PAYCOR HCM, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

The following discussion and analysis summarizes the significant factors
affecting our consolidated operating results, financial condition, liquidity,
and cash flows as of and for the periods presented below. The following
discussion and analysis should be read in conjunction with our consolidated
financial statements and the related notes thereto included elsewhere in this
report. This discussion and analysis reflects our historical results of
operations and financial position. The discussion contains forward-looking
statements that are based on the beliefs of management, as well as assumptions
made by, and information currently available to, our management. Actual results
could differ materially from those discussed in or implied by forward-looking
statements because of various factors, including those discussed elsewhere in
this report, particularly Item 1A. "Risk Factors" and "Note Regarding
Forward-Looking Statements" and other important factors disclosed previously in
our other filings with the Securities and Exchange Commission ("SEC").

Unless we state otherwise or the context otherwise requires, the terms "we,"
"us," and "our" and similar references refer to the Company and its consolidated
subsidiaries.

For comparisons of our results of operations for the fiscal years ended June 30,
2021 and 2020, refer to the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in our
Annual Report on Form 10-K for the fiscal year ended June 30, 2021 filed with
the SEC on September 2, 2021 ("2021 Form 10-K").


Insight

We are a leading Software-as-a-Service ("SaaS") provider of human capital
management ("HCM") solutions for small and medium-sized businesses. Our unified,
cloud-native platform is built to empower leaders by producing actionable,
real-time insights to drive workforce optimization. Our comprehensive suite of
solutions enables organizations to streamline administrative workflows and
achieve regulatory compliance while serving as the single, secure system of
record for all employee data. Our highly flexible, scalable, and extensible
platform is augmented by industry-specific domain expertise and offers
award-winning ease-of-use with an intuitive user experience and deep third-party
integrations. More than 29,800 customers across all 50 states trust us to
empower their leaders to build winning teams.


Our business model

Our revenue is almost entirely recurring in nature and largely attributable to
the sale of SaaS subscriptions to our cloud-native HCM software platform. We
typically generate revenue from customers on a per-employee-per-month ("PEPM")
basis whereby our revenue is derived from the number of employees of a given
customer, and the amount, type, and timing of products provided to a customer
with respect to their employees. As a result, we increase our recurring revenue
as we add more customers, and as our customers add more employees and purchase
more product modules. Our highly recurring revenue model provides significant
visibility into our future operating results. Recurring and other revenues are
primarily revenues derived from the provision of our payroll, workforce
management, HR-related cloud-based computing services and nonrefundable
implementation fees, which represented over 99% of total revenue for the fiscal
year ended June 30, 2022. In addition, we earn interest income on funds held for
clients.

We have developed a robust organic sales and marketing engine and broad referral
network of health insurance and retirement benefits brokers. We market and sell
our solutions through a direct sales force, which is organized into field and
inside sales teams based on customer size, geography, and industry. The number
of unique visitors to our website drives brand awareness and demand generation.
We generated more than 8.1 million unique visitors to our website during the
fiscal year ended June 30, 2022. Our highly efficient and multi-pronged
go-to-market strategy was a key driver of our growth, which enabled us to
generate approximately $142 million and $115 million of total bookings for the
fiscal years ended June 30, 2022 and June 30, 2021, respectively. Total bookings
increased approximately 24% period-over-period for the fiscal year ended
June 30, 2022.

The table below presents a selection of operating results for the years ended June 30, 2022 and 2021.

                                       45

————————————————– ——————————

  Table of Contents

                                              Fiscal Year Ended
                                                  June 30,
(in thousands)                                            2022             2021
Total Revenue                                         $  429,387       $ 352,777
Loss from Operations                                  $ (139,620)      $ (89,333)
Operating Margin                                           (32.5) %        (25.3) %
Adjusted Operating Income*                            $   47,491       $  47,987
Adjusted Operating Income Margin*                           11.1  %         13.6  %
Net Loss                                              $ (108,017)      $ (72,482)


*Adjusted Operating Income and Adjusted Operating Income Margin are non-U.S.
GAAP ("non-GAAP") financial measures. See Non-GAAP Financial Measures below for
a definition of our non-GAAP measures and reconciliations to the most closely
comparable U.S. GAAP measures.

Impact of the COVID-19 pandemic

Many of our prospective and existing customers' businesses were, and continue to
be, impacted by the COVID-19 pandemic and related economic headwinds, which
resulted in reduced customer employee headcount, temporary and permanent
business closures, and/or delayed sales/starts. While the number of companies on
our platform remained consistent, the number of our customers' employees on our
platform declined 7% from March to April 2020. Because we charge our customers
on a per-employee basis for certain services, decreases in headcount negatively
impacted our recurring revenue beginning in the third quarter of fiscal year
2020. Since then, the number of our customers' employees on our platform
recovered rapidly.

In March 2020, we have begun transitioning our employees to remote work and continue to take a virtual-first approach. We have not experienced any significant disruptions in our ability to operate our business during the pandemic, as our business model allows us to serve our customers remotely.

Paycor was among the leaders in the HCM industry to quickly pivot and deliver
the technology and expert advice our customers needed to weather the pandemic.
For example, we updated our product to facilitate Paycheck Protection Program
("PPP") loans and funding, partnered with customers to provide the reporting
they needed to file for funding, and launched an immunization tracker that
enabled customers to track and report on employees' vaccination status. Paycor
also provided thought leadership and expert advice to leaders of small and
medium-sized businesses on nearly every aspect of the pandemic, from COVID
safety protocols to advice on how to transition to remote work environments, how
to safely return to work, how to monitor and launch interventions in support of
employee mental health and emotional well-being, as well as articles and
webinars on federal and state HR compliance regulations.

Although macroeconomic conditions have improved, the duration and severity of
the COVID-19 pandemic, and the long-term effects the pandemic will have on our
customers, our operations and general economic conditions, remain uncertain and
difficult to predict. Our business and financial performance may continue to be
unfavorably impacted in future periods if a significant number of our customers
are unable to continue as viable businesses or if they significantly reduce
headcount, there is a reduction in business confidence and activity, a decrease
in government and consumer spending, a decrease in HCM and payroll solutions
spending by SMBs, or a decrease in growth in the overall market, among other
factors.

Key factors affecting our performance

Our historical financial performance has been, and we expect our future financial performance to be, driven by our ability to:

Expand our business footprint to add new customers

Our current customer base represents a small portion of the U.S. market for HCM
and payroll solutions. We believe there is substantial opportunity to continue
to broaden our customer base, particularly in the 15 most populous metropolitan
statistical areas in the United States (i.e. Tier 1 markets), by expanding our
sales footprint. Our ability to do so will depend on several factors, including
the effectiveness of our products, the relative pricing of our products, our
competitors' offerings, and the effectiveness of our marketing efforts.

                                       46
--------------------------------------------------------------------------------
  Table of Contents
As of June 30, 2022 and 2021, we had approximately 29,800 and 28,000 customers,
respectively, representing a period-over-period increase of 6.4%. We define a
customer as a parent company grouping, which may include multiple subsidiary
client accounts with separate taxpayer identification numbers. As of June 30,
2022 and 2021, we had approximately 47,100 and 44,000 client accounts,
respectively. We also track client accounts as it provides an alternative
measure of the scale of our business and customers. We believe the number of
customer employees on our platform is a key indicator of the growth of our
business. We define customer employees as the number of our customers' employees
at the end of any particular period. As of June 30, 2022 and 2021, we had
approximately 2.3 million and 2.0 million customer employees, respectively.

In addition, we are also focused on expanding our broker referral relationships
to drive the acquisition of new customers. Insurance and benefits brokers are
trusted advisors to SMBs and are influential in the HCM selection process.
Brokers remained an integral part of our sales approach, with 42% in the fiscal
year ended June 30, 2022 as compared to 40% in the fiscal year ended June 30,
2021.

Increase product penetration with existing and new customers

In recent years we have increasingly focused our product pricing strategy away
from sales of individual products and solutions towards a simplified bundled
pricing approach whereby we market multi-product offerings to our customers. We
believe that this strategy addresses a key need for SMB customers, while also
allowing us to better serve the needs of leaders through a more comprehensive
product suite. This strategy has enabled us to effectively drive increased
product penetration and PEPM growth at the initial point of sale, as well as
stronger retention. Our "effective PEPM," which we define as recurring and other
revenue for the period divided by the average number of customer employees,
which we calculate as the sum of the number of customer employees at the end of
each month over the period divided by the total number of months in the period,
was approximately $16 and $15 for the fiscal years ended June 30, 2022 and 2021,
respectively. We intend to advance this strategy by progressively expanding the
breadth of features included in our product bundles. In addition to sales to new
customers, there is a substantial opportunity within our existing customer base
to cross-sell additional products from our portfolio, including Workforce
Management, Benefits Administration and Talent Management.

Our ability to successfully increase revenue per customer is dependent upon
several factors, including the number of employees working for our customers,
the number of products purchased by each of our customers, our customers'
satisfaction with our solutions and support, and our ability to add new products
to our suite.

We believe our ability to retain and expand our existing customers' spending on
our solutions is evidenced by our net revenue retention, which was approximately
98% and 88% for the fiscal years ended June 30, 2022 and 2021, respectively. We
define net revenue retention as the current quarterly period recurring revenue
for the cohort of customers at the beginning of the prior year quarterly period,
divided by the recurring revenue in the prior year reporting period for that
same cohort. In calculating the net revenue retention for a period longer than a
quarter, such as a fiscal year, we use the weighted average of the retention
rates (calculated in accordance with the preceding sentence) for each applicable
quarter included in such period.

Net revenue retention continued to trend favorably and is in line with historical levels prior to the COVID-19 pandemic. Our net revenue retention has been negatively impacted during the COVID-19 pandemic by stay-at-home orders, business closures and other restraining orders, resulting in reduced employee counts, business closures temporary and permanent businesses and delayed sales and start-ups with many of our customers.

Continuous product innovation and optimization

We believe that our product features and functionality are key differentiators
of our offerings. We intend to continue to invest in research and development,
particularly regarding the functionality of our platform, to sustain and advance
our product leadership. For instance, in 2019 we released our Paycor Analytics
and Scheduling products. In 2020 we built and released our compensation
management product. In 2021 we launched on-demand pay (i.e. Wallet) and a full
suite of talent management tools, including performance reviews, one-on-one
coaching, objectives and key results ("OKRs") and structured goal setting.
Additionally, in 2021, we released a facial recognition time clock promoting a
touchless employee experience, introduced a new payroll-based journal reporting
platform to simplify complex staffing reporting requirements for nursing
facilities and released a predictive resignation feature providing leaders with
actionable insights to identify the top drivers of employee resignation. In
2022, we have released the Paycor Developer Portal making it simple for our
customers to connect the power of their people data across their business
through improved integrations. By using Paycor's public APIs and events,
companies can be immediately notified of changes and keep multiple systems
in-sync. As a result of these and other product launches, we have increased the
total list PEPM for our full suite of products to $42 as of June 30, 2022 from
$39 as of June 30, 2021. Our effective PEPM was approximately $16 and $15 for
the fiscal years ended June 30, 2022 and 2021, respectively. Our ability to
                                       47
--------------------------------------------------------------------------------
  Table of Contents
innovate and introduce competitive new products is dependent on our ability to
recruit and retain top technical talent and invest in research and development
initiatives.

Components of operating results

Factors affecting the comparability of our results of operations

IPO expenses

In connection with our IPO of our common stock, we incurred certain
transaction-related expenses. These expenses include transaction bonuses,
share-based compensation expense associated with two Long Term Incentive Plans
("LTIPs") and outstanding performance awards under the Pride Aggregator, L.P.
Management Equity Plan ("MEP"), and expenses related to the redemption of our
Series A Redeemable Preferred Stock. The specifics of the LTIPs, MEP and Series
A Redeemable Preferred Stock are presented below.

We granted Long Term Incentive Plan units ("LTIP Units") under the Pride
Aggregator, L.P. Top Talent Incentive Plan and Sales Equity Incentive Plan. The
LTIP Units provided for, at our discretion, a cash or stock payment ("LTIP
Payment") to participants on certain determination dates, if an IPO occurred and
if the LTIP participant remained employed with us on such date. Our IPO resulted
in a determination date, for which each LTIP participant became entitled to an
LTIP Payment with respect to 20% of the LTIP participant's LTIP Units as of the
IPO date and 20% on each of four subsequent payment dates that are six, twelve,
eighteen and 24 months following the IPO date. As a result of our IPO, the LTIP
Units converted into the entitlement to receive a fixed number of shares of our
common stock, based on the IPO price. We settled such entitlements by issuing
restricted stock units, which vest on the applicable payment dates and we will
recognize approximately $47.6 million of compensation expense over the requisite
service period relating to the LTIP Units.

Under the terms of the MEP, one-half of the MEP incentive units vest based on an
associate's service time. Vesting for the second half of the MEP incentive units
is established based on our performance relative to Apax's original invested
amount, with the performance calculations defined in the plan, triggered by our
IPO (implied performance condition). The 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. We
estimated the fair value of the MEP incentive units using the Monte Carlo
simulation method.

The MEP time-based incentive 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-based incentive units occurring on the fourth anniversary of
the vesting commencement date. The MEP time-based incentive units are accounted
for as equity awards and the compensation expense calculated based upon the fair
market value of the MEP time-based incentive units at the grant date is
recognized as the MEP time-based incentive units vest. As of June 30, 2022,
there was approximately $3.6 million of unrecognized compensation expense
associated with unvested MEP time-based incentive units. The unrecognized
compensation expense associated with unvested MEP time-based incentive units
outstanding at June 30, 2022 will be recognized over a weighted average period
of 1.3 years from June 30, 2022.

Following our IPO and due to an election by Apax partners, MEP Performance-Based Incentive Units converted to Time-Based Incentive Units (“Modified MEP Incentive Units”), with 25% vesting on successive six-month anniversary dates for the 24 months beginning on the ‘Initial Public Offering. The conversion was treated as a modification for accounting purposes and therefore we estimated the fair value at the date of modification.

The Modified MEP Incentive Units are accounted for as equity awards and the
compensation expense calculated based upon the fair value of the Modified MEP
Incentive Units at the modification date is recognized as the Modified MEP
Incentive Units vest. We estimate the fair value of the Modified MEP Incentive
Units based upon the IPO price adjusted for a floor amount established at the
grant date and other liquidation preferences in accordance with the terms of the
MEP. As of June 30, 2022, there was approximately $26.2 million of unrecognized
compensation expense associated with unvested Modified MEP Incentive Units. The
unrecognized compensation expense associated with the unvested Modified MEP
Incentive Units outstanding at June 30, 2022 will be recognized over a weighted
average period of 1.1 years from June 30, 2022.
                                       48
--------------------------------------------------------------------------------
  Table of Contents
In connection with Apax Partners L.P.'s acquisition of us, Pride Midco, Inc., a
direct subsidiary of Paycor HCM, Inc., issued $200 million in aggregate initial
liquidation preference of the Series A Redeemable Preferred Stock. The Series A
Redeemable Preferred Stock accrued dividends at a rate of LIBOR plus 8.875%. The
dividends were payable, or compounded, quarterly on March 31, June 30,
September 30 and December 31 of each year. From the issue date through
November 2, 2020, dividends were accrued and added to the then-prevailing
liquidation preference of the Series A Redeemable Preferred Stock. From
November 2, 2020 through the redemption date, we were required to pay 50% of the
accrued dividends in cash.

The Series A redeemable preferred shares have been accounted for as a redeemable minority interest in the mezzanine section of our Consolidated Balance Sheet and have been accrued using the effective interest rate method to their redemption value through earnings. attributable to the redeemable minority interests line within our consolidated balance sheet. state of operations.

We redeemed the Series A Redeemable Preferred Shares as part of our IPO and using the proceeds therefrom. The redemption price per share was equal to 101% of the liquidation preference plus accrued and unpaid dividends to the date of redemption, or approximately $260.0 million.

Basis of Presentation

Revenues

Recurring and Other Revenue

We derive our revenue from contractual agreements, which contain recurring and
non-recurring service fees. The majority of our contracts are cancellable by the
customer on 30 days' notice. We recognize revenue when control of the promised
goods or services is transferred to customers in an amount that reflects the
consideration that we are entitled to for those goods or services. Recurring
revenue consists primarily of revenues derived from the provision of our
payroll, workforce management, and HR-related cloud-based computing services.
The performance obligations related to recurring services are generally
satisfied monthly as services are provided, with fees charged and collected
based on a PEPM or per-employee-per-payroll basis. Recurring revenue is
generally recognized as the services are provided during each client's payroll
period.

Other revenue and non-recurring services fees consist mainly of nonrefundable
implementation fees, which involve onboarding and configuring the customer
within our cloud-based platform. These nonrefundable implementation fees provide
certain clients with a material right to renew the contract, with revenue
deferred and recognized over the period to which the material right exists. This
is generally a period of 24 months from finalization of onboarding, which
typically concludes within three to six months of the original booking. Deferred
revenue also includes an immaterial portion related to recurring subscription
services where revenue is recognized over the subscription period. Deferred
revenue for these nonrefundable upfront fees and recurring subscription services
was $17.0 million as of June 30, 2022, with $19.5 million of revenue recognized
for the fiscal year ended June 30, 2022. Deferred revenue for these
nonrefundable upfront fees and recurring subscription services was $16.0 million
as of June 30, 2021, with $19.0 million of revenue recognized for the fiscal
year ended June 30, 2021.

We defer certain commission costs that meet the capitalization criteria. We also
capitalize certain costs to fulfill a contract related to our proprietary
products if they are identifiable, generate or enhance resources used to satisfy
future performance obligations and are expected to be recovered. We utilize the
portfolio approach to account for both the cost of obtaining a contract and the
cost of fulfilling a contract.

Capitalized costs to fulfill a contract and cost to obtain a contract are
amortized over the expected period of benefit, which is generally six years
based on our average client life and other qualitative factors, including rate
of technological changes. We do not incur any additional costs to obtain or
fulfill contracts upon renewal. We recognize additional selling and commission
costs and fulfillment costs when an existing client purchases additional
services. The additional costs only relate to the additional services purchased
and do not relate to the renewal of previous services. We continue to expense
certain costs to obtain a contract and cost to fulfill a contract if those costs
do not meet the capitalization criteria.

We expect recurring and other revenue to grow as we continue to add new customers and sell additional products to our existing customers. See “Critical Accounting Policies – Revenue Recognition” below.

Interest income on funds held for clients

                                       49
--------------------------------------------------------------------------------
  Table of Contents
We earn interest income on funds held for clients. We generally collect
substantially all funds for employee payroll payments and related taxes in
advance of remittance to employees and taxing authorities. Prior to remittance
to employees and taxing authorities, we earn interest on these funds through
demand deposit accounts with financial institutions with which we have automated
clearing house arrangements. We also earn interest by investing a portion of
funds held for clients in highly liquid, investment-grade marketable securities.
We expect funds held for our clients to generally grow as the employees per
customer increase and as we add customers. Interest income on funds held for
clients will fluctuate based on market rates of demand deposit accounts, as well
as the highly liquid, investment-grade marketable securities in which we invest
the client funds.

Cost of Revenues

Cost of revenues includes costs relating to the provision of ongoing customer
support and implementation activities, payroll tax filing, distribution of
printed checks and other materials providing our payroll and other HCM
solutions. These costs primarily consist of employee-related expenses for
associates who service customers, as well as third-party processing fees,
delivery costs, hosting costs, and bank fees associated with client fund
transfers. Costs for recurring support are generally expensed as incurred, while
such costs for onboarding and configuring our products for our customers are
capitalized and amortized over a period of six years.

We amortized $17.3 million and $10.6 million of capitalized contract fulfillment
costs during the fiscal years ended June 30, 2022 and 2021, respectively. We
expect to realize increased amortization in future periods as the total
capitalized contract fulfillment costs on our balance sheet increases.

We also capitalize a portion of our internal-use software costs including
external direct costs of materials and services associated with developing or
obtaining internal-use software and certain payroll and payroll-related costs
for associates who are directly associated with internal-use software projects,
which are then generally amortized over a period of three years into cost of
revenues. We amortized $41.4 million and $59.9 million of capitalized
internal-use and acquired software costs during the fiscal years ended June 30,
2022 and 2021, respectively.

Our cost of revenue is expected to increase in absolute dollars as we expand our customer base. However, over the long term, we expect the cost of revenue to decline as a percentage of total revenue as our business scales.

Functionnary costs

Sales and Marketing

Sales and marketing expenses consist primarily of employee-related expenses for
our direct sales and marketing staff, marketing, advertising and promotion
expenses, and other related costs. We capitalize certain commission costs
related to new contracts or purchases of additional services by our existing
customers and amortize such items over a period of six years.

We amortized $14.2 million and $8.9 million of capitalized contract acquisition
costs during the fiscal years ended June 30, 2022 and 2021, respectively. We
expect to realize increased amortization in future periods as the total
capitalized contract acquisition costs on our balance sheet increases.

We seek to grow our number of new customers and upsell existing customers, 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.

General and administrative

General and administrative expenses consist primarily of employee-related costs
for our administrative, finance, accounting, legal, enterprise technology and
human resources departments. Additional expenses include consulting and
professional fees, occupancy costs, insurance, and other corporate expenses.

We amortized $82.6 million and $79.5 million of intangible assets, excluding
acquired software amortized through cost of revenues, during the fiscal years
ended June 30, 2022 and 2021, respectively. The increase in amortization expense
in the fiscal years ended June 30, 2022 is attributable to our asset acquisition
in February 2021.

                                       50

————————————————– ——————————

Table of Contents We expect our general and administrative expenses to increase in absolute dollars as we grow and develop our business.

Research and development

Research and development expenses consist primarily of employee-related expenses
for our software development and product management staff. 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, including costs associated with preliminary
project stage activities, training, maintenance, and all other
post-implementation stage activities are expensed as incurred.

We capitalize a portion of our development costs related to internal-use
software, which are amortized over a period of three years into cost of
revenues. 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 costs for
the following periods:

                                              Fiscal Years Ended
                                                   June 30,
(in thousands)                                               2022          2021
Capitalized software                                      $ 29,831      $ 21,228
Research and development expenses                         $ 43,140      $ 

36,020



We expect to increase our research and development expenses in absolute dollars
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 customers.

Interest charges

Interest expense consists primarily of interest payments and accruals relating
to outstanding borrowings. We expect interest expense to vary each reporting
period depending on the amount of outstanding borrowings and prevailing interest
rates.

Other Income (Expense)

Other income (expenses) generally consists of other income and expenses outside of our normal activities, such as realized gains or losses on the sale of certain fund positions held for clients, gains or losses on extinguishment of debt and expenses related to our financing arrangements.

Operating results

The following table sets forth our consolidated statements of operations for the
periods indicated. Refer to Item 8, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in Part II of our 2021
Form 10-K, for a discussion and comparison of results for the fiscal years ended
June 30, 2021 and June 30, 2020.
                                       51

————————————————– ——————————

  Table of Contents

                                                         Fiscal Year Ended
(in thousands)                                                   June 30, 2022       June 30, 2021
Consolidated Statement of Operations Data:
Revenues:
Recurring and other revenue                                     $      427,032      $      350,956
Interest income on funds held for clients                                2,355               1,821
Total revenues                                                         429,387             352,777
Cost of revenues                                                       168,188             154,487
Gross profit                                                           261,199             198,290
Operating expenses:
Sales and marketing                                                    170,629             106,123
General and administrative                                             187,050             145,480
Research and development                                                43,140              36,020
Total operating expenses                                               400,819             287,623
Loss from operations                                                  (139,620)            (89,333)
Interest expense                                                          (541)             (2,541)
Other (expense) income                                                   1,570              (1,420)
Loss before benefit for income taxes                                  (138,591)            (93,294)
Income tax benefit                                                     (30,574)            (20,812)
Net loss                                                        $     (108,017)     $      (72,482)

Comparison of the years ended June 30, 2022 and June 30, 2021

Revenues

                                                   Fiscal Year Ended
(in thousands)                           June 30, 2022           June 30, 2021           $ Change               % Change
Revenues:
Recurring and other revenue            $      427,032          $      350,956          $   76,076                        22  %
Interest income on funds held for
clients                                         2,355                   1,821                 534                        29
Total revenues                         $      429,387          $      352,777          $   76,610                        22  %



Total revenue for the fiscal years ended June 30, 2022 and 2021 was $429.4
million and $352.8 million, respectively. In the fiscal years ended June 30,
2022 and 2021, recurring and other revenue accounted for $427.0 million and
$351.0 million, respectively. Additionally, interest income on funds held for
clients accounted for $2.4 million and $1.8 million, respectively, for the
fiscal years ended June 30, 2022 and 2021. Total revenues increased primarily as
a result of a 6.4% increase in customers to approximately 29,800 at June 30,
2022 from approximately 28,000 at June 30, 2021, an increase in the average
number of employees per customer and an increase in effective PEPM.

Interest income on funds held for clients increased primarily as a result of
higher average daily balances for funds held due to the addition of new
customers and higher average interest rates across our portfolio of
debt-security investments. Average client funds balance for the fiscal years
ended June 30, 2022 and 2021 were $931.7 million and $718.1 million,
respectively.

                                       52
--------------------------------------------------------------------------------
  Table of Contents
Cost of Revenues

                                         Fiscal Year Ended
(in thousands)                   June 30, 2022       June 30, 2021       $ Change      % Change
Cost of revenues                $     168,188       $     154,487       $ 13,701            9  %
Percentage of total revenues               39  %               44  %
Gross profit                    $     261,199       $     198,290       $ 62,909           32  %
Percentage of total revenues               61  %               56  %



Total cost of revenues for the fiscal years ended June 30, 2022 and 2021 were
$168.2 million and $154.5 million, respectively. Our total cost of revenues
increased primarily as a result of a $25.4 million increase in employee-related
costs to support new customers, including $6.1 million of share-based
compensation expense associated with our IPO, a $8.3 million increase in
amortization expense relating to capitalized software, and a $6.7 million
increase in amortization of deferred contract costs, partially offset by a $26.8
million decrease in amortization expense relating to software acquired in
November 2018 which had fully amortized during the three months ended December
31, 2021.

Operating Expenses

Sales and Marketing

                                          Fiscal Year Ended
(in thousands)                    June 30, 2022       June 30, 2021       $ Change      % Change
Sales and marketing              $     170,629       $     106,123       $ 64,506           61  %
Percentage of total revenues                40  %               30  %



Sales and marketing expenses for the fiscal years ended June 30, 2022 and 2021
were $170.6 million and $106.1 million, respectively. The increase in sales and
marketing expense was primarily the result of a $53.8 million increase in
employee-related costs, including $34.2 million of share-based compensation
expense associated with our IPO and $4.0 million in additional advertising
costs, both principally to expand our sales coverage, a $3.2 million increase in
travel and event related expenses and a $2.5 million increase in professional
services.

General and Administrative

                                        Fiscal Year Ended
(in thousands)                  June 30, 2022       June 30, 2021       $ Change      % Change
General and administrative     $     187,050       $     145,480       $ 41,570           29  %
Percentage of total revenues              44  %               41  %



General and administrative expenses for the fiscal years ended June 30, 2022 and
2021 were $187.1 million and $145.5 million, respectively. The increase in
general and administrative expenses was primarily driven by a $27.5 million
increase in employee-related costs, including $20.3 million of share-based
compensation expense associated with our IPO, a $6.9 million increase in
facilities expense, including the loss upon exiting leases of certain facilities
in March 2022, a $4.6 million increase in professional services, consulting fees
and other IPO-related costs and a $3.2 million increase in intangible
amortization expense primarily associated with an asset acquisition completed in
February 2021, including the capitalization of subsequent earn out payments.

                                       53
--------------------------------------------------------------------------------
  Table of Contents
Research and Development

                                        Fiscal Year Ended
(in thousands)                  June 30, 2022       June 30, 2021       $ Change      % Change
Research and development       $      43,140       $      36,020       $  7,120           20  %
Percentage of total revenues              10  %               10  %



Research and development expenses for the fiscal years ended June 30, 2022 and
2021 were $43.1 million and $36.0 million, respectively. The increase in
research and development expenses was primarily the result of a $6.7 million
increase in share-based compensation expense associated with our IPO.

 Interest Expense

                                         Fiscal Year Ended
(in thousands)                   June 30, 2022      June 30, 2021       $ Change      % Change
Interest expense                $    541           $        2,541      $ (2,000)         (79) %
Percentage of total revenues               <1 %                <1 %


Interest expense for the years ended June 30, 2022 and 2021 was $0.5 million and $2.5 million, respectively. The decrease in interest charges is mainly the result of a decrease in outstanding borrowings.

Other income (expenses)

                                    Fiscal Year Ended
(in thousands)              June 30, 2022       June 30, 2021       $ Change      % Change
Other income (expense)     $        1,570      $       (1,420)     $  2,990         (211) %



Other income for the fiscal year ended June 30, 2022 was $1.6 million compared
to other expense of $1.4 million for the fiscal year ended June 30, 2021. Other
income for the fiscal year ended June 30, 2022 primarily consists of $1.4
million relating to the recognition of income deferred on an installment sale
due to the receipt of the remaining proceeds. Other expense for the fiscal year
ended June 30, 2021 primarily consists of $2.2 million relating to the write-off
of debt acquisition costs and third-party costs associated with entering into a
new credit facility in June 2021 and $0.8 million in unrealized gains resulting
from changes in foreign currency rates.

Tax benefit

Income tax benefit for the fiscal years ended June 30, 2022 and 2021 was $30.6
million and $20.8 million, respectively, reflecting effective tax rates for the
periods of 22.1% and 22.3%, respectively. The increase in tax benefit was due to
an increase in net loss, transaction costs and research and development tax
credits.

Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S. GAAP, we believe
the following non-GAAP measures are useful in evaluating our operating
performance. We believe that non-GAAP financial information, when taken
collectively, may be helpful to investors because it provides consistency and
comparability with past financial performance and assists in comparisons with
other companies, some of which use similar non-GAAP financial information to
supplement their U.S. GAAP results. The non-GAAP financial information is
presented for supplemental informational purposes only and should not be
considered a substitute for financial information presented in accordance with
U.S. GAAP and may be different from similarly titled non-GAAP measures used by
other companies. A reconciliation is provided below for each non-GAAP financial
measure to the most directly comparable financial measure stated in accordance
with U.S. GAAP. Investors are encouraged to review the related U.S. GAAP
financial measures and the reconciliation of these non-GAAP financial measures
to their most directly comparable U.S. GAAP financial measures.

                                       54
--------------------------------------------------------------------------------
  Table of Contents
Adjusted Gross Profit and Adjusted Gross Profit Margin

We define adjusted gross margin as gross margin before amortization of intangible assets, stock-based compensation expense and certain business expenses, in each case included in recurring revenue costs. We define adjusted gross profit margin as adjusted gross profit divided by total revenue.

We use Adjusted Gross Profit and Adjusted Gross Profit Margin to understand and
evaluate our core operating performance and trends. We believe these metrics are
useful measures to us and to our investors to assist in evaluating our core
operating performance because it provides consistency and direct comparability
with our past financial performance and between fiscal periods, as the metrics
eliminate the effects of variability of items such as stock-based compensation
expense and amortization of intangible assets, which are non-cash expenses that
may fluctuate for reasons unrelated to overall operating performance.

Adjusted Gross Profit and Adjusted Gross Profit Margin have limitations as
analytical tools, and you should not consider them in isolation, or as a
substitute for analysis of our results as reported under U.S. GAAP and should
not be considered as replacements for gross profit and gross profit margin, as
determined by U.S. GAAP, or as measures of our profitability. We compensate for
these limitations by relying primarily on our U.S. GAAP results and using
non-GAAP measures only for supplemental purposes.

Adjusted Gross Profit was $287.2 million and $244.9 million, or 66.9% and 69.4%
of total revenue, for the fiscal years ended June 30, 2022 and 2021,
respectively. Adjusted Gross Profit increased for the fiscal year ended June 30,
2022, primarily driven by the increase in revenue from customer growth,
partially offset by additional employee-related costs to support new customers,
amortization of capitalized software and amortization of costs to fulfill
contracts within cost of revenues.

                                                                         Fiscal Year Ended
(in thousands)                                                                June 30, 2022          June 30, 2021
Gross Profit*                                                                $     261,199          $     198,290
Gross Profit Margin                                                                   60.8  %                56.2  %
Amortization of intangible assets                                                   19,313                 46,136
Stock-based compensation expense                                                     6,649                    516
Liability incentive award compensation expense                                           -                    (16)
Corporate adjustments                                                                    -                      -
Adjusted Gross Profit*                                                       $     287,161          $     244,926
Adjusted Gross Profit Margin                                                          66.9  %                69.4  %



*  Gross Profit and Adjusted Gross Profit are burdened by depreciation expense
of $2.6 million and $2.6 million for the fiscal years ended June 30, 2022 and
2021, respectively. Gross Profit and Adjusted Gross Profit are burdened by
amortization of capitalized software of $22.1 million and $13.8 million for the
fiscal years ended June 30, 2022 and 2021, respectively. Gross Profit and
Adjusted Gross Profit are burdened by amortization of deferred contract costs of
$17.3 million and $10.6 million for the fiscal years ended June 30, 2022 and
2021, respectively.

Adjusted Operating Income

We define Adjusted Operating Income as loss from operations before amortization
of acquired intangible assets, stock-based award and liability incentive award
compensation expenses, exit cost due to exiting leases of certain facilities and
other certain corporate expenses, such as costs related to acquisitions. We
define Adjusted Operating Income Margin as Adjusted Operating Income divided by
total revenues.

We use Adjusted Operating Income and Adjusted Operating Income Margin to
understand and evaluate our core operating performance and trends, to prepare
and approve our annual budget, and to develop short-term and long-term operating
plans. We believe that Adjusted Operating Income and Adjusted Operating Income
Margin facilitate comparison of our operating performance on a consistent basis
between periods, and when viewed in combination with our results prepared in
accordance with U.S. GAAP, help provide a broader picture of factors and trends
affecting our results of operations. While the
                                       55
--------------------------------------------------------------------------------
  Table of Contents
amortization expense relating to intangible assets is excluded from Adjusted
Operating Income, the revenue related to such intangible assets is reflected in
Adjusted Operating Income as these assets contribute to our revenue generation.

Adjusted Operating Income and Adjusted Operating Income Margin have limitations
as analytical tools, and you should not consider them in isolation, or as
substitutes for analysis of our results as reported under U.S. GAAP. Because of
these limitations, Adjusted Operating Income and Adjusted Operating Income
Margin should not be considered as replacements for operating loss and operating
loss margin, as determined by U.S. GAAP, or as measures of our profitability. We
compensate for these limitations by relying primarily on our U.S. GAAP results
and using non-GAAP measures only for supplemental purposes.

Adjusted Operating Income was $47.5 million and $48.0 million for the fiscal
years ended June 30, 2022 and 2021, respectively. Adjusted Operating Income
decreased slightly for the fiscal year ended June 30, 2022, primarily driven by
continued investment in employee-related costs to support new customers, expand
our sales coverage, and develop our products, as well as increased amortization
related to capitalized software and deferred contract costs and costs associated
with becoming a public company, partially offset by an increase in revenue.

                                                                          Fiscal Year Ended
(in thousands)                                                                 June 30, 2022          June 30, 2021
Loss from Operations                                                          $    (139,620)         $     (89,333)
Operating Margin                                                                      (32.5) %               (25.3) %
Amortization of intangible assets                                                   101,959                125,590
Stock-based compensation expense                                                     71,376                  4,172
Liability incentive award compensation expense                                            -                   (189)
Loss on lease exit*                                                                   9,112                      -
Corporate adjustments**                                                               4,664                  7,747
Adjusted Operating Income                                                     $      47,491          $      47,987
Adjusted Operating Income Margin                                                       11.1  %                13.6  %



*  Represents exit cost due to exiting leases of certain facilities.
** Corporate adjustments for the fiscal year ended June 30, 2022 relate to
certain restructuring costs of $0.4 million, transaction expenses and costs
associated with the Paltech Solutions, Inc. ("7Geese") Acquisition and other
transactions totaling $0.2 million, as well as costs associated with becoming a
public company, including the implementation of a new enterprise-resource
planning system and professional, consulting, and other costs of $3.1 million
and costs associated with a secondary offering completed in October 2021
("October 2021 Secondary Offering") of $1.0 million. Corporate adjustments for
the fiscal year ended June 30, 2021 relate to certain transition costs of the
new executive leadership team and closure of a standalone facility $1.0 million,
as well as costs associated with becoming a public company, including the
implementation of a new enterprise-resource planning system and professional,
consulting, and other costs of $5.5 million, transaction expenses and costs
associated with the 7Geese Acquisition totaling $0.7 million, and costs related
to implementing certain expense saving and other initiatives related to the
COVID-19 pandemic totaling $0.5 million.

Adjusted operating expenses

We define Adjusted Sales and Marketing expense as sales and marketing expenses
before stock-based award and liability incentive award compensation expenses and
other certain corporate expenses. We define Adjusted General and Administrative
expense as general and administrative expenses before amortization of acquired
intangible assets, stock-based award and liability incentive award compensation
expenses, exit cost due to exiting leases of certain facilities and other
certain corporate expenses. We define Adjusted Research and Development expense
as research and development expenses before stock-based award and liability
award compensation expenses and other certain corporate expenses.

We use Adjusted Sales and Marketing expense, Adjusted General and Administrative
expense and Adjusted Research and Development expense (collectively, "Adjusted
Operating Expenses") to understand and evaluate our core operating performance
and trends, to prepare and approve our annual budget, and to develop short-term
and long-term operating plans. We believe that Adjusted Operating Expenses
facilitate comparison of our operating performance on a consistent basis between
                                       56
--------------------------------------------------------------------------------
  Table of Contents
periods, and when viewed in combination with our results prepared in accordance
with U.S. GAAP, help provide a broader picture of factors and trends affecting
our results of operations.

Adjusted Operating Expenses have limitations as analytical tools, and you should
not consider them in isolation, or as substitutes for analysis of our results as
reported under U.S. GAAP. Because of these limitations, Adjusted Operating
Expenses should not be considered as replacements for operating expenses, as
determined by U.S. GAAP. We compensate for these limitations by relying
primarily on our U.S. GAAP results and using non-GAAP measures only for
supplemental purposes.

Adjusted Sales and Marketing expense was $135.1 million and $103.7 million for
the fiscal years ended June 30, 2022 and 2021. Adjusted Sales and Marketing
expenses increased for the fiscal year ended June 30, 2022, primarily driven by
expanding our sales coverage and an increase in amortization of costs to obtain
contracts.

Adjusted General and Administrative expense was $68.2 million and $57.3 million
for the fiscal years ended June 30, 2022 and 2021. Adjusted General and
Administrative expenses increased for the fiscal year ended June 30, 2022,
primarily driven by additional employee-related costs and professional services,
consulting fees and other related costs primarily associated with becoming a
public company.

Adjusted Research and Development expense was $36.4 million and $35.9 million
for the fiscal years ended June 30, 2022 and 2021, respectively. Adjusted
Research and Development expenses increased for the fiscal year ended June 30,
2022, primarily driven by an increase in licensing fees, partially offset by a
decrease in employee-related costs due to an increase in capitalization of
qualifying costs.


                                                                                  Fiscal Year Ended
(in thousands)                                                                         June 30, 2022           June 30, 2021
Sales and Marketing expense                                                          $      170,629          $      106,123

Stock-based compensation expense                                                            (35,507)                 (1,359)
Liability incentive award compensation expense                                                    -                      90
Corporate adjustments*                                                                          (53)                 (1,120)
Adjusted Sales and Marketing expense                                                 $      135,069          $      103,734
General and Administrative expense                                                   $      187,050          $      145,480
Amortization of intangible assets                                                           (82,646)                (79,454)
Stock-based compensation expense                                                            (22,467)                 (2,207)
Liability incentive award compensation expense                                                    -                      44
Loss on lease exit**                                                                         (9,112)                      -
Corporate adjustments***                                                                     (4,611)                 (6,515)
Adjusted General and Administrative expense                                          $       68,214          $       57,348
Research and Development expense                                            

$43,140 $36,020

Stock-based compensation expense                                                             (6,753)                    (90)
Liability incentive award compensation expense                                                    -                      39
Corporate adjustments****                                                                         -                    (112)
Adjusted Research and Development expense                                            $       36,387          $       35,857



*  Corporate adjustments for the fiscal year ended June 30, 2022 relate to costs
associated with becoming a public company. Corporate adjustments for the fiscal
year ended June 30, 2021 relate to certain costs related to the transition of
the new executive leadership team and closure of a standalone facility of $0.6
million, as well as costs related to implementing certain expense saving and
other initiatives as a result of the COVID-19 pandemic totaling $0.5 million.
**  Represents exit cost due to exiting leases of certain facilities.
***  Corporate adjustments for the fiscal year ended June 30, 2022 relate to
certain restructuring costs of $0.4 million, as well as costs associated with
becoming a public company, including the implementation of a new
enterprise-resource planning system and professional, consulting, and other
costs of $3.0 million, transaction expenses and costs associated with the 7Geese
Acquisition and other transactions totaling $0.2 million and costs associated
with the October 2021 Secondary Offering of $1.0 million. Corporate adjustments
for the fiscal year ended June 30, 2021 relate to certain transition costs of
the new executive leadership team and closure of a standalone facility of $0.4
million, as well as costs
                                       57
--------------------------------------------------------------------------------
  Table of Contents
associated with becoming a public company, including the implementation of a new
enterprise-resource planning system and professional, consulting, and other
costs, of $5.5 million, and transaction expenses and costs associated with the
7Geese Acquisition totaling $0.6 million.
****  Corporate adjustments for the fiscal year ended June 30, 2021 relate to
costs associated with the 7Geese Acquisition.

Adjusted net income attributable to Paycor HCM, Inc. and adjusted net income attributable to Paycor HCM, Inc. Per share

We define Adjusted Net Income Attributable to Paycor HCM, Inc. as loss before
benefit for income tax after adjusting for amortization of acquired intangible
assets, stock-based award and liability incentive award compensation expenses,
gain or loss on the extinguishment of debt, exit cost due to exiting leases of
certain facilities and other certain corporate expenses, such as costs related
to acquisitions, all of which are tax effected applying an adjusted effective
tax rate. We define Adjusted Net Income Attributable to Paycor HCM, Inc. Per
Share as Adjusted Net Income Attributable to Paycor HCM, Inc. divided by
adjusted shares outstanding. Adjusted shares outstanding includes potentially
dilutive securities excluded from the U.S. GAAP dilutive net loss per share
calculation.

We use Adjusted Net Income Attributable to Paycor HCM, Inc. and Adjusted Net
Income Attributable to Paycor HCM, Inc. Per Share to understand and evaluate our
core operating performance and trends, to prepare and approve our annual budget,
and to develop short-term and long-term operating plans. We believe that
Adjusted Net Income Attributable to Paycor HCM, Inc. and Adjusted Net Income
Attributable to Paycor HCM, Inc. Per Share facilitate comparison of our
operating performance on a consistent basis between periods, and when viewed in
combination with our results prepared in accordance with U.S. GAAP, help provide
a broader picture of factors and trends affecting our results of operations.
While the amortization expense relating to intangible assets is excluded from
Adjusted Net Income Attributable to Paycor HCM, Inc., the revenue related to
such intangible assets is reflected in Adjusted Net Income Attributable to
Paycor HCM, Inc. as these assets contribute to our revenue generation.

Adjusted Net Income Attributable to Paycor HCM, Inc. and Adjusted Net Income
Attributable to Paycor HCM, Inc. Per Share have limitations as analytical tools,
and you should not consider these in isolation, or as a substitute for analysis
of our results as reported under U.S. GAAP. Because of these limitations,
Adjusted Net Income Attributable to Paycor HCM, Inc. should not be considered as
a replacement for Net Loss Attributable to Paycor HCM, Inc., and Adjusted Net
Income Attributable to Paycor HCM, Inc. Per Share should not be considered as a
replacement for diluted net loss attributable to Paycor HCM, Inc. per share, as
determined by U.S. GAAP, or as a measure of our profitability. We compensate for
these limitations by relying primarily on our U.S. GAAP results and using
non-GAAP measures only for supplemental purposes.

Adjusted Net Income Attributable to Paycor HCM, Inc. was $35.9 million and $35.6
million for the fiscal years ended June 30, 2022 and 2021, respectively.
Adjusted Net Income Attributable to Paycor HCM, Inc. increased for the fiscal
year ended June 30, 2022, primarily driven by an increase in revenue, partially
offset by continued investment in employee-related costs to support new
customers, expand our sales coverage, and develop our products, as well as
increased amortization related to capitalized software and deferred contract
costs and costs associated with becoming a public company.
                                       58

————————————————– ——————————

  Table of Contents

                                                                             Fiscal Year Ended
(in thousands)                                                                    June 30, 2022           June 30, 2021
Net loss before benefit for income taxes                                        $     (138,591)         $      (93,294)
Loss on debt amendment                                                                      35                   2,195
Amortization of intangible assets                                                      101,959                 125,590
Gain on installment sale                                                                (1,359)                      -
Stock-based compensation expense                                                        71,376                   4,172
Liability incentive award compensation expense                                               -                    (189)
Loss on lease exit*                                                                      9,112                       -
Corporate adjustments**                                                                  4,664                   7,747
Non-GAAP adjusted income before applicable income taxes                                 47,196                  46,221
Income tax effect on adjustments***                                                    (11,327)                (10,631)
Adjusted Net Income Attributable to Paycor HCM, Inc.                        

$35,869 $35,590

Adjusted Net Income Attributable to Paycor HCM, Inc. Per Share                  $         0.21          $         0.23
Adjusted shares outstanding****                                                       173,774,540             152,074,406


* Represents exit cost due to exiting leases of certain facilities.
** Corporate adjustments for the fiscal year ended June 30, 2022 relate to
certain restructuring costs of $0.4 million, transaction expenses and costs
associated with the 7Geese Acquisition and other transactions totaling $0.2
million, as well as costs associated with becoming a public company, including
the implementation of a new enterprise-resource planning system and
professional, consulting, and other costs of $3.1 million and costs associated
with the October 2021 Secondary Offering of $1.0 million. Corporate adjustments
for the fiscal year ended June 30, 2021 relate to certain transition costs of
the new executive leadership team and closure of a standalone facility $1.0
million, as well as costs associated with becoming a public company, including
the implementation of a new enterprise-resource planning system and
professional, consulting, and other costs of $5.5 million, transaction expenses
and costs associated with the 7Geese Acquisition totaling $0.7 million, and
costs related to implementing certain expense saving and other initiatives
related to the COVID-19 pandemic totaling $0.5 million.
*** Non-GAAP adjusted income before applicable income taxes is tax effected
using an adjusted effective tax rate of 24.0% for the fiscal year ended June 30,
2022 and 23.0% for the fiscal year ended June 30, 2021.
**** The adjusted shares outstanding for the fiscal year ended June 30, 2022
assume the conversion of the Series A Preferred Stock as if it would have
occurred on July 1, 2021, based on the if-converted method and include
potentially dilutive securities that are excluded from U.S. GAAP dilutive net
income per share calculation because including them would have an anti-dilutive
effect. The adjusted shares outstanding for the fiscal year ended June 30, 2021
assume the conversion of the Series A Preferred Stock as if it would have
occurred on the December 29, 2020 and January 20, 2021 issuance dates,
respectively, based on the if-converted method.

Cash and capital resources

General

As of June 30, 2022, our principal sources of liquidity were cash and cash
equivalents totaling $133.0 million, which was held for working capital
purposes, as well as $200.0 million of borrowing capacity available under our
revolving credit facility, described further below. As of June 30, 2022, our
cash and cash equivalents principally included demand deposit and money market
accounts. We expect our operating cash flows to further improve as we increase
our operational efficiency and experience economies of scale.

                                       59
--------------------------------------------------------------------------------
  Table of Contents
We have historically financed our operations primarily through cash received
from operations and debt financing and, more recently, with the issuance of
equity in our IPO. We believe our existing cash and cash equivalents, borrowings
available under our revolving credit facility and cash provided by sales of our
solutions and services will be sufficient to meet our working capital and
capital expenditure needs for at least the next twelve months. Our future
capital requirements will depend on many factors including our growth rate, the
timing and extent of spending to support development efforts, the expansion of
sales and marketing activities, and the introduction of new and enhanced
products and services offerings. In the future, we may enter into arrangements
to acquire or invest in complementary businesses, services, and technologies,
including intellectual property rights.

We may be required to seek additional equity or debt financing. If additional
financing is required from outside sources, we may not be able to raise it on
terms acceptable to us or at all. If we are unable to raise additional capital
or generate cash flows necessary to expand our operations and invest in new
technologies, this could reduce our ability to compete successfully and harm our
results of operations.

The majority of the Company's recurring fees are satisfied over time as the
services are provided and invoiced by the customer payroll processing period or
by month. 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. As of June 30,
2022, we had deferred revenue of $17.0 million, of which $11.7 million was
recorded as a current liability and is expected to be recorded as revenue in the
next twelve months, provided all other revenue recognition criteria have been
met.

New Senior Secured Credit Facility

In June 2021, Paycor, Inc. entered into a new credit agreement (the "2021 Credit
Agreement") with PNC Bank National Association, as administrative agent and
collateral agent, providing a $100.0 million senior secured revolving credit
facility (the "2021 Credit Facility"). The 2021 Credit Facility includes an
"accordion feature" that allows us, under certain circumstances, to increase the
size of the 2021 Credit Facility by an additional principal amount of up to
$300.0 million, with a resulting maximum principal amount of $400.0 million,
subject to the participating lenders electing to increase their commitments or
new lenders being added to the 2021 Credit Agreement.

On September 3, 2021, Paycor, Inc., Pride Guarantor, Inc. and certain other
subsidiaries of Paycor HCM, Inc. entered into an amendment ("2021 Amendment") to
the 2021 Credit Agreement. The 2021 Amendment increased the size of the 2021
Credit Facility from $100.0 million to $200.0 million. No other significant
terms of the 2021 Credit Agreement were changed in connection with the 2021
Amendment.

The 2021 credit facility will mature on June 11, 2026.

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 June 30, 2022, we were in compliance with all covenants.

Cash flow

The following table presents a summary of our consolidated cash flows from
operating, investing and financing activities for the fiscal years ended
June 30, 2022 and 2021.

                                                                            Fiscal Year Ended
(in thousands)                                                    June 30, 2022           June 30, 2021
Net cash provided by operating activities                       $       24,351          $       10,773
Net cash used in investing activities                                  (84,550)                (52,581)
Net cash provided by financing activities                            1,183,031                  55,316
Impact of foreign exchange on cash and cash equivalents                     91                      44
Net change in cash and cash equivalents                              1,122,923                  13,552
Cash and cash equivalents at beginning of period                       560,000                 546,448
Cash and cash equivalents at end of period                      $    

1,682,923 $560,000

                                       60

————————————————– ——————————

Contents

Operational activities

Net cash provided by operating activities was $24.4 million and $10.8 million
for the fiscal years ended June 30, 2022 and 2021, respectively. The change in
operating activities for the fiscal year ended June 30, 2022 reflects an
increase in adjustments to add back non-cash items, partially offset by an
increase in net loss and a decrease in changes in assets and liabilities.

Investing activities

Net cash used in investing activities was $84.6 million and $52.6 million, for
the fiscal years ended June 30, 2022 and 2021, respectively. The change in
investing activities for the fiscal year ended June 30, 2022 was primarily
attributable to the timing of proceeds and purchases within our client funds
portfolio, partially offset by the acquisition of 7Geese in September 2020.

Fundraising activities

Net cash provided by financing activities was $1,183.0 million and $55.3 million
for the fiscal years ended June 30, 2022 and 2021, respectively. The change in
financing activities for the fiscal year ended June 30, 2022 was primarily
attributable to an increase in funds held to satisfy client funds obligations as
well as proceeds from the issuance of common stock sold in our IPO, net of
offering costs, partially offset by cash used for the redemption of our Series A
Redeemable Preferred Stock and increased net repayments of long-term debt.

Contractual obligations and commitments

The following table sets forth the amounts of our significant contractual
obligations and commitments with definitive payment terms as of June 30, 2022:

                                                                  Less than                                                More than 5
(in thousands)                                    Total             1 Year           1-3 years          3-5 Years             years
Revolving credit facility                      $      -          $       -          $       -          $       -                   $  -
Operating lease obligations                      26,709              6,678              9,389              7,752               2,890
Capital lease obligations                           986                323                619                 44                   -
Purchase obligations (1)                         26,832             13,979              8,153              4,700                   -
Total                                          $ 54,527          $  20,980          $  18,161          $  12,496          $    2,890


______________________

(1) Purchase obligations include our estimate of minimum commitments remaining to be liquidated under purchase orders to purchase goods and services and legally binding contractual agreements with future payment obligations. These obligations mainly include sponsorship agreements, software licenses and support services.

Impact of inflation

While inflation may impact our revenues and costs of revenues, we believe the
effects of inflation, if any, on our results of operations and financial
condition have not been significant. Nonetheless, if our costs become subject to
significant inflationary pressures, we may not be able to fully offset such
higher costs through price increases. There can be no assurance that our results
of operations and financial condition will not be materially impacted by
inflation in the future.

In the event Federal Reserve raises interest rates to combat inflation, we could
potentially benefit from increased interest income on our funds held for clients
balance invested at higher interest rates.

                                       61
--------------------------------------------------------------------------------
  Table of Contents
Indemnification Agreements

In the ordinary course of business, we enter into agreements of varying scope
and terms pursuant to which we agree to indemnify customers, including, but not
limited to, losses arising out of the breach of such agreements, services to be
provided by us or from intellectual property infringement claims made by third
parties. In addition, in connection with the completion of the IPO, we entered
into indemnification agreements with our directors and certain officers and
associates that require us, among other things, to indemnify them against
certain liabilities that may arise by reason of their status or service as
directors, officers or associates. No demands have been made upon us to provide
indemnification under such agreements and there are no claims that we are aware
of that could have a material effect on our consolidated balance sheets,
consolidated statements of operations and comprehensive loss, or consolidated
statements of cash flows.

Off-balance sheet arrangements

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


JOBS Act

We qualify as an "emerging growth company" pursuant to the provisions of the
JOBS Act. For as long as we are an "emerging growth company," we may take
advantage of certain exemptions from various reporting requirements that are
applicable to other public companies that are not "emerging growth companies,"
including, but not limited to, not being required to comply with the auditor
attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation in our periodic reports
and proxy statements, exemptions from the requirements of holding advisory
"say-on-pay" votes on executive compensation and shareholder advisory votes on
golden parachute compensation.

The JOBS Act also permits an emerging growth company like us to take advantage
of an extended transition period to comply with new or revised accounting
standards applicable to public companies. We have elected to "opt-in" to this
extended transition period for complying with new or revised accounting
standards and, therefore, we will not be subject to the same new or revised
accounting standards as other public companies that comply with such new or
revised accounting standards on a non-delayed basis.

Critical Accounting Policies and Significant Judgments and Estimates

The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with U.S. GAAP. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets and liabilities, revenue and expenses and related disclosures
of contingent assets and liabilities at the date of our financial statements.
Actual results may differ from these estimates under different assumptions or
conditions, impacting our reported results of operations and financial
condition.

Certain accounting policies involve significant judgments and assumptions by
management, which have a material impact on the carrying value of assets and
liabilities and the recognition of income and expenses. Management considers
these accounting policies to be critical accounting policies. The estimates and
assumptions used by management are based on historical experience and other
factors, which are believed to be reasonable under the circumstances. The
significant accounting policies which we believe are the most critical to aid in
fully understanding and evaluating our reported financial results are described
below. Refer to Note 2 to our consolidated financial statements: "Summary of
Significant Accounting Policies" included elsewhere in this report for more
detailed information regarding our critical accounting policies.

Revenue recognition

Revenues are recognized when control of the promised goods or services is
transferred to clients in an amount that reflects the consideration we are
entitled to for those goods or services. We derive our revenue from contracts
predominantly from recurring and non-recurring service fees. The majority of our
agreements are generally cancellable by the client on 30 days' notice.

                                       62
--------------------------------------------------------------------------------
  Table of Contents
Recurring fees are derived from payroll, workforce management, and HR-related
cloud-based computing services. The majority of our recurring fees are satisfied
over time as the services are provided during each client's payroll period. The
performance obligations related to payroll services are delivered based upon the
payroll frequency of the client with the fee charged and collected based on a
per-employee-per-month or per employee-per-payroll basis. The performance
obligations related to workforce management and HR-related services are
generally satisfied each month with the fee charged and collected based on a
per-employee-per-month basis. For subscription-based fees, which can include
payroll, workforce management, and HR-related services, we recognize the
applicable recurring fees each month with the fee charged and collected based on
a per-employee-per-month basis.

Non-recurring service fees consist mainly of nonrefundable implementation fees.
The implementation activities involve setting the client up and loading data
into our cloud-based modules. We have determined that the nonrefundable upfront
fees provide certain clients with a material right to renew the contract beyond
the normal 30-day contractual period without payment of an additional upfront
implementation fee. Implementation fees are deferred and recognized as revenue
over the 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.

Good will and intangible assets, net

An impairment of goodwill is recognized when the carrying amount of assets
exceeds their implied fair value. The process of evaluating the potential
impairment is subjective and requires the application of judgment. We perform an
annual impairment review of goodwill in our fiscal fourth quarter and additional
impairment reviews when events and circumstances indicate it is more likely than
not that an impairment may have occurred.

In evaluating goodwill for impairment, we have the option to first perform a
qualitative assessment to determine whether further impairment testing is
necessary or to perform a quantitative assessment by comparing the fair value of
our single reporting unit to its carrying amount, including goodwill. Under the
qualitative assessment, an entity is not required to calculate the fair value of
a reporting unit unless the entity determines that it is more likely than not
that its fair value is less than its carrying amount. Qualitative factors
include macroeconomic conditions, industry and market conditions, cost factors,
and overall financial performance, among others.

If under the quantitative assessment, the fair value of a reporting unit is less
than its carrying amount, then goodwill is written down for the amount by which
the carrying amount exceeds the fair value. Fair values of the reporting units
are estimated using a weighted methodology considering the output from both the
income and market approaches. The income approach incorporates the use of a
discounted cash flow ("DCF") analysis. A number of significant assumptions and
estimates are involved in the application of the DCF model to forecast operating
cash flows, including markets and market shares, sales volumes and prices, costs
to produce, tax rates, capital spending, discount rate, weighted average cost of
capital, terminal values and working capital changes. The cash flow forecasts
are based on approved strategic operating plans. The market approach is
performed using the Guideline Public Companies method which is based on earnings
multiple data.

We have chosen to carry out a qualitative assessment during the financial years ended
June 30, 2022 and 2021 and determined for both periods that it is not more likely than not that the fair value will be less than its carrying value.

We evaluate other intangible assets, principally consisting of acquired
software, customer relationships and trade names, for impairment whenever events
or changes in circumstances indicate that the carrying amount of the assets may
not be recoverable. Events or changes in circumstances that could result in an
impairment review include, but are not limited to, significant underperformance
relative to historical or projected future operating results, significant
changes in the manner of use of the acquired assets or the strategy for our
overall business, and significant negative industry or economic trends. If an
event occurs that would cause us to revise our estimates and assumptions used in
analyzing the value of our other intangible assets, the revision could result in
a non-cash impairment charge that could have a material impact on our financial
results.

Stock-Based Compensation

We recognize stock-based compensation expense for all stock-based awards made to
associates and directors based on the grant date fair value of the awards.
Stock-based compensation expense for time-based awards is determined based on
the grant-date fair value and is recognized on a straight-line basis over the
requisite service period of the award, which is typically the vesting term of
the award. Stock-based compensation expense for awards subject to market and
performance conditions is determined based on the grant-date fair value and is
recognized on a graded vesting basis over the term of the award once it is
probable that the performance conditions will be met.
                                       63

————————————————– ——————————

Contents

For periods prior to the IPO, we estimated the grant date fair value using a
Monte Carlo simulation model. As our equity was not publicly traded, there was
no history of market prices for our equity. Thus, estimating the grant date fair
value required us 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, we establish the grant date fair value of
RSUs based on the fair value of our underlying common stock. We estimate the
grant date fair value of stock options, including common stock purchased as a
part of our 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 our award on the grant date, including the expected term of
the award, the expected volatility of our 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 our stock.

Adoption of accounting pronouncements

For a description of recently issued accounting standards not yet adopted, see
Note 2 to our consolidated financial statements: "Summary of Significant
Accounting Policies -Pending Accounting Pronouncements" appearing elsewhere in
this report.

© Edgar Online, source Previews

Comments are closed.