Use these links to rapidly review the document
TABLE OF CONTENTS
Index to Consolidated Financial StatementsPAYLOCITY HOLDING CORPORATION

Table of Contents

As filed with the Securities and Exchange Commission on March 6,December 8, 2014.

Registration No. 333-193661333-200448

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 21
to

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Paylocity Holding Corporation
(Exact name of Registrant as Specified in Its Charter)

3850 N. Wilke Road
Arlington Heights, Illinois 60004
(847) 463-3200
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)

Steven R. Beauchamp
President and Chief Executive Officer
3850 N. Wilke Road
Arlington Heights, Illinois 60004
(847) 463-3200
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.

         If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box.    o

         If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

         If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

         If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

         Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (check one):

CALCULATION OF REGISTRATION FEE

(1)

Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(a) under the Securities Act. Includes offering price of shares that the underwriters have the option to purchase to cover over-allotments, if any.

(2)

The registrant previously paid $14,812 in connection with the initial filing of this Registration Statement.

         The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

Table of Contents

The information in this preliminary prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell securities, and it is not soliciting an offer to buy these securities, in any state or jurisdiction where the offer or sale is not permitted.

Preliminary prospectus, subject to completion. Dated March 6,December 8, 2014

Prospectus

6,670,0004,000,000 Shares

Paylocity Holding Corporation

Common Stock

        This is the initial public offering of our common stock.

We are selling 5,000,000750,000 shares of common stock. The selling stockholders identified in this prospectus are selling an additional 1,670,0003,250,000 shares of common stock. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders. The estimated initial public offering price

        Our common stock is between $14.00 and $16.00 per share. Currently no public market exists for the shares.

        We have applied to list our common stocklisted on the NASDAQ Global Select Market under the symbol "PCTY." On December 5, 2014, the last reported sale price of our common stock on the NASDAQ Global Select Market was $28.41.

        We are an "emerging growth company" under the federal securities laws and, as such, are eligible forsubject to reduced public company reporting requirements. Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 11.10.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

(1)

See "Underwriting" for a description of the compensation payable to the underwriters.

        The underwriters may also purchase up to an additional 1,000,500600,000 shares of common stock from us and the selling stockholders, at the initial public offering price, less the underwriting discounts and commissions, within 30 days from the date of this prospectus.

        The underwriters expect to deliver the shares of common stock on or about December     , 2014.

December     , 2014.

Table of Contents

Table of Contents

TABLE OF CONTENTS

        We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared and filed with the Securities and Exchange Commission. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of the date on the front cover of this prospectus, or other earlier date stated in this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

Until              (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

        The number of shares of common stock outstanding set forth in the table above is based on 43,921,62649,577,236 shares of common stock outstanding as of December 31, 2013 after giving effect to the conversion of shares of convertible preferred stock into an equivalent number of shares of common stock upon the closing of this offering,September 30, 2014 and excludes:

•

2,375,7194,600,430 shares of common stock issuable upon the exercise of options outstanding as of December 31, 2013,September 30, 2014 having a weighted average exercise price of $4.08$10.96 per share;



•

2,066,666 shares of common stock issuable upon exercise of stock options granted effective upon the pricing of this offering, at an exercise price equal to the initial public offering price listed on the cover page of this prospectus, under our 2014 Equity Incentive Plan;



•

108,008479,594 shares of common stock subject to restricted stock unit agreements to be granted effective upon the consummationoutstanding as of this offering under our 2014 Equity Incentive Plan;September 30, 2014;



•

2,526,8441,952,469 shares of common stock, subject to increase on an annual basis, reserved for future issuance under our 2014 Equity Incentive Plan; and



•

1,000,000 shares of common stock, subject to increase on an annual basis, reserved for future issuance under our 2014 Employee Stock Purchase Plan; and



•

269,199 shares of common stock subject to restricted stock award agreements under our 2008 Equity Incentive Plan which vest upon the consummation of this offering.Plan.




Table of Contents


DILUTION


        As of December 31, 2013, we had a pro forma net tangible book value of $8.8 million, or $0.20 per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of shares of common stock outstanding after giving effect to the conversion of our convertible preferred stock into shares of common stock upon the completion of this offering. Dilution in net tangible book value per share to new investors in this offering represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma net tangible book value per share of common stock immediately after the completion of this offering. After giving effect to the sale of the 5,000,000 shares of common stock offered by us in this offering at an assumed initial public offering price of $15.00 per share, the mid-point of the range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2013 would have been $75.4 million, or $1.54 per share of common stock. This represents an immediate increase in net tangible book value of $1.34 per share to existing stockholders and an immediate dilution of $13.46 per share to new investors in our common stock. The following table illustrates this dilution on a per share basis:

Assumed initial public offering price per share					$	15.00
Pro forma net tangible book value per share as of December 31, 2013 before giving effect to this offering		$	0.20
Increase in pro forma net tangible book value per share attributable to new investors		$	1.34
Pro forma as adjusted net tangible book value per share after giving effect to this offering					$	1.54
Dilution per share to new investors in this offering					$	13.46

        Each $1.00 increase (decrease) in the assumed public offering price per share of common stock would increase (decrease) the pro forma as adjusted net tangible book value by $0.10 per share and the net tangible book value dilution to investors in this offering by $0.90 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses.

        If the underwriters exercise their option to purchase additional shares of our common stock in full, the pro forma as adjusted net tangible book value per share after this offering would be $1.63 per share, and the dilution in pro forma as adjusted net tangible book value per share to new investors in this offering would be $13.37 per share.

        The following table summarizes, on a pro forma as adjusted basis after giving effect to the offering, based on an assumed initial public offering price of $15.00 per share, the mid-point of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, the differences between existing stockholders and new investors with respect to the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid.




Table of Contents

								Total Consideration
		Shares Purchased
														Average Price Per Share
		Number			Percent			Amount			Percent
Existing stockholders			43,921,626			89.8	%	$	36,783,712			32.9	%	$	0.84
New investors			5,000,000			10.2	%	$	75,000,000			67.1	%	$	15.00
Total			48,921,626			100	%	$	111,783,712			100	%	$	2.28

        If the underwriters exercise their over-allotment option in full, our existing stockholders would own 84.4% and our new investors would own 15.6% of the total number of shares of our common stock outstanding after this offering.

        If all our outstanding options had been exercised, as of December 31, 2013, we would have had pro forma net tangible book value of $18.5 million, or $0.40 per share, and the pro forma net tangible book value after this offering would have been $85.1 million, or $1.66 per share, causing dilution to new investors of $13.34 per share.




Table of Contents


SELECTED CONSOLIDATED FINANCIAL DATA


        The following table sets forth our selected consolidated financial data as of the dates and for the periods indicated. The selected consolidated statements of operations data for the fiscal years ended June 30, 2011, 2012, 2013 and 20132014 and the consolidated balance sheet data as of June 30, 2011, 20122013 and 20132014 have been derived from the audited consolidated financial statements included elsewhere in this prospectus. Our consolidated statements of operations data for the sixthree months ended December 31, 2012September 30, 2013 and 20132014 and the selected consolidated balance sheet data presented below as of December 31, 2013September 30, 2014 have been derived from unaudited consolidated financial statements included elsewhere in this prospectus. The selected consolidated balance sheet data presented below as of December 31,June 30, 2012 has been derived from our audited consolidated financial statements not included in this prospectus and the selected consolidated balance sheet data presented below as of September 30, 2013 has been derived from unaudited consolidated financial statements not included in this prospectus. Historical results are not necessarily indicative of future results. This selected consolidated financial data should be read in conjunction with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus.

		Year Ended June 30,									Six Months Ended December 31,							Year Ended June 30,									Three Months Ended September 30,
		2011			2012			2013			2012			2013				2012			2013			2014			2013			2014
		(in thousands, except per share data)																(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues:
Recurring fees		$	36,443		$	51,211		$	71,309		$	30,639		$	42,883			$	51,211		$	71,309		$	100,362		$	20,738		$	29,142
Interest income on funds held for clients			1,100			1,263			1,459			625			731				1,263			1,459			1,582			353			363
​																	​		​	​		​	​		​	​		​	​		​	​
Total recurring revenues			37,543			52,474			72,768			31,264			43,614				52,474			72,768			101,944			21,091			29,505
Implementation services and other			1,941			2,622			4,526			1,762			2,660				2,622			4,526			6,743			1,278			1,604
​																	​		​	​		​	​		​	​		​	​		​	​
Total revenues			39,484			55,096			77,294			33,026			46,274				55,096			77,294			108,687			22,369			31,109
​																	​		​	​		​	​		​	​		​	​		​	​
Cost of revenues:
Recurring revenues			16,329			22,054			28,863			13,294			17,074				22,054			28,863			37,319			7,993			10,057
Implementation services and other			5,416			7,040			10,803			4,762			7,991				7,040			10,803			17,775			3,754			5,395
​																	​		​	​		​	​		​	​		​	​		​	​
Total cost of revenues			21,745			29,094			39,666			18,056			25,065				29,094			39,666			55,094			11,747			15,452
​																	​		​	​		​	​		​	​		​	​		​	​
Gross profit			17,739			26,002			37,628			14,970			21,209				26,002			37,628			53,593			10,622			15,657
​																	​		​	​		​	​		​	​		​	​		​	​
Operating expenses:
Sales and marketing			9,293			12,828			18,693			7,826			10,612				12,828			18,693			28,276			5,189			9,078
Research and development			1,565			1,788			6,825			3,054			4,303				1,788			6,825			10,355			1,956			4,027
General and administrative			6,868			8,618			12,079			5,794			9,139				8,618			12,079			21,980			3,911			7,448
​																	​		​	​		​	​		​	​		​	​		​	​
Total operating expenses			17,726			23,234			37,597			16,674			24,054				23,234			37,597			60,611			11,056			20,553
​																	​		​	​		​	​		​	​		​	​		​	​
Operating income (loss)			13			2,768			31			(1,704	)		(2,845	)			2,768			31			(7,018	)		(434	)		(4,896	)
Other income (expense)			(179	)		(196	)		(16	)		(9	)		50
Other (expense) income																			(196	)		(16	)		163			28			49
​																	​		​	​		​	​		​	​		​	​		​	​
Income (loss) before income taxes			(166	)		2,572			15			(1,713	)		(2,795	)			2,572			15			(6,855	)		(406	)		(4,847	)
Income tax (benefit) expense			(36	)		884			(602	)		(681	)		(1,239	)			884			(602	)		255			(362	)		28
​																	​		​	​		​	​		​	​		​	​		​	​
Net income (loss)		$	(130	)	$	1,688		$	617		$	(1,032	)	$	(1,556	)		$	1,688		$	617		$	(7,110	)	$	(44	)	$	(4,875	)
​																	​		​	​		​	​		​	​		​	​		​	​
​																	​		​	​		​	​		​	​		​	​		​	​




Table of Contents




		Year Ended June 30,									Six Months Ended December 31,							Year Ended June 30,									Three Months Ended September 30,
		2011			2012			2013			2012			2013				2012			2013			2014			2013			2014
		(in thousands, except per share data)																(in thousands, except per share data)
Net income (loss) attributable to common stockholders		$	(774	)	$	998		$	(2,291	)	$	(2,486	)	$	(3,118	)		$	998		$	(2,291	)	$	(9,392	)	$	(825	)	$	(4,875	)
Net income (loss) per share attributable to common stockholders:
Basic		$	(0.02	)	$	0.02		$	(0.07	)	$	(0.08	)	$	(0.09	)		$	0.02		$	(0.07	)	$	(0.26	)	$	(0.03	)	$	(0.10	)
Diluted		$	(0.02	)	$	0.02		$	(0.07	)	$	(0.08	)	$	(0.09	)		$	0.02		$	(0.07	)	$	(0.26	)	$	(0.03	)	$	(0.10	)
Weighted average shares used in computing net income (loss) per share attributable to common stockholders:
Basic			37,539			43,873			31,988			31,988			31,988				43,873			31,988			36,707			31,988			49,566
Diluted			37,539			44,317			31,988			31,988			31,988				44,317			31,988			36,707			31,988			49,566




		As of June 30,									As of December 31,							As of June 30,									As of September 30,
		2011			2012			2013			2012			2013				2012			2013			2014			2013			2014
		(in thousands)																(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents		$	7,990		$	9,031		$	7,594		$	5,890		$	2,829			$	9,031		$	7,594		$	78,848		$	5,299		$	72,843
Working capital			4,488			2,786			2,305			1,652			(5,025	)			2,786			2,305			67,137			501			64,513
Funds held for clients			298,979			263,255			355,905			343,063			491,763				263,255			355,905			417,261			291,559			432,225
Total assets			316,492			284,943			377,916			363,181			515,233				284,943			377,916			528,151			313,186			538,725
Debt, current portion			312			1,625			625			1,625			625				1,625			625			—			625			—
Client fund obligations			298,979			263,255			355,905			343,063			491,763				263,255			355,905			417,261			291,559			432,225
Long-term debt, less current portion			3,188			1,563			938			1,250			625				1,563			938			—			781			—
Redeemable convertible preferred stock			9,339			36,573			36,573			36,573			36,573				36,573			36,573			—			36,573			—
Stockholders' equity (deficit)			(2,254	)		(27,646	)		(26,592	)		(28,503	)		(27,799	)			(27,646	)		(26,592	)		91,134			(26,455	)		89,770




Table of Contents


MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Forward-Looking Statements

        The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Selected Consolidated Financial Data" and our consolidated financial statements and related notes included elsewhere in this prospectus. Furthermore, 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 those discussed below and elsewhere in this prospectus, particularly under the section titled "Risk Factors."

Overview

        We are a cloud-based provider of payroll and HCM software solutions for medium-sized organizations, which we define as those having between 20 and 1,000 employees. Our comprehensive and easy-to-use solutions enable our clients to manage their workforces more effectively. As of June 30, 2013,2014, we served approximately 6,8508,500 clients across the U.S., which on average had between 95 and 115over 100 employees during each of the last three fiscal years. Our solutions help drive strategic human capital decision-making and improve employee engagement by enhancing the HR, payroll and finance capabilities of our clients.

        Effective management of human capital is a core function in all organizations and requires a significant commitment of resources. Medium-sized organizations operating without the infrastructure, expertise or personnel of larger enterprises are uniquely pressured to manage their human capital effectively.

        Our solutions were specifically designed to meet the payroll and HCM needs of medium-sized organizations. We designed our cloud-based platform to provide a unified suite of applications using a multi-tenant architecture. Our solutions are highly flexible and configurable and feature a modern, intuitive user experience. Our platform offers automated data integration with over 200 related third-party systems, such as 401(k), benefits and insurance provider systems.

        OurThe Paylocity Web Pay product is our core payroll solution and was the first of our current offerings introduced into the market. We believe payroll is the most critical system of record for medium-sized organizations and an essential gateway to other HCM functionality. We have invested in, and we intend to continue to invest in, research and development to expand our product offerings and advance our platform.

        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 primarily through our direct sales force. We have increased our sales and marketing expenses as we have added sales representatives and related sales and marketing personnel. We intend to continue to growgrowing 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 and quality of products 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.

        In addition to sales made through our direct sales force, we have contractual arrangements with two third-party resellers who resell our payroll and HCM solutions. We report revenue generated through these resellers at the gross amount billed to clients. Sales attributable to resellers totaled $3.8 million, $6.1 million and $8.6 million during fiscal 2011, 2012 and 2013,




Table of Contents

respectively. Cost of revenues attributable to resellers totaled $1.9 million, $3.0 million and $4.2 million during fiscal 2011, 2012 and 2013, respectively. See "Use of Proceeds" for information regarding our right to acquire one of the resellers.

        We believe that deliveringDelivering a positive service experience is an essential element of our ability to sell our solutions and retain our clients. We seek to develop deep relationships with our clients through our unified service model, which has been designed to meet the service needs of medium-sized




Table of Contents

organizations. We expect to continue to invest in and grow our implementation and client service organization as our client base grows.

        We believe we have the opportunity to continue to grow our business over the long term, and to do so we have invested, and intend to continue to invest, across our entire organization. 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, add new 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.

        As our business has grown, we have become increasingly subject to the risks arising from adverse changes in domestic and global economic conditions. If general economic conditions were to deteriorate further, including declines in private sector employment growth and business productivity, increases in the unemployment rate and changes in interest rates, we may experience delays in our sales cycles, increased pressure from prospective customers to offer discounts and increased pressure from existing customers to renew expiring recurring revenue agreements for lower amounts. Our interest income on funds held for clients continues to be negatively impacted by historically low interest rates.

        Our operating subsidiary Paylocity Corporation was incorporated in July 1997 as an Illinois corporation. In November 2013, we formed Paylocity Holding Corporation, a Delaware corporation, of which Paylocity Corporation is now a wholly-owned subsidiary. Paylocity Holding Corporation had no operations prior to the restructuring. All of our business operations have historically been, and are currently, conducted by Paylocity Corporation, and the financial results presented herein are entirely attributable to the results of its operations.

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.

Recurring 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. Recurring revenue, which is comprised of recurring fees and interest income on funds held for clients, increased from $52.5 million in fiscal 2012 to $72.8 million in fiscal 2013, representing a 39% year-over-year increase. Recurring revenue increased from $72.8 million in fiscal 2013 to $101.9 million in fiscal 2014, representing a 40% year-over-year increase. Recurring revenue represented 95%, 94% and 94% of total revenue in fiscal 2012, 2013, and 2013,2014, respectively. Recurring revenue increased from $31.3$21.1 million for the sixthree months ended December 31, 2012September 30, 2013 to $43.6$29.5 million for the sixthree months ended December 31, 2013,September 30, 2014, representing a 40% year-over-year increase. Recurring revenue represented 95% of total revenue for the three month periods ended September 30, 2013 and 2014.




Table of Contents

revenue represented 95% and 94% of total revenue during the six months ended December 31, 2012 and 2013, respectively.

Client Count Growth

        We believe there is a significant opportunity to grow our business by increasing our number of clients. We have increased our number of clients from approximately 4,4005,500 as of June 30, 20112012 to approximately 6,8508,500 as of June 30, 2013,2014, representing compound annual growth rate of approximately 25%24%. The table below sets forth our client count for the periods indicated, rounded to the nearest fifty.

		Year Ended June 30,
		2011			2012			2013
Client Count			4,400			5,500			6,850

		Year Ended June 30,
		2012			2013			2014
Client Count			5,500			6,850			8,500

        The rate at which we add clients is highly variable period-to-period and highly seasonal period-to-period as many clients switch solutions during the first calendar quarter of each year. Although many clients have multiple divisions, segments or locations, we only count such clients once for these purposes.

Annual Revenue Retention Rate

        Our annual revenue retention rate has been in excess of 92% during each of the past three fiscal years. We calculate our annual revenue retention rate as our total revenue for the preceding 12 months, less the annualized value of revenue lost during the preceding 12 months, divided by our total revenue for the preceding 12 months. We calculate the annualized value of revenue lost by summing the recurring fees paid by lost clients over the previous twelve months prior to their termination if they have been a client for a minimum of twelve months. For those lost clients who became clients within the last twelve months, we sum the recurring fees for the period that they have been a client and then annualize the amount. We exclude interest income on funds held for clients from the revenue retention calculation. We believe that our annual revenue retention rate is an important metric to measure overall client satisfaction and the general quality of our product and service offerings.

Recurring Fees Fromfrom New Clients

        We calculate recurring fees from new clients as the percentage of year-to-dateyear- to-date recurring fees from all clients on our solutions which had not been on or used any of our solutions for a full year as of the start of the current fiscal year. We believe recurring fees from new clients is an important metric to measure the expansion of our existing client base as well as the growth in our client base. For the first sixthree months of fiscal 20132014 and fiscal 2014,2015, our recurring fees from new clients was 37% for both periods.were 34% and 35%, respectively. Our recurring fees from new clients for both fiscal 2013 wasand 2014 were 44%.

Adjusted Gross Profit, Adjusted Recurring Gross Profit and Adjusted EBITDA

        We disclose Adjusted Gross Profit, Adjusted Recurring Gross Profit and Adjusted EBITDA because we use them to evaluate our performance, and we believe Adjusted Gross Profit, Adjusted Recurring 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 used in the financial community, and we present it to enhance investors' understanding of our operating performance and cash flows.

        Adjusted Gross Profit, Adjusted Recurring Gross Profit and Adjusted EBITDA are not measurements of financial performance under generally accepted accounting principles in the United States, or GAAP, and you should not consider Adjusted Gross Profit as an alternative to




Table of Contents

gross profit Adjusted Recurring Gross Profit as an alternative to total recurring revenues, or Adjusted EBITDA as an alternative to net income (loss) or cash provided by operating activities, in




Table of Contents

each case as determined in accordance with GAAP. In addition, our definition of Adjusted Gross Profit, Adjusted Recurring 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, and stock-based compensation expenses and one-time bonus pay-outs funded by our founder, if any. We define Adjusted Recurring Gross Profit as total recurring revenues after cost of recurring revenues and before amortization of capitalized internal-use software, and stock-based compensation expenses and one-time bonus pay-outs funded by our founder, if any. We define Adjusted EBITDA as net income (loss) before interest expense (income), income tax expense (benefit), depreciation and amortization, and stock-based compensation expenses.expenses and one-time bonus pay-outs funded by our founder. The table below sets forth our Adjusted Gross Profit, Adjusted Recurring Gross Profit and Adjusted EBITDA for the periods presented.

		Year Ended June 30,									Six Months Ended December 31,							Year Ended June 30,									Three Months Ended September 30,
		2011			2012			2013			2012			2013				2012			2013			2014			2013			2014
		(in thousands)																(in thousands)
Adjusted Gross Profit		$	19,962		$	28,729		$	40,695		$	16,565		$	22,438			$	28,729		$	40,695		$	57,029		$	11,227		$	16,889
Adjusted Recurring Gross Profit		$	23,437		$	33,147		$	46,972		$	19,565		$	27,769			$	33,147		$	46,972		$	67,458		$	13,703		$	20,389
Adjusted EBITDA		$	4,028		$	7,660		$	6,301		$	1,400		$	523			$	7,660		$	6,301		$	5,448		$	1,188		$	367

        For a further discussion of Adjusted Gross Profit, Adjusted Recurring Gross Profit and Adjusted EBITDA, including a reconciliation of Adjusted Gross Profit, Adjusted Recurring Gross Profit and Adjusted EBITDA to GAAP, see "Summary Consolidated Financial Data."

Basis of Presentation

Revenues

Recurring Fees

        We derive the majority of our revenues from recurring fees attributable to our cloud-based payroll and HCM software solutions. Recurring fees for each client generally include a base fee in addition to a fee based on the number of client employees and the number of products a client uses. We also charge fees attributable to our preparation of W-2 documents and annual required filings on behalf of our clients. Over the past three years, our clients have consistently had on average between 95 and 115over 100 employees. We derive revenue from a client based on the solutions purchased by the client, the number of client employees as well as the amount, type and timing of services provided in respect of those client employees. As such, the number of client employees on our system is not a good indicator of our financial results in any period. Recurring fees attributable to our cloud-based payroll and HCM solutions accounted for approximately93%, 92%, 93% and 92% of our total revenues during the years ended June 30, 2011,fiscal 2012, 2013 and 2013,2014, respectively.

        Our agreements with clients do not have a specified term and are generally cancellable by the client on 60 days' or less notice. 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 when collection of fees is reasonably assured and the amount of fees is fixed or determinable.




Table of Contents

Interest Income on Funds Held for Clients

        We earn interest income on funds held for clients. We collect funds for employee payroll payments and related taxes in advance of remittance to employees and taxing authorities. Prior to




Table of Contents

remittance to employees and taxing authorities, we earn interest on these funds through financial institutions with which we have automated clearing house, or ACH, arrangements.

Implementation Services and Other

        Implementation services and other revenues primarily consist of implementation fees charged to new clients for professional services provided to implement and configure our payroll and HCM solutions. Implementations of our payroll solutions typically require only three to six weeks at which point the new client's payroll is first run using our solution, our implementation services are deemed completed, and we recognize the related revenue. We implement additional HCM products as requested by clients and leverage the data within our payroll solution to accelerate our implementation processes. Implementation services and other revenues may fluctuate significantly from quarter to quarter based on the number of new clients, pricing and the product utilization.

Cost of Revenues

Cost of Recurring Revenues

        Costs of recurring revenues are generally expensed as incurred, and include costs to provide our payroll and other HCM solutions primarily consisting of employee-related expenses, including wages, bonuses and benefits, relating to the provision of ongoing client support, payroll tax filing and distribution of printed checks and other materials. These costs also include third-party reseller costs, delivery costs, computing costs and amortization of capitalized software costs, as well as bank fees associated with client fund transfers. We expect to realize cost efficiencies over the long term as our business scales, resulting in improved operating leverage and increased margins.

        We capitalize a portion of our costs for software developed for internal use, which are then all amortized as a cost of recurring revenues. We amortized $2.2 million, $2.7 million, $3.1 million and $3.1$2.2 million of capitalized internal-use software costs in fiscal 2011, 2012, 2013 and 2013,2014, respectively.

Cost of Implementation Services and Other

        Cost of implementation services and other consists almost entirely of employee-related expenses involved in the implementation of our payroll and other HCM solutions for new clients. Implementation costs are generally fixed in the short-term and exceed associated implementation revenue charged to each client. We intend to grow our business through acquisition of new clients, and doing so will require increased personnel to implement our solutions. Therefore our cost of implementation services and other is expected to increase in absolute dollars for the foreseeable future.

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, bonuses and benefits, marketing expenses and other related costs. Commissions are primarily earned and recognized in the month when implementation is complete and the client first utilizes a service, typically by running its first payroll. Bonuses paid to sales staff for attainment of certain performance criteria are accrued in the fiscal year in which they are earned and are subsequently paid annually in the first fiscal quarter of the following year.




Table of Contents

        We will seek to grow our number of clients for the foreseeable future and therefore our sales and marketing expense is expected to continue to increase in absolute dollars as we grow our sales organization and expand our marketing activities.




Table of Contents

Research and Development

        Research and development expenses consist primarily of employee-related expenses for our research and development and product management staff, including wages, benefits and bonuses. 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 software development expenses 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 each of fiscal 2011, 2012, 2013 and 2013.2014.

		Year Ended June 30,										Year Ended June 30,
		2011			2012			2013				2012			2013			2014
		(in thousands)										(in thousands)
Capitalized portion of research and development		$	2,746		$	3,716		$	1,967			$	3,716		$	1,967		$	4,674
Expensed portion of research and development			1,565			1,788			6,825				1,788			6,825			10,355
​											​		​	​		​	​		​	​
Total research and development		$	4,311		$	5,504		$	8,792			$	5,504		$	8,792		$	15,029

        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 other employee-related costs, including wages, benefits, stock-based compensation and bonuses for our administrative, finance, accounting, and human resources departments. Additional expenses include consulting and professional fees, insurance and other corporate expenses.

        We expect our general and administrative expenses to increase in absolute dollars as a result of our preparation to become and operate as a public company. After the completion of this offering, these expenses will also include costs associated with compliance with the Sarbanes-Oxley Act and other regulations governing public companies, increased costs of directors' and officers' liability insurance and increased professional services expenses.

Other Income (Expense)

        Other income (expense) consists primarily of interest income and expense. Interest income represents interest received on our cash and cash equivalents. Interest expense consists primarily of the interest incurred on outstanding borrowings under our note payable. We expect to use a portion of the net proceeds of this offering to retire amounts outstanding under our note payable.




Table of Contents

Results of Operations

        The following table sets forth our statements of operations data for each of the periods indicated.

		Year Ended June 30,									Six Months Ended December 31,							Year Ended June 30,									Three Months Ended September 30,
		2011			2012			2013			2012			2013				2012			2013			2014			2013			2014
		(in thousands)																(in thousands)
Consolidated Statements of Operations Data:
Revenues:
Recurring fees		$	36,443		$	51,211		$	71,309		$	30,639		$	42,883			$	51,211		$	71,309		$	100,362		$	20,738		$	29,142
Interest income on funds held for clients			1,100			1,263			1,459			625			731				1,263			1,459			1,582			353			363
​																	​		​	​		​	​		​	​		​	​		​	​
Total recurring revenues			37,543			52,474			72,768			31,264			43,614				52,474			72,768			101,944			21,091			29,505
Implementation services and other			1,941			2,622			4,526			1,762			2,660				2,622			4,526			6,743			1,278			1,604
​																	​		​	​		​	​		​	​		​	​		​	​
Total revenues			39,484			55,096			77,294			33,026			46,274				55,096			77,294			108,687			22,369			31,109
​																	​		​	​		​	​		​	​		​	​		​	​
Cost of revenues:
Recurring revenues			16,329			22,054			28,863			13,294			17,074				22,054			28,863			37,319			7,993			10,057
Implementation services and other			5,416			7,040			10,803			4,762			7,991				7,040			10,803			17,775			3,754			5,395
​																	​		​	​		​	​		​	​		​	​		​	​
Total costs of revenues			21,745			29,094			39,666			18,056			25,065				29,094			39,666			55,094			11,747			15,452
​																	​		​	​		​	​		​	​		​	​		​	​
Gross profit			17,739			26,002			37,628			14,970			21,209				26,002			37,628			53,593			10,622			15,657
​																	​		​	​		​	​		​	​		​	​		​	​
Operating expenses:
Sales and marketing			9,293			12,828			18,693			7,826			10,612				12,828			18,693			28,276			5,189			9,078
Research and development			1,565			1,788			6,825			3,054			4,303				1,788			6,825			10,355			1,956			4,027
General and administrative			6,868			8,618			12,079			5,794			9,139				8,618			12,079			21,980			3,911			7,448
​																	​		​	​		​	​		​	​		​	​		​	​
Total operating expenses			17,726			23,234			37,597			16,674			24,054				23,234			37,597			60,611			11,056			20,553
​																	​		​	​		​	​		​	​		​	​		​	​
Operating income (loss)			13			2,768			31			(1,704	)		(2,845	)			2,768			31			(7,018	)		(434	)		(4,896	)
Other income (expense)			(179	)		(196	)		(16	)		(9	)		50				(196	)		(16	)		163			28			49
​																	​		​	​		​	​		​	​		​	​		​	​
Income (loss) before income taxes			(166	)		2,572			15			(1,713	)		(2,795	)			2,572			15			(6,855	)		(406	)		(4,847	)
Income tax (benefit) expense			(36	)		884			(602	)		(681	)		(1,239	)			884			(602	)		255			(362	)		28
​																	​		​	​		​	​		​	​		​	​		​	​
Net income (loss)		$	(130	)	$	1,688		$	617		$	(1,032	)	$	(1,556	)		$	1,688		$	617		$	(7,110	)	$	(44	)	$	(4,875	)
​																	​		​	​		​	​		​	​		​	​		​	​
​																	​		​	​		​	​		​	​		​	​		​	​




Table of Contents

        The following table sets forth our statements of operations data as a percentage of revenue for each of the periods indicated.

		Year Ended June 30,									Six Months Ended December 31,							Year Ended June 30,									Three Months Ended September 30,
		2011			2012			2013			2012			2013				2012			2013			2014			2013			2014
Consolidated Statements of Operations Data:
Revenues:
Recurring fees			92	%		93	%		92	%		93	%		93	%			93	%		92	%		92	%		93	%		94	%
Interest income on funds held for clients			3	%		2	%		2	%		2	%		1	%			2	%		2	%		2	%		2	%		1	%
​																	​		​	​		​	​		​	​		​	​		​	​
Total recurring revenues			95	%		95	%		94	%		95	%		94	%			95	%		94	%		94	%		95	%		95	%
Implementation services and other			5	%		5	%		6	%		5	%		6	%			5	%		6	%		6	%		5	%		5	%
​																	​		​	​		​	​		​	​		​	​		​	​
Total revenues			100	%		100	%		100	%		100	%		100	%			100	%		100	%		100	%		100	%		100	%
​																	​		​	​		​	​		​	​		​	​		​	��
Cost of revenues:
Recurring revenues			41	%		40	%		37	%		40	%		37	%			40	%		37	%		34	%		36	%		33	%
Implementation services and other			14	%		13	%		14	%		14	%		17	%			13	%		14	%		17	%		17	%		17	%
​																	​		​	​		​	​		​	​		​	​		​	​
Total costs of revenues			55	%		53	%		51	%		54	%		54	%			53	%		51	%		51	%		53	%		50	%
​																	​		​	​		​	​		​	​		​	​		​	​
Gross profit			45	%		47	%		49	%		46	%		46	%			47	%		49	%		49	%		47	%		50	%
​																	​		​	​		​	​		​	​		​	​		​	​
Operating expenses:
Sales and marketing			24	%		23	%		24	%		24	%		23	%			23	%		24	%		26	%		23	%		29	%
Research and development			4	%		3	%		9	%		9	%		9	%			3	%		9	%		10	%		9	%		13	%
General and administrative			17	%		16	%		16	%		17	%		20	%			16	%		16	%		20	%		17	%		24	%
​																	​		​	​		​	​		​	​		​	​		​	​
Total operating expenses			45	%		42	%		49	%		50	%		52	%			42	%		49	%		56	%		49	%		66	%
​																	​		​	​		​	​		​	​		​	​		​	​
Operating income (loss)			0	%		5	%		0	%		(4	)%		(6	)%			5	%		0	%		(7	)%		(2	)%		(16	)%
Other income (expense)			(0	)%		(0	)%		0	%		(0	)%		0	%			(0	)%		0	%		0	%		0	%		0	%
​																	​		​	​		​	​		​	​		​	​		​	​
Income (loss) before income taxes			(0	)%		5	%		0	%		(4	)%		(6	)%			5	%		0	%		(7	)%		(2	)%		(16	)%
Income tax (benefit) expense			(0	)%		2	%		(1	)%		(2	)%		(3	)%			2	%		(1	)%		0	%		(2	)%		0	%
​																	​		​	​		​	​		​	​		​	​		​	​
Net income (loss)			(0	)%		3	%		1	%		(2	)%		(3	)%			3	%		1	%		(7	)%		0	%		(16	)%
​																	​		​	​		​	​		​	​		​	​		​	​
​																	​		​	​		​	​		​	​		​	​		​	​

Comparison of SixThree Months Ended December 31, 2012September 30, 2013 and 20132014

Revenues

		Six Months Ended December 31,						Change							Three Months Ended September 30,						Change
		2012			2013			$			%				2013			2014			$			%
Recurring fees		$	30,639		$	42,883		$	12,244			40	%		$	20,738		$	29,142		$	8,404			41	%
Percentage of total revenues			93	%		93	%									93	%		94	%
Interest income on funds held for clients		$	625		$	731		$	106			17	%			353			363			10			3	%
Percentage of total revenues			2	%		1	%									2	%		1	%
Implementation services and other		$	1,762		$	2,660		$	898			51	%			1,278			1,604			326			26	%
Percentage of total revenues			5	%		6	%									5	%		5	%




Table of Contents

Recurring Fees

        Recurring fees for the sixthree months ended December 31, 2013September 30, 2014 increased by $12.2$8.4 million, or 40%41%, to $42.8$29.1 million from $30.6$20.7 million for the sixthree months ended December 31, 2012.September 30, 2013. Recurring




Table of Contents

fees increased primarily as a result of the continued growth of our client base,revenue from new clients, as well as increased revenue per client during fiscal 2013 and the first two quarters of fiscal 2014.client.

Interest Income on Funds Held for Clients

        Interest income on funds held for clients for the sixthree months ended December 31, 2013September 30, 2014 was not materially different as compared to the sixthree months ended December 31, 2012.September 30, 2013. The increase in interest income due to an increase in the amount of funds held for clients was partially offset by declining interest rates.

Implementation Services and Other

        Implementation services and other revenue for the sixthree months ended December 31, 2013September 30, 2014 increased by $0.9$0.3 million, or 51%26%, to $2.7$1.6 million from $1.8$1.3 million for the sixthree months ended December 31, 2012.September 30, 2013. Implementation services and other revenue increased primarily as a result of an increase in the continued growthnumber of our new client baseclients during the sixthree months ended December 31,September 30, 2014 in comparison to the three months ended September 30, 2013.

Cost of Revenues

		Six Months Ended December 31,						Change							Three Months Ended September 30,						Change
		2012			2013			$			%				2013			2014			$			%
Cost of recurring revenues		$	13,294		$	17,074		$	3,780			28	%		$	7,993		$	10,057		$	2,064			26	%
Percentage of recurring revenues			43	%		39	%									38	%		34	%
Recurring gross margin			57	%		61	%									62	%		66	%
Cost of implementation services and other		$	4,762		$	7,991		$	3,229			68	%			3,754			5,395			1,641			44	%
Percentage of implementation services and other			270	%		300	%									294	%		336	%
Implementation gross margin			(170	)%		(200	)%									(194	)%		(236	)%

Cost of Recurring Revenues

        Cost of recurring revenues for the sixthree months ended December 31, 2013September 30, 2014 increased by $3.8$2.1 million, or 28%26%, to $17.1$10.1 million from $13.3$8.0 million for the sixthree months ended December 31, 2012.September 30, 2013. Cost of recurring revenues increased primarily as a result of the continued growth of our business, in particular $1.6$1.0 million in employee-related costs resulting from additional personnel necessary to serviceprovide services to new and existing clients, $0.3 million stock-based compensation expenses and $2.1$1.2 million of other processing-related fees.fees related to the delivery of our services, partially offset by a $0.5 million decrease in reseller expenses primarily due to our acquisition of one of our resellers during fiscal 2014. Recurring gross margin increased from 57%62% for the sixthree months ended December 31, 2012September 30, 2013 to 61%66% for the sixthree months ended December 31, 2013,September 30, 2014, primarily due to a 3% reduction in amortizationreseller expense as a percentage of total recurring revenue and a 1% reduction in personnel-related and other costsamortization expense as a percentage of total recurring revenue.

Cost of Implementation Services and Other

        Cost of implementation services and other for the sixthree months ended December 31, 2013September 30, 2014 increased by $3.2$1.6 million, or 68%44%, to $8.0$5.4 million from $4.8$3.8 million for the sixthree months ended December 31, 2012.September 30, 2013. Cost of implementation services and other increased primarily as a result of the expenses associated with the continued acquisition ofdue to an increase in new clients, in particular $2.9and a corresponding increase of $1.2 million in employee-related and other costs resulting from additional personnel related to client implementation activitiesimplement our solutions for new clients and $0.3 million stock-based compensation during the sixthree months ended December 31, 2013.September 30, 2014.




Table of Contents

Operating Expenses

Sales and Marketing

		Six Months Ended December 31,						Change							Three Months Ended September 30,						Change
		2012			2013			$			%				2013			2014			$			%
Sales and marketing		$	7,826		$	10,612		$	2,786			36	%		$	5,189		$	9,078		$	3,889			75	%
Percentage of total revenues			24	%		23	%									23	%		29	%

        Sales and marketing expenses for the sixthree months ended December 31, 2013September 30, 2014 increased by $2.8$3.9 million, or 36%75%, to $10.6$9.1 million from $7.8$5.2 million for the sixthree months ended December 31, 2012.September 30, 2013. The increase in sales and marketing expenses was primarily the result of $2.8$2.7 million of additional employee-related expenses incurred due to the expansion of our sales team, including management, direct sales forceand sales administration by 5462 personnel, which includes the addition of 2538 sales lead generation personnel, whose function was previously outsourced and recorded in sales and marketing as lead generation expense rather than employee-related expense, in prior periods, and other miscellaneous sales and marketing related expenses. The increase was also attributable to $0.9 million of stock-based compensation expenses during the three months ended September 30, 2014 associated with our equity incentive plan.

Research and Development

		Six Months Ended December 31,						Change							Three Months Ended September 30,						Change
		2012			2013			$			%				2013			2014			$			%
Research and development		$	3,054		$	4,303		$	1,249			41	%		$	1,956		$	4,027		$	2,071			106	%
Percentage of total revenues			9	%		9	%									9	%		13	%

        Research and development for the sixthree months ended December 31, 2013September 30, 2014 increased by $1.2$2.1 million, or 41%106%, to $4.3$4.0 million from $3.1$2.0 million for the sixthree months ended December 31, 2012.September 30, 2013. The increase in research and development expense was primarily as a result of $2.5$1.4 million in employee-related expenses related to 2531 additional development personnel partially offset by an increaseand $0.5 million of $1.3 million in capitalized internally-developed software costs for the six months ended December 31, 2013.stock-based compensation expenses. The Company's emphasis is on hiring highly skilled technical personnel as well as expanding the management team in this area, resulting in higher average salaries and increased research and development expense per incremental employee for the sixthree months ended December 31, 2013.September 30, 2014.

General and Administrative

		Six Months Ended December 31,						Change							Three Months Ended September 30,						Change
		2012			2013			$			%				2013			2014			$			%
General and administrative		$	5,794		$	9,139		$	3,345			58	%		$	3,911		$	7,448		$	3,537			90	%
Percentage of total revenues			17	%		20	%									17	%		24	%

        General and administrative expenses for the sixthree months ended December 31, 2013September 30, 2014 increased by $3.3$3.5 million, or 58%90%, to $9.1$7.4 million from $5.8$3.9 million for the sixthree months ended December 31, 2012.September 30, 2013. The increase was primarily the result of $1.9$1.0 million of additional stock-based compensation expenses, $0.9 million of additional employee-related expenses related to 18 additional personnel within our administrative, finance, accounting and HR departments to support our continued growth, including the recruiting and hiring of senior level personnel to prepare for and assist in our efforts to become a public company, and $1.0 million of additional professional fees.25




Table of Contents

additional personnel, $0.5 million of additional professional fees and $0.4 million of increased occupancy costs incurred as a result of additional office space.

Other Income (Expense)

		Six Months Ended December 31,						Change							Three Months Ended September 30,						Change
		2012			2013			$			%				2013			2014			$			%
Other income (expense)		$	(9	)	$	50		$	59				*		$	28		$	49		$	21			75	%
Percentage of total revenues			*			*											*			*

---

*

Not meaningfulMeaningful

        Other expenseincome for the sixthree months ended December 31, 2013 decreased by $0.06 millionSeptember 30, 2014 was not materially different as compared to the sixthree months ended December 31, 2012.September 30, 2013. The decreaseslight increase in other expenseincome was primarily the result of reduced interest expense as we repaid approximately $1.6$1.4 million of debt since the three-month period ended September 30, 2013 and did not have any notes payable outstanding during the yearthree-month period ended JuneSeptember 30, 2013 in accordance with the terms of our outstanding promissory notes and note payable.2014.

Income Tax (Benefit) Expense

		Three Months Ended September 30,						Change
		2013			2014			$			%
Income tax (benefit) expense		$	(362	)	$	28		$	390			108	%
Percentage of total revenues			(2	)%			*

---

		Six Months Ended December 31,						Change
		2012			2013			$			%
Income tax (benefit) expense		$	(681	)	$	(1,239	)	$	(558	)		82	%
Percentage of total revenues			(2	)%		(3	)%

*

Not Meaningful

        Income tax benefit for the sixthree months ended December 31, 2013 increasedSeptember 30, 2014 decreased by $0.6$0.4 million, or 82%108% as compared to the sixthree months ended December 31, 2012.September 30, 2013. The increasedecrease in income tax benefit was primarily the result of research and development tax credits of $0.4 million realized during the six months ended December 31, 2013. We did not record any research and development tax credits for the six months ended December 31, 2012 due to the fact thatrecognition of a deferred tax asset valuation allowance since the enabling statute was not enacted until January 2013.three-month period ended September 30, 2013, thus resulting in a minimal income tax (benefit) expense for the three-month period ended September 30, 2014 related to reported net loss.

Comparison of Fiscal Years Ended June 30, 2011, 2012, 2013 and 20132014

Revenues

		Year Ended June 30,									Change from 2011 to 2012						Change from 2012 to 2013							Year Ended June 30,									Change from 2012 to 2013						Change from 2013 to 2014
		2011			2012			2013			$			%			$			%				2012			2013			2014			$			%			$			%
Recurring fees		$	36,443		$	51,211		$	71,309		$	14,768			41	%	$	20,098			39	%		$	51,211		$	71,309		$	100,362		$	20,098			39	%	$	29,053			41	%
Percentage of total revenues			92	%		93	%		92	%															93	%		92	%		92	%
Interest income on funds held for clients		$	1,100		$	1,263		$	1,459		$	163			15	%	$	196			16	%		$	1,263		$	1,459		$	1,582		$	196			16	%	$	123			8	%
Percentage of total revenues			3	%		2	%		2	%															2	%		2	%		2	%
Implementation services and other		$	1,941		$	2,622		$	4,526		$	681			35	%	$	1,904			73	%		$	2,622		$	4,526		$	6,743		$	1,904			73	%	$	2,217			49	%
Percentage of total revenues			5	%		5	%		6	%															5	%		6	%		6	%




Table of Contents

Recurring Fees

        Recurring fees for fiscal 2014 increased by $29.1 million, or 41%, to $100.4 million from $71.3 million for fiscal 2013. Recurring fees increased primarily as a result of the year endedcontinued growth of our client base in fiscal 2014, as well as increased revenue per client. Our client count at June 30, 2014 increased by 24% to approximately 8,500 from approximately 6,850 at June 30, 2013.

        Recurring fees for fiscal 2013 increased by $20.1 million, or 39%, to $71.3 million from $51.2 million for the year ended June 30,fiscal 2012. Recurring fees increased primarily as a result of the continued growth of our client base in fiscal 2013, as well as increased




Table of Contents

revenue per client. Our client count at June 30, 2013 increased by 25% to approximately 6,850 from approximately 5,500 at June 30, 2012.

        Recurring fees for the year ended June 30, 2012 increased by $14.8 million, or 41%, to $51.2 million from $36.4 million for the year ended June 30, 2011. Recurring fees increased primarily as a result of the continued growth of our client base in fiscal 2012 and the full year impact of new clients added throughout fiscal 2011. Our client count at June 30, 2012 increased by 25% to approximately 5,500 from approximately 4,400 at June 30, 2011.

Interest Income on Funds Held for Clients

        Interest income on funds held for clients for fiscal 2014 increased by $0.1 million, or 8%, to $1.6 million from $1.5 million for fiscal 2013. Interest income increased primarily as a result of an increased average daily balance of funds held due to the year ended June 30,addition of new clients to our client base partially offset by declining interest rates during fiscal 2014.

        Interest income on funds held for clients for fiscal 2013 increased by $0.2 million, or 16%, to $1.5 million from $1.3 million for the year ended June 30,fiscal 2012. Interest income increased primarily as a result of an increased average daily balance of funds held due to the addition of new clients to our client base during fiscal 2013.

        Interest income on funds held for clients for the year ended June 30, 2012 increased by $0.2 million, or 15%, to $1.3 million from $1.1 million for the year ended June 30, 2011. Interest income increased primarily as a result of an increased average daily balance of funds held due to the addition of new clients to our client base during fiscal 2012.

Implementation Services and Other

        Implementation services and other revenue for fiscal 2014 increased by $2.2 million, or 49%, to $6.7 million from $4.5 million for fiscal 2013. Implementation services and other revenue increased primarily as a result of the year ended June 30,continued growth of our new client base during fiscal 2014.

        Implementation services and other revenue for fiscal 2013 increased by $1.9 million, or 73%, to $4.5 million from $2.6 million for the year ended June 30,fiscal 2012. Implementation services and other revenue increased primarily as a result of the continued growth of our new client base during fiscal 2013.

        Implementation services and other revenue for the year ended June 30, 2012 increased by $0.7 million, or 35%, to $2.6 million from $1.9 million for the year ended June 30, 2011. Implementation services and other revenue increased primarily as a result of the continued growth of our new client base during fiscal 2012.

Cost of Revenues

		Year Ended June 30,									Change from 2011 to 2012						Change from 2012 to 2013							Year Ended June 30,									Change from 2012 to 2013						Change from 2013 to 2014
		2011			2012			2013			$			%			$			%				2012			2013			2014			$			%			$			%
Cost of recurring revenues		$	16,329		$	22,054		$	28,863		$	5,725			35	%	$	6,809			31	%		$	22,054		$	28,863		$	37,319		$	6,809			31	%	$	8,456			29	%
Percentage of recurring revenues			43	%		42	%		40	%															42	%		40	%		37	%
Recurring gross margin			57	%		58	%		60	%															58	%		60	%		63	%
Cost of implementation services and other		$	5,416		$	7,040		$	10,803		$	1,624			30	%	$	3,763			53	%		$	7,040		$	10,803		$	17,775		$	3,763			53	%	$	6,972			65	%
Percentage of implementation services and other			279	%		268	%		239	%															268	%		239	%		264	%
Implementation gross margin			(179	)%		(168	)%		(139	)%															(168	)%		(139	)%		(164	)%




Table of Contents

Cost of Recurring Revenues

        Cost of recurring revenues for fiscal 2014 increased by $8.5 million, or 29%, to $37.3 million from $28.9 million for fiscal 2013. Cost of recurring revenues increased primarily as a result of the year ended June 30,continued growth of our business, in particular $4.0 million in additional employee-related costs resulting from additional personnel to provide services to new and existing clients, $0.5 million of stock-based compensation expenses, $0.4 million of additional costs attributable to resellers, and $3.5 million other processing-related fees. Recurring gross margin increased by 3% from 60% in fiscal 2013 to 63% in fiscal 2014 primarily due to a 2% reduction in amortization expense as a percentage of total recurring revenue and a 1% reduction in costs attributable to resellers as a percentage of total recurring revenue.

        Cost of recurring revenues for fiscal 2013 increased by $6.8 million, or 31%, to $28.9 million from $22.1 million for the year ended June 30,fiscal 2012. Cost of recurring revenues increased primarily as a result of the continued growth of our business, in particular $2.9 million in additional employee-related costs resulting from additional personnel to provide services to new and existing clients, $1.2 million of additional costs attributable to resellers, and $2.4 million other




Table of Contents

other processing-related fees. Recurring gross margin increased by 2% from 58% in fiscal 2012 to 60% in fiscal 2013 primarily due to a 1% reduction in amortization expense as a percentage of total recurring revenue and a 1% reduction in personnel-related and other costs as a percentage of total recurring revenue.

        Cost of recurring revenues for the year ended June 30, 2012 increased by $5.8 million, or 35%, to $22.1 million from $16.3 million for the year ended June 30, 2011. Cost of recurring revenues increased primarily as a result of the continued growth of our business, in particular $2.4 million in employee-related costs resulting from additional personnel to provide client service to new and existing clients, $1.1 million of additional costs attributable to resellers, and $1.7 million of other processing-related fees. Recurring gross margin increased by 1% from 57% in fiscal 2011 to 58% in fiscal 2012 primarily due to a reduction in amortization expense as a percentage of total recurring revenue and a reduction in personnel-related and other costs as a percentage of total recurring revenue.

Cost of Implementation Services and Other

        Cost of implementation services and other for the year ended June 30,fiscal 2014 increased by $7.0 million, or 65%, to $17.8 million from $10.8 million for fiscal 2013. Cost of implementation services and other increased primarily due to an increase in new clients during fiscal 2014, along with a corresponding increase of $5.4 million in employee-related and other costs to implement our solutions for new clients, and $0.4 million stock-based compensation expenses.

        Cost of implementation services and other for fiscal 2013 increased by $3.8 million, or 53%, to $10.8 million from $7.0 million for the year ended June 30,fiscal 2012. Cost of implementation services and other increased primarily due to an increase in new clients during fiscal 2013, and a corresponding increase of $3.0 million in employee-related and other costs to implement our solutions for new clients.

        Cost of implementation services and other for the year ended June 30, 2012 increased by $1.6 million, or 30%, to $7.0 million from $5.4 million for the year ended June 30, 2011. Cost of implementation services and other increased primarily due to an increase in new clients during fiscal 2012, and a corresponding increase of $1.4 million in employee-related and other costs to implement our solutions for new clients.

Operating Expenses

Sales and Marketing

		Year Ended June 30,									Change from 2011 to 2012						Change from 2012 to 2013							Year Ended June 30,									Change from 2012 to 2013						Change from 2013 to 2014
		2011			2012			2013			$			%			$			%				2012			2013			2014			$			%			$			%
Sales and marketing		$	9,293		$	12,828		$	18,693		$	3,535			38	%	$	5,865			46	%		$	12,828		$	18,693		$	28,276		$	5,865			46	%	$	9,583			51	%
Percentage of total revenues			24	%		23	%		24	%															23	%		24	%		26	%

        Sales and marketing expenses for fiscal 2014 increased by $9.6 million, or 51%, to $28.3 million from $18.7 million for fiscal 2013. The increase in sales and marketing expenses in fiscal 2014 was primarily the year ended June 30,result of $8.5 million of additional employee-related costs from the expansion of our sales team including management, direct sales and sales administration personnel by 62 personnel, the addition of 24 sales lead generation personnel, whose function was previously outsourced and recorded in sales and marketing as lead generation expense rather than employee-related expense, and other miscellaneous sales and marketing related expenses. The increase was also attributable to $0.8 million of stock-based compensation expenses.

        Sales and marketing expenses for fiscal 2013 increased by $5.9 million, or 46%, to $18.7 million from $12.8 million for the year ended June 30,fiscal 2012. The increase in sales and marketing expenses in




Table of Contents

fiscal 2013 was primarily the result of $5.2 million of additional employee-related costs from the expansion of our direct sales force by 23 personnel, the hiring of additional sales management and administrative personnel to support our growing business and other miscellaneous sales and marketing related expenses.

        Sales and marketing expenses for the year ended June 30, 2012 increased by $3.5 million, or 38%, to $12.8 million from $9.3 million for the year ended June 30, 2011. The increase in sales and marketing expenses in fiscal 2012 was primarily a result of $3.3 million of additional employee-related costs from the expansion of our direct sales force by 23 personnel and other miscellaneous sales and marketing related expenses.




Table of Contents

Research and Development

		Year Ended June 30,									Change from 2011 to 2012						Change from 2012 to 2013							Year Ended June 30,									Change from 2012 to 2013						Change from 2013 to 2014
		2011			2012			2013			$			%			$			%				2012			2013			2014			$			%			$			%
Research and development		$	1,565		$	1,788		$	6,825		$	223			14	%	$	5,037			282	%		$	1,788		$	6,825		$	10,355		$	5,037			282	%	$	3,530			52	%
Percentage of total revenues			4	%		3	%		9	%															3	%		9	%		10	%

        Research and development for fiscal 2014 increased by $3.5 million, or 52%, to $10.4 million from $6.8 million for fiscal 2013. Research and development costs increased in fiscal 2014 primarily due to $5.1 million of additional employee-related expenses related to 27 additional development personnel, $0.6 million of stock-based compensation associated with our equity incentive plan and $0.5 million related to the year ended June 30,one-time bonus pay-outs funded by our founder. This was offset by an increase of $2.7 million in our capitalized internally developed software costs as we developed significant additional functionality in our human capital management applications during the year.

        Research and development for fiscal 2013 increased by $5.0 million, or 282%, to $6.8 million from $1.8 million for the year ended June 30,fiscal 2012. Research and development costs increased in fiscal 2013 primarily due to $3.3 million of additional employee-related expenses related to 39 additional development personnel. Additionally, in fiscal 2013 one of our core payroll applications transitioned beyond the development stage into the maintenance and incremental improvements stage, and therefore our capitalized internally developedinternally-developed software costs decreased by $1.7 million in fiscal 2013 as compared to fiscal 2012.

        Research and development for the year ended June 30, 2012 increased by $0.2 million, or 14%, to $1.8 million from $1.6 million for the year ended June 30, 2011. Research and development costs increased in fiscal 2012 primarily due to $1.2 million of additional employee-related expenses related to 16 additional development personnel, offset by $1.0 million of additional software capitalization as compared to fiscal 2011. We amortized $2.2 million, $2.7 million, and $3.1 million of capitalized research and development costs in fiscal 2011, 2012 and 2013, respectively.

General and Administrative

		Year Ended June 30,									Change from 2011 to 2012						Change from 2012 to 2013							Year Ended June 30,									Change from 2012 to 2013						Change from 2013 to 2014
		2011			2012			2013			$			%			$			%				2012			2013			2014			$			%			$			%
General and administrative		$	6,868		$	8,618		$	12,079		$	1,750			26	%	$	3,461			40	%		$	8,618		$	12,079		$	21,980		$	3,461			40	%	$	9,901			82	%
Percentage of total revenues			17	%		16	%		16	%															16	%		16	%		20	%

        General and administrative expenses for the year ended June 30,fiscal 2014 increased by $9.9 million, or 82%, to $22.0 million from $12.1 million for fiscal 2013. General and administrative expenses increased primarily as a result of $4.3 million of additional employee-related expenses relating to 18 additional personnel, $2.1 million of additional stock-based compensation costs associated with our equity incentive plan, $1.7 million in additional professional fees and $0.6 million of increased occupancy costs incurred as a result of our requirement for additional office space.

        General and administrative expenses for fiscal 2013 increased by $3.5 million, or 40%, to $12.1 million from $8.6 million for the year ended June 30,fiscal 2012. General and administrative expenses increased primarily as a result of $2.2 million of additional employee-related expenses relating to 17 additional personnel, as well as $0.7 million of increased occupancy costs incurred as a result of our requirement for additional office space.




        General and administrative expenses for the year ended June 30, 2012 increased by $1.7 million, or 26%, to $8.6 million from $6.9 million for the year ended June 30, 2011. General and administrative expenses increased primarily as a resultTable of $1.0 million of employee-related expenses relating to 17 additional personnel, as well as $0.2 million of professional service costs, and $0.2 million of increased occupancy costs incurred as a result of our requirement for additional office space.Contents

Other Income (Expense)

		Year Ended June 30,									Change from 2011 to 2012						Change from 2012 to 2013							Year Ended June 30,									Change from 2012 to 2013						Change from 2013 to 2014
		2011			2012			2013			$			%			$			%				2012			2013			2014			$			%			$			%
Other income (expense)		$	(179	)	$	(196	)	$	(16	)	$	(17	)		9	%	$	180				*		$	(196	)	$	(16	)	$	163		$	180				*	$	179				*
Percentage of total revenues				*			*			*																*			*			*

---

*

Not Meaningful




Table        Other income (expense) for fiscal 2014 increased by $0.2 million as compared to fiscal 2013. Other income for the year ended June 30, 2014 primarily consists of Contentsinterest income earned on our cash and cash equivalents, partially offset by interest expense incurred on our note payable and other debt, which was repaid in full in March 2014.

        Other income (expense) for the year ended June 30,fiscal 2013 increased by $0.2 million as compared to the year ended June 30,fiscal 2012. Other expense for the year ended June 30, 2013 primarily consists of interest expense incurred on our note payable and other debt, which was reduced as compared to the year ended June 30,fiscal 2012 due to increased principal payments in fiscal 2013.

        Other income (expense) for the year ended June 30, 2012 decreased by $0.02 million, or 9% as compared to the year ended June 30, 2011. Other expense for the year ended June 30, 2012 primarily consists of interest expense incurred on our note payable and other debt.

Income Tax (Benefit) Expense

		Year Ended June 30,									Change from 2011 to 2012						Change from 2012 to 2013							Year Ended June 30,									Change from 2012 to 2013						Change from 2013 to 2014
		2011			2012			2013			$			%			$			%				2012			2013			2014			$			%			$			%
Effective tax rate			(22	)%		34	%			*															34	%			*		(4	)%
Income tax (benefit) expense		$	(36	)	$	884		$	(602	)	$	920				*	$	(1,486	)			*		$	884		$	(602	)	$	255		$	(1,486	)			*	$	(857	)			*
Percentage of total revenues				*		2	%		(1	)%															2	%		(1	)%			*

---

*

Not Meaningful

        Income tax (benefit) expense forfiscal 2014 increased by $0.9 million, as compared to fiscal 2013 primarily due to the yearexpiration of federal research and development tax credit allowances resulting in a $0.5 million decline in amount claimed and an increase in non-deductible expenses as a result of our growing business. We also recognized a valuation allowance as of June 30, 2014 on substantially all of our net deferred tax assets, many of which were generated in the three-month period ended June 30, 2014, given our determination that it was more likely than not that we would not recognize the benefits of our net operating loss carryforwards prior to their expiration.

        Income tax (benefit) expense for fiscal 2013 decreased by $1.5 million, as compared to the year ended June 30,fiscal 2012. The decrease in income tax provision was primarily the result of income before taxes of $0 for the year ended June 30,fiscal 2013, as compared to income before taxes of $2.6 million for the year ended June 30,fiscal 2012. Additionally, our income tax provision for the year ended June 30,fiscal 2013 was reduced by $0.7 million due to the application of various research and development tax credits.

        Income tax (benefit) expense for the year ended June 30, 2012 increased by $0.9 million, as compared to the year ended June 30, 2011. The increase in income tax provision was primarily the result of income before taxes of $2.6 million for the year ended June 30, 2012 as compared to loss before taxes of $0.2 million for the year ended June 30, 2011. The increase in income tax provision was partially offset by $0.2 million of research and development tax credits realized during the year ended June 30, 2012.

Quarterly Results of Operations

        The following tables set forth selected unaudited quarterly statements of income data for the last six quarters, as well as the percentage of total revenue for each line item shown. The financial information presented for the interim periods has been prepared on the same basis as the audited consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the results of income for such periods. This data should be read in conjunction with the audited consolidated financial statements and the related notes included




Table of Contents

elsewhere in this prospectus. These quarterly operating results are not necessarily indicative of our operating results to be expected for any future period.

		Three Months Ended																			Three Months Ended
		September 30, 2012			December 31, 2012			March 31, 2013			June 30, 2013			September 30, 2013			December 31, 2013				June 30, 2013			September 30, 2013			December 31, 2013			March 31, 2014			June 30, 2014			September 30, 2014
		(In thousands)																			(In thousands)
Revenues:
Recurring fees		$	14,721		$	15,918		$	21,824		$	18,846		$	20,738		$	22,145			$	18,846		$	20,738		$	22,145		$	30,719		$	26,760		$	29,142
Interest income on funds held for clients			302			323			447			387			353			378				387			353			378			491			360			363
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Total recurring revenues			15,023			16,241			22,271			19,233			21,091			22,523				19,233			21,091			22,523			31,210			27,120			29,505
Implementation services and other			803			959			1,735			1,029			1,278			1,382				1,029			1,278			1,382			2,556			1,527			1,604
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Total revenues			15,826			17,200			24,006			20,262			22,369			23,905				20,262			22,369			23,905			33,766			28,647			31,109
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Costs of revenues:
Recurring revenues			6,386			6,908			7,896			7,673			7,993			9,081				7,673			7,993			9,081			10,246			9,999			10,057
Implementation services and other			2,133			2,629			2,838			3,203			3,754			4,237				3,203			3,754			4,237			4,679			5,105			5,395
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Total cost of revenues			8,519			9,537			10,734			10,876			11,747			13,318				10,876			11,747			13,318			14,925			15,104			15,452
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Gross profit			7,307			7,663			13,272			9,386			10,622			10,587				9,386			10,622			10,587			18,841			13,543			15,657
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Operating expenses:
Sales and marketing			3,878			3,948			5,888			4,979			5,189			5,423				4,979			5,189			5,423			8,678			8,986			9,078
Research and development			1,357			1,697			1,852			1,919			1,956			2,347				1,919			1,956			2,347			2,443			3,609			4,027
General and administrative			2,688			3,106			2,928			3,357			3,911			5,228				3,357			3,911			5,228			5,587			7,254			7,448
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Total operating expenses			7,923			8,751			10,668			10,255			11,056			12,998				10,255			11,056			12,998			16,708			19,849			20,553
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Operating income (loss)			(616	)		(1,088	)		2,604			(869	)		(434	)		(2,411	)			(869	)		(434	)		(2,411	)		2,133			(6,306	)		(4,896	)
Other income (expense)			(42	)		33			(8	)		1			28			22				1			28			22			59			54			49
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Income (loss) before income taxes			(658	)		(1,055	)		2,596			(868	)		(406	)		(2,389	)			(868	)		(406	)		(2,389	)		2,192			(6,252	)		(4,847	)
Income tax (benefit) expense			(253	)		(428	)		575			(496	)		(362	)		(877	)			(496	)		(362	)		(877	)		(1,042	)		452			28
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Net income (loss)		$	(405	)	$	(627	)	$	2,021		$	(372	)	$	(44	)	$	(1,512	)		$	(372	)	$	(44	)	$	(1,512	)	$	1,150		$	(6,704	)	$	(4,875	)
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
​																				​		​	​		​	​		​	​		​	​		​	​		​	​




Table of Contents




		Three Months Ended																			Three Months Ended
		September 30, 2012			December 31, 2012			March 31, 2013			June 30, 2013			September 30, 2013			December 31, 2013				June 30, 2013			September 30, 2013			December 31, 2013			March 31, 2014			June 30, 2014			September 30, 2014
Revenues:
Recurring fees			93	%		92	%		91	%		93	%		93	%		93	%			93	%		93	%		93	%		91	%		93	%		94	%
Interest income on funds held for clients			2	%		2	%		2	%		2	%		2	%		2	%			2	%		2	%		2	%		1	%		1	%		1	%
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Total recurring revenues			95	%		94	%		93	%		95	%		95	%		95	%			95	%		95	%		95	%		92	%		94	%		95	%
Implementation services and other			5	%		6	%		7	%		5	%		5	%		5	%			5	%		5	%		5	%		8	%		6	%		5	%
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Total revenues			100	%		100	%		100	%		100	%		100	%		100	%			100	%		100	%		100	%		100	%		100	%		100	%
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Costs of revenues:
Recurring revenues			40	%		40	%		33	%		38	%		36	%		38	%			38	%		36	%		38	%		30	%		35	%		33	%
Implementation services and other			13	%		15	%		12	%		16	%		17	%		18	%			16	%		17	%		18	%		14	%		18	%		17	%
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Total cost of revenues			53	%		55	%		45	%		54	%		53	%		56	%			54	%		53	%		56	%		44	%		53	%		50	%
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Gross profit			47	%		45	%		55	%		46	%		47	%		44	%			46	%		47	%		44	%		56	%		47	%		50	%
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Operating expenses:
Sales and marketing			24	%		23	%		25	%		25	%		23	%		23	%			25	%		23	%		23	%		26	%		31	%		29	%
Research and development			9	%		10	%		8	%		9	%		9	%		10	%			9	%		9	%		10	%		7	%		13	%		13	%
General and administrative			17	%		18	%		12	%		17	%		17	%		22	%			17	%		17	%		22	%		17	%		25	%		24	%
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Total operating expenses			50	%		51	%		45	%		51	%		49	%		55	%			51	%		49	%		55	%		50	%		69	%		66	%
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Operating income (loss)			(3	)%		(6	)%		10	%		(5	)%		(2	)%		(11	)%			(5	)%		(2	)%		(11	)%		6	%		(22	)%		(16	)%
Other income (expense)			0	%		0	%		0	%		0	%		0	%		0	%			0	%		0	%		0	%		0	%		0	%		0	%
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Income (loss) before income taxes			(3	)%		(6	)%		10	%		(5	)%		(2	)%		(11	)%			(5	)%		(2	)%		(11	)%		6	%		(22	)%		(16	)%
Income tax (benefit) expense			(2	)%		(2	)%		2	%		(3	)%		(2	)%		(4	)%			(3	)%		(2	)%		(4	)%		(3	)%		1	%		0	%
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
Net income (loss)			(1	)%		(4	)%		8	%		(2	)%		0	%		(7	)%			(2	)%		0	%		(7	)%		3	%		(23	)%		(16	)%
​																				​		​	​		​	​		​	​		​	​		​	​		​	​
​																				​		​	​		​	​		​	​		​	​		​	​		​	​

Quarterly Trends

        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.

        Our revenues and costs have increased in most of the quarters presented as a result of an increase in our client base. We experience fluctuations in revenues and related costs on a seasonal basis, which are primarily seen in the quarter ended March 31. Specifically, our recurring revenue and costs are positively impacted in the quarter ended March 31 as a result of our preparation of W-2 documents for our clients' employees in advance of tax filing requirements, which generally means that our quarter ended June 30 has been lower than the prior quarter. Our interestInterest income earned on funds held for clients is also positively impacted during the quarter ended March 31 as a result of our increased collection of funds held for clients. Certain payroll taxes are primarily collected during the quarter ended March 31 and subsequently remitted.

        Implementation revenues are also typically higher during the quarter ended March 31 as many of our new clients elect to implement our services following a calendar year-end. Implementation gross profit varies on a quarterly basis as costs are generally fixed in the near-term, while revenues vary based on the number of new client implementations.

        Sales and marketing expenses increased for most of the quarters presented, as we incurred additional personnel expenses due to increased hiring and commissions as a result of continued expansion of our client base. Commissions can vary on a quarterly basis based on the number of new client implementations. We expect sales and marketing expenses to increase in absolute dollar terms in future quarters as we continue to grow our business.




Table of Contents

        Research and development expenses increased in absolute dollar terms in each of the quarters presented, primarily as a result of additional personnel-related expenses. We expect to continue to increase our research and development efforts as we continue to grow our business and we expect these expenses to continue to be among the most significant components of our operating expenses.

        General and administrative expenses increased in absolute dollar terms in most of the quarters presented, primarily as a result of personnel-related costs and professional fees to support our continued growth. We expect our general and administrative expenses to increase in future quarters in absolute terms as a result of our preparation to become and operate as a public company.

Critical Accounting Policies and Significant Judgments and Estimates

        In preparing our financial statements and accounting for the underlying transactions and balances in accordance with GAAP, we apply various accounting policies that require our management to make estimates, judgments and assumptions that affect the amounts reported in our financial statements. We consider the policies discussed below as critical to understanding our financial statements, as their application places the most significant demands on management's judgment. Management bases its estimates, judgments and assumptions on historical experience, current economic and industry conditions and on various other factors deemed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Because the use of estimates is an integral part of the financial reporting process, actual results could differ and such differences could be material.

Revenue Recognition

        We derive revenues predominantly from recurring revenues associated with our cloud-based payroll and HCM software applications and one-time service fees for implementation of our solutions. Our agreements with clients 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. As such, revenue is recognized as services are performed.

        We recognize revenue when all of the following criteria are achieved:

•

There is persuasivePersuasive evidence of an agreement;agreement exists;



•

The serviceService has been provided to the client;



•

Collection of the fees is reasonably assured; and



•

The amountAmount of fees to be paid by the client is fixed or determinable.

        For arrangements with multiple-elements, we recognize revenues in accordance with Accounting Standards Update (ASU) 2009-13,Multiple-Deliverable Revenue Arrangements. For each agreement, we evaluate whether the individual deliverables qualify as separate units of accounting. If one or more of the deliverables does not have standalone value upon delivery, the deliverables that do not have standalone value are generally combined and treated as a single unit of accounting. Revenue for arrangements treated as a single unit of accounting is generally recognized within the same month that the services are rendered given that the agreements are cancellable with 60 days' or less notice.

        In determining whether revenues from implementation services can be accounted for separately from recurring revenues, we consider the nature of the implementation services and the availability of the implementation services from other vendors. We established standalone value for




Table of Contents

implementation primarily due to the number of partners that perform these services and account for such implementation services separate from the recurring revenues.

        If we determine that the services have standalone value upon delivery, we account for each separately and revenues are recognized as the services are delivered with allocation of consideration based on the relative selling price method. That method requires the selling price of each element in a multiple deliverable arrangement to be based on, in descending order: (i) vendor-specific objective evidence of fair value, or VSOE, (ii) third-party evidence of fair value, or TPE, or (iii) management's best estimate of the selling price, or BESP.

        We are not able to demonstrate VSOE of selling price with respect to our recurring fees paid for our solutions because the deliverables are sold across an insufficiently narrow range of prices on a stand-alone basis. We are also not able to demonstrate TPE for subscription fees because no third-party offerings are reasonably comparable to our product offerings. We thus establish BESP by service offering, requiring the use of significant estimates and judgment. To determine BESP, we consider numerous factors, including the nature of the deliverables themselves, the geography for the sale, internal costs, and pricing and discounting practices utilized by our direct sales force. Arrangement consideration is allocated to each deliverable based on the established BESP and subject to the limitation that because the arrangements are cancellable with 60 days' or less notice, recurring revenue is not allocated to any deliverable until the consideration has been earned, typically with each payroll cycle or monthly, depending on the service.

Property and Equipment and Long-Lived Assets

        We report property and equipment at cost. We calculate depreciation on our property and equipment using a straight-line method over their estimated useful lives, typically three to seven years, or over the term of the related lease for leasehold improvements. We recognized depreciation expense of $1.9 million, $2.5 million and $4.1 million during fiscal 2012, 2013, and 2014, respectively.

        We review long-lived assets, such as property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, we first compare the undiscounted cash flows expected to be generated by the asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, we recognize impairment to the extent that the carrying amount exceeds its fair value. We determine fair value through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

Capitalized Internal-Use Software Costs

        We capitalize employee-related expenses, external consultantapply ASC 350-40,Intangibles—Goodwill and Other—Internal-Use Software, to the accounting for costs and other related costs associated with software developed for internal use. Internal-use softwareof internal-use software. Software development costs are capitalized when application development begins, when we determine it is probable that the project will be completed, and the software will be used as intended. Capitalization of these costs ceases once the project transitions beyond the development stage into the maintenance and incremental improvements stage. Costs associated with preliminary project stage activities, training, maintenance and all other post implementation stage activities are expensed as incurred. We also capitalize certain costs related to specific upgrades and enhancements when it is probable the expenditures will result in significant additional functionality. The capitalization policy provides for the capitalization of certain payroll costs for employees who are directly associated with developing internal-use software as well as




Table of Contents

certain external direct costs. Capitalized employee costs are limited to the time directly spent on such projects.

        Internal-use software is amortized on a straight-line basis over 18 to 24 months. Management evaluatesWe evaluate the useful lives of these assets on an annual basis and teststest for impairmentsimpairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. There were no impairments to capitalized software developed for internal use during the six months ended December 31,fiscal 2012, 2013 or the years ended June 30, 2011, 2012 or 2013.2014. We capitalized $1.9 million, $2.7 million, $3.7 million, $2.0 million, and $2.0$4.7 million of software development costs for fiscal 2012, 2013 and amortized $1.22014, respectively including stock-based compensation expenses of $0.3 million $2.2 million,in fiscal 2014. We amortized $2.7 million, $3.1 million, and $3.1$2.2 million of capitalized research and development costs for the six months ended December 31,fiscal 2012, 2013 and the years ended June 30, 2011, 2012 and 2013,2014, respectively. In fiscal 2014, we developed significant additional functionality in several of our applications. This development resulted in an increase in capitalized internally-developed software costs in fiscal 2014 as compared to fiscal 2013. In fiscal 2013, one of our solutions transitioned beyond the development stage into the maintenance and incremental improvements stage, which resulted in lower capitalized internally-developed software costs in fiscal 2013 as compared to fiscal 2012.

Goodwill and Intangible Assets

        Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. We recorded $3.0 million of goodwill in connection with the acquisition of BFKMS, Inc. in May 2014. Goodwill is not amortized but is instead tested for impairment at least once on an annual basis. ASU 2011-08,Testing Goodwill for Impairment provides an entity the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step impairment test. If the estimated fair value of a reporting unit is less than its carrying amount, including goodwill, the two-step goodwill impairment test is required. Otherwise no further analysis is required.

        If the two-step goodwill impairment test is required, first the fair value of the reporting unit is compared with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, step two does not need to be performed. If the fair value of the reporting unit is less than its carrying amount, an indication of goodwill impairment exists for the reporting unit, and step two is performed. Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit's goodwill over the implied fair value of the goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis.

        We will perform an annual impairment review of goodwill in our fiscal fourth quarter or if a triggering event occurs between annual reviews. We had no recorded goodwill until our fourth quarter of 2014, so no impairment reviews were required to be performed.

        Intangible assets are comprised primarily of client relationships and a non-solicitation agreement and are reported net of accumulated amortization. Client relationships use the straight-line method of amortization over an accelerated nine year time frame, while the non-solicitation agreement uses the straight-line method of amortization over the three year life of the agreement. Amortization expense associated with our intangible assets was $0, $0, and $80 during fiscal 2012, 2013 and 2014, respectively. We review intangible assets for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. There were no such events or changes in circumstances during fiscal 2012, 2013 or 2014.




Table of Contents

Income Taxes

        We account for federal income taxes under the asset and liability 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.




Table of Contents

        Deferred tax assets may be reduced by a valuation allowance to the extent we determine it is more likely than not that some portion or all of the deferred tax assets will not be realized. The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns and future profitability. Our accounting for deferred tax consequences represents the best estimate of those future events. Changes in current estimates, due to unanticipated events or otherwise, could have an adverse impact on our financial condition and results of operations.

        In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. The weight given to positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses. Cumulative losses in recent years are significant negative evidence that is difficult to overcome in determining that a valuation allowance is not needed against deferred tax assets.

        We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Stock-Based Compensation

        We have historically maintained one stock-based compensation plan, ourmaintain a 2008 Equity Incentive Plan, or the 2008 Plan, underand a 2014 Equity Incentive Plan, or the 2014 Plan, pursuant to which we have issued options to purchase shares of our common stock and grants of restricted stock awardsunits to employees, officers, directors and consultants. AsThe 2014 Plan serves as the successor to the 2008 Plan and permits the granting of December 31, 2013, options to purchase 2,375,719 shares of our common stock were outstanding, 269,199 sharesand other equity incentives at the discretion of restricted common stock were outstanding and 295,846 sharesthe compensation committee of our common stock were reserved for future grant under the 2008 Plan.

        In February 2014, our board of directors and stockholders approved the 2014 Equity Incentive Plan pursuant to which we may grant stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance awards and cash-based and other stock awards.directors. We will not grant any additional awards under our 2008 Plan, though our 2008 Plan will continue to govern the terms and conditions of all outstanding equity awards granted under the 2008 Plan.

        The following table presents data relatedAs of June 30, 2014, options to purchase 4,387,722 shares of our common stock options granted on the dates indicated:were outstanding, 101,764 restricted stock units were outstanding and 2,581,513 shares of our common stock were reserved for future grant.

		June 1, 2011			Aug. 21, 2012			Sept. 17, 2012			July 8, 2013			Aug. 26, 2013
Options granted			457,666			893,332			33,333			466,663			50,000
Fair value of stock		$	2.28		$	4.88		$	4.88		$	7.04		$	7.04
Exercise price		$	2.28		$	4.88		$	4.88		$	7.04		$	7.04
Fair value of option		$	0.70		$	1.22		$	1.22		$	1.71		$	1.71

        Equity-classified awards are measured at the grant date fair value of the award and expense is recognized, net of assumed forfeitures, on a straight-line basis over the requisite service period for each separately vesting portion of the award. We estimate grant date fair value using the Black-Scholes Option-Pricing Model, or Black-Scholes, which requires the use of certain subjective assumptions. Below is a table of the key weighted-average assumptions used in the option




Table of Contents

valuation calculation for options issued on the dates indicated. We did not grant stock options in fiscal 2012.

		June 1, 2011			Aug. 21, 2012			Sept. 17, 2012			July 8, 2013			Aug. 26, 2013				Aug. 21, 2012			Sept. 17, 2012			July 8, 2013			Aug. 26, 2013			Mar. 18, 2014
Valuation assumptions:
Weighted average expected dividend yield			—			—						—							—			—			—			—	��		—
Weighted average expected volatility			31.0	%		30.7	%		30.7	%		29.5	%		29.5	%			30.7	%		30.7	%		29.5	%		29.5	%		44.5	%
Weighted average expected team (years)			5.0			4.0			4.0			4.0			4.0
Weighted average expected term (years)																			4.0			4.0			4.0			4.0			6.0
Weighted average risk-free interest rate			2.0	%		0.6	%		0.6	%		0.5	%		0.5	%			0.6	%		0.6	%		0.5	%		0.5	%		1.94	%

        We use a dividend yield assumption of zero as we have not paid regular cash dividends on our common stock and presently have no intention of paying any such cash dividends. Since our shares arewere not publicly traded prior to March 2014, expected volatility is estimated based on the average historical volatility of similar entities with publicly traded shares. We calculate the expected term using company specific historical data, such as employee option exercise and employee post-vesting departure behavior. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve at the date of grant.

        Stock-based compensation expense was $0.3 million, $0.2 million, $0.2$0.5 million and $0.5$4.9 million for the six months ended December 31,fiscal 2012, 2013 and the years ended June 30, 2011, 2012 and 2013,2014, respectively. If factors change and we employ different assumptions, stock-based compensation expense may differ from what we have recorded in the past. If there is a difference between the assumptions used in determining stock-based compensation expense and the actual factors which become known over time, we may change the input factors used in determining stock-based compensation costs for future grants. These changes, if any, may adversely impact our results of operations in the period such changes are made. We expect to continue to grant stock options in the future, and to the extent that we do, our actual stock-based compensation expense recognized in future periods will likely increase.

        One significant factor in determining the fair value of our options granted prior to our initial public offering, when using Black-Scholes, is the fair value of the common stock underlying those stock options. We have beenPrior to March 2014, we were a private company with no active public market for our common stock. Therefore, the fair value of the common stock underlying our stock options was determined by our board of directors, which considered in making its determination of fair value a variety of factors including contemporaneous periodic valuation studies from an independent and unrelated third-party valuation firm.

        Based on the closing stock price on June 30, 2014 of $21.63, the aggregate intrinsic value of outstanding options to purchase shares of our common stock as of June 30, 2014 was $51.0 million, of which $20.9 million related to vested options and $30.1 million to unvested options. The aggregate intrinsic value of outstanding restricted stock units as of June 30, 2014 was $2.2 million, all of which were unvested.

Third-Party Valuation Methodology

        In performing its analysis, the valuation firm engaged in discussions with management, analyzed historical and forecasted financial statements, and reviewed our corporate documents. The valuation consultant utilized the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid,Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The valuation study was prepared using a combination of four generally accepted approaches to determining the fair market value of a business: the discounted cash flows, or DCF, method, the guideline public company method, the prior transaction method and the market




Table of Contents

transactions method. The discounted cash flows method forecasted future cash flows utilizing a terminal value based on our expectation of long-term growth to arrive at a valuation. The guideline public company method utilizes a market approach which estimates the fair value of a company by applying to that company the market multiples of publicly-traded companies to arrive at a valuation. The prior transaction method looks to recent arms-length transactions in a company's capital stock to arrive at a valuation. The market transactions method utilizes a market approach which estimates




Table of Contents

the fair value of a company by applying to that company the market multiples of publicly-traded and private companies to arrive at a valuation.

Fiscal 2011

        The independent third-party valuation as of April 30, 2011 was performed using the DCF method and the guideline public company method. The valuation firm considered our nature and history, the condition and outlook of the industry in which we operate, our financial condition, our current operations and earning capacity, our relative position within the industry in which we operate, prior transactions involving our stock, our strategic direction and management and our goodwill and intangible value. The valuation firm took into account our financial statements for fiscal 2006 through 2010 as well as our trailing twelve month, or TTM, financial performance for the 12 months ended April 30, 2011.

        In applying the guideline public company method, the valuation firm analyzed the prices that investors are willing to pay for the publicly-traded common stock of companies that are comparable to us. The valuation firm then calculated total market value of invested capital multiples based on each of (i) TTM earnings before interest, taxes, depreciation and amortization, (ii) TTM earnings before interest and taxes, (iii) TTM net sales and (iv) book value. The valuation firm applied the average of the public companies' TTM net sales multiple to our TTM net sales. The valuation firm then adjusted the resulting value downward by 30% to reflect our smaller size, limited access to capital, historical and future growth expectations, and differences in liquidity, profitability and leverage among the guideline companies.

        In applying the DCF method, the valuation firm analyzed financial projections prepared by our management for the remainder of fiscal 2011 and fiscal 2012 through 2015. The valuation firm calculated our net cash flows to invested capital by taking our debt-free net income, as estimated by management, adding depreciation expenses and subtracting both capital expenditures, as estimated by management, and incremental working capital needs, which were estimated based on a review of an industry average. For the terminal year, the valuation firm applied a revenue multiple, calculated using the guideline public company method. A discount rate of 30% was then applied. To determine the discount rate, the valuation firm reviewed published investment hurdle rates typically required by institutional investors for companies of comparable size and risk.

        Our value was then allocated between our shares of Series A preferred stock and our shares of common stock using the option pricing equity allocation method, using Black-Scholes. Black-Scholes considers the intrinsic value and time value of stock options. In utilizing Black-Scholes, our volatility was estimated at 31% which was based on the average volatility of the guideline public companies over a five-year period. The assumed time to expiration was five years, which was based on the estimated timing of a potential liquidity event. Finally, the valuation firm applied a marketability discount of 20% to reflect the lack of an active market in shares of our common stock, which resulted in a fair market value of $2.28 per share.

        Our board of directors considered this third-party valuation and the other factors discussed above in determining that the fair market value of our common stock was $2.28 on June 1, 2011.

Fiscal 2013

        The independent third-party valuation as of June 30, 2012 was performed using the DCF method, the guideline public company method and the prior transaction method. The valuation firm considered our nature and history, the condition and outlook of the industry in which we operate, our financial condition, our current operations and earning capacity, our relative position within the industry in which we operate, prior transactions involving our stock, our strategic direction and




Table of Contents

management and our goodwill and intangible value. The valuation firm took into account our financial statements for fiscal 2007 through 2012.

        In applying the guideline public company method, the valuation firm analyzed the prices that investors are willing to pay for the publicly-traded common stock of companies that are comparable to us. The valuation firm then calculated total market value of invested capital multiples based on each of (i) TTM earnings before interest, taxes, depreciation and amortization, (ii) TTM earnings before interest and taxes, (iii) TTM net sales and (iv) book value. The valuation firm applied the average of the public companies' TTM net sales multiple to our TTM net sales. The valuation firm then adjusted the resulting value downward by 35% to reflect our smaller size, limited access to capital, historical and future growth expectations, and differences in liquidity, profitability and leverage among the guideline companies.

        In applying the DCF method, the valuation firm analyzed financial projections prepared by our management for fiscal 2013 through 2016. The valuation firm calculated our net cash flows to invested capital by taking our debt-free net income, as estimated by management, adding depreciation expenses and subtracting both capital expenditures, as estimated by management, and incremental working capital needs, which were estimated based on a review of an industry average. For the terminal year, the valuation firm applied a revenue multiple, calculated using the guideline public company method. A discount rate of 35% was then applied. To determine the discount rate, the valuation firm reviewed published investment hurdle rates typically required by institutional investors for companies of comparable size and risk. As part of the valuation process, we provided a multi-year projection which increased our performance expectations. The independent valuation firm determined that this change in performance expectations warranted a change in the discount rate from the April 30, 2011 valuation reflective of return expectations. The 35% discount rate reflected a 5% increase to the discount rate applied in the DCF analysis conducted as of April 30, 2011.

        In applying the prior transaction method, the valuation firm reviewed three arms-length transaction in our capital stock. The most recent transaction occurred on June 28, 2012, two days prior to the date of the valuation, in which we sold shares of Series B preferred stock for approximately $4.88 per share (on an as converted to common stock basis).share.

        Our value was then allocated betweenamong our shares of Series A preferred stock, our shares of Series B preferred stock and our shares of common stock using the option pricing equity allocation method, using Black-Scholes. In utilizing the Black-Scholes method, our volatility was estimated at 31% which was based on the average volatility of the guideline public companies over one-year, two-year and five-year period. The assumed time to expiration was three years, which was based on the estimated timing of a potential liquidity event. Finally, the valuation firm applied a marketability discount of 10% to reflect the lack of an active market in shares of our common stock, which resulted in a fair market value of $4.88 per share.




Table of Contents

        Our board of directors considered this third party valuation and the other factors discussed above in determining that the fair market value of our common stock was $4.88 on August 21, 2012 and September 17, 2012.

Fiscal 2014

        The independent third-party valuation as of May 31, 2013 was performed using the DCF method, the guideline public company method and the market transactions method. The valuation firm considered our nature and history, the condition and outlook of the industry in which we operate, the book value of our stock and our financial condition, the earning capacity of our business, the dividend-paying capacity of our business, prior transactions involving our stock, the market price of public traded stock of companies engage in the same or a similar line of business and our goodwill and intangible value. The valuation firm took into account our financial statements




Table of Contents

for fiscal 2009 through 2012, as well as interim financial statements for the eleven months ended May 31, 2013 and May 31, 2012.

        In applying the guideline public company method, the valuation firm analyzed the prices that investors are willing to pay for the publicly-traded common stock of companies that are comparable to us. The valuation firm then calculated total market value of invested capital multiples based on TTM earnings before interest, taxes, depreciation and amortization and TTM revenues. The valuation firm considered our smaller size, limited access to capital, historical and future growth expectations, and differences in liquidity, profitability and leverage among the guideline companies before selecting a TTM multiple that was slightly above the average of the TTM revenues multiples for the companies determined to be most comparable to us.

        In applying the DCF method, the valuation firm analyzed financial projections prepared by our management for a five year period. The valuation firm calculated our net cash flows to invested capital by taking our debt-free net income, as estimated by management, adding depreciation expenses and subtracting both capital expenditures, as estimated by management, and incremental working capital needs, which were estimated based on a review of an industry average. For the terminal year, the valuation firm applied a revenue multiple, calculated using the guideline public company method. A discount rate of 35% was then applied. To determine the discount rate, the valuation firm reviewed published investment hurdle rates typically required by institutional investors for companies of comparable size and risk. The 35% discount rate was equal to the discount rate applied in the DCF analysis conducted as of June 30, 2012.

        In applying the market transactions method, the valuation firm reviewed publicly available data regarding transactions that have occurred in the industry, as well as prior arms-length transactions in our capital stock. The valuation firm applied a revenue multiple that was slightly above the median revenue multiple of all transactions and in-line with the sale of our Series B preferred stock in June 2012.

        Our value was then allocated betweenamong our shares of Series A preferred stock, our shares of Series B preferred stock and our shares of common stock using the option pricing equity allocation method, using Black-Scholes. In utilizing the Black-Scholes method, our volatility was estimated at 31% which was based on the average volatility of the guideline public companies over a five-year period. The assumed time to expiration was four years, which was based on the estimated timing of a potential liquidity event. Finally, the valuation firm applied a marketability discount to reflect the lack of an active market in shares of our common stock, which resulted in a fair market value of $6.90 per share.

        Our board of directors considered this third-party valuation and the other factors discussed above in determining that the fair market value of our common stock was $7.04 on July 8, 2013 and August 26, 2013.

Intrinsic Value of Outstanding Options

        Based upon the assumed initial public offering price of $15.00 per share, which is the mid-point of the price range set forth on the cover page of this prospectus, the aggregate intrinsic value of stock options outstanding as of December 31, 2013 was approximately $35.6 million, of which approximately $23.1 million related to unvested stock options, and approximately $12.5 million related to vested stock options.




Table of Contents

Increase in Value ofReverse Stock Split

        On March 5, 2014, we effected a three-for-two reverse stock split on our Common Stock From August 2013 to March 2014Stock.

        We believe the difference between our board of directors' determination of fair value on August 26, 2013 and the price range set forth on the cover of this prospectus results primarily from the following factors:

•

Enhanced Balance Sheet and Financial Resources.  The proceeds of a successful public offering would substantially strengthen our balance sheet as a result of increased cash. Additionally, the completion of a public offering would provide us with access to the public company debt and equity markets.



•

Enhanced Liquidity and Marketability of Our Stock.  The valuation of our common stock as determined by our board of directors on August 26, 2013 reflected the illiquidity of our common stock on that date and the uncertainty of our public offering. The valuation reflected in the price range set forth on the cover of this prospectus assumes a successful offering and represents an estimate of the fair value of the unrestricted, freely tradeable stock that would be sold in the public offering market without liquidity and marketability discounts.



•

IPO Scenario Probability.  The May 31, 2013 third-party valuation report that was used by our board of directors as part of its determination of the fair value of our common stock on August 26, 2013 assumed the time to expiration was four years, which was based on the estimated timing of a potential liquidity event. However, the price range set forth on the cover of this prospectus assumes the successful completion of a liquidity event, the public offering, resulting in an increased common stock valuation as compared to our prior valuations.

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 December 31, 2013,September 30, 2014, our principal sources of liquidity were $2.8$72.8 million of cash and cash equivalents and $3.5 million of borrowing capacity under our line of credit.equivalents.

        In order to grow our business, we intend to increase our personnel and related expenses and to make significant investments in our platform, data centers and infrastructure generally. The timing and amount of these investments will vary based on the rate at which we can add new clients and new personnel and the scale of our application development, data center and other activities. Many of these investments will occur in advance of our 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 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 and available borrowings to satisfy those needs.

        Our cash flows from investing activities and our cash flows from financing activities are influenced by the amount of funds held for clients which varies significantly from quarter to quarter. The balance of the funds we hold depends on our clients' payroll calendar, and therefore such balance changes from period to period in accordance with the timing with each payroll cycle. Funds held for clients are restricted solely for the repayment of client fund obligations.

        We believe our current cash and cash equivalents and cash flow from operations will be sufficient to meet our working capital, capital expenditure and other investment requirements for at least the next 12 months.

        In March 2014, we completed our initial public offering in which we sold 5,366,667 shares of common stock and existing shareholders sold 2,735,083 shares of common stock at a public offering price of $17.00 per share. We did not receive any proceeds from the sale of common stock by the selling stockholders. We received net proceeds of $81.9 million after deducting underwriting discounts and commissions of $6.4 million and other offering expenses of $2.9 million.




Table of Contents

        The following table sets forth data regarding cash flows for the periods indicated:

		Year Ended June 30,													Year Ended June 30,
											Six Months Ended December 31, 2013													Three Months Ended September 30, 2014
		2011			2012			2013							2012			2013			2014
Net cash provided by operating activities		$	5,022		$	8,564		$	6,228		$	892
Net cash provided by (used in) operating activities															$	8,564		$	6,228		$	7,199		$	(200	)
Cash flows from investing activities:
Capitalized internally-developed software costs			(2,746	)		(3,716	)		(1,967	)		(1,859	)			(3,716	)		(1,967	)		(4,349	)		(912	)
Purchases of property and equipment			(1,987	)		(3,446	)		(3,987	)		(2,787	)			(3,446	)		(3,987	)		(6,667	)		(2,499	)
Payment for acquisitions																—			—			(6,450	)		(2,385	)
Net change in funds held for clients			(176,480	)		35,724			(92,650	)		(135,858	)			35,724			(92,650	)		(61,356	)		(14,964	)
​														​		​	​		​	​		​	​		​	​
Net cash provided by (used in) investing activities			(181,213	)		28,562			(98,604	)		(140,504	)			28,562			(98,604	)		(78,822	)		(20,760	)
Cash flows from financing activities:
Net change in client funds obligation			176,480			(35,724	)		92,650			135,858				(35,724	)		92,650			61,356			14,964
Principal payments on long-term debt			(467	)		(312	)		(1,625	)		(313	)			(312	)		(1,625	)		(1,563	)		—
Proceeds from issuance of long-term debt			519			—			—			—
Proceeds from IPO, net of issuance costs																—			—			82,032			—
Payments on initial public offering costs																—			—			—			(75	)
Capital contribution																—			—			1,052			—
Proceeds from issuance of redeemable convertible Series B preferred stock			—			27,234			—			—				27,234			—			—			—
Proceeds from exercise of stock options			—			88			76			—				88			76			—			66
Payments for redemption of common stock			—			(27,371	)		(162	)		—				(27,371	)		(162	)		—			—
Payments on deferred offering costs			—			—			—			(698	)
​														​		​	​		​	​		​	​		​	​
Net cash provided by (used in) financing activities			176,532			(36,085	)		90,939			134,847				(36,085	)		90,939			142,877			14,955
​														​		​	​		​	​		​	​		​	​
Net increase (decrease) in cash and cash equivalents		$	341		$	1,041		$	(1,437	)	$	(4,765	)		$	1,041		$	(1,437	)	$	71,254		$	(6,005	)
​														​		​	​		​	​		​	​		​	​
​														​		​	​		​	​		​	​		​	​

Operating Activities

        Net cash provided by (used in) operating activities was $0.9$(0.2) million for the sixthree months ended December 31, 2013September 30, 2014 as compared to $(0.1)$0.3 million for the sixthree months ended December 31, 2012.September 30, 2013. Net cash provided by operating activities was $5.0 million, $8.6 million, and $6.2 million and $7.2 million for the years ended June 30, 2011,fiscal 2012, 2013 and 2013,2014, respectively.

        The increase in net cash provided by operating activities from fiscal 2013 to fiscal 2014 was the primarily the result of the change of $2.3 million in operating assets and liabilities partially offset by the increase in net loss and increases in non-cash items including stock-based compensation expenses and depreciation and amortization. The decline in net cash provided by operating activities from fiscal 2012 to fiscal 2013 was primarily the result of a decrease of $1.1 million in net income, as well as a decline of $0.9 million in working capital,operating assets and liabilities, partially offset by increased depreciation and amortization. The increase in net cash provided by operating activities from fiscal 2011 to fiscal 2012 was primarily the result of a $1.8 million increase in net income, a $0.8 million increase in depreciation and amortization expense, and a $0.9 million increase in deferred income tax expense.

Investing Activities

        Changes in net cash (used in) provided by investing activities are significantly influenced by the amount of funds held for clients at the end of a reporting period. Changes in the amount of funds held for client from period to period will vary substantially. Our payroll processing activities involves the movement of significant funds from the account of an employer to employees and relevant taxing authorities. During the year ended June 30, 2013fiscal 2014 we processed almost $30$39 billion in payroll transactions. We debit a client's account prior to any disbursement on its behalf, at which time we begin earning




Table of Contents

interest on such funds. We currently have agreements with nine banks to execute ACH and wire transfers to support our client payroll and tax services. We believe we have sufficient capacity under these ACH arrangements to handle our transactions for the foreseeable future.




Table of Contents

        Other investing activities that influence our net cash (used in) provided by investing activities are our capitalization of internally developed software costs and purchases of property and equipment.

        Net cash (used in) provided by investing activities was $(140.5)$(20.8) million for the sixthree months ended December 31, 2013September 30, 2014 as compared to $(82.4)$61.9 million for the sixthree months ended December 31, 2012.September 30, 2013. Net cash (used in) provided by investing activities was $(181.2) million, $28.6 million, and $(98.6) million and $(78.8) million, for the years ended June 30, 2011,fiscal 2012, 2013 and 2013,2014, respectively.

        Excluding the net change in funds held for clients, our net cash (used in) provided by investing activities was $(4.6)$5.8 million for the sixthree months ended December 31, 2013September 30, 2014 as compared to $(2.6)$2.4 million for the sixthree months ended December 31, 2012.September 30, 2013. Excluding the net change in funds held for clients, our net cash (used in) provided by investing activities was $4.7$(7.2) million, $7.2$(6.0) million and $6.0$(17.5) million, for fiscal 2012, 2013 and 2014, respectively.

        The decrease in net cash used by investing activities of $19.8 million from fiscal 2013 to fiscal 2014 was primarily due to the years ended June 30, 2011, 2012timing of receipts and 2013, respectively.disbursements of cash and cash equivalents held to satisfy client funds obligations of $31.3 million partially offset by payments of $6.5 million to acquire the assets of one of our resellers, increased purchases of property and equipment by $2.7 million and increased capitalization of internally developed software costs by $2.4 million.

        The increase of $127.2 million in net cash used in investing activities from fiscal 2012 to fiscal 2013 was primarily the result of our holdingthe timing of receipts and disbursements of cash and cash equivalents held to satisfy client fund obligations of $128.4 million fewer funds for clients at the end of fiscal 2013 versus fiscal 2012. This decrease in the amount of funds held for clients waspartially offset by a decrease of $1.7 million in capitalized internally developed software costs.

        The decline of $209.8 million in net cash used in investing activities from fiscal 2011 to fiscal 2012 was primarily the result of our holding an additional $212.2 million funds for clients at the end of fiscal 2012 versus fiscal 2011. This increase in the amount of funds held for clients was offset by an increase of $1.0 million in capitalized internally developed software costs and an increase of $1.5 million in purchases of property and equipment.

Financing Activities

        Net cash provided by (used in) financing activities was $134.8$15.0 million for the sixthree months ended December 31, 2013September 30, 2014 as compared to $79.4$(64.5) million for the sixthree months ended December 31, 2012.September 30, 2013. Net cash provided by (used in) financing activities was $176.5 million, $(36.1) million, and $90.9 million and $142.9 million for the years ended June 30, 2011,fiscal 2012, 2013 and 2013,2014, respectively.

        The increase in net cash provided by financing activities from fiscal 2013 to fiscal 2014 was primarily the result of the $82.0 million in proceeds received from our initial public offering, net of issuance costs. This was partially offset by the $31.3 million change in funds held for clients. The decrease in net cash used in financing activities from fiscal 2012 to fiscal 2013 was primarily the result of a $128.4 million net change in funds held for clients, partially offset by a net increase of $1.3 million of principal payments on long-term debt. The increase in net cash used in financing activities from fiscal 2011 to fiscal 2012 was primarily a result




Table of a $212.2 million net change in funds held for clients and a $27.4 million payment for the redemption of shares of common stock in connection with our Series B preferred stock financing. This redemption was offset by $27.2 million of proceeds from the issuance of Series B preferred stock.Contents

Contractual Obligations and Commitments

        Our principal commitments consist of operating lease obligations and consideration due to one of our note payable.resellers to complete the purchase of certain of its assets. The following table summarizes our contractual obligations at June 30, 2013:2014:

		Payment Due By Period
		Total			Less than 1 Year			1 - 3 Years			3 - 5 Years			More than 5 years
Note payable—principal payments		$	1,563		$	625		$	938		$	—		$	—
Note payable—interest payments			133			84			49			—			—
Operating lease obligations			17,705			2,367			6,562			5,806			2,970
Total		$	19,401		$	3,076		$	7,549		$	5,806		$	2,970

		Payment Due By Period
		Total			Less than 1 Year			1 - 3 Years			3 - 5 Years			More than 5 years
Operating lease obligations		$	17,350		$	3,353		$	6,749		$	5,611		$	1,637
Unconditional purchase obligations			1,224			406			818			—			—
Consideration related to acquisition			2,985			2,985			—			—			—
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
		$	21,559		$	6,744		$	7,567		$	5,611		$	1,637
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​




Table of Contents

        As of December 31, 2013, we had outstanding indebtedness of $1.3 million under a note. The note bears interest at 6.50% per annum, payable monthly, and will mature on December 31, 2015. The note is collateralized by substantially all of our assets. We intend to use a portion of the proceeds of this offering to repay our outstanding indebtedness. For a description of how we intend to use of the proceeds of this offering, see "Use of Proceeds."

        We also have a line of credit which allows for borrowings up to $3.5 million. Interest is payable monthly at the bank's base rate, which was 3.25% at December 31, 2013, plus 1.50% with a floor of 5.50%. A commitment fee on the average daily undisbursed amount is assessed quarterly at a rate of 0.375% per annum. The line of credit is collateralized by substantially all of our assets. There were no outstanding borrowings under this line of credit as of December 31, 2013. On November 27, 2013, we increased the line of credit to $3.5 million and extended the due date to December 31, 2015.

        Each of our twoOur remaining reseller agreementsagreement provides that we are required upon a termination of the agreement to acquire the assets of the reseller. One of the agreements provides that either party may terminate theThis agreement by electing not to renew the agreement beyond its original term ending in February 2016. We, but not the reseller, also have the right to terminate the agreement at any time following the completion of this offering. If a termination were to occur, the purchase price of the assets would be determined based on the annualized value of net amounts paid by us to the reseller during the three months preceding such termination. We paid this reseller $1.0 million, $1.7 million and $2.4 million for the full fiscal years 2011, 2012 and 2013, respectively. For additional information see note 14 to our consolidated financial statements included elsewhere in this prospectus.

        The second reseller agreement providesprovided that the reseller may terminate the agreement by providing nine months' prior notice; providednotice or upon an initial public offering by the Company. We amended this agreement in December of 2013 to provide that the reseller may not provide suchgive a nine-month termination notice until after the earlier of (i) six months following the closing of thisan initial public offering by us or (ii) December 31, 2014. We,In addition, we, but not the reseller, alsonow have the right to terminate the agreement at any time after the date that is six months following the completion of this offering.an initial public offering by us. If a termination were to occur, the purchase price of the assets would be determined based onequal to 3.3 times the net amounts paid by us torevenues of the reseller duringfor the 12 months preceding the termination.termination effective date. We paid this reseller $0.9 million, $1.3 million, $1.8 million and $1.8$2.1 million for the full fiscal years 2011, 2012, 2013 and 2013,2014, respectively. For additional information see note 1416 to our consolidated financial statements included elsewhere in this prospectus.

Capital Expenditures

        We expect to increase capital spending as we continue to grow our business and expand and enhance our 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 $2.0 million, $3.4 million, $4.0 million and $4.0$6.7 million for fiscal 2012, 2013 and 2014, respectively, and $2.5 million for the years ended June 30, 2011, 2012 and 2013, respectively, and $2.8 million for the sixthree months ended December 31, 2013,September 30, 2014, exclusive of capitalized internally developed software costs of $2.7 million, $3.7 million, $2.0 million, $4.3 million and $1.9$0.9 million for the same periods, respectively.

Off-Balance Sheet Arrangements

        We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that may be material to investors.




Table of Contents

Quantitative and Qualitative Disclosures about Market Risk

        We have operations solely in the United States and are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate and certain exposure as well as risks relating to changes in the general economic conditions in the United States. We have not used, nor do we intend to use, derivatives to mitigate the impact of interest rate or other exposure or for trading or speculative purposes.




Table of Contents

Interest Rate Risk

        Funds held for clients are held in interest-bearing accounts at financial institutions. As a result of our investing activities, we are exposed to changes in interest rates that may materially affect our results of operations. In a falling rate environment, a decline in interest rates would decrease our interest income.

Inflation Risk

        We do not believe that inflation has had a material effect on our business, financial condition or results of operations. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

New Accounting Pronouncements

        From time        In May 2014, the Financial Accounting Standard Board (FASB) issued ASU 2014-09,Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 supersedes a majority of existing revenue recognition guidance under US GAAP, and requires companies to time, new accounting pronouncementsrecognize revenue when goods or services are issued bytransferred to a customer in an amount that reflects the FASBconsideration to which a company expects to be entitled. Companies may need to apply more judgment and estimation techniques or other standard setting bodies thatmethods while recognizing revenue, which could result in additional disclosures to the financial statements. ASU 2014-09 allows for either a "full retrospective" adoption or a "modified retrospective" adoption. We are adopted by us ascurrently evaluating which adoption method we will use. Early application is not permitted. We plan on adopting ASU 2014-09 beginning July 1, 2017 and are currently assessing the potential effects of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact onthese changes to our consolidated financial statements upon adoption.statements.

        Although we are eligible under the JOBS Act to delay adoption of new or revised financial accounting standards until they are applicable to private companies, we have elected not to avail ourselves of this exclusion. This election by us is irrevocable.




Table of Contents


BUSINESS


Overview

        We are a cloud-based provider of payroll and human capital management, or HCM, software solutions for medium-sized organizations, which we define as those having between 20 and 1,000 employees. Our comprehensive and easy-to-use solutions enable our clients to manage their workforces more effectively. As of June 30, 2013,2014, we served approximately 6,8508,500 clients across the U.S., which on average had between 95 and 115over 100 employees during each of the last three fiscal years. Our solutions help drive strategic human capital decision-making and improve employee engagement by enhancing the human resource, payroll and finance capabilities of our clients.

        Our multi-tenant software platform is highly configurable and includes a unified suite of payroll and HCM applications, such as time and labor tracking and benefits and talent management. Our solutions have been organically developed from our core payroll solution, which we believe is the most critical system of record for medium-sized organizations and an essential gateway to other HCM functionality. We seek to develop deep relationships with our clients through our integrated implementation and client service organization, which is designed to meet the needs of medium-sized organizations.

        Effective management of human capital is a core function in all organizations and requires a significant commitment of resources. Organizations are faced with complex and ever-changing requirements, including diverse federal, state and local regulations across multiple jurisdictions. In addition, the workplace operating environment is rapidly changing as employees increasingly become mobile, work remotely and expect an end user experience similar to that of consumer-oriented Internet applications. Medium-sized organizations operating without the infrastructure, expertise or personnel of larger enterprises are uniquely pressured in this complex and dynamic environment. Existing solutions offered by third-party payroll service providers can have limited capabilities and configurability while enterprise-focused software vendors can be expensive and time-consuming to implement and manage. We believe that medium-sized organizations are better served by our cloud-based solutions designed to meet their unique needs.

        Our solutions provide the following key benefits to our clients:

•

Comprehensive cloud-based platform optimized to meet the payroll and HCM needs of medium-sized organizations;



•

Modern, intuitive user experience and self-service capabilities that significantly increase employee engagement;



•

Flexible and configurable platform that aligns with business processes and centralizes payroll and HCM data;



•

Software as a service, or SaaS, delivery model that reduces total cost of ownership for our clients; and



•

Seamless data integration with our extensive partner ecosystem that saves time and expense and reduces the risk of errors.

        We market and sell our products primarily through our direct sales force. We generate our sales leads through a variety of focused marketing initiatives and referrals from our extensive referral network of 401(k) advisors, benefits administrators, insurance brokers, third-party administrators and HR consultants. We derive revenue from a client based on the solutions purchased by the client, the number of client employees and the amount, type and timing of services provided in respect of those client employees. Our revenue retention rate was greater than 92% in each of fiscal 2012, 2013 and 2013.2014. Our total revenuerevenues increased from $55.1 million in fiscal 2012




Table of Contents

2012 to $77.3 million in fiscal 2013, representing a 40% year-over-year increase while ourand to $108.7 million in fiscal 2014, representing a 41% year-over-year increase. Our recurring revenues increased from $52.5 million in fiscal 2012 to $72.8 million in fiscal 2013, representing a 39% year-over-year increase, and to $101.9 million in fiscal 2014, representing a 40% year-over-year increase. Although we do not have long-term contracts with our clients and our agreements with clients are generally terminable on 60 days' or less notice, our recurring revenue model provides significant visibility into our future operating results.

Industry Background

        Effective management of human capital management is a core function for all organizations and requires a significant commitment of dedicated resources. Identifying, acquiring and retaining talent is a priority at all levels of an organization. In today's increasingly complex business and regulatory environment, organizations are being pressured to manage critical payroll and HCM functions more effectively, automate manual processes and decrease their operating costs.

Complex and Ever-Changing Tax and Regulatory Environment

        The tax and regulatory environment in the United States is complex and ever-changing. Organizations are subject to a myriad of tax, benefit, workers compensation, healthcare and other rules, regulations and reporting obligations. In addition to U.S. federal taxing and regulatory authorities, there are more than 10,000 state and local tax codes in the United States. Further, federal, state and local government agencies continually enact and amend the rules, regulations and reporting requirements with which organizations must comply.

Growing Demand for Mobility and Enhanced User Experience

        Connectivity and mobility are enabling employees to spend less time in traditional office environments and more time working remotely. This trend increases the demand for advanced and intuitive solutions that improve collaboration and foster employee engagement, such as remote self-service access to payroll and timesheet reporting, HR and benefits portals and other talent management applications. Given the prominence of consumer-oriented Internet applications, employees expect the user experience and accessibility of internal systems to be similar to those of the latest Internet applications, such as LinkedIn, Amazon and Facebook.

Medium-Sized Organizations Face Unique Challenges

        Medium-sized organizations functioning without the infrastructure, expertise or personnel of larger enterprises are uniquely pressured in the current complex and dynamic environment. Employees in these medium-sized organizations often perform multiple job functions, and many medium-sized organizations have limited financial, technical and other resources needed to effectively manage their critical business requirements and to build and maintain the systems required to do so.

Large Market Opportunity for Payroll and HCM Solutions

        According to market analyses published by International Data Corporation, or IDC, titledWorldwide and U.S. Human Capital Management Applications 2013-2017 Forecast: The Cloud Spurs Continued Growth2014-2018 Forecast (May 2013)2014) andU.S. Payroll Outsourcing Services 2013-2017 Forecast and Analysis (October 2013), the U.S. market for HCM applications and payroll outsourcing services is estimated to be $22.5$22.6 billion in 2014. The market opportunity is driven by the importance of payroll and HCM solutions to the successful management of organizations.




Table of Contents

        To estimate our addressable market, we focus our analysis on the number of U.S. medium-sized organizations and the number of their employees. According to the U.S. Census Bureau, there were over 565,000 firms with 20 to 999 employees in the U.S. in 2010, employing over




Table of Contents

40 million persons. We estimate that if clients were to buy our entire suite of existing solutions at list prices, they would spend approximately $200$220 per employee annually. Based on this analysis, we believe our current target addressable market is approximately $8.0$8.8 billion. Our existing clients do not typically buy our entire suite of solutions, and as we continue to expand our product offerings, we believe that we have an opportunity to increase the amount clients spend on payroll and HCM solutions per employee and to expand our addressable market.

Organizations Are Increasingly Transitioning to SaaS Solutions

        SaaS solutions are easier and more affordable to implement and operate than those offered by traditional software providers. SaaS solutions also enable software updates with greater frequency and without new hardware investments, enabling organizations to better react to changes in their environments. Many organizations are transitioning to SaaS solutions for front-office business applications such as salesforcesales force management. Similarly, we believe organizations are adopting back-office SaaS applications, such as payroll and HCM, with increasing frequency. According to a market analysis published by IDC, titledWorldwide SaaS and Cloud Software 2013-20172014-2018 Forecast and 20122013 Vendor Shares (December 2013)(July 2014), the U.S. SaaS market is estimated to be $20$26.8 billion in 2014 and is projected to grow at a 14%17% compound annual growth rate from 2012 to 2017.

Limitations of Existing Solutions

        We believe that existing payroll and HCM solutions have limitations that cause them to underserve the unique needs of medium-sized organizations. Existing payroll and HCM solutions include:

•

Traditional Payroll Service Providers.  Traditional payroll service providers are primarily focused on delivery of a variety of payroll processing services, insurance products and HR business process outsourcing solutions. Many of these solutions offer limited capabilities and integration beyond traditional payroll processing. The lack of a unified and configurable payroll and HCM suite can diminish the effectiveness of a system, detract from user experience and limit integration with other solutions. In addition, we believe that certain traditional payroll service providers often do not provide a high-quality client service experience.



•

Enterprise-Focused Payroll and HCM Software Vendors.  Enterprise-focused software vendors offer solutions and services that are designed for the complex needs and structures of large enterprises. As a result, their solutions can be expensive, complex and time-consuming to implement, operate and maintain.



•

HCM Point Solution Providers.  Many HCM point solutions lack integrated payroll functionality. The implementation and management of multiple point solutions and the reliance on multiple service organizations can be challenging and expensive for medium-sized organizations.



•

Manual Processes for Payroll and HCM Functions.  Manual payroll and HCM processes require increased HR, payroll and finance personnel involvement, resulting in higher costs, slower processing and greater risks of data entry errors.

        Given the challenges that medium-sized organizations face operating in complex and dynamic environments and the limited ability of traditional offerings to address these challenges, we believe there is a significant market opportunity for a comprehensive, unified SaaS solution designed to serve the payroll and HCM needs of medium-sized organizations.




Table of Contents

Our Solution

        We are a cloud-based provider of payroll and HCM software solutions for medium-sized organizations. Our solutions enable medium-sized organizations to more efficiently manage payroll and human capital in their complex and dynamic operating environments. As of June 30, 2013,2014, we served approximately 6,8508,500 clients across the U.S., which on average had over 100 employees.

        The key benefits of our solution include the following:

•

Comprehensive Platform Optimized for Medium-Sized Organizations.  Our solutions empower finance and HR professionals in medium-sized organizations to drive strategic human capital decisions by providing enterprise-grade payroll and HCM applications, including robust reporting and analytics. Our unified platform fully automates payroll and HCM processes, enabling our clients to focus on core business activities. Our solutions help our clients attract, retain and manage their employees within a single, comprehensive, unified system.



•

Modern, Intuitive User Experience.  Our intuitive, easy-to-use interface is based on current technology and automatically adapts to users' devices, including mobile platforms, thereby significantly increasing accessibility of our solutions and decreasing the need for training. Our platform's self-service functionality, combined with seamless integration across all our solutions, provides employees with an engaging experience. Our performance management applications include peer-to-peer employee recognition and social employee profiles that create a reward and recognition environment resulting in greater employee engagement.



•

Flexible and Configurable Platform.  We design our solutions to be flexible and configurable, allowing our clients to match their use of our software with their specific business processes and workflows. Our platform has been organically developed from a common code base, data structure and user interface, providing a consistent user experience with powerful features that are easily adaptable to our clients' needs. Our systems centralize payroll and HCM data, minimizing inconsistent and incomplete information that can be produced when using multiple databases.



•

Highly-Attractive SaaS Solution for Medium-Sized Organizations.  Our solutions are cloud-based and offered on a subscription basis, making them easier and more affordable to implement, operate and update and enabling our clients to focus less on their IT infrastructure and more on their core businesses. Our cloud-based software can be operated by a single administrator without the support of an in-house information technology department. Our multi-tenant and modern architecture allows for frequent software enhancements thereby enabling our clients to react to a rapidly changing and complex operating environment. Our cloud-based platform enables our clients to scale their businesses without having to acquire additional hardware or to resolve the integration challenges that often result from traditional outsourcing solutions.



•

Seamless Integration with Extensive Ecosystem of Partners.  Our platform offers our clients automated data integration with over 200 related third-party partner systems, such as 401(k), benefits and insurance provider systems. This integration reduces the complexity and risk of error of manual data transfers and saves time for our clients and their employees. We integrate data with these related systems through a secure connection, which significantly decreases the risk of unauthorized third-party access and other security breaches. Our direct and automated data transmission improves the accuracy of data and facilitates data collection in our partners' systems. We believe having automated data integration with a payroll and HCM provider like us differentiates our partners' product offerings, strengthening their competitive positioning in their own markets.




Table of Contents

Our Strategy

        We intend to strengthen and extend our position as a cloud-based provider of payroll and HCM software solutions to medium-sized organizations. Key elements of our strategy include:

•

Grow Our Client Base.  We believe that our current client base represents only a small portion of the medium-sized organizations that could benefit from our solutions. While we served approximately 6,8508,500 clients across the U.S. as of June 30, 2013,2014, there were over 565,000 firms with 20 to 999 employees in the United States, employing more than 40 million persons, according to the U.S. Census Bureau in 2010. In order to acquire new clients, we plan to continue to grow our sales organization aggressively across all U.S. geographies.



•

Expand Our Product Offerings.  We believe that our leadership position is in significant part the result of our investment and innovation in our product offerings designed for medium-sized organizations. Therefore, we plan to increase investment in software development to continue to advance our platform and expand our product offerings. For example, we recently introduced new healthcare reformonboarding functionality that provides clients with the abilityenables payroll and HR departments to forecast and model the impact of healthcare reform on their businesses.deliver a highly intuitive, mobile-responsive onboarding experience to new hires.



•

Increase Average Revenue Per Client.  Our average revenue per client has consistently increased in each of the last three years as we have broadened our product offerings. We plan to further grow average revenue per client by selling a broader selection of products to new and existing clients.



•

Extend Technological Leadership.  We believe that our organically developed cloud-based multi-tenant software platform, combined with our unified database architecture, enhances the experience and usability of our products, providing what we believe to be a competitive advantage over alternative payroll and HCM solutions. Our modern, intuitive user interface utilizes features found on many popular consumer Internet sites, enabling users to use our solutions with limited training. We plan to continue our technology innovation, as we have done with our mobile applications, social features and analytics capabilities.



•

Further Develop Our Referral Network.  We have developed a strong network of referral participants, such as 401(k) advisors, benefits administrators, insurance brokers, third-party administrators and HR consultants, that recommend our solutions and provide referrals. We believe that our platform's automated data integration with over 200 related third-party partner systems is valuable to our referral participants, as they are able to access payroll and HR data through a single system which decreases complexity and cost and complements their own product offerings. We plan to increase integration with third-party providers and expand our referral network to grow our client base and lower our client acquisition costs.

Our Products

        Our cloud-based platform features a suite of unified payroll and HCM applications. Our solutions are highly configurable and easy to use, implement, update and maintain.




Table of Contents

Paylocity Web Pay

        Paylocity Web Pay is designed to provide enterprise-grade payroll processing and administration.

Feature		Functionality
Company-Level Configuration		• Real time ability to add, delete and modify client-specific payroll settings, including departments, job codes, earnings, deductions, taxes and garnishments
		• Ability to create customized payroll earning or deduction code calculations, 401(k) match calculations and labor cost allocations
		• Ability to configure payroll audits that identify potential errors prior to finishing payroll, such as paying the same employee twice
Configurable Templates		• Combination of standard and modifiable templates powered by highly-flexible drag-and-drop technology
		• Standard templates such as new hire, job change, leave of absence and termination templates
		• Enables users to configure user interface to efficiently align to organizations' business processes
		• Ability to require additional data, add default values and insert new custom fields increases accuracy and consistency of data across the platform
Custom Checklists		• Allows users to track critical steps in hiring and other processes
		• Triggers reports and notification emails to track critical steps and informs users when tasks are complete
Advanced Reporting		• Easy-to-use, powerful reporting dashboard enables users to design and create ad-hoc reports or rely on over 100 standard reports
		• Ability to generate a variety of pre-process reports via report library and report writer
		• Real-time report generation, including the ability to automatically schedule reports to run on a user-defined frequency
		• Point-in-time reporting, including comparative analysis over multiple periods, allowing users to view data from any time in history
HR Insight and Analytics		• Provides a dashboard view into critical HR metrics such as headcount and employee turnover
		• Users can choose between different types of graphical display or export the information to spreadsheets or other documents




Table of Contents

Feature		Functionality
Affordable Care Act Compliance		• Allows for modeling of all affordability safe harbor methods
		• Simultaneous measurement of initial and standard measurement periods for new hire employees
		• Reporting that provides multiple views allowing brokers and clients to make better informed benefit decisions
		• Advanced search and query capabilities provide ability for administrators to easily access key employee information

Paylocity HR

        Paylocity HR provides a set of core HR capabilities designed to improve HR compliance, enhance reporting capabilities and reduce the amount of time necessary to manage employee information.

Feature		Functionality
Employee Record Management		• Manage payroll deductions for employee benefit plans such as health and 401(k)
		• Automated employee time-off requests
		• Track employee skills, events, education and prior employment
		• Store employee documentation electronically
		• Record and track company property issued to employees
		• Ability to add custom fields to track additional employee related information
HR Compliance and Reporting		• Interactive employee organizational chart
		• Family Medical Leave Act (FMLA) tracking
		• Equal Employment Opportunity (EEO) reporting
		• Occupational Safety & Health Administration (OSHA) tracking
		• Consolidated Omnibus Budget Reconciliation Act (COBRA) tracking
		• VETS 100/100A reporting
		• Workers' compensation tracking and reporting
		• I-9 verification

Paylocity Impressions

        Paylocity Impressions is our advanced social media feature designed to integrate peer-to-peer collaboration and recognition into our solution, giving employees the ability to recognize each other and provide immediate feedback through virtually any device having Internet access. Paylocity Impressions helps to provide timely, meaningful recognition and promotes repeat positive behaviors




Table of Contents

among employees. Administrators have the ability to give their employees the option to post their accomplishments on their employee profiles to share with co-workers and other members of the organization. Employees can also be given the option to self-manage their profiles as well as update images and link to social sites such as LinkedIn, Twitter and Facebook. We believe that this functionality delivers a unique and modern solution to managing employee recognition programs.

Performance Management

        Performance Management is designed to bring ease and convenience to the employee performance appraisal process and to give employees the opportunity to participate in their performance review and be more engaged in their professional development. Employee reviews and appraisals throughout the organization are stored and analyzed in a single system. Key features of Performance Management include:

Feature		Functionality
Reviews		• Provides the ability for employees and managers to complete online reviews, add comments and sign off on completed reviews
		• Includes automated workflow at each step of the review process with ability for HR administrators to review and provide feedback prior to final approval
360° Feedback		• Provides the ability to access feedback from employees across the organization to receive input on employee performance and accomplishments
		• Enables year-round or point-in-time 360° feedback
Goals Management		• Manages employee goals and appraisals in a single place to reduce the time required to navigate between screens
		• Allows specific goals to be displayed on the performance review for increased employee focus and development
		• Assigns goals specific to employees based on skill level and other factors
Self-Service Set-Up		• Provides the ability to determine and control key success factors
		• Provides the ability to create review forms and set review notification date reminders

Self-Service HR Portals

        Self-Service HR Portals are designed to extend our solutions' functionality by giving employees and managers secure and real-time access to critical payroll and HR information. Self-Service HR Portals help to improve communication within clients' organizations with such tasks as reviewing time-off requests, scheduling and benefits enrollment. Self-Service HR Portals also provide the




Table of Contents

ability to post and manage company news items, add reminders, create custom web pages, view organizational charts and download videos.

Feature		Functionality
Employee Self-Service Portal		• Full online and mobile access through virtually any device having Internet access to individual payroll, HR and benefits information
		• Provides the ability for administrators to communicate company news, policy changes, such as handbook revisions, and to post documents, create custom web pages to communicate with employees
		• Administrators can configure portal to link to third-party websites or embed videos
		• Allows employees to independently take actions such as clock in and out, make direct deposit changes, email check information, access tax forms, request time off, view time-off balances, access the company directory, manage contact information
Manager Self-Service Portal		• Improves communication among managers and HR and payroll and finance departments
		• Provides a single view for managers where they can approve employee changes and requests, manage outstanding tasks and easily access employee information
		• A workflow engine allows managers to initiate pay rate changes and automatically route changes for approval to various levels of the organization
		• Allows managers to assign supervisors to both direct and indirect reports

Paylocity Web Onboarding

        Web Onboarding delivers a seamless approach to new hire onboarding and events management. The new solution enables payroll and HR departments to deliver a highly intuitive, mobile-responsive onboarding experience to new hires. For administrators, Web Onboarding reduces the manual effort and processes generally associated with onboarding a new hire. Paylocity's Onboarding features include:

•

Seamless integration with Paylocity payroll and HCM modules reduces manual entry of new hire data



•

Mobile responsive design and attractive, intuitive interface, engaging new hires in the process



•

Robust events management capabilities, empowering administrators to proactively manage the onboarding process



•

High level of customization, allowing administrators to tailor tasks and overall experience for new hire




Table of Contents

•

Withholding forms wizard, simplifying the process of completing important tax-related paperwork



•

Ability to add customized content including welcome message, documents, videos and other company specific information.

        Administrators can also build workflows to provide alerts and tasks to other parts of the organization involved in the new hire process.

Paylocity Web Time

        Paylocity Web Time is a time and attendance solution designed to automate manual processes, improve productivity and help organizations control labor costs. Paylocity Web Time handles such tasks as managing schedules, tracking time and attendance, including overtime, rounding rules, payroll policies, labor allocation and time-off accruals. Paylocity Web Time also notes exceptions such as tardiness, absenteeism and misuse of break or meal periods. Paylocity Web Time is fully integrated with Paylocity Web Pay giving supervisors and employees a single point of entry into the system and automatic set-up of employee records and policies. Paylocity Web Time also provides the ability to select from a wide variety of biometric and bar codebarcode hardware options to track employees' time. We believe this integration helps organizations reduce redundant processes, improve data accuracy, reduce leave liability and improve tracking capabilities.

Paylocity Web Benefits and Paylocity Enterprise Benefits

        Paylocity Web Benefits is aand Paylocity Enterprise Benefits (powered by bswift) are benefit management solutionsolutions that integratesintegrate with insurance carrier systems to provide automated administrative processes and allows users to choose benefit elections and make life event changes online, summarize benefit elections and perform other similar




Table of Contents

benefit-related tasks. Paylocity Web BenefitsThese solutions also enablesenable premium reconciliation, management of voluntary benefits and advanced reporting. Both Web Benefits and Paylocity Enterprise Benefits integrate seamlessly with Paylocity's Web Pay. Web Benefits features include:

•

Employee Self-Service Enrollment Portal, designed to perform on mobile devices as well as desktops and laptops



•

Automated employee deductions updates in Web Pay



•

Customizable enrollment portal content (text, links, documents, logos)



•

Reporting on employee enrollment status and enrollment summary



•

Configurable Medical, Dental and Vision benefit plans, Reimbursement benefit plans (HAS, DCRA, HCRA), Life benefits plans (Basic, Voluntary, AD&D), Long-term and Short-term disability



•

Electronic Data Interchange (EDI) support for insurance carriers

        Paylocity Web Benefits features an intuitive design to make benefits enrollment a simple and straightforward activity for the employee and reduce the overall time and energy payroll and HR administrators spend managing benefits enrollment.

Implementation and Client Services

        Delivering our clients a positive experience is an essential element of our ability to sell our solutions and retain our clients. We provide our clients with a single point-of-contact supplemented by teams with deep technical and subject matter expertise. The single point of contact allows our account managers to better understand our clients' needs, which we believe strengthens our client relationships.




Table of Contents

Implementation and Training Services

        Our clients are medium-sized organizations that are typically migrating to our platform from a competitive solution or are adopting an online payroll and HCM solution for the first time. These organizations often have limited internal resources and generally rely on us to implement our solutions.

        We typically implement our Paylocity Web Pay product within only three to six weeks, and any additional products thereafter, as requested by the client. Each client is guided through the implementation process by an implementation consultant who serves as a single point-of-contact for all implementation matters. We believe our ability to rapidly implement our solutions is principally due to the combination of our emphasis on engagement with the client, our standardized methodology, our cloud-based architecture and our highly-configurable, easy-to-use products.

        We offer our clients the opportunity to participate in formal training designed to increase their ability to further utilize the functionality of our products within their organizations. Our training courses are designed to enable selected employees of our clients to develop expertise in our solutions and act as a first-level support resource for their colleagues.

        In order to ensure client satisfaction, a team of client service representatives conducts a comprehensive audit of a client's account after the client has completed the implementation process. Thereafter, the client is transitioned to our client service team.

Client Service

        Our client service model is designed to serve the needs of medium-sized organizations and to build loyalty by developing strong relationships with our clients. We strive to achieve high revenue retention, in part, by delivering high-quality service. Our revenue retention was greater than 92% in each of fiscal 2011, 2012, 2013 and 2013.2014.

        Each client is assigned an account manager who serves as the central point-of-contact for any questions or support needs. We believe this approach enhances our client service by providing each client with a single person who understands the client's business, responds quickly and is accountable for the client experience. Our account managers are supplemented by teams with deep technical and subject matter expertise who help to expediently and effectively address client needs. We also proactively solicit client feedback through ongoing surveys from which we receive actionable feedback that we use to enhance our client service processes.

Tax and Regulatory Services

        Our software contains a rules engine designed to make accurate tax calculations that is continually updated to support all pertinent legislative changes across all U.S. jurisdictions. Our tax filing service provides a variety of solutions to our clients including processing payroll tax deposits, preparing and filing quarterly and annual tax returns and amendments and resolving client tax notices.




Table of Contents

Clients

        As of June 30, 2013,2014, we provided our solutions to approximately 6,8508,500 clients in all U.S. states. Although many clients have multiple divisions, segments or locations, we only count such clients once for these purposes.

        Our clients include for-profit and non-profit organizations across industries including business services, financial services, healthcare, manufacturing, restaurants, retail, technology and others. For each of the three years ended June 30, 2011,fiscal 2012, 2013 and 2013,2014, no client accounted for more than 1% of our revenues.

Case Studies

Rapid Manufacturing

        Rapid Manufacturing, headquartered in Anaheim, California, is a global electronics manufacturing company with approximately 180 employees that specializes in electronic custom-designed wire and cable harnesses. When evaluating its payroll and HCM needs, Rapid sought to better leverage the limited resources within its HR and finance departments, while at the same time improving access to real-time data for executive decision-making.

        A primary driver in Rapid's decision to select Paylocity was the fact that our solutions were optimized for medium-sized organizations and could grow with Rapid's needs. Rapid's HR and finance departments discovered that our advanced reporting and analytics applications, such as point-in-time reporting to analyze year-over-year headcount, location or rate changes, significantly enhanced their ability to drive strategic decisions. In addition, the flexibility to access historical data in the cloud, combined with our powerful cross-year reporting features, greatly facilitated Rapid's preparation for regulatory tasks such as 401(k) and workers' compensation audits. By integrating Rapid's general ledger accounting data into our solutions, we were able to decrease Rapid's processing times such that tasks previously requiring multiple hours could now be accomplished within seconds.

Cantoni

        Cantoni, headquartered in Dallas, Texas, is a full service interior design provider that offers innovative modern home furnishings. Cantoni has approximately 133 employees in multiple locations across the country. Before switching to Paylocity, Cantoni's existing payroll and HCM solutions required significant manual intervention to meet the company's everyday needs. Cantoni sought a solution that would help eliminate paper-intensive processes, automate manual tasks and create a unified experience across payroll, HR and time and labor.

        Cantoni selected our cloud-based solutions based on the intuitive user interface and robust capabilities, along with our unified implementation and client service model. Cantoni reported that our platform significantly enhanced ease of use and enabled access in a single system to critical information that had previously been stored across multiple systems. Our solution's configurable templates and checklists seamlessly aligned with Cantoni's internal processes, saving Cantoni's team significant time and improving the accuracy of its employee records. Cantoni and its employees realized additional time savings and reductions in errors by integrating their 401(k) data with our large network of integration partners. As a result of the benefits of our platform, Cantoni and its employees can now focus more on Cantoni's core business.

Lutco

        Lutco, headquartered in Worcester, Massachusetts, is a global supplier of quality semi-precision bearings, metal stampings and housed bearing assemblies and has approximately 150 employees.




Table of Contents

Recognizing that its existing payroll and HCM solution, offered by a regional service provider, did not provide the breadth of functionalities needed to operate efficiently, Lutco conducted an evaluation of available solutions with the goal of finding a flexible and configurable solution. Lutco also sought to minimize potential disruptions to critical payroll and HR processes from switching providers.

        After comprehensive testing of our platform, Lutco found that our solutions provided a modern user interface with features found on major consumer Internet sites, decreasing the need for end user training. Having selected Paylocity, our platform was implemented with minimal impact on existing workflows. After Lutco ran its first payroll on our platform, Lutco recognized that the blackout periods that limited access to employee data after payroll processing were a system requirement of its previous provider that was no longer required, shortening from days to minutes the time needed by Lutco to respond to broker requests for critical census information.

INSP

        INSP, headquartered in Charlotte, North Carolina, is a cable network provider that specializes in high quality television programs. As INSP grew beyond 250 employees, it performed a complete evaluation of its payroll and HCM needs. INSP sought a comprehensive payroll and HCM solution with a unified database that could be accessed remotely by administrators, managers and employees.

        INSP chose Paylocity due to the powerful and easy-to-use features of our solutions. Our cloud-based self-service HR portals enabled INSP's managers and employees to easily interact with each other from anywhere in the country through mobile devices. These and other benefits of our platform improved INSP's manager productivity, increased employee satisfaction and enabled INSP to accelerate its cultural transformation.

Sales and Marketing

        We market and sell our products and services primarily through our direct sales force. Our direct sales force includes sales representatives who have defined geographic territories throughout the U.S. We seek to hire experienced sales representatives wherever they are located, and believe we have room to grow the number of sales representatives in each of our territories. In addition, we have contractual arrangements with third-party resellers who also sell subscriptions to our payroll and HCM solutions.

        The sales cycle begins with a sales lead generated by the sales representative through our third-party referral network, a client referral, our telemarketing team, our external website, e-mail marketing or territory-basedterritory- based activities. Through one or more on-site visits, phone-based sales calls, or web demonstrations, sales representatives perform in-depth analysis of prospective clients' needs and demonstrate our solutions. We employ sophisticated software to track, classify and manage our sales representatives' pipeline of potential clients. We support our sales force with a marketing program that includes seminars and webinars, email marketing, social media marketing, broker events and web marketing.

Referral Network

        As a core element of our business strategy, we have developed a referral network of third-party service providers, including 401(k) advisors, benefits administrators, insurance brokers, third-party administrators and HR consultants, that recommend our solutions and provide referrals. Our referral network has become an increasingly important component of our sales process, and in fiscal 2013,2014, approximately 25% of our new client revenue originated by referrals from participants in our referral network.




Table of Contents

        We believe participants in our referral network refer potential clients to us because we do not provide services that compete with their own and because we offer third parties the ability to integrate their systems with our platform. Unlike other payroll and HCM solution providers who also provide retirement plans, health insurance and other products and services competitive with the offerings of the participants in our referral network, we focus only on our core business of providing cloud-based payroll and HCM solutions. In some cases we have formalized relationships in which we are a recommended vendor of these participants. In other cases, our relationships are informal. We typically do not compensate these participants for referrals.

Partner Ecosystem

        We have developed a partner ecosystem of third-party systems, such as 401(k), benefits and insurance provider systems, with whom we provide automated data integration for our clients. These third-party providers require certain financial information from their clients in order to efficiently provide their respective services. After securing authorization from the client, we exchange payroll data with these providers. In turn, these third-party providers supply data to us, which allows us to deliver comprehensive benefit management services to our clients. We believe our ability to integrate our systems with those of these partners adds value to our mutual clients and to our partners.

        We have also developed our solutions to integrate with a variety of other systems used by our clients, such as accounting, point of sale, banking, expense management, recruiting, background screening and skills assessment solutions. We believe our clients benefit from an integrated and seamless solution.




Table of Contents

Technology

        We offer our solutions on a cloud-based platform that leverages a unified database architecture and a common code base that we have organically developed. Clients do not need to install our software in their data centers and can access our solutions through any mobile device or web browser with Internet access.

•

Multi-Tenant Architecture.  Our software solutions were designed with a multi-tenant architecture. This architecture gives us an advantage over many disparate traditional systems which are less flexible and require longer and more costly development and upgrade cycles.



•

Mobile Focused.  We employ mobile-centric principles in our solution design and development. We believe that the increasing mobility of employees heightens the importance of access to our solutions through mobile devices, including smart phones and tablets. Our mobile experience provides our clients and their employees with access to our solutions through virtually any device having Internet access. We bring the flexibility of a secure, cloud-based solution to users without the need to access a traditional desktop or laptop computer.



•

Security.  We maintain comprehensive security programs designed to ensure the security and integrity of client and employee data, protect against security threats or data breaches and prevent unauthorized access. We regulate and limit all access to servers and networks at our data centers. Our systems are monitored for irregular or suspicious activity, and we have dedicated internal staff perform security assessments for each release. Our systems undergo regular penetration testing and source code reviews by an independent third-party security firm.

        We host our solutions at our primary data center at our corporate headquarters in Arlington Heights, Illinois. We utilize a secondary data center through a third-party in Kenosha, Wisconsin for




Table of Contents




backup and disaster recovery. We supply the hardware infrastructure and are responsible for the ongoing maintenance of our equipment at both data center locations.

Competition

        The market for payroll and HCM solutions is fragmented, highly competitive and rapidly changing. Our competitors vary for each of our solutions and include enterprise-focused software providers, such as Ultimate Software Group, Inc., Workday, Inc., SAP AG, Oracle Corporation and Ceridian Corporation; payroll service providers, such as Automatic Data Processing, Inc., Paychex, Inc. and other regional providers; and HCM point solutions providers, such as Cornerstone OnDemand, Inc.

        We believe the principal competitive factors on which we compete in our market include the following:

•

Focus on medium-sized organizations;



•

Breadth and depth of product functionality;



•

Configurability and ease of use of our solutions;



•

Modern, intuitive user experience;



•

Benefits of a cloud-based technology platform;



•

Ability to innovate and respond to client needs rapidly;



•

Domain expertise in payroll and HCM;



•

Quality of implementation and client service;




Table of Contents



•

Ease of implementation;



•

Real-time web-based payroll processing; and



•

Integration with a wide variety of third-party applications and systems.

        We believe that we compete favorably on these factors within the medium-sized organization market. We believe our ability to remain competitive will largely depend on the success of our continued investment in sales and marketing, research and development and implementation and client services.

Research and Development

        We invest heavily in research and development to continuously introduce new applications, technologies, features and functionality. We are organized in small product-centric teams that utilize an agile development methodology. We focus our efforts on developing new applications and core technologies and on further enhancing the usability, functionality, reliability, performance and flexibility of existing applications.

        Research and development costs, including research and development costs that were capitalized, were $4.3 million, $5.5 million, $8.8 million and $8.8$15.0 million for fiscal 2012, 2013 and 2014, respectively, and $5.1 million for the years ended June 30, 2011, 2012 and 2013, respectively, and $6.2 million for the sixthree months ended December 31, 2013.September 30, 2014. Our research and development personnel are principally located at our headquarters, although we seek to hire highly experienced personnel wherever they are located.




Table of Contents

Intellectual Property

        Our success is dependent, in part, on our ability to protect our proprietary technology and other intellectual property rights. We rely on a combination of trade secrets, copyrights and trademarks, as well as contractual protections to establish and protect our intellectual property rights. We require our employees, consultants and other third parties to enter into confidentiality and proprietary rights agreements and control access to software, documentation and other proprietary information. Although we rely on laws respecting intellectual property rights, including trade secret, copyright and trademark laws, as well as contractual protections to establish and protect our intellectual property rights, we believe that factors such as the technological and creative skills of our personnel, creation of new modules, features and functionality and frequent enhancements to our applications are more essential to establishing and maintaining our technology leadership position.

        Despite our efforts to protect our proprietary technology and our intellectual property rights, unauthorized parties may attempt to misappropriate our rights or to copy or obtain and use our proprietary technology to develop applications with the same functionality as our applications. Policing unauthorized use of our technology and intellectual property rights is very difficult.

        We expect that providers of payroll and HCM solutions such as ours may be subject to third-party infringement claims as the market and the number of competitors grows and the functionality of applications in different industry segments overlaps. Any of these or other third parties might make a claim of infringement against us at any time.

Properties

        As of December 31, 2013,September 30, 2014, our corporate headquarters occupied approximately 90,000117,000 square feet in Arlington Heights, Illinois under a lease expiring in April 2019.August 2020. As of December 31, 2013,September 30, 2014, we also leased facilities in New York, New York, Lake Mary, Florida, Nashua, New Hampshire and Oakland, California.




Table of Contents

Employees

        As of December 31, 2013,September 30, 2014, we had approximately 8381,059 full-time employees, of which 349339 were in client services and operations, 159266 were in client implementation, 101138 were in research and development, 161228 were in sales and marketing and 6888 were in general and administrative. None of our employees is represented by a union or is party to a collective bargaining agreement, and we have not experienced any work stoppages. We believe we have good relations with our employees and that our culture benefits our clients and supports our growth. Our management team is committed to maintaining and improving our culture even as we grow rapidly. We were recognized by the Best Companies Group on the list of "Best Places to Work In Illinois" in each of 2011, 2012 and 2013.

Legal Proceedings

        From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, we believe would individually or taken together have a material adverse effect on our business, financial condition or liquidity.




Table of Contents


MANAGEMENT


Executive Officers and Directors

        The following table sets forth information regarding our executive officers and directors, including their ages.

Name		Age			Position
Executive Officers
Steven R. Beauchamp(3)Beauchamp			42		President, Chief Executive Officer and Director
Steven I. Sarowitz(2)(3)Sarowitz(3)			4849		Executive Chairman and Director
Peter J. McGrail			5455		Chief Financial Officer
Michael R. Haske			4142		Senior Vice President of Sales & Marketing
Edward W. Gaty			4041		Senior Vice President of Product Development
Jenifer L. Page			4142		Senior Vice President of Operations
Non-Management Directors
Jeffrey T. Diehl(1)(2)(3)			44		Director
Mark H. Mishler(1)(2)(3)			5556		Director
Andres D. Reiner			44		Director
Ronald V. Waters, III(1)(2)			6162		Director

---

(1)

Member of Audit Committee

(2)

Member of Compensation Committee

(3)

Member of Nominating and Corporate Governance Committee

Executive Officers

        Steven R. Beauchamp is our President and Chief Executive Officer and a Director. Prior to joining Paylocity in 2007, Mr. Beauchamp was employed by Paychex, Inc., from September 2002 to August 2007 and served as VP of Product Management and as a Corporate Officer. Mr. Beauchamp also served as Vice President of Payroll Operations for Advantage Payroll Services, Inc. from August 2001 to September 2002 after Advantage Payroll acquired Payroll Central where he served as President from May 1999 to August 2001. Mr. Beauchamp also spent three years in operations management with ADP Canada from May 1995 to April 1998. Mr. Beauchamp holds a B.B.A. from Wilfrid Laurier University and an M.B.A. from Queen's University. Mr. Beauchamp brings to our board of directors over 15 years of experience in management positions in payroll services companies, and his experience and familiarity with our business as our President and Chief Executive Officer.

        Steven I. Sarowitz founded Paylocity in 1997 and is our Chairman. Mr. Sarowitz is currently the Chief Executive Chairman and a Director.Officer of Blue Marble Payroll, an international payroll aggregator. Prior to founding Paylocity, Mr. Sarowitz worked at Robert F. White, a Chicago-based independent payroll service firm. He later was an executive at three privately-held payroll companies. Mr. Sarowitz formerly served as President of the Independent Payroll Providers Association. Mr. Sarowitz holds a B.A. in Economics from the University of Illinois at Urbana. Mr. Sarowitz brings to our board of directors extensive executive leadership and operational experience in payroll services companies, and his experience and familiarity with our business as the founder and Executive Chairman.

        Peter J. McGrail is our Chief Financial Officer. Prior to joining Paylocity in 2010, Mr. McGrail served from 2007 to 2009 as Chief Financial Officer of FetchDog, a pet accessory catalog and Internet sales company. Mr. McGrail also served previously as Chief Financial Officer for two payroll




Table of Contents

services companies: Advantage Payroll Services, Inc. from 1999 to 2003 and CompuPay, Inc. from




Table of Contents

2005 to 2007. Mr. McGrail also spent seven years at the Boston office of KPMG Peat Marwick, now KPMG, where he was an audit manager and attained his CPA designation. Mr. McGrail holds a Master's Degree in Accounting from Bentley University and a B.A. in Economics from Colgate University.

        Michael R. Haske is our Senior Vice President of Sales & Marketing. Prior to joining Paylocity in 2007, Mr. Haske held several roles at Paychex, Inc., including Director of Marketing and Business Development and Regional Manager. Prior to joining Paychex, Inc., Mr. Haske held multiple roles with Automatic Data Processing, Inc., including Sales Manager & Corporate Sales Trainer. Mr. Haske earned his B.A. degree in Marketing and Finance from the University of Michigan. He also earned an M.B.A. in Marketing from Cardean/Ellis NYIT.

        Edward W. Gaty is our Senior Vice President of Product Development. Prior to joining Paylocity in July 2013, Mr. Gaty held several positions at Hewitt Associates and Aon Hewitt, a human resources consulting firm, from 1995 to 2013, including Chief Information Officer, Benefits Administration and Chief Technology Officer, Benefits Administration. Mr. Gaty holds a B.A. in Economics & Business Administration from Kalamazoo College and an M.S. in Information Technology from Northwestern University.

        Jenifer L. Page is our Senior Vice President of Operations. Ms. Page has held several positions at our company since joining Paylocity as one of our earliest employees in 1998. Ms. Page began her career with us as a client service representative, has risen through the ranks and has held various leadership positions in client service and operations. She was named our Vice President of Client Services in 2003 and our Senior Vice President of Operations in 2011. Ms. Page attended DePaul University where she studied organizational leadership.

Non-Management Directors

        Jeffrey T. Diehl has served as a Director since May 2008. Mr. Diehl is currently a Partner at Adams Street Partners, a global private equity investment management firm. Prior to joining Adams Street Partners in 2000, Mr. Diehl worked at Brinson Partners/UBS Global Asset Management and The Parthenon Group. Mr. Diehl serves as a director of Q2 Holdings, Inc., a virtual banking solutions company, and various private companies. Mr. Diehl holds a B.S. from Cornell University and an M.B.A. from Harvard University. Mr. Diehl brings to our board of directors years of experience as an advisor to a wide range of technology companies, including companies in the software, IT-enabled business services and consumer Internet/media sectors. Mr. Diehl's experience with the growth and development of technology companies provides our board of directors with a unique perspective on our long-term strategy.

        Mark H. Mishler has served as a Director since November 2013. Since 2011, Mr. Mishler has served as the President and Chief Executive Officer and as a Directordirector of Interstate National Corporation.Corporation, or INC, a service contract and extended warranty program provider, and in April 2014 Mr. Mishler was elected Chairman of INC. From 2002 to 2010, Mr. Mishler served as President, Chief Operating Officer and as a Director of The Warranty Group.Group, a warranty service contract provider. Mr. Mishler holds a B.S. in Accounting from Robert Morris University. Mr. Mishler is a retired officer of the United States Army. Mr. Mishler brings to our board of directors 30 years of business experience in positions such as controller, chief financial officer, chief operating officer and chief executive officer. In addition, Mr. Mishler has served as a director on numerous boards. Mr. Mishler hasbrings to our board of directors significant finance experience derived primarily from his previous service as a controller and chief financial officer.

Andres D. Reiner has served as a Director since September 2014. Since 2010, Mr. Reiner has served as the President and Chief Executive Officer and a director of PROS Holdings, Inc., or




Table of Contents

PROS, an enterprise software company. Since 1999, and prior to his appointment as President and Chief Executive Officer, Mr. Reiner held a series of positions with PROS, including Senior Vice President of Product Development and Executive Vice President of Product and Marketing. Prior to joining PROS, Mr. Reiner held various technical and management positions in technology companies including Platinum Technology, ADAC Healthcare Information Systems, and Kinesix. Mr. Reiner holds a B.S. in Computer Science with a minor in Mathematics from the University of Houston. Mr. Reiner brings to our board of directors leadership experience through his role as President and Chief Executive Officer of PROS, as well as in-depth knowledge and experience at growing technology companies.

        Ronald V. Waters, III has served as a Director since November 2013. Mr. Waters has been an independent business consultant since May 2010. From 2009 to May 2010, he was a Director and the President and Chief Executive Officer of LoJack Corporation, or LoJack, a worldwide marketer of wireless tracking and recovery systems for valuable mobile assets, and, from 2007 to 2008, he was a Director and the President and Chief Operating Officer of LoJack. He is a director of Fortune Brands Home & Security, Inc., a home and security products company, Chiquita Brands




Table of Contents

International, Inc., an international marketer and distributor of food products, and HNI Corp., a manufacturer of office furniture and a manufacturer and marketer of gas- and wood-burning fireplaces. From 2006 to 2007, Mr. Waters served as a director of Sabre Holdings Corporation. Mr. Waters brings to our board of directors leadership experience through his former role as Chief Executive Officer of LoJack and significant finance expertise derived primarily from his current service on the audit committee of two other public companies and previous roles as a director and Chief Operating Officer at a public company, Chief Financial Officer at Wm. Wrigley Jr. Company, Controller at The Gillette Company and partner of a large public accounting firm. Mr. Waters also brings to the our board of directors international, legal and information technology expertise derived primarily from his service in various roles at several large public companies.

Election of Officers

        Our executive officers are elected by, and serve at the discretion of, our board of directors. There are no family relationships among any of our directors or executive officers.

Board of Directors

        Our board of directors may establish the authorized number of directors from time to time by resolution. Our board of directors currently consists of fivesix members. In accordance with our amended and restated certificate of incorporation and our amended and restated bylaws, each to be effective immediately prior to the completion of this offering, our board of directors will beis divided into three classes with staggered three-year terms. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Vacancies on our board of directors can be filled by a majority vote of the board of directors.

        The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change of control. Messrs. Sarowitz and Diehl are the Class I directors, and their terms will expire in 2015.fiscal 2018. Messrs. Mishler and Waters are the Class II directors, and their terms will expire in fiscal 2016. Mr.Messrs. Beauchamp isand Reiner are the Class III director,directors, and his termtheir terms will expire in fiscal 2017.

Director Independence

        Our common stock will beis listed on the NASDAQ Global Select Market. The listing rules of this stock exchange generally require that a majority of the members of a listed company's board of directors, and each member of a listed company's audit, compensation and nominating and




Table of Contents

corporate governance committees, be independent within specified periods following the closing of an initial public offering. Our board of directors has determined that the following non-employee directors do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is "independent" as that term is defined under the rules of the NASDAQ Global Select Market: Jeffrey T. Diehl, Mark H. Mishler, Andres D. Reiner and Ronald V. Waters, III.

        Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities and Exchange Act of 1934, as amended, or the Exchange Act. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or be an affiliated person of the listed company or any of its subsidiaries.




Table of Contents

        In November 2013 and August 2014, our board of directors undertook a review of its composition, the composition of its committees and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, our board of directors has determined that none of Messrs. Diehl, Mishler, Reiner or Waters, representing threefour of our fivesix directors, has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is "independent" as that term is defined under NASDAQ Global Select Market rules. Our board of directors also determined that Mr. Waters, who serves on our audit committee and compensation committee, Mr. Mishler, who serves on our audit committee, compensation committee and compensationnominating and corporate governance committee and Mr. Diehl, who serves our audit committee, compensation committee and nominating and corporate governance committee, satisfy the independence standards for those committees established by applicable SEC and NASDAQ Global Select Market rules. In making this determination, our board of directors considered the relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.

Role of the Board in Risk Oversight

        One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through the board of directors as a whole, as well as through its standing committees that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure. Our audit committee is responsible for reviewing and discussing our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies with respect to risk assessment and risk management. Our audit committee also monitors compliance with legal and regulatory requirements, in addition to oversight of the performance of our external audit function. Our nominating and corporate governance committee monitors the effectiveness of our corporate governance guidelines. Our compensation committee reviews and discusses the risks arising from our compensation philosophy and practices applicable to all employees that are reasonably likely to have a materially adverse effect on us.

Board Committees

        Our board of directors has established an audit committee, a compensation committee, and a nominating and corporate governance committee. Each of these committees will have the composition




Table of Contents

and responsibilities described below as of the closing of our initial public offering.below. Members serve on these committees until their resignations or until otherwise determined by our board of directors.

Audit Committee

        Our audit committee is comprised of Messrs. Waters, Diehl and Mishler. Mr. Waters is the chairman of our audit committee. Each of Messrs. Waters, Diehl and Mishler satisfies the independence requirements of Rule 10A-3. Mr. Waters is an audit committee financial expert, as that term is defined under SEC rules, and possesses financial sophistication as defined under the rules of the NASDAQ Global Select Market. The designation does not impose on him any duties, obligations or liabilities that are greater than are generally imposed on members of our audit




Table of Contents

committee and our board of directors. Our audit committee is directly responsible for, among other things:

•

Selecting a firm to serve as the independent registered public accounting firm to audit our financial statements;



•

Ensuring the independence of the independent registered public accounting firm;



•

Discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing, with management and that firm, our interim and year-end operating results;



•

Establishing procedures for employees to submit anonymously concerns about questionable accounting or audit matters;



•

Considering the adequacy of our internal controls and internal audit function;



•

Reviewing material related party transactions or those that require disclosure; and



•

Approving or, as permitted, pre-approving all audit and non-auditnon- audit services to be performed by the independent registered public accounting firm.

        Upon the completion of this offering, theThe composition of our audit committee will complycomplies with all applicable requirements of the SEC and the listing requirements of the NASDAQ Global Select Market and all members of our audit committee will beare independent directors.

        Prior to the completion of this offering, ourOur board of directors will adopthas adopted an audit committee charter to be effective upon the completion of this offering.charter. We believe that the composition of our audit committee, and our audit committee's charter and functioning, will complycomplies with the applicable requirements of the NASDAQ Global Select Market and SEC rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.

Compensation Committee

        Our compensation committee is comprised of Messrs. Mishler, Diehl and Sarowitz.Waters. Mr. Mishler is the chairman of our compensation committee. Each of Messrs. Mishler, Diehl and DiehlWaters is independent under the applicable requirements of the NASDAQ Global Select Market and SEC rules and regulations, is a non-employee director, as defined by Rule 16b-3 promulgated under the Exchange Act, and is an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1984, as amended. Our compensation committee is responsible for, among other things:

•

Reviewing and approving, or recommending that our board of directors approve, the compensation of our executive officers;



•

Reviewing and recommending to our board of directors the compensation of our directors;




Table of Contents



•

Reviewing and recommending to our board of directors the terms of any compensatory agreements with our executive officers;



•

Administering our stock and equity incentive plans;



•

Reviewing and approving, or making recommendations to our board of directors with respect to, incentive compensation and equity plans; and



•

Reviewing our overall compensation philosophy.

        Upon the completion of this offering, theThe composition of our compensation committee will comply with all applicable requirements of the SEC and the listing requirements of the NASDAQ Global Select Market and after the phase in period under the applicable requirements of the SEC




Table of Contents

and the listing requirements of the NASDAQ Global Select Market, upon which we intend to rely, all members of our compensation committee will beare independent directors.

        Prior to the completion of this offering, ourOur board of directors will adopthas adopted a compensation committee charter to be effective upon the completion of this offering.charter. We believe that the composition of our compensation committee, and our compensation committee's charter and functioning, will comply with the applicable requirements of the NASDAQ Global Select Market and SEC rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.

Nominating and Corporate Governance Committee

        Our nominating and corporate governance committee is comprised of Messrs. Sarowitz, BeauchampMishler and Diehl. Mr. Sarowitz is the chairman of our nominating and corporate governance committee. Mr.Each of Messrs. Mishler and Diehl is independent under the applicable requirements of the NASDAQ Global Select Market and SEC rules and regulations. Our nominating and corporate governance committee is responsible for, among other things:

•

Identifying and recommending candidates for membership on our board of directors;



•

Reviewing and recommending our corporate governance guidelines and policies;



•

Reviewing proposed waivers of the code of conduct for directors and executive officers;



•

Overseeing the process of evaluating the performance of our board of directors; and



•

Assisting our board of directors on corporate governance matters.

        Upon the completion of this offering, theThe composition of our nominating and corporate governance committee will complycomplies with all applicable requirements of the SEC and the listing requirements of the NASDAQ Global Select Market, and after the phase in period under the applicable requirements of the SEC and the listing requirements of the NASDAQ Global Select Market, upon which we intend to rely, all members of our nominating and corporate governance committee will be independent directors.

        Prior to the completion of this offering, ourOur board of directors will adopthas adopted a nominating and corporate governance committee charter to be effective upon the completion of this offering.charter. We believe that the composition of our nominating and corporate governance committee, and our nominating and corporate governance committee's charter and functioning, will complycomplies with the applicable requirements of the NASDAQ Global Select Market and SEC rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.

Compensation Committee Interlocks and Insider Participation

        None of our executive officers has served as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our board of directors or compensation committee during the year ended June 30, 2013.fiscal 2014. During fiscal 2014, Mr. Sarowitz, our Executive Chairman, and Mr. Diehl, an affiliate of Adams Street Partners, are currentlywere members of our compensation committee.

Distribution of Shares Held by Paylocity Management Holdings, LLC

        In February 2014, Paylocity Management Holdings, LLC, at that time our controlling stockholder, distributed all of the shares of the company's capital stock held by Paylocity Management Holdings, LLC to its members. In that distribution, Paylocity Management Holdings, LLC distributed 23,449,265 shares of our common stock to Steven I. Sarowitz. We were See "Certain Relationships and Related Party




Table of Contents

notTransactions" for a member or managerdescription of Paylocity Management Holdings, LLCrecent transactions involving us and were not a party to the distribution described above.

Series A Preferred Stock Financing

        In May 2008, Paylocity Corporation issued 9,500,000 shares of Series A preferred stock to a total of three accredited investors, all of whom are affiliates of Jeffrey T. Diehl, at a price of $1.00 per share or an aggregate purchase price of $9,500,000. Our Series A preferred stock will convert automatically into two shares of common stock for every three shares of Series A preferred stock held upon the completion of this offering.

Series B Preferred Stock Financing

        In June 2012, Paylocity Corporation issued 8,399,899 shares of Series B preferred stock to a total of eight accredited investors, all of whom are affiliates of Jeffrey T. Diehl, at a price of $3.2481 per share or an aggregate purchase price of $27,283,712. Our Series B preferred stock will convert automatically into two shares of common stock for every three shares of Series B preferred stock held upon the completion of this offering.

Common Stock Redemption

        In June 2012, we used the proceeds of the Series B preferred stock financing to redeem shares of common stock from certain of our stockholders. At the time of the redemption transaction, Steven I. Sarowitz was a member of Paylocity Management Holdings, LLC, formerly our controlling stockholder. Mr. Sarowitz redeemed certain of his equity interests in Paylocity Management Holdings, LLC in exchange for 4,515,460 shares of our common stock, which were subsequently redeemed by us in exchange for $22,000,002.

Common Stock Purchase

        In December 2010, Steven I. Sarowitz sold 1,126,032 shares of Paylocity Corporation common stock to certain of our existing stockholders, all of whom are affiliates of Jeffrey T.and Mr. Diehl, in exchange for gross proceeds of $2,499,794. Mr. Sarowitz redeemed certain of his equity interests in Paylocity Management Holdings, LLC in exchange for shares of Paylocity Corporation common stock, which were subsequently sold.respectively.

Employment Agreement

        We have entered into an employment agreement with Steven I. Sarowitz that provides for salary and severance compensation. For more information regarding this employment agreement, see "Executive Compensation—Employment Agreements."

Indemnity Agreements

        We have entered into indemnity agreements with Steven I. Sarowitz and Jeffrey T. Diehl. These agreements, among other things, require us to indemnify each such person to the fullest extent permitted by Delaware law and our amended and restated certificate of incorporation and bylaws to be effective immediately prior to the completion of this offering for expenses such as, among other things, attorneys' fees, judgments, fines and settlement amounts incurred by such person in any action or proceeding, including any action by or in our right, arising out of the person's services as our director or executive officer or as the director or executive officer of any subsidiary of ours or any other company or enterprise to which the person provides services at our request. We also maintain directors' and officers' liability insurance.




Table of Contents

Investor Rights Agreement

        We have entered into an amended and restated investors' rights agreement with certain of our stockholders, including entities affiliated with Jeffrey T. Diehl and Steven I. Sarowitz. The amended and restated investors' rights agreement, as amended, among other things:

•

Grants such stockholders certain registration rights with respect to shares of our common stock, including shares of common stock issued or issuable upon conversion of the shares of our Series A preferred stock and Series B preferred stock;



•

Obligates us to deliver periodic financial statements to certain stockholders who are parties to the amended and restated investors' rights agreement, as amended, including entities affiliated with Jeffrey T. Diehl; and



•

Grants a preemptive right to participate in sales of our shares by us, subject to specified exceptions, to certain stockholders, including entities affiliated with Jeffrey T. Diehl.

        For more information regarding the registration rights provided in this agreement, please refer to the section titled "Description of Capital Stock—Registration Rights." The provisions of this agreement related to preemptive rights will terminate upon completion of this offering. This summary discusses certain material provisions of the amended and restated investors' rights agreement and is qualified by the amended and restated investors' rights agreement filed as an exhibit to the registration statement of which this prospectus is a part.

Voting Agreement

        We have entered into an amended and restated voting agreement with certain of our stockholders, including entities affiliated with Jeffrey T. Diehl and Steven I. Sarowitz. The amended and restated voting agreement provides, among other things:

•

For the voting of shares with respect to the constituency of the board of directors; and



•

For the voting of shares with respect to certain transactions approved by a majority of the holders of our outstanding preferred stock.

        This agreement will terminate upon completion of this offering. This is not a complete description of the amended and restated voting agreement and is qualified by the agreement, filed as an exhibit to the registration statement of which this prospectus is a part.

Right of First Refusal and Co-Sale Agreement

        We have entered into an amended and restated right of first refusal and co-sale agreement with certain of our stockholders, including entities affiliated with Jeffrey T. Diehl and Steven I. Sarowitz. The amended and restated right of first refusal and co-sale agreement, among other things:

•

Grants us certain rights of first refusal with respect to proposed transfers of our securities by certain stockholders; and



•

Grants certain of our investors certain rights of first refusal and co-sale with respect to proposed transfers of our securities by certain stockholders.

        This agreement will terminate upon completion of this offering. This is not a complete description of the amended and restated right of first refusal and co-sale agreement and is qualified by the agreement, filed as an exhibit to the registration statement of which this prospectus is a part.




Table of Contents

Other Transactions with Steven I. Sarowitz

        We were party to an oral agreement with Elite Sales Generation, Inc., or Elite, a company owned by Steven I. Sarowitz, pursuant to which Elite generated leads for our sales force. Elite was paid per lead generated. We paid Elite approximately $172,000 in fiscal 2011, $404,000 in fiscal 2012 and $893,000 in fiscal 2013. We terminated our oral agreement with Elite in October 2013 and, in connection therewith, we hired substantially all of the employees of Elite.

        We were party to a promissory note, as borrower, dated March 9, 2010, pursuant to which we borrowed $500,000 from Steven I. Sarowitz. This promissory note bore interest at a rate of 8% per annum. We repaid the promissory note in full, together with approximately $131,000 in interest to the noteholder, in March 2013.

        We are party to a loan and security agreement with Commerce Bank & Trust Company. Steven I. Sarowitz is a guarantor of certain of our obligations under the loan and security agreement.

Code of Business Conduct and Ethics

        Our board of directors has adopted a code of business conduct and ethics that will applyapplies to all of our employees, officers and directors. The full text of our code of conduct will beis posted on the Investor Relations section of our website upon completion of this offering.website. The reference to our website address in this prospectus does not include or incorporate by reference the information on our website into this prospectus. We intend to disclose future amendments to certain provisions of our code of conduct, or waivers of these provisions, on our website or in public filings.




Table of Contents


EXECUTIVE COMPENSATION


Summary Compensation Table

        The following table presents compensation information for fiscal 2013 and fiscal 2014 paid to, or accrued forearned by, our principal executive officer and our two other most highly compensated persons serving as executive officers as offor the end of fiscal 2013.years ended June 30, 2013 and 2014. We refer to these executive officers as our "named executive officers" for fiscal 2013..

Name		Year			Salary ($)			Option Awards ($)(1)			Bonuses ($)(2)			All Other Compensation ($)(4)			Total ($)				Year			Salary			Option Awards(2)			Bonuses(3)			All Other Compensation(4)			Total
Steven R. Beauchamp, President and Chief Executive Officer			2013		$	421,531		$	607,500		$	25,113		$	8,844		$	1,062,988				2014		$	425,863		$	127,003		$	102,226		$	22,633		$	677,725
Steven I. Sarowitz, Executive Chairman			2013		$	304,887		$	—		$	100,117		$	6,389		$	411,393	(5)
																						2013			421,531			607,500			25,639			28,386			1,083,056
Steven I. Sarowitz, Executive Chairman(1)																						2014			275,000			—			126			18,483			293,609	(5)
																						2013			304,888			—			100,117			25,930			430,935	(5)
Michael R. Haske, Senior Vice President of Sales & Marketing			2013		$	254,147		$	364,500		$	175,506	(3)	$	15,108		$	809,261				2014			259,023			127,003			203,236	(6)		22,503			611,765
																						2013			254,147			364,500			177,640	(6)		22,643			818,930

---

(1)

The status of Mr. Sarowitz on the board of directors changed from executive chairman to chairman effective June 30, 2014. Mr. Sarowitz no longer has an employment relationship with the Company, nor does he receive any compensation in such capacity.

(2)

Amounts represent the aggregate grant date fair value of stock options granted during the year computed in accordance with FASB ASCFinancial Accounting Standards Board Accounting Standards Codification Topic 718. Assumptions used in calculating these options reported in this column are describedset forth in Note 1115 to our consolidated financial statements included elsewhere in this prospectus.

(2)(3)

Includes discretionary annual bonus payouts determined by our compensation committee. Our board of directorsmanagement team establishes an annual business plan for the company.company which is approved by our board of directors. At the end of our fiscal year, our compensation committee considers each named executive officer's performance relative to the attainment of our business plan for the year and meets to discuss, develop and approve the bonus amounts payable to each named executive officer based on his performance. The compensation committee then recommends bonus amounts for our named executive officers to the board for approval.

(3)

Includes a bonus of up to 20% of base salary, as determined by our compensation committee based upon achievement of sales growth and productivity targets and a monthly bonus based on the prior month's commissionable sales by all sales personnel.

(4)

Consists of premiums paid for medical, dental, short-term disability, long term disability, life and accidental death and dismemberment insurance, Health Savings Account contributions, 401(k) matching contributions and phone and car allowances.

(5)

Excludes amounts payable to Elite Sales Generation, Inc., or Elite, a company owned by Steven I. Sarowitz. See "Certain Relationships and Related Party Transactions—Other Related Party Transactions" for a description of our former agreement with Elite.

(6)

Also includes a monthly bonus based on the prior month's commissionable sales.




Table of Contents

Outstanding Equity Awards at June 30, 20132014

        The following table sets forth information regarding outstanding option and stockequity awards held by our named executive officers at June 30, 2013.2014.

Name		Number of Securities Underlying Unexercised Options Exercisable(1)			Number of Securities Underlying Unexercised Options Unexercisable(1)			Option Exercise Price			Option Expiration Date
Steven R. Beauchamp			125,000	(2)		375,000	(2)	$	4.88			8/21/2022
			—			16,667	(3)	$	17.00			3/18/2024
Steven I. Sarowitz			—			—			—			—
Michael R. Haske			75,000	(2)		225,000	(2)	$	4.88			8/21/2022
			—			16,667	(3)	$	17.00			3/18/2024

---

		Option Awards												Stock Awards
Name		Number of Securities Underlying Unexercised Options (#) Exercisable			Number of Securities Underlying Unexercised Options (#) Unexercisable(1)			Option Exercise Price ($)			Option Expiration Date			Number of Shares of Stock That Have Not Vested (#)(1)			Market Value of Shares That Have Not Vested ($)(4)
Steven R. Beauchamp			—			500,000	(2)	$	4.88			8/21/2022			—			—
Steven I. Sarowitz			—			—			—			—			—			—
Michael R. Haske			—			300,000	(2)	$	4.88			8/21/2022			224,333	(3)	$	3,364,995

---

(1)

Shares of common stock.

(2)

This option grant vests as to¹/4 of the total option grant on August 21,July 1, 2013, and thereafter as to¹/4 of the total option grant yearly.

(3)

Represents shares of restricted common stock that will vest in full upon the firstThis option grant vests as to occur of (i) our initial public offering or (ii) a change in control, subject to the grantee's continued service. These shares will vest in full upon the completion of this offering.

(4)

The market price of our common stock is based upon the assumed initial public offering price of $15.00 per share, the mid-point¹/3 of the range set forthtotal option grant on March 24, 2015, and thereafter as to¹/3 of the cover page of this prospectus.total option grant yearly.

Employment Agreements

        The following is a summary of the employment agreements with our named executive officers as currently in effect.officers.

        Steven R. Beauchamp is party to an amended and restated employment agreement with us effective February 7, 2014. This employment agreement has no specific term and constitutes at-will employment. Mr. Beauchamp's current annual base salary is $425,427 and such salary will be reviewed annually with a target increase of 5% per year based upon agreed upon financial objectives for each fiscal year.$450,000. Mr. Beauchamp is also eligible to receive an annual bonus of upbenefits that are substantially similar to 20% of his then base salary based upon achievementsthose of our annual business plan objectives.other employees. His employment agreement sets forth his target bonus, which is currently set at 70% of Mr. Beauchamp's base salary. Payment of any bonus to Mr. Beauchamp is subject to approval by the compensation committee of our compensation committee. The employment agreement also provides that we will make available to Mr. Beauchamp customary fringe benefits.board of directors.

        Pursuant to his employmentthis agreement, in the event Mr. Beauchamp's employmentBeauchamp is terminated by us withoutfor any reason (other than for cause as(as such term is defined in the employment agreement), as a result of his employment agreement,death or his inability to perform the essential functions of his position with or without reasonable accommodation), (i) we will be obligated to continue to pay him 100% of his then-current monthly base salary for 12 months following such termination. Theand (ii) 100% of his then-unvested shares subject to any equity grants issued by the company will become vested in full. These severance benefits described above are contingent on Mr. Beauchamp executing a general release of claims. In addition, in the event of a change in control and provided thatpursuant to his employment agreement, Mr. Beauchamp is still employed byhas agreed (i) not to solicit our employees or customers during employment and for a period of 12 months after the termination of employment, (ii) not to compete with us 100%or assist any other person to compete with us during employment and a period of Mr. Beauchamp's unvested options will become vested in full.12 months after the termination of employment and (iii) to protect our confidential and proprietary information and to assign to us intellectual property developed during the course of employment.

        Steven I. Sarowitz iswas party to an employment agreement with us effectivedated July 1, 2013. TheThis employment agreement has ahad no specific term and constituted at-will employment. At the date of 24 months and automatically terminates at the end of the term.his resignation, Mr. Sarowitz's current annual base salary is $275,000, representing a decrease of approximately $30,000 from fiscal 2013.was $275,000. Mr. Sarowitz iswas also eligible to participate in the fringe




Tablereceive benefits that are substantially similar to those of Contentsour other employees.

benefits and benefit plans maintained by us from time to time, subject to the terms and conditions of such plans.

        Pursuant to his employmentthis agreement, in the event Mr. Sarowitz's employment is terminated by us withoutfor any reason (other than for cause as(as such term is defined in histhe employment agreementagreement)), we will bewould have been obligated to pay him (i) 100% of his then-current monthly base salary for the remainder of the term of his employment agreement and (ii) to the extent Mr. Sarowitz participatesparticipated in any of




Table of Contents

our group health plans immediately prior to the date of termination, a lump sum payment equal to the cost of monthly premiums for continued health insurance coverage under such plans for the remaining term of his employment agreement. The severance benefits described above arewere contingent on Mr. Sarowitz executing a general release of claimsclaims. In addition, pursuant to his employment agreement, Mr. Sarowitz agreed (i) not to solicit our employees or customers during employment and for a period of 12 months after the termination of employment, (ii) not to compete with us or assist any other person to compete with us during employment and a period of 12 months after the termination of employment and (iii) to protect our confidential and proprietary information and to assign to us intellectual property developed during the course of employment.

        Mr. Sarowitz's employment agreement terminated effective June 30, 2014, in accordance with that certain Memorandum of Understanding by and among the Company, Paylocity Corporation, Blue Marble Payroll, LLC and Mr. Sarowitz, whereby Mr. Sarowitz resigned as Executive Chairman. Pursuant to the Memorandum of Understanding, for so long as Mr. Sarowitz continues to provide services to us as a member of our favor.board of directors, we pay Mr. Sarowitz and his dependents insurance on the same terms made available to our employees generally.

        Michael R. Haske is party to an amended and restated employment agreement with us effective February 7, 2014. This employment agreement has no specific term and constitutes at-will employment. Mr. Haske's current annual base salary is $258,000.$320,000. Mr. Haske is also eligible to receive an annual bonus of up to 20% of his annual salary based upon the achievement of objectives established by us on a yearly basis relating to sales growth and productivity. Mr. Haske is further eligible to receive a monthly bonus based on the prior month's commissionable sales by all sales personnel. Thepersonnel as well as benefits that are substantially similar to those of our other employees. His employment agreement also provides that we will make availablesets forth his target bonus, which is currently set at 50% of Mr. Haske's current base salary. Payment of any bonus to Mr. Haske customary fringe benefits.is subject to approval by the compensation committee of our board of directors.

        Pursuant to his employmentthis agreement, in the event Mr. Haske's employmentHaske is terminated by us withoutfor any reason (other than for cause as(as such term is defined in the employment agreement), as a result of his employment agreement,death or his inability to perform the essential functions of his position with or without reasonable accommodation), (i) we will be obligated to pay him 100% of his then-currentthen current monthly base salary for 12twelve months following such termination. Theand (ii) 100% of his then unvested shares subject to any equity grants issued by the Company will become vested in full. These severance benefits described above are contingent on Mr. Haske executing a general release of claims in our favor.claims. In addition, in the event of a change in control and provided thatpursuant to his employment agreement, Mr. Haske is still employed byhas agreed (i) not to solicit our employees or customers during employment and for a period of 12 months after the termination of employment, (ii) not to compete with us 100%or assist any other person to compete with us during employment and a period of Mr. Haske's unvested options will become vested in full.12 months after the termination of employment and (iii) to protect our confidential and proprietary information and to assign to us intellectual property developed during the course of employment.

Director Compensation

        We have not historically paid any cash or equity compensation to        In connection with our directors for their services as directors or as members of committees of our board of directors.

        Oninitial public offering, in November 13, 2013, our board of directors adopted a cash compensation package for Messrs. Mishler and Waters. Messrs. Mishler and Waters arewere each entitled to receive a $20,000 annual retainer fee for service on our board of directors. Mr. Waters willwas also entitled to receive an annual fee of $30,000 as compensation for his service as audit committee chairman. Mr. Mishler willwas entitled to receive an annual fee of $5,000 as compensation for his service on the audit committee and an annual fee of $10,000 as compensation for his service as compensation committee chairman. OnIn March, 5, 2014, our board of directors approved effective upon the consummation of this offering a grant of 6,666 restricted stock units to each of Messrs. Mishler and Waters. These restricted stock units vestvested¹/3 upon the consummationclosing of thisthe initial public offering,¹/3 upon the first anniversary of thisthe offering and¹/3 upon the second anniversary of thisthe offering.




Table of Contents

        In September 2014, we implemented a director compensation package, pursuant to which our directors are eligible to receive equity awards and cash retainers as compensation for service on our board of directors and committees of our board of directors. Under our director compensation package, our directors are entitled to receive a $30,000 annual retainer fee. The audit committee chairperson receives an annual fee of $20,000 and members of the audit committee receive an annual fee of $10,000. The compensation committee chairperson receives an annual fee of $15,000 and members of the compensation committee receive an annual fee of $7,500. The nominating and corporate governance committee chairperson receives an annual fee of $10,000 and the members of the nominating and corporate governance committee receive an annual fee of $5,000. In August 2014 (and September 2014 in the case of Mr. Reiner), our board of directors approved a restricted stock unit grant entitling each director to receive that number of shares of our common stock equal to $150,000 divided by the then current share price of our common stock. These grants vest 25% quarterly, such that the grant vests in full on the first anniversary of the grant, provided that the director continues to serve as a director through such vesting date.

Limitations of Liability; Indemnification of Directors and Officers

        Section 145 of the Delaware General Corporation Law authorizes a corporation's board of directors to grant, and authorizes a court to award, indemnity to officers, directors and other corporate agents. As permitted by Delaware law, our amended and restated certificate of incorporation to be effective immediately prior to the completion of this offering provides that, to the fullest extent permitted by Delaware law, no director will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director. Pursuant to Delaware law such protection would be not available for liability:

•

For any breach of a duty of loyalty to us or our stockholders;






Table of Contents

•

For acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;



•

For any transaction from which the director derived an improper benefit; or



•

For an act or omission for which the liability of a director is expressly provided by an applicable statute, including unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law.

        Our amended and restated certificate of incorporation to be effective immediately prior to the completion of this offering also provides that if Delaware law is amended after the approval by our stockholders of the amended and restated certificate of incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law.

        Our amended and restated certificate of incorporation and amended and restated bylaws to be effective immediately prior to the completion of this offering further provide that we must indemnify our directors and officers to the fullest extent permitted by Delaware law. Our amended and restated bylaws also authorize us to indemnify any of our employees or agents and authorize us to secure insurance on behalf of any officer, director, employee or agent for any liability arising out of his or her action in that capacity, whether or not Delaware law would otherwise permit indemnification.

        In addition, our amended and restated bylaws to be effective immediately prior to the completion of this offering provide that we are required to advance expenses to our directors and officers as incurred in connection with legal proceedings against them for which they may be indemnified and that the rights conferred in the amended and restated bylaws are not exclusive.

        The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and bylaws to be effective immediately prior to the completion of this offering may discourage stockholders from bringing a lawsuit against our




Table of Contents

directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder's investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions.

        At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought, and we are not aware of any threatened litigation that may result in material claims for indemnification. We believe that our indemnity agreements and our amended and restated certificate of incorporation and bylaw provisions to be effective immediately prior to the completion of this offering are necessary to attract and retain qualified persons as directors and executive officers.

Indemnity Agreements

        We have entered into indemnity agreements with each of our directors and certain of our executive officers. These agreements, among other things, require us to indemnify each such director and officer to the fullest extent permitted by Delaware law and our amended and restated certificate of incorporation and bylaws to be effective immediately prior to the completion of this offering for expenses such as, among other things, attorneys' fees, judgments, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action by or in our right, arising out of the person's services as our director or executive officer or as the director or executive officer of any subsidiary of ours or any other company or enterprise to which the person provides services at our request. We also maintain directors' and officers' liability insurance.




Table of Contents

Benefit Plans

2008 Equity Incentive Plan

        Our 2008 Equity Incentive Plan, as amended, was adopted by our board of directors and approved by our stockholders on May 13, 2008, and was most recently amended in June 2012. Our 2008 Equity Incentive Plan provides for the grant of incentive stock options, nonstatutory stock options, stock awards (both restricted and unrestricted) and restricted stock unit awards to our employees, directors, consultants and independent contractors. As of December 31, 2013,September 30, 2014, options to purchase 2,375,7192,337,219 shares of our common stock were outstanding and 295,846zero shares of our common stock were reserved for future grant under this plan. As of December 31, 2013,September 30, 2014, in addition to incentive stock options and nonqualified stock options, we issued 269,199 shares of restricted common stock under this plan.

        We willSubsequent to our initial public offering, we have not grantgranted any additional awards under our 2008 Equity Incentive Plan. Instead, we willnow grant equity awards under our 2014 Equity Incentive Plan which was approved by our board of directors and stockholders in February 2014. However, our 2008 Equity Incentive Plan will continue to govern the terms and conditions of all outstanding equity awards granted under the 2008 Equity Incentive Plan.

        The standard form of option agreement under the 2008 Equity Incentive Plan provides that options will vest 25% on the first anniversary of the vesting commencement date, with the remainder vesting in equal annual installments over the next three years, subject to continued service through each applicable vesting date. Under our 2008 Equity Incentive Plan, our board of directors has the authority to provide for accelerated vesting in connection with a change in control, as defined in the 2008 Equity Incentive Plan. In the event of a change in control, our board of directors may require the substitution of outstanding equity awards for similar rights in the acquiring entity. In the alternative, our board of directors may provide that all outstanding options be canceled




Table of Contents

in exchange for an amount per option share equal to the greater of (i) the highest per share price offered to the holders of our common stock in the change in control minus the exercise price per option share or (ii) the fair market value of a share of our common stock on the date of the change in control minus the exercise price per option share. In the case of outstanding shares of restricted stock or restricted stock units, our board of directors may provide that such shares or units be canceled in exchange for an amount per share or unit equal to the greater of (i) the highest per share price offered to the holders of our common stock in the change in control or (ii) the fair market value of a share of our common stock on the date of the change in control.

        Our 2008 Equity Incentive Plan provides that our board of directors, or its designated committee, will equitably and proportionally adjust or substitute outstanding awards upon certain events, including, without limitation, changes in our capitalization through stock splits, recapitalizations, mergers or consolidations. The standard form of option agreement under our 2008 Equity Incentive Plan provides that the participants will not offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale of, or otherwise dispose of any shares of our stock or any rights to acquire our stock for such period of time from and after the effective date of this registration statement as may be established by the underwriter of our initial public offering.

2014 Equity Incentive Plan

        Our 2014 Equity Incentive Plan was approved by our board of directors and our stockholders in February 2014. It is intended to make available incentives that will assist us to attract, retain and motivate employees (including officers), consultants and directors. We may providehave thus far provided these incentives through the grant of stock options and restricted stock units and may in the future provide these incentives through stock appreciation rights, restricted stock, restricted stock units, performance shares and units and other cash-based or stock-based awards.




Table        As of Contents

        A total of 4,701,518September 30, 2014, options to purchase 2,263,211 shares of our common stock are initially authorizedwere outstanding and 479,594 shares of common stock were reserved for issuancefuture grant under the 2014 Equity Incentive Plan. This reserve will automatically increase on January 1, 2015 and each subsequent anniversary through 2024, by an amount equal to the smaller of (a) 4.5% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by our board of directors. The 2014 Equity Incentive Plan provides that the maximum aggregate number of shares of our common stock that may be issued under the 2014 Equity Incentive Plan pursuant to the exercise of incentive stock options shall not exceed 4,701,518 shares. The limit on the issuance of shares of our common stock pursuant to the exercise of incentive stock options will automatically increase on January 1, 2015 and each subsequent anniversary through 2024, by an amount equal to the smaller of (a) the annual increase to the share reserve in the 2014 Equity Incentive Plan or (b) 5,000,000 shares.

        Appropriate adjustments will be made in the number of authorized shares and other numerical limits in the 2014 Equity Incentive Plan and in outstanding awards to prevent dilution or enlargement of participants' rights in the event of a stock split or other change in our capital structure. Shares subject to awards which expire or are cancelled or forfeited will again become available for issuance under the 2014 Equity Incentive Plan. The shares available will not be reduced by awards settled in cash or by shares withheld to satisfy tax withholding obligations; the net number of shares issued upon the exercise of stock appreciation rights or options exercised by means of a net exercise or by tender of previously owned shares will be deducted from the shares available under the 2014 Equity Incentive Plan.

        The 2014 Equity Incentive Plan will beis generally administered by the compensation committee of our board of directors. Subject to the provisions of the 2014 Equity Incentive Plan, the




Table of Contents

compensation committee will determinedetermines in its discretion the persons to whom and the times at which awards are granted, the sizes of such awards and all of their terms and conditions. The compensation committee will have the authority to construe and interpret the terms of the 2014 Equity Incentive Plan and awards granted under it. The 2014 Equity Incentive Plan provides, subject to certain limitations, for indemnification by us of any director, officer or employee against all judgments, amounts paid in settlement and reasonable expenses, including attorneys' fees, incurred in connection with any legal action arising from such person's action or failure to act in administering the 2014 Equity Incentive Plan.

        The 2014 Equity Incentive Plan authorizes the compensation committee, without further stockholder approval, to provide for the cancellation of stock options or stock appreciation rights with exercise prices in excess of the fair market value of the underlying shares of common stock in exchange for new options or other equity awards with exercise prices equal to the fair market value of the underlying common stock or a cash payment or to amend such awards to reduce the exercise price thereof to the fair market value of the common stock on the date of amendment.

        Awards may be granted under the 2014 Equity Incentive Plan to our employees, (including officers), directors or consultants or those of any present or future parent or subsidiary corporation or other affiliated entity. All awards will be evidenced by a written agreement between us and the holder of the award and may include any of the following:

•

Stock options.  We may grant nonstatutory stock options or incentive stock options (as described in Section 422 of the Internal Revenue Code), each of which gives its holder the right, during a specified term (not exceeding 10 years) and subject to any specified vesting or other conditions, to purchase a number of shares of our common stock at an exercise price per share determined by the administrator, which may not be less than the fair market value of a share of our common stock on the date of grant.






Table of Contents

•

Stock appreciation rights.  A stock appreciation right gives its holder the right, during a specified term (not exceeding 10 years) and subject to any specified vesting or other conditions, to receive the appreciation in the fair market value of our common stock between the date of grant of the award and the date of its exercise. We may pay the appreciation in shares of our common stock or in cash, except that a stock appreciation right granted in tandem with a related option is payable only in stock.



•

Restricted stock.  The administrator may grant restricted stock awards either as a bonus or as a purchase right at such price as the administrator determines. Shares of restricted stock remain subject to forfeiture until vested, based on such terms and conditions as the administrator specifies. Holders of restricted stock will have the right to vote the shares and to receive any dividends paid, except that the dividends may be subject to the same vesting conditions as the related shares.



•

Restricted stock units.  Restricted stock units represent rights to receive shares of our common stock (or their value in cash) at a future date without payment of a purchase price (unless required under applicable state corporate laws), subject to vesting or other conditions specified by the administrator. Holders of restricted stock units have no voting rights or rights to receive cash dividends unless and until shares of common stock are issued in settlement of such awards. However, the administrator may grant restricted stock units that entitle their holders to dividend equivalent rights.



•

Performance shares and performance units.  Performance shares and performance units are awards that will result in a payment to their holder only if specified performance goals are achieved during a specified performance period. Performance share awards are rights denominated in shares of our common stock, while performance unit awards are rights




Table of Contents

denominated in dollars. The administrator establishes the applicable performance goals based on one or more measures of business performance enumerated in the 2014 Equity Incentive Plan, such as revenue, gross margin, net income or total stockholder return. To the extent earned, performance share and unit awards may be settled in cash or in shares of our common stock. Holders of performance shares or performance units have no voting rights or rights to receive cash dividends unless and until shares of common stock are issued in settlement of such awards. However, the administrator may grant performance shares that entitle their holders to dividend equivalent rights.



•

Cash-based awards and other stock-based awards.  The administrator may grant cash-based awards that specify a monetary payment or range of payments or other stock-based awards that specify a number or range of shares or units that, in either case, are subject to vesting or other conditions specified by the administrator. Settlement of these awards may be in cash or shares of our common stock, as determined by the administrator. The holder will have no voting rights or right to receive cash dividends unless and until shares of our common stock are issued pursuant to the award. The administrator may grant equivalent dividend rights with respect to other stock-based awards.

        In the event of a change in control as described in the 2014 Equity Incentive Plan, the acquiring or successor entity may assume or continue all or any awards outstanding under the 2014 Equity Incentive Plan or substitute substantially equivalent awards. Any awards which are not assumed or continued in connection with a change in control or are not exercised or settled prior to the change in control will terminate effective as of the time of the change in control. Our compensation committee may provide for the acceleration of vesting of any or all outstanding awards upon such terms and to such extent as it determines, except that the vesting of all awards held by members of the board of directors who are not employees will automatically be accelerated in full except to the extent assumed, continued or substituted by the acquiring or successor entity. The 2014 Equity Incentive Plan also authorizes our compensation committee, in its discretion and




Table of Contents

without the consent of any participant, to cancel each or any outstanding award denominated in shares upon a change in control in exchange for a payment to the participant with respect to each share subject to the cancelled award of an amount equal to the excess of the consideration to be paid per share of common stock in the change in control transaction over the exercise price per share, if any, under the award.

        The 2014 Equity Incentive Plan will continue in effect until it is terminated by the administrator, provided, however, that all awards will be granted, if at all, within 10 years of its effective date. The administrator may amend, suspend or terminate the 2014 Equity Incentive Plan at any time, provided that without stockholder approval, the plan cannot be amended to increase the number of shares authorized, change the class of persons eligible to receive incentive stock options, or effect any other change that would require stockholder approval under any applicable law or listing rule.

2014 Employee Stock Purchase Plan

        In February 2014, our board of directors adopted and our stockholders approved our 2014 Employee Stock Purchase Plan, or ESPP.

        AAs of September 30, 2014, a total of 1,000,000 shares of our common stock arewere available for sale under our ESPP. In addition, our ESPP provides for annual increases in the number of shares available for issuance under the ESPP on January 1, 2015 and each subsequent anniversary through 2024, equal to the smallest of:

•

400,000 shares;




Table of Contents



•

0.75% of the issued and outstanding shares of our common stock on the immediately preceding December 31; or



•

such other amount as may be determined by our board of directors.

        Appropriate adjustments will be made in the number of authorized shares, certain other limits in the ESPP and in outstanding purchase rights to prevent dilution or enlargement of participants' rights in the event of a stock split or other change in our capital structure. Shares subject to purchase rights which expire or are cancelled will again become available for issuance under the ESPP.

        Our compensation committee will administer the ESPP and have full authority to interpret the terms of the ESPP. The ESPP provides, subject to certain limitations, for indemnification by us of any director, officer or employee against all judgments, amounts paid in settlement and reasonable expenses, including attorneys' fees, incurred in connection with any legal action arising from such person's action or failure to act in administering the ESPP.

        All of our employees, including our named executive officers, are eligible to participate if they are customarily employed by us for more than 20 hours per week and more than five months in any calendar year. However, an employee may not be granted rights to purchase stock under our ESPP if such employee:

•

immediately after the grant would own stock or options to purchase stock possessing 5.0% or more of the total combined voting power or value of all classes of our capital stock; or



•

holds rights to purchase stock under all of our employee stock purchase plans that would accrue at a rate that exceeds $25,000 worth of our stock for each calendar year in which the right to be granted would be outstanding at any time.

        Our ESPP is intended to qualify under Section 423 of the Internal Revenue Code. The ESPP will typically be implemented through consecutive offering periods, generally starting on the first trading day on or after May 15 and November 15 of each year, except for the first such offering period, which will commence on a date to be determined by the administrator. The administrator




Table of Contents

may, in its discretion, modify the terms of future offering periods, including establishing offering periods of up to 27 months and providing for multiple purchase dates.

        Our ESPP permits participants to purchase common stock through payroll deductions of up to 10% of their eligible cash compensation, which includes a participant's regular base wages or salary and payments of overtime, shift premiums and paid time off, payments in lieu of notice, annual or other incentive bonuses, commissions, profit-sharing distributions and other incentive-type payments before deduction of taxes and certain compensation deferrals.

        Amounts deducted and accumulated from participant compensation are used to purchase shares of our common stock at the end of each offering period. Unless otherwise provided by the administrator, the purchase price of the shares will be 85% of the lower of the fair market value of our common stock on the first trading day of the offering period or on the purchase date provided that no more than the lesser of (i) an amount equal to $2,083.33 multiplied by the number of months in the offering period (rounded to the nearest whole month) or (ii) 166 shares multiplied by the number of months in the offering period (rounded to the nearest whole month) may be purchased by any participant in any offering period. Participants may end their participation at any time during an offering period and will receive a refund of their account balances not yet used to purchase shares. Participation ends automatically upon termination of employment with us.

        Prior to the beginning of any offering period, the administrator may alter the maximum number of shares that may be purchased by any participant during the offering period or specify a maximum aggregate number of shares that may be purchased by all participants in the offering




Table of Contents

period. If insufficient shares remain available under the plan to permit all participants to purchase the number of shares to which they would otherwise be entitled, the administrator will make a pro rata allocation of the available shares. Any amounts withheld from participants' compensation in excess of the amounts used to purchase shares will be refunded, without interest. Any amendment to the ESPP that would authorize the sale of more shares than are then authorized for issuance under the ESPP or would change the definition of the corporations that may be designated by our compensation committee as participating companies in the ESPP must be approved by our stockholders within twelve months of the adoption of such amendment.

        A participant may not transfer rights granted under the ESPP other than by will, the laws of descent and distribution or as otherwise provided under the ESPP. In the event of a change in control, an acquiring or successor corporation may assume our rights and obligations under outstanding purchase rights or substitute substantially equivalent purchase rights. If the acquiring or successor corporation does not assume or substitute for outstanding purchase rights, then the purchase date of the offering periods then in progress will be accelerated to a date prior to the change in control. Our ESPP will continue in effect until terminated by the administrator. Our compensation committee has the authority to amend, suspend or terminate our ESPP at any time.

401(k) Plan

        We maintain a 401(k) plan with a safe harbor matching provision that covers all eligible employees. We match 50% of the employees' contributions up to 6% of their gross pay. Contributions were $332,000, $514,000, $720,000 and $720,000 for the years ended June 30, 2011,$1,122,000 fiscal 2012, 2013 and 2013,2014, respectively.




Table of Contents


CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS


        Since June 30, 2010,2011, there has not been any transaction or series of similar transactions to which we were or are a party in which the amount involved exceeded $120,000 and in which any of our directors, executive officers, holders of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons, had a direct or indirect material interest, other than compensation arrangements with directors and executive officers, which are described where required in the sections titled "Management" and "Executive Compensation" and the transactions described below.

Distribution of Shares Held by Paylocity Management Holdings, LLC

        In February 2014, Paylocity Management Holdings, LLC, at that time our controlling stockholder, distributed all of the shares of the company's capital stock held by Paylocity Management Holdings, LLC to its members. The following table summarizes the shares of our capital stock that were distributed by Paylocity Management Holdings, LLC to members of our board of directors, our executive officers and persons who hold more than 5% of any class of our voting securities and affiliates of such persons.

Name of Stockholder		Shares of Common Stock Received
Steven I. Sarowitz			23,449,265
Steven R. Beauchamp			2,991,544
Michael R. Haske			1,503,458
Jenifer L. Page			525,749
​	​	​	​	​
Total			28,470,016

        We were not a member or manager of Paylocity Management Holdings, LLC, and were not a party to the distribution described above.

Series B Preferred Stock Financing

        In June 2012, Paylocity Corporation issued 8,399,899 shares of Series B preferred stock to a total of eight accredited investors at a price of $3.2481 per share or an aggregate purchase price of $27,283,712. Our Series B preferred stock will convert automatically into two shares of common stock for every three shares of Series B preferred stock held upon the completion of this offering. The following table summarizes the Series B preferred stock purchased by members of our board of directors and persons who hold more than 5% of any class of our voting securities.

Purchaser		Shares of Series B Preferred Stock			Aggregate Purchase Price
Entities affiliated with Adams Street Partners(1)			8,399,899		$	27,283,712

---

(1)

Consists of shares purchased by Adams Street 2006 Direct Fund, L.P., Adams Street 2007 Direct Fund, L.P., a holder of more than 5% of a class of our voting securities, Adams Street 2008 Direct Fund, L.P., a holder of more than 5% of a class of our voting securities, Adams Street 2009 Direct Fund, L.P., Adams Street 2010 Direct Fund, L.P., Adams Street 2011 Direct Fund LP, Adams Street 2012 Direct Fund LP and Adams Street Co-Investment Fund II, L.P. Jeffrey T. Diehl, an affiliate of Adams Street Partners, is a member of our board of directors.




Table of Contents

Common Stock Redemption

        In June 2012, we used the proceeds of the Series B preferred stock financing to redeem shares of common stock from certain of our stockholders. At the time of the redemption transaction, the stockholders listed below were members of Paylocity Management Holdings, LLC, formerly our controlling stockholder. The stockholders listed below redeemed certain of their equity interests in Paylocity Management Holdings, LLC in exchange for shares of our common stock, which were subsequently redeemed by us, as set forth below.

        The following table summarizes the shares of common stock redeemed from members of our board of directors, our executive officers and persons who hold more than 5% of any class of our voting securities and affiliates of such persons.

Name of Stockholder		Shares of Common Stock			Total Redemption Price
Steven I. Sarowitz			4,515,460		$	22,000,002
Steven R. Beauchamp			533,645			2,600,000
Michael R. Haske			256,666			1,250,519
Jenifer L. Page			131,814			642,221
Peter J. McGrail			49,465			241,003
Total			5,487,050		$	26,733,745

Common Stock Purchase

        In December 2010, Steven I. Sarowitz sold 1,126,032 shares of Paylocity Corporation common stock to certain of our existing stockholders in exchange for gross proceeds of $2,499,794. Mr. Sarowitz redeemed certain of his equity interests in Paylocity Management Holdings, LLC in exchange for shares of Paylocity Corporation common stock, which were subsequently sold. We were not a member or manager of Paylocity Management Holdings, LLC, and were not a party to the purchase. The table below summarizes these sales.

Purchaser		Shares of Common Stock			Aggregate Purchase Price
Entities affiliated with Adams Street Partners(1)			1,126,032		$	2,499,794

---

(1)

Consists of shares purchased by Adams Street 2006 Direct Fund, L.P., Adams Street 2007 Direct Fund, L.P., a holder of more than 5% of a class of our voting securities and Adams Street 2008 Direct Fund, L.P., a holder of more than 5% of a class of our voting securities. Jeffrey T. Diehl, an affiliate of Adams Street Partners, is a member of our board of directors.

Name of Stockholder		Shares of Common Stock			Total Redemption Price
Steven I. Sarowitz			4,515,460		$	22,000,002
Steven R. Beauchamp			533,645			2,600,000
Michael R. Haske			256,666			1,250,519
Jenifer L. Page			131,814			642,221
Peter J. McGrail			49,465			241,003
​	​	​	​	​	​	​	​
Total			5,487,050		$	26,733,745

Equity Issued to Executive Officers and Directors

        We have granted stock options to our executive officers and directors, as more fully described in "Executive Compensation—Summary Compensation Table."

Employment Agreements

        We have entered into employment agreements with certain of our executive officers that provide for salary, bonus and severance compensation. For more information regarding these employment agreements, see "Executive Compensation—Employment Agreements."




Table of Contents

Indemnity Agreements

        We have entered into indemnity agreements with each of our directors and certain of our executive officers. These agreements, among other things, require us to indemnify each such director and officer to the fullest extent permitted by Delaware law and our amended and restated certificate of incorporation and bylaws to be effective immediately prior to the completion of this offering for expenses such as, among other things, attorneys' fees, judgments, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action by or in our right, arising out of the person's services as our director or executive officer or as the director or executive officer of any subsidiary of ours or any other company or enterprise to which the person provides services at our request. We also maintain directors' and officers' liability insurance.

Investor Rights Agreement

        We haveIn June 2012 we entered into an amended and restated investors' rights agreement with certain of our stockholders, including entities affiliated with Adams Street Partners, Steven R. Beauchamp, Steven I. Sarowitz, Michael R. Haske and Jenifer L. Page. The amended and restated investors' rights agreement, as amended, among other things:

•

Grants such stockholders certain registration rights with respect to shares of our common stock, including sharesstock;




Table of common stock issued or issuable upon conversion of the shares of our Series A preferred stock and Series B preferred stock;Contents



•

ObligatesObligated us to deliver periodic financial statements to certain stockholders who are parties to the amended and restated investors' rights agreement, as amended, including entities affiliated with Adams Street Partners; and



•

GrantsGranted a preemptive right to participate in sales of our shares by us, subject to specified exceptions, to certain stockholders, including entities affiliated with Adams Street Partners, Steven R. Beauchamp and Michael R. Haske.

        For more information regarding the registration rights provided in this agreement, please refer to the section titled "Description of Capital Stock—Registration Rights." TheCertain provisions of this agreement related to preemptive rights will terminateterminated upon completion of thisour initial public offering. This summary discusses certain material provisions of the amended and restated investors' rights agreement and is qualified by the amended and restated investors' rights agreement filed as an exhibit to the registration statement of which this prospectus is a part.

Voting Agreement

        We haveIn June 2012 we entered into an amended and restated voting agreement with certain of our stockholders, including entities affiliated with Adams Street Partners, Steven R. Beauchamp, Steven I. Sarowitz, Michael R. Haske and Jenifer L. Page. The amended and restated voting agreement provides,provided, among other things:

•

Forthings, for the voting of shares with respect to the constituency of the board of directors;directors and



•

For for the voting of shares with respect to certain transactions approved by a majority of the holders of our outstanding preferred stock.

This agreement will terminateterminated upon completion of thisour initial public offering. This is not a complete description of the amended and restated voting agreement and is qualified by the agreement, filed as an exhibit to the registration statement of which this prospectus is a part.




Table of Contents

Right of First Refusal and Co-Sale Agreement

        We haveIn June 2012 we entered into an amended and restated right of first refusal and co-sale agreement with certain of our stockholders, including entities affiliated with Adams Street Partners, Steven R. Beauchamp, Steven I. Sarowitz, Michael R. Haske and Jenifer L. Page. The amended and restated right of first refusal and co-sale agreement, among other things:

•

Grants us certain rights of first refusal with respect to proposed transfers of our securities by certain stockholders; and



•

Grants certain ofthings, granted our investors certain rights of first refusal and co-sale with respect to proposed transfers of our securities by certain stockholders and granted us certain rights of first refusal with respect to proposed transfers of our securities by certain stockholders.

This agreement will terminateterminated upon completion of thisour initial public offering. This is not a complete description of the amended and restated right of first refusal and co-sale agreement and is qualified by the agreement, filed as an exhibit to the registration statement of which this prospectus is a part.

Other Related Party Transactions

        We were party to an oral agreement with Elite Sales Generation, Inc., or Elite, a company owned by Steven I. Sarowitz, an executive officer, directorour chairman and a holder of more than 5% of anya class of our voting securities, pursuant to which Elite generated leads for our sales force. Elite was paid per lead generated. We paid Elite $172,000$231,000 in fiscal 2011, $404,000 in fiscal 2012 and $893,000 in fiscal 2013.2014. We terminated our oral agreement with Elite in October 2013 and, in connection therewith, we hired substantially all of the employees of Elite.

        We were party to two promissory notes, as borrower, each dated March 9, 2010, pursuant to which we borrowed $500,000 from Steven I. Sarowitz, an executive officer, director and a holder of more than 5% of any class of our voting securities, and $500,000 from Daniel L. Miller, a former officer and a current stockholder. These promissory notes bore interest at a rate of 8% per annum. We repaid each promissory note in full, together with approximately $131,000 in interest to each noteholder, in March 2013.

        We are party to a loan and security agreement with Commerce Bank & Trust Company. Steven I. Sarowitz, an executive officer, directorour chairman and a holder of more than 5% of anya class of our voting securities, iswas a guarantor of certain of our obligations under the loan and security agreement. The Company terminated the loan and security agreement on March 31, 2014.




Table of Contents

        In May 2014, Steven I. Sarowitz, our chairman and a holder of more than 5% of a class of our voting securities, paid $1,052,000 to us for the express purpose of paying a cash bonus to long-term employees in recognition of their past service. We recorded a capital contribution to additional paid-in capital for the amount received from Mr. Sarowitz and compensation expense for the amount paid to employees, accordingly. We paid the employer portion of employment taxes and will receive any income tax related benefits from the payments to employees and resulting taxes.

        In June 2014, we entered into a Memorandum of Understanding, or Memorandum, with our chairman Steven I. Sarowitz and Blue Marble Payroll, LLC, or Blue Marble, a separate legal entity owned by Mr. Sarowitz. Pursuant to the terms of the Memorandum, Mr. Sarowitz is entitled to devote his efforts to Blue Marble provided that such efforts do not interfere with his ability to fulfill his duties as our chairman. Mr. Sarowitz and Blue Marble each also agreed not to compete with us in the United States of America and not to solicit our employees. In the event that we enter a geographic market in which Mr. Sarowitz or Blue Marble has clients, we have an option to acquire Mr. Sarowitz' or Blue Marble's (as the case may be) operations in such market at fair market value. At our option, Mr. Sarowitz and Blue Marble will permit us to become a partner of Blue Marble in any international market that Mr. Sarowitz or Blue Marble enters, on terms no less favorable than those offered by Mr. Sarowitz or Blue Marble to its other partners in that market. Pursuant to the terms of the Memorandum, in the event of a sale of a material portion of the business or capital stock of Blue Marble, we have a right of first refusal to buy Blue Marble. Beginning on the third anniversary of the Memorandum, we also have an ongoing option to acquire Blue Marble at fair market value.

Policies and Procedures for Related Party Transactions

        As provided by our audit committee charter, to be effective upon the closing of this offering, our audit committee must review and approve in advance any related party transaction. Pursuant to our Related Party Transactions Policy, to be effective upon the consummation of the offering, all of our directors, officers and employees are required to report to our audit committee any such related party transaction prior to its completion. Prior to the creation of our current audit committee, our full board of directors reviewed related party transactions. Each of the related party transactions described above that was submitted to our board of directors was approved by disinterested members of our board of directors after disclosure of the interest of the related party in the transaction.




Table of Contents


PRINCIPAL AND SELLING STOCKHOLDERS


        The following table and footnotes set forth information with respect to the beneficial ownership of our common stock as of February 28,November 15, 2014, subject to certain assumptions set forth in the footnote and as adjusted to reflect the sale of the shares of common stock offered in the public offering under this prospectus for:

•

Each stockholder, or group of affiliated stockholders, who we know beneficially owns more than 5% of the outstanding shares of our common stock;



•

Each of our named executive officers;



•

Each of our directors;



•

All of our directors and executive officers as a group; and



•

Each of the selling stockholders.

        Beneficial ownership of shares is determined under the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power and includes shares issuable upon exercise of options held by the person which may be exercised or converted within 60 days of February 28,November 15, 2014. Except as indicated by footnote, and subject to applicable community property laws, we believe each person identified in the table possesses sole voting and investment power with respect to all shares of common stock beneficially owned by them. Shares of common stock subject to options currently exercisable or exercisable within 60 days of February 10,November 15, 2014, are deemed to be outstanding for calculating the number and percentage of outstanding shares of the person holding such options, but are not deemed to be outstanding for calculating the percentage ownership of any other person.

        Applicable percentage ownership in the following table is based on 44,190,82549,673,840 shares of common stock outstanding as of February 28, 2014, assuming the conversion of our preferred stock into common stock and the vesting of our restricted stock awards, and 49,190,825 shares of common stock outstanding after completion of this offering.November 15, 2014.

        Unless otherwise indicated and subject to applicable community property laws, to our knowledge, each stockholder named in the following table possesses sole voting and investment power over the shares listed, except for those jointly owned with that person's spouse. Unless otherwise noted below, the address of each person listed on the table is c/o 3850 N. Wilke Road,




Table of Contents

Arlington Heights, IL 60004. Beneficial ownership representing less than 1% is denoted with an asterisk (*).

																				Shares Beneficially Owned After the Offering if Underwriters' Option is Exercised in Full
																	Number of Shares to be Sold if Underwriters' Option is Exercised in Full
		Shares Beneficially Owned Prior to the Offering									Shares Beneficially Owned After the Offering
								Number of Shares Offered
Shares Beneficially Owned After the Offering if Underwriters' Option is Exercised in Full                           Number of Shares to be Sold if Underwriters' Option is Exercised in Full       Shares Beneficially Owned Prior to the Offering       Shares Beneficially Owned After the Offering       Number of Shares Offered   Name of Beneficial Owner   Shares   Percentage   Shares   Percentage   Shares   Percentage   5% Stockholders:                                                   Entities affiliated with Adams Street Partners(1)     13,059,29612,082,167     29.624.4 %   246,8911,058,283     12,812,40511,023,884     26.021.9 %   300,500195,375     12,511,90510,828,509     25.221.5 % Named Executive Officers and Directors:                                                   Jeffrey T. Diehl(1)     13,059,29612,082,167     29.624.4 %   246,8911,058,283     12,812,40511,023,884     26.021.9 %   300,500195,375     12,511,90510,828,509     25.221.5 % Steven I. Sarowitz(2)     23,449,26521,784,111     53.143.9 %   1,333,3331,908,081     22,115,93219,876,030     45.039.4 %   333,333352,261     21,782,59919,523,769     44.038.7 % Steven R. Beauchamp(3)     3,116,5443,241,544     7.06.5 %   —244,805     3,116,5442,996,739     6.35.9 %   —45,195     3,116,5442,951,544     6.35.8 % Michael R. Haske(4)     1,802,7911,877,791     4.13.8 %   —8,442     1,802,7911,869,349     3.7 %   —1,558     1,802,7911,867,791     3.63.7 % Mark H. MishlerMishler(5)     —14,334     —*     —     —14,334     —*     —     —14,334     —* Andres D. Reiner(6) 1,503 * 1,503 * 1,503 *   Ronald V. Waters, IIIIII(7)     —13,734     —*     —     —13,734     —*     —     —13,734     —*   All executive officers and directors as a group (9(10 persons)(5)(8)     42,404,46440,228,833     94.679.3 %   1,580,2243,250,000     40,824,24036,978,833     81.971.8 %   633,833600,000     40,190,40736,378,833     80.070.6 % Other Selling Stockholders:                                                   Charles Cooper(6)Peter J. McGrail(9)     460,551644,409     1.01.3 %   89,77630,389     370,775614,020     *1.2 %   —5,611     370,775608,409     *1.2 % (1) Represents 2,527,5751,512 shares (2,829,729issuable to Jeffrey T. Diehl upon the vesting of restricted stock units within 60 days of November 15, 2014, 2,338,163 shares of Series A preferred stock which convert into 1,886,486 shares of common stock, 458,524 shares of Series B preferred stock which convert into 305,682 shares of common stock and 335,407 shares of common stock) held by Adams Street 2006 Direct Fund, L.P., or AS 2006, 2,854,3292,640,431 shares (3,195,548 shares of Series A preferred stock which convert into 2,130,362 shares of common stock, 517,800 shares of Series B preferred stock which convert into 345,200 shares of common stock and 378,767 shares of common stock) held by Adams Street 2007 Direct Fund, L.P., or AS 2007, 4,081,9673,776,071 shares (3,474,728 shares of Series A preferred stock which convert into 2,316,485 shares of common stock, 2,030,436 shares of Series B preferred stock which convert into 1,353,624 shares of common stock and 411,858 shares of common stock) held by Adams Street 2008 Direct Fund, L.P., or AS 2008, 1,269,196782,722 shares of Series B preferred stock which convert into 846,130 shares of common stock held by Adams Street 2009 Direct Fund, L.P., or AS 2009, 720,972444,629 shares of Series B preferred stock which convert into 480,648 shares of common stock held by Adams Street 2010 Direct Fund, L.P., or AS 2010, 579,228357,215 shares of Series B preferred stock which convert into 386,152 shares of common stock held by Adams Street 2011 Direct Fund LP, or AS 2011, 581,291358,486 shares of Series B preferred stock which convert into 387,527 shares of common stock held by Adams Street 2012 Direct Fund LP, or AS 2012 and 2,242,452 shares of Series B preferred stock which convert into 1,494,9681,382,938 shares of common stock held by Adams Street Co-InvestmentCo Investment Fund II, L.P., or AS CIF. The shares owned by AS 2006, AS 2007, AS 2008, AS 2009, AS 2010, AS 2011, AS 2012 and AS CIF may be deemed to be beneficially owned by Adams Street Partners, LLC, or ASP, the managing member of the general partner of each of AS 2006, AS 2007, AS 2008, AS 2009, AS 2010, AS 2011, AS 2012 and AS CIF. Thomas D. Berman, David Brett, Jeffrey T. Diehl, Elisha P. Gould III, Michael S. Lynn, Robin P. Murray, Sachin Tulyani, Craig D. Waslin and David Welsh, each of whom is a partner of Adams Street Partners, LLC (or a subsidiary thereof) may be deemed to have shared voting and investment power over the shares. The address of each of AS 2006, AS 2007, AS 2008, AS 2009, AS 2010, AS 2011, AS 2012, AS CIF and ASP is One North Wacker Drive, Suite 2200, Chicago, Illinois 60606. Mr. Diehl is a member of our board of directors. For a discussion of our material relationships with AS 2006, AS 2007, AS 2008, AS 2009, AS 2010, AS 2011, AS 2012, AS CIF, ASP and Mr. Diehl, see the section titled "Certain Relationships and Related Party Transactions." Upon the closing of this offering, all outstanding shares of our Series A preferred stock and Series B preferred stock will be automatically converted into shares of common stock. (2) Includes 1,512 shares issuable upon vesting of restricted stock units within 60 days of November 15, 2014. On November 20, 2014, Mr. Sarowitz transferred 740,740 shares to the Julian Grace Foundation. Mr. Sarowitz is currently our Chairman and resigned as our Executive Chairman and is a director.effective June 30, 2014. For a discussion of our material relationships with Mr. Sarowitz, see the section entitled "Certain Relationships and Related Party Transactions." (3) Includes 125,000250,000 shares issuable upon the exercise of options exercisable within 60 days of February 28,November 15, 2014. Mr. Beauchamp is our President and Chief Executive Officer and is a director. For a discussion of our material relationships with Mr. Beauchamp, see the section titled "Certain Relationships and Related Party Transactions." (4) Includes 224,333 shares of restricted stock that will vest in full upon the completion of this offering and 75,000150,000 shares issuable upon the exercise of options exercisable within 60 days of February 28,November 15, 2014. Mr. Haske is our Senior Vice President of Sales & Marketing. For a discussion of our material relationships with Mr. Haske, see the section titled "Certain Relationships and Related Party Transactions." (5) Includes 650,8181,512 shares issuable upon the vesting of restricted stock units within 60 days of November 15, 2014. Mr. Mishler is a member of our board of directors. (6) Includes shares issuable upon the vesting of restricted stock units within 60 days of November 15, 2014. Mr. Reiner is a member of our board of directors. (7) Includes 1,512 shares issuable upon the vesting of restricted stock units within 60 days of November 15, 2014. Mr. Waters is a member of our board of directors. (8) Includes 1,077,225 shares issuable upon the exercise of options exercisable and 7,551 shares issuable upon the vesting of restricted stock units, in each case within 60 days of February 28,November 15, 2014. (6)(9) Includes 11,666608,058 shares issuable upon the exercise of stock options exercisableexerciseable within 60 days of February 28,November 15, 2014. Mr. McGrail is our Chief Financial Officer. For a discussion of our material relationships with Mr. McGrail, see the section titled "Certain Relationships and Related Party Transactions." Table of Contents DESCRIPTION OF CAPITAL STOCK         The following is a summary of our capital stock and certain provisions of our amended and restated certificate of incorporation and bylaws to be effective upon the completion of this offering.bylaws. This summary does not purport to be complete and is qualified by the provisions of our restated certificate of incorporation and amended and restated bylaws, copies of which have been filed as exhibits to the registration statement of which this prospectus is a part.         Immediately following the closing of this offering, ourOur authorized capital stock will consistconsists of 155,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of undesignated preferred stock, $0.001 par value. Common Stock         As of December 31, 2013,September 30, 2014, there were 43,921,62649,577,236 shares of common stock outstanding that were held of record by 11 stockholders after giving effect to the conversion of our preferred stock into shares of common stock. There will be 48,921,626 shares of common stock outstanding (assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options) after giving effect to the sale of the shares of common stock offered by this prospectus.16 stockholders.         The holders of common stock are entitled to one vote per share on all matters submitted to a vote of our stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Subject to preferences that may be applicable to any preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled to receive ratably any dividends declared by our board of directors out of assets legally available. See the section titled "Dividend Policy." Upon our liquidation, dissolution or winding up, holders of our common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding shares of preferred stock. Holders of common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. Preferred Stock         Upon the closing of this offering, all outstanding shares of our Series A preferred stock and Series B preferred stock will be automatically converted into shares of common stock.        Pursuant to our amended and restated certificate of incorporation, our board of directors will havehas the authority, without further action by the stockholders, to issue from time to time up to 5,000,000 shares of preferred stock, in one or more series. Our board will determine the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of any series, any or all of which may be greater than or senior to the rights of the common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock and reduce the likelihood that such holders will receive dividend payments and payments upon liquidation, and the likelihood that holders of preferred stock will receive dividend payments and payments upon liquidation may have the effect of delaying, deterring or preventing a change in control, which could depress the market price of our common stock. We have no current plan to issue any shares of preferred stock. Registration Rights         We haveIn June 2012 we entered into an amended and restated investor rights agreement dated as of June 29, 2012 with certain holders of our common and preferred stock. Subject to the terms of this agreement, holders of 13,059,29612,080,655 shares (on an as converted toof our common stock basis) have full Table of Contents registration rights, which includes demand registration rights, piggyback registration rights, and short-form registration rights. Furthermore, holders of 30,862,33029,105,888 shares of our common stock have piggyback registration rights, short-form registration rights and the right to join in demand registrations, but do not have the right to initiate a demand registration. The following description of the terms of the investor rights agreement is intended as a summary only and is qualified by reference to the registration rights agreement filed as an exhibit to the registration statement, of which this prospectus forms a part.         Each party to the investor rights agreement has agreed not to sell or otherwise disposeTable of any shares of our common stock for a period of 180 days following the effective date of this offering.Contents Demand Registration Rights         Following thisAt any time following our initial public offering, subject to certain exceptions, the holders of not less than 50% of then outstanding registrable securities (on an as converted to common stock basis) with full registration rights may demand that we effect a registration under the Securities Act covering the public offering and sale of all or part of the registrable securities held by such stockholders. Upon such demand, we must provide written notice to all other holders of registrable securities, who may likewise demand that their registrable securities be included in such offering. We must use commercially reasonable efforts to effect the registration of the registrable securities that we have been requested to register, together with all other registrable securities that we may have been requested to register by other stockholders pursuant to the piggyback registration rights described below. These registration rights are subject to specified conditions and limitations, including the right of the underwriters, if any, to limit the number of shares included in any such registration under specified circumstances. In addition, we are not obligated to effect a demand registration (i) prior to 180 days following the effective date of the registration statement pertaining to thisour initial public offering, (ii) prior to 90 days following the filing date of a registration statement that does not relate to an initial public offering, (iii) if we have already effected two demand registrations that have been declared or ordered effective or (iv) if the aggregate offering price, net of underwriting expenses and discounts, is less than $10 million.         We have the ability to delay the filing of a registration statement, subject to certain restrictions, if the board of directors determines in its judgment that it would be materially detrimental to us and our stockholders for such registration to be effected at such time. Piggyback Registration Rights         All stockholders party to the investor rights agreement, holding a total of 43,921,62641,186,543 shares (on an as converted toof common stock basis) have piggyback registration rights. Under these provisions, if we propose to register any securities under the Securities Act, whether on our own behalf or on behalf of other stockholders, these stockholders have the right to include their shares in the registration statement, subject to certain exceptions including a registration related solely to an employee benefit plan. These piggyback registration rights are subject to specified conditions and limitations, including the right of the underwriters to limit, or in the case of thisour initial public offering, completely exclude the number of shares included in any such registration under specified circumstances. Short-Form Registration Rights         All stockholders party to the investor rights agreement have short-form registration rights. Under these provisions, the holders of at least 30% of shares of registrable securities then outstanding may request in writing that we effect a registration on Form S-3 under the Securities Act. Upon such request, we must also provide written notice of the request to all other holders of Table of Contents registrable securities, who may likewise request that their registrable securities be included in such offering. As soon as reasonably practical after such requests for registration, we are obligated to effect a registration on Form S-3 for such registrable securities. These registration rights are subject to specified conditions and limitations, including the right of the underwriters, if any, to limit the number of shares included in any such registration under specified circumstances. In addition, we are not obligated to effect a short-form registration if (i) we are not eligible to file a registration statement on Form S-3, (ii) the proposed aggregate offering price of the shares to be registered by the holders requesting registration is less than $1 million or (iii) such request is prior to six months following the effectiveness of the preceding requested short-form registration. Table of Contents         We have the ability to delay the filing of a registration statement, subject to certain restrictions, if the board of directors determines in its judgment that it would be materially detrimental to us and our stockholders for such registration to be effected at such time. Expenses of Registration         With specified exceptions, we are required to pay all expenses of registration, excluding underwriters' discounts, commissions and stock transfer taxes. Anti-Takeover Provisions Under Our Charter and Bylaws and Delaware Law         Certain provisions of Delaware law, our amended and restated certificate of incorporation and bylaws contain provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, may have the effect of discouraging coercive takeover practices and inadequate takeover bids. These provisions are also designed, in part, to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquiroracquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms. Amended and Restated Certificate of Incorporation         Undesignated Preferred Stock.    As discussed above, our board of directors has the ability to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control of us or our management.         Limitations on the Ability of Stockholders to Act by Written Consent or Call a Special Meeting.    We have provided in ourOur amended and restated certificate of incorporation provides that our stockholders may not act by written consent. This limit on the ability of our stockholders to act by written consent may lengthen the amount of time required to take stockholder actions. As a result, a holder controlling a majority of our capital stock would not be able to amend our amended and restated bylaws or remove directors without holding a meeting of our stockholders called in accordance with our amended and restated bylaws.         In addition, our amended and restated certificate of incorporation and amended and restated bylaws provide that special meetings of the stockholders may be called only by the chairperson of our board of directors, the chief executive officer or a majority of the board of directors. A stockholder may not call a special meeting, which may delay the ability of our stockholders to force consideration of a proposal or for holders controlling a majority of our capital stock to take any action, including the removal of directors. Table of Contents         Requirements for Advance Notification of Stockholder Nominations and Proposals.    Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors. However, our amended and restated bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of us.         Classified Board.    Our amended and restated certificate of incorporation and amended and restated bylaws provide that our board of directors is divided into three classes with staggered Table of Contents three-year terms. As a result, one class (i.e., approximately one-third of our board of directors) will be elected at each annual meeting of stockholders, with the other classes continuing for the remainder of their respective three-year terms. This provision may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us as it is more difficult and time-consuming for stockholders to replace a majority of the directors on a classified board.         Board Vacancies Filled Only by Majority of Directors.    Vacancies and newly created seats on our board may be filled only by a majority of the number of then-authorized members of our board of directors. Only our board of directors may determine the number of directors on our board. The inability of stockholders to determine the number of directors or to fill vacancies or newly created seats on our board of directors makes it more difficult to change the composition of our board of directors, but these provisions promote a continuity of existing management.         No Cumulative Voting.    The Delaware General Corporation Law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless our amended and restated certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation provides that there shall be no cumulative voting and our amended and restated bylaws do not expressly provide for cumulative voting.         Directors Removed Only for Cause.    Our amended and restated certificate of incorporation provides for the removal of a director only with cause and by the affirmative vote of the holders of at least 662/3% of the shares then entitled to vote at an election of our directors.         Amendment of Charter Provisions.    The amendment of the provisions in our amended and restated certificate of incorporation requires approval by holders of at least 662/3% of our outstanding capital stock entitled to vote generally in the election of directors (in addition to any rights of the holders of our outstanding capital stock to vote on such amendment under the Delaware General Corporation Law). The amendment of the provisions in our amended and restated bylaws requires approval by either a majority of our board of directors or holders of at least 662/3% of our outstanding capital stock entitled to vote generally in the election of directors (in addition to any rights of the holders of our outstanding capital stock to vote on such amendment under the Delaware General Corporation Law). Delaware Anti-Takeover Statute         We are subject to Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions of publicly held companies. This law provides that a specified person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the outstanding voting stock of a publicly held Delaware corporation, or an interested stockholder, may not engage in business combinations with the corporation for a period of three years after the date on which the person became an interested stockholder, unless the business combination or the transaction in which the person became an interested stockholder is approved in advance in a Table of Contents manner prescribed by Delaware law. The law does not include interested stockholders prior to the time our common stock is listed on the NASDAQ Global Select Market. The law defines the term "business combination" to include mergers, asset sales and other transactions in which the interested stockholder receives or could receive a financial benefit on other than a pro rata basis with other stockholders. This provision has an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging takeover attempts that might result in a premium over the market price for the shares of our common stock. With approval of our stockholders, we could amend our amended and restated certificate of incorporation in the future to avoid the restrictions imposed by this anti-takeover law. Table of Contents         The provisions of Delaware law and our amended and restated certificate of incorporation could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests. Transfer Agent and Registrar         Our transfer agent and registrar for our common stock is Wells Fargo Shareowner Services. The transfer agent's address is Shareowner Services, PO Box 64874, St. Paul, Minnesota 55164, and its telephone number is (800) 401-1957. Listing         We have applied to list ourOur common stock is listed on the NASDAQ Global Select Market under the symbol "PCTY." Table of Contents SHARES ELIGIBLE FOR FUTURE SALE         Prior to this offering, there has been no public market for our common stock.        Future sales of substantial amounts of our common stock in the public market could reduce prevailing market prices. Furthermore, since a substantial number of shares will be subject to contractual and legal restrictions on resale as described below, sales of substantial amounts of our common stock in the public market after these restrictions lapse could adversely affect the prevailing market price and our ability to raise equity capital in the future.         Upon completion of this offering, we will have outstanding an aggregate of 48,921,62650,327,236 shares of common stock, assuming no exercise of the underwriters' over-allotment option to purchase additional shares and no exercise of outstanding options. Of these shares, (i) the 8,101,750 shares issued in our initial public offering are freely tradable without restriction or further registration under the Securities Act and (ii) all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless these shares are purchased by affiliates. The remaining 42,251,62641,475,486 shares of common stock held by existing stockholders are restricted securities. Restricted securities may be sold in the public market only if registered or if the transaction qualifies for an exemption from registration described below under Rules 144 or 701 promulgated under the Securities Act.         As a result of the contractual restrictions described below and the provisions of Rules 144 and 701, the restricted shares will be available for sale in the public market as follows: • 02,342,104 shares will be eligible for sale upon completion of this offering; • 42,251,62635,913,771 shares will be eligible for sale upon the expiration of the lock-up agreements, described below, beginning 18090 days after the date of this prospectus; and • 1,435,469353,079 shares will be eligible for sale upon the exercise of vested options 180upon completion of this offering and 1,077,225 shares will be eligible for sale upon the exercise of vested options 90 days after the date of this prospectus. Lock-Up Agreements and Obligations         EachIn connection with this offering, we and all of our executive officers, directors and the selling stockholders together with certain of our optionholders, who together hold substantially all of our outstanding common stock (on a fully-diluted basis after giving effect to the sale by them of shares in this offering),have signed lock-up agreements under which we and they have agreed not to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right, or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into shares or exercisable or exchangeable for shares of our common stock, or enter into any swap or other arrangement for transfer to another, in whole or in part, any of the economic consequences of ownership of our common stock, for a period of at least 18090 days after the date of this prospectus, subject to certain exceptions. Transfers or dispositions can be made sooner only under the conditions described above or with the prior written consent of Deutsche Bank Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. Deutsche Bank Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated together may release any of the shares subject to these lock-up agreements at any time, without notice.         In addition, each grant agreement under our 2008 Equity Incentive Plan issued by us contains restrictions similar to those set forthwhich in the lock-up agreements described above limiting the dispositioncase of securities issuable pursuant to those plans for such period as the underwriters in the offering determine.officers and directors, shall be with notice. 10b5-1 Plans         Prior to the completion of the offering, certainCertain of our employees, including certain of our executive officers, and/or directors may enterhave entered into written trading plans that are intended to comply with Rule 10b5-1 under the Exchange Act. These plans permit the automatic trading of our common stock by an independent person (such as a stock broker) who is not aware of material, nonpublic information at the time of the trade and generally provide for sales to occur from time to time. Table of Contents Rule 10b5-1 under the Securities Exchange Act of 1934. Sales under these trading plans would not be permitted until the expiration of the lock-up agreements relating to the offering described above. Rule 144         In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for 90 days, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months (including any period of consecutive ownership of preceding non-affiliatednon- affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.         In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for 90 days, our affiliates or persons selling shares on behalf of our affiliates who own shares that were acquired from us or an affiliate of ours at least six months prior to the proposed sale are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period, beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of: • 1% of the number of shares of common stock then outstanding, which will equal approximately 489,216503,272 shares immediately after this offering; and • The average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.         Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us. Rule 701         Rule 701 of the Securities Act, as currently in effect, permits any of our employees, officers, directors or consultants who purchased or receive shares from us pursuant to a written compensatory plan or contract to resell such shares in reliance upon Rule 144, but without compliance with certain restrictions. Subject to any applicable lock-up agreements, Rule 701 provides that affiliates may sell their Rule 701 shares under Rule 144 beginning 90 days after the date of this prospectus without complying with the holding period requirement of Rule 144 and that non-affiliates may sell such shares in reliance on Rule 144 beginning 90 days after the date of this prospectus without complying with the holding period, public information, volume limitation or notice requirements of Rule 144. Registration Rights         Upon completion of this offering, theThe holders of an aggregate of 42,251,62641,186,543 shares of our common stock, or their transferees, will beare entitled to rights with respect to the registration of their shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of such registration. Table of Contents Form S-8 Registration Statements         Following the completion of this offering, we intend to file one or moreWe filed a registration statementsstatement on Form S-8 under the Securities Act to register the shares of our common stock that are issued or issuable pursuant to our stock plans. See the section titled "Executive Compensation—Benefit Plans." Subject to the lock-up agreements described above, other contractual lock-up obligations set forth in the grant agreements under each such plan and any applicable vesting restrictions, shares registered under these registration statements will beare available for resale in the public market immediately upon the effectiveness of thesethe registration statements,statement, except with respect to Rule 144 volume limitations that apply to our affiliates. Table of Contents MATERIAL U.S. FEDERAL TAX CONSEQUENCES TO NON-U.S. HOLDERS OF COMMON STOCK         This section summarizes the material U.S. federal income and estate tax consequences of the ownership and disposition of our common stock by a non-U.S.non- U.S. holder. For purposes of this summary, a "non-U.S. holder" is any beneficial owner that for U.S. federal income tax purposes is not a U.S. person. The term "U.S. person" means: • An individual citizen or resident of the United States; • A corporation or entity treated as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any state, including the District of Columbia; • An estate whose income is subject to U.S. income tax regardless of source; or • A trust (i) whose administration is subject to the primary supervision of a court within the United States and which has one or more U.S. persons who have authority to control all substantive decisions of the trust or (ii) which has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.         Generally, an individual may be treated as a resident of the United States in any calendar year for U.S. federal income tax purposes by, among other ways, being present in the United States for at least 31 days in that calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. For purposes of this calculation, such individual would count all of the days in which the individual was present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year. Residents are taxed for U.S. federal income tax purposes as if they were citizens of the United States.         This summary does not consider the tax consequences for partnerships, entities classified as a partnership for U.S. federal income tax purposes, or persons who hold their interests through a partnership or other entity classified as a partnership for U.S. federal income tax purposes. If a partnership, including any entity treated as a partnership for U.S. federal income tax purposes, is a beneficial owner of common stock, the tax treatment of a partner in the partnership will depend upon the status of the partner and the activities of the partnership. Partnerships that are beneficial owners of our common stock, and partners in such partnerships, should consult their tax advisors regarding the tax consequences to them of the ownership and disposition of our common stock.         This summary applies only to non-U.S. holders who acquire our common stock pursuant to this offering and who hold our common stock as a capital asset (generally property held for investment). This summary generally does not address tax considerations that may be relevant to particular investors because of their specific circumstances, or because they are subject to special rules. Certain former U.S. citizens or long-term residents, controlled foreign corporations, passive foreign investment companies, corporations that accumulate earnings to avoid federal income tax, life insurance companies, tax-exempt organizations, dealers in securities or currencies, brokers, banks or other financial institutions, certain trusts, hybrid entities, pension funds and investors that hold our common stock as part of a hedge, straddle or conversion transaction are among those categories of potential investors that are subject to special rules not covered in this discussion. This summary does not address any U.S. federal gift tax consequences, or state or local or non-U.S. tax consequences. This summary does not provide a complete analysis of all potential tax considerations. The information provided below is based on existing authorities. These authorities may change, or the Internal Revenue Service, or IRS, might interpret the existing authorities differently. In either case, the tax considerations of owning or disposing of common stock could differ from those described below. Table of Contents         INVESTORS CONSIDERING THE PURCHASE OF COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF OTHER U.S. FEDERAL, FOREIGN, STATE OR LOCAL LAWS AND ANY APPLICABLE TAX TREATIES. Dividends         Payments of cash and other property that we make to our stockholders with respect to our common stock will constitute dividends to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those dividends exceed our current and accumulated earnings and profits, the dividends will constitute a return of capital and will first reduce a holder's basis, but not below zero, and then will be treated as gain from the sale of stock.         The gross amount of any dividend (out of earnings and profits) paid to a non-U.S. holder of common stock generally will be subject to U.S. withholding tax at a rate of 30% unless the holder is entitled to an exemption from or reduced rate of withholding under an applicable income tax treaty. In order to receive an exemption or a reduced treaty rate, prior to the payment of a dividend, a non-U.S. holder must provide us with an IRS Form W-8BEN (or successor form) certifying qualification for the exemption or reduced rate.         Dividends received by a non-U.S. holder that are effectively connected with a U.S. trade or business conducted by the non-U.S. holder (and dividends attributable to a non-U.S. holder's permanent establishment in the United States if an income tax treaty applies) are exempt from this withholding tax. To obtain this exemption, prior to the payment of a dividend, a non-U.S.non- U.S. holder must provide us with an IRS Form W-8ECI (or successor form) properly certifying this exemption. Effectively connected dividends (or dividends attributable to a permanent establishment), although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. In addition, dividends received by a corporate non-U.S. holder that are effectively connected with a U.S. trade or business of the corporate non-U.S. holder (or dividends attributable to a corporate non-U.S. holder's permanent establishment in the United States if an income tax treaty applies) may also be subject to a branch profits tax at a rate of 30% (or such lower rate as may be specified in an income tax treaty).         A non-U.S. holder who provides us with an IRS Form W-8BEN or an IRS Form W-8ECI will be required to periodically update such form. A non-U.S. holder of common stock that is eligible for a reduced rate of withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts currently withheld if an appropriate claim for refund is timely filed with the IRS. Gain on Disposition of Common Stock         A non-U.S. holder will generally not be subject to U.S. federal income tax on any gains realized on the sale, exchange, or other disposition of common stock unless: • The gain is effectively connected with a U.S. trade or business of the non-U.S. holder (or attributable to a permanent establishment in the United States if an income tax treaty applies), in which case the non-U.S. holder generally will be required to pay tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates and, if the non-U.S. holder is a corporation, the branch profits tax may apply, at a 30% rate or such lower rate as may be specified by an applicable income tax treaty; • The non-U.S. holder is an individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or Table of Contents disposition occurs and certain other conditions are met, in which case the non-U.S. holder will be required to pay a flat 30% tax (or such lower rate as may be specified by an applicable income tax treaty between the United States and such non-U.S. holder's country of residence) on the net gain derived from the disposition, which tax may be offset by U.S. source capital losses, if any, provided that the non-U.S.non- U.S. holder has timely filed U.S. federal income tax returns with respect to such losses; or • Our common stock constitutes a U.S. real property interest by reason of our status as a "U.S. real property holding corporation" for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the disposition or the holder's holding period for our common stock. We believe that we are not currently, and we are not likely to become, a "U.S. real property holding corporation" for U.S. federal income tax purposes.         If we become a U.S. real property holding corporation after this offering, so long as our common stock is regularly traded on an established securities market and continues to be so traded, a non-U.S. holder will not be subject to U.S. federal income tax on gain recognized from the sale, exchange or other disposition of shares of our common stock as a result of such status unless (i) such holder actually or constructively owned more than 5% of our common stock at any time during the shorter of (A) the five-year period preceding the disposition, or (B) the holder's holding period for our common stock, and (ii) we were a U.S. real property holding corporation at any time during such period when the more than 5% ownership test was met. If any gain on your disposition is taxable because we are a U.S. real property holding corporation and your ownership of our common stock exceeds 5%, you will be taxed on such disposition generally in the manner applicable to U.S. persons. Any such non-U.S. holder that owns or has owned, actually or constructively, more than 5% of our common stock is urged to consult that holder's own tax advisor with respect to the particular tax consequences to such holder for the gain from the sale, exchange or other disposition of shares of our common stock if we were to be or to become a U.S. real property holding corporation. Backup Withholding and Information Reporting         Generally, we must report annually to the IRS the amount of dividends paid, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax treaties or other agreements, the IRS may make its reports available to tax authorities in the non-U.S. holder's country of residence.         Payments of dividends or of proceeds on the disposition of stock made to a non-U.S. holder may be subject to additional information reporting and backup withholding. Backup withholding will not apply if the non-U.S. holder establishes an exemption, for example, by properly certifying its non-U.S. person status on an IRS Form W-8BEN (or successor form). Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the holder is a U.S. person.         Backup withholding is not an additional tax. Rather, the U.S. federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a credit or refund may be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner. Recent Legislation Relating to Foreign Accounts         Recently enacted legislationThe Foreign Account Tax Compliance Act, or FATCA, generally may impose a U.S. federal withholding tax of 30% on dividends and the gross proceeds of a disposition of our common stock paid to a foreign financial institution (as specifically defined by applicable law) unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to Table of Contents to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners). The legislationFATCA also generally may impose a U.S. federal withholding tax of 30% on dividends and the gross proceeds of a disposition of our common stock paid to a non-financial foreign entity unless such entity provides the withholding agent with either a certification that it does not have any substantial direct or indirect U.S. owners or provides information regarding direct and indirect U.S. owners of the entity. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. Prospective investors are encouraged to consult with their own tax advisors regarding the possible implications of the legislationFATCA on their investment in our common stock.         These withholding requirements are expected to be phased-inapply for payments of dividends made on or after July 1, 2014 and are expected to be phased-in for payments of gross proceeds from a U.S. sale or other disposition of our common stock on or after January 1, 2017. U.S. Federal Estate Tax         The estates of nonresident alien individuals are generally subject to U.S. federal estate tax on property with a U.S. situs. Because we are a U.S. corporation, our common stock will be U.S. situs property and therefore will be included in the taxable estate of a nonresident alien decedent. The U.S. federal estate tax liability of the estate of a nonresident alien may be affected by a tax treaty between the United States and the decedent's country of residence.         THE PRECEDING DISCUSSION OF MATERIAL U.S. FEDERAL TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS. Table of Contents UNDERWRITING         Subject to the terms and conditions of the underwriting agreement, the underwriters named below, through their representatives Deutsche Bank Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and William Blair & Company, L.L.C., have severally agreed to purchase from us and the selling stockholders the following respective number of shares of common stock at a public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus: Underwriters   Number of Shares   Deutsche Bank Securities Inc.                           Merrill Lynch, Pierce, Fenner & Smith                      Incorporated         William Blair & Company, L.L.C.          JMP Securities LLC         Raymond James & Associates, Inc.         Needham & Company, LLC                 ​ ​ ​ ​ ​ Total     6,670,0004,000,000   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                 The underwriting agreement provides that the obligations of the several underwriters to purchase the shares of common stock offered hereby are subject to certain conditions precedent and that the underwriters will purchase all of the shares of common stock offered by this prospectus, other than those covered by the option to purchase additional shares described below, if any of these shares are purchased. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or this offering may be terminated.         We and the selling stockholders have agreed to indemnify the underwriters against specified types of liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect of any of these liabilities.         The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer's certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part. Commission and Discounts         We have been advised by the representatives of the underwriters that the underwriters propose to offer the shares of common stock to the public at the public offering price set forth on the cover of this prospectus and to dealers at a price that represents a concession not in excess of $         per share under the public offering price. The underwriters may allow, and these dealers may re-allow, a concession of not more than $         per share to other dealers. After the initial public offering, representatives of the underwriters may change the offering price and other selling terms. This offering of the shares of common stock by the underwriters is subject to receipt and acceptance and subject to the underwriters' right to reject any order in whole or in part.         The underwriting discounts and commissions per share are equal to the public offering price per share of common stock less the amount paid by the underwriters to us per share of common stock. The underwriting discounts and commissions are         % of the initial public offering price. We have agreed to pay the underwriters the following discounts and commissions, assuming either no Table of Contents no exercise or full exercise by the underwriters of the underwriters' option to purchase additional shares:         Total Fees       Per share   Without Exercise of Option to Purchase Additional Shares   With Full Exercise of Option to Purchase Additional Shares   Discounts and commissions paid by us   $     $     $     Discounts and commissions paid by the selling stockholders   $   $   $           The expenses of this offering, not including the underwriting discounts and commissions, are estimated at approximately $3.1 million,$483,000, including an amount not to exceed $15,000 in connection with the qualification of the offering with FINRA by counsel to the underwriters.         The representatives of the underwriters have advised us that the underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. Option to Purchase Additional Shares         We and theThe selling stockholders have granted to the underwriters an option, exercisable not later than 30 days after the date of this prospectus, to purchase up to 1,000,500600,000 additional shares of common stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus. The underwriters may exercise this option only to cover over-allotments made in connection with the sale of the common stock offered by this prospectus. To the extent that the underwriters exercise this option, each of the underwriters will become obligated, subject to conditions, to purchase approximately the same percentage of these additional shares of common stock as the number of shares of common stock to be purchased by it in the above table bears to the total number of shares of common stock offered by this prospectus. WeThe selling stockholders will be obligated, pursuant to the option, to sell these additional shares of common stock to the underwriters to the extent the option is exercised. If any additional shares of common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the initial shares referred to in the above table shares are being offered. No Sales of Similar Securities         Each of our officers and directors, and substantiallyWe, all of our stockholdersexecutive officers, directors and holders of options and warrants to purchase our stockselling stockholders have agreed that for a period of 18090 days from the date of this prospectus, we and they will not, without the prior written consent of the representatives of the underwriters, dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock, subject to certain exceptions. Deutsche Bank Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated in their sole discretion may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice. If the restrictions under the lock-up agreements are waived, shares of our common stock may become available for resale into the market, subject to applicable law, which could reduce the market price for our common stock. There are no other agreements between the representatives and any of our stockholders or affiliates releasing them from these lock-up agreements prior to the expiration of the 180-day90-day period. Table See the section titled "Shares Eligible for Future Sale" for a discussion of Contentstransfer restrictions. Price Stabilization, Short Positions and Penalty Bids         In connection with this offering, the underwriters may purchase and sell shares of our common stock in the open market. These transactions may include short sales, purchases to cover positions created by short sales and stabilizing transactions. Table of Contents         Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in this offering. "Covered" short sales are sales made in an amount not greater than the underwriters' option to purchase additional shares of common stock from us in this offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares of common stock pursuant to such option.         Naked short sales are any sales in excess of the over-allotment option.underwriters' option to purchase additional shares. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if underwriters are concerned that there may be downward pressure on the price of the shares in the open market prior to the completion of this offering.         Stabilizing transactions consist of various bids for or purchases of our common stock made by the underwriters in the open market prior to the completion of this offering.         The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the other underwriters a portion of the underwriting discount received by it because the representatives of the underwriters have repurchased shares sold by or for the account of that underwriter in stabilizing or short covering transactions.         Purchases to cover a short position and stabilizing transactions may have the effect of preventing or slowing a decline in the market price of our common stock. Additionally, these purchases, along with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the NASDAQ Global Select Market, in the over-the-counter market or otherwise. Listing         We have applied to list ourOur common stock is listed on the NASDAQ Global Select Market, under the symbol "PCTY." Pricing of this Offering         Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price of our common stock will be determined by negotiation among us, the selling stockholders and Deutsche Bank Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and William Blair & Company, L.L.C., as representatives of the underwriters. Among the primary factors that will be considered in determining the public offering price are: • Prevailing market conditions; • Our results of operations in recent periods; • The present stage of our development; • The market capitalizations and stages of development of other companies that we and the representatives of the underwriters believe to be comparable to our business; and Table of Contents • Estimates of our business potential.         An active trading market for the shares may not develop. It is also possible that after this offering the shares will not trade in the public market at or above the initial public offering price. Electronic Offer, Sale and Distribution of Shares         In connection with this offering, certain of the underwriters or securities dealers may distribute prospectuses by electronic means, such as e-mail. In addition, Deutsche Bank Securities Inc. may facilitate Internet distribution for this offering to certain of its Internet subscription customers. Deutsche Bank Securities Inc. may allocate a limited number of shares for sale to its online brokerage customers. A prospectus in electronic format is being made available on Internet websites maintained by one or more of the lead underwriters of this offering and may be made available on websites maintained by other underwriters. Other than the prospectus in electronic format, the information on any underwriter's web site and any information contained in any other web site maintained by an underwriter is not part of the prospectus or the registration statement of which the prospectus forms a part. Other Relationships         Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions.         In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity Table of Contents securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments. Notice to Investors in the European Economic Area         In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State) an offer to the public of any shares which are the subject of the offering contemplated by this prospectus may not be made in that Relevant Member State other than the offers contemplated in the prospectus once the prospectus has been approved by the competent authority in such Member State and published and passported in accordance with the Prospectus Directive as implemented in the Relevant Member State except that an offer to the public in that Relevant Member State of any shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State: • To legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; • To any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; Table of Contents • By the underwriters to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the underwriters for any such offer; or • In any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of shares shall result in a requirement for the publication by the Issuer or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.         For the purposes of this provision, the expression an "offer to the public" in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase any shares, as the same may be varied in that member state by any measure implementing the Prospectus Directive in that member state and the expression "Prospectus Directive" means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State. Notice to Investors in the United Kingdom         Each underwriter has represented and agreed that (a) it has only communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, or the FSMA, received by it in connection with the issue or sale of the shares (i) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or the Order, or (ii) to high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) and (d) of the Order, with all such persons together being referred to as relevant persons, and (b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of our common stock in, from or otherwise involving the United Kingdom. This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole Table of Contents or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents. Notice to Prospective Investors in Hong Kong         The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a "prospectus" within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder. Notice to Prospective Investors in Singapore         This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the Table of Contents offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.         Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is: • A corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or • A trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except: • To an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than $200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA; Table of Contents • Where no consideration is or will be given for the transfer; or • Where the transfer is by operation of law. Notice to Prospective Investors in Switzerland         The prospectus does not constitute an issue prospectus pursuant to Article 652a or Article 1156 of the Swiss Code of Obligations, and the shares will not be listed on the SIX Swiss Exchange. Therefore, the prospectus may not comply with the disclosure standards of the Swiss Code of Obligations and/or the listing rules (including any prospectus schemes) of the SIX Swiss Exchange. Accordingly, the shares may not be offered to the public in or from Switzerland, but only to a selected and limited circle of investors, which do not subscribe to the shares with a view to distribution. Notice to Prospective Investors in Qatar         The shares described in this prospectus have not been, and will not be, offered, sold or delivered, at any time, directly or indirectly in the State of Qatar in a manner that would constitute a public offering. This prospectus has not been, and will not be, registered with or approved by the Qatar Financial Markets Authority or Qatar Central Bank and may not be publicly distributed. This prospectus is intended for the original recipient only and must not be provided to any other person. It is not for general circulation in the State of Qatar and may not be reproduced or used for any other purpose. Table of Contents Notice to Prospective Investors in Saudi Arabia         No offering, whether directly or indirectly, will be made to an investor in the Kingdom of Saudi Arabia unless such offering is in accordance with the applicable laws of the Kingdom of Saudi Arabia and the rules and regulations of the Capital Market Authority, including the Capital Market Law of the Kingdom of Saudi Arabia. The shares will not be marketed or sold in the Kingdom of Saudi Arabia by us or the underwriters.         This prospectus may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Office of Securities Regulation issued by the Capital Market Authority. The Saudi Arabian Capital Market Authority does not make any representation as to the accuracy or completeness of this prospectus and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this prospectus. Prospective purchasers of the shares offered hereby should conduct their own due diligence on the accuracy of the information relating to the shares. If you do not understand the contents of this prospectus, you should consult an authorized financial advisor. Notice to Prospective Investors in the United Arab Emirates         This offering has not been approved or licensed by the Central Bank of the United Arab Emirates (UAE), Securities and Commodities Authority of the UAE and/or any other relevant licensing authority in the UAE including any licensing authority incorporated under the laws and regulations of any of the free zones established and operating in the territory of the UAE, in particular the Dubai Financial Services Authority (DFSA), a regulatory authority of the Dubai International Financial Centre (DIFC). The offering does not constitute a public offer of securities in the UAE, DIFC and/or any other free zone in accordance with the Commercial Companies Law, Federal Law No. 8 of 1984 (as amended), DFSA Offered Securities Rules and NASDAQ Dubai Listing Rules, accordingly, or otherwise. The shares may not be offered to the public in the UAE and/or any of the free zones. Table of Contents         The shares may be offered and issued only to a limited number of investors in the UAE or any of its free zones who qualify as sophisticated investors under the relevant laws and regulations of the UAE or the free zone concerned. Notice to Prospective Investors in the Dubai International Financial Centre         This prospectus relates to an exempt offer in accordance with the Offered Securities Rules of the DFSA. This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with exempt offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor. Notice to Prospective Investors in Australia         No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (ASIC), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the Corporations Act), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act. Table of Contents         Any offer in Australia of the shares may only be made to persons (the Exempt Investors) who are "sophisticated investors" (within the meaning of section 708(8) of the Corporations Act), "professional investors" (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.         The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.         This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters. Notice to Prospective Investors in Japan         The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, "Japanese Person" shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan. Table of Contents LEGAL MATTERS         DLA Piper LLP (US) will provide us with an opinion as to the validity of the common stock offered under this prospectus. Goodwin ProcterOrrick, Herrington & Sutcliffe LLP will pass upon certain legal matters related to this offering for the underwriters. EXPERTS         Our consolidated financial statements as of June 30, 2011, 20122013 and 2013,2014, and for each of the years in the three-year period ended June 30, 2013,2014, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, an independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. WHERE YOU CAN FIND ADDITIONAL INFORMATION         We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered under this prospectus. As permitted under the rules and regulations of the SEC, this prospectus does not contain all of the information in and exhibits and schedules to the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and its exhibits and schedules. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified by this reference. You may inspect a copy of the registration statement without charge at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the Public Reference Room of the SEC, 100 F Street, NE, Washington, DC 20549, upon payment of fees prescribed by the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the website is http://www.sec.gov. The public may obtain information on the operation of the Public Reference Room by calling the SEC at (800) SEC-0330.         Upon completion of the offering, we will beWe are subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended, and we will file reports, proxy statements and other information with the SEC.         We intend to furnish our stockholders with annual reports containing financial statements audited by our independent registered public accounting firm and quarterly reports for the first three fiscal quarters of each fiscal year containing unaudited interim financial information. Our telephone number is (847) 463-3200. Table of Contents PAYLOCITY HOLDING CORPORATION Index to Consolidated Financial Statements     Page   Report of Independent Registered Public Accounting Firm     F-2   Consolidated Balance Sheets as of June 30, 2011, 20122013 and 20132014     F-3   Consolidated Statements of Operations for the years ended June 30, 2011, 2012, 2013 and 20132014     F-4   Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) for the years ended June 30, 2011, 2012, 2013 and 20132014     F-5   Consolidated Statements of Cash Flows for the years ended June 30, 2011, 2012, 2013 and 20132014     F-6   Notes to Consolidated Financial Statements for the years ended June 30, 2011, 2012, 2013 and 20132014     F-7   Consolidated Balance Sheets as of June 30, 20132014 and December 31, 2013September 30, 2014 (unaudited)     F-27F-31   Consolidated Statements of Operations for the sixthree months ended December 31, 2012September 30, 2013 and 20132014 (unaudited)     F-28F-32   Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) for the six-monththree-month period ended December 31, 2013September 30, 2014 (unaudited)     F-29F-33   Consolidated Statements of Cash Flows for the sixthree months ended December 31, 2012September 30, 2013 and 20132014 (unaudited)     F-30F-34   Notes to Consolidated Financial Statements for the sixthree months ended December 31, 2012September 30, 2013 and 20132014 (unaudited)     F-31F-35   Table of Contents Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Paylocity Holding Corporation:         We have audited the accompanying consolidated balance sheets of Paylocity Holding Corporation (the "Company") and subsidiary as of June 30, 2011, 20122013 and 2013,2014, and the related consolidated statements of operations, changes in redeemable convertible preferred stock and stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended June 30, 2013.2014. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.         We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statementstatements presentation. We believe that our audits provide a reasonable basis for our opinion.         In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Paylocity Holding Corporation and subsidiary as of June 30, 2011, 20122013 and 2013,2014, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2013,2014, in conformity with U.S. generally accepted accounting principles.   /s/ KPMG LLP Chicago, Illinois December 5, 2013, except as to note 17, which is as of March 6,August 22, 2014 Table of Contents PAYLOCITY HOLDING CORPORATION Consolidated Balance Sheets As of June 30, 2011, 2012 (in thousands, except share and 2013 (in thousands) per share data) Assets   2011   2012   2013   Current assets:                     Cash and cash equivalents   $ 7,990   $ 9,031   $ 7,594   Accounts receivable, net     852     505     740   Prepaid expenses and other     567     814     1,875   Deferred income tax assets, net     420     481     602                   Total current assets before funds held for clients     9,829     10,831     10,811   Funds held for clients     298,979     263,255     355,905                   Total current assets     308,808     274,086     366,716                   Capitalized software, net     2,725     3,714     2,614   Property and equipment, net     4,959     7,143     8,586                   Total assets   $ 316,492   $ 284,943   $ 377,916   Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)                     Current liabilities:                     Current portion of long-term debt   $ 312   $ 1,625   $ 625   Accounts payable     703     1,107     880   Taxes payable     —     48     207   Accrued expenses     4,326     5,265     6,794                   Total current liabilities before client fund obligations     5,341     8,045     8,506   Client fund obligations     298,979     263,255     355,905                   Total current liabilities     304,320     271,300     364,411   Long-term accrued liabilities     134     298     —   Long-term debt, net of current portion     3,188     1,563     938   Deferred rent     1,694     1,885     2,317   Deferred income tax liabilities, net     71     970     269                   Total liabilities   $ 309,407   $ 276,016   $ 367,935                   Redeemable convertible preferred stock, $0.001 par value                     Series A, 6% cumulative dividend, $12,810 liquidation preference, 9,500 shares authorized, issued, and outstanding at June 30, 2011, 2012 and 2013     9,339     9,339     9,339   Series B, 8% cumulative dividend, $32,210 liquidation preference, 8,500 shares authorized, 8,400 shares issued and outstanding at June 30, 2012 and 2013     —     27,234     27,234   Stockholders' equity (deficit)                     Common stock, $0.001 par value, 66,667 shares authorized, 37,539 shares issued and outstanding at June 30, 2011; 31,988 shares issued and outstanding at June 30, 2012 and 2013     38     32     32   Additional paid-in capital     4,304     —     437   Accumulated deficit     (6,596 )   (27,678 )   (27,061 )                 Total stockholders' equity (deficit)     (2,254 )   (27,646 )   (26,592 )                 Total liabilities, redeemable convertible preferred stock, and stockholders' equity (deficit)   $ 316,492   $ 284,943   $ 377,916                   See accompanying notes to consolidated financial statements. Table of Contents PAYLOCITY HOLDING CORPORATION Consolidated Statements of Operations For the years ended June 30, 2011, 2012 and 2013 (in thousands)     2011   2012   2013   Revenues                     Recurring fees   $ 36,443   $ 51,211   $ 71,309   Interest income on funds held for clients     1,100     1,263     1,459                   Total recurring revenues     37,543     52,474     72,768   Implementation services and other     1,941     2,622     4,526                   Total revenues     39,484     55,096     77,294   Cost of revenues                     Recurring revenues     16,329     22,054     28,863   Implementation services and other     5,416     7,040     10,803                   Total cost of revenues     21,745     29,094     39,666                   Gross profit     17,739     26,002     37,628   Operating expenses                     Sales and marketing     9,293     12,828     18,693   Research and development     1,565     1,788     6,825   General and administrative     6,868     8,618     12,079                   Total operating expenses     17,726     23,234     37,597                   Operating income     13     2,768     31   Other income (expense)     (179 )   (196 )   (16 )                 Income (loss) before income taxes     (166 )   2,572     15   Income tax (benefit) expense     (36 )   884     (602 )                 Net income (loss)   $ (130 ) $ 1,688   $ 617                   Net income (loss) attributable to common stockholders   $ (774 ) $ 998   $ (2,291 )                 Net income (loss) per share attributable to common stockholders:                     Basic   $ (0.02 ) $ 0.02   $ (0.07 )                 Diluted   $ (0.02 ) $ 0.02   $ (0.07 )                 Weighted-average shares used in computing net income (loss) per share attributable to common stockholders:                     Basic     37,539     43,873     31,988                   Diluted     37,539     44,317     31,988                       As of June 30,   Assets   2013   2014   Current assets:               Cash and cash equivalents   $ 7,594   $ 78,848   Accounts receivable, net     740     756   Prepaid expenses and other     1,875     2,694   Deferred income tax assets, net     602     706               ​ ​ ​ ​ ​ ​ ​ ​ Total current assets before funds held for clients     10,811     83,004   Funds held for clients     355,905     417,261               ​ ​ ​ ​ ​ ​ ​ ​ Total current assets     366,716     500,265               ​ ​ ​ ​ ​ ​ ​ ​ Long-term prepaid expenses     —     313   Capitalized software, net     2,614     5,093   Property and equipment, net     8,586     13,125   Intangible assets, net     —     6,320   Goodwill     —     3,035               ​ ​ ​ ​ ​ ​ ​ ​ Total assets   $ 377,916   $ 528,151               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​             Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)               Current liabilities:               Current portion of long-term debt   $ 625   $ —   Accounts payable     880     2,133   Taxes payable     207     5   Consideration related to acquisition     —     2,985   Accrued expenses     6,794     10,744               ​ ​ ​ ​ ​ ​ ​ ​ Total current liabilities before client fund obligations     8,506     15,867   Client fund obligations     355,905     417,261               ​ ​ ​ ​ ​ ​ ​ ​ Total current liabilities     364,411     433,128   Long-term debt, net of current portion     938     —   Deferred rent     2,317     3,175   Deferred income tax liabilities, net     269     714               ​ ​ ​ ​ ​ ​ ​ ​ Total liabilities   $ 367,935   $ 437,017               ​ ​ ​ ​ ​ ​ ​ ​ Redeemable convertible preferred stock, $0.001 par value, 18,000 authorized as of June 30, 2013 and no shares authorized as of June 30, 2014               Series A, 6% cumulative dividend, 9,500 shares issued and outstanding at June 30, 2013 and no shares issued and outstanding at June 30, 2014   $ 9,339   $ —   Series B, 8% cumulative dividend, 8,400 shares issued and outstanding at June 30, 2013 and no shares issued and outstanding at June 30, 2014     27,234     —   Stockholders' equity (deficit)               Common stock, $0.001 par value, 66,667 shares authorized, 31,988 shares issued and outstanding at June 30, 2013; and 155,000 shares authorized, 49,564 shares issued and outstanding at June 30, 2014     32     50   Preferred stock, $0.001 par value, no shares authorized, issued and outstanding at June 30, 2013 and 5,000 authorized, no shares issued and outstanding at June 30, 2014     —     —   Additional paid-in capital     437     125,255   Accumulated deficit     (27,061 )   (34,171 )             ​ ​ ​ ​ ​ ​ ​ ​ Total stockholders' equity (deficit)     (26,592 ) $ 91,134               ​ ​ ​ ​ ​ ​ ​ ​ Total liabilities, redeemable convertible preferred stock, and stockholders' equity (deficit)   $ 377,916   $ 528,151               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                 See accompanying notes to consolidated financial statements. Table of Contents PAYLOCITY HOLDING CORPORATION Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) For the years ended June 30, 2011, 2012 and 2013 Operations (in thousands)thousands, except share and per share data)     Redeemable Convertible Preferred Stock                           Stockholders' Equity (Deficit)       Preferred— Series A   Preferred— Series B       Common Stock           Total Stockholders' Equity (Deficit)       Additional Paid-in Capital   Accumulated Deficit       Shares   Amount   Shares   Amount   Shares   Amount   Balances at July 1, 2010     9,500   $ 9,339     —   $ —     37,539   $ 38   $ 4,127   $ (6,466 ) $ (2,301 ) Stock option expense     —     —     —     —     —     —     177     —     177   Net loss     —     —     —     —     —     —     —     (130 )   (130 )                                         Balances at June 30, 2011     9,500     9,339     —     —     37,539     38     4,304     (6,596 )   (2,254 ) Stock option expense     —     —     —     —     —     —     203     —     203   Stock options exercised     —     —     —     —     67     —     88     —     88   Issuance of Preferred Series B Shares     —     —     8,400     27,234     —     —     —     —     —   Redemption of Common Stock     —     —     —     —     (5,618 )   (6 )   (4,595 )   (22,770 )   (27,371 ) Net income     —     —     —     —     —     —     —     1,688     1,688                                           Balances at June 30, 2012     9,500     9,339     8,400     27,234     31,988     32     —     (27,678 )   (27,646 ) Stock option expense     —     —     —     —     —     —     523     —     523   Stock options exercised     —     —     —     —     33     —     76     —     76   Redemption of Common Stock     —     —     —     —     (33 )   —     (162 )   —     (162 ) Net income     —     —     —     —     —     —     —     617     617                                           Balances at June 30, 2013     9,500   $ 9,339     8,400   $ 27,234     31,988   $ 32   $ 437   $ (27,061 ) $ (26,592 )                                         See accompanying notes to consolidated financial statements. Table of Contents PAYLOCITY HOLDING CORPORATION Consolidated Statements of Cash Flows For the years ended June 30, 2011, 2012 and 2013 (in thousands)     2011   2012   2013   Cash flows provided by operating activities:                     Net income (loss)   $ (130 ) $ 1,688   $ 617   Adjustments to reconcile net income to net cash provided by operating activities:                     Stock-based compensation     177     203     523   Depreciation and amortization     3,779     4,624     5,571   Deferred income tax (benefit) expense     (42 )   838     (822 ) Provision for doubtful accounts     72     60     60   Changes in operating assets and liabilities:                     (Increase) decrease in accounts receivable     (339 )   287     (295 ) Increase in prepaid expenses     (163 )   (247 )   (1,061 ) Increase in trade accounts payable     252     102     138   Increase in accrued expenses     1,416     1,009     1,497                   Net cash provided by operating activities     5,022     8,564     6,228   Cash flows from investing activities:                     Capitalized internally developed software costs     (2,746 )   (3,716 )   (1,967 ) Purchases of property and equipment     (1,987 )   (3,446 )   (3,987 ) Net change in funds held for clients     (176,480 )   35,724     (92,650 )                 Net cash provided by (used in) investing activities     (181,213 )   28,562     (98,604 ) Cash flows from financing activities:                     Net change in client funds obligation     176,480     (35,724 )   92,650   Principal payments on long-term debt     (467 )   (312 )   (1,625 ) Proceeds from issuance of long-term debt     519     —     —   Proceeds from issuance of Redeemable Convertible Preferred Series B Shares     —     27,234     —   Proceeds from exercise of stock options     —     88     76   Payments for redemption of Common Shares           (27,371 )   (162 )                 Net cash provided by (used in) financing activities     176,532     (36,085 )   90,939                   Net Change in Cash and Cash Equivalents     341     1,041     (1,437 ) Cash and Cash Equivalents—Beginning of Year     7,649     7,990     9,031                   Cash and Cash Equivalents—End of Year   $ 7,990   $ 9,031   $ 7,594                   Supplemental Disclosure of Non-Cash Investing and Financing Activities                     Build-out allowance received from landlord   $ 276   $ 333   $ 325                       For the Years Ended June 30,       2012   2013   2014   Revenues:                     Recurring fees   $ 51,211   $ 71,309   $ 100,362   Interest income on funds held for clients     1,263     1,459     1,582                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total recurring revenues     52,474     72,768     101,944   Implementation services and other     2,622     4,526     6,743                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total revenues     55,096     77,294     108,687   Cost of revenues:                     Recurring revenues     22,054     28,863     37,319   Implementation services and other     7,040     10,803     17,775                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total cost of revenues     29,094     39,666     55,094                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit     26,002     37,628     53,593   Operating expenses:                     Sales and marketing     12,828     18,693     28,276   Research and development     1,788     6,825     10,355   General and administrative     8,618     12,079     21,980                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total operating expenses     23,234     37,597     60,611                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating income (loss)     2,768     31     (7,018 ) Other income (expense)     (196 )   (16 )   163                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income (loss) before income taxes     2,572     15     (6,855 ) Income tax (benefit) expense     884     (602 )   255                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss)   $ 1,688   $ 617   $ (7,110 )                 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                 Net income (loss) attributable to common stockholders   $ 998   $ (2,291 ) $ (9,392 )                 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                 Net income (loss) per share attributable to common stockholders:                     Basic   $ 0.02   $ (0.07 ) $ (0.26 )                 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                 Diluted   $ 0.02   $ (0.07 ) $ (0.26 )                 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                 Weighted-average shares used in computing net income (loss) per share attributable to common stockholders:                     Basic     43,873     31,988     36,707                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                 Diluted     44,317     31,988     36,707                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                     See accompanying notes to consolidated financial statements. Table of Contents PAYLOCITY HOLDING CORPORATION Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) (in thousands)     Redeemable Convertible Preferred Stock                           Stockholders' Equity (Deficit)       Preferred— Series A   Preferred— Series B       Common Stock           Total Stockholders' Equity (Deficit)       Additional Paid-in Capital   Accumulated Deficit       Shares   Amount   Shares   Amount   Shares   Amount   Balances at June 30, 2011     9,500   $ 9,339     —   $ —     37,539   $ 38   $ 4,304   $ (6,596 ) $ (2,254 ) Stock-based compensation expense     —     —     —     —     —     —     203     —     203   Stock options exercised     —     —     —     —     67     —     88     —     88   Issuance of Preferred Series B Shares     —     —     8,400     27,234     —     —     —     —     —   Redemption of Common Stock     —     —     —     —     (5,618 )   (6 )   (4,595 )   (22,770 )   (27,371 ) Net income     —     —     —     —     —     —     —     1,688     1,688                                           ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances at June 30, 2012     9,500     9,339     8,400     27,234     31,988     32     —     (27,678 )   (27,646 ) Stock-based compensation expense     —     —     —     —     —     —     523     —     523   Stock options exercised     —     —     —     —     33     —     76     —     76   Redemption of Common Stock     —     —     —     —     (33 )   —     (162 )   —     (162 ) Net income     —     —     —     —     —     —     —     617     617                                           ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances at June 30, 2013     9,500   $ 9,339     8,400   $ 27,234     31,988   $ 32   $ 437   $ (27,061 ) $ (26,592 ) Initial public offering, net of issuance costs     —     —     —     —     5,367     6     81,921     —     81,927   Conversion of redeemable convertible preferred stock     (9,500 )   (9,339 )   (8,400 )   (27,234 )   11,933     12     36,561     —     36,573   Capital contribution     —     —     —     —     —     —     1,052     —     1,052   Vesting of restricted shares     —     —     —     —     276     —     —     —     —   Stock-based compensation expense     —     —     —     —     —     —     5,284     —     5,284   Net loss     —     —     —     —     —     —     —     (7,110 )   (7,110 )                                         ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances at June 30, 2014     —   $ —     —   $ —     49,564   $ 50   $ 125,255   $ (34,171 ) $ 91,134                                           ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                                         See accompanying notes to consolidated financial statements. Table of Contents PAYLOCITY HOLDING CORPORATION Consolidated Statements of Cash Flows (in thousands)     For the Years Ended June 30,       2012   2013   2014   Cash flows provided by operating activities:                     Net income (loss)   $ 1,688   $ 617   $ (7,110 ) Adjustments to reconcile net income to net cash provided by operating activities:                     Stock-based compensation     203     523     4,929   Depreciation and amortization     4,624     5,571     6,336   Deferred income tax (benefit) expense     838     (822 )   341   Provision for doubtful accounts     60     60     62   Loss on disposal of equipment     —     —     98   Changes in operating assets and liabilities:                     Accounts receivable     287     (295 )   (78 ) Prepaid expenses     (247 )   (1,061 )   (1,132 ) Trade accounts payable     102     138     465   Accrued expenses     1,009     1,497     3,288                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash provided by operating activities     8,564     6,228     7,199   Cash flows from investing activities:                     Capitalized internally developed software costs     (3,716 )   (1,967 )   (4,349 ) Purchases of property and equipment     (3,446 )   (3,987 )   (6,667 ) Payments for acquisition     —     —     (6,450 ) Net change in funds held for clients     35,724     (92,650 )   (61,356 )                 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash provided by (used in) investing activities     28,562     (98,604 )   (78,822 ) Cash flows from financing activities:                     Net change in client funds obligation     (35,724 )   92,650     61,356   Principal payments on long-term debt     (312 )   (1,625 )   (1,563 ) Proceeds from initial public offering, net of issuance costs     —     —     82,032   Capital contribution     —     —     1,052   Proceeds from issuance of Redeemable Convertible Preferred Series B Shares     27,234     —     —   Proceeds from exercise of stock options     88     76     —   Payments for redemption of Common Shares     (27,371 )   (162 )   —                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net cash (used in) provided by financing activities     (36,085 )   90,939     142,877                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Change in Cash and Cash Equivalents     1,041     (1,437 )   71,254   Cash and Cash Equivalents—Beginning of Year     7,990     9,031     7,594                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and Cash Equivalents—End of Year   $ 9,031   $ 7,594   $ 78,848                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                 Supplemental Disclosure of Non-Cash Investing and Financing Activities                     Build-out allowance received from landlord   $ 333   $ 325   $ 1,162                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                 Purchase of property and equipment, accrued but not paid   $ 392   $ 27   $ 896                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                 Unpaid initial offering costs     —     —   $ 75                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                 Supplemental disclosure of cash flow information                     Cash paid for income taxes   $ 7   $ 69   $ 106                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                 Cash paid for interest   $ 161   $ 385   $ 70                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                 See accompanying notes to consolidated financial statements. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (all amounts in thousands, except per share data) (1) Organization and Description of Business         Paylocity Holding Corporation (the "Company") was formed on November 6, 2013 (see Note 17 for further details) and Paylocity Corporation became a wholly-owned subsidiary of the Company resulting in the inclusion of Paylocity Corporation in the consolidated financial statements of Paylocity Holding Corporation. The stockholders of Paylocity Corporation became the stockholders of the Company. 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 delivered via the Internet.platform. Payroll services include collection, remittance and reporting of payroll liabilities to the appropriate federal, state and local authorities.         OnThe Company was formed on November 6, 2013 at which time Paylocity Corporation became a wholly-owned subsidiary resulting in the inclusion of Paylocity Corporation in the consolidated financial statements of Paylocity Holding Corporation. All holders of Paylocity Corporation equity instruments at the time were issued Paylocity Holding Corporation equity instruments with identical rights and obligations in exchange for their Paylocity Corporation equity instruments. Upon the completion of these transactions, Paylocity Holding Corporation became the sole stockholder of Paylocity Corporation.         In March 5, 2014, the Company amended its Certificate of Incorporation to execute a reverse three for two stock split on its common stock. All share and per-shareper share amounts in the Company's audited consolidated financial statements and notes to the financial statements have been updated tostatement reflect the impact of this change on the number of shares authorized, issued, and outstanding and earnings per share. Initial Public Offering         In March 2014, the Company completed its initial public offering ("IPO") in which it issued and sold 5,367 shares of common stock and existing shareholders sold 2,735 shares of common stock at a public offering price of $17 per share. The Company did not receive any proceeds from the sale of common stock by the existing shareholders. The Company received net proceeds of $81,927 after deducting underwriting discounts and commissions of $6,387 and other offering expenses of $2,925. Upon the closing of the IPO, all shares of the Company's then-outstanding redeemable convertible preferred stock automatically converted into 11,933 shares of its $0.001 par value common stock.         In connection with the IPO, in March 2014, the Company amended its Certificate of Incorporation to increase the number of authorized common stock to 155,000 and reduce the number of authorized preferred stock to 5,000. (2) Summary of Significant Accounting Policies (a)Basis of Presentation, Consolidation, and Use of Estimates         The accompanying consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC").         The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles ("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. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (2) Summary of Significant Accounting Policies (Continued) Significant items subject to such estimates and assumptions include (1)the allowance for doubtful accounts; (2)accounts, software developed for internal use; (3) impairmentuse, valuation and useful lives of property and equipment; (4)long-lived assets, definite-lived intangibles, goodwill, stock-based compensation; (5)compensation, valuation of net deferred income tax assets and (6) the best estimate of selling price for revenue recognition purposes. 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.         The consolidated financial statements reflect the financial position and operating results of Paylocity HoldingsHolding Corporation and include its wholly-owned subsidiary Paylocity Corporation. Intercompany accounts and transactions have been eliminated in consolidation. (b)Concentrations of Risk         The Company regularly maintains cash balances that exceed Federal Depository Insurance Corporation limits. No individual client represents 10% or more of total revenues. For all periods presented, 100% of total revenues were generated by clients in the United States. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (2) Summary of Significant Accounting Policies (Continued) (c)Cash and Cash Equivalents         The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. (d)Accounts Receivable         Accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the statements of cash flows. The Company maintains an allowance for doubtful accounts reflecting estimated potential losses in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and our clients' financial conditions, the amount of receivables in dispute, the current receivables aging and current payment patterns. The Company reviews its allowance for doubtful accounts quarterly. Past due balances over 9060 days and over a specified amount are reviewed individually for collectability. All other balances are reviewed on a pooled basis. Account balances are charged off against the allowance after all commercially reasonable means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its clients. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (2) Summary of Significant Accounting Policies (Continued)         Activity in the allowance for doubtful accounts was as follows:   Year ended June 30,     For the Years Ended June 30,     2011   2012   2013     2012   2013   2014   Balance at the beginning of the year   $ 41   $ 80   $ 114     $ 80   $ 114   $ 118   Charged to expense   72   60   60     60   60   62   Write-offs   (33 )   (26 )   (56 )   (26 )   (56 )   (54 )                             ​ ​ ​ ​ ​ ​ ​ ​ Balance at the end of the year   $ 80   $ 114   $ 118     $ 114   $ 118   $ 126                               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​               (e)Prepaid expenses and other assets         Prepaid expenses and other current assets consist of office space security deposits, deposits with vendors, prepaid licensing fees, supplies, and time clocks available for sale or lease. (f)Property and Equipment and Long-Lived Assets         Property and equipment are stated at cost. Depreciation on property and equipment is calculated on the straight-line method over the estimated useful lives of the assets, generally three to seven years for most classes of assets, or over the term of the related lease for leasehold improvements.         Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares the undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (2) Summary of Significant Accounting Policies (Continued) asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. (g)Internal-Use Software         The Company applies ASC 350-40,Intangibles—Goodwill and Other—Internal-Use Software, to the accounting for costs of internal-use software. Software development costs are capitalized when application development begins, it is probable that the project will be completed, and the software will be used as intended. Costs associated with preliminary project stage activities, training, maintenance and all other post implementation stage activities are expensed as incurred. The Company also capitalizes certain costs related to specific upgrades and enhancements when it is probable the expenditures will result in significant additional functionality. The capitalization policy provides for the capitalization of certain payroll costs for employees who are directly associated with developing internal-use software as well as certain external direct costs. Capitalized employee costs are limited to the time directly spent on such projects. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (2) Summary of Significant Accounting Policies (Continued)         Capitalized internal-use software costs are amortized on a straight-line basis over the estimated useful lives, generally 18 to 24 months, depending on the expected life of the application enhancement. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. (h)Goodwill and Other Intangible Assets, Net of Accumulated Amortization         Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. As described in Note 5, the Company has recorded goodwill in connection with the acquisition of BFKMS, Inc. Goodwill is not amortized, but instead is tested for impairment at least annually. ASU 2011-08,Testing Goodwill for Impairment provides an entity the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step impairment test. If it is the case that the estimated fair value of a reporting unit is less than its carrying amount, including goodwill, the two-step goodwill impairment test is required. Otherwise no further analysis is required.         If the two-step goodwill impairment test is required, first the fair value of the reporting unit is compared with its carrying amount, including goodwill. If the fair value of the reporting unit is less than its carrying amount, an indication of goodwill impairment exists for the reporting unit and the Company must perform step two of the impairment test. Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit's goodwill over the implied fair value of the goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying amount, step two does not need to be performed.         The Company will perform its annual impairment review of goodwill in its fiscal fourth quarter and when a triggering event occurs between annual impairment tests. However, given that the Company did not have recorded goodwill until its fiscal fourth quarter of 2014, no impairment tests were required to be completed.         Intangible assets are comprised primarily of client list acquisitions and are reported net of accumulated amortization on the Consolidated Balance Sheets. Client relationships use the straight-line method of amortization over an accelerated nine year time frame, while the non-solicitation agreement uses the straight-line method of amortization over the three year life of the agreement. The Company tests intangible assets for potential impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. (i)Deferred Rent         The Company has operating lease agreements for its office space, which contain provisions for future rent increases, periods of rent abatement and build-out allowances. In accordance with GAAP, theThe Company records monthly rent expense for each lease equal to the total payments due over the lease term, divided Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (2) Summary of Significant Accounting Policies (Continued) by the number of months of the lease term. Build-out allowances are recorded as part of leasehold improvements and the incentive is amortized over the lease term against depreciation. The difference between recorded rent expense and the amount paid is reflected as "Deferred Rent" in the accompanying balance sheets. (i)(j)Income Taxes         Income taxes are accounted for under the asset and liability 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 rate is recognized in income in the period that includes the enactment date. Accordingly, the impact of the American Taxpayer Relief Act of 2012, which was enacted on January 2, 2013, on deferred tax assets and liabilities and Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (2) Summary of Significant Accounting Policies (Continued) current taxes for the last six months of the fiscal year ended June 30, 2012 was recognized in the year ended June 30, 2013. Research and development tax credits are recognized using the flow-through method in the year the credit arises.         Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expectedmore likely than not to be realized. Significant management judgment is required in determining the period in which the reversal of a valuation allowance should occur. The Company is required to consider all available evidence, both positive and negative, such as historical levels of income and future forecasts of taxable income among other items, in determining whether a full or partial release of its valuation allowance is required. The Company is also required to schedule future taxable income in accordance with accounting standards that address income taxes to assess the appropriateness of a valuation allowance, which further requires the exercise of significant management judgment.         The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties as an element of income tax expense. (j)(k)Revenue Recognition         The Company recognizes revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 605-25,Revenue Recognition—Multiple Element Arrangements, Accounting Standards Update No. 2009-13,Multiple-Deliverable Revenue Arrangements ("ASU 2009-13"), and Staff Accounting Bulletin 104,Revenue Recognition. Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery has occurred, the fee is fixed or determinable and collection of the revenue is probable. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (2) Summary of Significant Accounting Policies (Continued)         The Company derives its revenue predominantly from recurring fees and non-recurring service fees. Recurring fees are collected under agreements for payroll, timekeeping, HR-related cloud-based computing services and monthly time clock rentals, all of which are generally cancellable by the client on 60 days' notice or less. Non-recurring service fees consist mainly of implementation and custom reporting services. Such fees are billed to clients and revenue is recorded upon completion of the service. The Company's 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. As such, the agreements are accounted for as service contracts.         Interest income collected on funds held for clients is recognized in recurring revenues when earned as the collection, holding and remittance of these funds are critical components of providing these services.         Most multiple-element arrangements include a short implementation services phase which involves establishing the client within and loading data into the Company's cloud-based Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (2) Summary of Significant Accounting Policies (Continued) applications. Such activities are performed by either the Company or a third party vendor. Major recurring fees included in multiple-element arrangements include: • Payroll processing and related services, including payroll reporting and tax filing services delivered on a weekly, biweekly, semi-monthly, or monthly basis depending upon the payroll practicesfrequency of the client and on an annual basis if a client selects W-2 preparation and processing services, • Timekeeping recordingTime and attendance reporting services, including time clock rentals, delivered on a monthly basis, and • Cloud-based HR software solutions, including employee administration and benefits enrollment and administration, delivered on a monthly basis.         For each agreement, the Company evaluates whether the individual deliverables qualify as separate units of accounting. If one or more of the deliverables does not have standalone value upon delivery, which is typical of the payroll and human capital management ("HCM") services our customers contract for, the deliverables that do not have standalone value are generally combined and treated as a single unit of accounting by frequency of occurrence for the product category involved such as biweekly payroll or monthly timekeeping services. Revenues for arrangements treated as a single unit of accounting are generally recognized within the same month that the services are rendered given that the agreements are cancellable with 60 days' or less notice.         In determining whether implementation services can be accounted for separately from recurring revenues, the Company considers the nature of the implementation services and the availability of the implementation services from other vendors. The Company was able to establish standalone value for implementation activities based on the activity of third-party vendors that perform these services and accounts for such implementation services separate from the recurring revenues.         If the recurring services have standalone value upon delivery, the Company accounts for each separately and revenues are recognized as services are delivered with allocation of consideration based on the relative selling price method as established in ASU 2009-13. That method requires the selling price of each element in a multiple-deliverable arrangement to be based on, in descending Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (2) Summary of Significant Accounting Policies (Continued) order: (i) vendor-specificvendor specific objective evidence of fair value ("VSOE"), (ii) third-party evidence of fair value ("TPE") or (iii) management's best estimate of the selling price ("BESP").         The Company is not able to establish VSOE because the deliverables are sold across an insufficiently narrow range of prices on a stand-alone basis and is also not able to establish TPE because no third-party offerings are reasonably comparable to the Company's offerings. The Company thus established its BESP by service offering, requiring the use of significant estimates and judgment. The Company considers numerous factors, including the nature of the deliverables themselves; the geography of the sale; and pricing and discounting practices utilized by the Company's sales force. Arrangement consideration is allocated to each deliverable based on the established BESP and subject to the limitation that because the arrangements are cancellable with 60 days' or less notice, recurring revenue is not allocated to any deliverable until the consideration has been earned, typically with each payroll cycle or monthly, depending on the service. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (2) Summary of Significant Accounting Policies (Continued)         Revenues generated from sales through partners or utilizing partner services isare recognized in accordance with the appropriate accounting guidance of Accounting Standards Codification 605-45,Principal Agent Considerations. The Company reports revenue generated through partners or utilizing partner services at the gross amount billed to clients when (i) the Company is the primary obligor, (ii) the Company has latitude to establish the price charged and (iii) the Company bears the credit risk in the transaction.         Sales taxes collected from clients and remitted to governmental authorities where applicable are accounted for on a net basis and therefore are excluded from revenues in the statements of operations. (k)(l)Cost of Revenues         Cost of revenues consists primarily of the cost of recurring revenues and implementation services which are expensed when incurred. Cost of revenues—revenues for recurring revenues consists primarily of costs to provide recurring services and support to our clients, and includes amortization of capitalized software. Cost of revenues—revenues for implementation services and other consists primarily of costs to provide implementation services and costs related to sales of payroll-related forms and time clocks. (l)(m)Advertising         Advertising costs are expensed as incurred. Advertising costs amounted to $4, $32, $27 and $27$24 for the years ended June 30, 2011, 2012, 2013 and 2013,2014, respectively. (m)(n)Stock OptionEquity Incentive Plan         The Company recognizes all employee stock-based compensation as a cost in the financial statements. Equity-classified awards are measured at the grant date fair value of the award and expense is recognized, net of assumed forfeitures, on a straight-line basis over the requisite service period for each separately vesting portion of the award. The Company estimates grant date fair value using the Black-Scholes option-pricing model and periodically updates the assumed forfeiture rates for actual experience over their vesting terms. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (2) Summary of Significant Accounting Policies (Continued)         Excess tax benefits of awards that are recognized in equity related to stock option exercises are reflected as financing cash inflows. The total excess income tax benefitbenefits recognized in the statements of income for stock-based compensation arrangements was $0, $206 and $63 for the years ended June 30, 2011, 2012 and 2013, respectively. There were no excess income tax benefits recognized for stock-based compensation arrangements for the year ended June 30, 2014. (n)(o)Commitments and Contingencies         Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (2) Summary of Significant Accounting Policies (Continued) (o)(p)Segment Information         The Company's chief operating decision maker reviews the financial results of the Company in total when evaluating financial performance and for purposes of allocating resources. The Company has thus determined that it operates in a single cloud-based software solution reporting segment. (p)(q)Recently Issued Accounting Standards         In May 2014, the Financial Accounting Standard Board (FASB) issued ASU 2014-09,Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 supersedes a majority of existing revenue recognition guidance under US GAAP, and requires companies to recognize revenue when it transfers goods or services to a customer in an amount that reflects the consideration to which a company expects to be entitled. Companies may need to apply more judgment and estimation techniques or methods while recognizing revenue, which could result in additional disclosures to the financial statements. Topic 606 allows for either a "full retrospective" adoption or a "modified retrospective" adoption. The Company is currently evaluating which adoption method it will use. Early application is not permitted. The Company plans on adopting ASU 2014-09 beginning July 1, 2017 and is currently assessing the potential effects of these changes to its consolidated financial statements.         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 recently issued standards that are not yet effective will not have a material impact on the Company's consolidated financial statements upon adoption. (3) Funds Held for Clients and Client Fund Obligations         The Company obtains funds from clients in advance of performing payroll and payroll tax filing services on behalf of those clients. Funds held for clients represent assets that are used solely for the purposes of satisfying the obligations to remit funds relating to payroll and payroll tax filling services. Funds held for clients are held in demand deposit and money market accounts at major financial institutions. The Company has classified funds held for clients as a current asset since these funds are held solely for the purposes of satisfying the client fund obligations. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (3) Funds Held for Clients and Client Fund Obligations (Continued)         Client fund obligations represent the Company's contractual obligations to remit funds to satisfy clients' payroll and tax payment obligations and are recorded in the accompanying balance sheets at the time that the Company obtains funds from clients. The client fund obligations represent liabilities that will be repaid within one year of the balance sheet date. (4) Fair Value Measures         The Company applies the fair value measurement and disclosure provisions of ASC 820,Fair Value Measurements and Disclosures, and ASU 2011-04,Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: • Level 1—Quoted prices in active markets for identical assets and liabilities. • Level 2—Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. • Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (4) Fair Value Measures (Continued)         Substantially all of the Company's assets that are measured at fair value on a recurring basis are measured using Level 1 inputs. The Company considers the recorded value of its financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, and accounts payable, to approximate the fair value of the respective assets and liabilities at June 30, 2011, 20122013 and 20132014 based upon the short-term nature of the assets and liabilities. (5) Business Combinations         On May 23, 2014, the Company closed on the acquisition of certain assets sufficient to sell the Company's products in the Southern California marketplace of one of its resellers described in Note 16, BFKMS Inc., as part of the Company's long term strategy of simplifying its sales channels. The total consideration, all to be paid in cash, was $9,435 of which $6,450 has been paid as of June 30, 2014. Of the remaining amount, $2,385 was paid in July 2014 with two further payments due in November 2014 and February 2015 or upon settlement of any indemnification related issues, Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (5) Business Combinations (Continued) totaling $600. The following table summarizes the provisional fair value of the assets acquired at the date of acquisition:     At May 23, 2014   Intangible assets   $ 6,400   Goodwill     3,035           ​ ​ ​ ​ ​ Total purchase price   $ 9,435           ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                 The Company recorded the acquisition using the acquisition method of accounting and recognized assets at their fair value as of the date of acquisition. The $6,400 of amortizable intangible assets consists of $6,180 in client relationships and $220 in a non-solicitation agreement. The fair value of the client relationships has been estimated using the excess earnings method, a form of the income approach, and cash flow projections. The non-solicitation agreement has been estimated using an avoided loss of income method, which is a form of the income approach. Goodwill will be amortized over a period of 15 years for income tax purposes. The total purchase price and allocation of the purchase price to assets acquired are provisional pending conclusion of the indemnification period and receipt of the final valuation report from a third party valuation expert.         The balance of the acquired intangibles, net of amortization, is stated separately on the consolidated balance sheet. Direct costs related to the acquisition were recorded as general and administrative expense as incurred. (6) Software Developed for Internal Use         Capitalized software and accumulated amortization were as follows:   Year ended June 30,     Year ended June 30,     2011   2012   2013     2013   2014   Internally developed software   $ 9,506   $ 13,222   $ 15,189     $ 15,189   $ 19,863   Accumulated amortization   (6,781 )   (9,508 )   (12,575 )   (12,575 )   (14,770 )                         ​ ​ ​ ​ ​ ​ Capitalized software, net   $ 2,725   $ 3,714   $ 2,614     $ 2,614   $ 5,093                           ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                   There were no impairments to software developed for internal use in any of the periods covered in these financial statements. Amortization of capitalized internal-use software costs amounted to $2,223, $2,727, $3,067 and $3,067$2,195 for the years ended June 30, 2011, 2012, 2013 and 2013,2014, respectively and is included in Cost of Revenues—Recurring Revenues. (6) Property and Equipment         The major classes of property and equipment are as follows as of June 30:     Year ended June 30,       2011   2012   2013   Office equipment   $ 1,147   $ 1,330   $ 1,350   Computer equipment     3,125     4,148     4,665   Furniture and fixtures     831     990     1,433   Automobiles     36     36     36   Software     1,880     3,464     3,791   Leasehold improvements     3,000     3,406     3,917   Time clocks rented by clients     647     1,140     1,649                       10,666     14,514     16,841   Accumulated depreciation and amortization     (5,707 )   (7,371 )   (8,255 )                 Property and equipment, net   $ 4,959   $ 7,143   $ 8,586                           Depreciation expense amounted to $1,556, $1,897 and $2,504, for the years ended June 30, 2011, 2012 and 2013, respectively. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (7) Property and Equipment         The major classes of property and equipment are as follows as of June 30:     Year ended June 30,       2013   2014   Office equipment   $ 1,350   $ 1,449   Computer equipment     4,665     7,726   Furniture and fixtures     1,433     2,317   Automobiles     36     —   Software     3,791     4,963   Leasehold improvements     3,917     6,059   Time clocks rented by clients     1,649     2,360               ​ ​ ​ ​ ​ ​ ​ ​     16,841     24,874   Accumulated depreciation and amortization     (8,255 )   (11,749 )             ​ ​ ​ ​ ​ ​ ​ ​ Property and equipment, net   $ 8,586   $ 13,125               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                     There were no impairments to property and equipment in any of the periods covered in these financial statements. Depreciation expense amounted to $1,897, $2,504 and $4,061, for the years ended June 30, 2012, 2013 and 2014, respectively. (8) Goodwill and Intangible Assets         Goodwill represents the excess of cost over the net tangible and identifiable intangible assets of acquired businesses. Goodwill amounts are not amortized, but rather tested for impairment at least annually. Identifiable intangible assets acquired in business combinations are recorded based on fair value at the date of acquisition and amortized over their estimated useful lives. See Note 5 for further information regarding the acquisition completed in 2014.         The Company had $0 and $3,035 of goodwill recorded as of June 30, 2013 and 2014 respectively.         The Company's amortizable intangible assets, before amortization expense, have estimated useful lives as follows:     As of June 30, 2014   Weighted Average Useful Life   Client relationships   $ 6,180     9 years   Non-solicitation agreement     220     3 years                 ​ ​ ​ ​ ​ ​ ​ ​ Total     6,400         Accumulated amortization     (80 )                     ​ ​ ​ ​ ​ ​ ​ ​ Intangible assets, net   $ 6,320                       ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                       There was no amortization expense for acquired intangible assets for the years ended June 30, 2012 and 2013. Amortization expense for acquired intangible assets was $80 for the year ended Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (8) Goodwill and Intangible Assets (Continued) June 30, 2014. Future amortization expense for acquired intangible is as follows, as of June 30, 2014:         Year ending June 30:         2015   $ 760   2016     760   2017     752   2018     687   2019     687   Thereafter     2,674           ​ ​ ​ ​ ​ Total   $ 6,320           ​ ​ ​ ​ ​ ​ ​ ​ ​ ​         (9) Accrued Expenses         The components of accrued expenses are as follows:   Year ended June 30,     Year ended June 30,     2011   2012   2013     2013   2014   Accrued payroll and personnel costs   $ 3,649   $ 4,243   $ 5,549     $ 5,549   $ 8,781   Reseller fees   155   202   259     259   6   Current portion of deferred rent   230   577   Other   522   820   986     756   1,380                           ​ ​ ​ ​ ​ ​ Total Accrued Expenses   $ 4,326   $ 5,265   $ 6,794     $ 6,794   $ 10,744                           ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​           (8)(10) Leases         The Company leases office space in Illinois, California, Florida and FloridaNew York under non-cancelable operating leases expiring on various dates from August 2014 through February 2020.July 2022. The leases provide for increasing annual base rents and oblige the Company to fund proportionate share of operating expenses.expenses and, in certain cases, real estate taxes.         In FebruaryJuly 2013, the Company leased 46,000sales office space in New York, New York, commencing in the first fiscal quarter of 2014. The Company extended this lease in the fourth fiscal quarter of 2014 through June 2015.         In June 2014, the Company leased approximately 6,000 square feet of additional office space at its headquarters in Arlington Heights, Illinois commencing in the firstthird fiscal quarter 2014of 2015 through February 2020.July 2022. The lease calls for two phasesa phase of construction build out and occupancy timelinesbuild-out with leasehold improvements to be amortized over the life of the lease. Upon the completion of each of the two phases of the project, the Company receives a sixseven month rent holiday for the portion of the rent attributable to said phase.holiday.         The Company leases various types of office and production related equipment under non-cancellable operating leases expiring on various dates from June 20142015 through April 2018.May 2019. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (10) Leases (Continued)         Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease including any periods of free rent. Rental expense for operating leases, including amortization of leasehold improvements, was $1,320, $1,519, $2,347 and $2,347$3,035 for the years ended June 30, 2011, 2012, 2013 and 2013,2014, respectively.         Future minimum lease payments under non-cancellable operating leases (with initial or remaining lease terms in excess of one year) as of June 30, 20132014 are:       Year ending June 30:         2014   $ 2,367   2015   3,225     $ 3,353   2016   3,337     3.549   2017   2,900     3,200   2018   2,906     3,117   Later years, through 2020   2,970   2019   2,494   Later years, through 2023   1,637               ​ ​ ​ ​ Total minimum lease payments   $ 17,705     $ 17,350         ​ ​ ​ ​ ​ ​ ​ ​       (11) Line of Credit and Long-Term Debt         The Company maintained a line of credit agreement with a bank. Under this agreement, the Company had access of up to $2,500 of which $166 was earmarked for a letter of credit. Interest was payable monthly at the bank's base rate (3.25% at June 30, 2013) plus 1.50%, with a floor of 5.50%. A commitment fee on the average daily undisbursed amount was assessed quarterly at a rate of 0.375% per anum. The line of credit was collateralized by all of the Company's assets and a personal guarantee of a Company stockholder and was cross-collateralized to the Company's note payable—bank (see below). The line of credit was due to expire on December 31, 2013, but it was increased to $3,500 and extended until December 31, 2015. The Company terminated the line of credit on March 31, 2014. There were no outstanding borrowings under this line of credit as of June 30, 2013.         Long-term debt at June 30, 2013 and 2014 consisted of the following:     Year ended June 30,       2013   2014   Note payable—bank   $ 1,563     —   Note payable—related parties     —     —               ​ ​ ​ ​ ​ ​ ​ ​ Total long-term debt     1,563     —   Less current installments     625     —               ​ ​ ​ ​ ​ ​ ​ ​ Long-term debt, excluding current installments   $ 938     —               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​             Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (9)(11) Line of Credit and Long-Term Debt (Continued)         The Company maintains a line of credit agreement with a bank. Under this agreement, the Company has access of up to $2,500 of which $166 is earmarked for a letter of credit. Interest is payable monthly at the bank's base rate (3.25% at June 30, 2013) plus 1.50%, with a floor of 5.50%. A commitment fee on the average daily undisbursed amount is assessed quarterly at a rate of 0.375% per anum. The line of credit is collateralized by all of the Company's assets and a personal guarantee of a Company stockholder and is cross-collateralized to the Company's note payable—bank (see below). The line of credit expires on December 31, 2013. There were no outstanding borrowings under this line of credit as of June 30, 2011, 2012 and 2013. On November 27, 2013, this line of credit was increased to $3,500 and the due date was extended to December 31, 2015.         Long-term debt at June 30, 2011, 2012 and 2013 consists of the following:     Year ended June 30,       2011   2012   2013   Note payable—bank   $ 2,500   $ 2,188   $ 1,563   Note payable—related parties     1,000     1,000     —                   Total long-term debt     3,500     3,188     1,563   Less current installments     312     1,625     625                   Long-term debt, excluding current installments   $ 3,188   $ 1,563   $ 938                           The note payable—bank agreement callscalled for payments of interest payable monthly at 6.50% with monthly principal payments in the amount of $52 commencing January 31, 2012 through maturity on December 31, 2015.maturity. The note iswas collateralized by substantially all of the Company assets and a personal guarantee of a Company stockholder. The note iswas cross-collateralized to the line of credit. The note iswas subject to certain prepayment penalties, as defined in the agreement. The Company repaid this note on March 31, 2014 as part of its intended use of IPO proceeds, and no prepayment penalties were assessed in accordance with the terms of the agreement. Interest expense related to this agreement was $175, $123 and $67 for the three years ended June 30, 2012, 2013 and 2014, respectfully.         In accordance with the terms of the line of credit and note payable—bank agreements, the Company mustwas required to comply with certain financial and non-financial covenants. The Company was in compliance with all covenants for each of the yearsyear ended June 30, 2011, 2012 and 2013.         The notes payable—related parties bearbore interest at 8.00%. Principal and interest were paid in full in March of 2013. The notes were unsecured and were subordinated to the line of credit and note payable—bank. Interest expense on these notes was $80, $87 and $69 for the years ended June 30, 2011, 2012 and 2013, respectively. Accrued interest on these notes was $105 and $191 as of the years ended June 30, 2011 and 2012.         The aggregate maturities of long-term debt for each of the five years subsequent to June 30, 2013 are: $625 in 2014, $625 in 2015 and $313 in 2016. Interest paid was $166, $161 and $385(12) Income Taxes (a)Income Taxes         Income tax (benefit) expense for the years ended June 30, 2011, 2012, 2013 and 2013, respectively.2014 consists of the following:     Year ended June 30,       2012   2013   2014   Current taxes                     U.S. federal   $ 12   $ 126   $ (125 ) State and local     34     94     39   Deferred taxes:                     U.S. federal     738     (516 )   160   State and local     100     (306 )   181                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                 Total income tax (benefit) expense   $ 884   $ (602 ) $ 255                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                 Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (10)(12) Income Taxes (Continued) (a)Income Taxes         Income tax (benefit) expense for the years ended June 30, 2011, 2012 and 2013 consists of the following:     Year ended June 30,       2011   2012   2013   Current taxes                     U.S. federal   $ —   $ 12   $ 126   State and local     6     34     94   Deferred taxes:                     U.S. federal     (36 )   738     (516 ) State and local     (6 )   100     (306 )                 Total income tax (benefit) expense   $ (36 ) $ 884   $ (602 )                 (b)Tax Rate Reconciliation         Income tax (benefit) expense differed from the amounts computed by applying the U.S. federal income tax rate of 34% to pretax income from continuing operations as a result of the following:   Year ended June 30,     Year ended June 30,     2011   2012   2013     2012   2013   2014   Income tax provision at statutory federal rate   $ (53 ) $ 875   $ 6     $ 875   $ 6   $ (2,331 ) Increase (reduction) in income taxes resulting from:                 Research and development credit, net of federal income tax benefit   —   (173 )   (650 )   (173 )   (650 )   (189 ) Non-deductible expenses   17   25   53     25   53   284   Change in valuation allowance   —   —   2,878   State and local income taxes, net of federal income tax benefit   —   157   (11 )   157   (11 )   (387 )               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                               $ (36 ) $ 884   $ (602 )   $ 884   $ (602 ) $ 255                               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​               Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (10) Income Taxes (Continued) (c)Components of Deferred Tax Assets and Liabilities         The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30, 2011, 20122013 and 20132014 are presented below.   Year ended June 30,     Year ended June 30,     2011   2012   2013     2013   2014   Deferred tax assets:             Deferred rent   $ 254   $ 275   $ 438     $ 438   $ 569   Allowance for doubtful accounts   31   45   46     46   48   Accrued expenses   420   508   583     583   761   Stock-based compensation   71   138   333     333   2,149   Net operating loss carryforwards   1,383   1,015   359     359   1,641   Research and development credit   47   206   832     832   1,116   AMT Credits   —   12   138     138   11   Intangible assets   —   5                           ​ ​ ​ ​ ​ ​ Total deferred tax assets   2,206   2,199   2,729     2,729   6,300   Valuation allowance   —   (2,878 )           ​ ​ ​ ​ ​ ​ Net deferred tax assets   2,729   3,422   Deferred tax liabilities:             Research and development costs   (1,062 )   (1,463 )   (1,024 )   (1,024 )   (1,950 ) Prepaid expenses   (31 )   (72 )   (66 )   (66 )   (74 ) Depreciation   (764 )   (1,153 )   (1,306 )   (1,306 )   (1,406 )                         ​ ​ ​ ​ ​ ​ Total deferred liabilities   (1,857 )   (2,688 )   (2,396 )   (2,396 )   (3,430 )                         ​ ​ ​ ​ ​ ​ Net deferred tax asset (liability)   $ 349   $ (489 ) $ 333     $ 333   $ (8 )                         ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​           Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (12) Income Taxes (Continued)         In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.realized through the generation of future taxable income. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income and tax-planning strategies in making this assessment. Taxable income (loss) for the years ended June 30, 2011, 2012, 2013 and 20132014 was approximately $(1,108), $842, $1,941 and $1,941,$(3,817), respectively, prior to utilization or establishment of net operating loss carryforwards. Based upon the levelsame three year period pre-tax book income, the Company is in a three-year cumulative loss position. As a result of historical taxable incomethis and projectionsother assessments in the year ended June 30, 2014, management concluded that a full valuation allowance is required for future taxable income over the periods in which theall deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences at June 30, 2013.and liabilities except for deferred tax liabilities associated with indefinite-lived intangible assets.         At June 30, 2013,2014, the Company has net operating loss carryforwards for Federal income tax purposes of approximately $588$3,967 which are available to offset future Federal taxable income, if any, through 2031, including2034, excluding excess tax benefits from stock option exercises of approximately $106$331 which will be credited to additional paid-in capital when realized. The Company also has gross federal and state research and development tax credit carryforwards of approximately $832$1,116 which expire between 2017 and 2032.2034. In addition, the Company has alternative minimum tax credit carryforwards of approximately $138,$11, which are available to reduce future Federal regular income taxes, if any, over an indefinite period. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (10) Income Taxes (Continued)         Income taxes paid were approximately $6, $7 and $69 for the periods ended June 30, 2011, 2012 and 2013, respectively.        The Company had no unrecognized tax benefits as of June 30, 2011, 2012, 2013 and 2013,2014, respectively.         The Company files income tax returns with the United States federal government and various state jurisdictions. Certain tax years remain open for federal and state tax reporting jurisdictions in which the Company does business due to net operating loss carryforwards and tax credits unutilized from such years or utilized in a period remaining open for audit under normal statute of limitations relating to income tax liabilities. The Company's tax years ended June 30, 2008 to June 30, 20132014 remain open for federal purposes. The Company's tax returns filed in states in which it is required to do so remain open for a range of tax years including those ended June 30, 2008 to June 30, 20132014 depending upon the jurisdiction and the applicable statute of limitations. (11)(13) Stockholders' Equity (Deficit) Common Stock         Holders of common stock are entitled to one vote per share and to receive dividends. The holders have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares. Common stock iswas subordinate to the redeemable convertible preferred stock with respect to dividend rights and rights upon liquidation, winding up and dissolution of the Company. (12) Redeemable Convertible Preferred Stock         The Company has two series of Redeemable Convertible Preferred Stock, Series A and Series B.         The Series A Redeemable Convertible Preferred Stock, with a par value of $0.001 per share, has a liquidation preference senior to the common stock. In the event of liquidation as defined in the Company's charter, the Series A Redeemable Convertible Preferred Stock is entitled to a liquidation preference equal to the original issue price of each respective share of Series A Redeemable Convertible Preferred Stock plus unpaid and accrued and declared dividends. The liquidation amount of the Series A Redeemable Convertible Preferred Stock is capped at 2.25 times the original issue price of the Series A Redeemable Convertible Preferred Stock. Series A Redeemable Convertible Preferred Stockholders are entitled to a 6% cumulative preferred dividend computed on the contributed investment of $9,500 payable when declared by the Company. No dividends may be declared and paid on the Company's common stock until such time as the Company has paid in full any dividends actually accrued on such Redeemable Convertible Preferred Stock. No such dividends have been declared as of June 30, 2011, 2012 and 2013. Cumulative unpaid preferred dividends totaled approximately $1,900, $2,600 and $3,310 and were $0.20, $0.27 and $0.35 per share of Series A Redeemable Convertible Preferred Stock as of June 30, 2011, 2012 and 2013, respectively. Proceeds from the issuance were offset by issuance costs of $161. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (12)(14) Redeemable Convertible Preferred Stock (Continued)         On June 29, 2012,Prior to its IPO, the Company authorized 8,500 shareshad two series of $0.001 par value Series B Redeemable Convertible Preferred Stock, and issued 8,400 shares at approximately $3.25 a share to investors. Proceeds from the issuance were used to redeem common stock.         The Series B Redeemable Convertible Preferred Stock, with a par value of $0.001 per share, has a liquidation preference senior to the common stock and ispari passu with the Series A Redeemable Convertible Preferred Stock. In the event of liquidation as defined in the Company's charter, the holders of Series B Redeemable Convertible Preferred Stock are entitled to a liquidation preference equal to original issue price of each respective share of Series B Redeemable Convertible Preferred Stock plus unpaid and accrued and declared dividends. If such liquidation occurs on or before the second anniversary of the initial issuance of the Series B Redeemable Convertible Preferred Stock, then the Series B Redeemable Convertible Preferred Stockholder is entitled to an additional amount equal to 10% of the original issue price on each outstanding share of Series B Redeemable Convertible Preferred Stock per annum. Series B Redeemable Convertible Preferred Stockholders are entitled to an 8% cumulative preferred dividend computed on the investment amount of $27,284 payable when declared by the Company. No dividends may be declared and paid on the Company's common stock until such time as the Company has paid in full any dividends actually accrued on such Preferred Stock. No such dividends have been declared as of June 30, 2012 and 2013. Cumulative unpaid preferred dividends totaled approximately $6 and $2,190, and $0.00 and $0.26 per share of Series B Redeemable Convertible Preferred Stock as of June 30, 2012 and 2013, respectively. Proceeds from the issuance were offset by issuance costs of $50.         The Series A and B Redeemable Convertible Preferred Stockholders (together the "Preferred Stockholders") have the right to vote on certain corporate matters on an as converted basis with the common stock as a single class. In addition to the preferential cumulative dividends, holders of Series A & Series B Redeemable Convertible Preferred Stock are entitled to receive, on an if-converted basis, when set aside or paid by the Company, any dividends on the Company's common stock. At any time, the Preferred Stockholders can convert all or any portion of such shares into the aggregate number of shares of common stock at the respective conversion rate, as defined in the agreement, currently two common shares for every three shares of Redeemable Convertible Preferred Stock.B.         Upon the closing of the sale of common stock to the public at a price of at least $8.5263, which also must result in at least $50,000 of gross proceeds,IPO, the Series A and Series B Redeemable Convertible Preferred Stock would automatically convertconverted into common stock at the respective conversion rate, as defined in the agreement, currently two common shares for every three11,933 shares of Redeemable Convertible Preferred Stock.         At any time following the third anniversary of the initial issuance of the Series B Redeemable Convertible Preferred Stock, the majority holders of Series A and Series B Redeemable Convertible Preferred Stock may require the Company to redeem all of the Series A and Series B Redeemable Convertible Preferred Stock upon notice to the Company. Upon such an occurrence, the Company will reclassify as a liability any remaining Series A and Series B Redeemable Convertible Preferred Stock and adjust their carrying amount to fair market value in accordance with FASB ASC 480-10-55-11Distinguishing Liabilities from Equity. However, this redemption feature terminates upon the conversion of the Series A and Series B Redeemable Convertible Preferred Stock into Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (12) Redeemable Convertible Preferred Stock (Continued) Common Stock, the successful completion of a qualified IPO or the closing of a deemed liquidation event as described in the Company's Certificate of Incorporation. As a result of these features of the Series A and Series B Redeemable Convertible Preferred Stock, the Company concluded that the likelihood of the Series A and Series B Redeemable Convertible Preferred Stock becoming redeemable was not probable. As such, no adjustment to the carrying$0.001 par value of the Redeemable Convertible Preferred Shares was required.common stock. (13)(15) Benefit Plans (a)Equity Incentive Plan         The Company has established themaintains a 2008 Equity Incentive Plan (the "Plan""2008 Plan"). and a 2014 Equity Incentive Plan (the '2014 Plan") pursuant to which the Company has reserved 7,071 shares of its common stock for issuance to its employees, directors and non-employee third parties. The 2014 Plan authorizesserves as the successor to the 2008 plan and permits the granting of options to purchase common stock and other equity incentives at the discretion the compensation committee of the Company's Boardboard of Directorsdirectors. No new awards will be issued under the 2008 Plan as of the effective date of the 2014 Plan. Outstanding awards under the 2008 Plan continue to certain employees.be subject to the terms and conditions of the 2008 Plan.         Under the Plan,2008 and 2014 Plans, the exercise price of each option approximatesis not less than the fair value of a share of common stock on the grant date. As of June 30, 2014, the Company had 2,581 shares allocated to the 2014 Plan, but not yet issued or subject to outstanding options or awards. Generally, the Company issues previously unissued shares for the exercise of stock options; however, previously acquired shares may be reissued to satisfy future issuances. The options typically vest ratably over a privately owned company,three or four year period and expire 10 years from the grant date. Compensation expense for the fair value of a sharethe options at their grant date is recognized ratably over the vesting schedule.         Stock-based compensation expense related to stock options and the vesting of commonrestricted stock awards ("RSAs") and restricted stock units ("RSUs") is determined contemporaneously with the award by the Company's board of directors, including by reference to valuation assessments by third-party valuation consultants utilizing the guidelines outlinedincluded in the American Institutefollowing line items in the accompanying audited consolidated statements of Certified Public Accountants Practice Aid, Valuationoperations:     Year ended June 30,       2012   2013   2014   Cost of revenue—recurring   $ —   $ —   $ 496   Cost of revenue—non-recurring     —     —     424   Sales and marketing     —     —     765   Research and development     —     —     615   General and administrative     203     523     2,629                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total stock-based compensation   $ 203   $ 523   $ 4,929           In addition, the Company capitalized $325 of Privately-Held-Company Equity Securities Issued as Compensation. Options are granted at various dates, have a maximum term of 10 years and typically vest over four years.         The Company recorded $177, $203 and $523 ofstock compensation expense forcosts in its internal use software in the year ended June 30, 2014. No such amounts were capitalized in internal use software in years ended June 30, 2011, 2012 and 2013, respectively. Stock based compensation expense is recorded in General and Administrative expense to coincide with the salaries and benefits of the individuals participating in the plan.2013.         The grant-date fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted average assumptions for 2011, 2012 and 2013 grants are provided in the following table. The Company uses company-specific historical data to estimate the expected term of the option, such as employee option exercise and employee post-vesting departure behavior. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. Since the Company's shares are not publicly traded and its shares are rarely traded privately, expected volatility is estimated based on the average historical volatility of similar entities with publicly traded shares. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve at the date of grant.     Year ended June 30,       2011   2012   2013   Valuation assumptions:                   Expected dividend yield     0 % N/A—no grants     0 % Expected volatility     31.0 % N/A—no grants     30.7 % Expected term (years)     5.0   N/A—no grants     4.0   Risk-free interest rate     1.97 % N/A—no grants     0.61 % Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (13)(15) Benefit Plans (Continued)         The Company values stock options using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including the risk-free rate, expected life, expected stock price volatility and dividend yield. The risk-free interest rate assumption is based upon observed interest rates for U.S. Treasury securities consistent with the expected term of the Company's employee stock options. The expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified method. Under the simplified method, the expected life of an option is presumed to be the mid-point between the vesting date and the end of the contractual term. The Company utilizes the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options. The Company has a limited history of trading as a public company. Therefore, the expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected life of the stock options. The Company assumed no dividend yield because it does not expect to pay dividends in the near future, which is consistent with the Company's history of not paying dividends.         The following table summarizes the assumptions used for estimating the fair value of stock options granted for the years ended June 30:     Year ended June 30,     2012   2013   2014 Valuation assumptions:               Expected dividend yield   N/A—no grants     0 % 0% Expected volatility   N/A—no grants     30.7 % 29.5% - 44.5% Expected term (years)   N/A—no grants     4.0   4.0 - 6.0 Risk-free interest rate   N/A—no grants     0.61 % 0.52% - 1.94%         Stock option activity during the periods indicated is as follows:     Number of shares   Weighted average exercise price   Weighted average remaining contractual term   Aggregate Intrinsic value   Balance at July 1, 2010     675   $ 1.31     9.98   $ —   Granted     458     2.28                                   Balance at June 30, 2011     1,133     1.70     9.36     659   Granted     —     —               Exercised     (67 )   1.31               Forfeited     (100 )   2.28                                   Balance at June 30, 2012     966     1.67     8.33     3,096   Granted     926     4.88               Exercised     (33 )   2.28                                   Balance at June 30, 2013     1,859   $ 3.25     8.22   $ 7,028                       Options exercisable at June 30, 2013     601   $ 1.57     7.23   $ 3,287                       Options vested and expected to vest at June 30, 2013     1,560   $ 3.21     8.19   $ 5,976                               Outstanding Options       Shares Available for Grant   Number of shares   Weighted average exercise price   Weighted average remaining contractual term   Aggregate intrinsic value   Balance at June 30, 2013     812     1,859   $ 3.25     8.22   $ 7,028   Additional shares authorized, net     4,406     —                     RSU's granted     (108 )   —                     Options granted     (2,582 )   2,582     15.01     9.58         Options forfeited     53     (53 )   17.00     —         Exercised     —     —     —     —                                 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at June 30, 2014     2,581     4,388   $ 10.00     8.58   $ 51,017                           ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                         Options exercisable at June 30, 2014           1,083   $ 2.29     6.65   $ 20,947                             ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                           Options vested and expected to vest at June 30, 2014           3,853   $ 10.17     8.53   $ 44,162                             ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                           Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (15) Benefit Plans (Continued)         The weighted average grant date fair value of options granted during the years ended June 30, 2011, 20122013 and 20132014 was $0.70, $0$1.22 and $1.22,$6.39, respectively. There were no options granted in fiscal 2012. The total intrinsic value of options exercised during the years ended June 30, 2011, 2012 and 2013 was $0, $241 and $87, respectively. There were no options exercised in the year ended June 30, 2014.         The Company may also grant RSAs and RSUs under the Plan with terms determined at the discretion of the Compensation Committee of the Company's Board of Directors. Prior to the IPO, the Company had 269 RSAs outstanding to certain employees. The RSAs vested and were issued as common shares as a result of the satisfaction of the vesting criteria upon the completion of the IPO in March 2014 at which time the Company recorded compensation expense in the amount of $351 which is included in the compensation expense recognition table above. Concurrent with the IPO in March 2014, the Company granted 108 RSUs primarily to certain employees and members of its Board of Directors of which 93 vest over a period of six months commencing on the date of the IPO, 6 vested immediately, 4 vest one year from the date of the IPO, and 5 vest two years from the date of the IPO. Compensation expense related to these newly issued RSUs is reflected in general and administrative expense, included in the compensation expense table above, is based on the fair value of the instruments on the date of grant and is recognized in the period between the date of grant and the date of vesting as the vesting is based on the passage of time. In addition, approximately 2 of the 6 RSUs that vested immediately were issued to consultants that provided professional services directly related to the IPO and, thus, the Company recognized the $30 cost associated with those RSUs as an offering cost offsetting the net proceeds from the IPO.         At June 30, 2013,2014, there was $537$11,231 of total unrecognized compensation cost, net of estimated forfeitures, related to unvested stock optionsoption and restricted stock awards granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.541.62 years. The Company may also grant Restricted Stock Awards ("RSAs") under the Plan with terms determined at the discretion of the Company's Board of Directors. As of June 30, 2011, 2012 and 2013 the Company had 269 RSAs outstanding to certain employees. The RSAs vest and become exercisable upon occurrence of a change in control or initial public offering, as defined in the Plan. The holders of RSAs have similar rights to common Stockholders. No compensation expense is reflected in the accompanying financial statements for RSAs as such expense will be recorded at the fair value of the stock upon vesting.         The Company currently uses authorized and unissued shares to satisfy option exercises and share award vesting. As of June 30, 2013, the Company authorized 3,008 shares of common stock reserved for issuance under the plan, of which 812 are available for future grants. (b)401(k) Plan         The Company maintains a 401(k) plan with a safe harbor matching provision that covers all eligible employees. The Company matches 50% of the employees' contributions up to 6% of their gross pay. Contributions were approximately $332, $514, $720 and $720$1,122 for the years ended June 30, 2011, 2012, 2013 and 2013,2014, respectively. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (14)(16) Commitments and Contingencies (a)Employment Agreements         The Company has employment agreements with certain of its key officers. The agreements allow for minimum annual compensation increases, participation in the Planequity incentive plans and bonuses for annual performance as well as certain change of control events as defined in the agreements. (b)Litigation         From time to time, the Company is subject to litigation arising in the ordinary course of business. Many of these proceedings are covered in whole or in part by insurance. In the opinion of the Company's management, the ultimate disposition of any matters currently outstanding or Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (16) Commitments and Contingencies (Continued) threatened will not have a material adverse effect on the Company's financial position, results of operations, or liquidity. (c)Reseller Agreements         The Company hashad agreements with two resellers.resellers, one of which was terminated in March 2014. The initial term of the first reseller agreement commenced in February 2007 and expireswas set to expire in February 2016 unless renewed. The initial term of the second reseller agreement commenced in June 2009 and expiresis set to expire in June 2016 unless renewed. Each of the Company's reseller agreements provides that the Company is required upon a termination of the agreement to acquire the assets of the reseller.         The first reseller agreement providesprovided that either party may terminate the agreement by electing not to renew the agreement beyond its original term. The Company, but not the reseller, also hashad the right to terminate the agreement at any time following the completion of an initial public offering by the Company. If a termination wereThe Company exercised its right to occur as a resultterminate the agreement in April 2014 and closed on the purchase of the Company's election following the completion of this offering, the purchase price of the assets would be equal to three times the net revenues of the resellerreseller's client base in May 2014. See Note 5 for the three months preceding the termination effective date times four plus the annual W-2 revenue of the reseller for the 12 months preceding the termination effective date.further information. The Company paid the first reseller $1.0 million, $1.7 million$1,693, $2,377 and $2.4 million$2,495 during fiscal years 2011, 2012, 2013 and 2013,2014, respectively.         The second reseller agreement provided that the reseller may terminate the agreement by providing nine months' prior notice or upon an initial public offering by the Company. The Company amended this agreement in December of 2013 to provide that the reseller may not give a nine-month termination notice until after the earlier of (i) six months following the closing of an initial public offering by the Company or (ii) December 31, 2014. In addition, the Company, but not the reseller, now has the right to terminate the agreement at any time after the date that is six months following the completion of an initial public offering by the Company. If a termination were to occur, the purchase price of the resellers assets to be acquired would be equal to 3.3 times the net revenues of the reseller for the 12 months preceding the termination effective date. The Company paid the second reseller $0.9 million, $1.3 million$1,324, $1,783 and $1.8 million$2,081 during fiscal years 2011, 2012, 2013 and 2013,2014, respectively. (17) Earnings Per Share         For the periods presented prior to the Company's IPO, basic and diluted net income (loss) per common share is presented in conformity with the two-class method required for participating securities. Concurrently with the closing of the Company's IPO on March 24, 2014, all shares of outstanding Preferred Stock automatically converted into 11,933 shares of the Company's common stock. Following the date of the IPO, the two-class method was no longer required as the Company has one class of securities issued and outstanding.         Prior to the conversion of the Redeemable Convertible Preferred Stock, holders of Series A and Series B Preferred Stock each were entitled to liquidation preferences payable prior and in preference to any dividends on any shares of the Company's common stock. In the event a dividend was paid on common stock, the holders of Preferred Stock were entitled to a proportionate share of any such dividend as if they were holders of common stock (on an as-if Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (15)(17) Earnings Per Share (Continued)         Basic and diluted net income (loss) per common share is presented in conformity with the two-class method required for participating securities. Immediately prior to the completion of the Company's Initial Public Offering, all shares of outstanding Series A and Series B Redeemable Convertible Preferred Stock are expected to automatically convert into shares of the Company's common stock at a ratio of two common shares for every three shares of Redeemable Convertible Preferred Stock. Holders of Series A and Series B Redeemable Convertible Preferred Stock are entitled to liquidation preferences as outlined in Note 12 payable prior and in preference to any dividends on any shares of the Company's common stock.         In the event a dividend is paid on common stock, the holders of Redeemable Convertible Preferred Stock are entitled to a proportionate share of any such dividend as if they were holders of common stock (on an as-if converted basis). The holders of the Company's Redeemable Convertible Preferred Stock dodid not have a contractual obligation to share in the losses of the Company. The Company considersconsidered its Redeemable Convertible Preferred Stock to be participating securities and, in accordance with the two-class method, earnings allocated to Redeemable Convertible Preferred Stock and the related number of outstanding shares of Redeemable Convertible Preferred Stock have been excluded from the computation of basic and diluted net income (loss) per common share.         Under the two-class method, net income (loss) attributable to common stockholders is determined by allocating undistributed earnings, calculated as net income less current period Redeemable Convertible Preferred Stock cumulative dividends, between common stock and Redeemable Convertible Preferred Stock. In computing diluted net income (loss) attributable to common stockholders, undistributed earnings are re-allocated to reflect the potential impact of dilutive securities.         Basic net loss per common share is computed using the weighted-average number of common shares outstanding during the period. Since the Series A and Series B Redeemable Convertible Preferred Stock arewere entitled to participate should any common stock dividends behave been declared but arewere not obligated to participate in any losses generated by the Company, basic net income per common share is computed using the weighted-average number of common shares outstanding during the period plus the Series A and Series B Redeemable Convertible Preferred Stock on a weighted-average basis.         Diluted net loss per share is computed using the weighted-average number of common shares outstanding during the period and, if dilutive, potential common shares outstanding during the period. Since the Series A and Series B Redeemable Convertible Preferred Stock arewere entitled to participate should any common stock dividends be declared but arewere not obligated to participate in any losses generated by the Company, diluted net income per share is computed using the weighted-average number of common shares plus the Series A and Series B Redeemable Convertible Preferred Stock on a weighted-average basis and, if dilutive, potential common shares outstanding during the period. The Company's potential common shares consist of the incremental common shares issuable upon the exercise of stock options. The dilutive effect of outstanding stock options is reflected in diluted earnings per share by application of the treasury stock method. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (15)(17) Earnings Per Share (Continued)         Restricted Stock Awards are excluded from both basic and diluted earnings per share calculations as the vesting conditions have not been met as of June 30, 2013.         The following table presents the calculation of basic and diluted net income (loss) per share:   Year ended June 30,     Year ended June 30,     2011   2012   2013     2012   2013   2014   Basic net income (loss) per share:                 Numerator:                 Net Income (Loss)   $ (130 ) $ 1,688   $ 617     $ 1,688   $ 617   $ (7,110 ) Less: Preferred dividend rights attributable to participating securities   (644 )   (690 )   (2,908 )   (690 )   (2,908 )   (2,282 )                             ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) attributable to common stockholders   $ (774 ) $ 998   $ (2,291 )   $ 998   $ (2,291 ) $ (9,392 )               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                             Denominator:                 Weighted-average shares used in computing net income (loss) per share attributable to common stockholders:                 Basic (in thousands)   37,539   43,873   31,988     43,873   31,988   36,707   Weighted-average effect of potentially dilutive shares:                 Employee stock options (in thousands)   —   444   —     444   —   —                               ​ ​ ​ ​ ​ ​ ​ ​ Diluted (in thousands)   37,539   44,317   31,988     44,317   31,988   36,707   Net income (loss) per share attributable to common stockholders:                 Basic   $ (0.02 ) $ 0.02   $ (0.07 )   $ 0.02   $ (0.07 ) $ (0.26 ) Diluted   $ (0.02 ) $ 0.02   $ (0.07 )   $ 0.02   $ (0.07 ) $ (0.26 )         Potentially dilutiveThe following table summarizes the outstanding employee stock options, restricted stock units, and redeemable convertible preferred stock that were omittedexcluded from the 2011 and 2013 calculationsdiluted per share calculation for the periods presented because the effect of their inclusion was antidilutive. Series A and Series B Redeemable Convertible Preferredto include them would have been anti-dilutive:     Year ended June 30, 2014       2012   2013   2014   Redeemable convertible preferred stock     —     11,933     —   Restricted stock units     —     —     102   Employee stock options     —     1,859     4,388                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total     —     13,792     4,490                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                         Restricted Stock Awards were omittedexcluded from the 2011 and 2013both basic and diluted net lossearnings per share calculations because Stockholders of those issuances are not obligated to participate in the losses generated by the Company as enumerated in the Company's Articles of Incorporation. (16) Related Party Transactions         The Company purchased sales leads from an entity owned by one of the stockholders in the amount of approximately $172, $404 and $893 for the years ended June 30, 2011, 2012 and 2013 respectively. The Company provides no management guidance toas the entity and has no equity interest in the entity, no obligation or intention to fund any of the entity's operational shortfalls, and no right to any operational surpluses generated by the entity. Accounts payable to this entity were approximately $0, $0 and $65 as of June 30, 2011, 2012 and 2013, respectively. On October 14, 2013, the Company hired substantially all of the employees of the sales lead generation entity described above. See Note 9 for additional related party transaction information.vesting conditions had not been met. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (17) Subsequent Events         The Company has evaluated subsequent events from the balance sheet date through December 5, 2013, the date at which the financial statements were available to be issued.         On November 6, 2013, Paylocity Holding Corporation was established. All holders of Paylocity Corporation equity instruments were issued Paylocity Holding Corporation equity instruments with identical rights and obligations in exchange for their Paylocity Corporation equity instruments. Upon the completion of these transactions, Paylocity Holding Corporation was the sole stockholder of Paylocity Corporation. There was no impact on the Company's consolidated balance sheet, consolidated results of operations, or consolidated earnings per share presented in the consolidated financial statements and notes thereto for the periods ended June 30, 2011, 2012 and 2013 and there is not expected to be one in the future.         On March 5, 2014, the Company amended its Certificate of Incorporation to execute a reverse three for two stock split on its common stock. All share and per-share amounts in the Company's consolidated financial statements and notes to the financial statements have been updated to reflect the impact of this change on the number of shares authorized, issued and outstanding and earnings per share.         See Notes 1, 9, 14 and 16 for additional subsequent event disclosures. Table of Contents PAYLOCITY HOLDING CORPORATION Consolidated Balance Sheets As of June 30 and December 31, 2013 (in thousands) (unaudited)     June 30, 2013   December 31, 2013   Pro forma as of December 31, 2013   Assets                     Current assets:                     Cash and cash equivalents   $ 7,594   $ 2,829   $ 2,829   Accounts receivable, net     740     684     684   Prepaid expenses and other     1,875     2,176     2,176   Deferred income tax assets, net     602     564     564                   Total current assets before funds held for clients     10,811     6,253     6,253   Funds held for clients     355,905     491,763     491,763                   Total current assets     366,716     498,016     498,016   Long-term prepaid expenses     —     414     414   Deferred income tax assets, net     —     1,008     1,008   Deferred offering costs     —     1,561     1,561   Capitalized software, net     2,614     3,244     3,244   Property and equipment, net     8,586     10,990     10,990                   Total assets   $ 377,916   $ 515,233   $ 515,233                   Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)                     Current liabilities:                     Current portion of long-term debt   $ 625   $ 625   $ 625   Accounts payable     880     3,253     3,253   Taxes payable     207     12     12   Accrued expenses     6,794     7,388     7,388                   Total current liabilities before client fund obligations     8,506     11,278     11,278   Client fund obligations     355,905     491,763     491,763                   Total current liabilities     364,411     503,041     503,041   Long-term debt, net of current portion     938     625     625   Deferred income tax liabilities, net     269     —     —   Deferred rent     2,317     2,793     2,793                   Total liabilities   $ 367,935   $ 506,459   $ 506,459                   Redeemable convertible preferred stock, $0.001 par value                     Series A, 6% cumulative dividend, 9,500 shares authorized, issued and outstanding as of June 30 and December 31, 2013, no shares issued and outstanding pro forma, $12,810 and $13,194 liquidation preference at June 30 and December 31, 2013     9,339     9,339     —   Series B, 8% cumulative dividend, 8,500 shares authorized, 8,400 shares issued and outstanding at June 30 and December 31, 2013, no shares issued and outstanding pro forma, $32,210 and $34,762 liquidation preference at June 30 and December 31, 2013     27,234     27,234     —   Stockholders' equity (deficit)                     Common stock, $0.001 par value, 66,667 authorized 31,988 shares issued and outstanding as of June 30 and December 31, 2013, and 44,191 pro forma     32     32     44   Additional paid-in capital     437     786     37,698   Accumulated deficit     (27,061 )   (28,617 )   (28,968 )                 Total stockholders' equity (deficit)     (26,592 )   (27,799 )   8,774                   Total liabilities, redeemable convertible preferred stock, and stockholders' equity (deficit)                $ 377,916   $ 515,233   $ 515,233                   See accompanying notes to unaudited consolidated financial statements. Table of Contents PAYLOCITY HOLDING CORPORATION Consolidated Statements of Operations For the six months ended December 31, 2012 and 2013 (in thousands, except per share data) (unaudited)     Six months ended December 31,       2012   2013   Revenues               Recurring fees   $ 30,639   $ 42,883   Interest income on funds held for clients     625     731               Total recurring revenues     31,264     43,614   Implementation services and other     1,762     2,660               Total revenues     33,026     46,274   Cost of revenues               Recurring revenues     13,294     17,074   Implementation services and other     4,762     7,991               Total cost of revenues     18,056     25,065               Gross profit     14,970     21,209   Operating expenses               Sales and marketing     7,826     10,612   Research and development     3,054     4,303   General and administrative     5,794     9,139               Total operating expenses     16,674     24,054               Operating loss     (1,704 )   (2,845 ) Other income (expense)     (9 )   50               Loss before income taxes     (1,713 )   (2,795 ) Income tax benefit     (681 )   (1,239 )             Net loss   $ (1,032 ) $ (1,556 )             Net loss attributable to common stockholders   $ (2,486 ) $ (3,118 )             Net loss per share attributable to common stockholders, basic and diluted   $ (0.08 ) $ (0.09 )             Pro-forma net loss per share attributable to common stockholders, basic and diluted         $ (0.03 )               Weighted average number of shares of common stock used in computing net loss per share attributable to common stockholders, basic and diluted     31,988     31,988               Pro-forma weighted average number of shares of common stock, basic and diluted           44,191                 See accompanying notes to unaudited consolidated financial statements. Table of Contents PAYLOCITY HOLDING CORPORATION Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) For the six-month period ended December 31, 2013 (in thousands) (unaudited)     Redeemable Convertible Preferred Stock   Stockholders' Equity (Deficit)       Preferred—Series A   Preferred—Series B   Common Stock                   Additional Paid-in Capital   Accumulated Deficit   Total Stockholders' Equity (Deficit)       Shares   Amount   Shares   Amount   Shares   Amount   Balances at June 30, 2013     9,500   $ 9,339     8,400   $ 27,234     31,988   $ 32   $ 437   $ (27,061 ) $ (26,592 ) Stock option expense     —     —     —     —     —     —     349     —     349   Net loss     —     —     —     —     —     —     —     (1,556 )   (1,556 )                                         Balances at December 31, 2013     9,500   $ 9,339     8,400   $ 27,234     31,988   $ 32   $ 786   $ (28,617 ) $ (27,799 )                                         See accompanying notes to the unaudited consolidated financial statements. Table of Contents PAYLOCITY HOLDING CORPORATION Consolidated Statements of Cash Flows For the six months ended December 31, 2012 and 2013 (in thousands) (unaudited)     Six months ended December 31,       2012   2013   Cash flows provided by (used in) operating activities:               Net loss   $ (1,032 ) $ (1,556 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities:               Stock-based compensation     261     349   Depreciation and amortization     2,733     2,924   Deferred income tax benefit     (776 )   (1,239 ) Provision for doubtful accounts     30     6   Changes in operating assets and liabilities:               Increase in accounts receivable     3     50   Increase in prepaid expenses     (1,249 )   (715 ) Increase in trade accounts payable     (157 )   778   Decrease in accrued expenses     73     295               Net cash (used in) provided by operating activities     (114 )   892   Cash flows from investing activities:               Capitalized internally developed software costs     (594 )   (1,859 ) Purchases of property and equipment     (2,034 )   (2,787 ) Net change in funds held for clients     (79,808 )   (135,858 )             Net cash used in investing activities     (82,436 )   (140,504 ) Cash flows from financing activities:               Net change in client funds obligation     79,808     135,858   Principal payments on long-term debt     (313 )   (313 ) Proceeds from exercise of stock options     76     —   Payments for redemption of Common Shares     (162 )   —   Payments on deferred offering costs     —     (698 )             Net cash provided by financing activities     79,409     134,847               Net Change in Cash and Cash Equivalents     (3,141 )   (4,765 ) Cash and Cash Equivalents—Beginning of Period     9,031     7,594               Cash and Cash Equivalents—End of Period   $ 5,890   $ 2,829               Supplemental disclosure of non-cash investing and financing activities               Build-out allowance received from landlord   $ 325   $ 580               Deferred offering costs included in accounts payable   $ —   $ 863               Supplemental disclosure of cash flow information               Cash paid for income taxes   $ 12   $ 195               Cash paid for interest   $ 68   $ 48               See accompanying notes to unaudited consolidated financial statements. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (all amounts in thousands, except per share data) (unaudited) (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 delivered via the Internet. Payroll services include collection, remittance and reporting of payroll liabilities to the appropriate federal, state and local authorities.         The Company was formed on November 6, 2013, and Paylocity Corporation became a wholly-owned subsidiary of the Company, resulting in the inclusion of Paylocity Corporation in the consolidated financial statements of Paylocity Holding Corporation. All holders of Paylocity Corporation equity instruments were issued Paylocity Holding Corporation equity instruments with identical rights and obligations in exchange for their Paylocity Corporation equity instruments. Upon the completion of these transactions, Paylocity Holding Corporation was the sole stockholder of Paylocity Corporation.         On March 5, 2014, the Company amended its Certificate of Incorporation to execute a reverse three for two stock split on its common stock. All share and per-share amounts in the Company's consolidated financial statements and notes to the financial statements have been updated to reflect the impact of this change on the number of shares authorized, issued and outstanding and earnings per share. (2) Summary of Significant Accounting Policies(18) Related Party Transactions (a)Unaudited Pro Forma Stockholders' Equity (Deficit) and Net Loss per ShareBlue Marble         The Company has submittedentered into a Registration StatementMemorandum of Understanding ("Memorandum") and a Non-Competition and Non-Solicitation Agreement ("Non-Compete") with its Chairman Steve Sarowitz and Blue Marble, a separate legal entity owned by Mr. Sarowitz, in June 2014.         As stipulated in the Memorandum, Mr. Sarowitz resigned as an employee of Paylocity but continues to serve the Company as the non-executive Chairman of the board of directors. The Memorandum establishes the ongoing market based terms between the Company and Blue Marble for services provided to or on Form S-1 withbehalf of each other. In addition, Paylocity obtained a right of first refusal on the sale of Blue Marble, an option exercisable starting three years from the date of the Memorandum to purchase Blue Marble, and the right of first refusal to purchase any acquisition target of Blue Marble outside the United States Securitiesof America, all at fair market value. The Memorandum requires Blue Marble to obtain written consent from Paylocity should Blue Marble intend to acquire an entity that provides or partners with other service providers to provide products and Exchange Commission (the "SEC")services to clients located in the United States of America. The Company provides no management guidance to the entity, has no equity interest in the entity, no obligation or intention to fund any of the entity's operational shortfalls, and no right to any operational surpluses generated by the entity.         The Non-Compete agreement outlines the permissible activities and ongoing responsibilities of Mr. Sarowitz and Blue Marble including an obligation not to compete with services offered by Paylocity and an obligation not to solicit employees of Paylocity. Elite Sales         The Company purchased sales leads from an entity owned by one of the stockholders in the amount of approximately $404, $893 and $231 for the proposed initial public offering ("IPO")years ended June 30, 2012, 2013 and 2014, respectively. The Company provided no management guidance to the entity and had no equity interest in the entity, had no obligation or intention to fund any of sharesthe entity's operational shortfalls, and had no right to any operational surpluses generated by the entity. Accounts payable to this entity were approximately $65 and $0 as of its common stock. IfJune 30, 2013 and 2014, respectively. On October 14, 2013, the Company's IPO is consummated,Company hired substantially all of the 17,900 shares of redeemable convertible preferred stock outstanding will convert into common stock at the conversion ratio currently two common shares for every three Redeemable Convertible Preferred Stock shares and 269 shares of restricted common stock will fully vest. The unaudited pro forma stockholders' deficit data as of December 31, 2013 has been prepared assuming the automatic conversion of all outstanding shares of redeemable convertible preferred stock and vestingemployees of the restricted common stock into 12,203 shares of common stock.sales lead generation entity described above. Principal Stockholder Contribution for Cash Bonuses         The unaudited pro forma net loss per common share, basic and diluted,In May 2014, the Company's Chairman paid approximately $1,052 to the Company for the six months ended December 31, 2013 have been computedexpress purpose of paying a cash bonus to give effect to the conversionlong-term employees in recognition of the redeemable convertible preferred stock and vesting of the restricted common stock into an aggregate of 12,203 shares of common stock as if such shares converted or vested, as applicable, as of July 1, 2013. their past service. The Company believes thatrecorded a capital contribution to additional paid-in capital for the unaudited pro forma net loss per common share provides material informationamount received from the Chairman and compensation expense for the amount paid to investors becauseemployees, accordingly. The Company paid the conversionemployer portion of employment taxes and will receive any income tax related benefits from the redeemable convertible preferred stockpayments to employees and the vesting of outstanding restricted common stock into common stock is expected to occur upon the closing of the Company's IPO and, therefore, the disclosure of pro forma net loss per common share provides a measure of net loss per common share that is more comparable to what will be reported as a public company.resulting taxes. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (19) Subsequent Events         The Company has evaluated subsequent events from the balance sheet date through August 22, 2014, the date at which the financial statements were available to be issued.         In August 2014, the Board of Directors granted restricted stock units for 340,875 shares of common stock which vest annually over four years and stock options to purchase 321,700 shares of commons stock at a weighted-average exercise price of $24.80 per share which vest over four years. (20) Selected Quarterly Financial Data (unaudited)         The following tables set forth selected unaudited quarterly statements of operations data for each of the eight quarters in the years ended June 30, 2013 and 2014.     Quarter Ended       September 30, 2012   December 31, 2012   March 31, 2013   June 30, 2013   Consolidated States of Operations Data                           Revenues   $ 15,826   $ 17,200   $ 24,006   $ 20,262   Gross profit   $ 7,307   $ 7,663   $ 13,272   $ 9,386   Operating income (loss)   $ (616 ) $ (1,088 ) $ 2,604   $ (869 ) Net income (loss)   $ (405 ) $ (627 ) $ 2,021   $ (372 ) Net income (loss) per share attributable to common stockholders, basic and diluted:   $ (0.04 ) $ (0.04 ) $ 0.03   $ (0.03 ) Weighted-average shares used in computing net income (loss) per share attributable to common stockholders:                           Basic     31,988     31,988     43,921     31,988   Diluted     31,988     31,988     44,407     31,988       Quarter Ended       September 30, 2013   December 31, 2013   March 31, 2014   June 30, 2014   Consolidated States of Operations Data                           Revenues   $ 22,369   $ 23,905   $ 33,766   $ 28,647   Gross profit   $ 10,622   $ 10,587   $ 18,841   $ 13,543   Operating income (loss)   $ (434 ) $ (2,411 ) $ 2,133   $ (6,306 ) Net income (loss)   $ (44 ) $ (1,512 ) $ 1,150   $ (6,704 ) Net income (loss) per share attributable to common stockholders, basic and diluted:   $ (0.03 ) $ (0.07 ) $ 0.01     (0.14 ) Weighted-average shares used in computing net income (loss) per share attributable to common stockholders:                           Basic     31,988     31,988     44,360     49,564   Diluted     31,988     31,988     44,870     49,564   Table of Contents PAYLOCITY HOLDING CORPORATION Unaudited Consolidated Balance Sheets (in thousands, except share and per share data)     June 30, 2014   September 30, 2014   Assets               Current assets:               Cash and cash equivalents   $ 78,848   $ 72,843   Accounts receivable, net     756     799   Prepaid expenses and other     2,694     3,072   Deferred income tax assets, net     706     706               ​ ​ ​ ​ ​ ​ ​ ​ Total current assets before funds held for clients     83,004     77,420   Funds held for clients     417,261     432,225               ​ ​ ​ ​ ​ ​ ​ ​ Total current assets     500,265     509,645   Long-term prepaid expenses     313     303   Capitalized software, net     5,093     5,574   Property and equipment, net     13,125     14,038   Intangible assets, net     6,320     6,130   Goodwill     3,035     3,035               ​ ​ ​ ​ ​ ​ ​ ​ Total assets   $ 528,151   $ 538,725               ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and Stockholders' Equity               Current liabilities:               Accounts payable   $ 2,133   $ 1,520   Taxes payable     5     10   Consideration related to acquisition     2,985     600   Accrued expenses     10,744     10,777               ​ ​ ​ ​ ​ ​ ​ ​ Total current liabilities before client fund obligations     15,867     12,907   Client fund obligations     417,261     432,225               ​ ​ ​ ​ ​ ​ ​ ​ Total current liabilities     433,128     445,132   Deferred rent     3,175     3,089   Deferred income tax liabilities, net     714     734               ​ ​ ​ ​ ​ ​ ​ ​ Total liabilities   $ 437,017   $ 448,955               ​ ​ ​ ​ ​ ​ ​ ​ Stockholders' equity               Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding at June 30, 2014 and September 30, 2014     —     —   Common stock, $0.001 par value, 155,000 shares authorized at June 30 and September 30, 2014, 49,564 shares issued and outstanding at June 30, 2014; and 49,577 shares issued and outstanding at September 30, 2014     50     50   Additional paid-in capital     125,255     128,766   Accumulated deficit     (34,171 )   (39,046 )             ​ ​ ​ ​ ​ ​ ​ ​ Total stockholders' equity     91,134     89,770               ​ ​ ​ ​ ​ ​ ​ ​ Total liabilities and stockholders' equity   $ 528,151   $ 538,725               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​             See accompanying notes to unaudited consolidated financial statements. Table of Contents PAYLOCITY HOLDING CORPORATION Unaudited Consolidated Statements of Operations (in thousands, except per share data)     Three months ended September 30,       2013   2014   Revenues:               Recurring fees   $ 20,738   $ 29,142   Interest income on funds held for clients     353     363               ​ ​ ​ ​ ​ ​ ​ ​ Total recurring revenues     21,091     29,505   Implementation services and other     1,278     1,604               ​ ​ ​ ​ ​ ​ ​ ​ Total revenues     22,369     31,109   Cost of revenues:               Recurring revenues     7,993     10,057   Implementation services and other     3,754     5,395               ​ ​ ​ ​ ​ ​ ​ ​ Total cost of revenues     11,747     15,452               ​ ​ ​ ​ ​ ​ ​ ​ Gross profit     10,622     15,657   Operating expenses               Sales and marketing     5,189     9,078   Research and development     1,956     4,027   General and administrative     3,911     7,448               ​ ​ ​ ​ ​ ​ ​ ​ Total operating expenses     11,056     20,553               ​ ​ ​ ​ ​ ​ ​ ​ Operating loss     (434 )   (4,896 ) Other income (expense)     28     49               ​ ​ ​ ​ ​ ​ ​ ​ Loss before income taxes     (406 )   (4,847 ) Income tax (benefit) expense     (362 )   28               ​ ​ ​ ​ ​ ​ ​ ​ Net loss   $ (44 ) $ (4,875 )             ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​             Net loss attributable to common stockholders   $ (825 ) $ (4,875 )             ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​             Net loss per share attributable to common stockholders, basic and diluted   $ (0.03 ) $ (0.10 )             ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​             Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted     31,988     49,566               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​             See accompanying notes to unaudited consolidated financial statements. Table of Contents PAYLOCITY HOLDING CORPORATION Unaudited Consolidated Statements of Changes in Stockholders' Equity (in thousands)     Stockholders' Equity       Common Stock                   Additional Paid-in Capital   Accumulated Deficit   Total Stockholders' Equity       Shares   Amount   Balances at June 30, 2014     49,564   $ 50   $ 125,255   $ (34,171 ) $ 91,134   Stock-based compensation expense     —     —     3,445     —     3,445   Stock options exercised     13     —     66     —     66   Net loss     —     —     —     (4,875 )   (4,875 )                         ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances at September 30, 2014     49,577   $ 50   $ 128,766   $ (39,046 ) $ 89,770                           ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                         See accompanying notes to the unaudited consolidated financial statements. Table of Contents PAYLOCITY HOLDING CORPORATION Unaudited Consolidated Statements of Cash Flows (in thousands)     Three months ended September 30,       2013   2014   Cash flows provided by (used in) operating activities:               Net loss   $ (44 ) $ (4,875 ) Adjustments to reconcile to net cash provided by operating activities:               Stock-based compensation     181     3,283   Depreciation and amortization     1,391     1,931   Deferred income tax (benefit) expense     (361 )   20   Provision for doubtful accounts     15     42   Loss on disposal of equipment     —     30   Changes in operating assets and liabilities:               Accounts receivable     (94 )   (85 ) Prepaid expenses     (695 )   (368 ) Trade accounts payable     172     (245 ) Accrued expenses     (267 )   67               ​ ​ ​ ​ ​ ​ ​ ​ Net cash provided by (used in) operating activities     298     (200 ) Cash flows from investing activities:               Capitalized internally developed software costs     (1,024 )   (912 ) Purchases of property and equipment     (1,412 )   (2,499 ) Payments for acquisition     —     (2,385 ) Net change in funds held for clients     64,346     (14,964 )             ​ ​ ​ ​ ​ ​ ​ ​ Net cash provided by (used in) investing activities     61,910     (20,760 ) Cash flows from financing activities:               Net change in client funds obligation     (64,346 )   14,964   Payments on initial public offering costs     —     (75 ) Proceeds from exercise of stock options     —     66   Principal payments on long-term debt     (157 )   —               ​ ​ ​ ​ �� ​ ​ ​ Net cash (used in) provided by financing activities     (64,503 )   14,955               ​ ​ ​ ​ ​ ​ ​ ​ Net change in cash and cash equivalents     (2,295 )   (6,005 ) Cash and cash equivalents—beginning of year     7,594     78,848               ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents—end of year   $ 5,299   $ 72,843               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​             Supplemental disclosure of non-cash investing and financing activities               Purchase of property and equipment, accrued but not paid   $ 70   $ 488               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​             Supplemental disclosure of cash flow information               Cash paid for income taxes   $ 195   $ 2               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​             Cash paid for interest   $ 25     —               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​             See accompanying notes to unaudited consolidated financial statements. 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"), through its wholly owned subsidiary, Paylocity Corporation, 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. Payroll services include collection, remittance and reporting of payroll liabilities to the appropriate federal, state and local authorities. (2) Summary of Significant Accounting Policies (Continued) (a) 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 subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.         The unaudited pro forma stockholders' equity data also gives effectpreparation of consolidated financial statements in conformity with GAAP requires management to $351make 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. Significant items subject to such estimates and assumptions include the allowance for doubtful accounts, software developed for internal use, valuation and useful lives of long-lived assets, definite-lived intangibles, goodwill, stock-based compensation, expense associatedvaluation of net deferred income tax assets and the best estimate of selling price for revenue recognition purposes. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the RSAs, which the Company expects to record upon completionexercise of the Company's initial public offering. This pro forma adjustment related to stock-based compensation expense has been reflected as an increase to additional paid-in capital and accumulated deficit and has not been reflectedjudgment. Accounting estimates used in the resultspreparation of operations for the six months ended December 31, 2013. Payroll tax expenses and other withholding obligations have not been included in the pro forma adjustments. (b)Summary of Significant Accounting Policies         The Company's significant accounting policies discussed in Note 2 to its auditedthese consolidated financial statements forchange as new events occur, as more experience is acquired, as additional information is obtained and as the fiscal year ended June 30, 2013 have not significantly changed.operating environment changes. (c) (b) Interim Unaudited Consolidated Financial Information         The accompanying unaudited consolidated financial statements and footnotesnotes have been prepared in accordance with generally accepted accounting principles inGAAP and applicable rules and regulations of the United States of AmericaSecurities and Exchange Commission ("GAAP"SEC") as contained in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (the "Codification" or "ASC") forregarding interim financial information, and with Article 10 of SEC Regulation S-X.reporting. Accordingly, they do not include all of the information and footnotesnotes 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 results of operations, financial position, changes in stockholders' deficitequity and cash flows. The results of operations for the six monthsthree-month period ended December 31, 2013September 30, 2014 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 footnotesnotes for the year ended June 30, 2013 appearing2014 included elsewhere in this prospectus. (d)Use of Estimates         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. Significant items subject to such estimates and assumptions include (1) allowance for doubtful accounts; (2) software developed for internal use; (3) impairment of property and equipment; (4) stock-based compensation; (5) evaluation of net deferred income tax assets and (6) the best estimate of selling price for revenue recognition purposes. 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. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Unaudited Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (unaudited) (2) Summary of Significant Accounting Policies (Continued) (e) (c) Income Taxes         Differences in the normal relationship between the income tax expense (benefit) provision and pre-tax income (loss) materially result from federal and state research and development credits and expenses not deductible for incomethe existence of a valuation allowance recorded against the preponderance of the net deferred tax reporting purposes. No federal research and development credits were recordedassets. (d) Stock-Based Compensation         The Company recognizes all employee stock-based compensation as a cost in the six month period ending December 31, 2012 due tofinancial statements. Equity-classified awards, including those under the fact that no enabling statute was enacted until January 2013. As such,2014 Employee Stock Purchase Plan ("ESPP"), are measured at the research and development credit resulting from research and development activities conducted during the six month period ending December 31, 2012, was recognized in the three month period ending March 31, 2013, the interim period that includes the enactment date. (f)Deferred Offering Costs         Deferred offering costs, consisting of legal, accounting, and other fees and costs relating to the initial public offering are capitalized. The deferred offering costs will be offset against the proceeds received from the initial public offering. In the event the offering is no longer deemed probable, allgrant date fair value of the deferred offering costs will be expensed. There was $0award and $1,561 in deferred offering costs classified as other current assets asexpense is recognized, net of June 30assumed forfeitures, on a straight-line basis over the requisite service period for each separately vesting portion of the award. The Company estimates grant date fair value using the Black-Scholes option-pricing model and December 31, 2013, respectively.periodically updates the assumed forfeiture rates for actual experience over the option vesting term or the term of the ESPP purchase period. (g) (e) Recently Issued Accounting Standards         In May 2014, the Financial Accounting Standard Board (FASB) issued ASU 2014-09,Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). ASU 2014-09 supersedes a majority of existing revenue recognition guidance under US GAAP, and requires companies to recognize revenue when it transfers goods or services to a customer in an amount that reflects the consideration to which a company expects to be entitled. Companies may need to apply more judgment and estimation techniques or methods while recognizing revenue, which could result in additional disclosures to the financial statements. Topic 606 allows for either a "full retrospective" adoption or a "modified retrospective" adoption. The Company is currently evaluating which adoption method it will use. Early application is not permitted. The Company plans on adopting ASU 2014-09 beginning July 1, 2017 and is currently assessing the potential effects of these changes to its consolidated financial statements.         From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("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 recently issued standards that are not yet effective will not have a material impact on the Company's consolidated financial statements upon adoption. (3) 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, 2014   $ 126   Charged to expense     42   Write-offs     (5 )         ​ ​ ​ ​ ​ Balance at September 30, 2014   $ 163           ​ ​ ​ ​ ​ ​ ​ ​ ​ ​         Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Unaudited Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (3) Balance Sheet Information (Continued) Capitalized software and accumulated amortization were as follows:   June 30, 2013   December 31, 2013     June 30, 2014   September 30, 2014   Internally developed software   $ 15,189   $ 17,048     $ 19,863   $ 20,937   Accumulated amortization   (12,575 )   (13,804 )   (14,770 )   (15,363 )                     ​ ​ ​ ​ ​ ​ Capitalized software, net   $ 2,614   $ 3,244     $ 5,093   $ 5,574                       ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                   Amortization of capitalized internal-use software costs was $1,595 and $1,229 for the six months ended December 31, 2012 and 2013, respectively and is included in Cost of Revenues-Recurring Revenues.Revenues and amounted to $605 and $593 for the three months ended September 30, 2013 and 2014, respectively.         Property and equipment consist of the following:     June 30, 2014   September 30, 2014   Office equipment   $ 1,449   $ 1,631   Computer equipment     7,726     9,310   Furniture and fixtures     2,317     2,357   Software     4,963     4,978   Leasehold improvements     6,059     6,106   Time clocks rented by clients     2,360     2,460               ​ ​ ​ ​ ​ ​ ​ ​     24,874     26,842   Accumulated depreciation     (11,749 )   (12,804 )             ​ ​ ​ ​ ​ ​ ​ ​ Property and equipment, net   $ 13,125   $ 14,038               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                     Depreciation expense amounted to $786 and $1,148 for the three months ended September 30, 2013 and 2014, respectively.         The components of accrued expenses were as follows:     June 30, 2014   September 30, 2014   Accrued payroll and personnel costs   $ 8,781   $ 8,756   Current portion of deferred rent     577     624   Other     1,386     1,397               ​ ​ ​ ​ ​ ​ ​ ​ Total accrued expenses   $ 10,744   $ 10,777               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​             Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Unaudited Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (3) Balance Sheet Information (Continued)         Intangible assets consist of the following:     June 30, 2014   September 30, 2014   Weighted Average Useful Life Client relationships   $ 6,180   $ 6,180   9 years Non-solicitation agreement     220     220   3 years               ​ ​ ​ ​ ​ ​ ​ ​ ​ Total     6,400     6,400     Accumulated amortization     (80 )   (270 )                 ​ ​ ​ ​ ​ ​ ​ ​ ​ Intangible assets, net   $ 6,320   $ 6,130                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                       There was no amortization expense for acquired intangible assets for the three months ended September 30, 2013. Amortization expense for acquired intangible assets was $190 for the three months ended September 30, 2014. (4) Fair Value Measurement         The Company applies the fair value measurement and disclosure provisions of ASC 820, Fair Value Measurements and Disclosures, and ASU 2011-04,Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS . Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: • Level 1—Quoted prices in active markets for identical assets and liabilities. • Level 2—Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. • Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.         Substantially all of the Company's assets that are measured at fair value on a recurring basis are measured using Level 1 inputs. The Company considers the recorded value of its financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, and accounts payable, to approximate the fair value of the respective assets and liabilities at June 30, 2014 and September 30, 2014 based upon the short-term nature of the assets and liabilities. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Unaudited Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (unaudited)(5) Benefit Plans (a) (3) Balance Sheet Information (Continued)Equity Incentive Plan         PropertyThe Company maintains a 2008 Equity Incentive Plan (the "2008 Plan") and equipment consista 2014 Equity Incentive Plan (the "2014 Plan") pursuant to which the Company has reserved 7,032 shares of its common stock for issuance to its employees, directors and non-employee third parties. The 2014 Plan serves as the successor to the 2008 plan and permits the granting of options to purchase common stock and other equity incentives at the discretion the compensation committee of the following:Company's board of directors. No new awards will be issued under the 2008 Plan as of the effective date of the 2014 Plan. Outstanding awards under the 2008 Plan continue to be subject to the terms and conditions of the 2008 Plan.         Under the 2008 and 2014 Plans, the exercise price of each option is not less than the fair value of a share of common stock on the grant date. As of September 30, 2014, the Company had 1,952 shares allocated to the 2014 Plan, but not yet issued or subject to outstanding options or awards. Generally, the Company issues previously unissued shares for the exercise of stock options; however, previously acquired shares may be reissued to satisfy future issuances. The options typically vest ratably over a three or four year period and expire 10 years from the grant date. Compensation expense for the fair value of the options at their grant date is recognized ratably over the vesting schedule.         Stock-based compensation expense related to stock options and the vesting of Restricted Stock Awards ("RSAs") and Restricted Stock Units ("RSUs") is included in the following line items in the accompanying unaudited consolidated statements of operations:     June 30, 2013   December 31, 2013   Office equipment   $ 1,350   $ 1,346   Computer equipment     4,665     6,456   Furniture and fixtures     1,433     1,778   Automobiles     36     36   Software     3,791     4,404   Leasehold improvements     3,917     4,887   Time clocks rented by clients     1,649     1,693                   16,841     20,600               Accumulated depreciation and amortization     (8,255 )   (9,610 )             Property and equipment, net   $ 8,586   $ 10,990                   Three months ended September 30,       2013   2014   Cost of revenue—recurring   $ —   $ 348   Cost of revenue—non-recurring     —     291   Sales and marketing     —     884   Research and development     —     535   General and administrative     181     1,225               ​ ​ ​ ​ ​ ​ ​ ​ Total stock-based compensation   $ 181   $ 3,283               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                     Depreciation expense amounted to $1,138 and $1,695 forIn addition, the six monthsCompany capitalized $162 of stock compensation costs in its internal use software in the three month period ended December 31, 2012 and 2013, respectively.         The components of accrued expensesSeptember 30, 2014. No such amounts were as follows:     June 30, 2013   December 31, 2013   Accrued payroll and personnel costs   $ 5,549   $ 5,629   Reseller fees     259     372   Other     986     1,387               Total Accrued expenses   $ 6,794   $ 7,388               (4) Stockholder's Equity (Deficit) Common Stock         Holders of common stock are entitled to one vote per share and to receive dividends. The holders have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares. Common stock is subordinate tocapitalized in internal use software in the redeemable convertible preferred stock with respect to dividend rights and rights upon liquidation, winding up and dissolution of the Company. (5) Redeemable Convertible Preferred Stockthree month period ended September 30, 2013.         The Company has two seriesvalues stock options using the Black-Scholes option-pricing model, which requires the input of Redeemable Convertible Preferred Stock, Series Asubjective assumptions, including the risk-free rate, expected life, expected stock price volatility and Series B.dividend yield. The risk-free interest rate assumption is based upon observed interest rates for U.S. Treasury securities consistent with the expected term of the Company's employee stock options. The expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified method. Under the simplified method, the expected life of an option is presumed to be the mid-point between the vesting date Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Unaudited Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (unaudited) (5) Redeemable Convertible Preferred StockBenefit Plans (Continued) and the end of the contractual term. The Series A Redeemable Convertible Preferred Stock, with a par value of $0.001 per share, has a liquidation preference seniorCompany utilizes the simplified method due to the common stock. Inlack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the event of liquidation as defined in the Company's charter, the Series A Redeemable Convertible Preferred Stock is entitled to a liquidation preference equal to the original issue price of each respective share of Series A Redeemable Convertible Preferred Stock plus unpaid and accrued and declared dividends. The liquidation amountexpected life of the Series A Redeemable Convertible Preferred Stock is capped at 2.25 times the original issue price of the Series A Redeemable Convertible Preferred Stock. Series A Redeemable Convertible Preferred Stockholders are entitled to a 6% cumulative preferred dividend computed on the contributed investment of $9,500 payable when declared by the Company. No dividends may be declared and paid on the Company's common stock until such time as the Company has paid in full any dividends actually accrued on such Redeemable Convertible Preferred Stock. No such dividends have been declared as of June 30 and December 31, 2013. Cumulative unpaid preferred dividends total approximately $3,310 and $3,694 and were $0.35, and $0.39 per share of Series A Redeemable Convertible Preferred Stock as of June 30 and December 31, 2013, respectively. Proceeds from the issuance were offset by issuance costs of $161.         On June 29, 2012, the Company authorized 8,500 shares of $0.001 par value Series B Redeemable Convertible Preferred Stock and issued 8,400 shares at approximately $3.25 a share to investors. Proceeds from the issuance were used to redeem common stock.         The Series B Redeemable Convertible Preferred Stock, with a par value of $0.001 per share, has a liquidation preference senior to the common stock and is pari passu with the Series A Redeemable Convertible Preferred Stock. In the event of liquidation as defined in the Company's charter, the holders of Series B Redeemable Convertible Preferred Stock are entitled to a liquidation preference equal to original issue price of each respective share of Series B Redeemable Convertible Preferred Stock plus unpaid and accrued and declared dividends. If such liquidation occurs on or before the second anniversary of the initial issuance of the Series B Redeemable Convertible Preferred Stock, then the Series B Redeemable Convertible Preferred Stockholder is entitled to an additional amount equal to 10% of the original issue price on each outstanding share of Series B Redeemable Convertible Preferred Stock per annum. Series B Redeemable Convertible Preferred Stockholders are entitled to an 8% cumulative preferred dividend computed on the investment amount of $27,284 payable when declared by the Company. No dividends may be declared and paid on the Company's common stock until such time as the Company has paid in full any dividends actually accrued on such Preferred Stock. No such dividends have been declared as of June 30 and December 31, 2013. Cumulative unpaid preferred dividends totaled approximately $2,190 and $3,367 and were $0.26 and $0.40 per share of Series B Redeemable Convertible Preferred Stock as of December 31, 2012 and 2013, respectively. Proceeds from the issuance were offset by issuance costs of $50.         The Series A and B Redeemable Convertible Preferred Stockholders (together the "Preferred Stockholders") have the right to vote on certain corporate matters on an as converted basis with the common stock as a single class. In addition to the preferential cumulative dividends, holders of Series A and Series B Redeemable Convertible Preferred Stock are entitled to receive, on an Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (unaudited) (5) Redeemable Convertible Preferred Stock (Continued) if-converted basis, when set aside or paid by the Company, any dividends on the Company's common stock. At any time, the Preferred Stockholders can convert all or any portion of such shares into the aggregate number of shares of common stock at the respective conversion rate, as defined in the agreement, currently two shares of common stock for every three shares of Redeemable Convertible Preferred Stock. Upon the closing of the sale of common stock to the public at a price of at least $8.5263, which also must result in at least $50,000 of gross proceeds, the Series A and Series B Redeemable Convertible Preferred Stock would automatically convert into common stock at the respective conversion rate, as defined in the agreement, currently two shares of common stock for every three shares of Redeemable Convertible Preferred Stock.         At any time following the third anniversary of the initial issuance of the Series B Redeemable Convertible Preferred Stock, the majority holders of Series A and Series B Redeemable Convertible Preferred Stock may require the Company to redeem all of the Series A and Series B Redeemable Convertible Preferred Stock upon notice to the Company. Upon such an occurrence, the Company will reclassify as a liability any remaining Series A and Series B Redeemable Convertible Preferred Stock and adjust their carrying amount to fair market value in accordance with FASB ASC 480-10-55-11Distinguishing Liabilities from Equity. However, this redemption feature terminates upon the conversion of the Series A and Series B Redeemable Convertible Preferred Stock into Common Stock, the successful completion of a qualified IPO or the closing of a deemed liquidation event as described in the Company's Certificate of Incorporation. As a result of these features of the Series A and Series B Redeemable Convertible Preferred Stock, the Company concluded that the likelihood of the Series A and Series B Redeemable Convertible Preferred Stock becoming redeemable was not probable. As such, no adjustment to the carrying value of the Redeemable Convertible Preferred Shares was required. (6) Benefit Plans (a)Equity Incentive Plan options. The Company has establisheda limited history of trading as a public company. Therefore, the 2008 Equity Incentive Plan (the "Plan"). The Plan authorizesexpected volatility is based on historical volatilities for publicly traded stock of comparable companies over the granting of options to purchase common stock and other equity incentives at the discretionestimated expected life of the stock options. The Company assumed no dividend yield because it does not expect to pay dividends in the near future, which is consistent with the Company's Boardhistory of Directors to certain employees. Undernot paying dividends.         The following table summarizes the Plan, the exercise price of each option approximatesassumptions used for estimating the fair value of a share of common stock onoptions granted for the grant date. As a privately owned company,three months ended September 30:     Period ended September 30,       2013   2014   Valuation assumptions:               Expected dividend yield     0 %   0 % Expected volatility     29.5 %   43.9 % Expected term (years)     4.0     6.25   Risk-free interest rate     0.5 %   1.91 %         The following table summarizes changes during the fair value of a share of common stock is determined contemporaneously with the award by the Company's board of directors, including by reference to valuation assessments by third-party valuation consultants utilizing the guidelines outlinedquarter in the American Institutenumber of Certified Public Accountants Practice Aid, Valuationshares available for grant under our equity incentive plans: Number of Shares Available for grant at July 1, 2014 2,581 RSU's granted (379 ) Options granted (322 ) Forfeitures 97 Shares removed (25 ) ​ ​ ​ ​ ​ Available for grant at September 30, 2014 1,952 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​         Shares removed represents forfeitures of Privately-Held-Company Equity Securities Issued as Compensation. Options are granted at various dates, have a maximum term of ten years, and typically vest over four years.         The Company recorded $261 and $349 of stock based compensation expense forgrants made under the six months ended December 31, 2012 and 2013, respectively. Stock based compensation expense is recorded in General and Administrative expense to coincide with the salaries and benefits of the individuals participating in the2008 Plan. As noted above, no new awards will be issued under this plan. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Unaudited Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (unaudited) (6)(5) Benefit Plans (Continued)         The grant-date fair value of eachtable below presents stock option award is estimated onactivity during the date of grant using the Black-Scholes option-pricing model. The weighted average assumptions for 2012 and 2013 grants are provided in the following table. The Company uses company-specific historical data to estimate the expected term of the option, such as employee option exercise and employee post-vesting departure behavior. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. Since the Company's shares are not publicly traded and its shares are rarely traded privately, expected volatility is estimated based on the average historical volatility of similar entities with publicly traded shares. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve at the date of grant.three months ended September 30, 2014:     Period ended December 31,       2012   2013   Valuation assumptions:               Expected dividend yield     0 %   0 % Expected volatility     30.7 %   29.5 % Expected term (years)     4.0     4.0   Risk-free interest rate     0.61 %   0.52 %         Stock option activity during the periods indicated is as follows:     Number of shares   Weighted average exercise price   Weighted average remaining contractual term   Aggregate intrinsic value   Balance at July 1, 2013     1,859   $ 3.25     8.22   $ 7,028   Granted     517     7.04     9.53         Exercised     —     —     —                             Balance at December 31, 2013     2,376   $ 4.08     8.11   $ 21,069                       Options exercisable at December 31, 2013     833   $ 2.49     7.26   $ 8,711                       Options vested and expected to vest at December 31, 2013     1,994   $ 3.79     7.96   $ 18,242                           Outstanding Options       Number of shares   Weighted average exercise price   Weighted average remaining contractual term   Aggregate intrinsic value   Balance at July 1, 2014     4,388   $ 10.00     8.58   $ 51,017   Options granted     322     24.80               Options forfeited     (97 )   14.29               Options exercised     (13 )   4.87                                   ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at September 30, 2014     4,600   $ 10.96     8.40   $ 41,628                       ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                     Options exercisable at September 30, 2014     1,430   $ 3.11     6.79   $ 23,656                       ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                     Options vested and expected to vest at September 30, 2014     4,358   $ 10.63     8.34   $ 40,770                       ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                             The weighted average grant date fair value of options granted during the six-month periodthree-month periods ended December 31, 2012September 30, 2013 and 20132014 was $1.22$1.71, and $1.71,$11.15, respectively. The total intrinsic value of options exercised during the sixthree month period ended December 31, 2012September 30, 2014 was $87.$224. There were no options exercised in the sixthree month period ended December 31,September 30, 2013. At December 31, 2013,September 30, 2014, there was $938$12,337 of total unrecognized compensation cost, net of estimated forfeitures, related to unvested stock optionsoption granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.111.55 years.         The Company may also grant RSAs and RSUs under the 2014 Plan with terms determined at the discretion of the Compensation Committee of the Company's Board of Directors. The following table represents restricted stock unit activity during the three months ended September 30, 2014:     Units   Weighted average grant date fair value   RSU balance at July 1, 2014     102   $ 17.00   RSUs granted     379     24.75   RSUs vested     —     —   RSUs cancelled/forfeited     (1 )   17.00               ​ ​ ​ ​ ​ ​ ​ ​ RSU balance at September 30, 2014     480   $ 23.11               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​             RSUs expected to vest at September 30, 2014     440   $ 22.96               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                     At September 30, 2014, there was $7,818 of total unrecognized compensation cost, net of estimated forfeitures, related to unvested restricted stock awards granted under the Plan. That cost is expected to be recognized over a weighted average period of 2.20 years. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Unaudited Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (unaudited) (6)(5) Benefit Plans (Continued) (b) Employee Stock Purchase Plan         The Company may also grant RestrictedCompany's 2014 Employee Stock AwardsPurchase Plan ("RSAs"ESPP") underwas adopted by the Plan with terms determined atBoard of Directors and approved by the discretionstockholders on February 6, 2014 and was effective upon completion of the Company's Boardinitial public offering.         Under the Company's ESPP, the Company can grant stock purchase rights to all eligible employees during specific offering periods not to exceed twenty-seven months. Each offering period will begin on the first trading day on or after May 16 and November 16 of Directors. The RSAs vest and become exercisable upon occurrence of a change in control oreach year, effective after the first offering period after the Company's initial public offering as defined("IPO"). Shares are purchased through employees' payroll deductions, up to a maximum of 10% of employees' compensation for each purchase period, at a purchase price equal to 85% of the lesser of the fair market value of the Company's common stock at the first trading day of the applicable offering period or the purchase date. Participants may purchase up to $25 worth of common stock or 2 shares of common stock in the Plan.any one year. The holders of RSAs have similar rights to common stockholders. As of December 31, 2012ESPP is considered compensatory and 2013 the Company had 269 RSAs outstanding to certain employees. Noresults in compensation expense is reflected in the accompanying financial statements for RSAs as such expense will be recorded upon vesting.expense.         A total of one-million shares of common stock have been reserved for future issuance under the ESPP, none of which have been issued as of September, 2014 as the initial offering period has not been completed. The Company currently uses authorized and unissued shares to satisfy option exercises and share award vesting. Asnumber of December 31, 2013, the Company authorized 3,008 shares of common stock reserved for issuance under the plan,ESPP will increase automatically each year, beginning on January 1, 2015 and continuing through and including January 1, 2024. The number of shares added each year will be equal to the lesser of (a) 400, (b) seventy-five one hundredths percent (0.75%) of the number of shares of common stock of the Company issued and outstanding on the immediately preceding December 31, or (c) an amount determined by the Company's board of directors.         The Company commenced its initial post-IPO ESPP four month offering period on July 16, 2014. The Company recorded compensation expense attributable to the ESPP of $130 for the three-month period ended September 30, 2014 which 296 are available for future grants.is included in the summary of stock-based compensation expense above. The grant date fair value of the ESPP offering period was estimated using the following weighted average assumptions: Period ended September 30, 2013 2014 Valuation assumptions: Expected dividend yield N/A 0 % Expected volatility N/A 41.7 % Expected term (years) N/A 0.3 Risk-free interest rate N/A 0.04 % (b) (c) 401(k) Plan         The Company maintains a 401(k) plan with a safe harbor matching provision that covers all eligible employees. The Company matches 50% of the employees' contributions up to 6% of their Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Unaudited Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (5) Benefit Plans (Continued) gross pay. Contributions were $297approximately $248 and $477$382 for the sixthree months ended December 31, 2012September 30, 2013 and 2013, respectively.2014. (7)(6) Commitments and Contingencies Reseller Agreements         The Company hashad agreements with two resellers.organizations that sell the Company's offerings and services in defined areas of the country. The initial term ofCompany exercised its right to terminate the first reseller agreement commencedand acquired certain assets of the reseller in February 2007May 2014 as described in Note 5 of the audited consolidated financial statements and expiresrelated notes for the year ended June 30, 2014 included elsewhere in February 2016 unless renewed.this prospectus. The Company paid the first reseller $614 during the three months ended September 30, 2013, under the reseller agreement and paid the first reseller $2,385 during the three months ended September 30, 2014 under the terms of the asset purchase agreement signed at closing in May 2014.         The initial term of the second reseller agreement commenced in June 2009 and expiresis set to expire in June 2016 unless renewed. Each of the Company's reseller agreements provides that the Company is required upon a termination of the agreement to acquire the assets of the reseller.         The first reseller agreement provides that either party may terminate the agreement by electing not to renew the agreement beyond its original term. The Company, but not the reseller, also has the right to terminate the agreement at any time following the completion of an initial public offering by the Company. If a termination were to occur as a result of the Company's election following the completion of this offering, the purchase price of the assets would be equal to three times the net revenues of the reseller for the three months preceding the termination effective date times four plus the annual W-2 revenue of the reseller for the 12 months preceding the termination effective date. The Company paid the first reseller $1.0 million and $1.4 million during the six-month periods ended December 31, 2012 and 2013, respectively. renewed or terminated. The second reseller agreement provided that the reseller may terminate the agreement by providing nine months' prior notice or upon an initial public offering by the Company. The Company amended this agreement in December of 2013 to provide that the reseller may not give a nine-month termination notice until after the earlier of (i) six months following the closing of an initial public offering by the Company or (ii) December 31, 2014. In addition, the Company, but not the reseller, now has the right to terminate the agreement at any time after the date that is six months Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (unaudited) (7) Commitments and Contingencies (Continued) following the completion of an initial public offering by the Company.time. If a termination were to occur, the purchase price of the assets would be equal to 3.3 times the net revenues of the reseller for the 12 months preceding the termination effective date. The Company paid the second reseller $0.8 million$492 and $1.0 million$635 during the six-monththree-month periods ended December 31, 2012September 30, 2013 and 2013,2014, respectively. (8)(7) Earnings Per Share         BasicFor the periods presented prior to the Company's IPO, basic and diluted net income (loss)loss per common share is presented in conformity with the two-class method required for participating securities. Immediately prior toConcurrently with the completionclosing of the Company's Initial Public Offering,IPO on March 24, 2014, all shares of outstanding Preferred Stock are expected to automatically convertconverted into 11,933 shares of the Company's common stock currently at a ratiostock. Following the date of two common shares for every three sharesthe IPO, the two-class method was no longer required as the Company has one class of securities issued and outstanding.         Prior to the conversion of the Redeemable Convertible Preferred Stock. HoldersStock, holders of Series A and holders of Series B Preferred Stock areeach were entitled to liquidation preferences as outlined in Note 4 to the financial statements payable prior and in preference to any dividends on any shares of the Company's common stock. In the event a dividend iswas paid on common stock, the holders of Preferred Stock arewere entitled to a proportionate share of any such dividend as if they were holders of common stock (on an as-if converted basis). The holders of the Company's Preferred Stock dodid not have a contractual obligation to share in the losses of the Company. The Company considersconsidered its Preferred Stock to be participating securities and, in accordance with the two-class method, earnings allocated to Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Unaudited Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (7) Earnings Per Share (Continued) Preferred Stock and the related number of outstanding shares of Preferred Stock have been excluded from the computation of basic and diluted net income (loss) per common share.         Under the two-class method, net income (loss)loss attributable to common stockholders is determined by allocating undistributed earnings, calculated as net income less current period Redeemable Convertible Preferred Stock cumulative dividends, between common stock and Redeemable Convertible Preferred Stock. In computing diluted net income (loss)loss attributable to common stockholders, undistributed earnings are re-allocated to reflect the potential impact of dilutive securities.         Basic net loss per common share is computed using the weighted-average number of common shares outstanding during the period. Since the Series A and Series B Redeemable Convertible Preferred Stock arewere entitled to participate should any common stock dividends behave been declared but arewere not obligated to participate in any losses generated by the Company, basic net income per share is computed using the weighted-average number of common shares outstanding during the period plus the Series A and Series B Redeemable Convertible Preferred Stock on a weighted-average basis.         Diluted net loss per share is computed using the weighted-average number of common shares outstanding during the period and, if dilutive, potential common shares outstanding during the period. Since the Series A and Series B Redeemable Convertible Preferred Stock arewere entitled to participate should any common stock dividends be declared but arewere not obligated to participate in any losses generated by the Company, diluted net income per share is computed using the Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (unaudited) (8) Earnings Per Share (Continued) weighted-average number of common shares plus the Series A and Series B Redeemable Convertible Preferred Stock on a weighted-average basis and, if dilutive, potential common shares outstanding during the period. The Company's potential common shares consist of the Incrementalincremental common shares issuable upon the exercise of stock options. The dilutive effect of outstanding stock options is reflected in diluted earnings per share by application of the treasury stock method.         Restricted Stock Awards are excluded from both basic and diluted earningsTable of Contents PAYLOCITY HOLDING CORPORATION Notes to the Unaudited Consolidated Financial Statements (Continued) (all amounts in thousands, except per share calculations as the vesting conditions have not been met as of December 31, 2013.data) (7) Earnings Per Share (Continued)         The following table presents the calculation of basic and diluted net loss per share:   Six months ended December 31,     Three months ended September 30,     2012   2013     2013   2014   Basic net loss per share:             Numerator:             Net loss   $ (1,032 ) $ (1,556 ) Net Loss   $ (44 ) $ (4,875 ) Less: Preferred dividend rights attributable to participating securities   (1,454 )   (1,562 )   (781 )   —                       ​ ​ ​ ​ ​ ​ Net loss attributable to common stockholders   $ (2,486 ) $ (3,118 )   $ (825 ) $ (4,875 )           ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                     Denominator:             Weighted-average shares used in computing net loss per share attributable to common stockholders:             Basic (in thousands)   31,988   31,988     31,988   49,566   Weighted-average effect of potentially dilutive shares:             Employee stock options (in thousands)   —   —   Employee stock options and restricted stock units (in thousands)   —   —                       ​ ​ ​ ​ ​ ​ Diluted (in thousands)   31,988   31,988     31,988   49,566   Net loss per share attributable to common stockholders:   Basic   $ (0.08 ) $ (0.09 ) Diluted   $ (0.08 ) $ (0.09 ) Net loss per share attributable to common stockholders, basic and diluted   $ (0.03 ) $ (0.10 )         Potentially dilutiveThe following table summarizes the outstanding employee stock options, were omitted fromrestricted stock units, shares purchasable via the calculations becauseemployee stock purchase plan as of the effect of their inclusion was antidilutive. Series Abalance sheet date, and Series B Redeemable Convertible Preferred Stock were omitted from the basic and diluted net loss per share calculations because Stockholders of those issuances are not obligated to participate in the losses generated by the Company as enumerated in the Company's Articles of Incorporation. Pro Forma Net Loss Per Common Share         The numerator and denominator used in computing the unaudited pro forma net loss per common share for the six months ended December 31, 2013 have been adjusted to assume the conversion of all outstanding shares of redeemable convertible preferred stock into common stockthat were excluded from the diluted per share calculation for the periods presented because to include them would have been anti-dilutive:     Three months ended September 30,       2013   2014   Redeemable convertible preferred stock     11,933     —   Restricted stock units     —     480   Employee stock purchase plan shares     —     27   Employee stock options     2,376     4,600               ​ ​ ​ ​ ​ ​ ​ ​ Total     14,309     5,107               ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​                     RSAs were excluded from both basic and diluted earnings per share calculations for the three month period ended September 30, 2013 as the vesting conditions had not been met as of that date. Table of Contents PAYLOCITY HOLDING CORPORATION Notes to the Unaudited Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (unaudited) (8) Earnings Per Share (Continued) at the conversion ratio, currently two shares of common stock for every three shares of Redeemable Convertible Preferred Stock, as well as the vesting of the RSAs as of the beginning of the period presented or at the time of issuance, if later. Pro forma net loss per share does not give effect to potential dilutive securities where the impact would be anti-dilutive. Pro forma net loss per common share also excludes $351 of compensation expense associated with the automatic vesting of employee RSAs which the Company would have recorded upon successful completion of the qualifying event on December 31, 2013.     Six months ended December 31, 2013   Numerator:         Net loss   $ (1,556 )         Net loss attributable to common stockholders   $ (1,556 )         Denominator:         Historical denominator for basic and diluted net loss per common share—weighted average common shares (in thousands)     31,988   Plus: assumed conversion of redeemable convertible preferred stock to common stock and vesting of RSAs (in thousands)     12,203           Denominator for pro forma basic and diluted net loss per common share (in thousands)     44,191           Pro forma basic and diluted net loss per common share   $ (0.03 ) (9) Line of Credit         On November 27, 2013, the Company's line of credit was increased to $3,500 and the due date was extended to December 31, 2015. There were no borrowings against the line of credit as of June 30 and December 31, 2013. (10) Income Taxes         The Company's effectivequarterly provision for income taxes is based on an estimated annual income tax raterate. The Company's quarterly provision for income taxes also includes the tax impact of 44.3%certain unusual or infrequently occurring items, if any, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur.         The Company recorded income tax (benefit) expense of $(362) and $28 for the sixthree month periods ended September 30, 2013 and 2014, respectively. The Company's effective rate for the three months ended December 31,September 30, 2013 differed from statutory rates primarily due to the benefits from federal and state research and development credits available to the Company and expenses not deductible for income tax reporting purposes. The Company's effective tax rate of 39.8% for the sixthree months ended December 31, 2012 differedSeptember 30, 2014 differ from statutory rates primarily due to state researchthe existence of a valuation allowance recorded against the preponderance of the net deferred tax assets.         The Company reviews the likelihood that it will realize the benefit of its deferred tax assets and, development credits available totherefore, the need for a valuation allowance on a quarterly basis. It established a valuation allowance on all of its net deferred tax assets except for deferred tax liabilities associated with indefinite-lived intangible assets during fiscal 2014, given that the company determined that it was more likely than not that the Company and expenseswould not deductible for income tax reporting purposes. No federal research and development credits were availablerecognize the benefits of its net operating loss carryforwards prior to their expiration. As of September 30, 2014, the Company had no unrecognized tax benefits.         On September 13, 2013, the IRS issued final regulations and re-proposed regulations that provide guidance with respect to (i) the treatment of materials and supplies, (ii) capitalization of amounts paid to acquire or produce tangible property, (iii) the determination of whether an expenditure with respect to tangible property is a deductible repair or a capital expenditure, and (iv) dispositions of MACRS property. The final regulations will be effective for the six months ended December 31, 2012 givenfiscal year ending June 30, 2015. Management is reviewing the lackregulations, but does not believe there will be a material impact on the Company's results of authorizing legislation during that period. Table of Contentsoperations, financial position, or cash flows. PAYLOCITY HOLDING CORPORATION Notes to the Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (unaudited) (11)(9) Related Party Transactions         The Company purchased sales leads from anentered into a Memorandum of Understanding ("Memorandum") and a Non-Competition and Non-Solicitation Agreement ("Non-Compete") with its Chairman Steve Sarowitz and Blue Marble, a separate legal entity owned by oneMr. Sarowitz in June 2014.         The Memorandum established the ongoing market based terms between the Company and Blue Marble for services provided to or on behalf of each other. In addition, Paylocity obtained a right of first refusal on the sale of Blue Marble, an option exercisable starting three years from the date of the stockholdersMemorandum to purchase Blue Marble, and the right of first refusal to purchase any acquisition target of Blue Marble outside the United States of America, all at fair market value. The Memorandum requires Blue Marble to obtain written consent from Paylocity should Blue Marble intend to acquire an entity that provides or partners with other service providers to provide products and services to clients located in the amountUnited States of approximately $424 and $231 for the six months ended December 31, 2012 and 2013, respectively.America. The Company providedprovides no management guidance to the entity, and hadhas no equity interest in the entity, no obligation or intention to fund any of the entity's operational shortfalls, and no right to any operational surpluses generated by the entity. Accounts payable due Table of Contents PAYLOCITY HOLDING CORPORATION Notes to this entity were approximately $65the Unaudited Consolidated Financial Statements (Continued) (all amounts in thousands, except per share data) (9) Related Party Transactions (Continued)         The Non-Compete agreement outlines the permissible activities and $0ongoing responsibilities of June 30Mr. Sarowitz and December 31, 2013, respectively.         As of October 14, 2013, the Company hired substantially all of theBlue Marble including an obligation not to compete with services offered by Paylocity and an obligation not to solicit employees of and no longer purchases sales leads from, the sales lead generation entity described above.Paylocity. (12)(10) Subsequent Events         The Company has evaluated subsequent events from the balance sheet date through January 30,November 7, 2014, the date at which the financial statements were available to be issued.         On March 5, 2014, the Company amended its Certificate of Incorporation to executeissued and has determined that there are no such events that would have a reverse three for two stock splitmaterial impact on its common stock. All share and per-share amounts in the Company's consolidated financial statements and notes to the financial statements have been updated to reflect the impact of this change on the number of shares authorized, issued and outstanding and earnings per share.statements. Table of Contents 6,670,0004,000,000 Shares Paylocity Holding Corporation Common Stock Deutsche Bank Securities   BofA Merrill Lynch   William Blair   JMP Securities   Raymond James   Needham & Company Table of Contents PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13.    Other Expenses of Issuance and Distribution         The following table sets forth the costs and expenses, other than the underwriting discounts and commissions payable by us, in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee, the Financial Industry Regulatory Authority, or FINRA, filing fee and the NASDAQ Global Select Market listing fee. SEC registration fee   $ 15,807     $ 14,160   FINRA filing fee   17,750     18,778   NASDAQ Global Select Market listing fee   150,000   Blue sky fees and expenses   5,000     5,000   Transfer agent and registrar fees   10,000     10,000   Accounting fees and expenses   1,053,000     125,000   Legal fees and expenses   1,400,000     250,000   Printing and engraving costs   315,000     50,000   Miscellaneous expenses   110,000     10,000               ​ ​ ​ ​ Total   $ 3,076,557     $ 482,938               ​ ​ ​ ​ Item 14.    Indemnification of Directors and Officers         Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act.         As permitted by the Delaware General Corporation Law, our restated certificate of incorporation includes a provision that eliminates the personal liability of our directors for monetary damages for breach of fiduciary duty as a director, except for liability: • For any breach of the director's duty of loyalty; • For acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; • Under section 174 of the Delaware General Corporation law regarding unlawful dividends and stock purchases; or • For any transaction for which the director derived an improper personal benefit.         As permitted by the Delaware General Corporation Law, our bylaws provide that: • We are required to indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; • We may indemnify our other employees and agents to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; • We are required to advance expenses, as incurred, to our directors and officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; • We may advance expenses, as incurred, to our employees and agents in connection with a legal proceeding; and II-1 Table of Contents • The rights conferred in the bylaws are not exclusive. II-1 Table of Contents         We intend to enter into indemnity agreements with each of our current directors and officers to give these directors and officers additional contractual assurances regarding the scope of the indemnification set forth in our restated certificate of incorporation and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving our directors, officers or employees regarding which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.         The indemnification provisions in our restated certificate of incorporation and amended and restated bylaws and the indemnity agreements entered into between us and each of our directors and officers may be sufficiently broad to permit indemnification of the our directors and officers for liabilities arising under the Securities Act.         Reference is also made to the underwriting agreement, which provides for the indemnification of our officers, directors and controlling persons against certain liabilities.         We are seeking to obtain directors' and officers' liability insurance and expect the insurance to include coverage for securities matters. Item 15.    Recent Sales of Unregistered Securities         Since OctoberJanuary 1, 2010,2011, we have sold and issued the following unregistered securities: • In June 2012, we issued 8,399,899 shares of our Series B preferred stock to a total of 8 accredited investors at a price of $3.2481 per share resulting in an aggregate purchase price of $27,283,712. • From OctoberJanuary 1, 20102011 through December 31, 2013,September 30, 2014, we issued options to our employees to purchase an aggregate of 1,900,994 shares of our common stock under our 2008 Equity Incentive Plan, with exercise prices ranging from $2.28 to $7.04 per share.         No underwriters were involved in the foregoing sales of securities. The issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. Item 16.    Exhibits and Financial Statement Schedules (a) Exhibits Exhibit Number Description 1.1 Form of Underwriting Agreement. 2.1† Share Exchange Agreement, dated November 7, 2013. 3.1† Certificate of Incorporation of the Registrant, as currently in effect. 3.1.1 First Certificate of Amendment to Certificate of Incorporation, dated March 5, 2014. 3.2† Form of First Amended and Restated Certificate of Incorporation of the Registrant, to be effective upon the closing of the offering. 3.3† Bylaws of the Registrant, as currently in effect. 3.4† Form of Amended and Restated Bylaws of the Registrant, to be effective upon closing of the offering.         Incorporated by Reference     Exhibit Number   Description   Form   Filing No.   Filing Date   Exhibit No.   Provided Herewith 1.1   Form of Underwriting Agreement.                   X 2.1   Share Exchange Agreement, dated November 7, 2013.   S-1   333-193661   01/30/14   2.1     3.1   First Amended and Restated Certificate of Incorporation of the Registrant.   S-1/A   333-193661   02/14/14   3.2     3.2   Amended and Restated Bylaws of the Registrant.   S-1/A   333-193661   02/14/14   3.4     4.1   Amended and Restated Investor Rights Agreement, dated June 29, 2012.   S-1   333-193661   01/30/14   4.1     II-2 Table of Contents Exhibit Number Description 4.1† Amended and Restated Investor Rights Agreement, dated June 29, 2012. 4.2† Amended and Restated Right of First Refusal and Co-Sale Agreement, dated June 29, 2012. 4.3† Amended and Restated Voting Agreement, dated June 29, 2012. 4.4† Promissory Note, dated March 9, 2011, payable to Commerce Bank & Trust Company. 4.5.1† Revolving Line of Credit Note, dated March 9, 2011, payable to Commerce Bank & Trust Company. 4.5.2† Allonge to Revolving Line of Credit Note, dated November 27, 2013. 5.1 Opinion of DLA Piper LLP (US). 10.1† Loan and Security Agreement by and among Commerce Bank & Trust Company and Paylocity Corporation, dated May 5, 2009. 10.1.1† First Amendment to Loan and Security Agreement, dated March 9, 2011. 10.2† Form of Indemnification Agreement for directors and officers. 10.3† 2008 Equity Incentive Plan and forms of agreement thereunder. 10.3.1† First Amendment to the 2008 Equity Incentive Plan, dated August 5, 2010. 10.3.2† Second Amendment to the 2008 Equity Incentive Plan, dated June 29, 2012. 10.4† 2014 Equity Incentive Plan and forms of agreement thereunder. 10.5† Third Amended and Restated Executive Employment Agreement between Paylocity Corporation and Steven R. Beauchamp, dated February 7, 2014. 10.6† Employment Agreement between Paylocity Corporation and Steven I. Sarowitz, effective July 1, 2013. 10.7† Second Amended and Restated Executive Employment Agreement between Paylocity Corporation and Michael R. Haske, dated February 7, 2014. 10.8† Office Lease between 3850 Wilke LLC and Paylocity Corporation, dated January 12, 2007. 10.8.1† Amendment to Office Lease, dated January 5, 2011. 10.8.2† Amendment to Office Lease, dated May 6, 2013. 10.9† 2014 Employee Stock Purchase Plan. 21.1† List of subsidiaries of the Registrant. 23.1 Consent of KPMG LLP, Independent Registered Public Accounting Firm. 23.2 Consent of DLA Piper LLP (US) (included in Exhibit 5.1). 24.1† Power of Attorney (see page II-5 to the original filing of this registration statement on Form S-1). † Previously filed.         Incorporated by Reference     Exhibit Number   Description   Form   Filing No.   Filing Date   Exhibit No.   Provided Herewith 5.1   Opinion of DLA Piper LLP (US).                   X 10.1   Form of Indemnification Agreement for directors and officers.   S-1   333-193661   01/30/14   10.2     10.2   2008 Equity Incentive Plan and forms of agreement thereunder.   S-1   333-193661   01/30/14   10.3     10.2.1   First Amendment to the 2008 Equity Incentive Plan, dated August 5, 2010.   S-1   333-193661   01/30/14   10.3.1     10.2.2   Second Amendment to the 2008 Equity Incentive Plan, dated June 29, 2012.   S-1   333-193661   01/30/14   10.3.2     10.3   2014 Equity Incentive Plan and forms of agreement thereunder.   S-1/A   333-193661   02/14/14   10.4     10.4   Third Amended and Restated Executive Employment Agreement between Paylocity Corporation and Steven R. Beauchamp, dated February 7, 2014.   S-1/A   333-193661   02/14/14   10.5     10.5   Employment Agreement between Paylocity Corporation and Steven I. Sarowitz, effective July 1, 2013.   S-1   333-193661   01/30/14   10.6     10.6   Second Amended and Restated Executive Employment Agreement between Paylocity Corporation and Michael R. Haske, dated February 7, 2014.   S-1/A   333-193661   02/14/14   10.7     10.7   Office Lease between 3850 Wilke LLC and Paylocity Corporation, dated January 12, 2007.   S-1   333-193661   01/30/14   10.8     10.7.1   Amendment to Office Lease, dated January 5, 2011.   S-1   333-193661   01/30/14   10.8.1     10.7.2   Amendment to Office Lease, dated May 6, 2013.   S-1   333-193661   01/30/14   10.8.2     10.7.3   Amendment to Office Lease, dated August 6, 2014.   S-1   333-200448   11/21/14   10.7.3     10.9   2014 Employee Stock Purchase Plan.   S-1/A   333-193661   02/14/14   10.9     21.1   List of subsidiaries of the Registrant.   S-1   333-193661   01/30/14   21.1     23.1   Consent of KPMG LLP, Independent Registered Public Accounting Firm.                   X II-3 Table of Contents         Incorporated by Reference     Exhibit Number   Description   Form   Filing No.   Filing Date   Exhibit No.   Provided Herewith 23.2   Consent of DLA Piper LLP (US) (included in Exhibit 5.1).                   X 24.1   Power of Attorney (see page II-5 to the original filing of this registration statement on Form S-1).   S-1   333-200448   11/21/14   24.1     101.INS   XBRL Instance Document.   S-1   333-200448   11/21/14   101     101.SCH   XBRL Taxonomy Extension Schema.   S-1   333-200448   11/21/14   101     101.CAL   XBRL Taxonomy Extension Calculation Linkbase.   S-1   333-200448   11/21/14   101     101.LAB   XBRL Taxonomy Extension Calculation Label Linkbase.   S-1   333-200448   11/21/14   101     101.PRE   XBRL Taxonomy Extension Presentation Linkbase.   S-1   333-200448   11/21/14   101     101.DEF   XBRL Taxonomy Extension Definition Linkbase.   S-1   333-200448   11/21/14   101     (b) Financial Statement Schedules         All financial statement schedules are omitted because the information called for is not required or is shown either in the consolidated financial statements or in the notes thereto. Item 17.    Undertakings         The registrant hereby undertakes to provide to the underwriters, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.         Insofar as indemnification by the registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions referenced in Item 14 of this registration statement or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.         The registrant hereby undertakes that:         (1)   For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. II-4 Table of Contents         (2)   For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof. II-4II-5 Table of Contents SIGNATURES         Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Arlington Heights, Illinois on the 6th8th day of March,December, 2014. PAYLOCITY HOLDING CORPORATION     By:   /s/ STEVEN R. BEAUCHAMP Steven R. Beauchamp President and Chief Executive Officer             Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to the registration statement has been signed by the following persons in the capacities and on the dates indicated: Name   Title   Date               /s/ STEVEN R. BEAUCHAMP Steven R. Beauchamp   President and Chief Executive Officer (Principal Executive Officer) and Director   March 6,December 8, 2014 /s/ PETER J. MCGRAIL Peter J. McGrail   Chief Financial Officer (Principal Financial and Accounting Officer)   March 6,December 8, 2014 * Jeffrey T. Diehl   Director   March 6,December 8, 2014 * Mark H. Mishler   Director   March 6,December 8, 2014 * Andres D. Reiner Director December 8, 2014 * Steven I. Sarowitz   Executive Chairman   March 6,December 8, 2014 * Ronald V. Waters, III   Director   March 6,December 8, 2014 *By:By   /s/ PETER J. MCGRAIL Peter J. McGrail Attorney-in-Fact       December 8, 2014 II-5II-6