Paylocity Holding (PCTY) 10-Q 4 Nov 16 2017 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Sep. 30, 2016	Oct. 28, 2016
Document and Entity Information
Entity Registrant Name	Paylocity Holding Corp
Entity Central Index Key	1,591,698
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		51,343,799
Document Fiscal Year Focus	2,017
Document Fiscal Period Focus	Q1

Unaudited Consolidated Balance

Unaudited Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2016	Jun. 30, 2016
Current assets:
Cash and cash equivalents	$ 77,998	$ 86,496
Accounts receivable, net	1,757	1,681
Prepaid expenses and other	6,432	7,409
Total current assets before funds held for clients	86,187	95,586
Funds held for clients	770,948	1,239,622
Total current assets	857,135	1,335,208
Long-term prepaid expenses	533	845
Capitalized internal-use software, net	13,052	11,427
Property and equipment, net	28,681	26,787
Intangible assets, net	10,038	10,419
Goodwill	6,003	6,003
Total assets	915,442	1,390,689
Current liabilities:
Accounts payable	2,784	1,621
Accrued expenses	18,260	24,979
Total current liabilities before client fund obligations	21,044	26,600
Client fund obligations	770,948	1,239,622
Total current liabilities	791,992	1,266,222
Deferred rent	4,476	4,646
Deferred income tax liabilities, net	327	249
Total liabilities	796,795	1,271,117
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000 authorized, no shares issued and outstanding at June 30, 2016 and September 30, 2016
Common stock, $0.001 par value, 155,000 shares authorized at June 30, 2016 and September 30, 2016; 51,132 shares issued and outstanding at June 30, 2016 and 51,332 shares issued and outstanding at September 30, 2016	51	51
Additional paid-in capital	173,158	171,515
Accumulated deficit	(54,562)	(51,994)
Total stockholders' equity	118,647	119,572
Total liabilities and stockholders' equity	$ 915,442	$ 1,390,689

Unaudited Consolidated Balance3

Unaudited Consolidated Balance Sheets (Parenthetical) - $ / shares shares in Thousands	Sep. 30, 2016	Jun. 30, 2016
Unaudited Consolidated Balance Sheets
Preferred Stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred Stock, shares authorized	5,000	5,000
Preferred Stock, shares issued	0	0
Preferred Stock, shares outstanding	0	0
Common Stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common Stock, shares authorized	155,000	155,000
Common Stock, shares issued	51,332	51,132
Common Stock, shares outstanding	51,332	51,132

Unaudited Consolidated Statemen

Unaudited Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Revenues:
Recurring fees	$ 61,920	$ 42,363
Interest income on funds held for clients	717	528
Total recurring revenues	62,637	42,891
Implementation services and other	2,385	2,217
Total revenues	65,022	45,108
Cost of revenues:
Recurring revenues	19,103	13,157
Implementation services and other	9,256	7,038
Total cost of revenues	28,359	20,195
Gross profit	36,663	24,913
Operating expenses:
Sales and marketing	18,011	12,450
Research and development	7,301	5,429
General and administrative	13,858	10,451
Total operating expenses	39,170	28,330
Operating loss	(2,507)	(3,417)
Other income	39	83
Loss before income taxes	(2,468)	(3,334)
Income tax expense	100	101
Net loss	$ (2,568)	$ (3,435)
Net loss per share:
Basic (in dollars per share)	$ (0.05)	$ (0.07)
Diluted (in dollars per share)	$ (0.05)	$ (0.07)
Weighted-average shares used in computing net loss per share:
Basic (in shares)	51,231	50,744
Diluted (in shares)	51,231	50,744

Unaudited Consolidated Stateme5

Unaudited Consolidated Statement of Changes in Stockholders' Equity - 3 months ended Sep. 30, 2016 - USD ($) shares in Thousands, $ in Thousands	Common Stock	Additional Paid-in Capital	Accumulated Deficit	Total
Balance at Jun. 30, 2016	$ 51	$ 171,515	$ (51,994)	$ 119,572
Balance (in shares) at Jun. 30, 2016	51,132			51,132
Increase (Decrease) in Stockholders' Equity
Stock-based compensation expense		6,185		$ 6,185
Stock options exercised		1,669		1,669
Stock options exercised (in shares)	125
Issuance of common stock upon vesting of restricted stock units (in shares)	215
Net settlement for taxes and/or exercise price related to equity awards		(6,211)		(6,211)
Net settlement for taxes and/or exercise price related to equity awards (in shares)	(140)
Net loss			(2,568)	(2,568)
Balance at Sep. 30, 2016	$ 51	$ 173,158	$ (54,562)	$ 118,647
Balance (in shares) at Sep. 30, 2016	51,332			51,332

Unaudited Consolidated Stateme6

Unaudited Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities:
Net loss	$ (2,568)	$ (3,435)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation expense	5,813	3,712
Depreciation and amortization expense	4,268	2,719
Deferred income tax expense	78	84
Provision for doubtful accounts	(3)	25
Loss on disposal of equipment	28	66
Changes in operating assets and liabilities:
Accounts receivable	(73)	(238)
Prepaid expenses	1,289	(639)
Trade accounts payable	85	133
Accrued expenses	(7,034)	551
Net cash provided by operating activities	1,883	2,978
Cash flows from investing activities:
Capitalized internal-use software costs	(2,887)	(2,043)
Purchases of property and equipment	(2,952)	(1,588)
Payments for acquisitions		(183)
Net change in funds held for clients	468,674	48,607
Net cash provided by investing activities	462,835	44,793
Cash flows from financing activities:
Net change in client funds obligation	(468,674)	(48,607)
Proceeds from exercise of stock options		137
Taxes paid related to net share settlement of equity awards	(4,542)	(1,868)
Net cash used in financing activities	(473,216)	(50,338)
Net Change in Cash and Cash Equivalents	(8,498)	(2,567)
Cash and Cash Equivalents-Beginning of Period	86,496	81,258
Cash and Cash Equivalents-End of Period	77,998	78,691
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Build-out allowances received from landlords		375
Purchase of property and equipment and capitalized internal-use software, accrued but not paid	1,781	845
Supplemental disclosure of cash flow information
Cash paid for income taxes, net of refunds	$ 16	$ 16

Organization and Description of

Organization and Description of Business	3 Months Ended
	Sep. 30, 2016
Organization and Description of Business
Organization and Description of Business	(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.

Summary of Significant Accounti

Summary of Significant Accounting Policies	3 Months Ended
	Sep. 30, 2016
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies	(2) Summary of Significant Accounting Policies (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 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 the allowance for doubtful accounts, internal-use software, valuation and useful lives of long-lived assets, definite-lived intangibles, goodwill, stock-based compensation, valuation 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 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. (b) Interim Unaudited Consolidated Financial Information The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with GAAP and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the Company’s financial position, results of operations, changes in stockholders’ equity and cash flows. The results of operations for the three months ended September 30, 2016 are not necessarily indicative of the results for the full year or the results for any future periods. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended June 30, 2016 included in the Company’s Annual Report on Form 10-K filed with the SEC on August 12, 2016. (c) Income Taxes Differences in the normal relationship between the income tax expense and pre-tax loss materially result from the existence of a valuation allowance recorded against the preponderance of the net deferred tax assets. (d) Stock-Based Compensation The Company recognizes all employee stock-based compensation as a cost in the financial statements. Equity-classified awards, including those under the 2014 Employee Stock Purchase Plan (“ESPP”), 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 the option vesting term or the term of the ESPP purchase period. (e) Recently Issued Accounting Standards In May 2014, the Financial Accounting Standards 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. In addition, in March 2016, April 2016 and May 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”) and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), respectively, to amend certain guidance in ASU 2014-09. Topic 606 allows for either a retrospective or cumulative effect transition method. ASU 2014-09 was originally effective for fiscal years beginning after December 15, 2016. In July 2015, the FASB approved a one-year deferral of ASU 2014-09 and all amendments to it, with a new effective date for fiscal years beginning after December 15, 2017 with early adoption permitted as of the original effective date. The Company is currently assessing the potential effects of these changes to its consolidated financial statements and is evaluating the adoption method and timing of adoption. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) which amends various aspects of existing guidance for leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease with terms greater than twelve months, along with additional qualitative and quantitative disclosures. ASU 2016-02 also requires the use of the modified retrospective method, which will require adjustment to all comparative periods presented. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the potential effects of these changes to its consolidated financial statements and is evaluating the timing of adoption. In March 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation (Topic 718) (“ASU 2016-09”) which modifies the existing guidance for stock compensation specifically related to the accounting for excess tax benefits and tax deficiencies, forfeitures, and employer tax withholding requirements. ASU 2016-09 also clarifies certain classifications on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company is currently assessing the potential effects of these changes to its consolidated financial statements and is evaluating the timing of adoption. In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted as of fiscal years beginning after December 15, 2018. The Company is currently assessing the potential effects of these changes to its consolidated financial statements and is evaluating the timing of adoption. From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes 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.

Balance Sheet Information

Balance Sheet Information	3 Months Ended
	Sep. 30, 2016
Balance Sheet Information
Balance Sheet Information	(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, 2016 $ Charged against expense Write-offs ) Balance at September 30, 2016 $ Capitalized internal-use software and accumulated amortization were as follows: June 30, September 30, 2016 2016 Capitalized internal-use software $ $ Accumulated amortization ) ) Capitalized internal-use software, net $ $ Amortization of capitalized internal-use software costs is included in Cost of Revenues-Recurring Revenues and amounted to $942 and $1,684 for the three months ended September 30, 2015 and 2016, respectively. Property and equipment consist of the following: June 30, September 30, 2016 2016 Office equipment $ $ Computer equipment Furniture and fixtures Software Leasehold improvements Time clocks rented by clients Accumulated depreciation ) ) Property and equipment, net $ $ Depreciation expense amounted to $1,397 and $2,203 for the three months ended September 30, 2015 and 2016, respectively. Intangible assets consist of the following: June 30, September 30, Weighted Client relationships $ $ 9 years Non-solicitation agreements 2-3 years Total Accumulated amortization ) ) Intangible assets, net $ $ Amortization expense for acquired intangible assets was $380 and $381 for the three months ended September 30, 2015 and 2016, respectively. Future amortization expense for acquired intangible assets is as follows, as of September 30, 2016: Remainder of fiscal 2017 $ Fiscal 2018 Fiscal 2019 Fiscal 2020 Fiscal 2021 Thereafter Total $ The components of accrued expenses were as follows: June 30, September 30, 2016 2016 Accrued payroll and personnel costs $ $ Current portion of deferred rent Other Total accrued expenses $ $

Fair Value Measurement

Fair Value Measurement	3 Months Ended
	Sep. 30, 2016
Fair Value Measurement
Fair Value Measurement	(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, funds held for clients, accounts payable and client fund obligations to approximate the fair value of the respective assets and liabilities at June 30, 2016 and September 30, 2016 based upon the short-term nature of these assets and liabilities.

Benefit Plans

Benefit Plans	3 Months Ended
	Sep. 30, 2016
Benefit Plans
Benefit Plans	(5) Benefit Plans (a) Equity Incentive Plan The Company maintains a 2008 Equity Incentive Plan (the “2008 Plan”) and a 2014 Equity Incentive Plan (the “2014 Plan”) pursuant to which the Company has reserved 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 of the compensation committee of the Company’s board of directors. No new awards have been or will be issued under the 2008 Plan since 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. The number of shares of common stock reserved for issuance under the 2014 Plan will increase automatically each calendar year, continuing through and including January 1, 2024. The number of shares added each year will be equal to the lesser of (a) four and five tenths percent (4.5%) of the number of shares of common stock of the Company issued and outstanding on the immediately preceding December 31, or (b) an amount determined by the Company’s board of directors. As of September 30, 2016, the Company had 10,480 shares allocated to the plans, of which 4,855 shares were subject to outstanding options or awards. Generally, the Company issues previously unissued shares for the exercise of stock options or vesting of awards; however, shares previously subject to 2014 Plan grants or awards that are forfeited or net settled at exercise or release may be reissued to satisfy future issuances. The following table summarizes changes during the quarter in the number of shares available for grant under our equity incentive plans: Number Available for grant at July 1, 2016 RSUs granted ) Shares withheld in settlement of taxes and/or exercise price Forfeitures Shares removed ) Available for grant at September 30, 2016 Shares removed represents forfeitures of shares and shares withheld in settlement of taxes and/or payment of exercise price related to grants made under the 2008 Plan. As noted above, no new awards will be issued under the 2008 Plan. Stock-based compensation expense related to stock options, restricted stock units (“RSUs”), and the Employee Stock Purchase Plan (as described below) is included in the following line items in the accompanying unaudited consolidated statements of operations: Three months ended 2015 2016 Cost of revenue — recurring $ $ Cost of revenue — non-recurring Sales and marketing Research and development General and administrative Total stock-based compensation $ $ In addition, the Company capitalized $266 and $372 of stock compensation costs in its internal use software in the three months ended September 30, 2015 and 2016, respectively. Under the 2008 and 2014 Plans, the exercise price of each option cannot be less than the fair value of a share of common stock on the grant date. The options typically vest ratably over a three or four year period and expire 10 years from the grant date. Stock-based compensation expense for the fair value of the options at their grant date is recognized ratably over the vesting schedule for each separately vesting portion of the award. 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. As the Company has a limited history of trading as a public company, 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. 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. There were no stock options granted during the three months ended September 30, 2016. The following table summarizes the assumptions used for estimating the fair value of stock options granted for the three months ended September 30, 2015: Period ended 2015 Valuation assumptions: Expected dividend yield % Expected volatility % Expected term (years) Risk-free interest rate % The table below presents stock option activity during the three months ended September 30, 2016: Outstanding Options Number of Weighted Weighted Aggregate Balance at July 1, 2016 $ $ Options forfeited ) Options exercised ) Balance at September 30, 2016 $ $ Options exercisable at September 30, 2016 $ $ Options vested and expected to vest at September 30, 2016 $ $ The weighted average grant date fair value of options granted during the three-month period ended September 30, 2015 was $12.92. The total intrinsic value of options exercised during the three-month period ended September 30, 2015 and 2016 was $2,935 and $3,891, respectively. At September 30, 2016, there was $2,128 of total unrecognized compensation cost, net of estimated forfeitures, related to unvested stock option granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.39 years. The Company may also grant RSUs under the 2014 Plan with terms determined at the discretion of the Compensation Committee of the Company’s Board of Directors. RSUs generally vest over three or four years following the grant date. Certain RSU awards have time-based vesting conditions while other RSU awards are based on attainment of certain performance benchmarks. The following table represents restricted stock unit activity during the three months ended September 30, 2016: Units Weighted RSU balance at July 1, 2016 $ RSUs granted RSUs vested ) RSUs cancelled/forfeited ) RSU balance at September 30, 2016 $ RSUs expected to vest at September 30, 2016 $ At September 30, 2016, there was $39,643 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 2.18 years. (b) Employee Stock Purchase Plan Under the Company’s Employee Stock Purchase Plan (“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 trading day closest to May 16 and November 16 of each year. 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 any one year. The ESPP is considered compensatory and results in compensation expense. As of September 30, 2016, a total of 951 shares of common stock were reserved for future issuances under the ESPP. The number of shares of common stock reserved for issuance under the ESPP will increase automatically each calendar year, continuing through and including January 1, 2024. The number of shares added each year will be equal to the lesser of (a) 600, (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 recorded compensation expense attributable to the ESPP of $252 and $344 for the three-month ended September 30, 2015 and 2016, respectively, which is included in the summary of stock-based compensation expense above. The grant date fair value of the ESPP offering periods was estimated using the following weighted average assumptions: Period ended 2015 2016 Valuation assumptions: Expected dividend yield % % Expected volatility % % Expected term (years) Risk-free interest rate % % (c) 401(k) Plan The Company maintains a 401(k) plan with a matching provision that covers all eligible employees. Up to December 31, 2015, the Company matched 50% of the employees’ contributions up to 6% of their gross pay. Effective January 1, 2016, the Company increased its match to 50% of employees’ contributions up to 8% of their gross pay. Contributions were $580 and $902 for the three-month period ended September 30, 2015 and 2016, respectively.

Net Loss Per Share

Net Loss Per Share	3 Months Ended
	Sep. 30, 2016
Net Loss Per Share
Net Loss Per Share	(6) Net Loss Per Share Basic net loss per common share is computed using the weighted-average number of common shares outstanding during the period. 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. The Company’s potential common shares consist of the incremental common shares issuable upon the exercise of stock options, the release of restricted stock units, and the shares purchasable via the employee stock purchase plan as of the balance sheet date. The dilutive effect of outstanding stock options is reflected in diluted earnings per share by application of the treasury stock method. The following table presents the calculation of basic and diluted net loss per share: Three months ended 2015 2016 Numerator: Net loss $ ) $ ) Denominator: Weighted-average shares used in computing net loss per share: Basic Weighted-average effect of potentially dilutive shares: Employee stock options, restricted stock units and employee stock purchase plan shares — — Diluted Net loss per share: Basic $ ) $ ) Diluted $ ) $ ) The following table summarizes the outstanding employee stock options, restricted stock units, and shares purchasable via the employee stock purchase plan as of the balance sheet date that were excluded from the diluted per share calculation for the periods presented because to include them would have been anti-dilutive: Three months ended 2015 2016 Employee stock options Restricted stock units Employee stock purchase plan shares Total

Income Taxes

Income Taxes	3 Months Ended
	Sep. 30, 2016
Income Taxes
Income Taxes	(7) Income Taxes The Company’s quarterly provision for income taxes is based on an estimated annual income tax rate. The Company’s quarterly provision for income taxes also includes the tax impact of 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 expense of $101 and $100 for the three-month periods ended September 30, 2015 and 2016, respectively. The Company’s effective tax rates for the three months ended September 30, 2015 and September 30, 2016 differ from statutory rates primarily due to the 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, therefore, 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 would not recognize the benefits of its net operating loss carryforwards prior to their expiration. The Company has continued to carry the valuation allowance during fiscal 2016 and for the three months ending September 30, 2016. As of September 30, 2016, the Company had no unrecognized tax benefits.

Summary of Significant Accoun14

Summary of Significant Accounting Policies (Policies)	3 Months Ended
	Sep. 30, 2016
Summary of Significant Accounting Policies
Consolidation and Use of Estimates	(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 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 the allowance for doubtful accounts, internal-use software, valuation and useful lives of long-lived assets, definite-lived intangibles, goodwill, stock-based compensation, valuation 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 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.
Interim Unaudited Consolidated Financial Information	(b) Interim Unaudited Consolidated Financial Information The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with GAAP and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the Company’s financial position, results of operations, changes in stockholders’ equity and cash flows. The results of operations for the three months ended September 30, 2016 are not necessarily indicative of the results for the full year or the results for any future periods. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended June 30, 2016 included in the Company’s Annual Report on Form 10-K filed with the SEC on August 12, 2016.
Income Taxes	(c) Income Taxes Differences in the normal relationship between the income tax expense and pre-tax loss materially result from the existence of a valuation allowance recorded against the preponderance of the net deferred tax assets.
Stock-Based Compensation	(d) Stock-Based Compensation The Company recognizes all employee stock-based compensation as a cost in the financial statements. Equity-classified awards, including those under the 2014 Employee Stock Purchase Plan (“ESPP”), 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 the option vesting term or the term of the ESPP purchase period.
Recently Issued Accounting Standards	(e) Recently Issued Accounting Standards In May 2014, the Financial Accounting Standards 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. In addition, in March 2016, April 2016 and May 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”) and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), respectively, to amend certain guidance in ASU 2014-09. Topic 606 allows for either a retrospective or cumulative effect transition method. ASU 2014-09 was originally effective for fiscal years beginning after December 15, 2016. In July 2015, the FASB approved a one-year deferral of ASU 2014-09 and all amendments to it, with a new effective date for fiscal years beginning after December 15, 2017 with early adoption permitted as of the original effective date. The Company is currently assessing the potential effects of these changes to its consolidated financial statements and is evaluating the adoption method and timing of adoption. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) which amends various aspects of existing guidance for leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease with terms greater than twelve months, along with additional qualitative and quantitative disclosures. ASU 2016-02 also requires the use of the modified retrospective method, which will require adjustment to all comparative periods presented. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the potential effects of these changes to its consolidated financial statements and is evaluating the timing of adoption. In March 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation (Topic 718) (“ASU 2016-09”) which modifies the existing guidance for stock compensation specifically related to the accounting for excess tax benefits and tax deficiencies, forfeitures, and employer tax withholding requirements. ASU 2016-09 also clarifies certain classifications on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company is currently assessing the potential effects of these changes to its consolidated financial statements and is evaluating the timing of adoption. In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted as of fiscal years beginning after December 15, 2018. The Company is currently assessing the potential effects of these changes to its consolidated financial statements and is evaluating the timing of adoption. From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes 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.

Balance Sheet Information (Tabl

Balance Sheet Information (Tables)	3 Months Ended
	Sep. 30, 2016
Balance Sheet Information
Schedule of activity in allowance for doubtful accounts	Balance at June 30, 2016 $ Charged against expense Write-offs ) Balance at September 30, 2016 $
Schedule of capitalized internal-use software and accumulated amortization	June 30, September 30, 2016 2016 Capitalized internal-use software $ $ Accumulated amortization ) ) Capitalized internal-use software, net $ $
Schedule of property and equipment	June 30, September 30, 2016 2016 Office equipment $ $ Computer equipment Furniture and fixtures Software Leasehold improvements Time clocks rented by clients Accumulated depreciation ) ) Property and equipment, net $ $
Schedule of intangible assets	June 30, September 30, Weighted Client relationships $ $ 9 years Non-solicitation agreements 2-3 years Total Accumulated amortization ) ) Intangible assets, net $ $
Schedule of future amortization expense for acquired intangible assets	Future amortization expense for acquired intangible assets is as follows, as of September 30, 2016: Remainder of fiscal 2017 $ Fiscal 2018 Fiscal 2019 Fiscal 2020 Fiscal 2021 Thereafter Total $
Schedule of components of accrued expenses	June 30, September 30, 2016 2016 Accrued payroll and personnel costs $ $ Current portion of deferred rent Other Total accrued expenses $ $

Benefit Plans (Tables)

Benefit Plans (Tables)	3 Months Ended
	Sep. 30, 2016
Benefit Plans
Summary of shares available for grant under our equity incentive plans	Number Available for grant at July 1, 2016 RSUs granted ) Shares withheld in settlement of taxes and/or exercise price Forfeitures Shares removed ) Available for grant at September 30, 2016
Schedule of stock-based compensation expense related to stock options, restricted stock units and the Employee Stock Purchase Plan	Three months ended 2015 2016 Cost of revenue — recurring $ $ Cost of revenue — non-recurring Sales and marketing Research and development General and administrative Total stock-based compensation $ $
Summary of the assumptions used for estimating the fair value of stock options granted	Period ended 2015 Valuation assumptions: Expected dividend yield % Expected volatility % Expected term (years) Risk-free interest rate %
Schedule of stock option activity	Outstanding Options Number of Weighted Weighted Aggregate Balance at July 1, 2016 $ $ Options forfeited ) Options exercised ) Balance at September 30, 2016 $ $ Options exercisable at September 30, 2016 $ $ Options vested and expected to vest at September 30, 2016 $ $
Schedule of restricted stock unit activity	Units Weighted RSU balance at July 1, 2016 $ RSUs granted RSUs vested ) RSUs cancelled/forfeited ) RSU balance at September 30, 2016 $ RSUs expected to vest at September 30, 2016 $
Summary of weighted average assumptions used for estimating grant date fair value of ESPP	Period ended 2015 2016 Valuation assumptions: Expected dividend yield % % Expected volatility % % Expected term (years) Risk-free interest rate % %

Net Loss Per Share (Tables)

Net Loss Per Share (Tables)	3 Months Ended
	Sep. 30, 2016
Net Loss Per Share
Schedule of calculation of basic and diluted net loss per share	Three months ended 2015 2016 Numerator: Net loss $ ) $ ) Denominator: Weighted-average shares used in computing net loss per share: Basic Weighted-average effect of potentially dilutive shares: Employee stock options, restricted stock units and employee stock purchase plan shares — — Diluted Net loss per share: Basic $ ) $ ) Diluted $ ) $ )
Summary of outstanding employee stock options, restricted stock units and employee stock purchase plan shares excluded from the diluted per share calculation because to include them would have been anti-dilutive	Three months ended 2015 2016 Employee stock options Restricted stock units Employee stock purchase plan shares Total

Balance Sheet Information - All

Balance Sheet Information - Allowance for Doubtful Accounts, Capitalized Internal-Use Software and Property, Plant and Equipment (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Jun. 30, 2016
Property and equipment
Property and equipment, gross	$ 48,865		$ 45,244
Accumulated depreciation	(20,184)		(18,457)
Property and equipment, net	28,681		26,787
Depreciation expense	2,203	$ 1,397
Activity in allowance for doubtful accounts
Balance at beginning of period	193
Charged against expense	(3)	25
Write-offs	(3)
Balance at end of period	187
Capitalized internal-use software and accumulated amortization
Capitalized internal-use software	37,558		34,249
Accumulated amortization	(24,506)		(22,822)
Capitalized internal-use software, net	13,052		11,427
Amortization of capitalized internal-use software	1,684	$ 942
Office equipment
Property and equipment
Property and equipment, gross	2,749		2,528
Computer equipment
Property and equipment
Property and equipment, gross	19,056		18,139
Furniture and fixtures
Property and equipment
Property and equipment, gross	4,815		4,308
Software
Property and equipment
Property and equipment, gross	5,263		5,059
Leasehold improvements
Property and equipment
Property and equipment, gross	12,780		11,164
Time clocks rented by clients
Property and equipment
Property and equipment, gross	$ 4,202		$ 4,046

Balance Sheet Information - Int

Balance Sheet Information - Intangible Assets and Accrued Expenses (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Jun. 30, 2016
Intangible Assets
Intangible assets	$ 12,940		$ 12,940
Accumulated amortization	(2,902)		(2,521)
Intangible assets, net	10,038		10,419
Amortization expense for acquired intangible assets	381	$ 380
Future amortization expense for acquired intangible assets
Remainder of fiscal 2017	1,131
Fiscal 2,018	1,427
Fiscal 2,019	1,398
Fiscal 2,020	1,398
Fiscal 2,021	1,398
Thereafter	3,286
Intangible assets, net	10,038		10,419
Components of accrued expenses
Accrued payroll and personnel costs	14,305		21,658
Current portion of deferred rent	812		504
Other	3,143		2,817
Total accrued expenses	18,260		24,979
Client relationships
Intangible Assets
Intangible assets	$ 12,580		12,580
Useful life	9 years
Non-solicitation agreements
Intangible Assets
Intangible assets	$ 360		$ 360
Minimum | Non-solicitation agreements
Intangible Assets
Useful life	2 years
Maximum | Non-solicitation agreements
Intangible Assets
Useful life	3 years

Benefit Plans - General Informa

Benefit Plans - General Information (Details) shares in Thousands	3 Months Ended
	Sep. 30, 2016shares
Stock options
Equity Incentive Plans
Expiration period	10 years
Stock options | Minimum
Equity Incentive Plans
Vesting period	3 years
Stock options | Maximum
Equity Incentive Plans
Vesting period	4 years
2008 Plan
Equity Incentive Plans
Awards issued (in shares)	0
Awards issuable (in shares)	0
2014 Plan
Equity Incentive Plans
Potential additional shares available for grant (as a percent)	4.50%
Equity Incentive Plans
Equity Incentive Plans
Number of shares of common stock reserved for issuance	10,480
Outstanding options or awards	4,855

Benefit Plans - Incentive Plans

Benefit Plans - Incentive Plans Activity (Details) - Equity Incentive Plans shares in Thousands	3 Months Ended
	Sep. 30, 2016shares
Shares Available for Grant
Balance at the beginning of the period (in shares)	6,244
RSUs granted (in shares)	(741)
Shares withheld in settlement of taxes and/or exercise price (in shares)	140
Forfeitures (in shares)	13
Shares removed (in shares)	(31)
Balance at the end of the period (in shares)	5,625

Benefit Plans - Compensation Ex

Benefit Plans - Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Benefit Plans
Total stock-based compensation expense	$ 5,813	$ 3,712
Stock compensation expense capitalized	372	266
Cost of revenue - recurring
Benefit Plans
Total stock-based compensation expense	543	357
Cost of revenue - non-recurring
Benefit Plans
Total stock-based compensation expense	301	270
Sales and marketing
Benefit Plans
Total stock-based compensation expense	1,525	913
Research and development
Benefit Plans
Total stock-based compensation expense	794	569
General and administrative
Benefit Plans
Total stock-based compensation expense	$ 2,650	$ 1,603

Benefit Plans - Valuation Assum

Benefit Plans - Valuation Assumptions, Stock Option Activity and RSU Activity (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Jun. 30, 2016
Stock options
Valuation assumptions:
Expected dividend yield (as a percent)		0.00%
Expected volatility (as a percent)		34.00%
Expected term (years)		6 years 3 months
Risk-free interest rate (as a percent)		1.83%
Number of shares
Options granted (in shares)	0
Balance at the beginning of the period (in shares)	3,464
Options forfeited (in shares)	(6)
Options exercised (in shares)	(125)
Balance at the end of the period (in shares)	3,333		3,464
Options exercisable at the end of the period (in shares)	2,419
Options vested and expected to vest at the end of the period (in shares)	3,292
Weighted average exercise price
Balance at the beginning of the period (in dollars per share)	$ 11.75
Options forfeited (in dollars per share)	17
Options exercised (in dollars per share)	13.35
Balance at the end of the period (in dollars per share)	11.68		$ 11.75
Options exercisable at the end of the period (in dollars per share)	8.74
Options vested and expected to vest at the end of the period (in dollars per share)	$ 11.54
Weighted average remaining contractual term
Balance	6 years 5 months 5 days		6 years 8 months 12 days
Options exercisable at the end of the period	5 years 11 months 23 days
Options vested and expected to vest at the end of the period	6 years 4 months 28 days
Aggregate intrinsic value
Balance at the beginning of the period	$ 108,944
Balance at the end of the period	109,243		$ 108,944
Options exercisable at the end of the period	86,434
Options vested and expected to vest at the end of the period	108,348
Weighted average grant date fair value of options granted (in dollars per share)		$ 12.92
Total intrinsic value of options exercised	3,891	$ 2,935
Unrecognized Compensation Costs Not yet Recognized
Total unrecognized compensation cost, net of estimated forfeitures	$ 2,128
Weighted average period to recognize unrecognized compensation cost	1 year 4 months 21 days
Stock options | Minimum
Vesting Period
Vesting period	3 years
Stock options | Maximum
Vesting Period
Vesting period	4 years
Restricted stock units
Unrecognized Compensation Costs Not yet Recognized
Total unrecognized compensation cost, net of estimated forfeitures	$ 39,643
Weighted average period to recognize unrecognized compensation cost	2 years 2 months 5 days
Units
RSU Balance at the beginning of the period (in shares)	1,003
RSUs granted (in shares)	741
RSUs vested (in shares)	(215)
RSUs cancelled/forfeited (in shares)	(7)
RSU Balance at the end of the period (in shares)	1,522		1,003
RSUs expected to vest at the end of the period (in shares)	1,321
Weighted average grant date fair value
RSU Balance at the beginning of the period (in dollars per share)	$ 32.74
RSUs granted (in dollars per share)	45.52
RSUs vested (in dollars per share)	31.54
RSUs cancelled/forfeited (in dollars per share)	33.64
RSU Balance at the end of the period (in dollars per share)	39.10		$ 32.74
RSUs expected to vest at the end of the period (in dollars per share)	$ 38.93
Restricted stock units | Minimum
Vesting Period
Vesting period	3 years
Restricted stock units | Maximum
Vesting Period
Vesting period	4 years

Benefit Plans - ESPP Informatio

Benefit Plans - ESPP Information (Details) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Equity Incentive Plans
Compensation expense (in dollars)	$ 5,813	$ 3,712
Employee Stock Purchase Plan
Equity Incentive Plans
Percentage of employee compensation, maximum	10.00%
Percentage of fair market value as a purchase price	85.00%
Value of purchase per employee, maximum (in dollars)	$ 25
Number of shares per employee, maximum	2
Number of periods during which shares can be purchased	1 year
Number of shares of common stock reserved for issuance	951
Potential number of additional shares reserved for issuance each year	600
Potential percentage of additional number of shares reserved for issuance each year	0.75%
Compensation expense (in dollars)	$ 344	$ 252
Valuation assumptions:
Expected dividend yield	0.00%	0.00%
Expected volatility	53.40%	48.40%
Expected term (years)	6 months	6 months
Risk-free interest rate	0.28%	0.11%
Employee Stock Purchase Plan | Maximum
Equity Incentive Plans
Offering period	27 months

Benefit Plans - 401(k) Plan (De

Benefit Plans - 401(k) Plan (Details) - USD ($) $ in Thousands	Jan. 01, 2016	Dec. 31, 2015	Sep. 30, 2016	Sep. 30, 2015
Benefit Plans
401(k) Plan Matching contributions by the Company as percentage of employees' contributions	50.00%	50.00%
401(k) Plan Maximum contributions by the Company as percentage of employees' gross pay	8.00%	6.00%
401(k) Plan contributions			$ 902	$ 580

Net Loss Per Share (Details)

Net Loss Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Anti-dilutive securities excluded from diluted per share calculation
Total (in shares)	4,906	5,013
Numerator:
Net loss	$ (2,568)	$ (3,435)
Weighted-average shares used in computing net loss per share:
Basic (in shares)	51,231	50,744
Diluted (in shares)	51,231	50,744
Net loss per share:
Basic (in dollars per share)	$ (0.05)	$ (0.07)
Diluted (in dollars per share)	$ (0.05)	$ (0.07)
Employee stock options
Anti-dilutive securities excluded from diluted per share calculation
Total (in shares)	3,333	3,959
Restricted stock units
Anti-dilutive securities excluded from diluted per share calculation
Total (in shares)	1,522	1,002
Employee Stock Purchase Plan
Anti-dilutive securities excluded from diluted per share calculation
Total (in shares)	51	52

Income Taxes (Details)

Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Income Taxes
Income tax expense	$ 100	$ 101
Unrecognized tax benefits	$ 0