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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
————————
Form 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 001-40640
PAYCOR HCM, INC.
(Exact name of registrant as specified in its charter)
Delaware
83-1813909
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
4811 Montgomery Road
Cincinnati, OH
45212
(Address of Principal Executive Offices)(Zip Code)
Registrant's telephone number, including area code
(800) 381-0053

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per share
PYCR
The NASDAQ Stock Market LLC
(Nasdaq Global Select Market)
Securities registered pursuant to section 12(g) of the Act: None
————————
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated fileroAccelerated filero
Non-accelerated filerxSmaller reporting companyo
Emerging growth companyx
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
As of October 31, 2021, the number of shares of the Registrant’s Common Stock outstanding was 174,429,903 shares.



Table of Contents
Table of Contents
Part I - FINANCIAL INFORMATION
Part II - OTHER INFORMATION
         Signatures
2

Table of Contents
Part I - FINANCIAL INFORMATION



Item 1. Financial Statements
Paycor HCM, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
 September 30,
2021
June 30,
2021
(Unaudited)
Assets
Current assets:
Cash and cash equivalents$125,787 $2,634 
Accounts receivable, net15,983 16,472 
Deferred contract costs27,559 24,503 
Prepaid expenses10,663 6,586 
Other current assets1,559 1,516 
Current assets before funds held for clients181,551 51,711 
Funds held for clients1,578,052 670,315 
Total current assets1,759,603 722,026 
Property and equipment, net40,055 41,080 
Goodwill750,394 750,802 
Intangible assets, net323,467 355,323 
Capitalized software, net33,966 31,310 
Long-term deferred contract costs99,528 90,880 
Other long-term assets18,352 19,532 
Total assets$3,025,365 $2,010,953 
Liabilities, Redeemable Noncontrolling Interest and Stockholders' Equity
Current liabilities:
Accounts payable$12,822 $11,978 
Accrued expenses and other current liabilities13,347 15,782 
Accrued payroll and payroll related expenses24,530 32,305 
Deferred revenue10,821 11,948 
Current liabilities before client fund obligations61,520 72,013 
Client fund obligations1,577,642 669,960 
Total current liabilities1,639,162 741,973 
Deferred income taxes70,846 76,138 
Other long-term liabilities14,640 16,680 
Long-term debt, net 49,100 
Total liabilities1,724,648 883,891 
Commitments and contingencies (Note 15)
Redeemable noncontrolling interest 248,423 
Stockholders' equity:
 Common stock $0.001 par value per share, 500,000,000 shares authorized, 174,429,903 shares outstanding at September 30, 2021 and 141,097,740 outstanding at June 30, 2021, respectively
174 141 
Treasury stock, at cost, 10,620,260 shares at September 30, 2021 and June 30, 2021
(245,074)(245,074)
 Preferred stock, $0.001 par value, 50,000,000 shares authorized, shares outstanding at September 30, 2021 and June 30, 2021, respectively
  
 Series A preferred stock, $0.001 par value, 10,000 shares authorized, and 7,715 shares outstanding at September 30, 2021 and June 30, 2021, respectively
 262,772 
Additional paid-in capital1,874,040 1,133,399 
Accumulated deficit(329,408)(275,751)
Accumulated other comprehensive income985 3,152 
Total stockholders' equity1,300,717 878,639 
Total liabilities, redeemable noncontrolling interest and stockholders' equity$3,025,365 $2,010,953 
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
3


Paycor HCM, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share amounts)
Three Months Ended
 September 30,
 20212020
Revenues:
Recurring and other revenue$92,416 $78,551 
Interest income on funds held for clients316 510 
Total revenues92,732 79,061 
Cost of revenues45,611 34,484 
Gross profit47,121 44,577 
Operating expenses:
Sales and marketing45,788 24,343 
General and administrative43,411 33,417 
Research and development10,191 8,284 
Total operating expenses99,390 66,044 
Loss from operations(52,269)(21,467)
Other (expense) income:
Interest expense(235)(486)
Other1,224 196 
Loss before benefit for income taxes(51,280)(21,757)
Income tax benefit(9,244)(4,425)
Net loss(42,036)(17,332)
Less: Accretion of redeemable noncontrolling interests11,621 5,050 
Net loss attributable to Paycor HCM, Inc.$(53,657)$(22,382)
Basic and diluted net loss attributable to Paycor HCM, Inc. per share$(0.32)$(0.15)
Weighted-average common shares outstanding:
Basic and diluted166,459,168 151,718,000 
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
 
4


Paycor HCM, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
Three Months Ended
 September 30,
 20212020
Net loss$(42,036)$(17,332)
Other comprehensive loss, net of tax:
Unrealized loss on foreign currency translation(153)(7)
Unrealized losses on available-for-sale securities, net of tax(61)(59)
Other comprehensive loss, net of tax(214)(66)
Comprehensive loss(42,250)(17,398)
Less: Comprehensive income attributable to redeemable noncontrolling interests11,621 5,050 
Comprehensive loss attributable to Paycor HCM, Inc.$(53,871)$(22,448)
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
5


Paycor HCM, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share amounts)

 Series A Preferred StockCommon Stock
 SharesAmountSharesAmountTreasury
Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
 Income (Loss)
Total
Stockholders'
Equity
Balance, July 1, 2020— $— 151,718,000 $152 $— $1,129,216 $(178,813)$2,770 $953,325 
Net loss attributable to Paycor HCM, Inc.— — — — — — (22,382)— (22,382)
Stock-based compensation expense— — — — — 1,697 — — 1,697 
Other comprehensive loss— — — — — — — (66)(66)
Balance September 30, 2020— $— 151,718,000 $152 $— $1,130,913 $(201,195)$2,704 $932,574 
 Preferred StockSeries A Preferred StockCommon Stock
 SharesAmountSharesAmountSharesAmountTreasury
Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
Balance, July 1, 2021— $— 7,715 $262,772 141,097,740 $141 $(245,074)$1,133,399 $(275,751)$3,152 $878,639 
Net loss attributable to Paycor HCM, Inc.— — — — — — — — (53,657)— (53,657)
Stock-based compensation expense— — — — — — — 21,812 — — 21,812 
Issuance of common stock sold in the initial public offering, net of offering costs and underwriting discount— — — — 21,275,000 21 — 454,126 — — 454,147 
Conversion of Series A Preferred Stock to common stock upon initial public offering— — (7,715)(262,772)11,705,039 12 — 262,760 — — — 
Issuance of common stock upon vesting of restricted stock units at initial public offering— — — — 352,124 — — — — — — 
Other comprehensive loss— — — — — — — — — (214)(214)
Other— — — — — — — 1,943 — (1,953)(10)
Balance September 30, 2021— $— — $— 174,429,903 $174 $(245,074)$1,874,040 $(329,408)$985 $1,300,717 
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
 
6


Paycor HCM, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended
 September 30,
 20212020
Cash flows from operating activities:  
Net loss$(42,036)$(17,332)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation1,718 1,621 
Amortization of intangible assets and software36,870 33,236 
Amortization of deferred contract costs6,634 3,922 
Stock-based compensation expense21,812 1,697 
Amortization of debt acquisition costs20 155 
Deferred tax benefit(9,253)(4,425)
Bad debt expense794 366 
Gain on sale of investments(6)(39)
Gain on installment sale(1,359) 
Loss on foreign currency exchange222 14 
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable(316)(1,428)
Prepaid expenses and other current assets(4,120)(1,736)
Other long-term assets(218)91 
Accounts payable801 643 
Accrued liabilities(8,700)(5,710)
Deferred revenue(1,185)(456)
Other long-term liabilities(585)2,321 
Deferred contract costs(18,338)(14,850)
Net cash used in operating activities(17,245)(1,910)
Cash flows from investing activities:
Purchases of client funds available-for-sale securities(39,708)(91,116)
Proceeds from sale and maturities of client funds available-for-sale securities39,932 91,090 
Purchase of property and equipment(803)(546)
Proceeds from note receivable on installment sale3,040  
Acquisition of intangible assets(195) 
Acquisition of Paltech Solutions, Inc., net of cash acquired (16,511)
Internally developed software costs(7,524)(5,017)
Net cash used in investing activities(5,258)(22,100)
Cash flows from financing activities:
Net change in cash and cash equivalents held to satisfy client funds obligations906,626 (81,509)
Proceeds from line-of-credit3,500 28,500 
Repayments of line-of-credit(52,600)(33,501)
Proceeds from debt 25,000 
Repayments of debt (207)
Proceeds from the issuance of common stock sold in the IPO, net of offering costs455,040  
Redemption of Redeemable Series A Preferred Stock (acquisition of non-controlling interest)(260,044) 
Other financing activities(395)(345)
Net cash provided by (used in) financing activities1,052,127 (62,062)
Impact of foreign exchange on cash and cash equivalents(3)(1)
Net change in cash, cash equivalents, restricted cash and short-term investments, and funds held for clients1,029,621 (86,073)
Cash, cash equivalents, restricted cash and short-term investments, and funds held for clients, beginning of year560,000 546,448 
Cash, cash equivalents, restricted cash and short-term investments, and funds held for clients, end of year$1,589,621 $460,375 
Supplemental disclosure of non-cash investing, financing and other cash flow information:
Capital expenditures in accounts payable$48 $754 
Cash paid during the year for interest$150 $177 
Reconciliation of cash, cash equivalents, restricted cash and short-term investments, and funds held for clients to the Consolidated Balance Sheets
Cash and cash equivalents$125,787 $1,978 
Restricted cash and short-term investments 6,726 
Funds held for clients1,463,834 451,671 
Total cash, cash equivalents, restricted cash and short-term investments, and funds held for clients$1,589,621 $460,375 
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
7


Paycor HCM, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(all amounts in thousands, except share and per share data)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS:
Paycor HCM, Inc. (“Paycor HCM” or “the Company”) and its subsidiaries is a cloud-based provider of human capital management (“HCM”) software solutions for small and medium-sized employers located primarily in the United States (“U.S.”). Solutions provided include payroll, workforce management and human resources (“HR”) related services such as talent management, reporting and analytics and other payroll-related services. Services are generally provided in a Software-as-a-Service (“SaaS”) delivery model utilizing a cloud-based platform.
Paycor HCM is a holding company with no operating assets or operations that was formed on August 24, 2018 to effect the acquisition of Paycor, Inc. and its subsidiaries (“Paycor”). On September 7, 2018, Paycor HCM, through its subsidiary companies, entered into the Agreement and Plan of Merger to acquire Paycor (the “Apax Acquisition”). The Apax Acquisition closed on November 2, 2018. Paycor HCM is owned and controlled by Pride Aggregator, L.P. which is controlled by a syndication led by Apax Partners L.P. (“Apax”), a private equity firm, with a noncontrolling interest of a subsidiary company held by accredited individuals (as defined by U.S. Securities and Exchange Commission (“SEC”) rules and regulations). As a result of the Apax Acquisition, Paycor is an indirect controlled subsidiary of Paycor HCM.

Initial Public Offering

On July 20, 2021, the Company priced the initial public offering (“IPO”) of 18,500,000 shares of its common stock (the “Firm Shares”), $0.001 par value per share, at an offering price of $23.00 per share (the “IPO Price”). The underwriters were granted a 30-day option to purchase up to an additional 2,775,000 shares of common stock from the Company (the “Option Shares”), which was exercised by the underwriters in whole. The IPO closed and both the Firm Shares and the Option Shares were delivered on July 23, 2021. In aggregate, the IPO shares issued generated approximately $455,040, which is net of approximately $30,583 in underwriters’ discount and $3,702 of offering costs paid during the three months ended September 30, 2021. These costs were recorded to additional paid-in capital and accounted for as a reduction of the IPO proceeds in the condensed consolidated balance sheets. Upon the closing of the IPO:

all of the Company’s outstanding shares of Series A Preferred Stock were automatically converted into 11,705,039 shares of the Company’s common stock;
the Company used a portion of the proceeds to effect the redemption of all of the outstanding shares of the Series A Redeemable Preferred Stock (acquisition of non-controlling interest) (“Series A Redeemable Preferred Stock” or “Redeemable Noncontrolling Interest”) at a redemption price of 101% of the liquidation preference, plus the amount of all accrued dividends for the then current and all prior dividend payment periods, for a total of approximately $260,000;
the outstanding Long Term Incentive Plan Units (“LTIP Units”) converted to 1,761,578 restricted stock units (“RSUs”) and the Company began recognizing compensation expense equal to the aggregate dollar value over the requisite two-year service period; and
the performance-based units under the Pride Aggregator, L.P. Management Equity Plan (“MEP”) converted to time-based vesting units, with 25% vesting upon successive 6-month anniversary dates for the 24 months following the Company’s IPO.

Upon completion of the IPO, $4,595 of offering costs, $3,702 of which were paid during the three months ended September 30, 2021, were recorded to additional paid-in capital and accounted for as a reduction of the IPO proceeds in the condensed consolidated balance sheets.

In connection with the Company’s IPO, the Company executed a 1,517.18 for 1 share stock split (“IPO Stock Split”) relating to its common stock. In connection with the IPO Stock Split, the Company increased its common stock authorization from 200,000 to 500,000,000 shares. All share and per share amounts have been retroactively adjusted to reflect the IPO Stock Split for all periods presented within the unaudited condensed consolidated financial statements.
8


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of presentation and consolidation
The accompanying interim unaudited condensed consolidated financial statements of the Company were prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and include all of the information and disclosures required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim reporting. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended June 30, 2021 in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 2, 2021. The unaudited condensed consolidated financial statements for interim periods do not include all disclosures required by U.S. GAAP for annual financial statements and are not necessarily indicative of results for the full year. Adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of the unaudited condensed consolidated financial position, results of operations and cash flows at the dates and for the periods presented have been included. All intercompany transactions and balances have been eliminated in consolidation.
 Use of estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the recognition of revenue, evaluation of potential impairment of goodwill and intangible assets, and the valuation of stock-based compensation.
The Company’s results can also be affected by economic, political, legislative, regulatory and legal actions, including but not limited to health epidemics and pandemics and the resulting economic impact, including the impact from the COVID-19 pandemic. Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, and government fiscal policies can have a significant effect on operations. While the Company maintains reserves for anticipated liabilities and carries various levels of insurance, the Company could be affected by civil, criminal, regulatory or administrative actions, claims or proceedings.
Stock-based compensation
The Company recognizes all employee and director stock-based compensation as a cost in the unaudited condensed consolidated financial statements. Equity-classified awards are measured at the grant date fair value of the award and expense is recognized, net of actual forfeitures, on a straight-line basis over the requisite service period for each separately vesting portion of the award.

For periods prior to the July 2021 IPO, the Company estimated grant date fair value using the Monte Carlo simulation model. As the Company's equity was not publicly traded, there was no history of market prices for the Company's equity. Thus, estimating grant date fair value required the Company to make assumptions, including the value of the Company's equity, expected volatility, expected term and the expected risk-free rate of return.

For periods subsequent to the July 2021, IPO, the Company estimates grant date fair value of RSUs based on the fair value of the Company's underlying common stock. The Company estimates the grant date fair value of stock options, including common stock purchased as a part of the Company's Employee Stock Purchase Plan ("ESPP"), using the Black-Scholes option pricing model, which requires management to make assumptions with respect to the fair value of the Company's award on the grant date, including the expected term of the award, the expected volatility of the Company's stock calculated based on a period of time generally commensurate with the expected term of the award, the expected risk-free rate of return, and expected dividend yields of the Company's stock. See Note 13 - “Equity Compensation Plans” for additional information on the Company’s stock-based compensation plans.
9


Accounts receivable, net
Accounts receivable balances are shown on the condensed consolidated balance sheets net of the allowance for doubtful accounts of $3,185 and $2,402 as of September 30, 2021 and June 30, 2021, respectively. The allowance for doubtful accounts considers factors such as historical experience, credit quality, age of the accounts receivable balance and current and forecasted economic conditions that may affect a customer’s ability to pay. The Company performs ongoing credit evaluations and generally requires no collateral from clients. Management reviews individual accounts as they become past due to determine collectability. The allowance for doubtful accounts is adjusted periodically based on management’s consideration of past due accounts. Individual accounts are charged against the allowance when all reasonable collection efforts have been exhausted.
Sales and marketing
Sales and marketing expenses consist of costs associated with the Company’s direct sales and marketing staff, including employee-related costs, marketing, advertising and promotion expenses, and other related costs. Advertising and promotion costs are expensed as incurred. Advertising and promotion expense totaled approximately $4,986 and $3,403 for the three months ended September 30, 2021 and 2020, respectively.
Income taxes
Income tax benefit for the three months ended September 30, 2021 and 2020 was $9,244 and $4,425, respectively, reflecting an effective tax rate of 18.0% and 20.3% for the three month periods ended September 30, 2021 and 2020, respectively.
Pending accounting pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (Topic 842). This update amends existing accounting standards for lease accounting and requires lessees to recognize virtually all their leases on the balance sheet by recording a right-of-use asset and a lease liability (for other than short term leases). The Company has formed a project team to review contracts to determine which qualify as a lease and then evaluate the impact of the adoption of this principle on the Company’s consolidated financial statements. The Company anticipates that the adoption of this standard will materially affect the condensed consolidated balance sheet and may require changes to the processes used to account for leases. The Company is evaluating the transition methods and expects to adopt this new standard in the fiscal year beginning July 1, 2022.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses” (Topic 326). This update establishes a new approach to estimate credit losses on certain types of financial instruments. The update requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The amended guidance will also update the impairment model for available-for-sale debt securities, requiring entities to determine whether all or a portion of the unrealized loss on such securities is a credit loss. The Company is currently evaluating this standard and the potential effects of these changes to its condensed consolidated financial statements and expects to adopt this new standard in the fiscal year beginning July 1, 2023.
3. REVENUE:
The following table disaggregates revenue from contracts by recurring fees and implementation services and other, which the Company believes depicts the nature, amount and timing of its revenue:
 Three Months Ended September 30,
 20212020
Recurring fees$89,209 $75,066 
Implementation services and other3,207 3,485 
Recurring and other revenue$92,416 $78,551 
Deferred revenue
The Company recognizes deferred revenue for nonrefundable upfront fees as well as for subscription services related to certain ancillary products invoiced prior to the satisfaction of the performance obligation.
10


The nonrefundable upfront fees related to implementation services are typically included on the client’s first invoice. Implementation fees are deferred and recognized as revenue over an estimated 24-month period to which the material right exists, which is the period the client is expected to benefit from not having to pay an additional nonrefundable implementation fee upon renewal of the service.
The following table summarizes the changes in deferred revenue related to the nonrefundable upfront fees and recurring subscription services:
 Three Months Ended September 30,
20212020
Balance, beginning of period$16,047 $15,916 
Deferred revenue acquired 1,374 
Deferral of revenue3,612 2,304 
Revenue recognized(4,799)(2,814)
Impact of foreign exchange(49)51 
Balance, end of period$14,811 $16,831 
Deferred revenue is recorded within deferred revenue and other long-term liabilities on the condensed consolidated balance sheets. The Company will recognize deferred revenue of $9,126 in fiscal year 2022, $4,596 in fiscal year 2023, $770 in fiscal year 2024, and $319 thereafter.
 Deferred contract costs
The following table presents the deferred contract costs balance and related amortization expense for these deferred contract costs.
 As of and for the Three Months Ended September 30, 2021
 Beginning Balance
Capitalization of Costs
Amortization
Ending Balance
Costs to obtain a contract$52,926 $8,074 $(3,023)$57,977 
Costs to fulfill a contract62,457 10,264 (3,611)69,110 
Total$115,383 $18,338 $(6,634)$127,087 
 As of and for the Three Months Ended September 30, 2020
 Beginning Balance
Capitalization of Costs
Amortization
Ending Balance
Costs to obtain a contract$32,233 $7,101 $(1,770)$37,564 
Costs to fulfill a contract39,689 7,749 (2,152)45,286 
Total$71,922 $14,850 $(3,922)$82,850 
Deferred contract costs are recorded within deferred contract costs and long-term deferred contract costs on the condensed consolidated balance sheets. Amortization of costs to fulfill a contract and costs to obtain a contract are recorded in cost of revenues and sales and marketing expense in the unaudited condensed consolidated statements of operations, respectively. The Company regularly reviews its deferred costs for impairment and did not recognize an impairment loss during any period presented.
4. BUSINESS COMBINATION AND ASSET ACQUISITION:
Acquisition of Paltech Solutions, Inc.
On September 24, 2020, the Company entered into a share purchase agreement with Paltech Solutions, Inc. (doing business as “7Geese”), a performance management SaaS application, to acquire 100% of the equity interests (the “7Geese Acquisition”).
11


The acquisition enabled the Company to expand its current service offerings. The cash consideration was funded using proceeds from the issuance of a term loan.
The acquisition was accounted for as a business combination. The purchase price was allocated to the assets acquired and liabilities assumed based on the estimated fair value at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill, $1,661 of which is deductible for tax purposes. Goodwill consists primarily of the acquired workforce, synergistic benefits, and growth opportunities. The factors contributing to the recognition of goodwill were based on strategic benefits that are expected to be realized from the 7Geese Acquisition. The benefits include acquiring a software technology tailored to small and medium-sized businesses that can be integrated into the current suite of Company products. The final purchase price is as follows:
 7Geese Acquisition
Cash consideration$16,847 
Contingent consideration3,000 
Deferred consideration2,900 
Fair value of total consideration22,747 
Cash acquired(107)
Net purchase price$22,640 
Assets acquired:
Accounts receivable$477 
Other current assets295 
Property and equipment64 
Technology intangible assets9,040 
Other intangible assets100 
Other non-current assets9 
Total identifiable assets acquired9,985 
Liabilities assumed:
Accounts payable(34)
Accrued expenses(1,730)
Deferred revenue(1,374)
Total identifiable liabilities assumed(3,138)
Goodwill15,793 
Fair value of total consideration transferred$22,640 
The technology intangible assets have a weighted average useful life of 3 years.
The contingent consideration related to the 7Geese Acquisition is up to a maximum of $3,000 in payments relating to the achievement of operational milestones within a three-year period. The contingent consideration was initially measured at fair value at the acquisition date and recorded as a liability. The liability at fair value was based on the estimated future payments. The Company made payments of $1,000 in March 2021 and $2,000 in May 2021 to fully satisfy the contingent payment obligation.
The deferred consideration related to the 7Geese Acquisition consisted of a one-time payment due and paid in the second quarter of fiscal year 2022.
The Company incurred transaction costs of approximately $500 related to the 7Geese Acquisition, of which approximately $400 relates to the three months ended September 30, 2020. These costs were expensed as incurred in general and administrative expenses on the accompanying unaudited condensed consolidated statements of operations.
12


Asset Acquisition
On February 4, 2021, the Company acquired payroll, timekeeping and HCM service customer relationships from another large provider of HCM services for an initial payment of approximately $9,300, which included approximately $50 of transaction costs. As part of this asset purchase, the Company is required to make quarterly contingent payments and a final payment to the seller based on the revenue generated by the acquired clients over a 12-month period.
The acquired customer relationships are recorded as an intangible asset and are being amortized on a straight-line basis over three years. As of September 30, 2021, the weighted average amortization period for these intangible assets was approximately 2.3 years. The contingent payments will be recognized when each contingency is resolved and the consideration is paid or becomes payable as an increase to the acquired intangible asset, amortized on a straight-line basis over the remaining period of the initial acquired intangible asset.
5. FUNDS HELD FOR CLIENTS:
Funds held for clients are as follows:
 September 30, 2021
 
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Demand deposit accounts and other cash equivalents$1,463,834 $ $ $1,463,834 
U.S. Treasury and direct obligations of U.S. government agencies29,495 40 (3)29,532 
Corporate bonds51,490 789 (127)52,152 
Commercial paper21,133 6  21,139 
Other securities11,164 265 (34)11,395 
$1,577,116 $1,100 $(164)$1,578,052 
 
 June 30, 2021
 
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Demand deposit accounts and other cash equivalents$557,366 $ $ $557,366 
U.S. Treasury and direct obligations of U.S. government agencies28,757 92 (11)28,838 
Corporate bonds50,188 1,900 (189)51,899 
Commercial paper21,831 11 (6)21,836 
Other securities9,821 629 (74)10,376 
 $667,963 $2,632 $(280)$670,315 
Other securities are primarily comprised of collateralized and other mortgage obligations, municipal obligations, and certificates of deposit.
Proceeds from sales and maturities of investment securities for the three months ended September 30, 2021 and 2020, were approximately $39,932 and $91,090, respectively.
The Company is exposed to interest rate risk as rate volatility will cause fluctuations in the earnings potential of future investments. The Company does not utilize derivative financial instruments to manage interest rate risk.
The Company reviews its investments on an ongoing basis to determine if any are other-than-temporarily impaired due to changes in credit risk or other potential valuation concerns. The Company has no material individual securities that have been in a continuous unrealized loss position greater than twelve months. The Company believes these unrealized losses result from changes in interest rates rather than credit risk, and therefore does not believe these unrealized losses are other-than-temporarily impaired.
13


Expected maturities as of September 30, 2021 for client fund assets are as follows:
Due within one year$1,511,593 
Due after one year to two years34,595 
Due after two years to three years19,538 
Due after three years12,326 
Total$1,578,052 
 
6. PROPERTY AND EQUIPMENT, NET:
Property and equipment at cost and accumulated depreciation were as follows:
 September 30,
2021
June 30,
2021
Land$3,680 $3,680 
Land improvements910 910 
Building and improvements22,845 22,845 
Computer, equipment and software14,142 13,427 
Furniture and fixtures4,562 4,596 
Office equipment2,334 2,337 
Leasehold improvements8,200 8,227 
56,673 56,022 
Accumulated depreciation and amortization(16,618)(14,942)
Property and equipment, net$40,055 $41,080 
Depreciation and amortization of property and equipment was approximately $1,718 and $1,621 for the three months ended September 30, 2021 and 2020, respectively.
7. CAPITALIZED SOFTWARE, NET:
Components of capitalized software was as follows:
 September 30, 2021June 30,
2021
Capitalized software$60,408 $52,945 
Accumulated amortization(26,442)(21,635)
Capitalized software, net$33,966 $31,310 
Amortization expense for capitalized software was approximately $4,820 and $2,732 for the three months ended September 30, 2021 and 2020, respectively.
The following is a schedule of future amortization expense as of September 30, 2021:
2022 (remaining nine months)$14,119 
202313,246 
20246,382 
2025219 
2026 
 $33,966 
14


8. GOODWILL AND INTANGIBLE ASSETS:
Goodwill represents the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired.
The following details the changes in goodwill during the three months ended September 30, 2021:
Balance at July 1, 2021$750,802 
Impact of foreign exchange(408)
Balance at September 30, 2021$750,394 
Components of intangible assets were as follows:
 September 30, 2021June 30,
2021
Cost:
  Technology$140,665 $140,665 
  Customer relationships435,177 434,983 
  Trade name105,672 105,672 
Total cost$681,514 $681,320 
Accumulated amortization:
  Technology$(128,391)$(116,669)
  Customer relationships(209,102)(190,538)
  Trade name(20,554)(18,790)
Total accumulated amortization$(358,047)$(325,997)
Intangible assets, net$323,467 $355,323 
Amortization expense for intangible assets was approximately $32,050 and $30,504 for the three months ended September 30, 2021 and 2020, respectively.
The following is a schedule of future amortization expense as of September 30, 2021:
2022 (remaining nine months)$68,508 
202385,189 
202480,437 
202530,639 
20267,043 
Thereafter51,651 
$323,467 
 
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9. DEBT AGREEMENTS AND LETTERS OF CREDIT:
The Company’s long-term debt consists of the following:
September 30, 2021June 30,
2021
2021 Credit Facility$ $49,100 
Less: Unamortized debt issuance costs  
Total long-term debt (including current portion) 49,100 
Less: Current portion  
Total long-term debt, net$ $49,100 
2021 Credit Agreement
On June 11, 2021, Paycor, Inc. entered into a new credit agreement (the “2021 Credit Agreement”) with PNC Bank, National Association (“PNC”), Fifth Third, National Association, and other lenders party thereto, providing a $100,000 senior secured revolving credit facility (the “2021 Credit Facility” and the loans thereunder, the “2021 Loans”). The 2021 Credit Facility includes an “accordion” feature that allows the Company, under certain circumstances, to increase the size of the 2021 Credit Facility in a principal amount up to $300,000, with a resulting maximum principal amount of $400,000.

On September 3, 2021, the Company entered into an amendment (the “2021 Amendment”) to the 2021 Credit Agreement which provides for an increase in the size of the 2021 Credit Agreement from $100,000 to $200,000. No other significant terms of the 2021 Credit Agreement were changed in connection with the 2021 Amendment.
The 2021 Loans have variable interest rates. The interest rate on the 2021 Loans equals, at the Company’s option, either, (i) in the case of ABR borrowings, the highest of (a) the PNC prime rate, (b) the Federal Funds Rate plus 0.50%, and (c) the adjusted London interbank offered rate (“LIBOR”) with a maturity of one month, plus 1.00% (“ABR”) or (ii) in the case of LIBOR borrowings, the LIBOR rate, plus, in each case, an applicable margin of (A) prior to the IPO, (i) in the case of ABR borrowings, 0.95% per annum and (ii) in the case of LIBOR borrowings, 1.95% per annum or (B) following the IPO, (i) in the case of ABR borrowings, 0.375% per annum or (ii) in the case of LIBOR borrowings, 1.375% per annum, in each case, with step downs based on achievement of certain total leverage ratios.
The 2021 Credit Facility requires the Company to pay a quarterly unused fee of (i) prior to an initial public offering, 0.25% and (ii) following an initial public offering, between 0.10% per annum and 0.175% per annum based on our total leverage ratio.
The 2021 Credit Facility commitments will mature on June 11, 2026.
Borrowings under the 2021 Credit Agreement are guaranteed by our subsidiary, Pride Guarantor, Inc. and certain of our other subsidiaries. These borrowings are secured by liens and security interests on substantially all of the assets of existing and future material domestic subsidiaries of Pride Guarantor, Inc.
The 2021 Credit Facility contains financial covenants, which are reviewed for compliance on a quarterly basis, including a total leverage ratio financial covenant of 3.50 to 1.00 and an interest coverage ratio financial covenant of 3.00 to 1.00. As of September 30, 2021, the Company was in compliance with all covenants.
On July 15, 2021 and August 9, 2021, the Company repaid $4,600 and $44,500, respectively, of revolver borrowings under its 2021 Credit Facility.
As a result of the Company entering into the 2021 Amendment, the Company expensed approximately $35 primarily consisting of third party costs. Amounts expensed relating to the 2021 Amendment are recorded as other (expense) income - other on the unaudited condensed consolidated statement of operations for three months ended September 30, 2021.
Additionally, the Company capitalized approximately $100 of deferred financing fees for the three months ended September 30, 2021 in connection with the 2021 Amendment, which are included in other long-term assets within the condensed consolidated balance sheets.
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The Company had no outstanding letters of credit as of September 30, 2021 or June 30, 2021.
10. FAIR VALUE MEASUREMENTS:
U.S. GAAP defines fair value, establishes a framework for measuring fair value, and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques. Fair value is 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 fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income or cost approach are used to measure fair value. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities the Company can access.
Level 2 inputs are inputs (other than quoted prices included within Level 1) that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for the asset or liability and rely on management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.
The fair value of certain assets, such as nonfinancial assets, primarily long-lived assets, goodwill, intangible assets and certain other assets, are recognized or disclosed in connection with impairment evaluations. All non-recurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy.
The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, and accounts payable approximated fair value as of September 30, 2021 and June 30, 2021, because of the relatively short maturity of these instruments. Additionally, the Company believes the fair value of the amounts outstanding under the Company’s 2021 Credit Facility as of June 30, 2021, approximate carrying value because their variable interest rate terms correspond to the current market terms.
The following table presents information on the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and June 30, 2021:
September 30, 2021
Level 1
Level 2
Level 3
Total
Funds held for clients—cash and cash equivalents:
Demand deposit accounts and other cash equivalents$1,463,834 $ $ $1,463,834 
Funds held for clients—available-for-sale:
U.S. Treasury and direct obligations of U.S government agencies 29,532  29,532 
Corporate bonds 52,152  52,152 
Commercial paper 21,139  21,139 
Other securities 11,395  11,395 
$1,463,834 $114,218 $ $1,578,052 
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June 30, 2021
Level 1
Level 2
Level 3
Total
Funds held for clients—cash and cash equivalents:
Demand deposit accounts and other cash equivalents$557,366 $ $ $557,366 
Funds held for clients—available-for-sale:
U.S. Treasury and direct obligations of U.S government agencies 28,838  28,838 
Corporate bonds 51,899  51,899 
Commercial paper 21,836  21,836 
Other securities 10,376  10,376 
$557,366 $112,949 $ $670,315 
Available-for-sale securities included in Level 1 are valued using closing prices for identical instruments that are traded on active exchanges. Available-for-sale securities included in Level 2 are valued by reference to quoted prices of similar assets or liabilities in active markets, adjusted for any terms specific to that asset or liability.
11. REDEEMABLE NONCONTROLLING INTERESTS:

The Company fully redeemed the Series A Redeemable Preferred Stock using a portion of the cash received in its July 2021 IPO. The redemption price per share was equal to 101% of the liquidation preference, plus the amount of all accrued dividends for the then current and all prior dividend payment periods, or approximately $260,000. As of September 30, 2021, there are no holders of the Company’s Series A Redeemable Preferred Stock and all of the Company’s subsidiaries are wholly-owned.

Measurement
Accretion of Redeemable Noncontrolling Interests for the three months ended September 30, 2021 and 2020 includes $11,621 and $5,050 of adjustments, respectively, relating to the redemption accretion value adjustments for each reportable period. The Company elected to pay the distributions for the dividend payment date for the three months ended September 30, 2020 in-kind to preferred shareholders, while 50% of the required distributions for the remaining fiscal year 2021 dividend payment dates were paid in cash with the remaining 50% in-kind to preferred shareholders. These in-kind distributions increase the liquidation preference on each preferred share.
The following table shows the change in the Company’s Redeemable Noncontrolling Interests from July 1, 2021 to September 30, 2021:
Balance at July 1, 2021$248,423 
Accretion of Series A Redeemable Preferred Stock11,621 
Redemption of outstanding shares(260,044)
Balance at September 30, 2021$ 
12. CAPITAL STOCK:
Following the IPO Stock Split, the Company is now authorized to issue 500,000,000 shares of common stock with a par value of $0.001 per share. The holders of the common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Subject to preferences that may be applicable to any outstanding preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared from time-to-time by the Board of Directors out of funds legally available for that purpose. In the event of liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. As of September 30, 2021 and June 30, 2021, there were 174,429,903 and 141,097,740 shares of common stock outstanding, respectively.
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The Board of Directors is authorized, subject to any limitations prescribed by law, without further vote or action by the stockholders, to issue from time to time shares of preferred stock in one or more series. Each such series of preferred stock will have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as determined by the Board of Directors, which may include, among others, dividend rights, voting rights, redemption and sinking fund provisions, liquidation preferences, conversion rights and preemptive rights.
In July 2021, the Company amended and restated its certificate of incorporation and authorized 50,000,000 shares of preferred stock with a par value of $0.001 per share. As of September 30, 2021, there was no preferred stock outstanding.
13. EQUITY COMPENSATION PLANS:
All stock-based awards to employees are recognized as compensation costs in the unaudited condensed consolidated financial statements based on fair value measured as of the date of grant. These costs are recognized as an expense in the unaudited condensed consolidated statements of operations over the requisite service period and increase additional paid-in capital.
The Company recognized stock-based compensation costs for the three months ended September 30, 2021 and 2020 of $21,812 and $1,740, respectively. The total income tax expense recognized in the unaudited consolidated statement of operations for stock-based compensation arrangements was $2,517 and $356 for the three months ended September 30, 2021 and 2020, respectively

Long Term Incentive Plan Units converted to Restricted Stock Units
In connection with the Company’s IPO, the LTIP Units converted to 1,761,578 RSUs, of which 20% of the aggregate dollar value vested upon conversion and was recognized as compensation expense. The remaining aggregate dollar value is being recognized as compensation expense over the requisite two-year service period relating to the LTIP units.
Management Equity Plan Units
Under the terms of the Company’s MEP, one-half of the profits interest units vest based on an associate’s service time. The time-vesting units vest 25% on the first anniversary after the vesting commencement date and thereafter in twelve equal installments on each subsequent quarterly anniversary of the vesting commencement date, with 100% vesting of the time-vesting units occurring on the fourth anniversary of the vesting commencement date. MEP incentive units are subject to a floor amount established at the grant date, which acts as a participation threshold and permits the award to participate in distributions only to the extent the distribution amount for the units exceed the floor amount.

The MEP incentive time-vesting units are accounted for as equity awards and the compensation expense calculated based upon the fair market value of the MEP incentive units at the grant date is recognized as the incentive units vest. The Company estimated the fair value of the MEP incentive units using the Monte Carlo simulation method.

Vesting for the second half of the MEP incentive units is established based on the Company’s performance relative to Apax Partners’ original invested amount, with the performance calculations defined in the plan triggered by the Company’s IPO (implied performance condition). As a result of the Company’s July 2021 IPO, and due to an election by Apax Partners, the performance-vesting incentive units converted to time-based vesting units, with 25% vesting upon successive six-month anniversary dates for the 24 months beginning on the date of the IPO. The conversion was treated as a modification for accounting purposes, and accordingly, the Company estimated fair value as of the modification date.

The modified MEP incentive awards are accounted for as equity awards and the compensation expense calculated based upon the fair value of the modified MEP incent