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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 March 31, 2021

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: 54,479,322 shares of Common Stock, $0.001 par value per share, as of April 30, 2021.

Table of Contents

Paylocity Holding Corporation

Form 10-Q

For the Quarterly Period Ended March 31, 2021

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

19

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

32

ITEM 4. CONTROLS AND PROCEDURES

33

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

34

ITEM 1A. RISK FACTORS

34

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

34

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

34

ITEM 4. MINE SAFETY DISCLOSURES

34

ITEM 5. OTHER INFORMATION

34

ITEM 6. EXHIBITS

35

SIGNATURES

37

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, 

March 31, 

    

2020

    

2021

Assets

Current assets:

Cash and cash equivalents

$

250,851

$

175,453

Corporate investments

34,556

6,823

Accounts receivable, net

 

4,923

 

9,211

Deferred contract costs

32,332

40,721

Prepaid expenses and other

 

13,188

 

14,198

Total current assets before funds held for clients

 

335,850

 

246,406

Funds held for clients

 

1,327,304

 

2,051,914

Total current assets

 

1,663,154

 

2,298,320

Capitalized internal-use software, net

 

36,501

 

42,704

Property and equipment, net

 

66,737

 

62,187

Operating lease right-of-use assets

48,658

45,112

Intangible assets, net

 

13,360

 

14,055

Goodwill

 

21,655

 

33,184

Long-term deferred contract costs

125,711

156,943

Long‑term prepaid expenses and other

 

4,917

 

3,773

Deferred income tax assets

4,955

7,274

Total assets

$

1,985,648

$

2,663,552

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

1,755

$

3,319

Accrued expenses

 

79,881

 

83,139

Total current liabilities before client fund obligations

 

81,636

 

86,458

Client fund obligations

 

1,327,304

 

2,051,914

Total current liabilities

 

1,408,940

 

2,138,372

Long-term debt

 

100,000

 

Long-term operating lease liabilities

73,299

68,661

Other long-term liabilities

1,747

1,910

Deferred income tax liabilities

 

8,754

 

Total liabilities

$

1,592,740

$

2,208,943

Stockholders’ equity:

Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding at June 30, 2020 and March 31, 2021

$

$

Common stock, $0.001 par value, 155,000 shares authorized at June 30, 2020 and March 31, 2021; 53,792 shares issued and outstanding at June 30, 2020 and 54,451 shares issued and outstanding at March 31, 2021

 

54

 

54

Additional paid-in capital

 

227,907

 

231,208

Retained earnings

 

164,272

 

223,208

Accumulated other comprehensive income

675

139

Total stockholders' equity

$

392,908

$

454,609

Total liabilities and stockholders’ equity

$

1,985,648

$

2,663,552

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

Nine Months Ended

March 31, 

March 31, 

    

2020

    

2021

    

2020

    

2021

 

Revenues:

Recurring and other revenue

$

167,095

$

184,927

$

416,948

$

465,195

Interest income on funds held for clients

 

4,551

 

1,126

 

13,792

 

2,981

Total revenues

 

171,646

 

186,053

 

430,740

 

468,176

Cost of revenues

48,081

57,326

136,135

160,248

Gross profit

 

123,565

 

128,727

 

294,605

 

307,928

Operating expenses:

Sales and marketing

 

37,801

 

40,055

 

112,051

 

115,504

Research and development

 

15,612

 

18,458

 

45,416

 

56,443

General and administrative

 

22,411

 

31,071

 

77,283

 

87,038

Total operating expenses

 

75,824

 

89,584

234,750

 

258,985

Operating income

 

47,741

 

39,143

 

59,855

 

48,943

Other income (expense)

 

435

 

(207)

 

1,194

 

(843)

Income before income taxes

 

48,176

 

38,936

 

61,049

 

48,100

Income tax expense (benefit)

 

8,044

 

2,102

 

1,544

(10,836)

Net income

$

40,132

$

36,834

$

59,505

$

58,936

Other comprehensive loss, net of tax

(182)

(126)

(214)

(536)

Comprehensive income

$

39,950

$

36,708

$

59,291

$

58,400

Net income per share:

Basic

$

0.75

$

0.68

$

1.11

$

1.09

Diluted

$

0.72

$

0.65

$

1.07

$

1.05

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

Basic

 

53,629

 

54,415

 

53,486

 

54,244

Diluted

 

55,953

 

56,414

 

55,760

 

56,338

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 March 31, 2020

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Earnings

    

Income (Loss)

    

Equity

Balances at December 31, 2019

53,573

$

54

$

212,240

$

119,190

$

80

$

331,564

Stock-based compensation

 

 

 

10,051

 

 

 

10,051

Stock options exercised

130

 

 

1,318

 

 

1,318

Issuance of common stock upon vesting of restricted stock units

 

20

 

 

 

 

 

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

 

(63)

(8,508)

 

(8,508)

Unrealized losses on securities, net of tax

(182)

(182)

Net income

 

 

 

 

40,132

 

 

40,132

Balances at March 31, 2020

53,660

$

54

$

215,101

$

159,322

$

(102)

$

374,375

Three Months Ended March 31, 2021

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

Shares

    

Amount

    

Capital

    

Earnings

Income

    

Equity

Balances at December 31, 2020

54,370

$

54

$

221,525

$

186,374

$

265

$

408,218

Stock-based compensation

 

 

16,663

 

 

 

16,663

Stock options exercised

104

 

 

545

 

 

 

545

Issuance of common stock upon vesting of restricted stock units

14

 

 

 

 

 

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

(37)

(7,525)

(7,525)

Unrealized losses on securities, net of tax

(126)

(126)

Net income

 

 

 

36,834

 

 

36,834

Balances at March 31, 2021

54,451

$

54

$

231,208

$

223,208

$

139

$

454,609

Nine Months Ended March 31, 2020

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

Shares

Amount

Capital

Earnings

Income (Loss)

Equity

Balances at June 30, 2019

 

53,075

$

53

$

207,982

$

99,817

$

112

$

307,964

Stock-based compensation

 

 

36,191

 

 

 

36,191

Stock options exercised

153

 

 

1,707

 

 

1,707

Issuance of common stock upon vesting of restricted stock units

708

 

1

 

(1)

 

 

 

Issuance of common stock under employee stock purchase plan

45

3,961

3,961

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

 

(321)

(34,739)

 

(34,739)

Unrealized losses on securities, net of tax

(214)

(214)

Net income

 

 

 

59,505

 

59,505

Balances at March 31, 2020

53,660

$

54

$

215,101

$

159,322

$

(102)

$

374,375

Nine Months Ended March 31, 2021

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

Shares

Amount

Capital

Earnings

Income

Equity

Balances at June 30, 2020

 

53,792

$

54

$

227,907

$

164,272

$

675

$

392,908

Stock-based compensation

 

 

48,896

 

 

 

48,896

Stock options exercised

338

 

 

2,477

 

 

 

2,477

Issuance of common stock upon vesting of restricted stock units

622

 

 

 

 

 

Issuance of common stock under employee stock purchase plan

60

6,100

6,100

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

(361)

(54,172)

(54,172)

Unrealized losses on securities, net of tax

(536)

(536)

Net income

58,936

58,936

Balances at March 31, 2021

 

54,451

$

54

$

231,208

$

223,208

$

139

$

454,609

See accompanying notes to the unaudited consolidated financial statements.

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PAYLOCITY HOLDING CORPORATION

Unaudited Consolidated Statements of Cash Flows

(in thousands)

Nine Months Ended

March 31, 

2020

2021

Cash flows from operating activities:

Net income

$

59,505

$

58,936

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

Stock-based compensation expense

 

34,348

 

46,947

Depreciation and amortization expense

 

27,832

 

32,070

Deferred income tax expense (benefit)

 

1,544

 

(10,656)

Provision for credit losses

 

232

 

213

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

(1,673)

315

Amortization of debt issuance costs

113

127

Other

 

331

 

545

Changes in operating assets and liabilities:

Accounts receivable

 

(1,635)

 

(4,495)

Deferred contract costs

(37,829)

(39,621)

Prepaid expenses and other

 

68

 

(2,531)

Accounts payable

 

863

 

1,592

Accrued expenses and other

 

3,096

 

2,318

Net cash provided by operating activities

 

86,795

 

85,760

Cash flows from investing activities:

Purchases of available-for-sale securities and other

(400,343)

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

250,791

82,488

Capitalized internal-use software costs

 

(19,213)

 

(21,664)

Purchases of property and equipment

 

(14,578)

 

(8,155)

Acquisition of business, net of cash acquired

 

 

(14,992)

Net cash provided by (used in) investing activities

 

(183,343)

 

37,677

Cash flows from financing activities:

Net change in client fund obligations

 

334,707

 

724,610

Repayment of credit facility

(100,000)

Proceeds from exercise of stock options

 

 

146

Proceeds from employee stock purchase plan

 

3,961

6,100

Taxes paid related to net share settlement of equity awards

(33,136)

(51,828)

Payment of debt issuance costs

(675)

(56)

Net cash provided by financing activities

 

304,857

 

578,972

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

 

208,309

 

702,409

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

 

1,426,143

 

1,492,133

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

$

1,634,452

$

2,194,542

Supplemental Disclosure of Non-Cash Investing and Financing Activities

Liabilities assumed for acquisition

$

$

281

Supplemental Disclosure of Cash Flow Information

Cash paid for interest

$

115

$

820

Cash paid (refunds received) for income taxes

$

24

$

(222)

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

Cash and cash equivalents

$

114,325

$

175,453

Funds held for clients' cash and cash equivalents

1,520,127

2,019,089

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

$

1,634,452

$

2,194,542

See accompanying notes to unaudited consolidated financial statements.

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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, including the impact from the outbreak of the novel coronavirus disease (“COVID-19”), 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 may change as new events occur, more experience and additional information is acquired, and the operating environment evolves, including the ongoing impact of COVID-19.

(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 three or nine months ended March 31, 2021 are not necessarily indicative of the results for the full year or the results for any future periods. The impact of the COVID-19 pandemic will not be fully known or reflected in the Company’s results of operations and overall financial performance until future periods. Refer to “Part I. Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K filed with the SEC on August 7, 2020 for risks related to the COVID-19 pandemic and its impact on the Company’s business and financial performance. 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, 2020 included in the Company’s Annual Report on Form 10-K.

(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. 

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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 June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial instruments held at amortized cost, including trade receivables. Under ASU 2016-13, the Company assesses its allowance for credit losses on accounts receivable by taking into consideration current economic conditions, reasonable and supportable forecasts, as well as past experience including historical write-off trends and client-specific circumstances. The new standard also eliminated the concept of other-than-temporary impairment and requires expected credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The Company adopted this standard effective July 1, 2020, using a modified retrospective approach, and the adoption did not have a material impact on the Company’s financial statements.

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. The Company adopted this standard on July 1, 2020, and removed or modified disclosure requirements retrospectively to all periods presented, whereas any new requirements are being applied prospectively from the adoption date. The adoption of this standard did not have a material impact on the Company’s financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”) which provides guidance to reduce complexity in certain areas of accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and simplifies various aspects of the current guidance to promote consistent application of the standard among reporting entities. The Company adopted ASU 2019-12 on July 1, 2020, and the adoption of this standard did not have a material impact on the Company’s financial statements.

(e)  Recently Issued Accounting Standards

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 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

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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 the Company believes depicts the nature, amount and timing of its revenue:

Three Months Ended

Nine Months Ended

March 31, 

March 31, 

    

2020

    

2021

    

2020

    

2021

Recurring fees

 

$

161,266

 

$

178,711

$

402,605

$

448,864

Implementation services and other

 

    

5,829

 

    

6,216

    

14,343

    

16,331

Total revenues from contracts

 

$

167,095

 

$

184,927

$

416,948

$

465,195

Deferred revenue

The timing of revenue recognition for recurring revenue is consistent with the timing of invoicing as they occur simultaneously based on the client’s payroll frequency or by month for subscription-based fees. 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 amortizes 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

Nine Months Ended

March 31, 

March 31, 

    

2020

    

2021

    

2020

    

2021

Balance at beginning of the period

$

6,853

$

7,065

$

6,289

$

8,434

Deferral of revenue

       

6,099

        

5,821

      

12,342

     

11,811

Revenue recognized

(3,992)

(4,097)

(9,671)

(11,456)

Balance at end of the period

$

8,960

$

8,789

$

8,960

$

8,789

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 $3,389 in fiscal 2021, $4,425 in fiscal 2022 and $975 in fiscal 2023 and thereafter.

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.

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

Three Months Ended March 31, 2020

Beginning

Capitalized

Ending

    

Balance

    

Costs

    

Amortization

    

Balance

Costs to obtain a new contract

$

92,848

$

15,141

$

(5,738)

$

102,251

Costs to fulfill a contract

     

32,685

     

7,483

     

(1,491)

     

38,677

Total

$

125,533

$

22,624

$

(7,229)

$

140,928

Three Months Ended March 31, 2021

Beginning

Capitalized

Ending

    

Balance

    

Costs

    

Amortization

    

Balance

Costs to obtain a new contract

$

125,817

$

17,315

$

(7,390)

$

135,742

Costs to fulfill a contract

     

55,657

     

8,872

     

(2,607)

     

61,922

Total

$

181,474

$

26,187

$

(9,997)

$

197,664

Nine Months Ended March 31, 2020

Beginning

Capitalized

Ending

    

Balance

    

Costs

    

Amortization

    

Balance

Costs to obtain a new contract

$

82,103

$

36,027

$

(15,879)

$

102,251

Costs to fulfill a contract

     

20,996

     

21,348

     

(3,667)

     

38,677

Total

$

103,099

$

57,375

$

(19,546)

$

140,928

Nine Months Ended March 31, 2021

Beginning

Capitalized

Ending

    

Balance

    

Costs

    

Amortization

    

Balance

Costs to obtain a new contract

$

113,575

$

43,026

$

(20,859)

$

135,742

Costs to fulfill a contract

     

44,468

     

24,376

     

(6,922)

     

61,922

Total

$

158,043

$

67,402

$

(27,781)

$

197,664

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 balance of the Company’s remaining performance obligations related to minimum monthly fees on its term-based contracts was approximately $47,582 as of March 31, 2021, 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.

(4)  Business Combinations

In November 2020, the Company acquired all of the shares outstanding of Samepage Labs Inc. (“Samepage”) through a merger for purchase price consideration of $15,018, which was paid in cash upon closing. Samepage offers digital collaboration tools including task management, file sharing, real-time collaboration and more. This transaction expands the Company’s product functionality in these areas and demonstrates its commitment to building a modern workforce suite of solutions that meet the needs of HR teams and employees.

The Company accounts for business combinations in accordance with ASC 805, Business Combinations. The Company recorded the acquisition using the acquisition method of accounting and recognized assets and liabilities at their fair value as of the date of acquisition, with the excess recorded to goodwill. The preliminary allocation of the purchase price is approximately $11,529 of goodwill, $3,167 of proprietary technology and other immaterial assets and liabilities. The fair values of assets acquired and liabilities assumed may change over the measurement period as

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additional information is received. The primary area that is subject to change is deferred taxes. The measurement period will end no later than one year from the acquisition date.

 

The results from this acquisition have been included in the Company’s consolidated financial statements since the closing of the acquisition. Pro forma information was not presented because the effect of the acquisition was not material to the Company’s consolidated financial statements. The goodwill associated with this acquisition is not deductible for income tax purposes. Direct costs related to the acquisition were recorded as General and administrative expenses as incurred.

In April 2020, the Company acquired all of the shares outstanding of VidGrid Inc. (“VidGrid”). During the second quarter of fiscal 2021, the Company completed its purchase accounting for this acquisition and did not record any changes to the preliminary purchase price allocation. Refer to Note 6 of the audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2020 for additional details on the acquisition of VidGrid.

(5)  Balance Sheet Information

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

Activity in the allowance for credit losses related to accounts receivable was as follows:

Balance at June 30, 2020

    

617

 

Charged to expense

 

213

Write-offs

(66)

Balance at March 31, 2021

$

764

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

June 30, 

March 31, 

    

2020

    

2021

 

Capitalized internal-use software

$

119,178

$

142,654

Accumulated amortization

    

(82,677)

 

(99,950)

Capitalized internal-use software, net

$

36,501

$

42,704

Amortization of capitalized internal-use software costs is included in Cost of revenues and amounted to $4,926 and $6,005 for the three months ended March 31, 2020 and 2021, respectively, and $14,073 and $17,273 for the nine months ended March 31, 2020 and 2021, respectively.

Property and equipment, net consist of the following:

June 30,

March 31, 

    

2020

    

2021

 

Office equipment