Paylocity Holding Corp.

05/08/2026 | Press release | Distributed by Public on 05/08/2026 08:02

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
The statements included herein that are not based solely on historical facts are "forward looking statements." Such forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. Our actual results could differ materially from those anticipated by us in these forward-looking statements as a result of various factors, including items discussed below and under Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended June 30, 2025 filed with the SEC on August 6, 2025.
Overview
We are a leading cloud-based provider of HR, finance and IT software solutions that deliver a comprehensive platform for the modern workforce. Our platform offers an intuitive, easy-to-use product suite that helps businesses automate and streamline HR, finance and IT processes, attract and retain talent, and build culture and connection - with artificial intelligence ("AI") embedded directly into everyday workflows to save time, reduce manual effort, and support better decisions.
Effective management of human capital and business-related spend is a core function in all organizations and requires a significant commitment of resources. Our cloud-based software solutions, combined with our unified database architecture, are highly flexible and configurable and feature a modern, intuitive user experience. 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.
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 intend to continue to grow our sales and marketing organization across new and existing geographic territories. In addition to growing our number of clients, we intend to grow our revenue over the long term by increasing the number of solutions that clients purchase from us. To do so, we must continue to enhance and grow the number of solutions we offer to advance our platform.
We also believe that delivering a positive service experience is an essential element of our ability to sell our solutions and retain our clients. We supplement our comprehensive software solutions with an integrated implementation and client service organization, all of which are designed to meet the needs of our clients and sales prospects. We expect to continue to invest in and grow our implementation and client service organization as our client base grows.
We will continue to invest across our entire organization as we continue to grow our business over the long term. These investments include increasing the number of personnel across all functional areas, along with improving our solutions and infrastructure to support our growth. The timing and amount of these investments vary based on the rate at which we add new clients and personnel and scale our application development and other activities. Many of these investments will occur in advance of experiencing any direct benefit from them, which will make it difficult to determine if we are effectively allocating our resources. We expect these investments to increase our costs on an absolute basis, but as we grow our number of clients and our related revenues, we anticipate that we will gain economies of scale and increased operating leverage. As a result, we expect our gross and operating margins will improve over the long term.
Paylocity Holding Corporation is a Delaware corporation, which was formed in November 2013. Our business operations are conducted by our wholly owned subsidiaries.
Key Metrics
We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.
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 $454.5 million for the three months ended March 31, 2025 to $502.3 million for the three months ended March 31, 2026, representing an 11% year-over-year increase. Total revenues increased from $1,194.5 million for the nine months ended March 31, 2025 to $1,326.6 million for the nine months ended March 31, 2026, representing an 11% year-over-year increase. The increase in year-over-year revenue growth was driven by the strong performance by our sales team. 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.
Adjusted Gross Profit and Adjusted EBITDA
We disclose Adjusted Gross Profit and Adjusted EBITDA, which are non-GAAP measures, because we use them to evaluate our performance, and we believe Adjusted Gross Profit and Adjusted EBITDA assist in the comparison of our performance across reporting periods by excluding certain items that we do not believe are indicative of our core operating performance. We believe these metrics are commonly used in the financial community, and we present them to enhance investors' understanding of our operating performance and cash flows.
Adjusted Gross Profit and Adjusted EBITDA are not measurements of financial performance under generally accepted accounting principles in the United States ("GAAP"), and 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. In addition, our definition of Adjusted Gross Profit and Adjusted EBITDA may be different than the definition utilized for similarly-titled measures used by other companies.
We define Adjusted Gross Profit as gross profit before amortization of capitalized internal-use software costs, amortization of 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 define Adjusted EBITDA as net income before interest expense, income tax expense, 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.
Three Months Ended
March 31, 		Nine Months Ended
March 31,
2025 2026 2025 2026
($ in thousands)
Reconciliation from Gross Profit to Adjusted Gross Profit
Gross profit $ 324,695 $ 363,188 $ 825,126 $ 925,118
Amortization of capitalized internal-use software costs 15,248 17,212 43,858 52,180
Amortization of certain acquired intangibles 4,749 4,443 11,562 13,563
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 4,789 3,621 15,719 13,462
Other items (1) 641 - 781 342
Adjusted Gross Profit $ 350,122 $ 388,464 $ 897,046 $ 1,004,665
Three Months Ended
March 31, 		Nine Months Ended
March 31,
2025 2026 2025 2026
($ in thousands)
Reconciliation from Net income to Adjusted EBITDA
Net income $ 91,483 $ 111,250 $ 178,521 $ 209,438
Interest expense 4,436 1,128 9,682 4,698
Income tax expense 35,079 45,788 63,743 92,690
Depreciation and amortization expense 25,972 27,298 73,184 82,554
EBITDA 156,970 185,464 325,130 389,380
Stock-based compensation expense and employer payroll taxes related to stock releases and option exercises 37,475 32,802 118,045 115,910
Other items (2) 2,611 1,955 9,073 4,071
Adjusted EBITDA $ 197,056 $ 220,221 $ 452,248 $ 509,361
(1)Represents acquisition-related costs and severance cost adjustments 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.
(2)Represents acquisition and transaction-related costs 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.
Basis of Presentation
Revenues
Recurring and other revenue
We generate substantially all of our recurring and other revenue from ongoing subscriptions to our cloud-based software solutions, which are recurring in nature. Recurring fees for each client generally include a base fee in addition to a fee based on the number of client employees and the number of products a client uses. We also charge fees for our preparation of W-2 documents and annual required filings on behalf of our clients. We charge implementation fees for professional services provided to implement our software solutions.
The number of client employees on our platform and the mix of products purchased by a client as well as the timing of services provided with respect to those client employees can vary each period. As such, the number of client employees on our system is not necessarily a good indicator of our financial results in any given period. Recurring and other revenue accounted for 93% and 94% of our total revenues for the three months ended March 31, 2025 and 2026, respectively, and 92% and 93% of our total revenues for the nine months ended March 31, 2025 and 2026, respectively.
While the majority of our agreements with clients are generally cancellable by the client on 60 days' notice or less, we also have term agreements, which are generally two years in length. Our agreements do not include general rights of return and do not provide clients with the right to take possession of the software supporting the services being provided. We recognize recurring fees in the period in which services are provided and the related performance obligations have been satisfied. We defer implementation fees related to our proprietary products over a period generally up to 24 months.
Interest Income on Funds Held for Clients
We earn interest income on funds held for clients. We collect funds from clients in advance of performing payroll, payroll tax filing and spend management services on behalf of those clients. Until these funds are remitted to the respective payees, we earn interest on these funds through demand deposit accounts with financial institutions with which we have automated clearing house, or ACH, arrangements. We also earn interest by investing a portion of funds held for clients in highly liquid, investment-grade marketable securities.
Cost of Revenues
Cost of revenues consists primarily of employee-related expenses, including wages, stock-based compensation, bonuses and benefits, relating to the provision of ongoing client support and implementation activities, payroll tax filing, distribution of printed checks and other materials as well as delivery costs, computing costs, amortization of certain acquired intangibles and bank fees associated with client fund transfers. Costs related to recurring support are generally expensed as incurred. Implementation costs related to our proprietary products are capitalized and generally amortized over a period of 7 years. Our cost of revenues is expected to increase in absolute dollars for the foreseeable future as we increase our client base. However, we expect to realize cost efficiencies over the long term as our business scales, resulting in improved operating leverage and increased margins.
We also capitalize a portion of our internal-use software costs, which are then primarily amortized as Cost of revenues. We amortized $15.2 million and $17.2 million of capitalized internal-use software costs during the three months ended March 31, 2025 and 2026, respectively, and $43.9 million and $52.2 million of capitalized internal-use software costs for the nine months ended March 31, 2025 and 2026, respectively.
Operating Expenses
Sales and Marketing
Sales and marketing expenses consist primarily of employee-related expenses for our direct sales and marketing staff, including wages, commissions, stock-based compensation, bonuses, benefits, marketing expenses and other related costs. Our sales personnel earn commissions and bonuses for attainment of certain performance criteria based upon new sales throughout the fiscal year. We capitalize certain selling and commission costs related to new contracts or purchases of additional services by our existing clients and generally amortize them over a period of 7 years.
We will seek to grow our number of clients for the foreseeable future and therefore our sales and marketing expense is expected to continue to increase in absolute dollars as we grow our sales organization and expand our marketing activities.
Research and Development
Research and development expenses consist primarily of employee-related expenses for our research and development and product management staff, including wages, stock-based compensation, bonuses and benefits. Additional expenses include costs related to the development, maintenance, quality assurance and testing of new technologies and ongoing refinement of our existing solutions. Research and development expenses, other than internal-use software costs qualifying for capitalization, are expensed as incurred.
We capitalize a portion of our development costs related to internal-use software. The timing of our capitalized development projects may affect the amount of development costs expensed in any given period. The table below sets forth the amounts of capitalized and expensed research and development expenses for the three and nine months ended March 31, 2025 and 2026.
Three Months Ended
March 31, 		Nine Months Ended
March 31,
2025 2026 2025 2026
($ in thousands)
Capitalized portion of research and development $ 20,368 $ 22,567 $ 56,918 $ 59,835
Expensed portion of research and development 51,396 52,515 154,811 165,861
Total research and development $ 71,764 $ 75,082 $ 211,729 $ 225,696
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. We expect research and development expenses to continue to increase in absolute dollars but to vary as a percentage of total revenue on a period-to-period basis.
General and Administrative
General and administrative expenses consist primarily of employee-related costs, including wages, stock-based compensation, bonuses and benefits for our finance and accounting, legal, information systems, human resources and other administrative departments. 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.
Other Income (Expense)
Other income (expense) generally consists of interest income related to interest earned on our cash and cash equivalents, net of interest expense related to our revolving credit facility.
Results of Operations
The following table sets forth our statements of operations data for each of the periods indicated.
Three Months Ended
March 31, 		Nine Months Ended
March 31,
2025 2026 2025 2026
($ in thousands)
Consolidated Statements of Operations Data:
Revenues:
Recurring and other revenue $ 421,096 $ 469,930 $ 1,101,915 $ 1,235,768
Interest income on funds held for clients 33,452 32,356 92,569 90,824
Total revenues 454,548 502,286 1,194,484 1,326,592
Cost of revenues 129,853 139,098 369,358 401,474
Gross profit 324,695 363,188 825,126 925,118
Operating expenses:
Sales and marketing 91,774 95,732 273,338 290,178
Research and development 51,396 52,515 154,811 165,861
General and administrative 54,495 57,962 159,180 167,508
Total operating expenses 197,665 206,209 587,329 623,547
Operating income 127,030 156,979 237,797 301,571
Other income (expense) (468) 59 4,467 557
Income before income taxes 126,562 157,038 242,264 302,128
Income tax expense 35,079 45,788 63,743 92,690
Net income $ 91,483 $ 111,250 $ 178,521 $ 209,438
The following table sets forth our statements of operations data as a percentage of total revenues for each of the periods indicated.
Three Months Ended
March 31, 		Nine Months Ended
March 31,
2025 2026 2025 2026
Consolidated Statements of Operations Data:
Revenues:
Recurring and other revenue 93 % 94 % 92 % 93 %
Interest income on funds held for clients 7 % 6 % 8 % 7 %
Total revenues 100 % 100 % 100 % 100 %
Cost of revenues 29 % 28 % 31 % 30 %
Gross profit 71 % 72 % 69 % 70 %
Operating expenses:
Sales and marketing 20 % 19 % 23 % 22 %
Research and development 11 % 10 % 13 % 12 %
General and administrative 12 % 12 % 13 % 13 %
Total operating expenses 43 % 41 % 49 % 47 %
Operating income 28 % 31 % 20 % 23 %
Other income (expense) 0 % 0 % 0 % 0 %
Income before income taxes 28 % 31 % 20 % 23 %
Income tax expense 8 % 9 % 5 % 7 %
Net income 20 % 22 % 15 % 16 %
Comparison of Three Months Ended March 31, 2025 and 2026
Revenues
($ in thousands)
Three Months Ended
March 31, 		Change
2025 2026 $ %
Recurring and other revenue $ 421,096 $ 469,930 $ 48,834 12 %
Percentage of total revenues 93 % 94 %
Interest income on funds held for clients $ 33,452 $ 32,356 $ (1,096) (3) %
Percentage of total revenues 7 % 6 %
Recurring and Other Revenue
Recurring and other revenue for the three months ended March 31, 2026 increased by $48.8 million, or 12%, to $469.9 million from $421.1 million for the three months ended March 31, 2025. 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.
Interest Income on Funds Held for Clients
Interest income on funds held for clients for the three months ended March 31, 2026 decreased by $1.1 million, or 3%, as compared to the three months ended March 31, 2025. The slight decrease in Interest income on funds held for clients was the result of the negative impact from lower interest rates, mostly offset by positive impact from higher average daily balances of funds held for new and existing clients as compared to the prior fiscal year.
Cost of Revenues
($ in thousands)
Three Months Ended
March 31, 		Change
2025 2026 $ %
Cost of revenues $ 129,853 $ 139,098 $ 9,245 7 %
Percentage of total revenues 29 % 28 %
Gross margin 71 % 72 %
Cost of revenues for the three months ended March 31, 2026 increased by $9.2 million, or 7%, to $139.1 million from $129.9 million for the three months ended March 31, 2025. Cost of revenues increased primarily as a result of the continued growth of our business, in particular, $4.4 million in additional employee-related costs, $4.2 million in additional processing and delivery-related costs and $2.0 million in additional amortization of internal-use software. Gross margin increased from 71% for the three months ended March 31, 2025 to 72% for the three months ended March 31, 2026.
Operating Expenses
($ in thousands)
Sales and Marketing
Three Months Ended
March 31, 		Change
2025 2026 $ %
Sales and marketing $ 91,774 $ 95,732 $ 3,958 4 %
Percentage of total revenues 20 % 19 %
Sales and marketing expenses for the three months ended March 31, 2026 increased by $4.0 million, or 4%, to $95.7 million from $91.8 million for the three months ended March 31, 2025. The increase in sales and marketing expense was primarily due to $4.3 million of additional employee-related costs.
Research and Development
Three Months Ended
March 31, 		Change
2025 2026 $ %
Research and development $ 51,396 $ 52,515 $ 1,119 2 %
Percentage of total revenues 11 % 10 %
Research and development expenses for the three months ended March 31, 2026 increased by $1.1 million, or 2%, to $52.5 million from $51.4 million for the three months ended March 31, 2025. The increase in research and development expenses was primarily due to $2.6 million of additional employee-related costs related to additional development personnel, net of capitalized internal-use software costs, partially offset by $1.8 million in lower stock-based compensation expense.
General and Administrative
Three Months Ended
March 31, 		Change
2025 2026 $ %
General and administrative $ 54,495 $ 57,962 $ 3,467 6 %
Percentage of total revenues 12 % 12 %
General and administrative expenses for the three months ended March 31, 2026 increased by $3.5 million, or 6%, to $58.0 million from $54.5 million for the three months ended March 31, 2025. General and administrative expenses increased largely due to $1.6 million in additional employee-related costs.
Other Income (Expense)
Other income (expense) for the three months ended March 31, 2026 did not materially change as compared to the three months ended March 31, 2025. The change in other income (expense) was primarily due to a $3.6 million reduction in interest earned on our cash and cash equivalents from lower average balances and lower interest rates, partially offset by a $3.3 million decrease in interest expense related to less borrowings under our revolving credit facility.
Income Taxes
Our effective tax rate was 27.7% and 29.2% for the three months ended March 31, 2025 and 2026, respectively. Our effective tax rate for the three months ended March 31, 2025 was higher than the federal statutory rate of 21% primarily due to an increase to non-deductible stock-based compensation under Internal Revenue Code Section 162(m) and state and local income taxes. Our effective tax rate for the three months ended March 31, 2026 was higher than the federal statutory rate of 21% primarily due to stock-based compensation shortfalls realized and state and local income taxes.
Comparison of Nine Months Ended March 31, 2025 and 2026
Revenues
($ in thousands)
Nine Months Ended
March 31, 		Change
2025 2026 $ %
Recurring and other revenue $ 1,101,915 $ 1,235,768 $ 133,853 12 %
Percentage of total revenues 92 % 93 %
Interest income on funds held for clients $ 92,569 $ 90,824 $ (1,745) (2) %
Percentage of total revenues 8 % 7 %
Recurring and Other Revenue
Recurring and other revenue for the nine months ended March 31, 2026 increased by $133.9 million, or 12%, to $1,235.8 million from $1,101.9 million for the nine months ended March 31, 2025. 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.
Interest Income on Funds Held for Clients
Interest income on funds held for clients for the nine months ended March 31, 2026 decreased by $1.7 million, or 2%, to $90.8 million from $92.6 million for the nine months ended March 31, 2025. Interest income on funds held for clients decreased slightly as the negative impact from lower interest rates was mostly offset by positive impact from higher average daily balances of funds held for new and existing clients as compared to the prior fiscal year.
Cost of Revenues
($ in thousands)
Nine Months Ended
March 31, 		Change
2025 2026 $ %
Cost of revenues $ 369,358 $ 401,474 $ 32,116 9 %
Percentage of total revenues 31 % 30 %
Gross margin 69 % 70 %
Cost of revenues for the nine months ended March 31, 2026 increased by $32.1 million, or 9%, to $401.5 million from $369.4 million for the nine months ended March 31, 2025. Cost of revenues increased primarily as a result of the continued growth of our business, in particular, $16.6 million in additional employee-related costs, $8.3 million in additional amortization of internal-use software and $7.2 million in additional processing and delivery-related costs. Gross margin increased from 69% for the nine months ended March 31, 2025 to 70% for the nine months ended March 31, 2026.
Operating Expenses
($ in thousands)
Sales and Marketing
Nine Months Ended
March 31, 		Change
2025 2026 $ %
Sales and marketing $ 273,338 $ 290,178 $ 16,840 6 %
Percentage of total revenues 23 % 22 %
Sales and marketing expenses for the nine months ended March 31, 2026 increased by $16.8 million, or 6%, to $290.2 million from $273.3 million for the nine months ended March 31, 2025. The increase in sales and marketing expense was primarily due to $15.9 million of additional employee-related costs.
Research and Development
Nine Months Ended
March 31, 		Change
2025 2026 $ %
Research and development $ 154,811 $ 165,861 $ 11,050 7 %
Percentage of total revenues 13 % 12 %
Research and development expenses for the nine months ended March 31, 2026 increased by $11.1 million, or 7%, to $165.9 million from $154.8 million for the nine months ended March 31, 2025. The increase in research and development expenses was primarily due to $12.7 million of additional employee-related costs related to additional development personnel, net of capitalized internal-use software costs, partially offset by $3.8 million in lower stock-based compensation expense.
General and Administrative
Nine Months Ended
March 31, 		Change
2025 2026 $ %
General and administrative $ 159,180 $ 167,508 $ 8,328 5 %
Percentage of total revenues 13 % 13 %
General and administrative expenses for the nine months ended March 31, 2026 increased by $8.3 million, or 5%, to $167.5 million from $159.2 million for the nine months ended March 31, 2025. General and administrative expenses increased primarily due to $6.9 million in additional stock-based compensation expense as compared to the prior fiscal year period, largely driven by executive award forfeitures during the nine months ended March 31, 2025, and $5.2 million in additional employee-related costs during the nine months ended March 31, 2026, partially offset by a $2.3 million decrease in acquisition-related costs and other non-recurring items.
Other Income (Expense)
Other income for the nine months ended March 31, 2026 decreased by $3.9 million as compared to the nine months ended March 31, 2025. The change in other income was primarily due to a $9.5 million reduction in interest earned on our cash and cash equivalents from lower average balances and lower interest rates, partially offset by a $5.0 million decrease in interest expense due to less borrowings under our revolving credit facility.
Income Taxes
Our effective tax rate was 26.3% and 30.7% for the nine months ended March 31, 2025 and 2026, respectively. Our effective tax rate for the nine months ended March 31, 2025 was higher than the federal statutory rate of 21% primarily due to state and local income taxes. Our effective tax rate for the nine months ended March 31, 2026 was higher than the federal statutory rate of 21% primarily due to stock-based compensation shortfalls realized, state and local income taxes and an increase to the valuation allowance as explained below.
On July 4, 2025, the "One Big Beautiful Bill Act" (the "Act") was enacted into law. The most significant provision applicable to us relates to accelerated tax deductions for qualified property and research expenditures. As a result of this provision, deferred tax assets and liabilities and income tax payables and receivables were impacted starting in fiscal 2026 and we expect cash tax benefits due to lower cash tax payments throughout fiscal 2026. Furthermore, we evaluated the impacts of the Act on certain state tax attributes and determined that a valuation allowance was needed to reflect the realizability of those assets based on current federal and state law as of March 31, 2026.
Quarterly Trends and Seasonality
Our overall operating results fluctuate from quarter to quarter as a result of a variety of factors, some of which are outside of our control. Our historical results should not be considered a reliable indicator of our future results of operations.
We experience fluctuations in revenues and related costs on a seasonal basis, which are primarily seen in our fiscal third quarter, which ends on March 31 of each year. Specifically, our recurring revenue is positively impacted in our fiscal third quarter as a result of our preparation of W-2 documents for our clients' employees in advance of tax filing requirements. Our interest income earned on funds held for clients is also positively impacted during our fiscal third quarter as a result of our increased collection of funds held for clients. Certain payroll taxes are primarily collected during our fiscal third quarter and subsequently remitted. The seasonal fluctuations in revenues also positively impact gross profits during our fiscal third quarter. Our historical results for our fiscal third quarter should not be considered a reliable indicator of our future results of operations.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions and, to the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
Accounting estimates used in the preparation of these consolidated financial statements change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes. There have been no material changes in our critical accounting policies and use of estimates from the information provided in Item 7 of our audited consolidated financial statements for the year ended June 30, 2025 included in our Annual Report on Form 10-K filed with the SEC on August 6, 2025.
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 March 31, 2026, our principal source of liquidity was $299.7 million of cash and cash equivalents. We maintain a credit agreement that provides for a $550.0 million revolving credit facility, which may be increased up to $825.0 million. During fiscal 2025, we borrowed $325.0 million under this credit facility to fund the October 2024 acquisition of Airbase Inc. We had $81.3 million in outstanding borrowings under this credit facility at March 31, 2026, as we repaid $162.5 million in the second half of fiscal 2025 and an additional $81.3 million during the first nine months of fiscal 2026. Refer to Notes 4 and 8 of the Notes to the Unaudited Consolidated Financial Statements for additional details on the Airbase acquisition and credit agreement, respectively.
In April 2024, our board of directors authorized the repurchase of up to $500.0 million of our common stock (the "Repurchase Program"). In July 2025, our board of directors approved a $500.0 million increase to the Repurchase Program. The extent to which we repurchase shares, the number and price of any shares repurchased and the timing of any repurchases depends on the market price of our common stock, trading volume, general market conditions and other corporate and economic considerations. During the nine months ended March 31, 2026, we repurchased an aggregate of 2.3 million shares for approximately $350.0 million at an average cost per share of $153.10 under the Repurchase Program. As of March 31, 2026, approximately $350.4 million remains authorized for repurchases under the Repurchase Program. In April 2026, our board of directors authorized an additional $1 billion of our common stock for repurchase under the Repurchase Program. Refer to Note 14 of the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1: "Financial Statements" for additional detail on our Repurchase Program.
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 bonds, asset-backed securities, certificates of deposit, U.S. treasury securities, and other securities with credit quality ratings of A-1 or higher as well as in money market funds. As of March 31, 2026, we did not have any corporate investments classified as available-for-sale securities.
In order to grow our business, we intend to increase our personnel and related expenses and to make investments in our platform, data centers and general infrastructure, some of which may be significant. The timing and amount of these investments will vary based on our financial condition, the rate at which we add new clients and new personnel and the scale of our module development, data centers and other activities. Many of these investments will occur in advance of experiencing any direct benefit from them, which could negatively impact our liquidity and cash flows during any particular period and may make it difficult to determine if we are effectively allocating our resources. However, we expect to fund our operations, capital expenditures, acquisitions, share repurchases and other investments principally with cash flows from operations, and to the extent that our liquidity needs exceed our cash from operations, we would look to our cash on hand or utilize the remaining borrowing capacity under our credit facility to satisfy those needs.
Our payroll and spend management processing activities involve the movement of significant funds from accounts of clients to their employees, relevant taxing authorities and vendors. Funds held for clients and client fund obligations will vary substantially from period to period mostly as a result of the timing of payroll and payroll tax obligations due. Though we debit a client's account prior to any disbursement on its behalf, there is a delay between when our payments are due and when the incoming funds from the client to cover these amounts payable actually clear into our operating accounts. We currently have agreements with various major U.S. banks to execute ACH and wire transfers to support our services. We believe we have sufficient capacity under these ACH arrangements to handle all transaction volumes for the foreseeable future. We primarily collect fees for our HCM and payroll services via ACH transactions at the same time we debit the client's account for payroll and payroll tax obligations and thus are able to reduce collectability and accounts receivable risks.
We believe our current cash and cash equivalents, future cash flow from operations, and access to our credit facility will be sufficient to meet our ongoing working capital, capital expenditure and other liquidity requirements for at least the next 12 months, and thereafter, for the foreseeable future.
The following table sets forth data regarding cash flows for the periods indicated:
Nine Months Ended
March 31,
2025 2026
(in thousands)
Net cash provided by operating activities $ 331,657 $ 421,359
Cash flows from investing activities:
Purchases of available-for-sale securities (121,777) (259,994)
Proceeds from sales and maturities of available-for-sale securities 122,969 268,676
Capitalized internal-use software costs (45,563) (49,101)
Purchases of property and equipment (7,624) (15,518)
Acquisitions of businesses, net of cash and funds held for clients acquired (277,851) -
Other investing activities 1,303 2,228
Net cash used in investing activities (328,543) (53,709)
Cash flows from financing activities:
Net change in client fund obligations 429,856 1,139,099
Borrowings under credit facility 325,000 -
Repayment of credit facility (81,250) (81,250)
Repurchases of common shares (91,080) (350,000)
Proceeds from employee stock purchase plan 10,561 9,534
Taxes paid related to net share settlement of equity awards (49,121) (36,540)
Other financing activities (400) (360)
Net cash provided by financing activities 543,566 680,483
Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents $ 546,680 $ 1,048,133
Operating Activities
Net cash provided by operating activities was $331.7 million and $421.4 million for the nine months ended March 31, 2025 and 2026, respectively. The change in net cash provided by operating activities from the nine months ended March 31, 2025 to the nine months ended March 31, 2026 was primarily driven by improved operating results after adjusting for non-cash items, including stock-based compensation expense, depreciation and amortization expense and deferred income tax expense (benefit) and lower income tax payments resulting from the provisions of the One Big Beautiful Bill Act, partially offset by changes in operating assets and liabilities over the same period.
Investing Activities
Net cash used in investing activities was $328.5 million and $53.7 million for the nine months ended March 31, 2025 and 2026, respectively. The net cash used in investing activities is significantly impacted by the timing of purchases and sales and maturities of investments as we invest portions of funds held for clients in highly liquid, investment-grade marketable securities. The amount of funds held for clients invested will vary based on timing of client funds collected and payments due to client employees and taxing and other regulatory authorities.
The change in net cash used in investing activities was primarily due to $277.9 million paid for the acquisition of Airbase Inc., net of cash and funds held for clients acquired during the nine months ended March 31, 2025. The change was also due to a $145.7 million increase in proceeds from the sales and maturities of available-for-sale securities, partially offset by a $138.2 million increase in purchases of available-for-sale securities, during the nine months ended March 31, 2026 as compared to the nine months ended March 31, 2025.
Financing Activities
Net cash provided by financing activities was $543.6 million and $680.5 million for the nine months ended March 31, 2025 and 2026, respectively. The change in net cash provided by financing activities was primarily due to the net change in client fund obligations of $709.2 million due to the timing of client funds collected and related remittance of those funds to client employees and taxing authorities. This was partially offset by $325.0 million in borrowings under our credit facility during the nine months ended March 31, 2025 and $258.9 million in additional share repurchases during the nine months ended March 31, 2026.
Contractual Obligations and Commitments
At March 31, 2026, our principal commitments consisted of $81.3 million in borrowings on our revolving credit facility, which is contractually not due in the next twelve months, and related interest payments, as well as $61.8 million in operating lease obligations, of which $11.1 million is due in the next twelve months. We also had $139.6 million in purchase obligations, of which $76.2 million is due in the next twelve months.
Capital Expenditures
We expect to continue to invest in capital spending as we continue to grow our business and expand and enhance our operating facilities, data centers and technical infrastructure. Future capital requirements will depend on many factors, including our rate of sales growth. In the event that our sales growth or other factors do not meet our expectations, we may eliminate or curtail capital projects in order to mitigate the impact on our use of cash. Capital expenditures were $7.6 million and $15.5 million for the nine months ended March 31, 2025 and 2026, respectively, exclusive of capitalized internal-use software costs of $45.6 million and $49.1 million for the same periods, respectively.
New Accounting Pronouncements
Refer to Note 2 of the Notes to the Unaudited Consolidated Financial Statements for a discussion of recently issued accounting standards.
Paylocity Holding Corp. published this content on May 08, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 08, 2026 at 14:02 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]