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What changed in Paylocity Holding Corp's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Paylocity Holding Corp's 2023 and 2024 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 2024 report.

+280 added−256 removedSource: 10-K (2024-08-02) vs 10-K (2023-08-04)

Top changes in Paylocity Holding Corp's 2024 10-K

280 paragraphs added · 256 removed · 233 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

72 edited+7 added−5 removed67 unchanged
Biggest changeLearning – 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.
Biggest changeMarket Pay – Market Pay provides real time insights for HR, leaders and managers making it easy for them to understand their local market, identify trends, and make data-driven decisions about employee compensation so they can pay employees fairly, stay ahead of competitors to attract and retain top talent, and remain compliant with laws and regulations. 5 Table of Contents Learning – Our Learning tools allow clients to easily assign courses tailored to training their employees on new skills, policies, products, and other topics with a variety of course delivery methods including on-demand and webinars, all of which are available via our mobile app.
These organizations often have limited internal resources and rely on us to implement their HCM and payroll solutions. We typically implement our product suite within one to eight weeks, depending on the size and complexity of each client. Each client is guided through the implementation process by our knowledgeable consultants for all implementation matters.
These organizations often have limited internal resources and rely on us to implement their HCM and payroll solutions. We typically implement our product suite within one to eight weeks, depending on the size and complexity of the client. Each client is guided through the implementation process by our knowledgeable consultants for all implementation matters.
We 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.
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; 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 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 believe the principal competitive factors on which we compete in our market include the following: • Solutions built to connect with today’s modern workforce; • Comprehensive HCM and payroll product suite on a single platform; • Breadth and depth of product functionality; • Configurability and ease of use of our solutions; • Modern, mobile, intuitive and consumer-oriented user experience; • Benefits of a cloud-based technology platform; • Ability to innovate and respond to client needs rapidly; • Domain expertise in HCM and payroll; • Quality of implementation and client service; • Ease of implementation; • Real-time web-based payroll processing; and • Access to a wide variety of complementary third-party service providers.
We believe the principal factors on which we compete in our market include the following: • Solutions built to connect with today’s modern workforce; • Comprehensive HCM and payroll product suite on a single platform; • Breadth and depth of product functionality; • Configurability and ease of use of our solutions; • Modern, mobile, intuitive and consumer-oriented user experience; • Benefits of a cloud-based technology platform; • Ability to innovate and respond to client needs rapidly; • Domain expertise in HCM and payroll; • Quality of implementation and client service; • Ease of implementation; • Real-time web-based payroll processing; and • Access to a wide variety of complementary third-party service providers.
We believe our ability to rapidly implement our solutions is principally due to the combination of our emphasis on engagement with the client, our standardized methodology, our cloud-based architecture and our highly configurable, easy-to-use products. We offer clients the opportunity to utilize on-demand or in-class training designed to provide clients with general knowledge on our solutions.
We believe our ability to rapidly implement our solutions is principally due to the combination of our emphasis on engagement with the client, our standardized methodology, our cloud-based architecture and our highly configurable, easy-to-use products. We offer clients the opportunity to utilize on-demand or in-class training designed to provide them with general knowledge on our solutions.
In other cases, the relationships are informal. We typically do not compensate these participants for referrals. Partner Ecosystem We have developed a partner ecosystem of third-party systems, such as 401(k), benefits and insurance provider systems, with whom we provide automated data integration for their clients.
In other cases, the relationships are informal. We typically do not compensate these participants for referrals. Marketplace We have developed a partner ecosystem of third-party systems, such as 401(k), benefits and insurance provider systems, with whom we provide automated data integration for their clients.
We also host an annual client conference for clients to learn about new products and features and allow clients to provide feedback and learn best practices. Client Service Our client service model is designed to serve and support the needs of our clients and to build loyalty by developing strong relationships with clients.
We also host an annual conference for our clients to allow them to learn about new products and features and to provide feedback and learn best practices. Client Service Our client service model is designed to serve and support the needs of our clients and to build loyalty by developing strong relationships with them.
Led by our Chief Diversity Officer and Diversity Leadership Council, we remain committed to increasing the representation of minority groups within our organization, including in leadership roles, and we directly focus on these goals within our talent acquisition and employee development efforts.
Led by our Chief Diversity Officer and Diversity Leadership Council, we remain committed to increasing the representation of minority groups within our organization, including in leadership roles, and we focus on these goals within our talent acquisition and employee development efforts.
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.
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. 13 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.
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.
We strive to achieve high revenue retention, in part, by delivering high-quality service. Our revenue retention was greater than 92% in each of fiscal 2022, 2023 and 2024. Each client is assigned an account management team that serves as the central point of contact for any questions or support needs.
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.
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.
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.
For each of the three years ended June 30, 2022, 2023 and 2024, no client accounted for more than 1% of our revenues. Sales and Marketing We market and sell our products and services through our direct sales force. Our direct sales force includes sales representatives who have defined geographic territories throughout the U.S.
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.
Governmental Regulation As a provider of HCM and payroll solutions, our systems contain a significant amount of sensitive data related to clients, employees of our clients, business partners and our employees. Data privacy is a significant risk for organizations globally, including those in the United States.
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.
We believe that modern organizations are better served by SaaS solutions designed to meet their unique needs, delivering fast time to value, and providing their employees with the most engaging experience available. 1 Table of Contents Our HCM and payroll software solutions provide the following key benefits to our clients: • Single Platform with Flexible Data - The foundation of our platform is a single employee system of record that supports the complete employee lifecycle, while ensuring efficiency and compliance: Recruiting & Onboarding, Payroll, Time & Labor, HR, Benefits, Learning, and Performance & Compensation.
We believe that the increasing mobility of employees heightens the importance of access to our solutions through mobile devices, including smart phones and tablets. Our mobile experience provides our clients and their employees with access to our solutions through virtually any device having Internet access.
We believe that the increasing mobility of employees heightens the importance of access to our solutions through mobile devices, including smart phones and tablets. Our mobile experience provides our clients and their employees with access to our solutions through nearly any device having Internet access.
We have implemented operating policies and procedures to protect the accuracy, privacy and security of our clients’ and their employees’ information and voluntarily undergo certain periodic audits and examinations and maintain certain certifications to demonstrate our commitment to regulatory compliance. The foregoing description does not include an exhaustive list of the laws and regulations governing or impacting our business.
We have implemented operating policies and procedures to protect the accuracy, privacy and security of our clients’ and their employees’ information. Additionally, we voluntarily undergo periodic audits and examinations and maintain certain certifications to demonstrate our commitment to regulatory compliance. The foregoing description does not provide an exhaustive list of the laws and regulations governing or impacting our business.
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 total rewards program includes competitive pay, a restricted stock program that covers nearly half of our employee base, an employee stock purchase program, the ability to receive a portion of earned wages before the end of the payroll cycle through our On-Demand Payment product, market competitive retirement benefits, paid time off and many other benefits.
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.
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 over 100 countries. It also provides consolidated reporting capabilities to efficiently manage a global employee base with real-time access to payroll data.
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.
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, restaurants, retail, technology and others.
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.
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.
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.
Our referral network has become an increasingly important component of our sales process, and in fiscal 2024, more than 25% of our new client revenue originated by referrals from participants in our referral network.
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 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.
Delivering a positive experience and a high level of support is an essential element of our ability to sell our solutions and retain clients. Implementation and Training Services Our clients are typically either migrating to our platform from a competitive solution or are adopting their first online HCM and payroll solution.
Delivering a positive experience and a high level of support is an essential element of our ability to sell our solutions and retain clients. 7 Table of Contents Implementation and Training Services Our clients are typically either migrating to our platform from a competitive solution or are adopting their first online HCM and payroll solution.
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.
A customizable supervisor dashboard provides at-a-glance visibility to missed punches, pending time off requests, attendance exceptions and more. Scheduling – Clients can automate schedule tracking by creating and adjusting work schedules as needed, including leveraging templates and building policies based on duration, time between shifts and availability without having to manually correct payroll data.
We integrate data with these related systems through a secure connection, which significantly decreases the risk of unauthorized third-party access and other security breaches. We market and sell our products through our direct sales force.
We integrate data with these related systems through a secure connection, which significantly decreases the risk of unauthorized third-party access and other security breaches. 2 Table of Contents We market and sell our products through our direct sales force.
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 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.
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.
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 enrollment, account balances and more.
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.
The information contained on this website is not incorporated by reference into this Annual Report on Form 10-K. As of June 30, 2024, our workforce consisted of approximately 6,400 employees, substantially all of whom were employed on a full-time basis in the United States.
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 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.
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.
Documents serves as a central location to securely store personal employee files such as offer letters and performance reviews to help clients stay compliant and organized by replacing manual processes 4 Table of Contents and paper files. HR professionals can search electronic documents and easily upload, store and download documents while managing access with our role-based permission settings.
As we continue to expand our product offerings, we believe that we have an opportunity to increase the amount clients spend on HCM solutions per employee and to expand our addressable market. As we expand our client base and number of employees, we will also grow our sales organization. • Expand Our Product Offerings .
As we continue to expand our product offer ings, we believe that we have an opportunity to increase the amounts clients spend on HCM solutions per employee and to expand our addressable market. As we expand our client base and number of employees, we will also grow our sales organization. • Expand Our Product Offerings .
We plan to increase integration with third-party providers and expand our referral network to grow our client base and lower our client acquisition costs. Our Products Our HCM and payroll software solutions deliver a unified platform for the modern workplace.
We plan to increase integration with third-party providers and expand our referral network to grow our client base and lower our client acquisition costs. 3 Table of Contents Our Products Our HCM and payroll software solutions deliver a unified platform for the modern workplace.
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.
We derive revenue from a client based on the solutions purchased by the client, the number of client employees and the amount, type and timing of services provided with respect to those client employees. Our annual revenue retention rate was greater than 92% in each of the fiscal years 2022, 2023 and 2024.
Our ability to comply with and address the continuously evolving requirements and regulations applicable to our business depends on a variety of factors, including the functionality and design of our solutions and the manner in which our clients and their employees utilize them.
Our ability to comply with and address the continuously evolving requirements and regulations applicable to our business depends on a variety of factors, including the functionality and design of our solutions and the way our clients and their employees utilize them.
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.
In addition, a series of audit routines are run to ensure that quarterly tax filings are accurate and submitted on a timely basis. Clients Excluding clients acquired through acquisitions, as of June 30, 2024, we provided our HCM and payroll software solutions to approximately 39,050 clients, across the U.S.
We believe this approach enhances client service by providing clients with knowledgeable resources who understand the client’s business, respond quickly, and are accountable for the overall client experience. Account managers are supplemented by teams with deep technical and subject matter expertise who help to expediently and effectively address client needs.
We believe this approach enhances client service by providing them with knowledgeable resources who understand their businesses, respond quickly, and are accountable for the overall client experience. Account managers are supplemented by teams with deep technical and subject matter expertise who help to expediently and effectively address client needs.
Recruiters can communicate with modern candidates in the ways they expect, including email and text messaging from right within our platform. Onboarding – Onboarding enables new employees to complete all pre-hire tasks through digital data collection to gather important personal and confidential information and documentation right through our platform.
Scheduling is simple with Outlook and Google Calendar integrations, and recruiters can communicate with modern candidates in the ways they expect, including email and text messaging from right within our platform. Onboarding – Onboarding enables new employees to complete all pre-hire tasks through digital data collection to gather important personal and confidential information and documentation right through our platform.
The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain so for the foreseeable future. Many national, state and local government bodies have adopted or are considering adopting laws and regulations related to the collection, use and disclosure of personal information.
The global regulatory landscape for data privacy is rapidly evolving and is likely to remain so for the foreseeable future. Many national, state and local government bodies have adopted or are considering adopting laws and regulations related to the collection, use and disclosure of personal information.
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.
Excluding clients acquired through acquisitions, as of June 30, 2024, we provided our software-as-a-service, or SaaS, solutions to approximately 39,050 clients across the U.S., which on average had over 150 employees. Effective management of human capital is a core function in all organizations and requires a significant commitment of resources.
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 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 like native video, social collaboration, recognition and rewards, chat, and more 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.
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.
Modern Workforce Index – Leveraging data from more than 39,050 clients, our patent-pending Modern Workforce Index (MWI) puts sophisticated AI into an HR intelligence dashboard that gives clients insight into employee sentiment, performance metrics, and engagement.
Our Co-CEOs, together with our senior executive team and Board of Directors, drive our human capital strategy including key initiatives related to our employees and company culture. For additional information regarding our human capital initiatives, we encourage investors and other users of this Annual Report on Form 10-K to visit our Corporate Social Responsibility website at https://www.paylocity.com/who-we-are/about-us/corporate-responsibility/.
Our senior executive team, together with our board of directors, drives our human capital strategy, which includes key initiatives related to our employees and company culture. 11 Table of Contents For additional information regarding our human capital initiatives, we encourage investors and other users of this Annual Report on Form 10-K to visit our Corporate Social Responsibility website at https://www.paylocity.com/who-we-are/about-us/corporate-responsibility/.
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.
We estimate that if clients were to buy our entire suite of existing solutions at list prices, they would spend approximately $550 per employee annually. We believe our realized target addressable market is approximately $19.5 billion as clients, on average, purchase 50% or more of our suite of solutions.
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.
Our total revenues increased from $852.7 million in fiscal 2022 to $1,174.6 million in fiscal 2023, representing a 38% year-over-year increase, and to $1,402.5 million in fiscal 2024, representing a 19% year-over-year increase. We believe our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results.
For example, the adoption of new money transmitter or money services business statutes in jurisdictions or changes in regulators’ interpretation of existing state and federal money transmitter or money services business statutes or regulations, could subject us to registration or licensing or limit business activities until we are appropriately licensed.
For example, the adoption of new money transmitter or money services business statutes in jurisdictions, or changes in regulators’ interpretation of existing state and federal money transmitter or money services business statutes or regulations, could require us to register or obtain licenses, or limit our business activities until we are appropriately licensed.
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.
We are also very proud to offer a benefits package that aligns with the Standards of Care published by the World Professional Association for Transgender Health. PCTY Gives Giving back to our local communities takes many forms at Paylocity.
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.
Research and development costs, including research and development costs that were capitalized, were $145.1 million, $219.6 million and $253.9 million for the years ended June 30, 2022, 2023 and 2024, respectively. 10 Table of Contents Intellectual Property Our success is dependent, in part, on our ability to protect our proprietary technology and other intellectual property rights.
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.
While we provide our HCM and payroll software solutions to approximately 39,050 clients across the U.S. (excluding clients acquired through acquisitions) as of June 30, 2024, there are approximately 1.3 million businesses with 10 to 5,000 employees in the U.S., employing approximately 69 million people, according to the U.S. Census Bureau in 2021.
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.
Our focus includes attracting diverse candidates to our organization while also investing in professional development and mentorship programs focused on underrepresented employee groups. 12 Table of Contents As of June 30, 2024, approximately 50% of our employees identified as female and approximately 47% of manager roles and above were held by females.
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.
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.
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.
For our U.S. employees, approximately 34% of our employees included underrepresented minorities and approximately 26% of our manager roles and above were held by underrepresented minorities as of June 30, 2024. The following table provides the ethnicity breakdown of our U.S. employees as of June 30, 2024. Ethnicity 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., Ceridian HCM Holding Inc., Paychex, Inc., Paycom Software, Inc., Paycor, Inc., Ultimate Kronos Group and other local and regional providers.
Our competitors vary for each of our solutions and primarily include payroll and HR service and software providers, such as Automatic Data Processing, Inc., Dayforce, Inc., Paychex, Inc., Paycom Software, Inc., Paycor, Inc., Ultimate Kronos Group and other local and regional providers.
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.
Our approach to drive a strong culture and employee engagement has been validated externally as Paylocity has been named Forbes 2024 Best Employers for Diversity, Forbes 2024 America’s Best Large Employers, Newsweek America’s Greatest Workplace for Diversity 2024, Built In Best Places to Work 2024 and was also Great Place To Work certified on multiple occasions.
Employee Experiences Community – Community is an integrated part of our platform that streamlines communication and fosters a culture of engagement not possible with broadcast emails, antiquated intranets or break room bulletin boards.
These solutions also ease the administration of COBRA coverage and retiree billing. 6 Table of Contents Employee Experiences Community – Community is an integrated part of our platform that streamlines communication and fosters a culture of engagement not possible with broadcast emails, antiquated intranets or break room bulletin boards.
We regulate and limit all access to servers and networks at our data centers. Our systems are monitored for irregular or suspicious activity, and we have dedicated internal staff perform security assessments for each release. Our systems undergo regular penetration testing and source code reviews by an independent third-party security firm.
We 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 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.
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.
Our tools help facilitate ongoing, goals-driven conversations using Journals, giving employees a record of their tasks, goals and accomplishments. Additionally, our clients can prepare succession planning assessments across their employee population by using our 9-box tool that provides context to employees’ performance and the ability to visualize the distribution of their workforce.
Additionally, our clients can prepare succession planning assessments across their employee population by using our 9-box tool that provides context to employees’ performance and the ability to visualize the distribution of their workforce.
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.
Our platform provides tools to communicate, connect to organizations and peers, and focus on career development and growth, which drives engagement, fosters connection across the organization and prioritizes flexibility and well-being for the employees. • Insights, Recommendations & AI – Our clients have access to their data for reporting and compliance needs, but we also provide actionable insights powered by artificial intelligence (“AI”) based on best practices across our client base.
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.
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.
Referral Network As a core element of our business strategy, we have developed a referral network of third-party service providers, including 401(k) advisors, benefits administrators, insurance brokers, third-party administrators and HR consultants, that recommend our solutions and provide referrals.
We support our sales force with a marketing program that includes seminars and webinars, email marketing, social media marketing, broker events and web marketing. 8 Table of Contents Referral Network As a core element of our business strategy, we have developed a referral network of third-party service providers, including 401(k) advisors, benefits administrators, insurance brokers, third-party administrators and HR consultants, that recommend our solutions and provide referrals.
Clients can also empower their employees to create trainings so that internal subject matter experts can share their expertise with colleagues. LMS also offers numerous diversity, equity, inclusion and accessibility courses, modules, and instructional kits to help ensure employees are educated to support a diverse workforce.
Clients can also empower their employees to create trainings so that internal subject matter experts can share their expertise with colleagues. Our Learning tools also offer numerous diversity, equity, inclusion and accessibility courses to help ensure employees are educated to support a diverse workforce. Performance – Our Performance tools enable transparent, two-way communication, allowing teams to have ongoing performance conversations.
To promote an inclusive culture, clients can activate masking of certain candidate details to promote recruiting without bias, while still collecting all essential details, including diversity information. Additionally, our solution provides clients with the ability to auto-fill and simplify background checks, maintain and track personal and confidential data, and have real-time access to candidate information to enable timely staffing decisions.
Additionally, our solution provides clients with the ability to auto-fill and simplify background checks, maintain and track personal and confidential data, and have real-time access to candidate information to enable timely staffing decisions.
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.
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. Our tools help facilitate ongoing, goals-driven conversations using Journals, giving employees a record of their tasks, goals and accomplishments.
In addition, many of our solutions are designed to assist clients with their compliance with certain U.S. federal, state and local laws and regulations that apply to them.
Many of our solutions are designed to assist clients with their compliance with certain U.S. federal, state and local laws and regulations that apply to them. Consequently, our products and services may be subject to increasing and/or changing regulatory requirements, including changes in tax, benefit and other laws.
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.
This data provides an accurate view of our diverse workforce so we can better customize, fund, and initiate specialized programming, accommodations and strategies. Learning & Development We are committed to creating industry leading talent development and leadership programs that support the professional growth of our employees. We were named a 2024 BEST Awards organization by the Association for Talent Development.
We use multiple cloud hosting and third-party data center providers to host our solutions, including data centers in Franklin Park, Illinois and Kenosha, Wisconsin (for backup and disaster recovery). We supply the hardware infrastructure and are responsible for the ongoing maintenance of our equipment at all data center locations.
Our systems undergo regular penetration testing and source code reviews by an independent third-party security firm. 9 Table of Contents We use multiple cloud hosting and third-party data center providers to host our solutions, including data centers in Franklin Park, Illinois and Kenosha, Wisconsin (for backup and disaster recovery).
It might also make introduction of new products and services more costly or more time-consuming than we currently anticipate or prevent introduction of such new products and services.
This could in turn impose additional costs upon us to comply, modify, or further develop our products and services. Additionally, it could also make introduction of new products and services more costly or time-consuming than we currently anticipate, or even prevent their introduction.
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.
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.
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.
We offer professional development courses to all employees including topics like preparing for an interview, building a career path, as well as leadership topics like delegation and leading a hybrid team. Through our internally developed Learning tool with Video, we enable employees to share knowledge through self-recorded sessions, which complements our library consisting of hundreds of internal courses.
Changing regulatory requirements might reduce or eliminate the need for some of our products and services, block us from developing new products and services or have an adverse effect on the functionality and acceptance of our solution. This might in turn impose additional costs upon us to comply, modify or further develop our products and services.
As these requirements proliferate, we may be required to modify our products and services to comply. These changing regulatory requirements might also reduce or eliminate the need for some of our products and services, hinder our development of new products and services, or adversely affect the functionality and acceptance of our solution.
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 DEIA focus includes programs like our Women in Leadership initiative, quarterly education speaker keynotes, annual DEIA Leadership conference and leadership development programs focusing on inclusive and intentional leadership. Additionally, 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.
Employees 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.
Employees American Indian or Alaskan Native 0.4% Asian & Indian 6.8% Black Or African American 9.8% Hispanic & Latinx 12.4% Multiracial 4.7% Native Hawaiian or Pacific Islander 0.2% White 61.5% Undisclosed* 4.2% Overall 100.0% * Individuals preferred to not disclose an ethnicity We strive to cultivate the most inclusive workplace culture possible by removing barriers to opportunities in hiring, pay, development and promotion.
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By modernizing the experience, clients can conveniently reach candidates wherever they are, including through embedded text messaging, and instantly track conversations in our platform. HR professionals can customize job applications and reach more candidates by automatically posting to online job portals.
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Workflows & Documents – Workflows, the process automation engine embedded throughout the Paylocity platform, uses triggers and if/then logic to allow clients to automate manual processes, improving efficiency and data accuracy. Paylocity offers both out-of-the-box workflow templates, and allows clients to create their own based on business needs.
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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.
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HR professionals can customize job applications and reach more candidates by automatically posting to online job portals and enabling candidates to apply via QR code or text message. To promote an inclusive culture, clients can activate masking of certain candidate details to promote recruiting without bias, while still collecting all essential details, including diversity information.
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As such, our products and services may become subject to increasing and/or changing regulatory requirements, including changes in tax, benefit and other laws, and as these requirements proliferate, we may be required to change or adapt our products and services to comply.
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Employee Voice – Employee Voice helps clients automatically and continuously collect feedback that is indicative of employee engagement and retention. It also includes the tools to share relevant insights with leadership and managers and create action plans to drive accountability.
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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.
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Recognition & Rewards – Recognition & Rewards allows clients to drive engagement and retention via a frictionless experience embedded throughout our platform. Giving and receiving recognition is simple and offers both automation (such as recognition for common moments that matters like birthdays or anniversaries) and customization (such as rewards programs with cash redemption).

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAdditionally, fluctuation in quarterly results may negatively impact the price of our common stock. 13 Table of Contents In addition to other risk factors listed within this “Risk Factors” section of this Annual Report on Form 10-K, some other important factors that may cause fluctuations in our quarterly operating results include the following: • The extent to which our products achieve or maintain market acceptance; • Our ability to introduce new products and enhancements and updates to our existing products on a timely basis; • Competitive pressures and the introduction of enhanced products and services from competitors; • Changes in client budgets and procurement policies; • The amount and timing of our investment in research and development activities and whether such investments are capitalized or expensed as incurred; • The number of our clients’ employees; • Timing of recognition of revenues and expenses; • Client renewal rates; • Seasonality in our business; • Technical difficulties with our products or interruptions in our services; • Our ability to hire and retain qualified personnel; • A repeal of or changes to the laws and regulations related to the products and services which we offer; • Changes in accounting principles; • Business disruptions caused by public health issues such as the coronavirus disease (“COVID-19”) pandemic; • Macroeconomic factors, including changes in interest rates and inflationary pressures; and • Unforeseen legal expenses, including litigation and settlement costs.
Biggest changeAccordingly, quarter-to-quarter comparisons of our operations are not necessarily meaningful and such comparisons should not be relied upon as indications of future performance. 14 Table of Contents In addition to other risk factors listed within this “Risk Factors” section of this Annual Report on Form 10-K, some other important factors that may cause fluctuations in our quarterly operating results include the following: • The number of our clients’ employees; • Client renewal rates; • The extent to which our products achieve or maintain market acceptance; • Changes in client budgets and procurement policies; • The amount and timing of our investment in research and development activities and whether such investments are capitalized or expensed as incurred; • Business disruptions caused by public health issues, natural disasters or other catastrophic events; • Macroeconomic factors, including changes in interest rates and inflationary pressures; and • Unforeseen legal expenses, including litigation and settlement costs.
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.
Any product liability claim or 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.
Any such breach or unauthorized access could negatively affect our ability to attract new clients, cause existing clients to terminate their agreements with us, result in reputational damage and subject us to lawsuits, regulatory fines or other actions or liabilities which could materially and adversely affect our business and operating results.
Any breach or unauthorized access could negatively affect our ability to attract new clients, cause existing clients to terminate their agreements with us, result in reputational damage and subject us to lawsuits, regulatory fines or other actions or liabilities which could materially and adversely affect our business and operating results.
Our number of new clients typically increases more during our third fiscal quarter ending March 31 than during the rest of our fiscal year, primarily because many new clients prefer to start using our human capital management, or HCM, and payroll solutions at the beginning of a calendar year.
Additionally, our number of new clients typically increases more during our third fiscal quarter ending March 31 than during the rest of our fiscal year, primarily because many new clients prefer to start using our human capital management, or HCM, and payroll solutions at the beginning of a calendar year.
Accordingly, changes in our business or revenue shortfalls could decrease our gross and operating margins and could negatively impact our operating results from period to period. If we do not continue to innovate and deliver high-quality, technologically advanced products and services, we will not remain competitive and our revenue and operating results could suffer.
Changes in our business or revenue shortfalls could decrease our gross and operating margins and could negatively impact our operating results from period to period. If we do not continue to innovate and deliver high-quality, technologically advanced products and services, we will not remain competitive and our revenue and operating results could suffer.
There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim related to a breach or unauthorized access.
There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages with respect to any particular claim related to a breach or unauthorized access.
Failure to comply with privacy laws and regulations may have a material adverse effect on reputation, financial condition, and/or operations. Our processing of personal information for our employees and on behalf of our clients is subject to federal, state and international privacy laws.
Failure to comply with data privacy laws and regulations may have a material adverse effect on reputation, financial condition, and/or operations. Our processing of personal information for our employees and on behalf of our clients is subject to federal, state and international data privacy laws.
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.
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 revenue and client base growth and intend to pursue continued growth as part of our business strategy.
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.
Other countries and U.S. states are increasingly adopting similarly comprehensive laws that impose new data privacy and protection requirements and restrictions on covered organizations. Notably, these laws can impose significant penalties and fines on organizations for non-compliance, such as up to 4% of worldwide revenue for the preceding year under the GDPR.
Our payroll processing business involves the movement of significant funds from the account of a client to employees and relevant taxing authorities.
Our payroll processing business involves the movement of significant funds from the account of a client to its employees and to relevant taxing authorities.
In addition, these stockholders will be able to exercise influence over all matters requiring stockholder approval, including the election of directors and approval of corporate transactions, such as a merger or other sale of our company or its assets.
These stockholders will be able to exercise influence over all matters requiring stockholder approval, including the election of directors and approval of corporate transactions, such as a merger or other sale of our company or its assets.
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.
Our third amended and restated bylaws designate the state and federal courts located within the state of Delaware as the sole and exclusive forums for claims arising derivatively, pursuant to the Delaware General Corporation Law or governed by the internal affairs doctrine.
To operate without interruption, both we and our clients must guard against: • Damage from fire, power loss, natural disasters, pandemics and other force majeure events outside our control; • Communications failures; • Software and hardware errors, failures and crashes; • Security breaches, computer viruses, hacking, worms, malware, ransomware, denial-of-service attacks and similar disruptive problems; and • Other potential interruptions.
To operate without interruption, both we and our clients must guard against: • Damage from fire, power loss, natural disasters, pandemics and other force majeure events outside our control; 16 Table of Contents • Communications failures; • Software and hardware errors, failures and crashes; • Security breaches, computer viruses, hacking, worms, malware, ransomware, denial-of-service attacks and similar disruptive problems; and • Other potential interruptions.
In addition, a significant portion of our operating expenses are related to compensation and other items which are relatively fixed in the short-term, and we plan expenditures based in part on our expectations regarding future needs and opportunities.
Moreover, a significant portion of our operating expenses are related to compensation and other items which are relatively fixed in the short-term, and we plan expenditures based in part on our expectations regarding future needs and opportunities.
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.
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.
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.
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.
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.
Our third 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.
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.
However, a failure of one of our banking partners or a systemic shutdown of the banking industry could result in the loss of client funds or prevent us from accessing and processing funds on our clients’ behalf, which could have an adverse impact on our business and liquidity. 17 Table of Contents In addition, we utilize certain third-party software in some of our products.
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.
Some of our products incorporate new technologies such as AI 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.
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.
In addition, our third amended and restated certificate of incorporation and third amended and restated bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable.
This information includes bank account numbers, tax return information, social security numbers, benefit information, retirement account information, payroll information, system passwords, and in the case of our benefit administration solution, BeneFLEX, health information protected by the Health Insurance Portability and Accountability Act of 1996, as amended, or the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”).
This information includes, among other things, bank account numbers, tax return information, social security numbers, benefit information, retirement account information, payroll information, system passwords, and in the case of our benefit administration solution, BeneFLEX, health information protected by the Health Insurance Portability and Accountability Act of 1996, as amended, or the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”).
These laws, which are not uniform, generally regulate the collection, storage, transfer, and other processing of personal information; require notice to individuals of privacy practices before or at the point of collection; give individuals certain rights with respect to their personal information, including access, deletion and correction; regulate the use or disclosure of personal information for secondary purposes such as marketing; and require notification to affected individuals, clients, and/or regulators in the event of a data breach.
These laws, which are not uniform, generally regulate the collection, storage, transfer, 22 Table of Contents and other processing of personal information; require notice to individuals of privacy practices before or at the point of collection; give individuals certain rights with respect to their personal information, including access, deletion and correction; regulate the use or disclosure of personal information for secondary purposes such as marketing; and in some cases, require notification to affected individuals, clients, and/or regulators in the event of a data breach.
There is therefore a risk that the employer’s funds will be insufficient to cover the amounts we have already paid on its behalf.
There is therefore a risk that the client’s funds will be insufficient to cover the amounts we have already paid on its behalf.
The worldwide regulatory focus on privacy has intensified during the past several years, in part triggered by the GDPR, and has led to the rapid evolution of legal requirements related to the handling of personal information in ways that require our business to adapt to support our clients’ compliance.
The worldwide regulatory focus on data privacy has intensified during the past several years, in part triggered by the GDPR, and has led to the rapid evolution of legal requirements related to the processing of personal information in ways that require our business to adapt, including to support our clients’ compliance.
If a court were to find the exclusive forum provision contained in our bylaws to be inapplicable or unenforceable, we may incur additional costs associated with resolving such extra-forum claims, which could adversely affect our business and financial condition.
If a court were to find the exclusive forum provision contained in our bylaws to be inapplicable or 26 Table of Contents unenforceable, we may incur additional costs associated with resolving such extra-forum claims, which could adversely affect our business and financial condition.
Our stock price may be subject to wide fluctuations. The market price of our common stock has experienced, and may continue to experience, wide fluctuations and increased volatility.
The market price of our common stock has experienced, and may continue to experience, wide fluctuations and increased volatility.
We also engage international business partners to perform certain services in countries where we currently do not have operations in and as a result may subjects us to regulatory, economic and political risks that are different from those in the United States.
We also engage international business partners to perform certain services in countries in which we currently do not have operations and as a result may subject us to regulatory, economic and political risks that are different from those in the United States.
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).
Factors that may impact our performance and market price include those discussed elsewhere in this “Risk Factors” section of this Annual Report on Form 10-K and others such as: • Our operating performance and the operating performance of similar companies; • Announcements by us or our competitors of acquisitions, business plans or commercial relationships; • Any major change in our board of directors or senior management; • Publication of research reports or news stories about us, our competitors, or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts; • The public’s reaction to our press releases, our other public announcements and our filings with the SEC; • Repurchases of our common stock under our share repurchase program or the decision to terminate or suspend any repurchases; • Sales of our common stock by our directors, executive officers and affiliates; • Adverse market reaction to any indebtedness we may incur or securities we may issue in the future; • Short sales, hedging and other derivative transactions in our common stock; • Threatened or actual litigation; • Public health issues; and • Other events or factors, including changes in general conditions in the United States and global economies or financial markets (including acts of God, war, incidents of terrorism, inflationary pressures or other destabilizing events and the resulting responses to them).
As a result, our competitors may be able to develop products and services better received by our markets or may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, regulations, or client requirements.
As a result, our competitors may be able to develop products and services better received by our markets or may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies such as AI or machine learning, regulations, or client requirements.
We must also identify, recruit and train qualified sales, client service and implementation personnel in the use of our software. The amount of time it takes for our sales representatives, client service and implementation personnel to be fully trained and to become productive varies widely. Competition for skilled employees across the United States and globally is intense.
We must also identify, recruit and train qualified sales, client service and implementation personnel in the use of our software. The amount of time it takes for our sales representatives, client service and implementation personnel to be fully trained and to become productive varies widely. Hiring for skilled employees across the United States and globally is highly competitive.
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.
Our revolving credit agreement 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.
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 competitors vary for each of our solutions and primarily include payroll and HR service and software providers, such as Automatic Data Processing, Inc., Dayforce, Inc., Paychex, Inc., Paycom Software, Inc., Paycor, Inc., Ultimate Kronos Group and other local and regional providers.
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.
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.
We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property.
We will not be able to protect 20 Table of Contents our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property.
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 15 Table of Contents manage our growth, our expenses might increase more than expected, our revenue could decline or might grow more slowly than expected, and we might be unable to implement our business strategy.
We 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.
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 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.
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.
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.
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 would dilute the ownership of our existing stockholders and could depress the market price of our common stock.
As this focus continues, the potential risks related to handling personal information by our business will only increase.
As this focus continues, the potential risks related to the processing of personal information by our business will only increase.
This concentration of ownership could limit the ability of our other stockholders to influence corporate matters and may have the effect of delaying or preventing a change in control, including a merger, consolidation, or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if that change in control would benefit our other stockholders.
This concentration of ownership could limit the ability of our other stockholders to influence corporate matters and may have the effect of delaying or preventing a change in control, including a merger, consolidation, or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if that change in control would benefit our other stockholders. 24 Table of Contents Our stock price may be subject to wide fluctuations.
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.
During an economic slowdown or downturn, 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.
In that event, we could be required to seek licenses from third parties in order to continue offering our products or solutions, to re-develop our products or solutions, to discontinue sales of our products or solutions, or to release our proprietary software code under the terms of an open source license, any of which could harm our business.
In that event, we could be required to re-develop our products or solutions, to discontinue sales of our products or solutions, or to release our proprietary software code under the terms of 21 Table of Contents an open source license, any of which could harm our business.
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.
Adding to the complexity of the existing data privacy landscape, many areas of existing data privacy laws are subject to interpretation, which imposes an added risk that adverse interpretations of these laws by advocacy groups and governments in countries where we or our clients operate could impose significant obligations on our business or prevent us from offering certain services in jurisdictions where we currently operate.
Our 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.
Our third 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.
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.
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.
This could harm our intellectual property position and our business, results of operations and financial condition. 20 Table of Contents Risks Related to Legal and Regulatory Matters Changes in regulatory laws or requirements applicable to our software and services could impose increased costs on us, delay or prevent our introduction of new products and services and impair the function or value of our existing products and services.
Risks Related to Legal and Regulatory Matters Changes in regulatory laws or requirements applicable to our software and services could impose increased costs on us, delay or prevent our introduction of new products and services and impair the function or value of our existing products and services.
From time to time, third parties may claim that we are infringing upon their intellectual property rights, and we may be found to be infringing upon such rights. In the future, others may claim that our modules and underlying technology infringe or violate their intellectual property rights.
From time to time, third parties may claim that we are infringing upon their intellectual property rights, and we may be found to be infringing upon such rights. However, we may be unaware of the intellectual property rights that others may claim cover some or all of our technology or services.
Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights.
Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property.
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.
As of July 26, 2024, our directors and executive officers, together with their respective affiliates, beneficially owned, in the aggregate, approximately 21.8% of our outstanding common stock.
The costs of investigating, mitigating, and reporting such a breach to affected individuals (if required) can be substantial. In addition, if a high-profile security breach occurs with respect to an industry peer, our clients and potential clients may generally lose trust in the security of HCM and payroll modules.
In addition, if a security breach occurs with respect to an industry peer, our clients and potential clients may lose trust in the security of HCM and payroll modules.
The pursuit of potential acquisitions or investments may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated. We may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisition.
We have acquired and may in the future seek to acquire or invest in other businesses or technologies. The pursuit of potential acquisitions or investments may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.
Our intellectual property could be wrongfully acquired as a result of a cyberattack or other wrongful conduct by employees or third parties. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets.
Our intellectual property could be wrongfully acquired as a result of a cyberattack or other wrongful conduct by employees or third parties. In order to protect our intellectual property rights, we may be required to spend significant resources, including cybersecurity resources, to monitor and protect these rights.
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.
Enforcement actions and investigations by regulatory authorities related to security incidents and data privacy violations continue to increase. Future enforcement actions or investigations could impact us through increased costs or restrictions on our businesses. A finding of noncompliance could result in significant regulatory penalties, legal liability and burdensome governmental oversight.
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.
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 would dilute the ownership proportion of current stockholders and could cause the price of our common stock to decline.
A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby harming our operating results and leading analysts or potential investors to lower their expectations of our performance, which could reduce the trading price of our stock.
A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby harming our operating results and leading analysts or potential investors to lower their expectations of our performance, which could reduce the trading price of our stock. 23 Table of Contents Risks Related to Financial Matters Our revolving credit agreement contains covenants that may constrain the operation of our business, and our failure to comply with these covenants could have a material adverse effect on our financial condition .
The application of federal, state, and local tax laws to services provided electronically often involve complex issues and significant judgment. New or changes to existing income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, possibly with retroactive effect, and could be applied solely or disproportionately to services provided over the Internet.
New or changes to existing income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, possibly with retroactive effect, and could be applied solely or disproportionately to services provided over the Internet. These enactments could adversely affect our business, results of operations and financial condition due to the inherent cost increase.
These enactments could adversely affect our business, results of operations and financial condition due to the inherent cost increase. Moreover, each state has different rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that change over time.
Moreover, each state has different rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that change over time.
Litigation might result in substantial costs and may divert management’s attention and resources, which might seriously harm our business, overall financial condition, and operating results. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims and might not continue to be available on terms acceptable to us.
Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims and might not continue to be available on terms acceptable to us.
The confidentiality agreements on which we rely to protect certain technologies may be breached and may not be adequate to protect our proprietary technologies.
The confidentiality agreements on which we rely to protect certain technologies may be breached and may not be adequate to protect our proprietary technologies. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our solutions.
In addition, we collect and maintain personal information on our own employees in the ordinary course of our business. Finally, our business involves the storage and transmission of funds from the accounts of our clients to their employees, taxing and regulatory authorities and others.
In addition, we collect and maintain similar information regarding our own employees, consultants, independent contractors, other service providers and other groups or individuals. Our business also involves the storage and transmission of funds from the accounts of our clients to other persons, including taxing and regulatory authorities and others.
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.
HIPAA, which applies to our benefit administration solution, BeneFLEX and our self-insured group health plan, the European Union’s General Data Protection Regulation ("GDPR"), and U.S. state privacy laws like the California Consumer Privacy Act (“CCPA”), are among the most comprehensive data privacy laws and apply to multiple areas of our business.
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.
We also maintain insurance, but our insurance may be inadequate or may not be available in the future on acceptable terms, or at all.
As a result, a perception of noncompliance could damage our reputation with our current and potential clients, employees and stockholders. Adverse tax laws or regulations could be enacted, or existing laws could be applied to us or our clients, which could increase the costs of our services and adversely impact our business.
Adverse tax laws or regulations could be enacted, or existing laws could be applied to us or our clients, which could increase the costs of our services and adversely impact our business. The application of federal, state, and local tax laws to services provided electronically often involve complex issues and significant judgment.
As a result, unauthorized access or security breaches of our systems, the systems of our clients or use of confidential information we obtain during the normal course of our business could result in the unauthorized disclosure of confidential information, identity and financial theft, litigation, indemnity obligations and other significant liabilities.
Any unauthorized access to, or security breaches of, our systems or solutions or those of our clients or third-party partners and suppliers could result in numerous adverse consequences, including the unauthorized disclosure of proprietary and confidential information we or they obtain in the ordinary course of business, identity theft and financial theft.
In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations. 18 Table of Contents Risks Related to Cybersecurity and Intellectual Property Rights If our security measures are breached or unauthorized access to client data or funds is otherwise obtained, our solutions may be perceived as not being secure, clients may reduce the use of or stop using our solutions and we may incur significant liabilities.
In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations.
We may become subject, from time to time, to legal proceedings and claims that arise in the ordinary course of business such as claims brought by our clients in connection with commercial disputes, employment claims made by our current or former employees, or lawsuits related to breaches of personal information.
Such claims may be brought by our clients in connection with commercial disputes, employment claims made by our current or former employees, or lawsuits related to breaches of personal information. Litigation might result in substantial costs and may divert management’s attention and resources, which could seriously harm our business, overall financial condition, and operating results.
We may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results. We have acquired and may in the future seek to acquire or invest in other businesses or technologies.
In addition, our policy may not cover all claims made against us and defending a suit, regardless of its merit, could be costly and divert management’s attention. 18 Table of Contents We may acquire other companies or technologies, which could divert our management’s attention, result in dilution to our stockholders, disrupt our operations and adversely affect our operating results.
Any future litigation against us could be costly and time-consuming to defend.
Any future litigation against us could be costly and time-consuming to defend. We have in the past, and may in the future, become subject to legal proceedings and claims that arise in the ordinary course of business.
Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are employed, we may be unable to anticipate these techniques or to implement adequate preventative measures in advance. As cyber threats continue to evolve, we are focused on ensuring that our operating environments safeguard and protect personal and business information.
Because the tactics and techniques used by threat actors to obtain unauthorized access or sabotage systems change frequently and, in some cases, are not recognized until they are launched or even later, we may be unable to anticipate these techniques or to implement adequate preventative measures in advance, and security breaches may remain undetected for an extended period of time.
Our solutions involve the storage and transmission of our clients’ and their employees’ proprietary and confidential information.
The solutions that we provide to clients involve the processing, storage and transmission of our clients’ proprietary and confidential information regarding their employees, consultants, independent contractors, other service providers and other groups or individuals.
We may be required to invest significant additional resources to comply with evolving cybersecurity regulations and to modify and enhance our information security and controls, and to investigate and remediate any security vulnerabilities.
Furthermore, the continuing and evolving threat of cyberattacks has resulted in increased regulatory focus and we may be required to invest significant additional resources to comply with evolving cybersecurity regulations.
Removed
Due to this seasonality in our business, quarter-to-quarter comparisons of our operations are not necessarily meaningful and such comparisons should not be relied upon as indications of future performance.
Added
Our quarterly operating results, including our revenues, operating income, and cash flow, have fluctuated and may continue to fluctuate in the future due to a variety of factors, many of which are outside of our control .
Removed
We have security measures and controls in place to protect confidential information, prevent data loss, theft and other security breaches, including penetration tests of our systems by independent third parties. However, if our security measures are breached, our business could be substantially harmed, and we could incur significant liabilities.
Added
Our business could be negatively impacted by disruptions in the operations of third-party service providers. We depend on relationships with certain third-party service providers to operate our business.
Removed
Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our solutions. 19 Table of Contents In order to protect our intellectual property rights, we may be required to spend significant resources, including cybersecurity resources, to monitor and protect these rights.
Added
We may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisition.
Removed
However, we may be unaware of the intellectual property rights that others may claim cover some or all of our technology or services.
Added
Risks Related to Cybersecurity and Intellectual Property Rights If our security measures are unable to prevent a breach or unauthorized access to our information systems, our proprietary and other information, our client data or funds, we may be subject to numerous adverse financial and other consequences, including that our solutions may be perceived as not being secure, clients may reduce the use of or stop using our solutions, and that we may incur significant liabilities to our clients and others.
Removed
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, applies to our benefit administration solution, BeneFLEX.

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Item 2. Properties

Properties — owned and leased real estate

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

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. From time to time, we may become involved in litigation related to claims arising from the ordinary course of our business. We believe that there are no claims or actions pending or threatened against us, the ultimate disposition of which would have a material adverse effect on us. Item 4. Mine Safety Disclosures.
Biggest changeItem 3. Legal Proceedings. From time to time, we are and may become involved in litigation related to claims arising from the ordinary course of our business. We believe that there are no claims or actions pending or threatened against us, the ultimate disposition of which would have a material adverse effect on us. Item 4. Mine Safety Disclosures.
Not applicable. 26 Table of Contents PART II
Not applicable. 29 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe 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.
Biggest changeThe 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.
Neither Delaware law nor our second amended and restated certificate of incorporation requires our board of directors to declare dividends on our common stock.
Neither Delaware law nor our third amended and restated certificate of incorporation requires our board of directors to declare dividends on our common stock.
There have been no material changes in the planned use of proceeds from the follow-on offering as described in the final prospectus filed with the SEC pursuant to Rule 424(b) on December 12, 2014. Dividend Policy We have not declared or paid dividends on our common stock since our IPO.
There have been no material changes in the planned use of proceeds from the follow-on offering as described in the final prospectus filed with the SEC pursuant to Rule 424(b) on December 12, 2014. Dividend Policy We have not declared or paid dividends on our common stock since becoming a publicly traded company.
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.
The following graph compares the total cumulative stockholder return on our common stock with the total cumulative return of the S&P 500 Index and the S&P Software & Services Select Industry Index during the period commencing on June 30, 2019 and ending on June 30, 2024.
Performance Graph Notwithstanding any statement to the contrary in any of our filings with the SEC, the following information shall not be deemed “filed” with the SEC or “soliciting material” under the Securities Exchange Act of 1934 and shall not be incorporated by reference into any such filings irrespective of any general incorporation language contained in such filing.
We do not anticipate paying cash dividends on our common stock for the foreseeable future. 30 Table of Contents Performance Graph Notwithstanding any statement to the contrary in any of our filings with the SEC, the following information shall not be deemed “filed” with the SEC or “soliciting material” under the Securities Exchange Act of 1934 and shall not be incorporated by reference into any such filings irrespective of any general incorporation language contained in such filing.
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.
On July 26, 2024, the last reported sale price of our common stock on the NASDAQ Global Select Market was $149.43 per share, and there were 16 holders of record of our common stock.
Removed
We do not anticipate paying cash dividends on our common stock for the foreseeable future.
Added
Historical stock price performance should not be relied upon as an indication of future stock price performance. 31 Table of Contents Issuer Purchases of Equity Securities The following describes the Company’s purchases of common stock during the three months ended June 30, 2024: Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) April 1, 2024 - April 30, 2024 — — — — May 1, 2024 - May 31, 2024 259,694 $ 152.76 259,694 $ 460,330,040 June 1, 2024 - June 30, 2024 790,560 $ 139.56 790,560 $ 350,000,134 Total 1,050,254 1,050,254 (1) On April 30, 2024, our board of directors approved a share repurchase program (the “Repurchase Program”) under which we are authorized to purchase (in the aggregate) up to $500 million of our issued and outstanding common stock at such times and prices that management deems to be appropriate.
Removed
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.
Added
For further information, see Note 15. Stockholders' Equity of the Notes to Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Item 6. [Reserved]
Removed
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]

Item 7. Management's Discussion & Analysis

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

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Biggest changeYear 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 $847.7 million for the year ended June 30, 2022.
Biggest changeYear Ended June 30, 2022 2023 2024 Consolidated Statements of Operations Data: Revenues: Recurring and other revenue 99% 93% 91% Interest income on funds held for clients 1% 7% 9% Total revenues 100% 100% 100% Cost of revenues 34% 31% 31% Gross profit 66% 69% 69% Operating expenses: Sales and marketing 25% 25% 24% Research and development 12% 14% 13% General and administrative 19% 16% 13% Total operating expenses 56% 55% 50% Operating income 10% 14% 19% Other income (expense) 0% 0% 1% Income before income taxes 10% 14% 20% Income tax expense (benefit) (1)% 2% 5 % Net income 11% 12% 15% 38 Table of Contents Comparison of Fiscal Years Ended June 30, 2023 and 2024 Revenues ($ in thousands) Year Ended June 30, Change from 2022 to 2023 Change from 2023 to 2024 2022 2023 2024 $ % $ % Recurring and other revenue $ 847,694 $ 1,098,036 $ 1,281,680 $ 250,342 30% $ 183,644 17% Percentage of total revenues 99 % 93 % 91 % Interest income on funds held for clients $ 4,957 $ 76,562 $ 120,835 $ 71,605 1,445% $ 44,273 58% Percentage of total revenues 1 % 7 % 9 % Recurring and Other Revenue Recurring and other revenue for the year ended June 30, 2024 increased by $183.6 million, or 17%, to $1,281.7 million from $1,098.0 million for the year ended June 30, 2023.
We believe there is a significant opportunity to grow our business by increasing our number of clients, and we intend to invest in our business to achieve this purpose. We market and sell our solutions through our direct sales force. We have increased our sales and marketing expenses as we have added sales representatives and related sales and marketing personnel.
We believe there is a significant opportunity to grow our business by increasing our number of clients, and we intend to invest in our business to achieve this purpose. We market and sell our solutions through our direct sales force. Our sales and marketing expenses have increased as we have added sales representatives and related sales and marketing personnel.
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.
We charge implementation fees for professional services provided to implement our HCM and payroll solutions. Implementations of our solutions typically require one to eight weeks, depending on the size and complexity of each client, at which point the new client’s payroll is first processed using our solution.
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.
Net cash 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.
However, Adjusted Gross Profit and Adjusted EBITDA are not measurements of financial performance under generally accepted accounting principles in the United States, or GAAP, and these metrics may not be comparable to similarly titled measures of other companies.
Adjusted Gross Profit and Adjusted EBITDA are not measurements of financial performance under generally accepted accounting principles in the United States, or GAAP, and these metrics may not be comparable to similarly titled measures of other companies.
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.
Our actual results could differ materially from those anticipated by us in these forward-looking statements as a result of various factors, including those discussed below and under Part I, Item 1A. “Risk Factors.” The following discussion of our financial condition and results of operations covers fiscal 2024 and 2023 items and year-over-year comparisons between fiscal 2024 and 2023.
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.
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.
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 evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. There was no impairment to capitalized internal-use software during the years ended June 30, 2022, 2023 or 2024.
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.
Capitalized employee costs are limited to the time directly spent on such projects. 41 Table of Contents Internal-use software is amortized on a straight-line basis, generally over a two- to three-year period while certain projects that support our main processing activities are amortized over ten years.
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.
We defer implementation fees related to our proprietary products over a period generally up to 24 months. Recurring and other revenue accounted for approximately 99%, 93% and 91% of our total revenues during the years ended June 30, 2022, 2023 and 2024, respectively. Interest Income on Funds Held for Clients We earn interest income on funds held for clients.
We define Adjusted EBITDA as net income before interest expense, income tax expense (benefit), depreciation and amortization expense, stock-based compensation expense and employer payroll taxes related to stock releases and option exercises, and other items as defined below.
We define Adjusted EBITDA as net income before interest expense, income tax expense (benefit), depreciation and amortization expense, stock-based compensation expense and employer payroll taxes related to stock releases and option exercises and other items as described below.
Research and development expenses, other than internal-use software costs qualifying for capitalization, are expensed as incurred. We capitalize a portion of our development costs related to internal-use software. The timing of our capitalized development projects may affect the amount of development costs expensed in any given period.
Research and development expenses, other than internal-use software costs qualifying for capitalization, are expensed as incurred. 36 Table of Contents We capitalize a portion of our development costs related to internal-use software. The timing of our capitalized development projects may affect the amount of development costs expensed in any given period.
We have certain optional performance obligations that are satisfied at a point in time including the sales of time clocks and W-2 preparation services. Non-recurring service fees consist mainly of nonrefundable implementation fees, which involve setting up the client in, and loading data into, our cloud-based modules. These implementation activities are considered set-up activities.
We have certain optional performance obligations that are satisfied at a point in time including the sales of time clocks and W-2 preparation services. Implementation services and other consist mainly of nonrefundable implementation fees, which involve setting up the client in, and loading data into, our cloud-based modules. These implementation activities are considered set-up activities.
To do so, we must continue to enhance and grow the number of solutions we offer to advance our platform. We also believe that delivering a positive service experience is an essential element of our ability to sell our solutions and retain our clients.
To do so, we must continue to enhance and grow the number of solutions we offer to advance our platform. 32 Table of Contents We also believe that delivering a positive service experience is an essential element of our ability to sell our solutions and retain our clients.
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 amortized $25.3 million, $31.4 million and $45.2 million of capitalized internal-use software costs in fiscal 2022, 2023 and 2024, respectively. Operating Expenses Sales and Marketing Sales and marketing expenses consist primarily of employee-related expenses for our direct sales and marketing staff, including wages, commissions, stock-based compensation, bonuses, benefits, marketing expenses and other related costs.
We amortized $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.
We amortized $25.3 million, $31.4 million and $45.2 million of capitalized internal-use software costs for the years ended June 30, 2022, 2023 and 2024, respectively. Business Combinations We include the results of businesses acquired in our consolidated financial statements from the date of acquisition.
The table below sets forth the amounts of capitalized and expensed research and development expenses for each of fiscal 2021, 2022 and 2023.
The table below sets forth the amounts of capitalized and expensed research and development expenses for each of fiscal 2022, 2023 and 2024.
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.
We currently have agreements with various major U.S. banks to execute ACH and wire transfers to support our client payroll and tax services. We believe we have sufficient capacity under these ACH arrangements to handle all transaction volumes for the foreseeable future.
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.
Contractual Obligations Our principal commitments consist of $64.1 million in operating lease obligations, of which $9.8 million is due in the next twelve months. Refer to Note 13 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” for additional details on our lease activity.
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.
Liquidity and Capital Resources Our primary liquidity needs are related to the funding of general business requirements, including working capital requirements, research and development, and capital expenditures. As of June 30, 2024, our principal sources of liquidity were $401.8 million of cash and cash equivalents.
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 .
Discussion of fiscal 2022 items and year-over-year comparisons between fiscal 2023 and 2022 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 that was filed with the SEC on August 4, 2023.
We define Adjusted Gross Profit as gross profit before amortization of capitalized internal-use software costs and certain acquired intangibles and stock-based compensation expense and employer payroll taxes related to stock releases and option exercises.
We define Adjusted Gross Profit as gross profit before amortization of capitalized internal-use software costs and certain acquired intangibles, stock-based compensation expense and employer payroll taxes related to stock releases and option exercises and other items as described below.
We compensate for these limitations by relying primarily on our GAAP results, and we use Adjusted Gross Profit and Adjusted EBITDA only as supplemental information. Directly comparable GAAP measures to Adjusted Gross Profit and Adjusted EBITDA are gross profit and net income, respectively.
We compensate for these limitations by relying primarily on our GAAP results, and we use Adjusted Gross Profit and Adjusted EBITDA only as supplemental information. 34 Table of Contents Directly comparable GAAP measures to Adjusted Gross Profit and Adjusted EBITDA are gross profit and net income, respectively.
We prepare Adjusted Gross Profit and Adjusted EBITDA to eliminate the impact of items we do not consider indicative of our ongoing operating performance.
Our calculations of Adjusted Gross Profit and Adjusted EBITDA eliminate the impact of items we do not consider indicative of our ongoing operating performance.
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.
Revenue Growth Our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results and cash flow from operations. This visibility enables us to better manage and invest in our business. Total revenues increased from $852.7 million in fiscal 2022 to $1,174.6 million in fiscal 2023, representing a 38% year-over-year increase.
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.
Other Income (Expense) Other income (expense) generally consists of interest income related to interest earned on our cash and cash equivalents, net of losses on disposals of property and equipment and interest expense related to our revolving credit facility. 37 Table of Contents Results of Operations The following table sets forth our statements of operations data for each of the periods indicated.
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 also have $72.7 million in purchase obligations, of which $43.5 million is due in the next twelve months. New Accounting Pronouncements Refer to Note 2 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” for a discussion of recently issued accounting standards.
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.
Interest income on funds held for clients increased primarily due to higher interest rates and higher average daily balances for funds held due to the addition of new clients to our client base as compared to the prior fiscal year.
Because of these limitations, you should not consider Adjusted Gross Profit as an alternative to gross profit or Adjusted EBITDA as an alternative to net income or net cash provided by operating activities, in each case as determined in accordance with GAAP.
Because of these limitations, you should not consider Adjusted Gross Profit as an alternative to gross profit or Adjusted EBITDA as an alternative to net income, in each case as determined in accordance with GAAP.
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.
Capital expenditures were $18.1 million, $21.9 million and $18.0 million for the years ended June 30, 2022, 2023 and 2024, respectively, exclusive of capitalized internal-use software costs of $34.5 million, $45.0 million, and $60.7 million for the same periods, respectively.
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.
During fiscal 2024, total revenue growth was driven by the strong performance of our sales team, continued annual revenue retention in excess of 92%, and growth in interest income on funds held for clients attributable both to rising interest rates and higher average daily balances for funds held for clients, which were due to the addition of new clients as compared to the prior fiscal year.
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.
Additional expenses include consulting and professional fees, occupancy costs, insurance and other corporate expenses. While we expect our general and administrative expenses to continue to increase in absolute dollars as our company continues to grow, we expect to realize cost efficiencies as our business scales.
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.
Financing Activities Net cash provided by (used in) financing activities was $2,172.3 million, $(1,434.7) million and $141.6 million for the years ended June 30, 2022, 2023 and 2024, respectively.
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.
We capitalized $42.2 million, $55.6 million and $75.5 million of internal-use software costs for the years ended June 30, 2022, 2023 and 2024, respectively, including stock-based compensation costs of $7.1 million, $11.9 million and $14.4 million for the years ended June 30, 2022, 2023 and 2024, respectively.
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.
The change in net cash provided by operating activities from fiscal 2023 to fiscal 2024 was primarily due to improved operating results after adjusting for non-cash items including stock-based compensation expense, depreciation and amortization expense and deferred income tax expense during the year ended June 30, 2024 as compared to the year ended June 30, 2023. 43 Table of Contents Investing Activities Net cash used in investing activities was $479.8 million, $220.2 million and $101.9 million, for the years ended June 30, 2022, 2023 and 2024, respectively.
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.
Year Ended June 30, 2022 2023 2024 (in thousands) Capitalized portion of research and development $ 42,234 $ 55,582 $ 75,531 Expensed portion of research and development 102,908 163,994 178,333 Total research and development $ 145,142 $ 219,576 $ 253,864 We expect to grow our research and development efforts as we continue to broaden our product offerings and extend our technological leadership by investing in the development of new technologies and introducing them to new and existing clients.
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.
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 and continued annual revenue retention in excess of 92%.
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.
Excluding clients acquired through acquisitions, the number of clients using our HCM and payroll software solutions at June 30, 2024 increased by 8% to approximately 39,050 from approximately 36,200 at June 30, 2023.
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.
The change in net cash provided by (used in) financing activities was primarily due to the change in client fund obligations of $1,687.5 million due to the timing of client funds collected and related remittance of those funds to client employees and taxing authorities, partially offset by $150.0 million in share repurchases during the year ended June 30, 2024 as compared to the year ended June 30, 2023.
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.
Research and Development Year Ended June 30, Change from 2022 to 2023 Change from 2023 to 2024 2022 2023 2024 $ % $ % Research and development $ 102,908 $ 163,994 $ 178,333 $ 61,086 59% $ 14,339 9% Percentage of total revenues 12% 14% 13% Research and development expenses for the year ended June 30, 2024 increased by $14.3 million, or 9%, to $178.3 million from $164.0 million for the year ended June 30, 2023.
Cost of Revenues ($ 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 $287.0 million for the year ended June 30, 2022.
Cost of Revenues ($ in thousands) Year Ended June 30, Change from 2022 to 2023 Change from 2023 to 2024 2022 2023 2024 $ % $ % Cost of revenues $ 287,002 $ 367,039 $ 441,729 $ 80,037 28% $ 74,690 20% Percentage of total revenues 34% 31% 31% Gross profit margin 66% 69% 69% Cost of revenues for the year ended June 30, 2024 increased by $74.7 million, or 20%, to $441.7 million from $367.0 million for the year ended June 30, 2023.
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.
Our average client size has continued to be over 150 employees. 35 Table of Contents While the majority of our agreements with clients are generally cancellable by the client on 60 days’ notice or less, we also have entered into term agreements, which are generally two years in length.
Cash 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.
Cash Flows The following table sets forth data regarding cash flows for the periods indicated: Year Ended June 30, 2022 2023 2024 Net cash provided by operating activities $ 155,053 $ 282,723 $ 384,670 Cash flows from investing activities: Purchases of available-for-sale securities and other (433,962) (598,895) (304,465) Proceeds from sales and maturities of available-for-sale securities 116,848 446,751 294,438 Capitalized internal-use software costs (34,515) (45,004) (60,726) Purchases of property and equipment (18,069) (21,910) (18,028) Acquisitions of businesses, net of cash acquired (107,576) — (12,031) Other investing activities (2,500) (1,104) (1,079) Net cash used in investing activities (479,774) (220,162) (101,891) Cash flows from financing activities: Net change in client fund obligations 2,228,038 (1,362,421) 325,056 Borrowings under credit facility 50,000 — — Repayment of credit facility (50,000) — — Repurchases of common shares — — (150,000) Proceeds from employee stock purchase plan 14,103 16,916 19,143 Taxes paid related to net share settlement of equity awards (69,761) (88,312) (52,549) Other financing activities (87) (885) (72) Net cash provided by (used in) financing activities 2,172,293 (1,434,702) 141,578 Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents $ 1,847,572 $ (1,372,141) $ 424,357 Operating Activities Net cash provided by operating activities was $155.1 million, $282.7 million and $384.7 million for the years ended June 30, 2022, 2023 and 2024, respectively.
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%.
Excluding clients acquired through acquisitions, we have increased the number of clients using our HCM and payroll software solutions from approximately 33,300 as of June 30, 2022 to approximately 39,050 as of June 30, 2024, representing a compound annual growth rate of approximately 8%.
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.
Total revenues increased from $1,174.6 million in fiscal 2023 to $1,402.5 million in fiscal 2024, representing a 19% year-over-year increase.
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.
Our effective tax rate for the year ended June 30, 2024 was higher than the federal statutory rate of 21% primarily due to increase in state taxes. 40 Table of Contents See Note 14 of the Notes to Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for further details on the components of income tax and a reconciliation of the U.S. federal statutory rate to the effective tax rate.
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.
We reconcile Adjusted Gross Profit and Adjusted EBITDA as follows: Year Ended June 30, 2022 2023 2024 (in thousands) Reconciliation from Gross Profit to Adjusted Gross Profit Gross profit $ 565,649 $ 807,559 $ 960,786 Amortization of capitalized internal-use software costs 25,267 31,440 45,246 Amortization of certain acquired intangibles 1,853 7,414 7,907 Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 12,610 18,446 20,350 Other items (1) 121 19 469 Adjusted Gross Profit $ 605,500 $ 864,878 $ 1,034,758 Year Ended June 30, 2022 2023 2024 (in thousands) Reconciliation from Net income to Adjusted EBITDA Net income $ 90,777 $ 140,822 $ 206,766 Interest expense 498 752 758 Income tax expense (benefit) (7,180) 17,792 70,249 Depreciation and amortization expense 50,218 60,866 76,426 EBITDA 134,313 220,232 354,199 Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 101,109 154,505 152,446 Other items (2) 2,378 446 (1,091) Adjusted EBITDA $ 237,800 $ 375,183 $ 505,554 (1) Represents acquisition-related costs and severance costs related to certain roles that have been eliminated.
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.
Year Ended June 30, 2022 2023 2024 (in thousands) Consolidated Statements of Operations Data: Revenues: Recurring and other revenue $ 847,694 $ 1,098,036 $ 1,281,680 Interest income on funds held for clients 4,957 76,562 120,835 Total revenues 852,651 1,174,598 1,402,515 Cost of revenues 287,002 367,039 441,729 Gross profit 565,649 807,559 960,786 Operating expenses: Sales and marketing 214,455 296,716 334,954 Research and development 102,908 163,994 178,333 General and administrative 163,692 191,823 187,406 Total operating expenses 481,055 652,533 700,693 Operating income 84,594 155,026 260,093 Other income (expense) (997) 3,588 16,922 Income before income taxes 83,597 158,614 277,015 Income tax expense (benefit) (7,180) 17,792 70,249 Net income $ 90,777 $ 140,822 $ 206,766 The following table sets forth our statements of operations data as a percentage of total revenue for each of the periods indicated.
In July 2019, we entered into a five-year revolving credit agreement, which we amended in August 2022. The amended credit agreement provides for a $550.0 million revolving credit facility which may be increased up to $825.0 million. No amounts were drawn on the revolving credit facility as of June 30, 2023.
We also have a credit agreement which provides for a $550.0 million revolving credit facility which may be increased up to $825.0 million. No amounts were drawn on the revolving credit facility as of June 30, 2024.
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.
The increase in sales and marketing expense was primarily due to $26.8 million of additional employee-related costs, including those incurred to expand our sales team. The increase was also driven by $7.4 million in additional marketing lead generation costs.
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.
General and Administrative Year Ended June 30, Change from 2022 to 2023 Change from 2023 to 2024 2022 2023 2024 $ % $ % General and administrative $ 163,692 $ 191,823 $ 187,406 $ 28,131 17% $ (4,417) (2)% Percentage of total revenues 19% 16% 13% General and administrative expenses for the year ended June 30, 2024 decreased by $4.4 million, or 2%, to $187.4 million from $191.8 million for the year ended June 30, 2023.
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.
June 30, 2022 2023 2024 Client Count 33,300 36,200 39,050 The rate at which we add clients is highly variable period-to-period and highly seasonal as many clients switch solutions during the first calendar quarter of each year.
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.
The change in net cash used in investing activities from fiscal 2023 to fiscal 2024 was primarily due to a $294.4 million decrease in purchases of available-for-sale securities, partially offset by $152.3 million less proceeds from sales and maturities of available-for-sale securities as compared to the year ended June 30, 2023.
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.
Interest Income on Funds Held for Clients Interest income on funds held for clients for the year ended June 30, 2024 increased by $44.3 million, or 58%, to $120.8 million from $76.6 million for the year ended June 30, 2023.
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.
Cost of revenues increased primarily as a result of the continued growth of our business, in particular, $44.9 million in additional employee-related costs resulting from additional personnel necessary to provide services to new and existing clients, $13.8 million in additional processing and delivery related costs and $13.6 million in increased internal-use software amortization.
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.
Uncertainties around market and economic conditions may impact revenue growth, which we have recently experienced and may continue to experience, through fluctuations in client employee counts, elongated sales cycles, client losses, and a changing interest rate environment, among other factors. Client Count Growth We believe there is a significant opportunity to grow our business by increasing our number of clients.
We plan to continue to invest in research and development efforts that will allow us to offer a broader selection of products to new and existing clients focused on experiences that solve our clients’ challenges.
Our platform offers automated data integration with hundreds of third-party partner systems, such as 401(k), benefits and insurance provider systems. We plan to continue to invest in research and development efforts that will allow us to offer a broader selection of products to new and existing clients focused on experiences that solve our clients’ challenges.
However, we expect to fund our operations, capital expenditures, acquisitions and other investments principally with cash flows from operations, and to the extent that our liquidity needs exceed our cash from operations, we would look to our cash on hand or utilize the borrowing capacity under our credit facility to satisfy those needs.
However, we expect to fund our operations, capital expenditures, acquisitions, share repurchases and other investments principally with cash flows from operations, and to the extent that our liquidity needs exceed our cash from operations, we would look to our cash on hand or utilize the borrowing capacity under our credit facility to satisfy those needs. 42 Table of Contents Funds held for clients and client fund obligations will vary substantially from period to period as a result of the timing of payroll and tax obligations due.
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.
The increase in research and development expenses was primarily due to $29.0 million of additional employee-related costs related to additional development personnel, partially offset by $16.6 million in higher period-over-period capitalized internal-use software costs.
Gross profit margin increased from 66% for the year ended June 30, 2022 to 69% for the year ended June 30, 2023, which was primarily driven by total revenue growth and improved operating leverage. 35 Table of Contents Operating Expenses ($ 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 $214.5 million for the year ended June 30, 2022.
Gross profit margin was 69% for both years ended June 30, 2023 and 2024. 39 Table of Contents Operating Expenses ($ in thousands) Sales and Marketing Year Ended June 30, Change from 2022 to 2023 Change from 2023 to 2024 2022 2023 2024 $ % $ % Sales and marketing $ 214,455 $ 296,716 $ 334,954 $ 82,261 38% $ 38,238 13% Percentage of total revenues 25% 25% 24% Sales and marketing expenses for the year ended June 30, 2024 increased by $38.2 million, or 13%, to $335.0 million from $296.7 million for the year ended June 30, 2023.
In order to grow our business, we intend to increase our personnel and related expenses and to make significant investments in our platform, data centers and general infrastructure.
As of June 30, 2024, we did not have any corporate investments classified as available-for-sale securities. In order to grow our business, we intend to increase our personnel and related expenses and to make significant investments in our platform, data centers and general infrastructure.
We believe that the total fees charged to our clients is indicative of the standalone selling price as these fees are within the range of prices typically charged for our services to our clients.
The performance obligations related to recurring services are generally satisfied monthly as services are provided, with fees charged and collected based on a per-employee-per-month fee. We believe that the total fees charged to our clients is indicative of the standalone selling price as these fees are within the range of prices typically charged for our services to our clients.
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.
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.
Funds held for clients and client fund obligations will vary substantially from period to period as a result of the timing of payroll and tax obligations due. Our payroll processing activities involve the movement of significant funds from accounts of employers to employees and relevant taxing authorities.
Our payroll processing activities involve the movement of significant funds from accounts of employers to employees and relevant taxing authorities.
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 may invest portions of our excess cash and cash equivalents in highly liquid, investment-grade marketable securities. These investments may consist of commercial paper, corporate debt issuances, asset-backed debt securities, certificates of deposit, U.S. treasury securities, U.S. government agency securities and other securities with credit quality ratings of A-1 or higher and as well as in money market funds.
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.
Overview We are a leading cloud-based provider of human capital management, or HCM, and payroll software solutions that deliver a comprehensive platform for the modern workforce. Our HCM and payroll platform offers an intuitive, easy-to-use product suite that helps businesses attract and retain talent, build culture and connection with their employees, and streamline and automate HR and payroll processes.
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.
The change in other income (expense) was primarily due to higher interest income earned on our cash and cash equivalents as a result of higher interest rates and higher average daily balances of those corporate cash and cash equivalents.
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.
In the third quarter of fiscal 2022, we borrowed $50.0 million in connection with our acquisition of Cloudsnap, Inc., which we repaid within the same quarter. Refer to Note 12 of the Notes to the Consolidated Financial Statements included in Part II, Item 8: “Financial Statements and Supplementary Data” for additional details on the credit agreement and borrowing activity.
Our sales personnel earn commissions and bonuses for attainment of certain performance criteria based upon new sales throughout the fiscal year.
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.
Annual Revenue Retention Rate Our annual revenue retention rate has been in excess of 92% during each of the past three fiscal years.
Although many clients have multiple divisions, segments or locations, we only count such clients once for these purposes. 33 Table of Contents Annual Revenue Retention Rate Our annual revenue retention rate has been in excess of 92% during each of the past three fiscal years.
Our cloud-based software solutions, combined with our unified database architecture, are highly flexible and configurable and feature a modern, intuitive user experience. Our platform offers automated data integration with hundreds of third-party partner systems, such as 401(k), benefits and insurance provider systems.
Effective management of human capital is a core function in all organizations and requires a significant commitment of resources. Our cloud-based software solutions, combined with our unified database architecture, are highly flexible and configurable and feature a modern, intuitive user experience.
(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.
Basis of Presentation Revenues Recurring and Other Revenue We generate substantially all of our recurring and other revenue from ongoing subscriptions to our cloud-based HCM and payroll software solutions, which are recurring in nature.
We derive our revenue from contracts with clients predominantly from recurring and non-recurring service fees. Recurring fees are derived from payroll and HR related services including time and attendance, HR and talent management and benefits enrollment and administration services.
We derive our revenue from contracts with clients substantially all from recurring service fees.
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.
Other Income (Expense) Other income (expense) for the year ended June 30, 2024 increased by $13.3 million as compared to the year ended June 30, 2023.
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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.
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We exclude one-off severance costs that we incur as part of the normal course of our business operations. (2) Represents acquisition and nonrecurring transaction-related costs, lease exit activity and severance costs related to certain roles that have been eliminated. We exclude one-off severance costs that we incur as part of the normal course of our business operations.
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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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The decrease in general and administrative expenses was primarily due to a $4.3 million gain related to lease exit activity. Excluding the gain on lease exit activity, general and administrative expenses remained relatively flat year over year as we continue to focus on achieving cost efficiencies as our business scales.
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Payroll services are delivered on a weekly, biweekly, semi-monthly, or monthly basis depending upon the payroll frequency of the client and on an annual basis if a client selects W-2 preparation and processing services. HR related services are typically delivered on a monthly basis. The majority of our recurring fees are satisfied over time as services are provided.
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Income Tax Expense (Benefit) Our effective tax rates were 11.2% and 25.4% for the years ended June 30, 2023 and 2024, respectively. Our effective tax rate for the year ended June 30, 2023 was lower than the federal statutory rate of 21% primarily due to benefits from stock-based compensation and research and development tax credits generated.

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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 changeWe 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.
Biggest changeWe 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, U.S. treasury securities, and other securities. Our investment policy is focused on generating higher yields from these investments while preserving liquidity and capital.
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.
Borrowings under the credit facility generally bear interest at a rate based upon the Term Secured Overnight Financing Rate (“SOFR”) plus the SOFR Adjustment or an adjusted base rate plus an applicable margin based on our then-applicable net total leverage ratio. As of June 30, 2024 , there were no amounts drawn on the credit facility.
However, 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.
However, as a result of our investing activities, we are exposed to changes in interest rates that may materially affect our financial statements. 44 Table of Contents In a falling rate environment, a decline in interest rates would decrease our interest income earned on both cash and cash equivalents and funds held for clients.
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.
An immediate 100-basis point decrease in interest rates would have resulted in an increase in the market value of our available-for-sale securities by $10.4 million as of June 30, 2024. Fluctuations in the value of our available-for-sale securities caused by changes in interest rates are recorded in other comprehensive income and are only realized if we sell the underlying securities.
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.
Based upon a sensitivity model that measures market value changes caused by interest rate fluctuations, an immediate 100-basis point increase in interest rates would have resulted in a decrease in the market value of our available-for-sale securities by $10.4 million as of June 30, 2024.
We have not 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 have not used, nor do we intend to use, derivatives to mitigate the impact of interest rate or other exposure or for trading or speculative purposes. Interest Rate Risk As of June 30, 2024, we had cash and cash equivalents of $401.8 million and funds held for clients of $2,952.1 million.
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Our investment policy is focused on generating higher yields from these investments while preserving liquidity 40 Table of Contents and capital.

Other PCTY 10-K year-over-year comparisons