SEC Filing | PAYCOR HCM, INC.

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pycr-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

————————

Form 10-Q

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


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)

(800) 381-0053

Registrant's telephone number, including area code

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	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 filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	o
		Emerging growth company	x

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 April 30, 2022, the number of shares of the Registrant’s Common Stock outstanding was 174,909,539 shares.

Table of Contents


Part I - FINANCIAL INFORMATION
Item 1. Financial Statements			3
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2022 and June 30, 2021			3
Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2022 and 202 1			4
Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended March 31, 2022 and 202 1			5
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended March 31, 2022 and 202 1			6
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 202 2 and 202 1			8
Notes to the Unaudited Condensed Consolidated Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures About Market Risk			46
Item 4. Controls and Procedures			47
Part II - OTHER INFORMATION
Item 1. Legal Proceedings			48
Item 1A. Risk Factors			48
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			50
Item 3. Defaults Upon Senior Securities			50
Item 4. Mine Safety Disclosures			50
Item 5. Other Information			50
Item 6. Exhibits			51
Signatures			52

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)


	March 31, 2022		June 30, 2021
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	134,004	$	2,634
Accounts receivable, net	20,194		16,472
Deferred contract costs	34,247		24,503
Prepaid expenses	12,417		6,586
Other current assets	1,214		1,516
Current assets before funds held for clients	202,076		51,711
Funds held for clients	1,880,485		670,315
Total current assets	2,082,561		722,026
Property and equipment, net	32,751		41,080
Goodwill	750,655		750,802
Intangible assets, net	280,414		355,323
Capitalized software, net	37,921		31,310
Long-term deferred contract costs	117,256		90,880
Other long-term assets	25,080		19,532
Total assets	$	3,326,638	$	2,010,953
Liabilities, Redeemable Noncontrolling Interest and Stockholders' Equity
Current liabilities:
Accounts payable	$	11,741	$	11,978
Accrued expenses and other current liabilities	14,317		15,782
Accrued payroll and payroll related expenses	38,144		32,305
Deferred revenue	11,764		11,948
Current liabilities before client fund obligations	75,966		72,013
Client fund obligations	1,882,450		669,960
Total current liabilities	1,958,416		741,973
Deferred income taxes	62,671		76,138
Other long-term liabilities	11,886		16,680
Long-term debt, net	—		49,100
Total liabilities	2,032,973		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, 174,903,005 shares outstanding at March 31, 2022 and 141,097,740 outstanding at June 30, 2021, respectively	175		141
Treasury stock, at cost, 10,620,260 shares at March 31, 2022 and June 30, 2021	(245,074)		(245,074)
Preferred stock, $0.001 par value, 50,000,000 shares authorized, — shares outstanding at March 31, 2022 and June 30, 2021, respectively	—		—
Series A preferred stock, $0.001 par value, 10,000 shares authorized, — and 7,715 shares outstanding at March 31, 2022 and June 30, 2021, respectively	—		262,772
Additional paid-in capital	1,910,745		1,133,399
Accumulated deficit	(371,570)		(275,751)
Accumulated other comprehensive (loss) income	(611)		3,152
Total stockholders' equity	1,293,665		878,639
Total liabilities, redeemable noncontrolling interest and stockholders' equity	$	3,326,638	$	2,010,953

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

Paycor HCM, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except share amounts)


	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2022		2021		2022		2021
Revenues:
Recurring and other revenue	$	122,189	$	99,405	$	317,334	$	263,372
Interest income on funds held for clients	408		434		1,062		1,392
Total revenues	122,597		99,839		318,396		264,764
Cost of revenues	41,157		41,189		127,850		112,506
Gross profit	81,440		58,650		190,546		152,258
Operating expenses:
Sales and marketing	41,487		26,044		127,957		75,864
General and administrative	54,090		38,441		141,963		106,914
Research and development	9,324		8,833		30,120		26,507
Total operating expenses	104,901		73,318		300,040		209,285
Loss from operations	(23,461)		(14,668)		(109,494)		(57,027)
Other (expense) income:
Interest expense	(101)		(688)		(448)		(1,847)
Other	(12)		80		1,540		320
Loss before benefit for income taxes	(23,574)		(15,276)		(108,402)		(58,554)
Income tax benefit	(6,876)		(3,215)		(24,204)		(12,344)
Net loss	(16,698)		(12,061)		(84,198)		(46,210)
Less: Accretion of redeemable noncontrolling interests	—		6,379		11,621		17,900
Net loss attributable to Paycor HCM, Inc.	$	(16,698)	$	(18,440)	$	(95,819)	$	(64,110)
Basic and diluted net loss attributable to Paycor HCM, Inc. per share	$	(0.10)	$	(0.13)	$	(0.56)	$	(0.43)
Weighted average common shares outstanding:
Basic and diluted	174,819,649		141,097,740		171,881,617		148,113,313

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

Paycor HCM, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Loss

(in thousands)


	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2022		2021		2022		2021
Net loss	$	(16,698)	$	(12,061)	$	(84,198)	$	(46,210)
Other comprehensive loss, net of tax:
Unrealized gain (loss) on foreign currency translation	97		71		(74)		335
Unrealized loss on available-for-sale securities, net of tax	(1,291)		(285)		(1,736)		(347)
Other comprehensive loss, net of tax	(1,194)		(214)		(1,810)		(12)
Comprehensive loss	(17,892)		(12,275)		(86,008)		(46,222)
Less: Comprehensive income attributable to redeemable noncontrolling interests	—		6,379		11,621		17,900
Comprehensive loss attributable to Paycor HCM, Inc.	$	(17,892)	$	(18,654)	$	(97,629)	$	(64,122)

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

Paycor HCM, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)


	Three Months Ended March 31, 2021
	Series A Preferred Stock			Common Stock					Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Equity
	Shares	Amount		Shares	Amount		Treasury Stock

Balance, December 31, 2020	5,143	$	175,146	141,097,740	$	141	$	(245,074)	$	1,132,660	$	(224,483)	$	2,972	$	841,362
Net loss attributable to Paycor HCM, Inc.	—	—		—	—		—		—		(18,440)		—		(18,440)
Stock-based compensation expense	—	—		—	—		—		1,875		—		—		1,875
Other comprehensive loss	—	—		—	—		—		—		—		(214)		(214)
Issuance of preferred stock, net	2,572	87,626		—	—				—		—		—		87,626


Balance, March 31, 2021	7,715	$	262,772	141,097,740	$	141	$	(245,074)	$	1,134,535	$	(242,923)	$	2,758	$	912,209


	Three Months Ended March 31, 2022
	Preferred Stock			Series A Preferred Stock			Common Stock					Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Amount		Shares	Amount		Shares	Amount		Treasury Stock

Balance, December 31, 2021	—	$	—	—	$	—	174,429,903	$	174	$	(245,074)	$	1,891,259	$	(354,872)	$	583	$	1,292,070
Net loss attributable to Paycor HCM, Inc.	—	—		—	—		—	—		—		—		(16,698)		—		(16,698)
Stock-based compensation expense	—	—		—	—		—	—		—		16,294		—		—		16,294
Issuance of common stock under employee stock plans	—	—		—	—		473,102	1		—		3,186		—		—		3,187
Other comprehensive loss	—	—		—	—		—	—		—		—		—		(1,194)		(1,194)
Other	—	—		—	—		—	—		—		6		—		—		6
Balance, March 31, 2022	—	$	—	—	$	—	174,903,005	$	175	$	(245,074)	$	1,910,745	$	(371,570)	$	(611)	$	1,293,665

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

Paycor HCM, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)


	Nine Months Ended March 31, 2021
	Series A Preferred Stock			Common Stock					Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Equity
	Shares	Amount		Shares	Amount		Treasury Stock

Balance, June 30, 2020	—	$	—	151,718,000	$	152	$	—	$	1,129,216	$	(178,813)	$	2,770	$	953,325
Net loss attributable to Paycor HCM, Inc.	—	—		—	—		—		—		(64,110)		—		(64,110)
Stock-based compensation expense	—	—		—	—		—		5,308		—		—		5,308
Other comprehensive loss	—	—		—	—		—		—		—		(12)		(12)
Issuance of preferred stock, net	7,715	262,772		—	—		—		—		—		—		262,772
Repurchase of common stock, at cost	—	—		(10,620,260)	(11)		(245,074)		11		—		—		(245,074)

Balance, March 31, 2021	7,715	$	262,772	141,097,740	$	141	$	(245,074)	$	1,134,535	$	(242,923)	$	2,758	$	912,209


	Nine Months Ended March 31, 2022
	Preferred Stock			Series A Preferred Stock			Common Stock					Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Amount		Shares	Amount		Shares	Amount		Treasury Stock

Balance, June 30, 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.	—	—		—	—		—	—		—		—		(95,819)		—		(95,819)
Stock-based compensation expense	—	—		—	—		—	—		—		55,321		—		—		55,321
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	—		—		—		—		—		—
Issuance of common stock under employee stock plans	—	—		—	—		473,102	1		—		3,186		—		—		3,187
Other comprehensive loss	—	—		—	—		—	—		—		—		—		(1,810)		(1,810)
Other	—	—		—	—		—	—		—		1,953		—		(1,953)		—
Balance, March 31, 2022	—	$	—	—	$	—	174,903,005	$	175	$	(245,074)	$	1,910,745	$	(371,570)	$	(611)	$	1,293,665

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

Paycor HCM, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


	Nine Months Ended
	March 31,
	2022		2021
Cash flows from operating activities:
Net loss	$	(84,198)	$	(46,210)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation	5,113		5,073
Amortization of intangible assets and software	95,556		103,091
Amortization of deferred contract costs	22,330		13,641
Stock-based compensation expense	55,321		5,308
Amortization of debt acquisition costs	66		511
Deferred tax benefit	(24,227)		(12,344)
Bad debt expense	1,655		1,005
Gain on sale of investments	(9)		(70)
Gain on installment sale	(1,359)		—
Loss (gain) on foreign currency exchange	101		(571)
Loss on lease exit	9,055		—
Change in fair value of deferred consideration	(138)		—

Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable	(5,391)		(5,144)
Prepaid expenses and other current assets	(5,529)		(526)
Other long-term assets	334		868
Accounts payable	(160)		(2,159)
Accrued liabilities	6,151		9,453
Deferred revenue	943		(826)
Other long-term liabilities	(5,533)		243
Deferred contract costs	(58,450)		(45,158)
Net cash provided by operating activities	11,631		26,185
Cash flows from investing activities:
Purchases of client funds available-for-sale securities	(178,362)		(174,962)
Proceeds from sale and maturities of client funds available-for-sale securities	127,603		174,561
Purchase of property and equipment	(1,861)		(2,141)
Proceeds from note receivable on installment sale	3,040		—
Acquisition of intangible assets	(4,640)		(9,252)

Acquisition of Paltech Solutions, Inc., net of cash acquired	—		(16,592)
Internally developed software costs	(22,667)		(15,424)
Net cash used in investing activities	(76,887)		(43,810)
Cash flows from financing activities:
Net change in cash and cash equivalents held to satisfy client funds obligations	1,204,091		172,311
Payment of contingent consideration	—		(1,000)
Payment of deferred consideration	(2,752)		—
Proceeds from promissory note with related party	—		64,989
Repayment of promissory note with related party	—		(64,989)
Proceeds from line-of-credit	3,500		56,217
Repayments of line-of-credit	(52,600)		(60,828)
Proceeds from debt	—		25,000
Repayments of debt	—		(758)
Proceeds from issuance of preferred stock, net of offering costs	—		262,772
Purchase of treasury stock at cost	—		(245,074)
Proceeds from the issuance of common stock sold in the IPO, net of offering costs and underwriting discount	454,915		—
Redemption of Redeemable Series A Preferred Stock (acquisition of non-controlling interest)	(260,044)		—
Proceeds from employee stock purchase plan	3,186		—
Dividends paid to noncontrolling interests	—		(6,194)
Other financing activities	(395)		(397)
Net cash provided by financing activities	1,349,901		202,049
Impact of foreign exchange on cash and cash equivalents	18		(35)
Net change in cash, cash equivalents, restricted cash and short-term investments, and funds held for clients	1,284,663		184,389
Cash, cash equivalents, restricted cash and short-term investments, and funds held for clients, beginning of period	560,000		546,448
Cash, cash equivalents, restricted cash and short-term investments, and funds held for clients, end of period	$	1,844,663	$	730,837
Supplemental disclosure of non-cash investing, financing and other cash flow information:
Capital expenditures in accounts payable	$	25	$	28
Cash paid during the year for interest	$	154	$	510
Reconciliation of cash, cash equivalents, restricted cash and short-term investments, and funds held for clients to the Condensed Consolidated Balance Sheets
Cash and cash equivalents	$	134,004	$	19,364
Restricted cash and short-term investments	—		6,076
Funds held for clients	1,710,659		705,397
Total cash, cash equivalents, restricted cash and short-term investments, and funds held for clients	$	1,844,663	$	730,837

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

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 material 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 controlled by Pride Aggregator, L.P. which is controlled by a syndication led by Apax Partners L.P. (“Apax”), a private equity firm. 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 $454,915, which is net of approximately $30,583 in underwriters’ discount and $3,827 of offering costs paid during the nine months ended March 31, 2022. Upon completion of the IPO, $4,595 of offering costs, $3,827 of which were paid during the nine months ended March 31, 2022, were recorded to additional paid-in capital and accounted for as a reduction of the IPO proceeds in the condensed consolidated balance sheets. Additionally, 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 $260,044;

•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 incentive units granted under the Pride Aggregator, L.P. Management Equity Plan (“MEP”) converted to time-based incentive units, with 25% vesting upon successive 6-month anniversary dates for the 24 months beginning on the date of the Company’s IPO.

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. 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.

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 future interim periods and the full fiscal 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 of operations and financial condition can also be affected by economic, political, legislative, regulatory and legal actions, including but not limited to health epidemics and pandemics and their 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 the Company’s results of operations and financial condition. 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 the award.

For periods prior to the IPO, the Company estimated grant date fair value using a 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 IPO, the Company establishes 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.

Accounts receivable, net

Accounts receivable balances are shown on the condensed consolidated balance sheets net of the allowance for doubtful accounts of $3,683 and $2,402 as of March 31, 2022 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 $5,354 and $4,223 for the three months ended March 31, 2022 and 2021, respectively. Advertising and promotion expense totaled approximately $15,229 and $11,520 for the nine months ended March 31, 2022 and 2021, respectively.

Income taxes

Income tax benefit for the three months ended March 31, 2022 and 2021 was $6,876 and $3,215, respectively, reflecting an effective tax rate of 29.2% and 21.0% for the three month periods ended March 31, 2022 and 2021, respectively. Income tax benefit for the nine months ended March 31, 2022 and 2021 was $24,204 and $12,344, respectively, reflecting an effective tax rate of 22.3% and 21.1% for the nine month periods ended March 31, 2022 and 2021, 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 is evaluating, designing, and implementing new processes and internal controls to meet the requirements to report and disclose financial information relating to the Company’s leases. In addition, the Company is designing a process to perform the necessary calculations to derive the right-of-use assets and liabilities associated with each lease to support the requirements of the new standard.

The Company anticipates that the adoption of this standard will materially affect its condensed consolidated balance sheets. The Company will adopt this ASU on July 1, 2022 using the modified retrospective approach. The Company plans to apply the package of practical expedients in the guidance which, among other things, includes carrying forward the historical lease classification. The Company plans to make accounting policy elections not to apply the new guidance to leases with a term of less than 12 months, as well as to derive the incremental borrowing rate at the July 1, 2022 adoption date based on the remaining lease term as of the adoption date.

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 standard 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 any 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 if the Company continues to qualify as an emerging growth company.

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 March 31,				Nine Months Ended March 31,
	2022		2021		2022		2021
Recurring fees	$	119,108	$	95,767	$	307,873	$	252,743
Implementation services and other	3,081		3,638		9,461		10,629
Recurring and other revenue	$	122,189	$	99,405	$	317,334	$	263,372

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.

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 March 31,				Nine Months Ended March 31,
	2022		2021		2022		2021
Balance, beginning of period	$	15,289	$	16,746	$	16,047	$	15,916
Deferred revenue acquired	—		—		—		1,374
Deferral of revenue	6,467		3,792		15,868		9,767
Revenue recognized	(4,816)		(3,979)		(14,926)		(10,582)
Impact of foreign exchange	32		(10)		(17)		74
Balance, end of period	$	16,972	$	16,549	$	16,972	$	16,549

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 $4,359 in fiscal year 2022, $8,835 in fiscal year 2023, $2,912 in fiscal year 2024, and $866 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 March 31, 2022
	Beginning Balance		Capitalization of Costs		Amortization		Ending Balance
Costs to obtain a contract	$	62,471	$	9,076	$	(3,713)	$	67,834
Costs to fulfill a contract	76,543		11,681		(4,555)		83,669
Total	$	139,014	$	20,757	$	(8,268)	$	151,503


	As of and for the Three Months Ended March 31, 2021
	Beginning Balance		Capitalization of Costs		Amortization		Ending Balance
Costs to obtain a contract	$	42,010	$	7,433	$	(2,351)	$	47,092
Costs to fulfill a contract	50,620		8,535		(2,808)		56,347
Total	$	92,630	$	15,968	$	(5,159)	$	103,439


	As of and for the Nine Months Ended March 31, 2022
	Beginning Balance		Capitalization of Costs		Amortization		Ending Balance
Costs to obtain a contract	$	52,926	$	25,006	$	(10,098)	$	67,834
Costs to fulfill a contract	62,457		33,444		(12,232)		83,669
Total	$	115,383	$	58,450	$	(22,330)	$	151,503


	As of and for the Nine Months Ended March 31, 2021
	Beginning Balance		Capitalization of Costs		Amortization		Ending Balance
Costs to obtain a contract	$	32,233	$	21,069	$	(6,210)	$	47,092
Costs to fulfill a contract	39,689		24,089		(7,431)		56,347&