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Table of Contents

S

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

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

For the quarterly period ended September 30, 2019

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

For the transition period from     to     

Commission file number 001-36348

PAYLOCITY HOLDING CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

46-4066644

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

1400 American Lane

SchaumburgIllinois

60173

(Address of principal executive offices)

(Zip Code)

(847) 463-3200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

PCTY

The NASDAQ Global Select Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

 

Non-Accelerated Filer

  

Smaller Reporting Company

 

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 53,512,911 shares of Common Stock, $0.001 par value per share, as of October 24, 2019.

Table of Contents

Paylocity Holding Corporation

Form 10-Q

For the Quarterly Period Ended September 30, 2019

TABLE OF CONTENTS

     

Page

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Unaudited Consolidated Balance Sheets

2

Unaudited Consolidated Statements of Operations and Comprehensive Income

3

Unaudited Consolidated Statement of Changes in Stockholders’ Equity

4

Unaudited Consolidated Statements of Cash Flows

5

Notes to the Unaudited Consolidated Financial Statements

6

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

22

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

33

ITEM 4. CONTROLS AND PROCEDURES

34

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

35

ITEM 1A. RISK FACTORS

35

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

53

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

54

ITEM 4. MINE SAFETY DISCLOSURES

54

ITEM 5. OTHER INFORMATION

54

ITEM 6. EXHIBITS

54

SIGNATURES

56

1

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.    Financial Statements

PAYLOCITY HOLDING CORPORATION

Unaudited Consolidated Balance Sheets

(in thousands, except per share data)

June 30, 

September 30, 

    

2019

    

2019

Assets

Current assets:

Cash and cash equivalents

$

132,476

$

100,529

Corporate investments

29,314

29,130

Accounts receivable, net

 

4,358

 

3,906

Deferred contract costs

21,677

23,703

Prepaid expenses and other

 

13,895

 

13,941

Total current assets before funds held for clients

 

201,720

 

171,209

Funds held for clients

 

1,394,469

 

1,154,527

Total current assets

 

1,596,189

 

1,325,736

Capitalized internal-use software, net

 

27,486

 

29,634

Property and equipment, net

 

70,056

 

72,584

Operating lease right-of-use assets

50,865

Intangible assets, net

 

10,751

 

10,188

Goodwill

 

9,590

 

9,590

Long-term deferred contract costs

81,422

89,383

Long-term prepaid expenses and other

 

1,975

 

3,380

Deferred income tax assets

6,472

7,114

Total assets

$

1,803,941

$

1,598,474

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

3,954

$

5,061

Accrued expenses

 

57,625

 

51,496

Total current liabilities before client fund obligations

 

61,579

 

56,557

Client fund obligations

 

1,394,469

 

1,154,527

Total current liabilities

 

1,456,048

 

1,211,084

Deferred rent

 

31,263

 

Long-term operating lease liabilities

76,347

Other long-term liabilities

1,723

1,430

Deferred income tax liabilities, net

 

6,943

 

154

Total liabilities

$

1,495,977

$

1,289,015

Stockholders’ equity:

Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding at June 30, 2019 and September 30, 2019

$

$

Common stock, $0.001 par value, 155,000 shares authorized at June 30, 2019 and September 30, 2019; 53,075 shares issued and outstanding at June 30, 2019 and 53,511 shares issued and outstanding at September 30, 2019

 

53

 

54

Additional paid-in capital

 

207,982

 

195,566

Retained earnings

 

99,817

 

113,723

Accumulated other comprehensive income

112

116

Total stockholders’ equity

$

307,964

$

309,459

Total liabilities and stockholders’ equity

$

1,803,941

$

1,598,474

See accompanying notes to unaudited consolidated financial statements.

2

Table of Contents

PAYLOCITY HOLDING CORPORATION

Unaudited Consolidated Statements of Operations and Comprehensive Income

(in thousands, except per share data)

Three Months Ended

September 30, 

    

2018

    

2019

 

Revenues:

Recurring and other revenue

$

97,002

$

121,873

Interest income on funds held for clients

 

3,502

 

4,847

Total revenues

 

100,504

 

126,720

Cost of revenues

 

35,942

 

42,630

Gross profit

 

64,562

 

84,090

Operating expenses:

Sales and marketing

 

26,418

 

36,957

Research and development

 

11,400

 

14,394

General and administrative

 

22,968

 

26,739

Total operating expenses

 

60,786

 

78,090

Operating income

 

3,776

 

6,000

Other income

 

269

 

474

Income before income taxes

 

4,045

 

6,474

Income tax benefit

 

(5,807)

(7,432)

Net income

$

9,852

$

13,906

Other comprehensive income, net of tax

Unrealized gains on securities, net of tax

15

4

Total other comprehensive income, net of tax

15

4

Comprehensive income

$

9,867

$

13,910

Net income per share:

Basic

$

0.19

$

0.26

Diluted

$

0.18

$

0.25

Weighted-average shares used in computing net income per share:

Basic

 

52,865

 

53,287

Diluted

 

55,487

 

55,713

See accompanying notes to unaudited consolidated financial statements.

3

Table of Contents

PAYLOCITY HOLDING CORPORATION

Unaudited Consolidated Statement of Changes in Stockholders’ Equity

(in thousands)

Three Months Ended September 30, 2018

Retained

Accumulated

Additional

Earnings

Other

Total

Common Stock

Paid-in

(Accumulated

Comprehensive

Stockholders’

Shares

Amount

Capital

Deficit)

Loss

Equity

Balances at June 30, 2018

 

52,758

 

$

53

 

$

219,588

 

$

(6,678)

 

$

(139)

 

$

212,824

Cumulative effect of change in accounting
policy (adoption of Topic 606)

52,672

52,672

Stock-based compensation

 

 

10,050

 

 

 

10,050

Stock options exercised

182

 

 

2,241

 

 

2,241

Issuance of common stock upon vesting of
restricted stock units

579

 

 

 

 

 

Net settlement for taxes and/or exercise
price related to equity awards

 

(281)

(20,037)

 

(20,037)

Repurchases of common shares

(442)

(34,991)

 

(34,991)

Unrealized gains on securities, net of tax

15

15

Net income

9,852

9,852

Balances at September 30, 2018

52,796

$

53

$

176,851

$

55,846

$

(124)

$

232,626

Three Months Ended September 30, 2019

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

Shares

Amount

Capital

Earnings

Income

Equity

Balances at June 30, 2019

 

53,075

 

$

53

 

$

207,982

 

$

99,817

 

$

112

 

$

307,964

Stock-based compensation

 

 

12,718

 

 

 

12,718

Stock options exercised

8

 

 

120

 

 

 

120

Issuance of common stock upon vesting of
restricted stock units

677

 

1

 

(1)

 

 

 

Net settlement for taxes and/or exercise
price related to equity awards

(249)

(25,253)

(25,253)

Unrealized gains on securities, net of tax

4

4

Net income

13,906

13,906

Balances at September 30, 2019

 

53,511

$

54

$

195,566

$

113,723

$

116

$

309,459

See accompanying notes to the unaudited consolidated financial statements.

4

Table of Contents

PAYLOCITY HOLDING CORPORATION

Unaudited Consolidated Statements of Cash Flows

(in thousands)

Three Months Ended

September 30, 

    

2018 (1)

    

2019

 

Cash flows from operating activities:

Net income

$

9,852

$

13,906

Adjustments to reconcile net income to net cash provided by operating activities:

Stock-based compensation expense

 

9,425

 

12,062

Depreciation and amortization expense

 

8,232

 

8,933

Deferred income tax benefit

 

(5,809)

 

(7,431)

Provision for doubtful accounts

 

30

 

Net accretion of discounts and amortization of premiums on available-for-sale securities

(407)

(485)

Amortization of debt issuance costs

33

Loss on disposal of equipment

 

241

 

85

Changes in operating assets and liabilities:

Accounts receivable

 

431

 

452

Deferred contract costs

(7,169)

(9,987)

Prepaid expenses and other

 

(853)

 

(89)

Accounts payable

 

(415)

 

39

Accrued expenses and other

 

(6,214)

 

(9,253)

Net cash provided by operating activities

 

7,344

 

8,265

Cash flows from investing activities:

Purchases of available-for-sale securities and other

(75,807)

(63,621)

Proceeds from sales and maturities of available-for-sale securities

56,446

45,154

Capitalized internal-use software costs

 

(5,001)

 

(6,714)

Purchases of property and equipment

 

(2,428)

 

(8,033)

Net cash used in investing activities

 

(26,790)

 

(33,214)

Cash flows from financing activities:

Net change in client fund obligations

 

(57,458)

 

(239,942)

Repurchases of common shares

(34,679)

Proceeds from exercise of stock options

 

85

 

Taxes paid related to net share settlement of equity awards

(17,880)

(24,749)

Payment of debt issuance costs

(669)

Net cash used in financing activities

 

(109,932)

 

(265,360)

Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents

 

(129,378)

 

(290,309)

Cash, cash equivalents and funds held for clients' cash and cash equivalents—beginning of period

 

1,239,731

 

1,426,143

Cash, cash equivalents and funds held for clients' cash and cash equivalents—end of period

$

1,110,353

$

1,135,834

Supplemental Disclosure of Non-Cash Investing and Financing Activities

Purchases of property and equipment, accrued but not paid

$

1,064

$

1,249

Repurchases of common shares, accrued but not paid

$

313

$

Supplemental Disclosure of Cash Flow Information

Cash paid for income taxes, net of refunds

$

351

$

11

Reconciliation of cash, cash equivalents and funds held for clients' cash and cash equivalents to the Consolidated Balance Sheets

Cash and cash equivalents

$

63,662

$

100,529

Funds held for clients' cash and cash equivalents

1,046,691

1,035,305

Total cash, cash equivalents and funds held for clients' cash and cash equivalents

$

1,110,353

$

1,135,834

(1)Certain amounts have been reclassified to reflect the adoption of Accounting Standards Update (“ASU”) No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force).” Refer to Note 2 of the audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2019.

See accompanying notes to unaudited consolidated financial statements.

5

Table of Contents

PAYLOCITY HOLDING CORPORATION

Notes to the Unaudited Consolidated Financial Statements

(all amounts in thousands, except per share data)

(1)  Organization and Description of Business

Paylocity Holding Corporation (the “Company”) is a cloud-based provider of payroll and human capital management software solutions for medium-sized organizations. Services are provided in a Software-as-a-Service (“SaaS”) delivery model utilizing the Company’s cloud-based platform. The Company’s comprehensive product suite delivers a unified platform that allows clients to make strategic decisions in the areas of payroll, core HR, workforce management, talent and benefits.

(2)  Summary of Significant Accounting Policies

(a)  Basis of Presentation, Consolidation and Use of Estimates

These unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. Accounting estimates used in the preparation of these consolidated financial statements change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes.

Beginning in fiscal 2020, the Company simplified the presentation of revenue and cost of revenues on its Unaudited Consolidated Statements of Operations and Comprehensive Income. The line items “Recurring fees” and “Implementation services and other” have been consolidated into one revenue line: “Recurring and other revenue”. Likewise, the line items “Cost of revenues – recurring revenues” and “Cost of revenues – implementation services and other” have been consolidated into one line: “Cost of revenues”. The Company changed the presentation of revenue and cost of revenues as Implementation services and other has become a smaller component of its overall revenue mix due to the human capital management (“HCM”) suite becoming a larger part of the portfolio. Previously reported results for the three-month period ended September 30, 2018 have been reclassified to conform to the current presentation.

(b)  Interim Unaudited Consolidated Financial Information

The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with GAAP and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the Company’s financial position, results of operations, changes in stockholders’ equity and cash flows. The results of operations for the three months ended September 30, 2019 are not necessarily indicative of the results for the full year or the results for any future periods. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended June 30, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC on August 9, 2019.

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(c)  Income Taxes

Income taxes are accounted for in accordance with ASC 740, Income Taxes, using the asset and liability method. The Company’s provision for income taxes is based on the annual effective rate method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net-recorded amount, it would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

(d)  Recently Adopted Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

 

The Company adopted the new standard on July 1, 2019 using the modified retrospective method and the transition relief guidance provided by the FASB in ASU 2018-11, Leases (Topic 842): Targeted Improvements. Consequently, the Company did not update financial information or provide disclosures required under the new standard for dates and periods prior to July 1, 2019. The Company elected the package of practical expedients and did not reassess prior conclusions on whether contracts are or contain a lease, lease classification, and initial direct costs. In addition, the Company adopted the lessee practical expedient to combine lease and non-lease components for all asset classes and elected to not recognize ROU assets and lease liabilities for leases with a term of 12 months or less.

Adoption of the new standard resulted in the Company recording of operating lease ROU assets and operating lease liabilities of $52,083 and $83,852, respectively, as of July 1, 2019. The ROU assets were recorded net of $31,769 in deferred rent adjustments that were previously recorded in Accrued expenses and Deferred rent on the Consolidated Balance Sheets as of June 30, 2019. The adoption of this standard did not result in any cumulative-effect adjustments to Retained earnings. Additionally, there was no impact on the Company’s unaudited consolidated statements of operations and comprehensive income or the unaudited statement of cash flows as a result of the adoption of Topic 842 for the three months ended September 30, 2019.

Refer to Note 8 for additional disclosures over the Company’s leases.

(e)  Recently Issued Accounting Standards

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amends the requirements for fair value measurement disclosures. ASU 2018-13 removes, modifies or adds certain disclosure requirements under GAAP. This standard is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. Any new disclosure requirements must be applied on a prospective basis in the interim and annual periods of initial adoption; all removed or modified requirements must be applied retrospectively to all periods presented. The Company plans to adopt this standard at the effective date and does not expect any material impact from adoption.

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes

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that the impact of other recently issued standards that are not yet effective will not have a material impact on the Company’s consolidated financial statements upon adoption.

(3) Revenue

The Company derives its revenue from contracts predominantly from recurring and non-recurring service fees. While the majority of its agreements are generally cancellable by the client on 60 days’ notice or less, the Company also has term arrangements, which are generally two years in length. Recurring fees are derived from payroll, timekeeping, and HR-related cloud-based computing services. The majority of the Company’s recurring fees are satisfied over time as services are provided. The performance obligations related to payroll services are satisfied upon the processing of the client’s payroll with the fee charged and collected based on a per employee per payroll frequency fee. The performance obligations related to time and attendance services and HR related services are satisfied over time each month with the fee charged and collected based on a per employee per month fee. For subscription based fees which can include payroll, time and attendance, and HR related services, the Company recognizes the applicable recurring fees over time each month with the fee charged and collected based on a per employee per month fee. Non-recurring service fees consist mainly of nonrefundable implementation fees, which involve setting the client up in, and loading data into, the Company’s cloud-based modules. These implementation activities are considered set-up activities. The Company has determined that the nonrefundable upfront fees provide certain clients with a material right to renew the contract. Implementation fees are deferred and amortized generally over a period up to 24 months.

Disaggregation of revenue

The following table disaggregates revenue by Recurring fees and Implementation services and other, which it believes depicts the nature, amount and timing of its revenue:

Three Months Ended

September 30, 

2018

2019

Recurring fees

$

95,761

$

117,777

Implementation services and other

 

1,241

 

4,096

Total revenues from contracts

$

97,002

$

121,873

Deferred revenue

The timing of revenue recognition for recurring revenue is consistent with the timing of invoicing as they occur simultaneously upon the client payroll-processing period or by month. As such, the Company does not recognize contract assets or liabilities related to recurring revenue.

The nonrefundable upfront fees related to implementation services are invoiced with the client’s first payroll period. The Company defers and recognizes these nonrefundable upfront fees generally over a period up to 24 months based on the type of contract. The following table summarizes the changes in deferred revenue (i.e. contract liability) related to these nonrefundable upfront fees as follows:

Three Months Ended

September 30, 

2018

2019

Balance at beginning of the period

$

$

6,289

Deferral of revenue

2,518

3,071

Revenue recognized

(499)

(2,780)

Balance at end of the period

$

2,019

$

6,580

Deferred revenue related to these nonrefundable upfront fees are recorded within Accrued expenses and Other long-term liabilities on the Unaudited Consolidated Balance Sheets. The Company expects to recognize these deferred revenue balances of $4,402 in fiscal 2020, $1,962 in fiscal 2021, $216 in fiscal 2022 and thereafter.

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Deferred contract costs

The Company defers certain selling and commission costs that meet the capitalization criteria under ASC 340-40. The Company also capitalizes certain costs to fulfill a contract related to its proprietary products if they are identifiable, generate or enhance resources used to satisfy future performance obligations and are expected to be recovered under ASC 340-40. Implementation fees are treated as nonrefundable upfront fees and the related implementation costs are required to be capitalized and amortized over the expected period of benefit, which is the period in which the Company expects to recover the costs and enhance its ability to satisfy future performance obligations.

The Company utilizes the portfolio approach to account for both the cost of obtaining a contract and the cost of fulfilling a contract. These capitalized costs are amortized over the expected period of benefit, which has been determined to be over 7 years based on the Company’s average client life and other qualitative factors, including rate of technological changes. The Company does not incur any additional costs to obtain or fulfill contracts upon renewal. The Company recognizes additional selling and commission costs and fulfillment costs when an existing client purchases additional services. These additional costs only relate to the additional services purchased and do not relate to the renewal of previous services.

The following tables present the deferred contract costs and the related amortization expense for these deferred contract costs:

Beginning

Ending

Balance

Capitalized

Balance

July 1, 2018

Costs

Amortization

September 30, 2018

Costs to obtain a new contract

$

68,107

$

5,711

$

(3,885)

$

69,933

Costs to fulfill a contract

5,474

(131)

5,343

Total

$

68,107

$

11,185

$

(4,016)

$

75,276

Beginning

Ending

Balance

Capitalized

Balance

July 1, 2019

Costs

Amortization

September 30, 2019

Costs to obtain a new contract

$

82,103

$

9,486

$

(4,901)

$

86,688

Costs to fulfill a contract

20,996

6,366

(964)

26,398

Total

$

103,099

$

15,852

$

(5,865)

$

113,086

Deferred contract costs are recorded within Deferred contract costs and Long-term deferred contract costs on the Unaudited Consolidated Balance Sheets. Amortization of deferred contract costs is recorded in Cost of revenues, Sales and marketing, and General and administrative in the Unaudited Consolidated Statements of Operations and Comprehensive Income.

Remaining Performance Obligations

The Company’s remaining performance obligations related to minimum monthly fees on its term based contracts was approximately $43,142 as of September 30, 2019, which will be generally recognized over the next 24 months. This balance excludes the value of unsatisfied performance obligations for contracts that have an original expected duration of one year or less and contracts for which the variable consideration is allocated entirely to wholly unsatisfied performance obligations.

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(4)  Balance Sheet Information

The following tables provide details of selected consolidated balance sheet items:

Activity in the allowance for doubtful accounts was as follows:

Balance at June 30, 2019

    

$

473

 

Charged to expense

 

Write-offs

(51)

Balance at September 30, 2019

$

422

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

June 30, 

September 30, 

    

2019

    

2019

 

Capitalized internal-use software

$

90,991

$

97,507

Accumulated amortization

 

(63,505)

 

(67,873)

Capitalized internal-use software, net

$

27,486

$

29,634

Amortization of capitalized internal-use software costs is included in Cost of revenues and amounted to $4,212 and $4,457 for the three months ended September 30, 2018 and 2019, respectively.

Property and equipment, net consist of the following:

June 30,

September 30, 

    

2019

    

2019

 

Office equipment

$

4,406

$

4,497

Computer equipment

 

36,798

 

41,204

Furniture and fixtures

 

11,857

 

12,748

Software

 

6,332

 

6,399

Leasehold improvements

 

44,350

 

44,656

Time clocks rented by clients

 

4,679

 

4,755

Total

 

108,422

 

114,259

Accumulated depreciation

 

(38,366)

 

(41,675)

Property and equipment, net

$

70,056

$

72,584

Depreciation expense amounted to $3,457 and $3,913 for the three months ended September 30, 2018 and 2019, respectively.

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

    

    

    

June 30, 

September 30, 

Useful

    

2019

    

2019

    

Life

 

Client relationships

$

18,130

$

18,130

7 - 9 years

Non-solicitation agreements

 

600

600

2 - 4 years

Total

 

18,730

18,730

Accumulated amortization

 

(7,979)

(8,542)

Intangible assets, net

$

10,751

$

10,188

Amortization expense for acquired intangible assets was $563 for both the three months ended September 30, 2018 and 2019.

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Future amortization expense for acquired intangible assets as of September 30, 2019 is as follows:

Remainder of fiscal 2020

    

$

1,688

 

Fiscal 2021

 

2,251

Fiscal 2022

 

2,232

Fiscal 2023

 

2,118

Fiscal 2024

 

1,356

Thereafter

 

543

Total

$

10,188

The components of accrued expenses were as follows:

June 30, 

September 30, 

    

2019

    

2019

 

Accrued payroll and personnel costs

$

39,095

$

26,979

Operating lease liabilities

7,731

Deferred revenue

5,572

6,239

Other

 

12,958

 

10,547

Total accrued expenses

$

57,625

$

51,496

(5) Corporate Investments and Funds Held for Clients

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

June 30, 2019

Gross

Gross

Amortized

unrealized

unrealized

Type of Issue

cost

gains

    

losses

    

Fair value

Cash and cash equivalents

$

132,478

$

$

(2)

$

132,476

Funds held for clients' cash and cash equivalents

1,293,673

(6)

1,293,667

Available-for-sale securities:

Commercial paper

63,397

33

(2)

63,428

Corporate bonds

27,044

59

(4)

27,099

Asset-backed securities

26,488

55

(3)

26,540

U.S. treasury securities

13,736

21

13,757

Total available-for-sale securities (1)

130,665

168

(9)

130,824

Total investments

$

1,556,816

$

168

$

(17)

$

1,556,967

(1)Included within the fair value of total available-for-sale securities above is $30,022 of corporate investments and $100,802 of funds held for clients.

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September 30, 2019

Gross

Gross

Amortized

unrealized

unrealized

Type of Issue

cost

gains

    

losses

    

Fair value

Cash and cash equivalents

$

100,530

$

$

(1)

$

100,529

Funds held for clients' cash and cash equivalents

1,035,307

(2)

1,035,305

Available-for-sale securities:

Commercial paper

81,505

8

(3)

81,510

Corporate bonds

17,594

54

(1)

17,647

Asset-backed securities

29,513

88

(4)

29,597

U.S. treasury securities

21,004

17

21,021

Total available-for-sale securities (2)

149,616

167

(8)

149,775

Total investments

$

1,285,453

$

167

$

(11)

$

1,285,609

(2)Included within the fair value of total available-for-sale securities above is $30,553 of corporate investments and $119,222 of funds held for clients.

Cash and cash equivalents and funds held for clients’ cash and cash equivalents include demand deposit accounts, money market funds, commercial paper and short-term U.S. treasury securities as of June 30, 2019 and September 30, 2019.

Classification of investments on the unaudited consolidated balance sheets is as follows:

June 30, 

September 30, 

2019

    

2019

Cash and cash equivalents

$

132,476

$

100,529

Corporate investments

29,314

29,130

Funds held for clients

1,394,469

1,154,527

Long-term prepaid expenses and other

708

1,423

Total investments

$

1,556,967

$

1,285,609

Available-for-sale securities that have been in an unrealized loss position for a period of less and greater than 12 months are as follows:

June 30, 2019

Securities in an

Securities in an

unrealized loss

unrealized loss

position for less

position for greater

than 12 months

than 12 months

Total

Gross

Gross

Gross

unrealized

unrealized

unrealized

losses

Fair value

losses

Fair value

losses

Fair value

Commercial paper

$

(2)

$

19,055

$

$

$

(2)

$

19,055

Corporate bonds

(1)

1,500

(3)

3,701

(4)

5,201

Asset-backed securities

(1)

386

(2)

2,958

(3)

3,344

Total available-for-sale securities

$

(4)

$

20,941

$

(5)

$

6,659

$

(9)

$

27,600

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September 30, 2019

Securities in an

Securities in an

unrealized loss

unrealized loss

position for less

position for greater

than 12 months

than 12 months

Total

Gross

Gross

Gross

unrealized

unrealized

unrealized

losses

Fair value

losses

Fair value

losses

Fair value

Commercial paper