Paylocity Holding Corp.

11/06/2026 | Press release | Distributed by Public on 11/06/2026 09:05

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
The statements included herein that are not based solely on historical facts are "forward-looking statements." Such forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. Our actual results could differ materially from those anticipated by us in these forward-looking statements as a result of various factors, including items discussed below and under Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended June 30, 2026 filed with the SEC on August 5, 2026.
Overview
We are a leading cloud-based provider of HCM, finance and IT software solutions that deliver a comprehensive platform for the modern workforce. Our platform offers an intuitive, easy-to-use product suite that helps businesses automate and streamline HR, finance and IT processes, attract and retain talent, and build culture and connection with artificial intelligence ("AI") embedded directly into everyday workflows to save time, reduce manual effort, and support better decision-making.
Effective management of human capital, finance and IT operations is a core function in all organizations and requires a significant commitment of resources. Our cloud-based software solutions, combined with our unified database architecture, are highly flexible and configurable and feature a modern, intuitive user experience. The platform is built on a single employee record with workflows and integrations designed to automate processes across teams and systems. AI, analytics and reporting capabilities are embedded throughout the platform to deliver value with intelligent automation, tailored insights, and real-time guidance to administrators and employees. Our platform also offers automated data integration with hundreds of third-party partner systems, such as 401(k), benefits and insurance provider systems. We plan to continue to invest in research and development efforts that will allow us to offer a broader selection of products to new and existing clients focused on experiences that solve our clients' challenges.
We believe there is a significant opportunity to grow our business by increasing our number of clients, and we intend to invest in our business to achieve this purpose. We market and sell our solutions through our direct sales force. Our sales and marketing expenses have increased as we have added sales representatives and related sales and marketing personnel. We intend to continue to grow our sales and marketing organization across new and existing geographic territories. In addition to growing our number of clients, we intend to grow our revenue over the long term by increasing the number of solutions that clients purchase from us. To do so, we must continue to enhance and grow the number of solutions we offer to advance our platform.
We also believe that delivering a positive service experience is an essential element of our ability to sell our solutions and retain our clients. We supplement our comprehensive software solutions with an integrated implementation and client service organization designed to meet the needs of our clients and sales prospects. We expect to continue to invest in and grow our implementation and client service organization as our client base grows.
We will continue to invest across our entire organization as we continue to grow our business over the long term. These investments include increasing the number of personnel across all functional areas, along with improving our solutions and infrastructure to support our growth. The timing and amount of these investments vary based on the rate at which we add new clients and personnel and scale our application development and other activities. Many of these investments will occur in advance of experiencing any direct benefit from them, which will make it difficult to determine if we are effectively allocating our resources. We expect these investments to increase our costs on an absolute basis, but as we grow our number of clients and our related revenues, we anticipate that we will gain economies of scale and increased operating leverage. As a result, we expect our gross and operating margins will improve over the long term.
Paylocity Holding Corporation is a Delaware corporation, which was formed in November 2013. Our business operations are conducted by our wholly owned subsidiaries.
Key Metrics
We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.
Revenue Growth
Our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results and cash flow from operations. This visibility enables us to better manage and invest in our business. Total revenues increased from $408.2 million for the three months ended September 30, 2025 to $451.7 million for the three months ended September 30, 2026, representing an 11% year-over-year increase. The increase in year-over-year revenue growth was driven by the strong performance by our sales team. Uncertainties around market and economic conditions may impact revenue growth through fluctuations in client employee counts, elongated sales cycles, client losses, and a changing interest rate environment, among other factors.
Adjusted Gross Profit and Adjusted EBITDA
We disclose Adjusted Gross Profit and Adjusted EBITDA, which are non-GAAP measures, because we use them to evaluate our performance, and we believe Adjusted Gross Profit and Adjusted EBITDA assist in the comparison of our performance across reporting periods by excluding certain items that we do not believe are indicative of our core operating performance. We believe these metrics are commonly used in the financial community, and we present them to enhance investors' understanding of our operating performance and cash flows.
Adjusted Gross Profit and Adjusted EBITDA are not measurements of financial performance under generally accepted accounting principles in the United States ("GAAP"), and you should not consider Adjusted Gross Profit as an alternative to gross profit or Adjusted EBITDA as an alternative to net income, in each case as determined in accordance with GAAP. In addition, our definition of Adjusted Gross Profit and Adjusted EBITDA may be different than the definition utilized for similarly-titled measures used by other companies.
We define Adjusted Gross Profit as gross profit before amortization of capitalized internal-use software costs, amortization of certain acquired intangibles, stock-based compensation expense and employer payroll taxes related to stock releases, and other items as described below. We define Adjusted EBITDA as net income before interest expense, income tax expense, depreciation and amortization expense, stock-based compensation expense and employer payroll taxes related to stock releases and other items as described below.
Three Months Ended
September 30,
2025 2026
($ in thousands)
Reconciliation from Gross Profit to Adjusted Gross Profit
Gross profit $ 279,792 $ 304,101
Amortization of capitalized internal-use software costs 17,250 18,570
Amortization of certain acquired intangibles 4,601 5,170
Stock-based compensation expense and employer payroll taxes related to stock releases 4,547 5,203
Other items (1) 475 155
Adjusted Gross Profit $ 306,665 $ 333,199
Three Months Ended
September 30,
2025 2026
($ in thousands)
Reconciliation from Net income to Adjusted EBITDA
Net income $ 47,991 $ 57,642
Interest expense 2,355 1,242
Income tax expense 26,922 24,942
Depreciation and amortization expense 27,453 29,904
EBITDA 104,721 113,730
Stock-based compensation expense and employer payroll taxes related to stock releases 39,924 44,671
Other items (1) 1,764 1,101
Adjusted EBITDA $ 146,409 $ 159,502
(1)Represents acquisition and transaction-related costs and severance costs related to certain roles that have been eliminated. We exclude one-off severance costs that we incur as part of the normal course of our business operations.
Basis of Presentation
Revenues
Recurring and other revenue
We generate substantially all of our recurring and other revenue from ongoing subscriptions to our cloud-based software solutions, which are recurring in nature. Recurring fees for each client generally include a base fee in addition to a fee based on the number of client employees and the number of products a client uses. We also charge fees attributable to our preparation of W-2 documents and annual required filings on behalf of our clients. We charge implementation fees for professional services provided to implement our software solutions.
The number of client employees on our platform and the mix of products purchased by a client as well as the timing of services provided with respect to those client employees can vary each period. As such, the number of client employees on our system is not necessarily a good indicator of our financial results in any given period. Recurring and other revenue accounted for 93% and 94% of our total revenues for the three months ended September 30, 2025 and 2026, respectively.
While the majority of our agreements with clients are generally cancellable by the client on 60 days' notice or less, we also have term agreements, which are generally two years in length. Our agreements do not include general rights of return and do not provide clients with the right to take possession of the software supporting the services being provided. We recognize recurring fees in the period in which services are provided and the related performance obligations have been satisfied. We defer implementation fees related to our proprietary products over a period generally up to 24 months.
Interest Income on Funds Held for Clients
We earn interest income on funds held for clients. We collect funds from clients in advance of performing payroll, payroll tax filing and spend management services on behalf of those clients. Until these funds are remitted to the respective payees, we earn interest on these funds through demand deposit accounts with financial institutions with which we have automated clearing house, or ACH, arrangements. We also earn interest by investing a portion of funds held for clients in highly liquid, investment-grade marketable securities.
Cost of Revenues
Cost of revenues consists primarily of employee-related expenses, including wages, stock-based compensation, bonuses and benefits, and costs related to ongoing client support and implementation activities, payroll tax filing, distribution of printed checks and other materials as well as delivery and computing costs, amortization of certain acquired intangible assets and bank fees associated with client fund transfers. Costs related to recurring support are generally expensed as incurred. We capitalize implementation costs related to our proprietary products. For the year ended June 30,
2026 and earlier, such capitalized costs were generally amortized over a period of 7 years. At the end of fiscal 2026, we reassessed the expected period of benefit and, effective June 30, 2026, extended the amortization period to 8 years on a prospective basis. Our cost of revenues is expected to increase in absolute dollars for the foreseeable future as we increase our client base. However, we expect to realize cost efficiencies over the long term as our business scales, resulting in improved operating leverage and increased margins.
We also capitalize a portion of our internal-use software costs, which are then primarily amortized as Cost of revenues. We amortized $17.3 million and $18.6 million of capitalized internal-use software costs for the three months ended September 30, 2025 and 2026, respectively.
Operating Expenses
Sales and Marketing
Sales and marketing expenses consist primarily of employee-related expenses for our direct sales and marketing staff, including wages, commissions, stock-based compensation, bonuses, and benefits, and marketing expenses and other related costs. Our sales personnel earn commissions and bonuses for attainment of certain performance criteria based upon new sales throughout the fiscal year. We capitalize certain selling and commission costs related to new contracts or purchases of additional services by our existing clients. For the year ended June 30, 2026 and earlier, we generally amortized these costs over a period of 7 years. At the end of fiscal 2026, we reassessed the expected period of benefit and, effective June 30, 2026, extended the amortization period to 8 years on a prospective basis.
We will seek to grow our number of clients for the foreseeable future and therefore our sales and marketing expense is expected to continue to increase in absolute dollars as we grow our sales organization and expand our marketing activities.
Research and Development
Research and development expenses consist primarily of employee-related expenses for our research and development and product management staff, including wages, stock-based compensation, bonuses and benefits. Additional expenses include costs related to the development, maintenance, quality assurance and testing of new technologies and ongoing refinement of our existing solutions. Research and development expenses, other than internal-use software costs qualifying for capitalization, are expensed as incurred.
We capitalize a portion of our development costs related to internal-use software. The timing of our capitalized development projects may affect the amount of development costs expensed in any given period. The table below sets forth the amounts of capitalized and expensed research and development expenses for the three months ended September 30, 2025 and 2026.
Three Months Ended
September 30,
2025 2026
($ in thousands)
Capitalized portion of research and development $ 18,654 $ 24,918
Expensed portion of research and development 55,607 59,036
Total research and development $ 74,261 $ 83,954
We expect to grow our research and development efforts as we continue to broaden our product offerings and extend our technological leadership by investing in the development of new technologies and introducing them to new and existing clients. We expect research and development expenses to continue to increase in absolute dollars but to vary as a percentage of total revenue on a period-to-period basis.
General and Administrative
General and administrative expenses consist primarily of employee-related costs, including wages, stock-based compensation, bonuses and benefits for our finance and accounting, legal, information systems, human resources and other administrative departments. Additional expenses include consulting and professional fees, occupancy costs, insurance and other corporate expenses. While we expect our general and administrative expenses to continue to increase in absolute dollars as our company continues to grow, we expect to realize cost efficiencies as our business scales.
Other Income (Expense)
Other income (expense) generally consists of interest income related to interest earned on our cash and cash equivalents, net of interest expense related to our revolving credit facility.
Results of Operations
The following table sets forth our statements of operations data for each of the periods indicated.
Three Months Ended
September 30,
2025 2026
($ in thousands)
Consolidated Statements of Operations Data:
Revenues:
Recurring and other revenue $ 378,858 $ 424,470
Interest income on funds held for clients 29,314 27,199
Total revenues 408,172 451,669
Cost of revenues 128,380 147,568
Gross profit 279,792 304,101
Operating expenses:
Sales and marketing 96,368 101,132
Research and development 55,607 59,036
General and administrative 53,606 61,727
Total operating expenses 205,581 221,895
Operating income 74,211 82,206
Other income 702 378
Income before income taxes 74,913 82,584
Income tax expense 26,922 24,942
Net income $ 47,991 $ 57,642
The following table sets forth our statements of operations data as a percentage of total revenues for each of the periods indicated.
Three Months Ended
September 30,
2025 2026
Consolidated Statements of Operations Data:
Revenues:
Recurring and other revenue 93 % 94 %
Interest income on funds held for clients 7 % 6 %
Total revenues 100 % 100 %
Cost of revenues 31 % 33 %
Gross profit 69 % 67 %
Operating expenses:
Sales and marketing 24 % 22 %
Research and development 14 % 13 %
General and administrative 13 % 14 %
Total operating expenses 51 % 49 %
Operating income 18 % 18 %
Other income 0 % 0 %
Income before income taxes 18 % 18 %
Income tax expense 6 % 5 %
Net income 12 % 13 %
Comparison of Three Months Ended September 30, 2025 and 2026
Revenues
($ in thousands)
Three Months Ended
September 30, 		Change
2025 2026 $ %
Recurring and other revenue $ 378,858 $ 424,470 $ 45,612 12 %
Percentage of total revenues 93 % 94 %
Interest income on funds held for clients $ 29,314 $ 27,199 $ (2,115) (7) %
Percentage of total revenues 7 % 6 %
Recurring and Other Revenue
Recurring and other revenue for the three months ended September 30, 2026 increased by $45.6 million, or 12%, to $424.5 million from $378.9 million for the three months ended September 30, 2025. Recurring and other revenue increased primarily as a result of incremental revenues from new and existing clients due to the strong performance by our sales team.
Interest Income on Funds Held for Clients
Interest income on funds held for clients for the three months ended September 30, 2026 decreased by $2.1 million, or 7%, to $27.2 million from $29.3 million for the three months ended September 30, 2025. Interest income on funds held for clients decreased due to lower interest rates partially offset by higher average daily balances of funds held for new and existing clients as compared to the prior fiscal year.
Cost of Revenues
($ in thousands)
Three Months Ended
September 30, 		Change
2025 2026 $ %
Cost of revenues $ 128,380 $ 147,568 $ 19,188 15 %
Percentage of total revenues 31 % 33 %
Gross margin 69 % 67 %
Cost of revenues for the three months ended September 30, 2026 increased by $19.2 million, or 15%, to $147.6 million from $128.4 million for the three months ended September 30, 2025. Cost of revenues increased primarily as a result of the continued growth of our business, in particular, $14.3 million in additional employee-related costs, which were partially offset by $1.6 million in additional contract cost deferrals and $1.6 million in lower deferred contract cost amortization attributable to the extension of the amortization period of such deferrals from 7 years to 8 years effective June 30, 2026. The increase is also the result of $5.5 million in additional processing and delivery-related costs. Gross margin decreased from 69% for the three months ended September 30, 2025 to 67% for the three months ended September 30, 2026.
Operating Expenses
($ in thousands)
Sales and Marketing
Three Months Ended
September 30, 		Change
2025 2026 $ %
Sales and marketing $ 96,368 $ 101,132 $ 4,764 5 %
Percentage of total revenues 24 % 22 %
Sales and marketing expenses for the three months ended September 30, 2026 increased by $4.8 million, or 5%, to $101.1 million from $96.4 million for the three months ended September 30, 2025. The increase in sales and marketing expense was primarily due to $7.6 million of additional employee-related costs, which was partially offset by $3.1 million in additional contract cost deferrals and $2.3 million in lower deferred contract cost amortization attributable to the extension of the amortization period of such deferrals from 7 years to 8 years effective June 30, 2026.
Research and Development
Three Months Ended
September 30, 		Change
2025 2026 $ %
Research and development $ 55,607 $ 59,036 $ 3,429 6 %
Percentage of total revenues 14 % 13 %
Research and development expenses for the three months ended September 30, 2026 increased by $3.4 million, or 6%, to $59.0 million from $55.6 million for the three months ended September 30, 2025. The increase in research and development expenses was primarily due to $7.1 million of additional employee-related costs related to additional development personnel partially offset by $5.3 million higher capitalization of employee-related internal-use software costs.
General and Administrative
Three Months Ended
September 30, 		Change
2025 2026 $ %
General and administrative $ 53,606 $ 61,727 $ 8,121 15 %
Percentage of total revenues 13 % 14 %
General and administrative expenses for the three months ended September 30, 2026 increased by $8.1 million, or 15%, to $61.7 million from $53.6 million for the three months ended September 30, 2025. General and administrative expenses increased primarily due to $4.2 million in additional stock-based compensation expense and $2.1 million in additional employee-related costs during the three months ended September 30, 2026.
Other Income (Expense)
Other income for the three months ended September 30, 2026 was not materially different as compared to the three months ended September 30, 2025.
Income Taxes
Our effective tax rate was 35.9% and 30.2% for the three months ended September 30, 2025 and 2026, respectively. Our effective tax rate for the three months ended September 30, 2025 was higher than the federal statutory rate of 21% primarily due to stock-based compensation shortfalls realized, state and local income taxes and an increase in the valuation allowance. Our effective tax rate for the three months ended September 30, 2026 was higher than the federal statutory rate of 21% primarily due to stock-based compensation shortfalls realized and state and local income taxes.
Quarterly Trends and Seasonality
Our overall operating results fluctuate from quarter to quarter as a result of a variety of factors, some of which are outside of our control. Our historical results should not be considered a reliable indicator of our future results of operations.
We experience fluctuations in revenues and related costs on a seasonal basis, which are primarily seen in our fiscal third quarter, which ends on March 31 of each year. Specifically, our recurring revenue is positively impacted in our fiscal third quarter as a result of our preparation of W-2 documents for our clients' employees in advance of tax filing requirements. Our interest income earned on funds held for clients is also positively impacted during our fiscal third quarter as a result of our increased collection of funds held for clients. Certain payroll taxes are primarily collected during our fiscal third quarter and subsequently remitted. The seasonal fluctuations in revenues also positively impact gross profits during our fiscal third quarter. Our historical results for our fiscal third quarter should not be considered a reliable indicator of our future results of operations.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions and, to the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
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. There have been no material changes in our critical accounting policies and use of estimates from the information provided in Item 7 of our audited consolidated financial statements for the year ended June 30, 2026 included in our Annual Report on Form 10-K filed with the SEC on August 5, 2026.
Liquidity and Capital Resources
Our primary liquidity needs are related to the funding of general business requirements, including working capital requirements, research and development, and capital expenditures. As of September 30, 2026, our principal source of liquidity was $194.5 million of cash and cash equivalents. In September 2026, we entered into an amended and restated revolving credit agreement, which replaced our previous credit agreement. The amended and restated credit agreement provides for a $1,750.0 million revolving credit facility, which may be increased up to $2,625.0 million. At June 30, 2026, we had $81.3 million in outstanding borrowings under the credit facility. During the three months ended September 30, 2026, we borrowed $50.0 million to fund share repurchases as discussed further below. Consequently, we had $131.3 million in outstanding borrowings under this credit facility at September 30, 2026. Refer to Note 8 of the Notes to the Unaudited Consolidated Financial Statements for additional details on the credit agreement.
In April 2024, our board of directors authorized the repurchase of up to $500.0 million of our common stock (the "Repurchase Program"). In July 2025 and April 2026, our board of directors approved $500.0 million and $1.0 billion increases, respectively, to the Repurchase Program. The extent to which we repurchase shares, the number and price of any shares repurchased and the timing of any repurchases depends on the market price of our common stock, trading volume, general market conditions and other corporate and economic considerations. During the three months ended September 30, 2026, we repurchased an aggregate of 1.1 million shares for approximately $152.5 million at an average cost per share of $138.66 under the Repurchase Program. As of September 30, 2026, approximately $1,149.8 million remains authorized for repurchases under the Repurchase Program.
We may invest portions of our excess cash and cash equivalents in highly liquid, investment-grade marketable securities. These investments may consist of commercial paper, corporate bonds, asset-backed securities, certificates of deposit, U.S. treasury securities, and other securities with credit quality ratings of A-1 or higher as well as in money market funds. As of September 30, 2026, we did not have any corporate investments classified as available-for-sale securities.
In order to grow our business, we intend to increase our personnel and related expenses and to make investments in our platform, data centers and general infrastructure, some of which may be significant. The timing and amount of these investments will vary based on our financial condition, the rate at which we add new clients and new personnel and the scale of our module development, data centers and other activities. Many of these investments will occur in advance of experiencing any direct benefit from them, which could negatively impact our liquidity and cash flows during any particular period and may make it difficult to determine if we are effectively allocating our resources. However, we expect to fund our operations, capital expenditures, acquisitions, share repurchases and other investments principally with cash flows from operations, and to the extent that our liquidity needs exceed our cash from operations, we would look to our cash on hand or utilize the remaining borrowing capacity under our credit facility to satisfy those needs.
Our payroll and spend management processing activities involve the movement of significant funds from accounts of clients to their employees, relevant taxing authorities and vendors. Funds held for clients and client fund obligations will vary substantially from period to period mostly as a result of the timing of payroll and payroll tax obligations due. Though we debit a client's account prior to any disbursement on its behalf, there is a delay between when our payments are due and when the incoming funds from the client to cover these amounts payable actually clear into our operating accounts. We currently have agreements with various major U.S. banks to execute ACH and wire transfers to support our services. We believe we have sufficient capacity under these ACH arrangements to handle all transaction volumes for the foreseeable future. We primarily collect fees for our HCM and payroll services via ACH transactions at the same time we debit the client's account for payroll and payroll tax obligations and thus are able to reduce collectability and accounts receivable risks.
We believe our current cash and cash equivalents, future cash flow from operations, and access to our credit facility will be sufficient to meet our ongoing working capital, capital expenditure, share repurchase and other liquidity requirements for at least the next 12 months, and thereafter, for the foreseeable future.
The following table sets forth data regarding cash flows for the periods indicated:
Three Months Ended
September 30,
2025 2026
(in thousands)
Net cash provided by operating activities $ 86,456 $ 79,690
Cash flows from investing activities:
Purchases of available-for-sale securities (30,456) -
Proceeds from sales and maturities of available-for-sale securities 32,358 5,919
Capitalized internal-use software costs (15,460) (20,450)
Purchases of property and equipment (3,797) (3,105)
Acquisitions of businesses, net of cash acquired - (10,623)
Other investing activities (338) (2,325)
Net cash used in investing activities (17,693) (30,584)
Cash flows from financing activities:
Net change in client fund obligations 70,293 (309,678)
Borrowings under credit facility - 50,000
Repayment of credit facility (81,250) -
Repurchases of common shares (200,000) (152,495)
Taxes paid related to net share settlement of equity awards (18,723) (13,612)
Other financing activities (12) (4,412)
Net cash used in financing activities (229,692) (430,197)
Net change in cash, cash equivalents and funds held for clients' cash and cash equivalents $ (160,929) $ (381,091)
Operating Activities
Net cash provided by operating activities was $86.5 million and $79.7 million for the three months ended September 30, 2025 and 2026, respectively. The change in net cash provided by operating activities from the three months ended September 30, 2025 to the three months ended September 30, 2026 was primarily driven by changes in operating assets and liabilities and lower income tax payments resulting from the provisions of the One Big Beautiful Bill Act during the three months ended September 30, 2025, partially offset by improved operating results after adjusting for non-cash items including stock-based compensation expense, depreciation and amortization expense and deferred income tax expense (benefit) during the three months ended September 30, 2026 as compared to the three months ended September 30, 2025.
Investing Activities
Net cash used in investing activities was $17.7 million and $30.6 million for the three months ended September 30, 2025 and 2026, respectively. The net cash used in investing activities is significantly impacted by the timing of purchases and sales and maturities of investments as we invest portions of funds held for clients in highly liquid, investment-grade marketable securities. The amount of funds held for clients invested will vary based on timing of client funds collected and payments due to client employees and taxing and other regulatory authorities.
The change in net cash used in investing activities was primarily due to a $26.4 million decrease in proceeds from the sales and maturities of available-for-sale securities and $10.6 million paid for acquisitions, net of cash acquired, partially offset by a $30.5 million decrease in purchases of available-for-sale securities during the three months ended September 30, 2026 as compared to the three months ended September 30, 2025.
Financing Activities
Net cash used in financing activities was $229.7 million and $430.2 million for the three months ended September 30, 2025 and 2026, respectively. The change in net cash used in financing activities was primarily due to the net change in client fund obligations of $380.0 million due to the timing of client funds collected and related remittance of those funds to client employees and taxing authorities. This was partially offset by an $81.3 million repayment of borrowings under our credit facility during the three months ended September 30, 2025, and $50.0 million of borrowings under our credit facility and $47.5 million of lower share repurchases during the three months ended September 30, 2026.
Contractual Obligations and Commitments
At September 30, 2026, our principal commitments consisted of $131.3 million in borrowings on our revolving credit facility, which is contractually not due in the next twelve months, and related interest payments, as well as $64.8 million in operating lease obligations, of which $12.1 million is due in the next twelve months. We also had $131.6 million in purchase obligations, of which $69.6 million is due in the next twelve months.
Capital Expenditures
We expect to continue to invest in capital spending as we continue to grow our business and expand and enhance our operating facilities, data centers and technical infrastructure. Future capital requirements will depend on many factors, including our rate of sales growth. In the event that our sales growth or other factors do not meet our expectations, we may eliminate or curtail capital projects in order to mitigate the impact on our use of cash. Capital expenditures were $3.8 million and $3.1 million for the three months ended September 30, 2025 and 2026, respectively, exclusive of capitalized internal-use software costs of $15.5 million and $20.5 million for the same periods, respectively.
New Accounting Pronouncements
Refer to Note 2 of the Notes to the Unaudited Consolidated Financial Statements for a discussion of recently issued accounting standards.
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