and filing quarterly and annual employment tax returns and amendments and resolving client employment tax notices. Our tax filing and compliance departments perform multiple audits to allow clients to remit timely and accurate tax payments.
We believe that our organically developed cloud-based software solutions, combined with our unified database architecture, enhances the experience and usability of our products, providing what we believe to be a competitive advantage over alternative solutions. Our modern, intuitive user interface utilizes features found in many popular consumer application experiences, enabling users to use our solutions with limited training.
We believe that our cloud-based software solutions, combined with our unified database architecture, enhance the experience and usability of our products, providing what we believe to be a competitive advantage over alternative solutions. Our modern, intuitive user interface utilizes features found in many popular consumer application experiences, enabling users to use our solutions with limited training.
Our HCM and payroll platform offers an intuitive, easy-to-use product suite that helps businesses attract and retain talent, build culture and connection with their employees, and streamline and automate HR and payroll processes.
Our platform offers an intuitive, easy-to-use product suite that helps businesses streamline and automate HR, payroll and spend management processes, attract and retain talent, and build culture and connection with their employees.
Talent Acquisition & Compensation We focus diligently on attracting a diverse pool of talented candidates that can help us achieve our short and long-term goals as an organization. Our philosophy of “talent anywhere” focuses on identifying the right individuals for our business, regardless of where they are located geographically.
Talent Acquisition & Compensation We focus diligently on attracting top candidates that can help us achieve our short and long-term goals as an organization. Our philosophy of “talent anywhere” focuses on identifying the right individuals for our business, regardless of where they are located geographically.
In the United States, these include rules and regulations promulgated under the authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), state breach notification laws, and state privacy laws, such as the California Consumer Privacy Act of 2018 (“CCPA”), as amended by the California Privacy Rights Act of 2020 (“CPRA”) and the Illinois Biometric Information Privacy Act (“BIPA”).
In the United States, these include rules and regulations promulgated under the authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), state breach notification laws, and state privacy laws, such as the California Consumer Privacy Act of 2018 (“CCPA”) and the Illinois Biometric Information Privacy Act (“BIPA”).
The global regulatory landscape for data privacy is rapidly evolving and is likely to remain so for the foreseeable future. Many national, state and local government bodies have adopted or are considering adopting laws and regulations related to the collection, use and disclosure of personal information.
The global regulatory landscape for data privacy is rapidly evolving and is expected to continue doing so for the foreseeable future. Many national, state and local government bodies have adopted or are considering adopting laws and regulations related to the collection, use and disclosure of personal information.
It empowers clients to engage all employees—even those that are remote, on-the-go or do not have corporate email, which is more critical than ever in the new hybrid world of work. With Community, clients can optimize “broadcast” communications with a company feed that streamlines announcements into a single location. Announcements can be managed, sent and tracked with an intuitive dashboard.
It empowers clients to engage all employees—even those that are remote, on-the-go or do not have corporate email, which remains critical in the current era of hybrid work. With Community, clients can optimize “broadcast” communications with a company feed that streamlines announcements into a single location. Announcements can be managed, sent and tracked with an intuitive dashboard.
Excluding clients acquired through acquisitions, as of June 30, 2024, we provided our software-as-a-service, or SaaS, solutions to approximately 39,050 clients across the U.S., which on average had over 150 employees. Effective management of human capital is a core function in all organizations and requires a significant commitment of resources.
Excluding clients acquired through acquisitions, as of June 30, 2025, we provided our software-as-a-service, or SaaS, solutions to approximately 41,650 clients across the U.S., which on average had over 150 employees. Effective management of human capital and business-related spend is a core function in all organizations and requires a significant commitment of resources.
Our clients can create a variety of content for their employees including via a Sharable Content Object Reference Model (SCORM), embedded video and various document types. The client’s custom content is supplemented by a library of standard trainings provided by Paylocity to help in areas like anti-harassment, new hire, workplace safety, diversity in recruiting and many more.
Our clients can create a variety of content for their employees including via a Sharable Content Object Reference Model (SCORM), embedded video and various document types. Custom content is supplemented by a library of hundreds of out-of-the-box trainings provided by Paylocity in areas like anti-harassment, workplace safety, diversity in recruiting and many more.
Each of these groups is organized to give employees the chance to build community and connections, voice their ideas and perspectives, personally develop and grow, and shape our culture to make a difference at work and in our local communities. Diversity, Equity, Inclusion and Accessibility Dedication to diversity, equity, inclusion and accessibility (“DEIA”) is foundational to our culture.
Each of these groups is organized to give employees the chance to build community and connections, voice their ideas and perspectives, personally develop and grow, and shape our culture to make a difference at work and in our local communities.
Our software solutions were designed with a multi-tenant architecture. This architecture gives us an advantage over many disparate traditional systems, which are less flexible and require longer and more costly development and upgrade cycles. • Mobile Focused. We employ mobile-centric principles in our solution design and development.
This architecture gives us an advantage over many disparate traditional systems, which are less flexible and require longer and more costly development and upgrade cycles. • Mobile Focused. We employ mobile-centric principles in our solution design and development.
Research and development costs, including research and development costs that were capitalized, were $145.1 million, $219.6 million and $253.9 million for the years ended June 30, 2022, 2023 and 2024, respectively. 10 Table of Contents Intellectual Property Our success is dependent, in part, on our ability to protect our proprietary technology and other intellectual property rights.
Research and development costs, including research and development costs that were capitalized, were $219.6 million, $253.9 million and $281.7 million for the years ended June 30, 2023, 2024 and 2025, respectively. Intellectual Property Our success is dependent, in part, on our ability to protect our proprietary technology and other intellectual property rights.
In addition, a series of audit routines are run to ensure that quarterly tax filings are accurate and submitted on a timely basis. Clients Excluding clients acquired through acquisitions, as of June 30, 2024, we provided our HCM and payroll software solutions to approximately 39,050 clients, across the U.S.
In addition, a series of audit routines are run to ensure that quarterly tax filings are accurate and submitted on a timely basis. 8 Table of Contents Clients Excluding clients acquired through acquisitions, as of June 30, 2025, we provided our HCM, payroll and spend management software solutions to approximately 41,650 clients, across the U.S.
We offer an intuitive, easy-to-use product suite that helps businesses attract and retain talent, build culture and connection with their employees and streamline and automate HR and payroll processes.
Our platform offers an intuitive, easy-to-use product suite that helps businesses streamline and automate HR, payroll and spend management processes, attract and retain talent, and build culture and connection with their employees.
Our total revenues increased from $852.7 million in fiscal 2022 to $1,174.6 million in fiscal 2023, representing a 38% year-over-year increase, and to $1,402.5 million in fiscal 2024, representing a 19% year-over-year increase. We believe our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results.
Our total revenues increased from $1,174.6 million in fiscal 2023 to $1,402.5 million in fiscal 2024, representing a 19% year-over-year increase, and to $1,595.2 million in fiscal 2025, representing a 14% year-over-year 2 Table of Contents increase. We believe our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results.
Governmental Regulation As a provider of HCM and payroll solutions, our systems contain a significant amount of sensitive data related to clients, employees of our clients, business partners and our employees. Data privacy is a significant risk for organizations globally, including those in the United States.
Governmental Regulation As a provider of HCM, payroll and spend management software solutions, our platform contains a significant amount of sensitive data related to clients, employees of our clients, business partners and our employees. Data privacy represents a major risk for organizations globally, including those in the United States.
Our approach to drive a strong culture and employee engagement has been validated externally as Paylocity has been named Forbes 2024 Best Employers for Diversity, Forbes 2024 America’s Best Large Employers, Newsweek America’s Greatest Workplace for Diversity 2024, Built In Best Places to Work 2024 and was also Great Place To Work certified on multiple occasions.
Our approach to drive a strong culture and employee engagement has been validated externally as Paylocity has been named Forbes America’s Most Trusted Companies 2025, Newsweek America’s Greatest Workplace for Diversity 2025, Fortune Best Workplaces in Technology 2025, Time Best Midsize Companies 2025, Built In Best Places to Work 2025 and was also Great Place To Work certified on multiple occasions.
Our competitors vary for each of our solutions and primarily include payroll and HR service and software providers, such as Automatic Data Processing, Inc., Dayforce, Inc., Paychex, Inc., Paycom Software, Inc., Paycor, Inc., Ultimate Kronos Group and other local and regional providers.
Competition The market for HCM and payroll solutions is both fragmented and highly competitive. Our competitors vary for each of our solutions and primarily include payroll and HR service and software providers, such as Automatic Data Processing, Inc., Dayforce, Inc., Paychex, Inc., Paycom Software, Inc., Ultimate Kronos Group and other local and regional providers.
While we provide our HCM and payroll software solutions to approximately 39,050 clients across the U.S. (excluding clients acquired through acquisitions) as of June 30, 2024, there are approximately 1.3 million businesses with 10 to 5,000 employees in the U.S., employing approximately 69 million people, according to the U.S. Census Bureau in 2021.
While we provide our software solutions to approximately 41,650 clients across the U.S. (excluding clients acquired through acquisitions) as of June 30, 2025, there are approximately 1.3 million businesses with 10 to 5,000 employees in the U.S., employing approximately 73 million people, according to the U.S. Census Bureau in 2022.
For example, the adoption of new money transmitter or money services business statutes in jurisdictions, or changes in regulators’ interpretation of existing state and federal money transmitter or money services business statutes or regulations, could require us to register or obtain licenses, or limit our business activities until we are appropriately licensed.
For example, the adoption of new money transmitter or money services business statutes in jurisdictions, or changes in regulators’ interpretation of statutes, could require us to register, obtain licenses, or limit our business activities until we secure the appropriate licenses.
Our ability to comply with and address the continuously evolving requirements and regulations applicable to our business depends on a variety of factors, including the functionality and design of our solutions and the way our clients and their employees utilize them.
Our ability to comply with and address these evolving requirements and regulations applicable to our business depends on several factors, including the functionality and design of our solutions and how our clients and their employees use them.
Clients can also access a comprehensive library of detailed articles, guides and other resources to make informed decisions on compliance topics such as healthcare reform, wages and hours regulations, employee leave, state laws, discrimination and more.
HR Edge – HR Edge supports human resource leaders’ navigation through complex compliance requirements, social issues and HR policies. Clients can also access a comprehensive library of detailed articles, guides and other resources to make informed decisions on compliance topics such as healthcare reform, wages and hours regulations, employee leave, state laws, discrimination and more.
We believe a significant part of our leadership position is the result of our investment and innovation in our product offerings. We plan to continue to invest in product development efforts that will allow us to offer a broader selection of products to new and existing clients. • Further Develop Our Referral Network .
We plan to continue to invest in product development efforts that will allow us to offer a broader selection of products to new and existing clients. • Further Develop Our Referral Network .
Through PCTY Gives, we mobilize our technology, people and resources across the country through in-kind donations, our Elevate Your Passions (“EYP”) Grant Program, Volunteers in Action paid time-off, signature program funding, corporate sponsored volunteerism and many other initiatives.
Through PCTY Gives, we mobilize our technology, people and resources across the country through in-kind donations, our Elevate Your Passions (“EYP”) Grant Program, paid time-off to volunteer, signature program funding, corporate sponsored volunteerism and many other initiatives. To support our employees and their communities, we donate to charities nominated by our employees through the EYP program.
Additionally, our solution provides clients with the ability to auto-fill and simplify background checks, maintain and track personal and confidential data, and have real-time access to candidate information to enable timely staffing decisions.
To promote an inclusive culture, clients can activate masking of certain candidate details to reduce bias. Additionally, our solution provides clients with the ability to auto-fill and simplify background checks, maintain and track personal and confidential data, and have real-time access to candidate information to enable timely staffing decisions.
Employee Voice – Employee Voice helps clients automatically and continuously collect feedback that is indicative of employee engagement and retention. It also includes the tools to share relevant insights with leadership and managers and create action plans to drive accountability.
Employee Voice – Employee Voice helps clients automatically and continuously collect feedback that is indicative of employee engagement and retention. AI-generated sentiment summaries synthesize feedback alongside dashboards and heatmaps that make it simple to understand feedback at scale. It also includes the tools to share relevant insights with leadership and managers and create action plans to drive accountability.
These organizations often have limited internal resources and rely on us to implement their HCM and payroll solutions. We typically implement our product suite within one to eight weeks, depending on the size and complexity of the client. Each client is guided through the implementation process by our knowledgeable consultants for all implementation matters.
We typically implement our product suite within one to eight weeks, depending on the size and complexity of the client. Each client is guided through the implementation process by our knowledgeable consultants for all implementation matters.
With MWI, clients can identify gaps and get smart, actionable recommendations on how to improve their organization’s health by increasing employee productivity and reducing turnover.
With MWI, clients can identify gaps and receive insightful, actionable recommendations on improving their organization’s health by increasing employee productivity and reducing turnover.
We regulate and limit all access to servers and networks at our data centers. Our systems are monitored for irregular or suspicious activity, and we have dedicated internal staff perform security assessments for each release.
We regulate and limit all access to servers and networks at our data centers. Our systems are monitored for irregular or suspicious activity, and we have dedicated internal staff perform security assessments for each release. Our systems undergo regular penetration testing and source code reviews by an independent third-party security firm.
We integrate data with these related systems through a secure connection, which significantly decreases the risk of unauthorized third-party access and other security breaches. 2 Table of Contents We market and sell our products through our direct sales force.
This integration reduces the complexity and risk of error of manual data transfers and saves time for our clients and their employees. We integrate data with these related systems through a secure connection, which significantly decreases the risk of unauthorized third-party access and other security breaches. We market and sell our products through our direct sales force.
The sales cycle begins with a sales lead generated by the sales representative, through our third-party referral network, a client referral, our telemarketing team, our external website, marketing lead generation strategies or other territory-based activities.
The sales cycle begins with a sales lead generated by the sales representative, through our third-party referral network, a client referral, our telemarketing team, our external website, marketing lead generation strategies or other territory-based activities. We support our sales force with a marketing program that includes seminars and webinars, email marketing, social media marketing, broker events and web marketing.
Paylocity’s automated data integration reduces the complexity and risk of error of manual data transfers and saves clients and employees time. Direct and automated data transmission improves the accuracy of data and facilitates data collection in partners’ systems. Having automated data integration with a HCM and payroll provider differentiates partners’ product offerings, strengthening their competitive positioning in their own markets.
Paylocity’s automated data integration reduces the complexity and risk of error of manual data transfers and saves clients and employees time. Direct and automated data transmission improves the accuracy of data and facilitates data collection in partners’ systems.
Technology We offer our solutions on a cloud-based platform that leverages a unified architecture and a common code base that we organically developed. Clients do not need to install our software in their data centers and can access our solutions through any mobile device or web browser with Internet access. • Multi-Tenant Architecture.
Clients do not need to install our software in their data centers and can access our solutions through any mobile device or web browser with Internet access. • Multi-Tenant Architecture. Our software solutions were designed with a multi-tenant architecture.
For Paylocity, the right talent is someone who embodies our values, has an innate curiosity to learn and grow with our business, and has a diverse perspective on how best to accomplish our goals.
For Paylocity, the right talent is someone who embodies our values, has an innate curiosity to learn and grow with our business, and has a diverse perspective on how best to accomplish our goals. 12 Table of Contents Our compensation approach is centered around a philosophy that allows us to compete for and retain the right talent to grow our organization, while being consistent and equitable.
This data provides an accurate view of our diverse workforce so we can better customize, fund, and initiate specialized programming, accommodations and strategies. Learning & Development We are committed to creating industry leading talent development and leadership programs that support the professional growth of our employees. We were named a 2024 BEST Awards organization by the Association for Talent Development.
Learning & Development We are committed to creating industry leading talent development and leadership programs that support the professional growth of our employees. We were named a 2025 BEST Awards organization by the Association for Talent Development.
We believe that modern organizations are better served by SaaS solutions designed to meet their unique needs, delivering fast time to value, and providing their employees with the most engaging experience available. 1 Table of Contents Our HCM and payroll software solutions provide the following key benefits to our clients: • Single Platform with Flexible Data - The foundation of our platform is a single employee system of record that supports the complete employee lifecycle, while ensuring efficiency and compliance: Recruiting & Onboarding, Payroll, Time & Labor, HR, Benefits, Learning, and Performance & Compensation.
We believe that modern organizations are better served by SaaS solutions designed to meet their unique needs, delivering fast time to value, and providing their employees with the most engaging experience available. 1 Table of Contents Our software solutions provide the following key benefits to our clients: • Single Platform with Flexible Data – The foundation of our platform is a single employee system of record and end-to-end capabilities to support the employee lifecycle, ensuring efficiency and compliance from recruitment to retirement. • Employee Experience – We embed employee-focused features like native video, collaboration, recognition and rewards, chat, automated surveys and more throughout the platform that enable employers to engage with and retain top talent.
Additionally, our clients can prepare succession planning assessments across their employee population by using our 9-box tool that provides context to employees’ performance and the ability to visualize the distribution of their workforce.
Additionally, our clients can prepare succession planning assessments across their employee population by using our 9-box tool that provides context to employees’ performance and the ability to visualize the distribution of their workforce. Compensation – Our Compensation tools help clients align between organizational goals, budgets and participant eligibility in an efficient process that reduces manual effort and paper-based budgeting activities.
Existing solutions offered by third-party payroll service providers can have limited capabilities and configurability while other enterprise-focused software vendors can be prohibitively expensive and time-consuming to implement and manage.
Many companies also are operating without the infrastructure, expertise or personnel to implement or support large and complex systems in today’s dynamic environment. Existing solutions offered by third-party service providers can have limited capabilities and configurability while other enterprise-focused software vendors can be prohibitively expensive and time-consuming to implement and manage.
We partner with best-in-class organizations to ensure that we utilize the most current data to serve as a foundation of our compensation strategy. We are also committed to supporting the health and well-being of our employees and offer a multitude of resources to assist in these efforts.
We are also committed to supporting the health and well-being of our employees and offer a multitude of resources to assist in these efforts.
Modern Workforce Index – Leveraging data from more than 39,050 clients, our patent-pending Modern Workforce Index (MWI) puts sophisticated AI into an HR intelligence dashboard that gives clients insight into employee sentiment, performance metrics, and engagement.
Administrators retain full control and visibility into how rewards are funded and distributed, ensuring alignment with company culture, objectives, budgets and policies. Modern Workforce Index – Leveraging data from more than 41,650 clients, our patent-pending Modern Workforce Index (MWI) puts sophisticated AI into an HR intelligence dashboard that gives clients insight into employee sentiment, performance metrics, and engagement.
A customizable supervisor dashboard provides at-a-glance visibility to missed punches, pending time off requests, attendance exceptions and more. Scheduling – Clients can automate schedule tracking by creating and adjusting work schedules as needed, including leveraging templates and building policies based on duration, time between shifts and availability without having to manually correct payroll data.
A customizable supervisor dashboard provides at-a-glance visibility to missed punches, pending time off requests, attendance exceptions and more. Scheduling – Clients can simplify scheduling by leveraging AI-driven shift recommendations and budgeting/scheduling advice, leveraging templates, and building policies based on duration; time between shifts; and skills/certifications.
Garnishments – Our Garnishments solution provides the calculation, setup and maintenance of historical deduction records and performs calculation validation against state and federal legislation to mitigate compliance risk and prevent costly penalties and errors. Human Resources Human Resources – Human Resources solutions streamline processes using modern, mobile-enabled tools that help save time by automating administrative tasks and providing data-driven reporting.
Garnishments – Our Garnishments solution provides the calculation, setup and maintenance of historical deduction records and performs calculation validation against state and federal legislation to mitigate compliance risk and prevent costly penalties and errors.
Further, because some of our clients have international operations and employees, the European Union General Data Protection Regulation (“GDPR”) and other foreign data privacy laws may impact our processing of certain client and employee information.
Because we and some of our clients have international operations and employees, the European Union General Data Protection Regulation (“GDPR”) and other international data privacy laws also impact certain aspects of our processing of client and employee information. Many of our solutions are designed to help clients in complying with applicable U.S. federal, state and local laws and regulations.
Clients can streamline processes such as handbook acknowledgment, tax withholding forms, I-9 document verification, E-Verify and many others. Additionally, new hires feel an instant connection to their team and employer with welcome notes from leaders, introductory videos, company culture information and company policies.
Additionally, new hires feel an instant connection to their team and employer with welcome notes from leaders, introductory videos, company culture information and company policies.
In addition to traditional benefit offerings, we provide all employees with innovative perks and benefits, such as flexible work schedules, paid parental leave, adoption assistance, employer-paid short term disability, health advocacy services, paid time off to volunteer, tuition reimbursement, the ability to consolidate and refinance federal and private student loans, interest free employee loans and many others.
In addition to traditional benefit offerings, we provide all employees with innovative perks and benefits, such as paid parental leave, adoption assistance, employer-paid short term disability, health advocacy services, paid time off to volunteer, tuition reimbursement, mental health support, fertility treatment, family planning services and many others. PCTY Gives Giving back to our communities takes many forms at Paylocity.
Managers and employees can easily manage their schedules from our mobile app to ensure the appropriate shift coverage. Time Collection – Our wide variety of time collection devices include kiosks, state-of-the-art time clocks, and mobile and web applications to meet unique needs of different companies while enabling employees to clock in wherever business is conducted.
Time Collection – Our wide variety of time collection devices include kiosks, state-of-the-art time clocks, mobile and web applications, and even smartwatches to meet unique needs of different companies while enabling employees to clock in wherever business is conducted. Advanced features include specifying geographic parameters for mobile punch-in, answering attestation prompts and other health and safety checks.
As we continue to expand our product offer ings, we believe that we have an opportunity to increase the amounts clients spend on HCM solutions per employee and to expand our addressable market. As we expand our client base and number of employees, we will also grow our sales organization. • Expand Our Product Offerings .
We believe our realized target addressable market is approximately $22.0 billion as clients, on average, purchase 50% or more of our suite of solutions. As we continue to expand our product offer ings, we believe that we have an opportunity to increase the amounts clients spend on our solutions per employee and to expand our addressable market.
Clients can also use embedded experiences like notifications and training to help employees easily stay apprised of important dates and understand the benefit options available to them.
Employees can experience a guided enrollment experience with AI-powered Benefit Decision Support and can manage their own elections and account balances in desktop or via the mobile app. Clients can also use embedded experiences like notifications and training to help employees stay apprised of important dates and understand the benefit options available to them.
As these requirements proliferate, we may be required to modify our products and services to comply. These changing regulatory requirements might also reduce or eliminate the need for some of our products and services, hinder our development of new products and services, or adversely affect the functionality and acceptance of our solution.
These regulatory changes could reduce or eliminate the need for some of our products and services, hinder our development of new products and services, or adversely affect the functionality and acceptance of our solutions. This could in turn impose additional costs to comply, modify, or further develop our products and services.
Workflows & Documents – Workflows, the process automation engine embedded throughout the Paylocity platform, uses triggers and if/then logic to allow clients to automate manual processes, improving efficiency and data accuracy. Paylocity offers both out-of-the-box workflow templates, and allows clients to create their own based on business needs.
An AI Assistant answers Paylocity-centric questions, as well as client-specific ones based on information in their employee handbooks. Workflows & Documents – Workflows, the process automation engine embedded throughout the Paylocity platform, uses triggers and if/then logic to allow clients to automate manual processes, improving efficiency and data accuracy.
Documents serves as a central location to securely store personal employee files such as offer letters and performance reviews to help clients stay compliant and organized by replacing manual processes 4 Table of Contents and paper files. HR professionals can search electronic documents and easily upload, store and download documents while managing access with our role-based permission settings.
Paylocity offers both out-of-the-box workflow templates and allows clients to create their own based on business needs. Documents serves as a central location to securely store personal employee files such as offer letters and performance reviews to help clients stay compliant and organized by replacing manual processes 4 Table of Contents and paper files.
Clients can track headcount and status for positions, manage position and manager changes, manage compliance tracking and reporting and employee data and documents in one central location.
Human Resources Human Resources – Our Human Resources solutions streamline processes using modern, mobile-enabled tools that help save time by automating administrative tasks and providing data-driven reporting. Clients can track headcount and status for positions, manage position and manager changes, manage compliance tracking and reporting and employee data and documents in one central location.
Scheduling is simple with Outlook and Google Calendar integrations, and recruiters can communicate with modern candidates in the ways they expect, including email and text messaging from right within our platform. Onboarding – Onboarding enables new employees to complete all pre-hire tasks through digital data collection to gather important personal and confidential information and documentation right through our platform.
Scheduling is simple with Outlook and Google Calendar integrations and self-scheduling functionality for candidates, and recruiters can communicate with modern candidates in the ways they expect, including one-way video interviews and email and text messaging from right within our platform.
We have implemented operating policies and procedures to protect the accuracy, privacy and security of our clients’ and their employees’ information. Additionally, we voluntarily undergo periodic audits and examinations and maintain certain certifications to demonstrate our commitment to regulatory compliance. The foregoing description does not provide an exhaustive list of the laws and regulations governing or impacting our business.
We have implemented established frameworks and policies and procedures to protect the accuracy, privacy and security of the information we handle for our employees and on behalf of our clients and their employees. Additionally, we 11 Table of Contents voluntarily undergo periodic audits and examinations and maintain certain certifications to demonstrate our commitment to regulatory compliance.
Our systems undergo regular penetration testing and source code reviews by an independent third-party security firm. 9 Table of Contents We use multiple cloud hosting and third-party data center providers to host our solutions, including data centers in Franklin Park, Illinois and Kenosha, Wisconsin (for backup and disaster recovery).
We use multiple cloud hosting and third-party data center providers to host our solutions, including data centers in Franklin Park, Illinois and Kenosha, Wisconsin (for backup and disaster recovery). We supply the hardware infrastructure and are responsible for the ongoing maintenance of our equipment at all data center locations.
Our total rewards program includes competitive pay, a restricted stock program that covers nearly half of our employee base, an employee stock purchase program, the ability to receive a portion of earned wages before the end of the payroll cycle through our On-Demand Payment product, market competitive retirement benefits, paid time off and many other benefits.
Our total rewards program includes competitive pay, a restricted stock program, an employee stock purchase program, market competitive retirement benefits, paid time off and many other benefits.
HR Compliance Dashboard – With our HR Compliance Dashboard, clients save time and money by staying up to date with new laws and regulations related to topics such as employment verification, Equal Employment Opportunity and compensation. HR Edge – HR Edge supports human resource leaders’ navigation through complex compliance requirements, social issues and HR policies.
HR professionals can search electronic documents and easily upload, store and download documents while managing access with our role-based permission settings. HR Compliance Dashboard – With our HR Compliance Dashboard, clients save time and money by staying up to date with new laws and regulations related to topics such as employment verification, Equal Employment Opportunity and compensation.
At the same time, employees’ expectations are rising, and organizations need to prioritize communication, connection, and collaboration among their employees to differentiate how they attract and retain talent and build a culture of loyalty. Many companies also are operating without the infrastructure, expertise or personnel to implement or support large and complex systems in today’s dynamic environment.
Organizations are faced with an ever-changing employment landscape, the complexity of increasingly geographically dispersed employees, and managing hybrid workplaces. At the same time, employees’ expectations are rising, and organizations need to prioritize communication, connection, and collaboration among their employees to differentiate how they attract and retain talent and build a culture of loyalty.
We support our sales force with a marketing program that includes seminars and webinars, email marketing, social media marketing, broker events and web marketing. 8 Table of Contents Referral Network As a core element of our business strategy, we have developed a referral network of third-party service providers, including 401(k) advisors, benefits administrators, insurance brokers, third-party administrators and HR consultants, that recommend our solutions and provide referrals.
Referral Network We have developed a strong network of referral participants, such as 401(k) advisors, benefits administrators, insurance brokers, third-party administrators, HR consultants and accountants that recommend our solutions and provide referrals.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese laws, which are not uniform, generally regulate the collection, storage, transfer, 22 Table of Contents and other processing of personal information; require notice to individuals of privacy practices before or at the point of collection; give individuals certain rights with respect to their personal information, including access, deletion and correction; regulate the use or disclosure of personal information for secondary purposes such as marketing; and in some cases, require notification to affected individuals, clients, and/or regulators in the event of a data breach.
Biggest changeThese laws, which vary across jurisdictions, generally govern the collection, storage, transfer, and other processing of personal information. They require that individuals be provided notice of privacy practices before or at the point of collection, and grant them certain rights over their personal information, including access, deletion and correction.
Our payroll processing business involves the movement of significant funds from the account of a client to its employees and to relevant taxing authorities.
Our payroll processing business involves the movement of significant funds from the account of a client to its employees and relevant taxing authorities.
Factors that may impact our performance and market price include those discussed elsewhere in this “Risk Factors” section of this Annual Report on Form 10-K and others such as: • Our operating performance and the operating performance of similar companies; • Announcements by us or our competitors of acquisitions, business plans or commercial relationships; • Any major change in our board of directors or senior management; • Publication of research reports or news stories about us, our competitors, or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts; • The public’s reaction to our press releases, our other public announcements and our filings with the SEC; • Repurchases of our common stock under our share repurchase program or the decision to terminate or suspend any repurchases; • Sales of our common stock by our directors, executive officers and affiliates; • Adverse market reaction to any indebtedness we may incur or securities we may issue in the future; • Short sales, hedging and other derivative transactions in our common stock; • Threatened or actual litigation; • Public health issues; and • Other events or factors, including changes in general conditions in the United States and global economies or financial markets (including acts of God, war, incidents of terrorism, inflationary pressures or other destabilizing events and the resulting responses to them).
Factors that may impact our performance and market price include those discussed elsewhere in this “Risk Factors” section of this Annual Report on Form 10-K and others such as: • Our operating performance and the operating performance of similar companies; • Announcements by us or our competitors of acquisitions, business plans or commercial relationships; • Any major change in our board of directors or senior management; • Publication of research reports or news stories about us, our competitors, or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts; • The public’s reaction to our press releases, our other public announcements and our filings with the SEC; • Repurchases of our common stock under our share repurchase program or the decision to terminate or suspend any repurchases; • Sales of our common stock by our directors, executive officers and affiliates; • Adverse market reaction to any indebtedness we may incur or securities we may issue in the future; • Short sales, hedging and other derivative transactions in our common stock; • Threatened or actual litigation; • Public health issues; and • Other events or factors, including changes in general conditions in the United States and global economies or financial markets (including acts of God, war, incidents of terrorism, inflationary pressures, impact of tariffs and changes in trade policies or other destabilizing events and the resulting responses to them).
New technologies that involve AI or machine learning or that are created using AI or machine learning may emerge that are able to deliver HCM solutions at lower prices, more efficiently or more conveniently than our solutions, which could adversely impact our ability to compete.
New technologies that involve AI or machine learning or that are created using AI or machine learning may emerge that are able to deliver solutions at lower prices, more efficiently or more conveniently than our solutions, which could adversely impact our ability to compete.
Our competitors vary for each of our solutions and primarily include payroll and HR service and software providers, such as Automatic Data Processing, Inc., Dayforce, Inc., Paychex, Inc., Paycom Software, Inc., Paycor, Inc., Ultimate Kronos Group and other local and regional providers.
Our competitors vary for each of our solutions and primarily include payroll and HR service and software providers, such as Automatic Data Processing, Inc., Dayforce, Inc., Paychex, Inc., Paycom Software, Inc., Ultimate Kronos Group and other local and regional providers.
This bylaws provision, therefore, may dissuade or discourage claimants from initiating lawsuits or claims against us or our directors and officers in forums other than Delaware. General Risk Factors Adverse economic and market conditions could affect our business, results of operations and financial condition.
This bylaws provision, therefore, may dissuade or discourage claimants from initiating lawsuits or claims against us or our directors and officers in forums other than Delaware. General Risk Factors Economic and market conditions could adversely affect our business, results of operations and financial condition.
Accordingly, quarter-to-quarter comparisons of our operations are not necessarily meaningful and such comparisons should not be relied upon as indications of future performance. 14 Table of Contents In addition to other risk factors listed within this “Risk Factors” section of this Annual Report on Form 10-K, some other important factors that may cause fluctuations in our quarterly operating results include the following: • The number of our clients’ employees; • Client renewal rates; • The extent to which our products achieve or maintain market acceptance; • Changes in client budgets and procurement policies; • The amount and timing of our investment in research and development activities and whether such investments are capitalized or expensed as incurred; • Business disruptions caused by public health issues, natural disasters or other catastrophic events; • Macroeconomic factors, including changes in interest rates and inflationary pressures; and • Unforeseen legal expenses, including litigation and settlement costs.
Accordingly, quarter-to-quarter comparisons of our operations are not necessarily meaningful and such comparisons should not be relied upon as indications of future performance. 13 Table of Contents In addition to other risk factors listed within this “Risk Factors” section of this Annual Report on Form 10-K, some other important factors that may cause fluctuations in our quarterly operating results include the following: • The number of our clients’ employees; • Client renewal rates; • The extent to which our products achieve or maintain market acceptance; • Changes in client budgets and procurement policies; • The amount and timing of our investment in research and development activities and whether such investments are capitalized or expensed as incurred; • Business disruptions caused by public health issues, natural disasters or other catastrophic events; • Macroeconomic factors, including changes in interest rates, inflationary pressures, and uncertainty around tariffs and trade policies; and • Unforeseen legal expenses, including litigation and settlement costs.
To operate without interruption, both we and our clients must guard against: • Damage from fire, power loss, natural disasters, pandemics and other force majeure events outside our control; 16 Table of Contents • Communications failures; • Software and hardware errors, failures and crashes; • Security breaches, computer viruses, hacking, worms, malware, ransomware, denial-of-service attacks and similar disruptive problems; and • Other potential interruptions.
To operate without interruption, both we and our clients must guard against: • Damage from fire, power loss, natural disasters, pandemics and other force majeure events outside our control; • Communications failures; • Software and hardware errors, failures and crashes; • Security breaches, computer viruses, hacking, worms, malware, ransomware, denial-of-service attacks and similar disruptive problems; and • Other potential interruptions.
However, a failure of one of our banking partners or a systemic shutdown of the banking industry could result in the loss of client funds or prevent us from accessing and processing funds on our clients’ behalf, which could have an adverse impact on our business and liquidity. 17 Table of Contents In addition, we utilize certain third-party software in some of our products.
However, a failure of one of our banking partners or a systemic shutdown of the banking industry could result in the loss of client funds or prevent us from accessing and processing funds on our clients’ behalf, which could have an adverse impact on our business and liquidity. In addition, we utilize certain third-party software in some of our products.
Additionally, short-term stock price fluctuations could reduce the number or amount of shares we may ultimately repurchase pursuant to the program. 25 Table of Contents Repurchasing our common stock will reduce the amount of cash we have available to fund working capital, repayment of debt, capital expenditures, strategic acquisitions or business opportunities, and other general corporate purposes.
Additionally, short-term stock price fluctuations could reduce the number or amount of shares we may ultimately repurchase pursuant to the program. Repurchasing our common stock will reduce the amount of cash we have available to fund working capital, repayment of debt, capital expenditures, strategic acquisitions or business opportunities, and other general corporate purposes.
The existence of the repurchase program could cause our stock price to trade higher than it otherwise would and could potentially reduce the market liquidity for our stock. The repurchase program may not enhance long-term stockholder value because the market price of our common stock may decline below the levels at which we repurchased shares.
The existence of the repurchase program could cause our stock price to trade higher than it otherwise would and could potentially reduce the market liquidity for our stock. The repurchase program may not enhance long-term stockholder value because the market price of our common stock may decline below the levels at which we repurchased 24 Table of Contents shares.
If a material number of these banks terminate their relationships with us or restrict the dollar amounts of funds that they will process on behalf of our clients, their doing so may impede our ability to process funds and could have an adverse impact on our business.
If a material number of these banks terminate their relationships with us 16 Table of Contents or restrict the dollar amounts of funds that they will process on behalf of our clients, their doing so may impede our ability to process funds and could have an adverse impact on our business.
In addition, we collect and maintain similar information regarding our own employees, consultants, independent contractors, other service providers and other groups or individuals. Our business also involves the storage and transmission of funds from the accounts of our clients to other persons, including taxing and regulatory authorities and others.
In addition, we collect and maintain similar information regarding our own employees, consultants, independent contractors, other service providers and other groups or individuals. Our business also involves 18 Table of Contents the storage and transmission of funds from the accounts of our clients to other persons, including taxing and regulatory authorities and others.
The use of AI and machine learning may also result in new or increased governmental or regulatory scrutiny as regulatory and legislative authorities in the United States, the European Union and other jurisdictions have enacted or proposed legislation that imposes or would impose restrictions on the development of generative AI and machine learning.
The use of AI and machine learning may also result in new or increased governmental or regulatory scrutiny as regulatory and legislative authorities in the United 21 Table of Contents States, the European Union and other jurisdictions have enacted or proposed legislation that imposes or would impose restrictions on the development of generative AI and machine learning.
We currently have agreements with various major U.S. banks to execute ACH and wire transfers to support our client payroll, benefit and tax services.
We currently have agreements with various major U.S. banks to execute ACH and wire transfers to support our client payroll, benefit, payroll tax and spend management services.
Our third amended and restated bylaws designate the state and federal courts located within the state of Delaware as the sole and exclusive forums for claims arising derivatively, pursuant to the Delaware General Corporation Law or governed by the internal affairs doctrine.
Our third amended and restated bylaws designate the state and federal courts located within the state of Delaware as the sole and exclusive forums for claims arising derivatively, pursuant to the Delaware General Corporation Law or 25 Table of Contents governed by the internal affairs doctrine.
While we monitor the use of all open source software in our products, solutions, processes and technology and try to ensure that no open source software is used in such a way as to require us to disclose the source code to the related product or solution when we do not wish to do so, it is possible that such use may have inadvertently occurred in deploying our proprietary solutions.
While we monitor the use of open source software in our solutions and try to ensure that no open source software is used in such a way as to require us to disclose the source code to the related product or solution when we do not wish to do so, it is possible that such use may have inadvertently occurred in deploying our proprietary solutions.
In that event, we could be required to re-develop our products or solutions, to discontinue sales of our products or solutions, or to release our proprietary software code under the terms of 21 Table of Contents an open source license, any of which could harm our business.
In that event, we could be required to re-develop our products or solutions, to discontinue sales of our products or solutions, or to release our proprietary software code under the terms of an open source license, any of which could harm our business.
Contractual limitations we use may not be enforceable and may not provide us with adequate protection against product liability claims in certain jurisdictions. A successful claim for product or service liability brought against us could result in substantial cost to us and divert management’s attention from our operations.
Contractual limitations we use may not be enforceable and 17 Table of Contents may not provide us with adequate protection against product liability claims in certain jurisdictions. A successful claim for product or service liability brought against us could result in substantial cost to us and divert management’s attention from our operations.
If a court were to find the exclusive forum provision contained in our bylaws to be inapplicable or 26 Table of Contents unenforceable, we may incur additional costs associated with resolving such extra-forum claims, which could adversely affect our business and financial condition.
If a court were to find the exclusive forum provision contained in our bylaws to be inapplicable or unenforceable, we may incur additional costs associated with resolving such extra-forum claims, which could adversely affect our business and financial condition.
Other countries and U.S. states are increasingly adopting similarly comprehensive laws that impose new data privacy and protection requirements and restrictions on covered organizations. Notably, these laws can impose significant penalties and fines on organizations for non-compliance, such as up to 4% of worldwide revenue for the preceding year under the GDPR.
Other countries and U.S. states are increasingly adopting similarly comprehensive laws that impose new data privacy and protection requirements and restrictions on covered organizations. Importantly, these laws can impose significant penalties and fines for non-compliance, such as a fine of up to 4% of an organization’s worldwide revenue for the preceding year under the GDPR.
As a result, we are subject to risks arising from adverse changes in economic and market conditions such as lower employment levels, increasing interest rates, inflation, volatility in capital markets, and instability of the banking environment, among other factors.
As a result, we and our clients are subject to risks arising from adverse changes in economic and market conditions such as lower employment levels, increasing interest rates, inflation, tariffs, changes in trade policies, volatility in capital markets, and instability of the banking environment, among other factors.
In May 2024, we announced that our Board of Directors approved a share repurchase program, authorizing the purchase of up to $500 million of our issued and outstanding common stock.
In May 2024, we announced that our board of directors approved a share repurchase program, authorizing the purchase of up to $500 million of our issued and outstanding common stock. In August 2025, we announced that our board of directors approved an additional $500 million to the share repurchase program.
These problems may be caused by a variety of factors, including infrastructure changes, human or software errors, viruses, security attacks, fraud, spikes in client usage and denial of service issues. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time.
These problems may be caused by a variety of factors, including infrastructure changes, human or software errors, viruses, security attacks, fraud, spikes in client usage and denial of service issues. In some instances, we may not be able to quickly identify the cause or causes of these performance problems.
Our products and services may become subject to increasing and/or changing regulatory requirements, including changes in tax, benefit, wage and hour, employment laws and other international and domestic laws, and as these requirements proliferate, we may be required to change or adapt our products and services to comply.
Our products and services may become subject to increasing and/or changing regulatory requirements, including changes in tax, benefits, wage and hour, employment, intellectual property, privacy laws and other international and domestic laws, and as these requirements proliferate, we may be required to change or adapt our products and services to comply.
In addition, if a security breach occurs with respect to an industry peer, our clients and potential clients may lose trust in the security of HCM and payroll modules.
In addition, if a security breach occurs with respect to an industry peer, our clients and potential clients may lose trust in the security of our platform.
HIPAA, which applies to our benefit administration solution, BeneFLEX and our self-insured group health plan, the European Union’s General Data Protection Regulation ("GDPR"), and U.S. state privacy laws like the California Consumer Privacy Act (“CCPA”), are among the most comprehensive data privacy laws and apply to multiple areas of our business.
Among the most comprehensive data privacy laws that apply to various aspects of our business are HIPAA (which applies to our benefit administration solution, BeneFLEX, and our self-insured group health plan), the European Union’s General Data Protection Regulation ("GDPR"), and U.S. state privacy laws such as the California Consumer Privacy Act (“CCPA”).
Our business depends on the overall demand for HCM and payroll software and services, and on the economic health of our current and prospective clients.
Our business depends on the overall demand for our software solutions, and on the economic health of our current and prospective clients.
If one or more taxing authorities determines that taxes should have, but have not, been paid with respect to our services, we might be liable for past taxes and the associated interest and penalty charges, in addition to taxes going forward, which will adversely affect our business, sales activity, results of operations and financial condition.
If one or more taxing authorities determines that taxes should have, but have not, been paid with respect to our services, we might be liable for past taxes and the associated interest and penalty charges, in addition to taxes going forward, which will adversely affect our business, sales activity, results of operations and financial condition. 22 Table of Contents Any future litigation against us could be costly and time-consuming to defend.
We have acquired and may in the future seek to acquire or invest in other businesses or technologies. The pursuit of potential acquisitions or investments may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.
The pursuit of potential acquisitions or investments may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.
The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, financial condition and results of operations.
The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, financial condition and results of operations. 19 Table of Contents Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.
Nevertheless, our corporate investments and client fund assets are subject to general market, interest rate, credit, and liquidity risks. These risks may be exacerbated, individually or in unison, during periods of unusual financial market volatility.
We follow an established investment policy and set of guidelines to monitor and help mitigate our exposure to liquidity and credit risks. Nevertheless, our corporate investments and client fund assets are subject to general market, interest rate, credit, and liquidity risks. These risks may be exacerbated, individually or in unison, during periods of unusual financial market volatility.
Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations. The use of open source software in our products and solutions may expose us to additional risks and harm our intellectual property rights.
Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations.
If our management is unable to effectively 15 Table of Contents manage our growth, our expenses might increase more than expected, our revenue could decline or might grow more slowly than expected, and we might be unable to implement our business strategy.
We could also suffer operational mistakes, a loss of business opportunities and employee losses. If our management is unable to effectively manage our growth, our expenses might increase more than expected, our revenue could decline or might grow more slowly than expected, and we might be unable to implement our business strategy.
We may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisition.
We may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisition, in which case we may not realize the expected benefits of such acquisitions.
We will not be able to protect 20 Table of Contents our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property.
However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property.
A change in these principles or interpretations could have a significant effect on our reported financial results, including increased volatility, and could affect the reporting of transactions completed before the announcement of a change.
A change in these principles or interpretations could have a significant effect on our reported financial results, including increased volatility, and could affect the reporting of transactions completed before the announcement of a change. 23 Table of Contents Risks Related to Ownership of Our Common Stock Our stock price may be subject to wide fluctuations.
Any interruption may affect the availability, accuracy, or timeliness in our services and could damage our reputation, cause our clients to terminate their use of our software, require us to indemnify our clients against certain losses due to our own errors and prevent us from gaining additional business from current or future clients.
Any interruption may affect the availability, accuracy, or timeliness in our services and could damage our reputation, cause our clients to terminate their use of our software, require us to indemnify our clients against certain losses due to our own errors and prevent us from gaining additional business from current or future clients. 15 Table of Contents In the event of a catastrophic event with respect to one or more of our systems, we may experience an extended period of system unavailability, which could negatively impact our relationship with clients.
Our software might not operate properly, which could damage our reputation, give rise to claims against us, or divert application of our resources from other purposes, any of which could harm our business and operating results.
Our software might not operate properly, which could damage our reputation, give rise to claims against us, or divert application of our resources from other purposes, any of which could harm our business and operating results. Our software is complex and may contain or develop undetected defects or errors, particularly when first introduced or as new versions are released.
We intend to continue to invest significant resources in research and development to enhance our existing products and services and introduce new high-quality products that clients will want.
Our success depends in substantial part on our continuing ability to provide products and services that organizations will find superior to our competitors’ offerings and will continue to use. We intend to continue to invest significant resources in research and development to enhance our existing products and services and introduce new high-quality products that clients will want.
Some of our products and solutions use or incorporate software that is subject to one or more open source licenses. Open source software is typically freely accessible, usable and modifiable.
The use of open source software in our products and solutions may expose us to additional risks and harm our intellectual property rights. 20 Table of Contents Some of our products and solutions use or incorporate software that is subject to one or more open source licenses. Open source software is typically freely accessible, usable and modifiable.
Failure to comply with these covenants could have a negative impact on our business and financial condition. Corporate investments and client funds that we hold are subject to market, interest rate, credit and liquidity risks. The loss of these funds could have an adverse impact on our business.
Failure to comply with these covenants would limit our ability to borrow under the revolving credit agreement, and amounts outstanding, if any, could become immediately due and payable. Any such failure could have a negative impact on our business and financial condition. Corporate investments and client funds that we hold are subject to market, interest rate, credit and liquidity risks.
We invest portions of excess cash and cash equivalents and funds held for our clients in liquid, investment-grade marketable securities such as corporate bonds, commercial paper, asset-backed securities, U.S. treasury securities, money market securities, and other cash equivalents. We follow an established investment policy and set of guidelines to monitor and help mitigate our exposure to liquidity and credit risks.
The loss of these funds could have an adverse impact on our business. We invest portions of excess cash and cash equivalents and funds held for our clients in liquid, investment-grade marketable securities such as corporate bonds, commercial paper, asset-backed securities, U.S. treasury securities, money market securities, and other cash equivalents.
We also must maintain and enhance our technology infrastructure and our financial and accounting systems and controls. We must also expand and develop our network of third-party service providers, including 401(k) advisors, benefits administrators, insurance brokers, third-party administrators and HR consultants, which represent a significant source of referrals of potential clients for our products and implementation services.
We must also expand and develop our network of third-party service providers, including 401(k) advisors, benefits administrators, insurance brokers, third-party administrators, HR consultants and 14 Table of Contents accountants, which represent a significant source of referrals of potential clients for our products and implementation services. Failure to effectively manage our growth could adversely impact our business and results of operations.
A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby harming our operating results and leading analysts or potential investors to lower their expectations of our performance, which could reduce the trading price of our stock. 23 Table of Contents Risks Related to Financial Matters Our revolving credit agreement contains covenants that may constrain the operation of our business, and our failure to comply with these covenants could have a material adverse effect on our financial condition .
A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby harming our operating results and leading analysts or potential investors to lower their expectations of our performance, which could reduce the trading price of our stock.
New or changes to existing income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, possibly with retroactive effect, and could be applied solely or disproportionately to services provided over the Internet. These enactments could adversely affect our business, results of operations and financial condition due to the inherent cost increase.
The application of federal, state, and local tax laws to services provided electronically often involve complex issues and significant judgment. New or changes to existing income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, possibly with retroactive effect, and could be applied solely or disproportionately to services provided over the Internet.
Moreover, each state has different rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that change over time.
These enactments could adversely affect our business, results of operations and financial condition due to the inherent cost increase. Moreover, each state has different rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that change over time.
The worldwide regulatory focus on data privacy has intensified during the past several years, in part triggered by the GDPR, and has led to the rapid evolution of legal requirements related to the processing of personal information in ways that require our business to adapt, including to support our clients’ compliance.
The worldwide regulatory focus on data privacy has intensified in recent years, in part triggered by the GDPR. This shift has driven rapid changes around the processing of personal information, necessitating that we continually adapt our solutions and business practices to support our clients’ compliance efforts.
Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims and might not continue to be available on terms acceptable to us.
Litigation might result in substantial costs and may divert management’s attention and resources, which could seriously harm our business, overall financial condition, and operating results. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims and might not continue to be available on terms acceptable to us.
This includes, among other things, human capital solutions, financial solutions, customer relationship management solutions, software development solutions and tools, cybersecurity solutions and tools, and data center processing. 19 Table of Contents We have experienced cybersecurity attacks and incidents in the past though we do not believe that any of them have been material to our business.
We have experienced cybersecurity attacks and incidents in the past, though we do not believe that any of them have been material to our business.
We also rely on the security and availability of our information systems and solutions and those of third parties in the operation of our business.
We also rely on the security and availability of our information systems and solutions and those of third parties in the operation of our business. This includes, among other things, human capital solutions, financial solutions, customer relationship management solutions, software development solutions and tools, cybersecurity solutions and tools, and data center processing.
Instead, we rely on a combination of copyrights, trademarks, service marks, trade secret laws, and contractual restrictions to establish and protect our proprietary rights in our products and services. However, the steps we take to protect our intellectual property may be inadequate.
Our success is dependent, in part, upon protecting our proprietary technology. Our proprietary technologies are not covered by any patent or patent application. Instead, we rely on a combination of copyrights, trademarks, service marks, trade secret laws, and contractual restrictions to establish and protect our proprietary rights in our products and services.
We also maintain insurance, but our insurance may be inadequate or may not be available in the future on acceptable terms, or at all.
We also maintain insurance, but our insurance may be inadequate or may not be available in the future on acceptable terms, or at all. In addition, our policy may not cover all claims made against us and defending a suit, regardless of its merit, could be costly and divert management’s attention.
Adverse tax laws or regulations could be enacted, or existing laws could be applied to us or our clients, which could increase the costs of our services and adversely impact our business. The application of federal, state, and local tax laws to services provided electronically often involve complex issues and significant judgment.
As a result, a perception of noncompliance could damage our reputation with our current and potential clients, employees and stockholders. Adverse tax laws or regulations could be enacted, or existing laws could be applied to us or our clients, which could increase the costs of our services and adversely impact our business.
Such claims may be brought by our clients in connection with commercial disputes, employment claims made by our current or former employees, or lawsuits related to breaches of personal information. Litigation might result in substantial costs and may divert management’s attention and resources, which could seriously harm our business, overall financial condition, and operating results.
We have in the past, and may in the future, become subject to legal proceedings and claims that arise in the ordinary course of business. Such claims may be brought by our clients in connection with commercial disputes, employment claims made by our current or former employees, or lawsuits related to breaches of personal information.
In addition, our policy may not cover all claims made against us and defending a suit, regardless of its merit, could be costly and divert management’s attention. 18 Table of Contents We may acquire other companies or technologies, which could divert our management’s attention, result in dilution to our stockholders, disrupt our operations and adversely affect our operating results.
We may acquire other companies or technologies, which could divert our management’s attention, result in dilution to our stockholders, disrupt our operations and adversely affect our operating results. We have acquired and may in the future seek to acquire or invest in other businesses or technologies.
Adding to the complexity of the existing data privacy landscape, many areas of existing data privacy laws are subject to interpretation, which imposes an added risk that adverse interpretations of these laws by advocacy groups and governments in countries where we or our clients operate could impose significant obligations on our business or prevent us from offering certain services in jurisdictions where we currently operate.
As this focus on data privacy continues, so too do the potential risks associated with how our business processes personal information. Compounding this complexity, many areas of existing data privacy laws remain subject to interpretation, which creates an added risk that advocacy groups and governments in countries where we or our clients operate may adopt adverse interpretations.
Our HCM and payroll software is complex and may contain or develop undetected defects or errors, particularly when first introduced or as new versions are released. Despite extensive testing, from time to time, we have discovered defects or errors in our products.
Despite extensive testing, from time to time, we have discovered defects or errors in our products.
Enforcement actions and investigations by regulatory authorities related to security incidents and data privacy violations continue to increase. Future enforcement actions or investigations could impact us through increased costs or restrictions on our businesses. A finding of noncompliance could result in significant regulatory penalties, legal liability and burdensome governmental oversight.
A finding of noncompliance from any such investigation or enforcement action could lead to increased costs, significant regulatory penalties, legal liability and burdensome governmental oversight, including restrictions on our operations. Furthermore, heightened consumer and market concerns about data privacy abuses by other companies are changing expectations for enhanced data privacy and security.
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Additionally, if new technologies used in our products fail to operate as expected, our business may be negatively impacted. Our success depends in substantial part on our continuing ability to provide products and services that organizations will find superior to our competitors’ offerings and will continue to use.
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Additionally, if new technologies used in our products fail to operate as expected, our business may be negatively impacted. For example, the non-deterministic nature of generative AI outputs may compromise the reliability of our products which may lead to customer dissatisfaction and damage to our reputation.
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Failure to effectively manage our growth could adversely impact our business and results of operations. We could also suffer operational mistakes, a loss of business opportunities and employee losses.
Added
We also must maintain and enhance our technology infrastructure and our financial and accounting systems and controls.
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In the event of a catastrophic event with respect to one or more of our systems, we may experience an extended period of system unavailability, which could negatively impact our relationship with clients.
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Additionally, they regulate how personal information may be used or disclosed for secondary purposes such as marketing, and in some cases, require notification to affected individuals, clients, and/or regulators in the event of a data breach.
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Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand. Our success is dependent, in part, upon protecting our proprietary technology. Our proprietary technologies are not covered by any patent or patent application.
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Such interpretations could impose significant obligations on our business or restrict our ability to offer certain products and services in jurisdictions where we currently operate. Enforcement actions and investigations by regulatory authorities related to security incidents and data privacy violations continue to increase.
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As this focus continues, the potential risks related to the processing of personal information by our business will only increase.
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Risks Related to Financial Matters Our revolving credit agreement contains covenants that may constrain the operation of our business, and our failure to comply with these covenants could have a material adverse effect on our financial condition .
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Additionally, security incidents and concerns about data privacy abuses by other companies are changing consumer and market expectations for enhanced data privacy. As a result, a perception of noncompliance could damage our reputation with our current and potential clients, employees and stockholders.
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Any future litigation against us could be costly and time-consuming to defend. We have in the past, and may in the future, become subject to legal proceedings and claims that arise in the ordinary course of business.
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Risks Related to Ownership of Our Common Stock Insiders have substantial control over us, which may limit our stockholders’ ability to influence corporate matters and delay or prevent a third party from acquiring control over us.
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As of July 26, 2024, our directors and executive officers, together with their respective affiliates, beneficially owned, in the aggregate, approximately 21.8% of our outstanding common stock.
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These stockholders will be able to exercise influence over all matters requiring stockholder approval, including the election of directors and approval of corporate transactions, such as a merger or other sale of our company or its assets.
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This concentration of ownership could limit the ability of our other stockholders to influence corporate matters and may have the effect of delaying or preventing a change in control, including a merger, consolidation, or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if that change in control would benefit our other stockholders. 24 Table of Contents Our stock price may be subject to wide fluctuations.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe CISO’s updates to the audit committee include recent developments related to the threat landscape, security controls, results of vulnerability assessments, third-party reviews, technological trends and information security considerations arising with respect to peers and third parties. Our CISO reports to our Chief Financial Officer and leads our cybersecurity risk management efforts and our dedicated information security team.
Biggest changeThe CISO’s updates to the audit committee include recent developments related to the threat landscape, current IT-related risks, and corresponding controls or projects designed to mitigate those risks. Our CISO reports to our Chief Financial Officer and leads our cybersecurity risk management efforts and our dedicated information security team.
Our CISO has 20 years of information security experience, including over four years as a director in the information security management practice of a big four accounting firm. He holds multiple information security certifications and has a B.S. in Network Security.
Our CISO has over 20 years of information security experience, including over four years as a director in the information security management practice of a big four accounting firm. He holds multiple information security certifications and has a B.S. in Network Security.
For more information regarding risks from cybersecurity threats, please refer to the Risk Factors entitled “If our security measures are breached or unauthorized access to client data or funds is otherwise obtained, our solutions may be perceived as not being secure, clients may reduce the use of or stop 28 Table of Contents using our solutions and we may incur significant liabilities.” and “Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.” in Part I, Item 1A, Risk Factors.
For more information regarding risks from cybersecurity threats, please refer to the Risk Factors entitled “If our security measures are breached or unauthorized access to client data or funds is otherwise obtained, our solutions may be perceived as not being secure, clients may reduce the use of or stop using our solutions and we may incur significant liabilities.” and “Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.” in Part I, Item 1A, Risk Factors.
These policies map to standard industry frameworks such as the National Institute of Standards and Technology (NIST), Committee of Sponsoring Organizations (COSO), and International Organization for Standardization (ISO) 27001 to establish structured governance, policies, standards, and controls. Information Security Certifications and Audits We maintain certification for compliance with ISO 27001:2022 as assessed by an independent third-party auditor.
These policies map to standard industry frameworks such as the National Institute of Standards and Technology (NIST), Committee of Sponsoring Organizations (COSO), and International Organization for Standardization (ISO) 27001 to establish structured governance, policies, standards, and controls. 26 Table of Contents Information Security Certifications and Audits We maintain certification for compliance with ISO 27001:2022 as assessed by an independent third-party auditor.
We also engage an independent accounting firm to perform assessments of our procedures and controls as part of our annual Systems and Organization Controls (SOC) 1 and SOC 2 audits. 27 Table of Contents Security Awareness and Training Through our onboarding process, each new employee is required to complete security training upon employment.
We also engage an independent accounting firm to perform assessments of our procedures and controls as part of our annual Systems and Organization Controls (SOC) 1 and SOC 2 audits. Security Awareness and Training Through our onboarding process, each new employee is required to complete security training upon employment.
Despite our efforts, there can be no assurance that our risk management program will be effective in preventing cybersecurity incidents that could adversely affect our business strategy, results of operations or financial condition.
Despite our efforts, there can be no assurance 27 Table of Contents that our risk management program will be effective in preventing cybersecurity incidents that could adversely affect our business strategy, results of operations or financial condition.
Third-Party Risk Management We monitor and reassess our third-party relationships on an ongoing basis depending on risk level or in the event of a change of products and services provided to us. We also require third-party vendors, suppliers and service providers to undergo a cybersecurity risk assessment prior to entering into a contract with us.
Third-Party Risk Management We monitor and reassess our third-party relationships on an ongoing basis depending on risk level or in the event of a change of products and services provided to us. We also require third-party vendors, suppliers and service providers to undergo a cybersecurity risk assessment to be able to enter into a contract with us.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties. As of June 30, 2024, our corporate headquarters occupied approximately 272,000 square feet in Schaumburg, Illinois under leases with final expiration in October 2032. We also utilize office spaces consisting of approximately 70,000 square feet in Lake Mary, Florida and approximately 64,000 square feet in Meridian, Idaho as other major operations centers.
Biggest changeItem 2. Properties. As of June 30, 2025, our corporate headquarters occupied approximately 272,000 square feet in Schaumburg, Illinois under leases with final expiration in October 2032.
We lease other smaller facilities, primarily across the U.S., that serve as data centers, sales offices and distribution centers. For additional information regarding obligations under operating leases, see Note 13 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
For additional information regarding obligations under operating leases, see Note 13 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
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We also utilize office spaces consisting of approximately 70,000 square feet in Lake Mary, Florida, approximately 64,000 square feet in Meridian, Idaho and approximately 20,000 square feet in Pittsford, New York as other major operations centers. We lease other smaller facilities, primarily across the U.S., that serve as data centers, sales offices and distribution centers.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeNot applicable. 29 Table of Contents PART II
Biggest changeNot applicable. 28 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHistorical stock price performance should not be relied upon as an indication of future stock price performance. 31 Table of Contents Issuer Purchases of Equity Securities The following describes the Company’s purchases of common stock during the three months ended June 30, 2024: Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) April 1, 2024 - April 30, 2024 — — — — May 1, 2024 - May 31, 2024 259,694 $ 152.76 259,694 $ 460,330,040 June 1, 2024 - June 30, 2024 790,560 $ 139.56 790,560 $ 350,000,134 Total 1,050,254 1,050,254 (1) On April 30, 2024, our board of directors approved a share repurchase program (the “Repurchase Program”) under which we are authorized to purchase (in the aggregate) up to $500 million of our issued and outstanding common stock at such times and prices that management deems to be appropriate.
Biggest changeHistorical stock price performance should not be relied upon as an indication of future stock price performance. 29 Table of Contents Issuer Purchases of Equity Securities The following describes the Company’s purchases of common stock during the three months ended June 30, 2025: Total Number of Shares Purchased Average Price Paid per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) April 1, 2025 - April 30, 2025 314,564 $ 178.21 314,564 $ 200,362,397 May 1, 2025 - May 31, 2025 — — — — June 1, 2025 - June 30, 2025 — — — — Total 314,564 314,564 (1) The average price paid per share excludes excise taxes payable on shares repurchased.
The following graph compares the total cumulative stockholder return on our common stock with the total cumulative return of the S&P 500 Index and the S&P Software & Services Select Industry Index during the period commencing on June 30, 2019 and ending on June 30, 2024.
The following graph compares the total cumulative stockholder return on our common stock with the total cumulative return of the S&P 500 Index and the S&P Software & Services Select Industry Index during the period commencing on June 30, 2020 and ending on June 30, 2025.
For further information, see Note 15. Stockholders' Equity of the Notes to Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Item 6. [Reserved]
Stockholders' Equity of the Notes to Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Item 6. [Reserved] 30 Table of Contents
We do not anticipate paying cash dividends on our common stock for the foreseeable future. 30 Table of Contents Performance Graph Notwithstanding any statement to the contrary in any of our filings with the SEC, the following information shall not be deemed “filed” with the SEC or “soliciting material” under the Securities Exchange Act of 1934 and shall not be incorporated by reference into any such filings irrespective of any general incorporation language contained in such filing.
Performance Graph Notwithstanding any statement to the contrary in any of our filings with the SEC, the following information shall not be deemed “filed” with the SEC or “soliciting material” under the Securities Exchange Act of 1934 and shall not be incorporated by reference into any such filings irrespective of any general incorporation language contained in such filing.
On July 26, 2024, the last reported sale price of our common stock on the NASDAQ Global Select Market was $149.43 per share, and there were 16 holders of record of our common stock.
On July 30, 2025, the last reported sale price of our common stock on the NASDAQ Global Select Market was $186.41 per share, and there were 6 holders of record of our common stock.
The actual number of holders of common stock is greater than these numbers of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and nominees. The number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
The actual number of holders of common stock is greater than the number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and nominees. Dividend Policy We have not declared or paid dividends on our common stock since becoming a publicly traded company.
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Use of Proceeds from Initial Public Offering of Common Stock On March 24, 2014, we completed our initial public offering, or IPO, of 8,101,750 shares of common stock, at a price of $17.00 per share, before underwriting discounts and commissions. We sold 5,366,667 of such shares and existing shareholders sold an aggregate of 2,735,083 of such shares.
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We do not anticipate paying cash dividends on our common stock for the foreseeable future.
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The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-193661), which was declared effective by the SEC on March 18, 2014.
Added
(2) On April 30, 2024, our board of directors approved a share repurchase program (the “Repurchase Program”) under which we are authorized to purchase (in the aggregate) up to $500 million of our issued and outstanding common stock at such times and prices that management deems to be appropriate. For further information, see Note 15.
Removed
With the proceeds of the IPO, we repaid amounts outstanding under a note issued by us to Commerce Bank & Trust Company on March 9, 2011, which totaled $1.1 million, paid $9.4 million for the purchase of substantially all of the assets of BFKMS Inc., and paid $9.5 million for the purchase of substantially all of the assets of Synergy Payroll LLC.
Removed
Use of Proceeds from Follow-On Offering of Common Stock On December 17, 2014, we completed a follow-on offering of 4,960,000 shares of common stock at a price of $26.25 per share, before underwriting discounts and commissions. We sold 750,000 of such shares and existing shareholders sold an aggregate of 4,210,000 of such shares.
Removed
The offer and sale of all of the shares in the follow-on offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-200448) which was declared effective by the SEC on December 11, 2014.
Removed
There have been no material changes in the planned use of proceeds from the follow-on offering as described in the final prospectus filed with the SEC pursuant to Rule 424(b) on December 12, 2014. Dividend Policy We have not declared or paid dividends on our common stock since becoming a publicly traded company.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeCash Flows The following table sets forth data regarding cash flows for the periods indicated: Year Ended June 30, 2022 2023 2024 Net cash provided by operating activities $ 155,053 $ 282,723 $ 384,670 Cash flows from investing activities: Purchases of available-for-sale securities and other (433,962) (598,895) (304,465) Proceeds from sales and maturities of available-for-sale securities 116,848 446,751 294,438 Capitalized internal-use software costs (34,515) (45,004) (60,726) Purchases of property and equipment (18,069) (21,910) (18,028) Acquisitions of businesses, net of cash acquired (107,576) — (12,031) Other investing activities (2,500) (1,104) (1,079) Net cash used in investing activities (479,774) (220,162) (101,891) Cash flows from financing activities: Net change in client fund obligations 2,228,038 (1,362,421) 325,056 Borrowings under credit facility 50,000 — — Repayment of credit facility (50,000) — — Repurchases of common shares — — (150,000) Proceeds from employee stock purchase plan 14,103 16,916 19,143 Taxes paid related to net share settlement of equity awards (69,761) (88,312) (52,549) Other financing activities (87) (885) (72) Net cash provided by (used in) financing activities 2,172,293 (1,434,702) 141,578 Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents $ 1,847,572 $ (1,372,141) $ 424,357 Operating Activities Net cash provided by operating activities was $155.1 million, $282.7 million and $384.7 million for the years ended June 30, 2022, 2023 and 2024, respectively.
Biggest changeWe believe our current cash and cash equivalents, future cash flow from operations, and access to our credit facility will be sufficient to meet our ongoing working capital, capital expenditure and other liquidity requirements for at least the next 12 months, and thereafter, for the foreseeable future. 41 Table of Contents Cash Flows The following table sets forth data regarding cash flows for the periods indicated: Year Ended June 30, 2023 2024 2025 Net cash provided by operating activities $ 282,723 $ 384,670 $ 418,226 Cash flows from investing activities: Purchases of available-for-sale securities (598,895) (304,465) (260,997) Proceeds from sales and maturities of available-for-sale securities 446,751 294,438 160,067 Capitalized internal-use software costs (45,004) (60,726) (62,402) Purchases of property and equipment (21,910) (18,028) (13,073) Acquisitions of businesses, net of cash acquired — (12,031) (277,851) Other investing activities (1,104) (1,079) (1,292) Net cash used in investing activities (220,162) (101,891) (455,548) Cash flows from financing activities: Net change in client fund obligations (1,362,421) 325,056 (297,923) Borrowings under credit facility — — 325,000 Repayment of credit facility — — (162,500) Repurchases of common shares — (150,000) (149,638) Proceeds from employee stock purchase plan 16,916 19,143 19,682 Taxes paid related to net share settlement of equity awards (88,312) (52,549) (60,034) Other financing activities (885) (72) (408) Net cash provided by (used in) financing activities (1,434,702) 141,578 (325,821) Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents $ (1,372,141) $ 424,357 $ (363,143) Operating Activities Net cash provided by operating activities was $282.7 million, $384.7 million and $418.2 million for the years ended June 30, 2023, 2024 and 2025, respectively.
Costs related to recurring support are generally expensed as incurred. Implementation costs related to our proprietary products are capitalized and amortized over a period of 7 years. Our cost of revenues is expected to increase in absolute dollars for the foreseeable future as we increase our client base.
Costs related to recurring support are generally expensed as incurred. Implementation costs related to our proprietary products are capitalized and generally amortized over a period of 7 years. Our cost of revenues is expected to increase in absolute dollars for the foreseeable future as we increase our client base.
Overview We are a leading cloud-based provider of human capital management, or HCM, and payroll software solutions that deliver a comprehensive platform for the modern workforce. Our HCM and payroll platform offers an intuitive, easy-to-use product suite that helps businesses attract and retain talent, build culture and connection with their employees, and streamline and automate HR and payroll processes.
Overview We are a leading cloud-based provider of human capital management, or HCM, payroll and spend management software solutions that deliver a comprehensive platform for the modern workforce. Our platform offers an intuitive, easy-to-use product suite that helps businesses streamline and automate HR, payroll and spend management processes, attract and retain talent, and build culture and connection with their employees.
Our sales personnel earn commissions and bonuses for attainment of certain performance criteria based upon new sales throughout the fiscal year. We capitalize certain selling and commission costs related to new contracts or purchases of additional services by our existing clients and amortize them over a period of 7 years.
Our sales personnel earn commissions and bonuses for attainment of certain performance criteria based upon new sales throughout the fiscal year. We capitalize certain selling and commission costs related to new contracts or purchases of additional services by our existing clients and generally amortize them over a period of 7 years.
Recurring fees are derived from payroll processing and related services such as payroll reporting and tax filing services, time and labor services, time clock rentals, and HR-related software solutions, including employee management and benefits enrollment and administration, substantially all of which are delivered on a monthly basis.
Recurring fees are mostly derived from payroll processing and related services such as payroll reporting and tax filing services, time and labor services, time clock rentals, and HR-related software solutions, including employee management and benefits enrollment and administration, substantially all of which are delivered on a monthly basis.
We primarily collect fees for our services via ACH transactions at the same time we debit the client’s account for payroll and tax obligations and thus are able to reduce collectability and accounts receivable risks.
We primarily collect fees for our HCM and payroll services via ACH transactions at the same time we debit the client’s account for payroll and payroll tax obligations and thus are able to reduce collectability and accounts receivable risks.
Our actual results could differ materially from those anticipated by us in these forward-looking statements as a result of various factors, including those discussed below and under Part I, Item 1A. “Risk Factors.” The following discussion of our financial condition and results of operations covers fiscal 2024 and 2023 items and year-over-year comparisons between fiscal 2024 and 2023.
Our actual results could differ materially from those anticipated by us in these forward-looking statements as a result of various factors, including those discussed below and under Part I, Item 1A. “Risk Factors.” The following discussion of our financial condition and results of operations covers fiscal 2025 and 2024 items and year-over-year comparisons between fiscal 2025 and 2024.
We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. There was no impairment to capitalized internal-use software during the years ended June 30, 2022, 2023 or 2024.
We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. There was no impairment to capitalized internal-use software during the years ended June 30, 2023, 2024 or 2025.
Paylocity Holding Corporation is a Delaware corporation, which was formed in November 2013. Our business operations are conducted by our wholly owned subsidiaries. Key Metrics We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.
Paylocity Holding Corporation is a Delaware corporation, which was formed in November 2013. Our business operations are conducted by our wholly owned subsidiaries. 31 Table of Contents Key Metrics We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.
We have 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. Capitalized Internal-Use Software Costs We apply ASC 350-40, Intangibles—Goodwill and Other—Internal-Use Software, to the accounting for costs of internal-use software.
We have 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. 39 Table of Contents Capitalized Internal-Use Software Costs We apply ASC 350-40, Intangibles—Goodwill and Other—Internal-Use Software, to the accounting for costs of internal-use software.
We allocate the purchase price consideration associated with our acquisitions to the fair values of assets acquired and liabilities assumed at their respective acquisition dates, with the excess recorded to goodwill. The purchase price allocations require us to make significant judgments and estimates in determining such fair values, particularly related to intangible assets.
We allocate the purchase price consideration associated with our acquisitions to the fair values of assets acquired and liabilities assumed at their respective acquisition dates, with the excess recorded to goodwill. The purchase price allocations require us to make significant judgments and estimates in determining such fair values, particularly related to the proprietary technology intangible asset.
Basis of Presentation Revenues Recurring and Other Revenue We generate substantially all of our recurring and other revenue from ongoing subscriptions to our cloud-based HCM and payroll software solutions, which are recurring in nature.
Basis of Presentation Revenues Recurring and Other Revenue We generate substantially all of our recurring and other revenue from ongoing subscriptions to our cloud-based software solutions, which are recurring in nature.
Effective management of human capital is a core function in all organizations and requires a significant commitment of resources. Our cloud-based software solutions, combined with our unified database architecture, are highly flexible and configurable and feature a modern, intuitive user experience.
Effective management of human capital and business-related spend is a core function in all organizations and requires a significant commitment of resources. Our cloud-based software solutions, combined with our unified database architecture, are highly flexible and configurable and feature a modern, intuitive user experience.
Research and development expenses, other than internal-use software costs qualifying for capitalization, are expensed as incurred. 36 Table of Contents We capitalize a portion of our development costs related to internal-use software. The timing of our capitalized development projects may affect the amount of development costs expensed in any given period.
Research and development expenses, other than internal-use software costs qualifying for capitalization, are expensed as incurred. We capitalize a portion of our development costs related to internal-use software. The timing of our capitalized development projects may affect the amount of development costs expensed in any given period.
Discussion of fiscal 2022 items and year-over-year comparisons between fiscal 2023 and 2022 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 that was filed with the SEC on August 4, 2023.
Discussion of fiscal 2023 items and year-over-year comparisons between fiscal 2024 and 2023 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 30, 202 4 that was filed with the SEC on August 2 , 202 4 .
To do so, we must continue to enhance and grow the number of solutions we offer to advance our platform. 32 Table of Contents We also believe that delivering a positive service experience is an essential element of our ability to sell our solutions and retain our clients.
To do so, we must continue to enhance and grow the number of solutions we offer to advance our platform. We also believe that delivering a positive service experience is an essential element of our ability to sell our solutions and retain our clients.
We defer implementation fees related to our proprietary products over a period generally up to 24 months. Recurring and other revenue accounted for approximately 99%, 93% and 91% of our total revenues during the years ended June 30, 2022, 2023 and 2024, respectively. Interest Income on Funds Held for Clients We earn interest income on funds held for clients.
We defer implementation fees related to our proprietary products over a period generally up to 24 months. Recurring and other revenue accounted for approximately 93%, 91% and 92% of our total revenues during the years ended June 30, 2023, 2024 and 2025, respectively. Interest Income on Funds Held for Clients We earn interest income on funds held for clients.
We currently have agreements with various major U.S. banks to execute ACH and wire transfers to support our client payroll and tax services. We believe we have sufficient capacity under these ACH arrangements to handle all transaction volumes for the foreseeable future.
We currently have agreements with various major U.S. banks to execute ACH and wire transfers to support our services. We believe we have sufficient capacity under these ACH arrangements to handle all transaction volumes for the foreseeable future.
Capitalized employee costs are limited to the time directly spent on such projects. 41 Table of Contents Internal-use software is amortized on a straight-line basis, generally over a two- to three-year period while certain projects that support our main processing activities are amortized over ten years.
Capitalized employee costs are limited to the time directly spent on such projects. Internal-use software is amortized on a straight-line basis, generally over a two- to three-year period while certain projects that support our main processing activities are amortized over ten years.
The table below sets forth the amounts of capitalized and expensed research and development expenses for each of fiscal 2022, 2023 and 2024.
The table below sets forth the amounts of capitalized and expensed research and development expenses for each of fiscal 2023, 2024 and 2025.
The table below sets forth the total number of clients using our HCM and payroll software solutions for the periods indicated, excluding clients acquired through acquisitions, rounded to the nearest fifty.
The table below sets forth the total number of clients using our software solutions for the periods indicated, excluding clients acquired through acquisitions, rounded to the nearest fifty.
We define Adjusted EBITDA as net income before interest expense, income tax expense (benefit), depreciation and amortization expense, stock-based compensation expense and employer payroll taxes related to stock releases and option exercises and other items as described below.
We define Adjusted EBITDA as net income before interest expense, 32 Table of Contents income tax expense (benefit), depreciation and amortization expense, stock-based compensation expense and employer payroll taxes related to stock releases and option exercises and other items as described below.
We amortized $25.3 million, $31.4 million and $45.2 million of capitalized internal-use software costs in fiscal 2022, 2023 and 2024, respectively. Operating Expenses Sales and Marketing Sales and marketing expenses consist primarily of employee-related expenses for our direct sales and marketing staff, including wages, commissions, stock-based compensation, bonuses, benefits, marketing expenses and other related costs.
We amortized $31.4 million, $45.2 million and $59.9 million of capitalized internal-use software costs in fiscal 2023, 2024 and 2025, respectively. Operating Expenses Sales and Marketing Sales and marketing expenses consist primarily of employee-related expenses for our direct sales and marketing staff, including wages, commissions, stock-based compensation, bonuses, benefits, marketing expenses and other related costs.
We amortized $25.3 million, $31.4 million and $45.2 million of capitalized internal-use software costs for the years ended June 30, 2022, 2023 and 2024, respectively. Business Combinations We include the results of businesses acquired in our consolidated financial statements from the date of acquisition.
We amortized $31.4 million, $45.2 million and $59.9 million of capitalized internal-use software costs for the years ended June 30, 2023, 2024 and 2025, respectively. Business Combinations We include the results of businesses acquired in our consolidated financial statements from the date of acquisition.
As of June 30, 2024, we did not have any corporate investments classified as available-for-sale securities. In order to grow our business, we intend to increase our personnel and related expenses and to make significant investments in our platform, data centers and general infrastructure.
As of June 30, 2025, we did not have any corporate investments classified as available-for-sale securities. In order to grow our business, we intend to increase our personnel and related expenses and to make investments in our platform, data centers and general infrastructure, some of which may be significant.
Revenue Growth Our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results and cash flow from operations. This visibility enables us to better manage and invest in our business. Total revenues increased from $852.7 million in fiscal 2022 to $1,174.6 million in fiscal 2023, representing a 38% year-over-year increase.
Revenue Growth Our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results and cash flow from operations. This visibility enables us to better manage and invest in our business. Total revenues increased from $1,174.6 million in fiscal 2023 to $1,402.5 million in fiscal 2024, representing a 19% year-over-year increase.
Cost of Revenues Cost of revenues includes costs to provide our payroll and other HCM solutions which primarily consists of employee-related expenses, including wages, stock-based compensation, bonuses and benefits, relating to the provision of ongoing client support and implementation activities, payroll tax filing, distribution of printed checks and other materials as well as delivery costs, computing costs, amortization of certain acquired intangibles and bank fees associated with client fund transfers.
Cost of Revenues Cost of revenues consists primarily of employee-related expenses, including wages, stock-based compensation, bonuses and benefits, relating to the provision of ongoing client support and implementation activities, payroll tax filing, distribution of printed checks and other materials as well as delivery costs, computing costs, amortization of certain 34 Table of Contents acquired intangibles and bank fees associated with client fund transfers.
Liquidity and Capital Resources Our primary liquidity needs are related to the funding of general business requirements, including working capital requirements, research and development, and capital expenditures. As of June 30, 2024, our principal sources of liquidity were $401.8 million of cash and cash equivalents.
Liquidity and Capital Resources Our primary liquidity needs are related to the funding of general business requirements, including working capital requirements, research and development, and capital expenditures. As of June 30, 2025, our principal sources of liquidity were $398.1 million of cash and cash equivalents.
Capital expenditures were $18.1 million, $21.9 million and $18.0 million for the years ended June 30, 2022, 2023 and 2024, respectively, exclusive of capitalized internal-use software costs of $34.5 million, $45.0 million, and $60.7 million for the same periods, respectively.
Capital expenditures were $21.9 million, $18.0 million and $13.1 million for the years ended June 30, 2023, 2024 and 2025, respectively, exclusive of capitalized internal-use software costs of $45.0 million, $60.7 million, and $62.4 million for the same periods, respectively.
We charge implementation fees for professional services provided to implement our HCM and payroll solutions. Implementations of our solutions typically require one to eight weeks, depending on the size and complexity of each client, at which point the new client’s payroll is first processed using our solution.
We charge implementation fees for professional services provided to implement our software solutions. Implementations of our solutions typically require one to eight weeks, depending on the size and complexity of each client, at which point the new client’s payroll is first processed using our solution. Our average client size has continued to be over 150 employees.
Year Ended June 30, 2022 2023 2024 (in thousands) Capitalized portion of research and development $ 42,234 $ 55,582 $ 75,531 Expensed portion of research and development 102,908 163,994 178,333 Total research and development $ 145,142 $ 219,576 $ 253,864 We expect to grow our research and development efforts as we continue to broaden our product offerings and extend our technological leadership by investing in the development of new technologies and introducing them to new and existing clients.
Year Ended June 30, 2023 2024 2025 (in thousands) Capitalized portion of research and development $ 55,582 $ 75,531 $ 75,853 Expensed portion of research and development 163,994 178,333 205,851 Total research and development $ 219,576 $ 253,864 $ 281,704 We expect to grow our research and development efforts as we continue to broaden our product offerings and extend our technological leadership by investing in the development of new technologies and introducing them to new and existing clients.
Though we debit a client’s account prior to any disbursement on its behalf, there is a delay between our payment of amounts due to employees and taxing and other regulatory authorities and when the incoming funds from the client to cover these amounts payable actually clear into our operating accounts.
Though we debit a client’s account prior to any disbursement on its behalf, there is a delay between when our payments are due and when the incoming funds from the client to cover these amounts payable actually clear into our operating accounts.
We capitalized $42.2 million, $55.6 million and $75.5 million of internal-use software costs for the years ended June 30, 2022, 2023 and 2024, respectively, including stock-based compensation costs of $7.1 million, $11.9 million and $14.4 million for the years ended June 30, 2022, 2023 and 2024, respectively.
We capitalized $55.6 million, $75.5 million and $75.9 million of internal-use software costs for the years ended June 30, 2023, 2024 and 2025, respectively, including stock-based compensation costs of $11.9 million, $14.4 million and $13.0 million for the years ended June 30, 2023, 2024 and 2025, respectively.
Year Ended June 30, 2022 2023 2024 Consolidated Statements of Operations Data: Revenues: Recurring and other revenue 99% 93% 91% Interest income on funds held for clients 1% 7% 9% Total revenues 100% 100% 100% Cost of revenues 34% 31% 31% Gross profit 66% 69% 69% Operating expenses: Sales and marketing 25% 25% 24% Research and development 12% 14% 13% General and administrative 19% 16% 13% Total operating expenses 56% 55% 50% Operating income 10% 14% 19% Other income (expense) 0% 0% 1% Income before income taxes 10% 14% 20% Income tax expense (benefit) (1)% 2% 5 % Net income 11% 12% 15% 38 Table of Contents Comparison of Fiscal Years Ended June 30, 2023 and 2024 Revenues ($ in thousands) Year Ended June 30, Change from 2022 to 2023 Change from 2023 to 2024 2022 2023 2024 $ % $ % Recurring and other revenue $ 847,694 $ 1,098,036 $ 1,281,680 $ 250,342 30% $ 183,644 17% Percentage of total revenues 99 % 93 % 91 % Interest income on funds held for clients $ 4,957 $ 76,562 $ 120,835 $ 71,605 1,445% $ 44,273 58% Percentage of total revenues 1 % 7 % 9 % Recurring and Other Revenue Recurring and other revenue for the year ended June 30, 2024 increased by $183.6 million, or 17%, to $1,281.7 million from $1,098.0 million for the year ended June 30, 2023.
Year Ended June 30, 2023 2024 2025 Consolidated Statements of Operations Data: Revenues: Recurring and other revenue 93% 91% 92% Interest income on funds held for clients 7% 9% 8% Total revenues 100% 100% 100% Cost of revenues 31% 31% 31% Gross profit 69% 69% 69% Operating expenses: Sales and marketing 25% 24% 24% Research and development 14% 13% 13% General and administrative 16% 13% 13% Total operating expenses 55% 50% 50% Operating income 14% 19% 19% Other income 0% 1% 0% Income before income taxes 14% 20% 19% Income tax expense 2% 5% 5% Net income 12% 15% 14% Comparison of Fiscal Years Ended June 30, 2024 and 2025 Revenues ($ in thousands) Year Ended June 30, Change from 2023 to 2024 Change from 2024 to 2025 2023 2024 2025 $ % $ % Recurring and other revenue $ 1,098,036 $ 1,281,680 $ 1,471,801 $ 183,644 17% $ 190,121 15% Percentage of total revenues 93 % 91 % 92 % Interest income on funds held for clients $ 76,562 $ 120,835 $ 123,420 $ 44,273 58% $ 2,585 2% Percentage of total revenues 7 % 9 % 8 % Recurring and Other Revenue Recurring and other revenue for the year ended June 30, 2025 increased by $190.1 million, or 15%, to $1,471.8 million from $1,281.7 million for the year ended June 30, 2024.
The increase in sales and marketing expense was primarily due to $26.8 million of additional employee-related costs, including those incurred to expand our sales team. The increase was also driven by $7.4 million in additional marketing lead generation costs.
The increase in sales and marketing expense was primarily due to $36.8 million of additional employee-related costs, including those incurred to expand our sales team.
Our average client size has continued to be over 150 employees. 35 Table of Contents While the majority of our agreements with clients are generally cancellable by the client on 60 days’ notice or less, we also have entered into term agreements, which are generally two years in length.
While the majority of our agreements with clients are generally cancellable by the client on 60 days’ notice or less, we also have entered into term agreements, which are generally two years in length.
Interest Income on Funds Held for Clients Interest income on funds held for clients for the year ended June 30, 2024 increased by $44.3 million, or 58%, to $120.8 million from $76.6 million for the year ended June 30, 2023.
Interest Income on Funds Held for Clients Interest income on funds held for clients for the year ended June 30, 2025 increased by $2.6 million, or 2%, to $123.4 million from $120.8 million for the year ended June 30, 2024.
We may invest portions of our excess cash and cash equivalents in highly liquid, investment-grade marketable securities. These investments may consist of commercial paper, corporate debt issuances, asset-backed debt securities, certificates of deposit, U.S. treasury securities, U.S. government agency securities and other securities with credit quality ratings of A-1 or higher and as well as in money market funds.
These investments may consist of commercial paper, corporate debt issuances, asset-backed debt securities, 40 Table of Contents certificates of deposit, U.S. treasury securities, U.S. government agency securities and other securities with credit quality ratings of A-1 or higher and as well as in money market funds.
The change in net cash provided by (used in) financing activities was primarily due to the change in client fund obligations of $1,687.5 million due to the timing of client funds collected and related remittance of those funds to client employees and taxing authorities, partially offset by $150.0 million in share repurchases during the year ended June 30, 2024 as compared to the year ended June 30, 2023.
The change in net cash provided by (used in) financing activities from fiscal 2024 to fiscal 2025 was primarily due to the change in client fund obligations of $623.0 million due to the timing of client funds collected and related remittance of those funds to client employees, taxing and other regulatory authorities and vendors during the year ended June 30, 2025 as compared to the year ended June 30, 2024.
Our effective tax rate for the year ended June 30, 2024 was higher than the federal statutory rate of 21% primarily due to increase in state taxes. 40 Table of Contents See Note 14 of the Notes to Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for further details on the components of income tax and a reconciliation of the U.S. federal statutory rate to the effective tax rate.
See Note 14 of the Notes to Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for further details on the components of income tax and a reconciliation of the U.S. federal statutory rate to the effective tax rate.
The change in net cash provided by operating activities from fiscal 2023 to fiscal 2024 was primarily due to improved operating results after adjusting for non-cash items including stock-based compensation expense, depreciation and amortization expense and deferred income tax expense during the year ended June 30, 2024 as compared to the year ended June 30, 2023. 43 Table of Contents Investing Activities Net cash used in investing activities was $479.8 million, $220.2 million and $101.9 million, for the years ended June 30, 2022, 2023 and 2024, respectively.
The change in net cash provided by operating activities from fiscal 2024 to fiscal 2025 was primarily due to improved operating results after adjusting for non-cash items including stock-based compensation expense, depreciation and amortization expense and deferred income tax expense during the year ended June 30, 2025 as compared to the year ended June 30, 2024.
Contractual Obligations Our principal commitments consist of $64.1 million in operating lease obligations, of which $9.8 million is due in the next twelve months. Refer to Note 13 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” for additional details on our lease activity.
Refer to Note 13 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” for additional details on our lease activity. We also have $95.5 million in purchase obligations, of which $57.6 million is due in the next twelve months.
Excluding clients acquired through acquisitions, the number of clients using our HCM and payroll software solutions at June 30, 2024 increased by 8% to approximately 39,050 from approximately 36,200 at June 30, 2023.
Excluding clients acquired through acquisitions, the number of clients using our software solutions at June 30, 2025 increased by 7% to approximately 41,650 from approximately 39,050 at June 30, 2024.
Such estimates used in valuation methodologies can include, but are not limited to, forecasted revenue growth rates and cost projections, expected time and costs to rebuild developed technology, and discount rates. These estimates are inherently uncertain and may be refined over the measurement period.
Such estimates used in valuation methodologies can include, but are not limited to, forecasted revenue growth rates, royalty rates, technology migration rates and required rate of return. These estimates are inherently uncertain and may be refined over the measurement period.
We also have a credit agreement which provides for a $550.0 million revolving credit facility which may be increased up to $825.0 million. No amounts were drawn on the revolving credit facility as of June 30, 2024.
We maintain a credit agreement which provides for a $550.0 million revolving credit facility which may be increased up to $825.0 million. No amounts were drawn on the revolving credit facility as of June 30, 2024. In September 2024, we borrowed $325.0 million under this credit facility to fund the October 2024 acquisition of Airbase Inc.
Research and Development Year Ended June 30, Change from 2022 to 2023 Change from 2023 to 2024 2022 2023 2024 $ % $ % Research and development $ 102,908 $ 163,994 $ 178,333 $ 61,086 59% $ 14,339 9% Percentage of total revenues 12% 14% 13% Research and development expenses for the year ended June 30, 2024 increased by $14.3 million, or 9%, to $178.3 million from $164.0 million for the year ended June 30, 2023.
Research and Development Year Ended June 30, Change from 2023 to 2024 Change from 2024 to 2025 2023 2024 2025 $ % $ % Research and development $ 163,994 $ 178,333 $ 205,851 $ 14,339 9% $ 27,518 15% Percentage of total revenues 14% 13% 13% Research and development expenses for the year ended June 30, 2025 increased by $27.5 million, or 15%, to $205.9 million from $178.3 million for the year ended June 30, 2024.
Year Ended June 30, 2022 2023 2024 (in thousands) Consolidated Statements of Operations Data: Revenues: Recurring and other revenue $ 847,694 $ 1,098,036 $ 1,281,680 Interest income on funds held for clients 4,957 76,562 120,835 Total revenues 852,651 1,174,598 1,402,515 Cost of revenues 287,002 367,039 441,729 Gross profit 565,649 807,559 960,786 Operating expenses: Sales and marketing 214,455 296,716 334,954 Research and development 102,908 163,994 178,333 General and administrative 163,692 191,823 187,406 Total operating expenses 481,055 652,533 700,693 Operating income 84,594 155,026 260,093 Other income (expense) (997) 3,588 16,922 Income before income taxes 83,597 158,614 277,015 Income tax expense (benefit) (7,180) 17,792 70,249 Net income $ 90,777 $ 140,822 $ 206,766 The following table sets forth our statements of operations data as a percentage of total revenue for each of the periods indicated.
Year Ended June 30, 2023 2024 2025 (in thousands) Consolidated Statements of Operations Data: Revenues: Recurring and other revenue $ 1,098,036 $ 1,281,680 $ 1,471,801 Interest income on funds held for clients 76,562 120,835 123,420 Total revenues 1,174,598 1,402,515 1,595,221 Cost of revenues 367,039 441,729 498,223 Gross profit 807,559 960,786 1,096,998 Operating expenses: Sales and marketing 296,716 334,954 374,216 Research and development 163,994 178,333 205,851 General and administrative 191,823 187,406 212,907 Total operating expenses 652,533 700,693 792,974 Operating income 155,026 260,093 304,024 Other income 3,588 16,922 5,039 Income before income taxes 158,614 277,015 309,063 Income tax expense 17,792 70,249 81,936 Net income $ 140,822 $ 206,766 $ 227,127 36 Table of Contents The following table sets forth our statements of operations data as a percentage of total revenue for each of the periods indicated.
Because of these limitations, you should not consider Adjusted Gross Profit as an alternative to gross profit or Adjusted EBITDA as an alternative to net income, in each case as determined in accordance with GAAP.
Because of these limitations, you should not consider Adjusted Gross Profit as an alternative to gross profit or Adjusted EBITDA as an alternative to net income, in each case as determined in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results, and we use Adjusted Gross Profit and Adjusted EBITDA only as supplemental information.
Gross profit margin was 69% for both years ended June 30, 2023 and 2024. 39 Table of Contents Operating Expenses ($ in thousands) Sales and Marketing Year Ended June 30, Change from 2022 to 2023 Change from 2023 to 2024 2022 2023 2024 $ % $ % Sales and marketing $ 214,455 $ 296,716 $ 334,954 $ 82,261 38% $ 38,238 13% Percentage of total revenues 25% 25% 24% Sales and marketing expenses for the year ended June 30, 2024 increased by $38.2 million, or 13%, to $335.0 million from $296.7 million for the year ended June 30, 2023.
Operating Expenses ($ in thousands) Sales and Marketing Year Ended June 30, Change from 2023 to 2024 Change from 2024 to 2025 2023 2024 2025 $ % $ % Sales and marketing $ 296,716 $ 334,954 $ 374,216 $ 38,238 13% $ 39,262 12% Percentage of total revenues 25% 24% 24% Sales and marketing expenses for the year ended June 30, 2025 increased by $39.3 million, or 12%, to $374.2 million from $335.0 million for the year ended June 30, 2024.
During fiscal year 2024, we repurchased an aggregate of 1.1 million shares for approximately $150.0 million at an average cost per share of $142.82 under the Repurchase Program. As of June 30, 2024, approximately $350.0 million remains authorized for repurchases under the Repurchase Program.
During fiscal 2024, we repurchased an aggregate of 1.1 million shares for approximately $150.0 million at an average cost per share of $142.82 under the Repurchase Program. During fiscal 2025, we repurchased 0.8 million shares for approximately $149.6 million at an average cost per share of $190.16 under the Repurchase Program.
June 30, 2022 2023 2024 Client Count 33,300 36,200 39,050 The rate at which we add clients is highly variable period-to-period and highly seasonal as many clients switch solutions during the first calendar quarter of each year.
June 30, 2023 2024 2025 Client Count 36,200 39,050 41,650 The rate at which we add clients is highly variable period-to-period and highly seasonal as many clients switch solutions during the first calendar quarter of each year. Although many clients have multiple divisions, segments or locations, we only count such clients once for these purposes.
We reconcile Adjusted Gross Profit and Adjusted EBITDA as follows: Year Ended June 30, 2022 2023 2024 (in thousands) Reconciliation from Gross Profit to Adjusted Gross Profit Gross profit $ 565,649 $ 807,559 $ 960,786 Amortization of capitalized internal-use software costs 25,267 31,440 45,246 Amortization of certain acquired intangibles 1,853 7,414 7,907 Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 12,610 18,446 20,350 Other items (1) 121 19 469 Adjusted Gross Profit $ 605,500 $ 864,878 $ 1,034,758 Year Ended June 30, 2022 2023 2024 (in thousands) Reconciliation from Net income to Adjusted EBITDA Net income $ 90,777 $ 140,822 $ 206,766 Interest expense 498 752 758 Income tax expense (benefit) (7,180) 17,792 70,249 Depreciation and amortization expense 50,218 60,866 76,426 EBITDA 134,313 220,232 354,199 Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 101,109 154,505 152,446 Other items (2) 2,378 446 (1,091) Adjusted EBITDA $ 237,800 $ 375,183 $ 505,554 (1) Represents acquisition-related costs and severance costs related to certain roles that have been eliminated.
We reconcile Adjusted Gross Profit and Adjusted EBITDA as follows: Year Ended June 30, 2023 2024 2025 (in thousands) Reconciliation from Gross Profit to Adjusted Gross Profit Gross profit $ 807,559 $ 960,786 $ 1,096,998 Amortization of capitalized internal-use software costs 31,440 45,246 59,948 Amortization of certain acquired intangibles 7,414 7,907 16,168 Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 18,446 20,350 19,314 Other items (1) 19 469 1,365 Adjusted Gross Profit $ 864,878 $ 1,034,758 $ 1,193,793 33 Table of Contents Year Ended June 30, 2023 2024 2025 (in thousands) Reconciliation from Net income to Adjusted EBITDA Net income $ 140,822 $ 206,766 $ 227,127 Interest expense 752 758 13,053 Income tax expense 17,792 70,249 81,936 Depreciation and amortization expense 60,866 76,426 99,636 EBITDA 220,232 354,199 421,752 Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 154,505 152,446 150,063 Other items (2) 446 (1,091) 11,182 Adjusted EBITDA $ 375,183 $ 505,554 $ 582,997 (1) Represents acquisition-related costs and severance cost adjustments related to certain roles that have been eliminated.
We also have $72.7 million in purchase obligations, of which $43.5 million is due in the next twelve months. New Accounting Pronouncements Refer to Note 2 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” for a discussion of recently issued accounting standards.
New Accounting Pronouncements Refer to Note 2 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” for a discussion of recently issued accounting standards.
However, we expect to fund our operations, capital expenditures, acquisitions, share repurchases and other investments principally with cash flows from operations, and to the extent that our liquidity needs exceed our cash from operations, we would look to our cash on hand or utilize the borrowing capacity under our credit facility to satisfy those needs. 42 Table of Contents Funds held for clients and client fund obligations will vary substantially from period to period as a result of the timing of payroll and tax obligations due.
However, we expect to fund our operations, capital expenditures, acquisitions, share repurchases and other investments principally with cash flows from operations, and to the extent that our liquidity needs exceed our cash from operations, we would look to our cash on hand or utilize the remaining borrowing capacity under our credit facility to satisfy those needs.
General and Administrative Year Ended June 30, Change from 2022 to 2023 Change from 2023 to 2024 2022 2023 2024 $ % $ % General and administrative $ 163,692 $ 191,823 $ 187,406 $ 28,131 17% $ (4,417) (2)% Percentage of total revenues 19% 16% 13% General and administrative expenses for the year ended June 30, 2024 decreased by $4.4 million, or 2%, to $187.4 million from $191.8 million for the year ended June 30, 2023.
General and Administrative Year Ended June 30, Change from 2023 to 2024 Change from 2024 to 2025 2023 2024 2025 $ % $ % General and administrative $ 191,823 $ 187,406 $ 212,907 $ (4,417) (2)% $ 25,501 14% Percentage of total revenues 16% 13% 13% General and administrative expenses for the year ended June 30, 2025 increased by $25.5 million, or 14%, to $212.9 million from $187.4 million for the year ended June 30, 2024.
Excluding clients acquired through acquisitions, we have increased the number of clients using our HCM and payroll software solutions from approximately 33,300 as of June 30, 2022 to approximately 39,050 as of June 30, 2024, representing a compound annual growth rate of approximately 8%.
Excluding clients acquired through acquisitions, we have increased the number of clients using our software solutions from approximately 36,200 as of June 30, 2023 to approximately 41,650 as of June 30, 2025, representing a compound annual growth rate of approximately 7%.
Income Tax Expense (Benefit) Our effective tax rates were 11.2% and 25.4% for the years ended June 30, 2023 and 2024, respectively. Our effective tax rate for the year ended June 30, 2023 was lower than the federal statutory rate of 21% primarily due to benefits from stock-based compensation and research and development tax credits generated.
Income Tax Expense (Benefit) Our effective tax rates were 25.4% and 26.5% for the years ended June 30, 2024 and 2025, respectively. Our effective tax rates for the years ended June 30, 2024 and 2025 were higher than the federal statutory rate of 21% primarily due to state income taxes.
Cost of revenues increased primarily as a result of the continued growth of our business, in particular, $44.9 million in additional employee-related costs resulting from additional personnel necessary to provide services to new and existing clients, $13.8 million in additional processing and delivery related costs and $13.6 million in increased internal-use software amortization.
Cost of revenues increased primarily as a result of the continued growth of our business, in particular, $22.1 million in additional employee-related costs, $14.7 million in increased internal-use software amortization, $12.6 million in additional processing and delivery related costs and $8.3 million in increased amortization of certain acquired intangible assets.
The increase in research and development expenses was primarily due to $29.0 million of additional employee-related costs related to additional development personnel, partially offset by $16.6 million in higher period-over-period capitalized internal-use software costs.
The increase in research and development expenses was primarily due to $25.7 million of additional employee-related costs related to additional development personnel.
We collect funds for employee payroll payments and related taxes in advance of remittance to employees and taxing authorities. Prior to remittance to employees and taxing authorities, we earn interest on these funds through demand deposit accounts with financial institutions with which we have automated clearing house, or ACH, arrangements.
We collect funds from clients in advance of performing payroll, payroll tax filing and spend management services on behalf of those clients. Until these funds are remitted to the respective payees, we earn interest on these funds through demand deposit accounts with financial institutions with which we have automated clearing house, or ACH, arrangements.
The change in net cash used in investing activities from fiscal 2023 to fiscal 2024 was primarily due to a $294.4 million decrease in purchases of available-for-sale securities, partially offset by $152.3 million less proceeds from sales and maturities of available-for-sale securities as compared to the year ended June 30, 2023.
It was also attributable to $134.4 million in less proceeds from sales and maturities of available-for-sale securities, partially offset by $43.5 million in less purchases of available-for-sale securities as compared to the year ended June 30, 2024. 42 Table of Contents Financing Activities Net cash provided by (used in) financing activities was $(1,434.7) million, $141.6 million and $(325.8) million for the years ended June 30, 2023, 2024 and 2025, respectively.
Financing Activities Net cash provided by (used in) financing activities was $2,172.3 million, $(1,434.7) million and $141.6 million for the years ended June 30, 2022, 2023 and 2024, respectively.
Investing Activities Net cash used in investing activities was $220.2 million, $101.9 million and $455.5 million, for the years ended June 30, 2023, 2024 and 2025, respectively.
Although many clients have multiple divisions, segments or locations, we only count such clients once for these purposes. 33 Table of Contents Annual Revenue Retention Rate Our annual revenue retention rate has been in excess of 92% during each of the past three fiscal years.
Annual Revenue Retention Rate Our annual revenue retention rate has been in excess of 92% during each of the past three fiscal years.
Additional expenses include consulting and professional fees, occupancy costs, insurance and other corporate expenses. While we expect our general and administrative expenses to continue to increase in absolute dollars as our company continues to grow, we expect to realize cost efficiencies as our business scales.
While we expect our general and administrative expenses to continue to increase in absolute dollars as our company continues to grow, we expect to realize cost efficiencies as our business scales. 35 Table of Contents Other Income (Expense) Other income (expense) generally consists of interest income related to interest earned on our cash and cash equivalents, net of interest expense related to our revolving credit facility.
In the third quarter of fiscal 2022, we borrowed $50.0 million in connection with our acquisition of Cloudsnap, Inc., which we repaid within the same quarter. Refer to Note 12 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” for additional details on the credit agreement and borrowing activity.
Refer to Notes 7 and 12 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” for additional details on the Airbase acquisition and credit agreement, respectively. In April 2024, our board of directors authorized the repurchase of up to $500 million of our common stock (the “Repurchase Program”).
Our payroll processing activities involve the movement of significant funds from accounts of employers to employees and relevant taxing authorities.
Our payroll and spend management processing activities involve the movement of significant funds from accounts of clients to their employees, relevant taxing authorities and vendors. Funds held for clients and client fund obligations will vary substantially from period to period mostly as a result of the timing of payroll and payroll tax obligations due.
Cost of Revenues ($ in thousands) Year Ended June 30, Change from 2022 to 2023 Change from 2023 to 2024 2022 2023 2024 $ % $ % Cost of revenues $ 287,002 $ 367,039 $ 441,729 $ 80,037 28% $ 74,690 20% Percentage of total revenues 34% 31% 31% Gross profit margin 66% 69% 69% Cost of revenues for the year ended June 30, 2024 increased by $74.7 million, or 20%, to $441.7 million from $367.0 million for the year ended June 30, 2023.
Interest income on funds held for clients increased slightly, as the positive impact from higher average daily balances of funds held for new and existing clients was mostly offset by lower interest rates as compared to the prior fiscal year. 37 Table of Contents Cost of Revenues ($ in thousands) Year Ended June 30, Change from 2023 to 2024 Change from 2024 to 2025 2023 2024 2025 $ % $ % Cost of revenues $ 367,039 $ 441,729 $ 498,223 $ 74,690 20% $ 56,494 13% Percentage of total revenues 31% 31% 31% Gross profit margin 69% 69% 69% Cost of revenues for the year ended June 30, 2025 increased by $56.5 million, or 13%, to $498.2 million from $441.7 million for the year ended June 30, 2024.
Other Income (Expense) Other income (expense) for the year ended June 30, 2024 increased by $13.3 million as compared to the year ended June 30, 2023.
Other Income (Expense) Other income for the year ended June 30, 2025 decreased by $11.9 million as compared to the year ended June 30, 2024. The change in other income was primarily due to $12.3 million in additional interest expense related to borrowings under our revolving credit facility.
We compensate for these limitations by relying primarily on our GAAP results, and we use Adjusted Gross Profit and Adjusted EBITDA only as supplemental information. 34 Table of Contents Directly comparable GAAP measures to Adjusted Gross Profit and Adjusted EBITDA are gross profit and net income, respectively.
Directly comparable GAAP measures to Adjusted Gross Profit and Adjusted EBITDA are gross profit and net income, respectively.
During fiscal 2024, total revenue growth was driven by the strong performance of our sales team, continued annual revenue retention in excess of 92%, and growth in interest income on funds held for clients attributable both to rising interest rates and higher average daily balances for funds held for clients, which were due to the addition of new clients as compared to the prior fiscal year.
Total revenues increased from $1,402.5 million in fiscal 2024 to $1,595.2 million in fiscal 2025, representing a 14% year-over-year increase. During fiscal 2025, total revenue growth was driven by the strong performance of our sales team and continued annual revenue retention in excess of 92%.
Other Income (Expense) Other income (expense) generally consists of interest income related to interest earned on our cash and cash equivalents, net of losses on disposals of property and equipment and interest expense related to our revolving credit facility. 37 Table of Contents Results of Operations The following table sets forth our statements of operations data for each of the periods indicated.
Results of Operations The following table sets forth our statements of operations data for each of the periods indicated.
The decrease in general and administrative expenses was primarily due to a $4.3 million gain related to lease exit activity. Excluding the gain on lease exit activity, general and administrative expenses remained relatively flat year over year as we continue to focus on achieving cost efficiencies as our business scales.
The increase in general and administrative expenses 38 Table of Contents was primarily due to $14.3 million of additional employee-related costs and a $4.3 million gain related to lease exit activity during the year ended June 30, 2024.
Removed
Total revenues increased from $1,174.6 million in fiscal 2023 to $1,402.5 million in fiscal 2024, representing a 19% year-over-year increase.
Added
We are expanding the spend management capabilities of our platform beyond expense management to include accounts payable automation, corporate cards, and procurement capabilities through the acquisition of Airbase Inc. in October 2024. This integrated platform will enable HR and finance leaders to manage all their spend, including payroll, on a single platform.
Removed
Interest income on funds held for clients increased primarily due to higher interest rates and higher average daily balances for funds held due to the addition of new clients to our client base as compared to the prior fiscal year.
Added
Additional expenses include consulting and professional fees, occupancy costs, insurance and other corporate expenses.
Removed
The change in other income (expense) was primarily due to higher interest income earned on our cash and cash equivalents as a result of higher interest rates and higher average daily balances of those corporate cash and cash equivalents.
Added
Gross profit margin was 69% for both years ended June 30, 2024 and 2025.
Removed
In April 2024, our board of directors authorized the repurchase of up to $500 million of our common stock (the “Repurchase Program”).
Added
We had $162.5 million in outstanding borrowings under this credit facility at June 30, 2025, as we repaid $162.5 million during the second half of fiscal 2025.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

9 edited+1 added−0 removed5 unchanged
Biggest changeNonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations. Item 8. Financial Statements and Supplementary Data.
Biggest changeInflation Risk We do not believe that inflation has had a material effect on our business, financial condition or results of operations. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases.
However, as a result of our investing activities, we are exposed to changes in interest rates that may materially affect our financial statements. 44 Table of Contents In a falling rate environment, a decline in interest rates would decrease our interest income earned on both cash and cash equivalents and funds held for clients.
However, as a result of our investing activities, we are exposed to changes in interest rates that may materially affect our financial statements. In a falling rate environment, a decline in interest rates would decrease our interest income earned on both cash and cash equivalents and funds held for clients.
An immediate 100-basis point decrease in interest rates would have resulted in an increase in the market value of our available-for-sale securities by $10.4 million as of June 30, 2024. Fluctuations in the value of our available-for-sale securities caused by changes in interest rates are recorded in other comprehensive income and are only realized if we sell the underlying securities.
An immediate 100-basis point decrease in interest rates would have resulted in an increase in the market value of our available-for-sale securities by $12.0 million as of June 30, 2025. Fluctuations in the value of our available-for-sale securities caused by changes in interest rates are recorded in other comprehensive income and are only realized if we sell the underlying securities.
We have not used, nor do we intend to use, derivatives to mitigate the impact of interest rate or other exposure or for trading or speculative purposes. Interest Rate Risk As of June 30, 2024, we had cash and cash equivalents of $401.8 million and funds held for clients of $2,952.1 million.
We have not used, nor do we intend to use, derivatives to mitigate the impact of interest rate or other exposure or for trading or speculative purposes. Interest Rate Risk As of June 30, 2025, we had cash and cash equivalents of $398.1 million and funds held for clients of $2,704.1 million.
However, because we classify all marketable securities as available-for-sale, no gains or losses are recognized due to changes in interest rates until such securities are sold or decreases in fair value are deemed due to expected credit losses. We have not recorded credit impairment losses on our portfolio to date.
However, because we classify all marketable securities as available-for-sale, no gains or losses are recognized due to changes in interest rates until such securities are sold or decreases in fair value are deemed due to expected credit losses.
Borrowings under the credit facility generally bear interest at a rate based upon the Term Secured Overnight Financing Rate (“SOFR”) plus the SOFR Adjustment or an adjusted base rate plus an applicable margin based on our then-applicable net total leverage ratio. As of June 30, 2024 , there were no amounts drawn on the credit facility.
Borrowings under the credit facility generally bear interest at a rate based upon the Term Secured Overnight Financing Rate (“SOFR”) plus the SOFR Adjustment or an adjusted base rate plus an applicable margin based on our then-applicable net total leverage ratio. As of June 30, 2025 , we had $162.5 million in borrowings outstanding under our credit facility.
Based upon a sensitivity model that measures market value changes caused by interest rate fluctuations, an immediate 100-basis point increase in interest rates would have resulted in a decrease in the market value of our available-for-sale securities by $10.4 million as of June 30, 2024.
We have not recorded credit impairment losses on our portfolio to date. 43 Table of Contents Based upon a sensitivity model that measures market value changes caused by interest rate fluctuations, an immediate 100-basis point increase in interest rates would have resulted in a decrease in the market value of our available-for-sale securities by $12.0 million as of June 30, 2025.
The information required by this item is incorporated by reference to the consolidated financial statements and accompanying notes set forth starting on page F-1 of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.
Our inability or failure to do so could harm our business, financial condition and results of operations. Item 8. Financial Statements and Supplementary Data. The information required by this item is incorporated by reference to the consolidated financial statements and accompanying notes set forth starting on page F-1 of this Annual Report on Form 10-K. Item 9.
To the extent that we draw additional amounts under the credit facility, we may be exposed to increased market risk from changes in the underlying index rates, which affects our interest expense. Inflation Risk We do not believe that inflation has had a material effect on our business, financial condition or results of operations.
Because interest rates applicable to the credit facility are variable, we are exposed to market risk from changes in the underlying index rates, which affects our interest expense. A hypothetical change of 100 basis points in interest rates would not have had a significant impact on our results of operations.
Added
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.

Other PCTY 10-K year-over-year comparisons