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What changed in Paylocity Holding Corp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Paylocity Holding Corp's 2022 and 2023 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 2023 report.

+223 added−238 removedSource: 10-K (2023-08-04) vs 10-K (2022-08-05)

Top changes in Paylocity Holding Corp's 2023 10-K

223 paragraphs added · 238 removed · 194 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

73 edited+1 added−6 removed70 unchanged
Biggest changeOverall Workforce Ethnicity All Female Male *Undisclosed White 64.1% 48.5% 51.5% —% Asian & Indian 6.1% 49.4% 50.6% —% Hispanic & Latinx 11.6% 56.2% 43.6% 0.2% Black or African American 10.0% 66.0% 34.0% —% Multiracial 4.0% 58.7% 41.3% —% Native Hawaiian or Pacific Islander 0.3% 62.5% 37.5% —% American Indian or Alaskan Native 0.3% 53.3% 46.7% —% Undisclosed* 3.6% 36.7% 49.7% 13.6% Overall 100.0% 51.2% 48.3% 0.5% 11 Table of Contents Leadership** Ethnicity All Female Male *Undisclosed White 72.3% 45.1% 54.9% —% Asian & Indian 17.0% 37.5% 62.5% —% Hispanic & Latinx 2.8% 50.0% 50.0% —% Black or African American 3.5% 60.0% 40.0% —% Multiracial 2.2% 33.3% 66.7% —% Native Hawaiian or Pacific Islander —% —% —% —% American Indian or Alaskan Native —% —% —% —% Undisclosed* 2.2% 33.3% 66.7% —% Overall 100.0% 44.0% 56.0% —% * Individuals preferred to not disclose an ethnicity and/or gender ** Defined as individuals in director-level positions and above To support our DEIA efforts, we launched a curriculum of learning and training content known as “BRIDGE” (Belonging, Respect, Inclusion, Diversity, Generosity, and Equity), that delivers training content related to topics such as unconscious bias, inclusive leadership and building diverse teams.
Biggest changeEmployees American Indian or Alaskan Native 0.4% Asian & Indian 6.7% Black Or African American 10.0% Hispanic & Latinx 12.1% Multiracial 4.4% Native Hawaiian or Pacific Islander 0.3% White 62.0% Undisclosed* 4.1% Overall 100.0% * Individuals preferred to not disclose an ethnicity To support our DEIA efforts, we offer a curriculum of learning and training content known as “BRIDGE” (Belonging, Respect, Inclusion, Diversity, Generosity, and Equity), that delivers training content related to topics such as unconscious bias, inclusive leadership and building diverse teams.
Compliance Dashboard – With our 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 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.
Performance Management – Our Performance Management tools enable transparent, two-way communication, allowing teams to have ongoing performance conversations. With the ability to manage employee review cycles at the center of the performance management solution, employees can also manage goals and track their career development.
Performance – Our Performance tools enable transparent, two-way communication, allowing teams to have ongoing performance conversations. With the ability to manage employee review cycles at the center of the performance management solution, employees can also manage goals and track their career development.
Benefit administrators can add enrollment rules, manage benefit offerings for different employee groups, customize user plan limits, and view plan documentation, among other features. Employees can manage their own elections in Employee Self Service or via the mobile app, access open 5 Table of Contents enrollment, account balances and more.
Benefit administrators can add enrollment rules, manage benefit offerings for different employee groups, customize user 5 Table of Contents plan limits, and view plan documentation, among other features. Employees can manage their own elections in Employee Self Service or via the mobile app, access open enrollment, account balances and more.
Premium Video – Premium 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 – 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.
Each of these groups are 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. Diversity, Equity, Inclusion and Accessibility Dedication to diversity, equity, inclusion and accessibility (“DEIA”) is foundational to our culture.
Further, because some of our clients have international operations, the European Union General Data Protection Regulation (“GDPR”) and other foreign data privacy laws may impact our processing of certain client and employee information.
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.
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. Benefits Employee Benefits Management – 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 Employee Benefits Management tool.
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. 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.
We support a number of employee resource groups (“ERGs”) including PCTY Equality, which focuses on fostering a positive work environment and providing support for employees and allies of the LGBTQIA+ community, our PCTY OneWorld group, which fosters an inclusive work environment and provides support for our employees of diverse ethnic backgrounds, PCTY Sheroes, which supports and celebrates women, PCTY Sustainability, whereby our employees support initiatives to operate our business and facilities to conserve energy, water and raw materials, and new this year, our PCTY Mental Health, which promotes a psychologically safe and healthy workplace where employees bring their whole selves to work and their mental well-being is supported.
We support a number of employee resource groups (“ERGs”) including PCTY Equality, which focuses on fostering a positive work environment and providing support for employees and allies of the LGBTQIA+ community, our PCTY OneWorld group, which fosters an inclusive work environment and provides support for our employees of diverse ethnic backgrounds, PCTY Sheroes, which supports and celebrates women, PCTY Sustainability, whereby our employees support initiatives to operate our business and facilities to conserve energy, water and raw materials, and our PCTY Mental Health, which promotes a psychologically safe and healthy workplace where employees bring their whole selves to work and their mental well-being is supported.
Surveys – Our Surveys tool help clients gather valuable employee feedback to encourage ongoing and transparent conversations while staying in touch with their workforce. Peer Recognition – Peer Recognition promotes positive interactions by allowing employees to recognize and celebrate colleagues’ achievements. It also gives employees the ability to post accolades on their profiles and share with co-workers.
Surveys – Our Surveys tool help clients gather valuable employee feedback to encourage ongoing and transparent conversations while staying in touch with their workforce. Recognition & Rewards – Recognition & Rewards promotes positive interactions by allowing employees to recognize and celebrate colleagues’ achievements. It also gives employees the ability to post accolades on their profiles and share with co-workers.
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 2020, 2021 and 2022. 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 2021, 2022 and 2023. Each client is assigned an account management team that serves as the central point of contact for any questions or support needs.
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”), 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”), as amended by the California Privacy Rights Act of 2020 (“CPRA”) and the Illinois Biometric Information Privacy Act (“BIPA”).
See the discussion contained in the “Risk Factors” section in Part I, Item 1A of this Annual Report on Form 10-K for information regarding changes in laws and regulations that could have a materially adverse effect on our business, operating results or financial condition.
See the discussion contained in the “Risk Factors” section in Part I, Item 1A of this Annual Report on Form 10 Table of Contents 10-K for information regarding changes in laws and regulations that could have a materially adverse effect on our business, operating results or financial condition.
For each of the three years ended June 30, 2020, 2021 and 2022, 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, 2021, 2022 and 2023, 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.
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., 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., Ceridian HCM Holding Inc., Paychex, Inc., Paycom Software, Inc., Paycor, Inc., Ultimate Kronos Group and other local and regional providers.
Our software solutions offer our clients automated data integration with hundreds of third-party partner systems, such as 401(k), benefits and insurance provider systems. This integration reduces the complexity and risk of error of manual data transfers and saves time for our clients and their employees.
Our software solutions offer our clients automated data integration with hundreds of third-party partner systems in our Integration Marketplace, such as 401(k), benefits and insurance provider systems. This integration reduces the complexity and risk of error of manual data transfers and saves time for our clients and their employees.
Our approach to drive a strong culture and employee engagement has been validated externally as Paylocity has been named Forbes 2022 Best Employers for Diversity, Forbes 2022 America’s Best Mid-Size Employers and was also certified Great Place To Work on multiple occasions.
Our approach to drive a strong culture and employee engagement has been validated externally as Paylocity has been named Forbes 2023 Best Employers for Diversity, Forbes 2023 Best Employers for Women, Forbes 2022 America’s Best Mid-Size Employers and was also Great Place To Work certified on multiple occasions.
We also proactively solicit client feedback through ongoing surveys from which we receive actionable feedback that we use to enhance our client service processes. We have also built an online knowledge repository for clients that provide industry content and Paylocity product and service information.
We also proactively solicit client feedback through ongoing surveys from which we receive actionable feedback that we use to enhance our client service processes. We have also built an online knowledge repository for clients that provides industry content and Paylocity product and service information.
Although we rely on laws respecting intellectual property rights, including trade secret, copyright and trademark laws, as well as contractual protections to establish and protect our intellectual property rights, we believe that factors such as the technological and creative skills of our personnel, creation of new modules, features and functionality and frequent enhancements to our modules are more essential to establishing and maintaining our technology leadership position.
Although we rely on laws respecting intellectual property rights, including trade secret, copyright and trademark laws, as well as contractual protections to establish and protect our intellectual property rights, we believe that factors such as the technological and creative skills of our personnel, creation of new modules, features and functionality and frequent enhancements to our modules are the most essential means to establishing and maintaining our technology leadership position.
Document Library – Our Document Library 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 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.
Workflows & Documents – Workflows & 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 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.
Data Insights – With our Data Insights solution, our clients can evaluate the health of their organizations with actionable insights in areas such as headcount, turnover, labor costs and composition of their employee populations so they can customize, fund and deploy strategies to support diverse employees and identify needs of underrepresented groups.
Data Insights – With our Data Insights solution, our clients can evaluate the health of their organizations with actionable insights in areas such as headcount, turnover, labor costs and composition of their employee 6 Table of Contents populations so they can customize, fund and deploy strategies to support diverse employees and identify needs of underrepresented groups.
Our referral network has become an increasingly important component of our sales process, and in fiscal 2022, 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 2023, more than 25% of our new client revenue originated by referrals from participants in our referral network.
We believe that we compete favorably on these factors and our ability to remain competitive will largely depend on the success of our continued investment in sales and marketing, research and development and implementation and client services. Research and Development We invest heavily in research and development to continuously introduce new modules, technologies, features and functionality.
We believe that we compete favorably on these factors and our ability to remain competitive will largely depend on the success of our continued investment in sales and marketing, research and development and implementation and client services. 9 Table of Contents Research and Development We invest heavily in research and development to continuously introduce new modules, technologies, features and functionality.
We rely on a combination of trade secrets, copyrights and trademarks, as well as contractual protections to 9 Table of Contents establish and protect our intellectual property rights. We require our employees, consultants and other third parties to enter into confidentiality and proprietary rights agreements and control access to software, documentation and other proprietary information.
We rely on a combination of trade secrets, copyrights and trademarks, as well as contractual protections to establish and protect our intellectual property rights. We require our employees, consultants and other third parties to enter into confidentiality and proprietary rights agreements and control access to software, documentation and other proprietary information.
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 has become a significant issue for organizations globally, including those in the United States.
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 issue for organizations globally, including those in the United States.
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 8 Table of Contents assessments for each release. Our systems undergo regular penetration testing and source code reviews by an independent third-party security firm.
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.
Client Support Teams We supplement our comprehensive software platform with an integrated implementation and client service organization with deep subject matter expertise. Our core operation consists of various specialists, including 6 Table of Contents implementation teams, account managers, payroll processing and tax service teams.
Client Support Teams We supplement our comprehensive software platform with an integrated implementation and client service organization with deep subject matter expertise. Our core operation consists of various specialists, including implementation teams, account managers, payroll processing and tax service teams.
Global Payroll – Our cloud-based global payroll solution enables U.S.-based companies to manage payroll for employees outside the U.S. in line with complex local and country-specific requirements across many countries. It 3 Table of Contents also provides consolidated reporting capabilities to efficiently manage a global employee base with real-time access to payroll data.
Global Payroll – Our cloud-based global payroll solution enables U.S.-based companies to manage payroll for employees outside the U.S. in line with complex local and country-specific requirements across many countries. It also provides consolidated reporting capabilities to efficiently manage a global employee base with real-time access to payroll data.
Compensation Management – Compensation Management helps clients ensure alignment between organizational goals, budgets and participant eligibility in an efficient process that reduces manual effort and paper-based budgeting activities. Our 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.
Compensation – Our Compensation tools help clients ensure alignment between organizational goals, budgets and participant eligibility in an efficient process that reduces manual effort and paper-based budgeting activities. Our 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.
Advanced features include specifying geographic parameters for mobile punch-in, requiring employees to punch in with a photo, answering attestation prompts and temperature checks. Talent Recruiting – Recruiting helps clients find the right candidates by offering intuitive tools to streamline talent acquisition processes from application creation to candidate acceptance.
Advanced features include specifying geographic parameters for mobile punch-in, requiring employees to punch in with a photo, answering attestation prompts and other health and safety checks. Talent Recruiting – Recruiting helps clients find the right candidates by offering intuitive tools to streamline talent acquisition processes from application creation to candidate acceptance.
The rate at which we add clients is variable period-to-period and is also seasonal as many clients switch solutions during the first calendar quarter of each year. Clients include for-profit and non-profit organizations across industries including business services, financial services, healthcare, manufacturing, restaurants, retail, technology and others.
The rate at which we add clients is variable period-to-period and is also seasonal as many clients switch solutions during the first calendar quarter of the year. Clients include for-profit and non-profit organizations across industries including business services, financial services, healthcare, manufacturing, 7 Table of Contents restaurants, retail, technology and others.
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.
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. 8 Table of Contents • Mobile Focused. We employ mobile-centric principles in our solution design and development.
Our platform centralizes payroll and HCM data, minimizing inconsistent and incomplete information that can be produced when using multiple databases. • Employee Experience –We embed employee experiences throughout the platform that help employees feel connected to their work whether they are hybrid, remote, on-the-go, or do not have computers or email addresses.
Our platform centralizes payroll and HCM data, minimizing inconsistent and incomplete information that can be produced when using multiple databases. • Employee Experience –We embed employee-focused features throughout the platform that help employees feel connected to their work whether they are hybrid, remote, on-the-go, or do not have corporate email addresses.
Our integration capabilities also automatically transfer 401(k) information, retirement plans and benefit files to third-party providers. Through our Tax Services solutions, we accurately prepare and file the necessary tax withholdings and filing documents for local, state and federal jurisdictions.
Our integration capabilities also automatically transfer 401(k) information, retirement plans and benefit files to third-party providers. Through our 3 Table of Contents Tax Services solutions, we accurately prepare and file the necessary tax withholdings and filing documents for local, state and federal jurisdictions.
Our TPA solutions include mobile and web access, allowing users to view transaction details and account balances while having the ability to submit claims from our integrated employee portal. It also eases the administration of COBRA coverage and retiree billing.
Our TPA solutions include mobile and web access, allowing users to view transaction details and account balances while having the ability to submit claims from our integrated employee portal. These solutions also ease the administration of COBRA coverage and retiree billing.
Insights & Recommendations Modern Workforce Index – Leveraging data from more than 33,000 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.
Insights & Recommendations Modern Workforce Index – Leveraging data from more than 36,200 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.
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 2020, 2021 and 2022.
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 2 Table of Contents client employees. Our annual revenue retention rate was greater than 92% in each of the fiscal years 2021, 2022 and 2023.
Our payroll solution leverages data from our Time and Attendance and Human Capital Management solutions to accurately calculate wages, deductions and withholdings, without the need for manual reentry. Clients work with our experts to configure general ledger integrations, accruals and complex reports to enable data-driven decision making.
Our payroll solution leverages data from our Time & Labor and Human Resource solutions to accurately calculate wages, deductions and withholdings, without the need for manual reentry. Clients work with our experts to configure general ledger integrations, accruals and complex reports to enable data-driven decision making.
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, 2022, we provided our HCM and payroll software solutions to approximately 33,300 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. Clients Excluding clients acquired through acquisitions, as of June 30, 2023, we provided our HCM and payroll software solutions to approximately 36,200 clients, across the U.S.
Research and development costs, including research and development costs that were capitalized, were $91.0 million, $108.5 million and $145.1 million for the years ended June 30, 2020, 2021 and 2022, respectively. 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 $108.5 million, $145.1 million and $219.6 million for the years ended June 30, 2021, 2022 and 2023, respectively. Intellectual Property Our success is dependent, in part, on our ability to protect our proprietary technology and other intellectual property rights.
Learning Management – Our Learning Management solution (LMS) allows 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.
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.
Excluding clients acquired through acquisitions, as of June 30, 2022, we provided our software-as-a-service, or SaaS, solutions to approximately 33,300 clients across the U.S., which on average had over 100 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, 2023, we provided our software-as-a-service, or SaaS, solutions to approximately 36,200 clients across the U.S., which on average had over 140 employees. Effective management of human capital is a core function in all organizations and requires a significant commitment of resources.
To support our employees and their communities, each quarter we donate to qualified 501 (c)(3) charities nominated by our employees through the EYP program. In addition to local charities, Paylocity partners with national organizations such as Big Brothers Big Sisters of America, Blessings in a Backpack, American Red Cross, National Alliance on Mental Illness and Illinois Science and Technology Coalition.
To support our employees and their communities, each quarter we donate to qualified 501 (c)(3) charities nominated by our employees through the EYP program. In addition to local charities, Paylocity partners with national organizations such as Big Brothers Big Sisters of America, American Red Cross, National Alliance on Mental Illness and Feeding America.
We plan to continue our technology innovation, as we have done with our mobile applications, social features and analytics capabilities. • Grow Our Client Base . We believe that our current client base represents only a small portion of the organizations that could benefit from our solutions.
We plan to continue our technology innovation, as we have done with our mobile applications, social features and analytics capabilities. • Grow Our Client Base . We believe that our current client base represents only a small portion of the organizations that could benefit from our solutions. Our clients typically have between 10 to 5,000 employees.
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 & Flexible End-to-End Platform - The foundation of our platform is a single employee system of record that supports the complete employee lifecycle: Talent, Payroll, Core HR, Workforce Management, and Benefits.
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: Recruiting & Onboarding, Benefits, Time & Labor, Payroll, HR, Learning, and Performance & Compensation.
PCTY Gives Giving back to our local communities takes many forms at Paylocity. 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, Volunteers in Action paid time-off, signature program funding, corporate sponsored volunteerism and many other initiatives.
The information contained on this website is not incorporated by reference into this Annual Report on Form 10-K. 10 Table of Contents As of June 30, 2022, our workforce consisted of approximately 5,300 employees, substantially all of which were employed on a full-time basis in the United States.
The information contained on this website is not incorporated by reference into this Annual Report on Form 10-K. As of June 30, 2023, our workforce consisted of approximately 6,100 employees, substantially all of whom were employed on a full-time basis in the United States.
Our clients typically have between 10 to 5,000 employees and while we provide our HCM and payroll software solutions to approximately 33,300 clients across the U.S. (excluding clients acquired through acquisitions) as of June 30, 2022, there are over 1.3 million businesses with 10 to 5,000 employees in the U.S., employing approximately 73 million people, according to the U.S.
While we provide our HCM and payroll software solutions to approximately 36,200 clients across the U.S. (excluding clients acquired through acquisitions) as of June 30, 2023, there are over 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 2020.
To deliver on this commitment, we launched our second annual “Get Counted” self-ID campaign which allows employees to self-identify in areas such as disability, race, ethnicity, gender, gender identity, veteran status, sexual orientation, and personal pronouns. This data provides an accurate view of our diverse workforce so we can better customize, fund, and initiate specialized programming, accommodations and strategies.
Our employee self-identification functionality allows employees to self-identify in areas such as disability, race, ethnicity, gender, gender identity, veteran status, sexual orientation, and personal pronouns. This data provides an accurate view of our diverse workforce so we can better customize, fund, and initiate specialized programming, accommodations and strategies.
Our total rewards program includes competitive pay, 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, the ability to consolidate and refinance federal and private student loans, interest free employee loans and many other benefits.
Our total rewards program includes competitive pay, a restricted stock program that covers more than 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 platform provides tools to communicate, connect to organizations and peers, and focus on career development and growth, which drives engagement and adoption of self-service processes – and drives HR automation and digital transformation. • Insights & Recommendations – Our clients have access to their data for reporting and compliance needs, but we also provide prescriptive recommendations on how to interpret the data and where to focus next to achieve their goals.
Our platform provides tools to communicate, connect to organizations and peers, and focus on career development and growth, which drives engagement and adoption of self-service processes – and drives HR automation and digital transformation. • Insights, Recommendations & AI – Our clients have access to their data for reporting and compliance needs, but we also provide actionable insights powered by AI based on best practices across our client base.
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 4 Table of Contents wherever business is conducted.
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.
Our curriculum is designed with the needs of both our employees and clients in mind, with content widely available via our Learning Management System. We also strive to cultivate the most inclusive workplace culture possible.
The BRIDGE training program features self-paced courses, leadership roundtables, and knowledge briefs. Our curriculum is designed with the needs of both our employees and clients in mind, with content widely available via our Learning tools. We also strive to cultivate the most inclusive workplace culture possible.
Our focus includes attracting diverse candidates to our organization while also investing in professional development and mentorship programs focused on underrepresented employee groups. As of June 30, 2022, approximately 51% of our employees identified as female and 36% of our employees were made up of underrepresented minorities.
Our focus includes attracting diverse candidates to our organization while also investing in professional development and mentorship programs focused on underrepresented employee groups. 11 Table of Contents As of June 30, 2023, approximately 51% of our employees identified as female and approximately 43% of director roles and above were held by a female.
Learning & Development As a 2022 Association for Talent Development 100 Best Training organization, we are committed to creating industry leading talent development and leadership programs that support the professional growth of our employees.
Learning & Development We are committed to creating industry leading talent development and leadership programs that support the professional growth of our employees. In 2023, we were named a BEST Awards organization by the Association for Talent Development for the third consecutive year.
Our dashboards use advanced AI to deliver actionable next steps to improve efficiency and build a healthier workforce. • Leading Customer Service - We supplement our comprehensive software solutions with an integrated implementation and client service organization, all of which are designed to meet the needs of our clients and prospects. • Seamless Integration with Extensive Ecosystem of Partners .
Clients can use interactive dashboards to interpret data, get prescriptive recommendations tailored to improving efficiency and building a healthier workforce and use AI-assisted tools to automate day-to-day tasks. • Leading Customer Service - We supplement our comprehensive software solutions with an integrated implementation and client service organization, all of which are designed to meet the needs of our clients and prospects. • Seamless Integration with Extensive Ecosystem of Partners .
Our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results. 2 Table of Contents 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 and payroll software solutions. Key elements of our strategy include the following: • Extend Technological Leadership .
Workforce Management 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. A customizable supervisor dashboard provides at-a-glance visibility to missed punches, pending time off requests, attendance exceptions and more.
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.
We continue to invest in our employees by providing development opportunities through our Leader of Others program, which is designed to help prepare new leaders to guide their team to high performance.
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 continue to invest in our employees by providing development opportunities through our Leader of Others program, which is designed to help prepare new leaders to guide their team to high performance.
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 7 Table of Contents 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.
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 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.
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.
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.
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, health advocacy services, paid time off to volunteer, tuition reimbursement and many others. We are also very proud to offer a benefits package that is certified by the World Professional Association for Transgender Health.
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.
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.
We have embraced flexible working arrangements which we believe are essential to enable our employees to work in the environment that best suits their needs. 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.
The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site, www.sec.gov, that includes filings of and information about issuers that file electronically with the SEC.
Information contained on our websites is not incorporated by reference into this Annual Report on Form 10-K. In addition, the SEC maintains an Internet site, www.sec.gov, that includes filings of and information about issuers that file electronically with the SEC.
Our total revenues increased from $561.3 million in fiscal 2020 to $635.6 million in fiscal 2021, representing a 13% year-over-year increase, and to $852.7 million in fiscal 2022, representing a 34% year-over-year increase.
Our total revenues increased from $635.6 million in fiscal 2021 to $852.7 million in fiscal 2022, representing a 34% year-over-year increase, and to $1,174.6 million in fiscal 2023, representing a 38% year-over-year increase. Our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results.
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. We have embraced flexible working arrangements which we believe are essential to enable our employees to work in the environment that best suits their needs.
Our philosophy of “talent anywhere” focuses on identifying the right individuals for our business, regardless of where they are located geographically. 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.
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. Managers and employees can easily manage their schedules from our mobile app to ensure the appropriate shift coverage.
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 4 Table of Contents without having to manually correct payroll data.
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.
This leadership program, combined with our strong culture, increasingly results in our employees stepping into larger roles within the organization. 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.
Human Capital Management Core HR – Our Human Capital Management solutions streamline HR 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.
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.
Census Bureau in 2019. We estimate that if clients were to buy our entire suite of existing solutions at list prices, they would spend approximately $440 per employee annuall y.
We estimate that if clients were to buy our entire suite of existing solutions at list prices, they would spend approximately $500 per employee annually. We believe our realized target addressable market is approximately $18.6 billion as client s, on average, purchase 50% or more of our suite of solutions.
In addition to other programs throughout our organization, we provide our operations team with an immersive scenario-based training program and our salesforce with an intensive learning experience on our go-to-market sales strategy and process.
We now 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. We also provide our operations team with an immersive scenario-based training program and our salesforce with an intensive learning experience on our go-to-market sales strategy and process.
As of June 30, 2022, approximately 44% of director roles and above were held by a female and 28% of our director roles and above were held by underrepresented minorities. The tables below provide metrics regarding the composition of our workforce as of June 30, 2022.
For our U.S. employees, approximately 34% of our employees were made up of underrepresented minorities and approximately 27% of our director roles and above were held by underrepresented minorities as of June 30, 2023. The following table provides the ethnicity breakdown of our U.S. employees as of June 30, 2023. Ethnicity U.S.
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We believe our realized target addressable market is approximately $18.6 billion assuming $255 realized per employee per year as ou r existing clients do not typically own our entire suite of solutions.
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We are also very proud to offer a benefits package that is certified by the World Professional Association for Transgender Health. PCTY Gives Giving back to our local communities takes many forms at Paylocity.
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We support our sales force with a marketing program that includes seminars and webinars, email marketing, social media marketing, broker events and web marketing.
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Through our internally developed Learning Management System (“LMS”) with Video Premium, we enable employees to share knowledge through self-recorded sessions, which complements our library consisting of hundreds of internal courses.
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This leadership program, combined with our strong culture, increasingly results in our employees stepping into larger roles within the organization evidenced by 53% of new leadership roles being filled internally during fiscal 2022.
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Retaining talent is key to our compensation strategy, therefore we have expanded our restricted stock program to cover more than half of our 12 Table of Contents employee base. 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.
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Information contained on our websites is not incorporated by reference into this Annual Report on Form 10-K. In addition, the public may read and copy materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur amended and restated certificate of incorporation and bylaws: • Authorize the issuance of “blank check” convertible preferred stock that could be issued by our board of directors to thwart a takeover attempt; 24 Table of Contents • Establish a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election; • Require that directors only be removed from office for cause and only upon a supermajority stockholder vote; • Provide that vacancies on the board of directors, including newly-created directorships, may be filled only by a majority vote of directors then in office rather than by stockholders; • Prevent stockholders from calling special meetings; and • Prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders.
Biggest changeOur amended and restated certificate of incorporation and bylaws: • Authorize the issuance of “blank check” convertible preferred stock that could be issued by our board of directors to thwart a takeover attempt; • Provide that vacancies on the board of directors, including newly-created directorships, may be filled only by a majority vote of directors then in office rather than by stockholders; • Prevent stockholders from calling special meetings; and • Prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders. 24 Table of Contents Our bylaws provide that the state and federal courts located within the state of Delaware are the sole and exclusive forums for certain legal actions involving the company or our directors, officers and employees.
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; • 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 such as the COVID-19 pandemic; and 23 Table of Contents • 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; • 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; 23 Table of Contents • Public health issues such as the COVID-19 pandemic; 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).
Depending on the magnitude of such an event, we may be required to seek additional sources of short-term liquidity, which may not be available on reasonable terms, if at all, and our operating results and our liquidity could be adversely affected and our banking relationships could be harmed. 16 Table of Contents Our business could be negatively impacted by disruptions in the operations of third-party providers.
Depending on the magnitude of such an event, we may be required to seek additional sources of short-term liquidity, which may not be available on reasonable terms, if at all, and our operating results and our liquidity could be adversely affected and our banking relationships could be harmed. 16 Table of Contents Our business could be negatively impacted by disruptions in the operations of third-party service providers.
Countries and U.S. states are increasingly adopting similarly comprehensive laws that impose new data privacy protection requirements and restrictions on covered organizations. Notably, these laws can impose significant penalties and fines on organizations for non-compliance, such as 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 protection requirements and restrictions on covered organizations. Notably, these laws can impose significant penalties and fines on organizations for non-compliance, such as 4% of worldwide revenue for the preceding year under the GDPR.
We also rely on our leadership team in the areas of product development, sales, client service, and general and administrative functions. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business.
We also rely on our leadership team in the areas of product development, sales, implementation, client service, and general and administrative functions. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business.
Item 1A. Risk Factors. Our business, prospects, financial condition or operating results could be materially adversely affected by any of these risks, as well as other risks not currently known to us or that are currently considered immaterial.
Item 1A. Risk Factors. Our business, growth prospects, financial condition or operating results could be materially adversely affected by any of these risks, as well as other risks not currently known to us or that are currently considered immaterial.
In addition, our amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable.
In addition, our second amended and restated certificate of incorporation and second amended and restated bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable.
New competitors or relationships might emerge that have greater market share, a larger client base, more widely adopted proprietary technologies, greater marketing expertise, greater financial resources, and larger sales forces than we have, which could put us at a competitive disadvantage. In light of these advantages, current or potential clients might accept competitive offerings in lieu of purchasing our offerings.
New competitors or relationships might emerge that have greater market share, a larger client base, more widely adopted proprietary technologies, greater marketing expertise, greater financial resources, and larger sales forces than we have, which could put us at a competitive disadvantage. In light of these factors, current or potential clients might accept competitive offerings in lieu of purchasing our offerings.
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 21 Table of Contents and burdensome governmental oversight. Additionally, security events and concerns about privacy abuses by other companies are changing consumer and social expectations for enhanced privacy.
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. Additionally, security events and concerns about privacy abuses by other companies are changing consumer and social expectations for enhanced privacy.
Any loss of or inability to access our corporate investments or client funds could have adverse impacts on our business, results of operations, financial condition and liquidity. In addition, funds held for clients are deposited in consolidated accounts on behalf of our clients, and as a result, the aggregate amounts in the accounts exceed the applicable federal deposit insurance limits.
Any loss of or inability to access our corporate investments or client funds could have adverse impacts on our business, results of operations, financial condition and liquidity. 22 Table of Contents In addition, funds held for clients are deposited in consolidated accounts on behalf of our clients, and as a result, the aggregate amounts in the accounts exceed the applicable federal deposit insurance limits.
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 15 Table of Contents able to identify the cause or causes of these performance problems within an acceptable period of time.
Although we believe that there are alternatives for these products, any significant interruption in the availability of such third-party software could have an adverse impact on our business unless and until we can replace the functionality provided by these products at a similar cost.
Although we believe that there are alternatives for the functionality provided by the third party software, any significant interruption in the availability of such third-party software, or defects and errors in the third-party software, could have an adverse impact on our business unless and until we can replace the functionality provided by these products at a similar cost.
We believe that since such funds are deposited in trust on behalf of our clients, the Federal Deposit Insurance Corporation, or the FDIC, would treat 22 Table of Contents those funds as if they had been deposited by each of the clients themselves and insure each client’s funds up to the applicable deposit insurance limits.
We believe that since such funds are deposited in trust on behalf of our clients, the Federal Deposit Insurance Corporation, or the FDIC, would treat those funds as if they had been deposited by each of the clients themselves and insure each client’s funds up to the applicable deposit insurance limits.
In addition, we need to properly manage our technological operations infrastructure in order to support version control, changes in hardware and software parameters and the evolution of our modules. We may experience website disruptions, outages and other performance problems.
In addition, we need to properly manage our technological operations infrastructure in order to support version control, changes in hardware and software parameters and the evolution of our modules. We have in the past and may in the future experience website disruptions, outages and other performance problems.
Our products and services may become subject to increasing and/or changing regulatory requirements, including changes in tax, benefit 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, 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 competitors vary for each of our solutions and primarily include payroll and HR service and software providers, such as Automatic Data Processing, 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., Ceridian HCM Holding Inc., Paychex, Inc., Paycom Software, Inc., Paycor, Inc., Ultimate Kronos Group and other local and regional providers.
We also currently have agreements with eleven 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 and tax services.
Defects and errors could also cause the information that we collect to be incomplete or contain inaccuracies that our clients, their employees and taxing and other regulatory authorities regard as significant.
Defects and 17 Table of Contents errors could also cause the information that we collect to be incomplete or contain inaccuracies that our clients, their employees and taxing and other regulatory authorities regard as significant.
There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders purchased their shares. Future sales of shares of our common stock by existing stockholders could depress the market price of our common stock.
There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders purchased their shares. Future issuances of shares of our common stock could depress the market price of our common stock.
We rely on third-party couriers such as the United Parcel Service, or UPS, to ship printed checks to our clients, and any disruptions in their operations that impact their ability to successfully perform their tasks may negatively impact our business.
We depend on relationships with certain third-party service providers to operate our business. We rely on third-party couriers such as the United Parcel Service, or UPS, to ship printed checks to our clients, and any disruptions in their operations that impact their ability to successfully perform their tasks may negatively impact our business.
The European Union General Data Protection Regulation ("GDPR"), and state consumer privacy laws like the California Consumer Protection Act ("CCPA"), which will be replaced by the California Privacy Rights Act of 2020 ("CPRA"), are among the most comprehensive privacy laws and apply to multiple areas of our business.
The European Union General Data Protection Regulation ("GDPR"), and state consumer privacy laws like the California Consumer Protection Act ("CCPA"), as amended by the California Privacy Rights Act of 2020 ("CPRA"), are among the most comprehensive privacy laws and apply to multiple areas of our business.
On February 2, 2016, we amended our bylaws to 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 second 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.
As of July 29, 2022, our directors, executive officers and holders of more than 5% of our common stock, together with their respective affiliates, beneficially owned, in the aggregate, approximately 26.7% of our outstanding common stock.
As of July 28, 2023, our directors, executive officers and holders of more than 5% of our common stock, together with their respective affiliates, beneficially owned, in the aggregate, approximately 22.7% of our outstanding common stock.
The five-year revolving credit agreement that we entered into in July 2019 contains restrictive covenants including restrictions regarding the incurrence of liens and indebtedness, substantial changes in the general nature of our business and our subsidiaries (taken as a whole), certain merger transactions, certain sales of assets and other matters, all subject to certain exceptions.
The revolving credit agreement that we amended in August 2022 contains restrictive covenants including restrictions regarding the incurrence of liens and indebtedness, substantial changes in the general nature of our business and our subsidiaries (taken as a whole), certain merger transactions, certain sales of assets and other matters, all subject to certain exceptions.
The amount of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then outstanding stock. Due to these factors, sales of a substantial number of shares of our common stock in the public market could occur at any time.
The amount of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then outstanding stock. Due to these factors, issuances of a substantial number of shares of our common stock into the public market could occur at any time which could dilute the ownership proportion of current stockholders.
To add to the complexity of the existing privacy landscape, many areas of existing 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 our clients operate could impose significant obligations on our business or prevent us from offering certain services in jurisdictions where we currently operate.
To add to the complexity of the existing privacy landscape, many areas of existing 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 our clients operate could impose significant obligations on our business or prevent us from offering certain services in jurisdictions where we currently operate. 21 Table of Contents Enforcement actions and investigations by regulatory authorities related to security incidents and privacy violations continue to increase.
The market for our solutions is characterized by rapid technological advancements, changes in client requirements, frequent new product introductions and enhancements and changing industry standards. The life cycles of our products are difficult to estimate.
The market for our solutions is characterized by rapid technological advancements, including but not limited to artificial intelligence (“AI”) and machine learning, changes in client requirements, frequent new product introductions and enhancements and changing industry standards. The life cycles of our products are difficult to estimate.
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.
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 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. Failure to effectively manage our growth could adversely impact our business and results of operations.
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.
If we are unable to predict user preferences or industry changes, or if we are unable to modify our products and services on a timely basis or to effectively bring new products to market, our revenue and operating results may suffer. 14 Table of Contents Failure to manage our growth effectively could increase our expenses, decrease our revenue, and prevent us from implementing our business strategy and sustaining our revenue growth rates.
If we are unable to predict user preferences or industry changes, or if we are unable to modify our products and services on a timely basis or to effectively bring new products to market, our revenue and operating results may suffer.
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 Our business, results of operations and financial condition have been, and will continue to be, adversely impacted by the uncertainties and consequences stemming from the COVID-19 pandemic.
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.
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.
We intend to continue to invest 14 Table of Contents significant resources in research and development to enhance our existing products and services and introduce new high-quality products that clients will want.
If we do not accurately predict our infrastructure requirements, our existing clients may experience service outages that may subject us to financial penalties, financial liabilities and client losses.
If we do not accurately predict our infrastructure requirements, our existing clients may experience service outages that may subject us to financial penalties, financial liabilities and client losses and adversely affect our reputation. In addition, our ability to deliver our cloud-based modules depends on the development and maintenance of Internet infrastructure by third parties.
A product 17 Table of Contents liability claim and errors or omissions claim could subject us to significant legal defense costs and adverse publicity regardless of the merits or eventual outcome of such a claim.
A product liability claim and errors or omissions claim could subject us to significant legal defense costs and adverse publicity regardless of the merits or eventual outcome of such a claim. Our agreements with our clients typically contain provisions intended to limit our exposure to such claims, but such provisions may not be effective in limiting our exposure.
To manage this growth effectively, we must attract, train, and retain a significant number of qualified sales, implementation, client service, software development, information technology and management personnel. We also must maintain and enhance our technology infrastructure and our financial and accounting systems and controls.
However, the growth in our number of clients puts significant demands on our business, requires increased capital expenditures and increases our operating expenses. To manage this growth effectively, we must attract, train, and retain a significant number of qualified sales, implementation, client service, software development, information technology and management personnel.
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. We also maintain insurance, but our insurance may be inadequate or may not be available in the future on acceptable terms, or at all.
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.
Even as the COVID-19 pandemic subsides, we may continue to experience adverse impacts to our business as a result of its global economic impact, including any recession, economic downturn, inflation, or increased unemployment that has occurred or may occur in the future. 25 Table of Contents If we are unable to maintain effective internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.
If we are unable to maintain effective internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.
If we are unable to renew these agreements on commercially reasonable terms, or if the data center operators are acquired, we may be required to transfer our servers and other infrastructure to new data center facilities, and we may incur costs and experience service interruption in doing so.
We may be required to transfer our servers and other infrastructure to new data center facilities, and we may incur costs and experience service interruption in doing so. Interruptions in our services might reduce our revenues, subject us to potential liability or other expenses and adversely affect our reputation.
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. If third-party software used in our products is not adequately maintained or updated, our business could be materially adversely affected. Some of our products utilize certain third-party software.
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.
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We have and we believe we will continue to experience rapid revenue and client base growth. However, the growth in our number of clients puts significant demands on our business, requires increased capital expenditures and increases our operating expenses.
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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.
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If our operations infrastructure fails to keep pace with increased sales, clients may experience delays as we seek to obtain additional capacity, which could adversely affect our reputation and our revenues. 15 Table of Contents In addition, our ability to deliver our cloud-based modules depends on the development and maintenance of Internet infrastructure by third parties.
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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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If our data centers are unable to keep up with our growing needs for capacity, this could have an adverse effect on our business and cause us to incur additional expense.
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Failure to manage our growth effectively could increase our expenses, decrease our revenue, and prevent us from implementing our business strategy and sustaining our revenue growth rates. We have experienced rapid revenue and client base growth and intend to pursue continued growth as part of our business strategy.
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Any changes in service levels at our third-party data center or any errors, defects, disruptions or other performance problems with our modules could adversely affect our reputation and may damage our clients’ stored files or result in lengthy interruptions in our services.
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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.
Removed
Interruptions in our services might reduce our revenues, subject us to potential liability or other expenses or adversely affect our renewal rates. In addition, while we own, control and have access to our servers and all of the components of our network that are located in our backup data centers, we do not control the operation of these facilities.
Added
In addition, our data center providers may be unable to keep up with our growing needs for capacity, may implement changes in service levels, may not renew these agreements on commercially reasonable terms, or may be acquired.
Removed
The operators of our third-party data center facilities have no obligation to renew their agreements with us on commercially reasonable terms, or at all.
Added
We have contingency plans in place in case of any failures of banks to process transfers that may impact our operations.
Removed
Our agreements with our clients typically contain provisions intended to limit our exposure to such claims, but such provisions may not be effective in limiting our exposure. Contractual limitations we use may not be enforceable and may not provide us with adequate protection against product liability claims in certain jurisdictions.
Added
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.
Removed
Additionally, we rely, to a certain extent, upon such third parties’ abilities to enhance their current products, to develop new products on a timely and cost-effective basis and to respond to emerging industry standards and other technological changes.
Added
Some of our products incorporate new technologies such as artificial intelligence and machine learning. The ability to provide products powered by new and evolving technologies must be approached in a principled manner to navigate the complexities associated with the current or future regulatory requirements as well as social and ethical considerations.
Removed
We may be unable to replace the functionality provided by the third-party software currently offered in conjunction with our products in the event that such software becomes obsolete or incompatible with future versions of our products or is otherwise not adequately maintained or updated.
Added
Additionally, failure by others in our industry, or actions taken by our clients, employees, or other end users (including misuse of these technologies) could negatively affect the adoption of our solutions and restrict our ability to continue to leverage novel technologies in innovative ways and subject us to reputational harm, regulatory action, or legal liability, which may harm our financial condition and operating results.
Removed
Colorado and Virginia also recently passed their own consumer data privacy statutes modeled on the CCPA, which are scheduled to go into effect in 2023.
Added
Our second amended and restated certificate of incorporation authorizes the issuance of up to 155,000,000 shares of common stock and 5,000,000 shares of preferred stock with such rights, preferences, privileges and restrictions as determined by the board of directors.
Removed
Some of our modern products, such as Data Insights, use artificial intelligence and machine learning to help our clients manage their businesses and are important components of the value that our solutions provide to our clients.
Added
We may issue all or any portion of the capital stock which has been authorized but not issued subject to applicable rules and regulations, which, may not require any action or approval by our stockholders. Also, in the future, we may issue additional securities in connection with investments and acquisitions.
Removed
The ability to provide data-driven insights, however, may be constrained by current or future regulatory requirements or ethical considerations that could restrict or impose burdensome and costly requirements on our ability to continue to leverage data in innovative ways. Enforcement actions and investigations by regulatory authorities related to security incidents and privacy violations continue to increase.
Added
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.
Removed
As of July 29, 2022, we had an aggregate of 55,277,660 outstanding shares of common stock. The 17,362,750 shares sold in our initial public offering, follow-on offering and secondary offering can be freely sold in the public market without restriction.
Added
During a slowdown in the economy, clients may reduce their number of employees and delay or reduce their spending on payroll and other HCM solutions or renegotiate their contracts with us.
Removed
The remaining shares can be freely sold in the public market, subject in some cases to volume and other restrictions under Rule 144 and 701 under the Securities Act of 1933, as amended, and various agreements. In addition, we have registered 22,053,893 shares of common stock that we have issued and may issue under our equity plans.
Added
This could result in reductions in our revenues and sales of our products, longer sales cycles, increased price competition and clients’ purchasing fewer solutions than they have in the past. Any of these events would likely harm our business, results of operations, financial condition and cash flows from operations.
Removed
These shares can be freely sold in the public market upon issuance, subject in some cases to volume and other restrictions under Rules 144 and 701 under the Securities Act, and various vesting agreements. In addition, some of our employees, including our executive officers, have entered into 10b5-1 trading plans regarding sales of shares of our common stock.
Removed
These plans provide for sales to occur from time to time. If any of these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline. Also, in the future, we may issue additional securities in connection with investments and acquisitions.
Removed
These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.
Removed
Our bylaws provide that the state and federal courts located within the state of Delaware are the sole and exclusive forums for certain legal actions involving the company or our directors, officers and employees.
Removed
The impacts of the COVID-19 pandemic on our business, clients, partners, employees, markets and financial results and condition, are evolving and dependent on numerous unpredictable factors outside of our control, including: • The duration and severity of the pandemic as a public health matter and its impact on governments, businesses, society, our clients, our partners and our business; • The measures being taken by governments, businesses and society in response to the pandemic • The scope and effectiveness of fiscal and monetary stimulus programs and other legislative and regulatory measures being implemented by federal, state and local governments; • The increase in business failures among our clients and other businesses; • The pace and extent to which our clients and other businesses recover and add employees and other compensated individuals; and • The willingness of current and prospective clients to invest in our products and services.
Removed
Any of these factors may impact our business unfavorably. There can be no assurance that the economic recovery will continue or offset the uncertainty and instability resulting from the COVID-19 pandemic.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed0 unchanged
Biggest changeWe lease other smaller facilities across the U.S. that serve as data centers, sales offices and distribution centers. For additional information regarding obligations under operating leases, see Note 12 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.
Biggest changeWe lease other smaller facilities, primarily across the U.S., that serve as data centers, sales offices and distribution centers. 25 Table of Contents For additional information regarding obligations under operating leases, see Note 12 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.
Item 2. Properties. As of June 30, 2022, our corporate headquarters occupied approximately 326,000 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 69,000 square feet in Meridian, Idaho as other major operations centers.
Item 2. Properties. As of June 30, 2023, our corporate headquarters occupied approximately 326,000 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 69,000 square feet in Meridian, Idaho as other major operations centers.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+3 added−4 removed9 unchanged
Biggest changeThere 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.
Biggest changeThere 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 our IPO.
Neither Delaware law nor our amended and restated certificate of incorporation requires our board of directors to declare dividends on our common stock.
Neither Delaware law nor our second amended and restated certificate of incorporation requires our board of directors to declare dividends on our common stock.
The graph assumes that $100 was invested at the beginning of the period in our common stock and in each of the comparative indices, and the reinvestment of any dividends. Historical stock price performance should not be relied upon as an indication of future stock price performance. Item 6. [Reserved]
The graph assumes that $100 was invested at the beginning of the period in our common stock and in each of the comparative indices, 27 Table of Contents and the reinvestment of any dividends. Historical stock price performance should not be relied upon as an indication of future stock price performance.
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 1500 Application Software Index during the period commencing on June 30, 2017 and ending on June 30, 2022.
The following graph compares the total cumulative stockholder return on our common stock with the total cumulative return of the S&P 500 Index, the S&P Software & Services Select Industry Index and the S&P 1500 Application Software Index during the period commencing on June 30, 2018 and ending on June 30, 2023.
On July 29, 2022, the last reported sale price of our common stock on the NASDAQ Global Select Market was $205.93 per share, and there were 15 holders of record of our common stock.
On July 28, 2023, the last reported sale price of our common stock on the NASDAQ Global Select Market was $226.04 per share, and there were 15 holders of record of our common stock.
Removed
Use of Proceeds from Secondary Offering of Common Stock On September 30, 2015, we completed a secondary offering of 4,301,000 shares of common stock at a price of $29.75 per share, before underwriting discounts and commissions.
Added
We do not anticipate paying cash dividends on our common stock for the foreseeable future.
Removed
The offer and sale of all of the shares in the secondary offering were registered under the Securities Act pursuant to a registration statement on Form S-3 (File No. 333-206941) which was declared effective by the SEC on September 25, 2015.
Added
We selected the S&P Software & Services Select Industry Index as our industry index, replacing the S&P 1500 Application Software Index used in prior years, as we believe the S&P Software & Services Select Industry Index represents a more appropriate peer group.
Removed
The Company did not receive any proceeds from the sale of common stock, as all the shares were sold by shareholders of the Company. Dividend Policy We have not declared or paid dividends on our common stock since our IPO.
Added
The cumulative total return of the S&P 1500 Application Software Index is presented in the graph above as required by Item 201(e)(4) of Regulation S-K. Item 6. [Reserved]
Removed
We do not anticipate paying cash dividends on our common stock for the foreseeable future. 27 Table of Contents Equity Compensation Plan Information Information regarding the securities authorized for issuance under our equity compensation plans will be included in our Proxy Statement relating to our 2023 annual meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended June 30, 2022 and is incorporated herein by reference.

Item 7. Management's Discussion & Analysis

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

63 edited+10 added−12 removed52 unchanged
Biggest changeWe believe our current cash and cash equivalents and 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. 39 Table of Contents Cash Flows The following table sets forth data regarding cash flows for the periods indicated: Year Ended June 30, 2020 2021 2022 Net cash provided by operating activities $ 112,655 $ 124,850 $ 155,053 Cash flows from investing activities: Purchases of available-for-sale securities and other (400,343) — (433,962) Proceeds from sales and maturities of available-for-sale securities 410,593 101,467 116,848 Capitalized internal-use software costs (25,715) (28,594) (34,515) Purchases of property and equipment (16,578) (9,461) (18,069) Acquisitions of businesses, net of cash acquired (16,714) (14,992) (107,576) Other investing activities — — (2,500) Net cash provided by (used in) investing activities (48,757) 48,420 (479,774) Cash flows from financing activities: Net change in client fund obligations (67,165) 432,373 2,228,038 Borrowings under credit facility 100,000 — 50,000 Repayment of credit facility — (100,000) (50,000) Proceeds from exercise of stock options — 146 — Proceeds from employee stock purchase plan 8,901 12,214 14,103 Taxes paid related to net share settlement of equity awards (38,943) (64,191) (69,761) Payment of debt issuance costs (701) (64) (87) Net cash provided by financing activities 2,092 280,478 2,172,293 Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents $ 65,990 $ 453,748 $ 1,847,572 Operating Activities Net cash provided by operating activities was $112.7 million, $124.9 million and $155.1 million for the years ended June 30, 2020, 2021 and 2022, respectively.
Biggest changeCash Flows The following table sets forth data regarding cash flows for the periods indicated: Year Ended June 30, 2021 2022 2023 Net cash provided by operating activities $ 124,850 $ 155,053 $ 282,723 Cash flows from investing activities: Purchases of available-for-sale securities and other — (433,962) (598,895) Proceeds from sales and maturities of available-for-sale securities 101,467 116,848 446,751 Capitalized internal-use software costs (28,594) (34,515) (45,004) Purchases of property and equipment (9,461) (18,069) (21,910) Acquisitions of businesses, net of cash acquired (14,992) (107,576) — Other investing activities — (2,500) (1,104) Net cash provided by (used in) investing activities 48,420 (479,774) (220,162) Cash flows from financing activities: Net change in client fund obligations 432,373 2,228,038 (1,362,421) Borrowings under credit facility — 50,000 — Repayment of credit facility (100,000) (50,000) — Proceeds from exercise of stock options 146 — — Proceeds from employee stock purchase plan 12,214 14,103 16,916 Taxes paid related to net share settlement of equity awards (64,191) (69,761) (88,312) Payment of debt issuance costs (64) (87) (885) Net cash provided by (used in) financing activities 280,478 2,172,293 (1,434,702) Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents $ 453,748 $ 1,847,572 $ (1,372,141) Operating Activities Net cash provided by operating activities was $124.9 million, $155.1 million and $282.7 million for the years ended June 30, 2021, 2022 and 2023, respectively.
Net cash provided by (used in) investing activities is significantly impacted by the timing of purchases and sales and maturities of investments as we invest a portion of our excess cash and cash equivalents and funds held for clients in highly liquid, investment-grade marketable securities.
Net cash provided by (used in) investing activities is significantly impacted by the timing of purchases and sales and maturities of investments as we may invest a portion of our excess cash and cash equivalents and funds held for clients in highly liquid, investment-grade marketable securities.
We supplement our comprehensive software solutions with an integrated implementation and client service organization, all of which are designed to meet the needs of our clients and prospects. We expect to continue to invest in and grow our implementation and client service organization as our client base grows.
We supplement our comprehensive software solutions with an integrated implementation and client service organization, all of which are designed to meet the needs of our clients and sales prospects. We expect to continue to invest in and grow our implementation and client service organization as our client base grows.
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 2022 and 2021 items and year-over-year comparisons between fiscal 2022 and 2021.
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 2023 and 2022 items and year-over-year comparisons between fiscal 2023 and 2022.
Some of these limitations include the following: • Adjusted EBITDA does not reflect our ongoing or future requirements for capital expenditures; • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; • Adjusted EBITDA does not reflect our income tax expense or the cash requirement to pay our taxes; • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and • Other companies in our industry may calculate Adjusted Gross Profit and Adjusted EBITDA differently than we do, limiting their usefulness as a comparative measure.
Some of these limitations include the following: • Adjusted EBITDA does not reflect our ongoing or future requirements for capital expenditures; • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; • Adjusted EBITDA does not reflect our income tax expense or the cash requirement to pay our taxes; 30 Table of Contents • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and • Other companies in our industry may calculate Adjusted Gross Profit and Adjusted EBITDA differently than we do, limiting their usefulness as a comparative measure.
However, we expect to realize cost efficiencies over the long term as our business scales, resulting in improved operating leverage and increased margins. We also capitalize a portion of our internal-use software costs, which are then all amortized as Cost of revenues.
However, we expect to realize cost efficiencies over the long term as our business scales, resulting in improved operating leverage and increased margins. We also capitalize a portion of our internal-use software costs, which are then primarily amortized as Cost of revenues.
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 32 Table of Contents 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 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.
Our revenue growth in future periods may be impacted by fluctuations in client employee counts, potential increases in client losses, a changing interest rate environment, uncertainties around market and economic conditions including inflation risk, among other factors. Client Count Growth We believe there is a significant opportunity to grow our business by increasing our number of clients.
Our revenue growth in future periods may be impacted by fluctuations in client employee counts, potential increases in client losses, a changing interest rate environment, uncertainties around market and economic conditions including inflation risk, among other factors. 29 Table of Contents Client Count Growth We believe there is a significant opportunity to grow our business by increasing our number of clients.
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. Effective management of human capital is a core function in all organizations and requires a significant commitment of resources.
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. 28 Table of Contents Effective management of human capital is a core function in all organizations and requires a significant commitment of resources.
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 38 Table of Contents 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 intangible assets.
We believe these metrics are commonly used in the financial community to aid in comparisons of similar companies, and we present them to enhance investors’ understanding of our operating performance and cash flows. 30 Table of Contents Adjusted Gross Profit and Adjusted EBITDA have limitations as analytical tools.
We believe these metrics are commonly used in the financial community to aid in comparisons of similar companies, and we present them to enhance investors’ understanding of our operating performance and cash flows. Adjusted Gross Profit and Adjusted EBITDA have limitations as analytical tools.
We defer implementation fees related to our proprietary products over a period generally up to 24 months. Recurring and other revenue accounted for approximately 97%, 99% and 99% of our total revenues during the years ended June 30, 2020, 2021 and 2022, 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 99%, 99% and 93% of our total revenues during the years ended June 30, 2021, 2022 and 2023, respectively. Interest Income on Funds Held for Clients We earn interest income on funds held for clients.
The table below sets forth the amounts of capitalized and expensed research and development expenses for each of fiscal 2020, 2021 and 2022.
The table below sets forth the amounts of capitalized and expensed research and development expenses for each of fiscal 2021, 2022 and 2023.
June 30, 2020 2021 2022 Client Count 24,450 28,750 33,300 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.
June 30, 2021 2022 2023 Client Count 28,750 33,300 36,200 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 amortized $19.3 million, $23.2 million and $25.3 million of capitalized internal-use software costs in fiscal 2020, 2021 and 2022, 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 $23.2 million, $25.3 million and $31.4 million of capitalized internal-use software costs in fiscal 2021, 2022 and 2023, 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 currently have agreements with eleven 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 38 Table of Contents 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.
The table below sets forth the total number of clients using our HCM and payroll software solutions for the periods indicated, rounded to the nearest fifty.
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.
Contractual Obligations Our principal commitments consist of $90.9 million in operating lease obligations, of which $10.8 million is due in the next twelve months. 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 our lease activity.
Contractual Obligations Our principal commitments consist of $81.3 million in operating lease obligations, of which $10.1 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.
Cost of revenues increased primarily as a result of the continued growth of our business, in particular, $38.4 million in additional employee-related costs resulting from additional personnel necessary to provide services to new and existing clients, $21.5 million in delivery and other processing-related fees and $3.9 million of additional stock-based compensation associated with our equity plan.
Cost of revenues increased primarily as a result of the continued growth of our business, in particular, $44.6 million in additional employee-related costs resulting from additional personnel necessary to provide services to new and existing clients, $18.3 million in delivery and other processing-related fees and $5.5 million of additional stock-based compensation costs associated with our equity incentive plan.
Recurring and other revenue increased primarily as a result of incremental revenues from new and existing clients due to the strong performance by our sales team, continued annual revenue retention in excess of 92% and improved macroeconomic conditions as compared to the prior fiscal year.
Recurring and other revenue increased primarily as a result of incremental revenues from new and existing clients due to the strong performance by our sales team, continued annual revenue retention in excess of 92% and also increases in client workforce levels as compared to the prior fiscal year.
We capitalized $28.2 million, $31.7 million and $42.2 million of internal-use software costs for the years ended June 30, 2020, 2021 and 2022, respectively, including stock-based compensation costs of $2.4 million, $2.6 million and $7.1 million for the years ended June 30, 2020, 2021 and 2022, respectively.
We capitalized $31.7 million, $42.2 million and $55.6 million of internal-use software costs for the years ended June 30, 2021, 2022 and 2023, respectively, including stock-based compensation costs of $2.6 million, $7.1 million and $11.9 million for the years ended June 30, 2021, 2022 and 2023, respectively.
Future capital requirements will depend on many factors, including our rate of sales growth. In the event that our sales growth or other factors do not meet our expectations, we may eliminate or curtail capital projects in order to mitigate the impact on our use of cash.
In the event that our sales growth or other factors do not meet our expectations, we may eliminate or curtail capital projects in order to mitigate the impact on our use of cash.
Capital expenditures were $16.6 million, $9.5 million and $18.1 million for the years ended June 30, 2020, 2021 and 2022, respectively, exclusive of capitalized internal-use software costs of $25.7 million, $28.6 million, and $34.5 million for the same periods, respectively.
Capital expenditures were $9.5 million, $18.1 million and $21.9 million for the years ended June 30, 2021, 2022 and 2023, respectively, exclusive of capitalized internal-use software costs of $28.6 million, $34.5 million, and $45.0 million for the same periods, respectively.
Year Ended June 30, 2020 2021 2022 (in thousands) Capitalized portion of research and development $ 28,187 $ 31,744 $ 42,234 Expensed portion of research and development 62,766 76,707 102,908 Total research and development $ 90,953 $ 108,451 $ 145,142 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, 2021 2022 2023 (in thousands) Capitalized portion of research and development $ 31,744 $ 42,234 $ 55,582 Expensed portion of research and development 76,707 102,908 163,994 Total research and development $ 108,451 $ 145,142 $ 219,576 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.
Our average client size has continued to be over 100 employees. 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.
Excluding clients acquired through acquisitions, the number of clients using our HCM and payroll software solutions at June 30, 2022 increased by 16% to approximately 33,300 from approximately 28,750 at June 30, 2021.
Excluding clients acquired through acquisitions, the number of clients using our HCM and payroll software solutions at June 30, 2023 increased by 9% to approximately 36,200 from approximately 33,300 at June 30, 2022.
Year Ended June 30, 2020 2021 2022 Consolidated Statements of Operations Data: Revenues: Recurring and other revenue 97% 99% 99% Interest income on funds held for clients 3% 1% 1% Total revenues 100% 100% 100% Cost of revenues 32% 35% 34% Gross profit 68% 65% 66% Operating expenses: Sales and marketing 26% 25% 25% Research and development 11% 12% 12% General and administrative 19% 19% 19% Total operating expenses 56% 56% 56% Operating income 12% 9% 10% Other income (expense) 0% 0% 0% Income before income taxes 12% 9% 10% Income tax expense (benefit) 1% (2)% (1) % Net income 11% 11% 11% Comparison of Fiscal Years Ended June 30, 2020, 2021 and 2022 Revenues ($ in thousands) Year Ended June 30, Change from 2020 to 2021 Change from 2021 to 2022 2020 2021 2022 $ % $ % Recurring and other revenue $ 546,212 $ 631,725 $ 847,694 $ 85,513 16% $ 215,969 34% Percentage of total revenues 97 % 99 % 99 % Interest income on funds held for clients $ 15,117 $ 3,902 $ 4,957 $ (11,215) (74)% $ 1,055 27% Percentage of total revenues 3 % 1 % 1 % Recurring and Other Revenue Recurring and other revenue for the year ended June 30, 2022 increased by $216.0 million, or 34%, to $847.7 million from $631.7 million for the year ended June 30, 2021.
Year Ended June 30, 2021 2022 2023 Consolidated Statements of Operations Data: Revenues: Recurring and other revenue 99% 99% 93% Interest income on funds held for clients 1% 1% 7% Total revenues 100% 100% 100% Cost of revenues 35% 34% 31% Gross profit 65% 66% 69% Operating expenses: Sales and marketing 25% 25% 25% Research and development 12% 12% 14% General and administrative 19% 19% 16% Total operating expenses 56% 56% 55% Operating income 9% 10% 14% Other income (expense) 0% 0% 0% Income before income taxes 9% 10% 14% Income tax expense (benefit) (2)% (1)% 2 % Net income 11% 11% 12% 34 Table of Contents Comparison of Fiscal Years Ended June 30, 2021, 2022 and 2023 Revenues ($ in thousands) Year Ended June 30, Change from 2021 to 2022 Change from 2022 to 2023 2021 2022 2023 $ % $ % Recurring and other revenue $ 631,725 $ 847,694 $ 1,098,036 $ 215,969 34% $ 250,342 30% Percentage of total revenues 99 % 99 % 93 % Interest income on funds held for clients $ 3,902 $ 4,957 $ 76,562 $ 1,055 27% $ 71,605 1,445% Percentage of total revenues 1 % 1 % 7 % Recurring and Other Revenue Recurring and other revenue for the year ended June 30, 2023 increased by $250.3 million, or 30%, to $1,098.0 million from $847.7 million for the year ended June 30, 2022.
The increase in net cash provided by operating activities from fiscal 2021 to fiscal 2022 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 (benefit), partially offset by net changes in operating assets and liabilities during the year ended June 30, 2022 as compared to the year ended June 30, 2021.
The change in net cash provided by operating activities from fiscal 2022 to fiscal 2023 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 (benefit), partially offset by net changes in operating assets and liabilities during the year ended June 30, 2023 as compared to the year ended June 30, 2022. 39 Table of Contents Investing Activities Net cash provided by (used in) investing activities was $48.4 million, $(479.8) million and $(220.2) million, for the years ended June 30, 2021, 2022 and 2023, respectively.
Interest Income on Funds Held for Clients Interest income on funds held for clients for the year ended June 30, 2022 increased by $1.1 million, or 27%, to $5.0 million from $3.9 million for the year ended June 30, 2021.
Interest Income on Funds Held for Clients Interest income on funds held for clients for the year ended June 30, 2023 increased by $71.6 million, or 1,445%, to $76.6 million from $5.0 million for the year ended June 30, 2022.
Excluding clients acquired through acquisitions, we have increased the number of clients using our HCM and payroll software solutions from approximately 24,450 as of June 30, 2020 to approximately 33,300 as of June 30, 2022, representing a compound annual growth rate of approximately 17%.
Excluding clients acquired through acquisitions, we have increased the number of clients using our HCM and payroll software solutions from approximately 28,750 as of June 30, 2021 to approximately 36,200 as of June 30, 2023, representing a compound annual growth rate of approximately 12%.
As of June 30, 2022, we did not have any corporate investments. In order to grow our business, we intend to increase our personnel and related expenses and to make significant investments in our platform, data centers and general infrastructure.
In order to grow our business, we intend to increase our personnel and related expenses and to make significant investments in our platform, data centers and general infrastructure.
Interest income on funds held for clients increased primarily due to higher average daily balances for funds held due to the addition of new clients to our client base and increases in client employee counts on our platform.
Interest income on funds held for clients increased primarily due to higher interest rates and higher average daily balances for funds held due to the addition of new clients to our client base and also increases in client workforce levels as compared to the prior fiscal year.
Cost of Revenues ($ in thousands) Year Ended June 30, Change from 2020 to 2021 Change from 2021 to 2022 2020 2021 2022 $ % $ % Cost of revenues $ 182,010 $ 219,298 $ 287,002 $ 37,288 20% $ 67,704 31% Percentage of total revenues 32% 35% 34% Gross margin 68% 65% 66% Cost of revenues for the year ended June 30, 2022 increased by $67.7 million, or 31%, to $287.0 million from $219.3 million for the year ended June 30, 2021.
Cost of Revenues ($ in thousands) Year Ended June 30, Change from 2021 to 2022 Change from 2022 to 2023 2021 2022 2023 $ % $ % Cost of revenues $ 219,298 $ 287,002 $ 367,039 $ 67,704 31% $ 80,037 28% Percentage of total revenues 35% 34% 31% Gross profit margin 65% 66% 69% Cost of revenues for the year ended June 30, 2023 increased by $80.0 million, or 28%, to $367.0 million from $287.0 million for the year ended June 30, 2022.
The change in net cash provided by financing activities from fiscal 2021 to fiscal 2022 was primarily the result of an increase of $1,795.7 million due to the timing of client funds collected and related remittance of those funds to client employees and taxing authorities during the year ended June 30, 2022 as compared to the year ended June 30, 2021.
The change in net cash provided by (used in) financing activities was primarily the decrease in client fund obligations of $3,590.5 million due to the timing of client funds collected and related remittance of those funds to client employees and taxing authorities during the year ended June 30, 2023 as compared to the year ended June 30, 2022.
Year Ended June 30, 2020 2021 2022 (in thousands) Consolidated Statements of Operations Data: Revenues: Recurring and other revenue $ 546,212 $ 631,725 $ 847,694 Interest income on funds held for clients 15,117 3,902 4,957 Total revenues 561,329 635,627 852,651 Cost of revenues 182,010 219,298 287,002 Gross profit 379,319 416,329 565,649 Operating expenses: Sales and marketing 145,134 161,808 214,455 Research and development 62,766 76,707 102,908 General and administrative 105,248 119,771 163,692 Total operating expenses 313,148 358,286 481,055 Operating income 66,171 58,043 84,594 Other income (expense) 947 (939) (997) Income before income taxes 67,118 57,104 83,597 Income tax expense (benefit) 2,663 (13,715) (7,180) Net income $ 64,455 $ 70,819 $ 90,777 34 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.
Year Ended June 30, 2021 2022 2023 (in thousands) Consolidated Statements of Operations Data: Revenues: Recurring and other revenue $ 631,725 $ 847,694 $ 1,098,036 Interest income on funds held for clients 3,902 4,957 76,562 Total revenues 635,627 852,651 1,174,598 Cost of revenues 219,298 287,002 367,039 Gross profit 416,329 565,649 807,559 Operating expenses: Sales and marketing 161,808 214,455 296,716 Research and development 76,707 102,908 163,994 General and administrative 119,771 163,692 191,823 Total operating expenses 358,286 481,055 652,533 Operating income 58,043 84,594 155,026 Other income (expense) (939) (997) 3,588 Income before income taxes 57,104 83,597 158,614 Income tax expense (benefit) (13,715) (7,180) 17,792 Net income $ 70,819 $ 90,777 $ 140,822 The following table sets forth our statements of operations data as a percentage of total revenue for each of the periods indicated.
Because the use of estimates is an integral part of the financial reporting process, actual results could differ, and such differences could be material. 37 Table of Contents Revenue Recognition We apply Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“Topic 606”), whereby we recognize revenue when we transfer control of goods or services to our customers in an amount that reflects the consideration to which we expect to be entitled to for those goods or services.
Revenue Recognition We apply Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“Topic 606”), whereby we recognize revenue when we transfer control of goods or services to our customers in an amount that reflects the consideration to which we expect to be entitled to for those goods or services.
Implementations of our payroll 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 implement additional HCM products as requested by clients and leverage the data within our payroll solution to accelerate our implementation processes.
We charge implementation fees for professional services provided to implement our HCM and payroll solutions. Implementations of our payroll 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.
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.
We also have $59.0 million in purchase obligations, of which $32.2 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.
We reconcile Adjusted Gross Profit and Adjusted EBITDA as follows: Year Ended June 30, 2020 2021 2022 (in thousands) Adjusted Gross Profit $ 404,797 $ 447,904 $ 605,500 Adjusted EBITDA $ 159,775 $ 170,028 $ 237,800 Year Ended June 30, 2020 2021 2022 (in thousands) Reconciliation from Gross Profit to Adjusted Gross Profit Gross profit $ 379,319 $ 416,329 $ 565,649 Amortization of capitalized internal-use software costs and certain acquired intangibles 19,261 23,227 27,120 Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 6,217 8,348 12,610 Other items (1) — — 121 Adjusted Gross Profit $ 404,797 $ 447,904 $ 605,500 31 Table of Contents Year Ended June 30, 2020 2021 2022 (in thousands) Reconciliation from Net Income to Adjusted EBITDA Net income $ 64,455 $ 70,819 $ 90,777 Interest expense 695 1,002 498 Income tax expense (benefit) 2,663 (13,715) (7,180) Depreciation and amortization expense 37,913 42,972 50,218 EBITDA 105,726 101,078 134,313 Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 50,364 67,059 101,109 Other items (2) 3,685 1,891 2,378 Adjusted EBITDA $ 159,775 $ 170,028 $ 237,800 (1) Represents nonrecurring acquisition-related costs.
We reconcile Adjusted Gross Profit and Adjusted EBITDA as follows: Year Ended June 30, 2021 2022 2023 (in thousands) Reconciliation from Gross Profit to Adjusted Gross Profit Gross profit $ 416,329 $ 565,649 $ 807,559 Amortization of capitalized internal-use software costs 23,227 25,267 31,440 Amortization of certain acquired intangibles — 1,853 7,414 Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 8,348 12,610 18,446 Other items (1) — 121 19 Adjusted Gross Profit $ 447,904 $ 605,500 $ 864,878 Year Ended June 30, 2021 2022 2023 (in thousands) Reconciliation from Net income to Adjusted EBITDA Net income $ 70,819 $ 90,777 $ 140,822 Interest expense 1,002 498 752 Income tax expense (benefit) (13,715) (7,180) 17,792 Depreciation and amortization expense 42,972 50,218 60,866 EBITDA 101,078 134,313 220,232 Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 67,059 101,109 154,505 Other items (2) 1,891 2,378 446 Adjusted EBITDA $ 170,028 $ 237,800 $ 375,183 (1) Represents acquisition-related costs.
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, 2022, our principal sources of liquidity were $139.8 million of cash and cash equivalents. In July 2019, we entered into and currently maintain a five-year revolving credit agreement.
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, 2023, our principal sources of liquidity were $288.8 million of cash and cash equivalents.
Research and Development Year Ended June 30, Change from 2020 to 2021 Change from 2021 to 2022 2020 2021 2022 $ % $ % Research and development $ 62,766 $ 76,707 $ 102,908 $ 13,941 22% $ 26,201 34% Percentage of total revenues 11% 12% 12% Research and development expenses for the year ended June 30, 2022 increased by $26.2 million, or 34%, to $102.9 million from $76.7 million for the year ended June 30, 2021.
Research and Development Year Ended June 30, Change from 2021 to 2022 Change from 2022 to 2023 2021 2022 2023 $ % $ % Research and development $ 76,707 $ 102,908 $ 163,994 $ 26,201 34% $ 61,086 59% Percentage of total revenues 12% 12% 14% Research and development expenses for the year ended June 30, 2023 increased by $61.1 million, or 59%, to $164.0 million from $102.9 million for the year ended June 30, 2022.
Discussion of fiscal 2020 items and year-over-year comparisons between fiscal 2021 and 2020 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 1 that was filed with the SEC on August 6 , 202 1 . 28 Table of Contents 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.
Discussion of fiscal 2021 items and year-over-year comparisons between fiscal 2022 and 2021 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 2 that was filed with the SEC on August 5 , 202 2 .
See Note 13 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.
Our effective tax rates for the years ended June 30, 2022 and 2023 were lower than the federal statutory rate of 21% primarily due to benefits from stock-based compensation and research and development tax credits generated. 36 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.
The decrease in net cash provided by (used in) investing activities from fiscal 2021 to fiscal 2022 was primarily due to an increase in purchases of available-for-sale securities of $434.0 million during the year ended June 30, 2022 as compared to the year ended June 30, 2021 and an increase in cash paid for acquisitions of businesses of $92.6 million, partially offset by an increase in proceeds from sales and maturities of available-for-sale securities of $15.4 million. 40 Table of Contents Financing Activities Net cash provided by financing activities was $2.1 million, $280.5 million and $2,172.3 million for the years ended June 30, 2020, 2021 and 2022, respectively.
The change in net cash provided by (used in) investing activities from fiscal 2022 to fiscal 2023 was primarily due to an increase in proceeds from sales and maturities of available-for-sale securities of $329.9 million and a decrease of $107.6 million in amounts paid for acquisitions, net of cash acquired, partially offset by $164.9 in additional purchases of available-for-sale securities during the year ended June 30, 2023 as compared to the year ended June 30, 2022.
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.
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. As of June 30, 2023, we did not have any corporate investments classified as available-for-sale securities.
We will seek to grow our number of clients for the foreseeable future and therefore our sales and marketing expense is expected to continue to increase in absolute dollars as we grow our sales organization and expand our marketing activities.
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. 32 Table of Contents We will seek to grow our number of clients for the foreseeable future and therefore our sales and marketing expense is expected to continue to increase in absolute dollars as we grow our sales organization and expand our marketing activities.
This visibility enables us to better manage and invest in our business. 29 Table of Contents Total revenues increased from $561.3 million in fiscal 2020 to $635.6 million in fiscal 2021, representing a 13% year-over-year increase. Total revenues increased from $635.6 million in fiscal 2021 to $852.7 million in fiscal 2022, representing a 34% 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 $635.6 million in fiscal 2021 to $852.7 million in fiscal 2022, representing a 34% year-over-year increase.
Investing Activities Net cash provided by (used in) investing activities was $(48.8) million, $48.4 million and $(479.8) million, for the years ended June 30, 2020, 2021 and 2022, respectively.
Financing Activities Net cash provided by (used in) financing activities was $280.5 million, $2,172.3 million and $(1,434.7) million for the years ended June 30, 2021, 2022 and 2023, respectively.
The increase was also driven by $6.2 million of additional stock-based compensation costs associated with our equity incentive plan and $5.7 million in additional marketing lead generation costs.
The increase in sales and marketing expense was primarily due to $53.9 million of additional employee-related costs, including those incurred to expand our sales team. The increase was also driven by $15.1 million of additional stock-based compensation costs associated with our equity incentive plan and $8.1 million in additional marketing lead generation costs.
Operating Expenses ($ in thousands) Sales and Marketing Year Ended June 30, Change from 2020 to 2021 Change from 2021 to 2022 2020 2021 2022 $ % $ % Sales and marketing $ 145,134 $ 161,808 $ 214,455 $ 16,674 11% $ 52,647 33% Percentage of total revenues 26% 25% 25% Sales and marketing expenses for the year ended June 30, 2022 increased by $52.6 million, or 33%, to $214.5 million from $161.8 million for the year ended June 30, 2021.
Gross profit margin increased from 66% for the year ended June 30, 2022 to 69% for the year ended June 30, 2023, which was primarily driven by total revenue growth and improved operating leverage. 35 Table of Contents Operating Expenses ($ in thousands) Sales and Marketing Year Ended June 30, Change from 2021 to 2022 Change from 2022 to 2023 2021 2022 2023 $ % $ % Sales and marketing $ 161,808 $ 214,455 $ 296,716 $ 52,647 33% $ 82,261 38% Percentage of total revenues 25% 25% 25% Sales and marketing expenses for the year ended June 30, 2023 increased by $82.3 million, or 38%, to $296.7 million from $214.5 million for the year ended June 30, 2022.
Basis of Presentation Revenues Recurring and Other Revenue We derive the majority of our revenues from recurring fees attributable to our cloud-based HCM and payroll software solutions. Recurring fees for each client generally include a base fee in addition to a fee based on the number of client employees and the number of products a client uses.
Recurring fees for each client generally include a base fee in addition to a fee based on the number of client employees and the number of products a client uses. We also charge fees attributable to our preparation of W-2 documents and annual required filings on behalf of our clients.
We amortized $19.3 million, $23.2 million and $25.3 million of capitalized internal-use software costs for the years ended June 30, 2020, 2021 and 2022, respectively. In fiscal 2020, fiscal 2021 and fiscal 2022, we developed significant additional functionality in several of our modules.
We amortized $23.2 million, $25.3 million and $31.4 million of capitalized internal-use software costs for the years ended June 30, 2021, 2022 and 2023, respectively. Business Combinations We include the results of businesses acquired in our consolidated financial statements from the date of acquisition.
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 24 or 36-month period. 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.
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, 2021, 2022 or 2023.
We expect our general and administrative expenses to continue to increase in absolute dollars as our company continues to grow. 33 Table of Contents Other Income (Expense) Other income (expense) generally consists of interest income related to interest earned on our cash and cash equivalents and corporate investments, net of losses on disposals of property and equipment and interest expense related to our revolving credit facility.
Other Income (Expense) Other income (expense) generally consists of interest income related to interest earned on our cash and cash equivalents and, if any, corporate investments, net of losses on disposals of property and equipment and interest expense related to our revolving credit facility. 33 Table of Contents Results of Operations The following table sets forth our statements of operations data for each of the periods indicated.
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 11 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 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. We may invest portions of our excess cash and cash equivalents in highly liquid, investment-grade marketable securities.
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.
During fiscal 2022, total revenue growth was driven by the strong performance by our sales team, continued annual revenue retention in excess of 92% and an overall improvement in macroeconomic conditions compared to the prior year.
During fiscal 2023, total revenue growth was driven by the strong performance by our sales team, continued annual revenue retention in excess of 92%, increases in client workforce levels and growth in interest income on funds held for clients attributable to rising interest rates and higher average daily balances for funds held for clients due to the addition of new clients and increases in client workforce levels as compared to the prior fiscal year.
The increase in research and development expenses was primarily the result of $22.2 million of additional employee-related costs related to additional development personnel and $8.5 million of additional stock-based compensation associated with our equity incentive plan, partially offset by higher year-over-year capitalized internal-use software costs of $5.2 million. 36 Table of Contents General and Administrative Year Ended June 30, Change from 2020 to 2021 Change from 2021 to 2022 2020 2021 2022 $ % $ % General and administrative $ 105,248 $ 119,771 $ 163,692 $ 14,523 14% $ 43,921 37% Percentage of total revenues 19% 19% 19% General and administrative expenses for the year ended June 30, 2022 increased by $43.9 million, or 37%, to $163.7 million from $119.8 million for the year ended June 30, 2021.
The increase in research and development expenses was primarily due to $47.4 million of additional employee-related costs related to additional development personnel and $17.8 million of additional stock-based compensation costs associated with our equity incentive plan, partially offset by $9.1 million in higher period-over-period capitalized internal-use software costs.
We also have $38.3 million in purchase obligations, of which $21.7 million is due in the next twelve months. Capital Expenditures We expect to continue to invest in capital spending as we continue to grow our business and expand and enhance our operating facilities, data centers and technical infrastructure.
Capital Expenditures We expect to continue to invest in capital spending as we continue to grow our business and expand and enhance our operating facilities, data centers and technical infrastructure. Future capital requirements will depend on many factors, including our rate of sales growth.
The increase in general and administrative expenses was primarily the result of $14.5 million in additional stock-based compensation associated with our equity incentive plan, $11.7 million of additional employee-related costs, $9.6 million in additional 401(k) expense, and $3.1 million in additional amortization of certain acquired intangible assets.
The increase in general and administrative expenses was primarily due to $12.8 million of additional stock-based compensation costs associated with our equity incentive plan and $12.3 million in additional employee-related costs. Other Income (Expense) Other income (expense) for the year ended June 30, 2023 increased by $4.6 million as compared to the year ended June 30, 2022.
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. 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.
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.
Additional expenses include consulting and professional fees, occupancy costs, insurance and other corporate expenses.
Additional expenses include consulting and professional fees, occupancy costs, insurance and other corporate expenses. We expect our general and administrative expenses to continue to increase in absolute dollars as our company continues to grow.
This credit agreement provides for a $250.0 million senior revolving credit facility which may be increased up to $375.0 million. In the fourth quarter of fiscal 2020, we borrowed $100.0 million under this credit facility, which we repaid in the third quarter of fiscal 2021.
In the fourth quarter of fiscal 2020, we borrowed $100.0 million under the original credit facility, which we repaid in the third quarter of fiscal 2021. 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.
Removed
Paylocity Holding Corporation is a Delaware corporation, which was formed in November 2013. Our business operations are conducted by our wholly owned subsidiaries. COVID-19 Impact The novel coronavirus disease (“COVID-19”) continues to impact the global economy.
Added
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.
Removed
The duration and severity of the COVID-19 pandemic, and the long-term effects the pandemic will have on our clients and general economic conditions, remain uncertain and difficult to predict. Despite the uncertainties related to the COVID-19 pandemic, we continue to deliver strong sales performance and operational execution as the demand for our product offerings remains robust.
Added
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.
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As the end of the pandemic is difficult to predict, our business and financial performance may be unfavorably impacted in future periods. Refer to “Item 1A. Risk Factors” in this Annual Report on Form 10-K for risks related to the COVID-19 pandemic to our business and financial performance.
Added
(2) Represents acquisition and other nonrecurring transaction-related costs and lease exit activity. 31 Table of Contents Basis of Presentation Revenues Recurring and Other Revenue We derive the majority of our revenues from recurring fees attributable to our cloud-based HCM and payroll software solutions.
Removed
(2) Represents nonrecurring costs including acquisition and other transaction-related costs and lease exit activity of $1.6 million, $1.9 million and $2.4 million incurred during the years ended June 30, 2020, 2021 and 2022, respectively, and the settlement of a certain legal matter and related litigation costs of $2.1 million during the year ended June 30, 2020.
Added
We implement additional HCM products as requested by clients and leverage the data within our payroll solution to accelerate our implementation processes. Our average client size has continued to be over 140 employees.
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We also charge fees attributable to our preparation of W-2 documents and annual required filings on behalf of our clients. We charge implementation fees for professional services provided to implement our HCM and payroll solutions.
Added
General and Administrative Year Ended June 30, Change from 2021 to 2022 Change from 2022 to 2023 2021 2022 2023 $ % $ % General and administrative $ 119,771 $ 163,692 $ 191,823 $ 43,921 37% $ 28,131 17% Percentage of total revenues 19% 19% 16% General and administrative expenses for the year ended June 30, 2023 increased by $28.1 million, or 17%, to $191.8 million from $163.7 million for the year ended June 30, 2022.
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Results of Operations The following table sets forth our statements of operations data for each of the periods indicated.
Added
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. Income Tax Expense (Benefit) Our effective tax rates were (8.6)% and 11.2% for the years ended June 30, 2022 and 2023, respectively.
Removed
These increases were accompanied by interest rate increases approved 35 Table of Contents by the Federal Reserve during the third and fourth fiscal quarters and were partially offset by the low interest rate environment in place during the first three quarters of our fiscal 2022 resulting from interest rate cuts previously made by the Federal Reserve in response to the COVID-19 pandemic.
Added
Because the use of estimates is an integral part of the financial reporting process, actual results could differ, and such differences could be material.
Removed
The increase in sales and marketing expenses was primarily the result of $36.1 million of additional employee-related costs, including those incurred to expand our sales team, and additional overall spending on travel and entertainment as COVID-19 pandemic restrictions eased within the United States.
Added
Capitalized employee costs are limited to the time directly spent on such projects. 37 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.
Removed
Other Income (Expense) Year Ended June 30, Change from 2020 to 2021 Change from 2021 to 2022 2020 2021 2022 $ % $ % Other income (expense) $ 947 $ (939) $ (997) $ (1,886) * $ (58) 6% Percentage of total revenues 0% 0% 0% __________________________ * Not Meaningful Other income (expense) for the year ended June 30, 2022 did not materially change as compared to the year ended June 30, 2021.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeIn 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 increase in the overall interest rate environment may cause the market value of our investments in fixed rate available-for-sale securities to decline.
Biggest changeHowever, as a result of our investing activities, we are exposed to changes in interest rates that may materially affect our financial statements. 41 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.
Additionally, as described in Note 11 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” , we entered into a credit agreement that provides for a revolving credit facility (“credit facility”) in the aggregate amount of $250.0 million, which may be increased up to $375.0 million.
Additionally, as described in Note 12 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” , we entered into a first amendment to our credit agreement that provides for a revolving credit facility (“credit facility”) in the aggregate amount of $550.0 million, which may be increased up to $825.0 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, 2022, we had cash and cash equivalents of $139.8 million and funds held for clients of $3,987.8 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, 2023, we had cash and cash equivalents of $288.8 million and funds held for clients of $2,621.4 million.
We may invest portions of our excess cash and cash equivalents and funds held for clients in marketable securities including commercial paper, corporate debt issuances, asset-backed debt securities, certificates of deposit, U.S. treasury securities, U.S. government agency securities and other securities, which were classified as available-for-sale securities as of June 30, 2022.
We may invest portions of our excess cash and cash equivalents and funds held for clients in marketable securities including money market funds, commercial paper, corporate debt issuances, asset-backed debt securities, certificates of deposit, U.S. treasury securities, U.S. government agency securities and other securities.
We have not recorded credit impairment losses on our portfolio to date. 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 $3.6 million as of June 30, 2022.
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 $5.0 million as of June 30, 2023.
If we are forced to sell some or all of these securities at lower market values, we may incur investment losses. 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.
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.
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 $5.0 million as of June 30, 2023. 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.
Inflation 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.
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. Our inability or failure to do so could harm our business, financial condition and results of operations. Item 8. Financial Statements and Supplementary Data.
As of June 30, 2022 , there were no amounts drawn on the credit facility. 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.
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.
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.
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.
Borrowings under the credit facility generally bear interest at a rate based upon the London Interbank Offered Rate (“LIBOR”) (or a replacement rate for LIBOR) or, at our sole option, an adjusted base rate plus an applicable margin based on our then-applicable net senior secured leverage ratio.
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, 2023 , there were no amounts drawn on the credit facility.
Our investment policy is focused on generating higher yields from these investments while preserving liquidity and capital. However, as a result of our investing activities, we are exposed to changes in interest rates that may materially affect our financial statements.
Our investment policy is focused on generating higher yields from these investments while preserving liquidity 40 Table of Contents and capital.
Removed
An immediate 100-basis point decrease in interest rates would have 41 Table of Contents resulted in an increase in the market value of our available-for-sale securities by $3.6 million as of June 30, 2022.
Added
An increase in the overall interest rate environment may cause the market value of our investments in fixed rate available-for-sale securities to decline. If we are forced to sell some or all of these securities at lower market values, we may incur investment losses.
Removed
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.

Other PCTY 10-K year-over-year comparisons