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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/13/23 Ceridian HCM Holding Inc. 10-Q 9/30/23 96:15M Donnelley … Solutions/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 4.12M
2: EX-10.2 Material Contract HTML 124K
3: EX-10.3 Material Contract HTML 189K
4: EX-10.4 Material Contract HTML 141K
5: EX-10.5 Material Contract HTML 151K
6: EX-10.6 Material Contract HTML 147K
7: EX-31.1 Certification -- §302 - SOA'02 HTML 32K
8: EX-31.2 Certification -- §302 - SOA'02 HTML 32K
9: EX-32.1 Certification -- §906 - SOA'02 HTML 29K
10: EX-32.2 Certification -- §906 - SOA'02 HTML 29K
16: R1 Document and Entity Information HTML 79K
17: R2 Condensed Consolidated Balance Sheets HTML 141K
18: R3 Condensed Consolidated Balance Sheets HTML 37K
(Parenthetical)
19: R4 Condensed Consolidated Statements of Operations HTML 114K
20: R5 Condensed Consolidated Statements of Comprehensive HTML 70K
Income (Loss)
21: R6 Condensed Consolidated Statements of Comprehensive HTML 29K
Income (Loss) (Parenthetical)
22: R7 Condensed Consolidated Statements of Stockholders' HTML 122K
Equity
23: R8 Condensed Consolidated Statements of Stockholders' HTML 33K
Equity (Parenthetical)
24: R9 Condensed Consolidated Statements of Cash Flows HTML 128K
25: R10 Pay vs Performance Disclosure HTML 40K
26: R11 Insider Trading Arrangements HTML 47K
27: R12 Organization HTML 31K
28: R13 Summary of Significant Accounting Policies HTML 99K
29: R14 Fair Value Measurements HTML 138K
30: R15 Customer Funds HTML 313K
31: R16 Leases HTML 130K
32: R17 Goodwill and Intangible Assets HTML 105K
33: R18 Debt HTML 145K
34: R19 Employee Benefit Plans HTML 95K
35: R20 Share-Based Compensation HTML 166K
36: R21 Revenue HTML 121K
37: R22 Accumulated Other Comprehensive Loss HTML 75K
38: R23 Income Taxes HTML 39K
39: R24 Commitments and Contingencies HTML 33K
40: R25 Net (Loss) Income per Share HTML 123K
41: R26 Summary of Significant Accounting Policies HTML 104K
(Policies)
42: R27 Summary of Significant Accounting Policies HTML 90K
(Tables)
43: R28 Fair Value Measurements (Tables) HTML 132K
44: R29 Customer Funds (Tables) HTML 307K
45: R30 Leases (Tables) HTML 132K
46: R31 Goodwill and Intangible Assets (Tables) HTML 104K
47: R32 Debt (Tables) HTML 127K
48: R33 Employee Benefit Plans (Tables) HTML 92K
49: R34 Share-Based Compensation (Tables) HTML 157K
50: R35 Revenue (Tables) HTML 113K
51: R36 Accumulated Other Comprehensive Loss (Tables) HTML 74K
52: R37 Net (Loss) Income per Share (Tables) HTML 121K
53: R38 Organization - Additional Information (Detail) HTML 29K
54: R39 Summary of Significant Accounting Policies - HTML 34K
Additional Information (Detail)
55: R40 Summary of Significant Accounting Policies - HTML 33K
Schedule of Immaterial Correction of Prior Period
Error Condensed Consolidated Balance Sheets
(Details)
56: R41 Summary of Significant Accounting Policies - HTML 43K
Schedule of Immaterial Correction of Prior Period
Error Consolidated Statement of Cash Flows
(Details)
57: R42 Fair Value Measurements - Asset and Liability HTML 46K
Measured at Fair Value Measured on Recurring Basis
(Detail)
58: R43 Fair Value Measurements - Asset and Liability HTML 33K
Measured at Fair Value Measured on Recurring Basis
(Parenthetical) (Details)
59: R44 Fair Value Measurements - Additional Information HTML 30K
(Details)
60: R45 Customer Funds - Additional Information (Detail) HTML 42K
61: R46 Customer Funds - Investment of Customer Funds HTML 77K
(Detail)
62: R47 Customer Funds - Gross Unrealized Losses and HTML 70K
Related Fair Value of Investment (Detail)
63: R48 Customer Funds - Amortized Cost and Fair Value of HTML 47K
Investment Security Available for Sale (Detail)
64: R49 Leases - Supplemental Balance Sheet Information HTML 55K
Related to Leases (Detail)
65: R50 Leases - Components of Lease Expense (Detail) HTML 40K
66: R51 Goodwill and Intangible Assets - Schedule of HTML 33K
Changes in Goodwill (Detail)
67: R52 Goodwill and Intangible Assets - Schedule of HTML 66K
Intangible Asset (Detail)
68: R53 Goodwill and Intangible Assets - Additional HTML 41K
Information (Detail)
69: R54 Debt - Schedule of Debt Obligations (Detail) HTML 55K
70: R55 Debt - Schedule of Debt Obligations HTML 53K
(Parenthetical) (Detail)
71: R56 Debt - Additional Information (Detail) HTML 94K
72: R57 Debt - Schedule of Convertible Senior Notes HTML 40K
(Detail)
73: R58 Debt - Schedule of Convertible Senior Notes HTML 37K
(Parenthetical) (Detail)
74: R59 Debt - Summary of Interest Expense Recognized HTML 44K
Related to Convertible Senior Notes (Detail)
75: R60 Debt - Schedule of Future Principal Payments and HTML 40K
Maturities of Indebtedness, Excluding Financing
Lease Obligations (Detail)
76: R61 Employee Benefit Plans - Components of Net HTML 46K
Periodic Cost for Defined Benefit Pension Plan and
for Postretirement Benefit Plan (Detail)
77: R62 Share-Based Compensation - Additional Information HTML 90K
(Detail)
78: R63 Share-Based Compensation - Summary of HTML 61K
Performance-Based Stock Option Activity (Detail)
79: R64 Share-Based Compensation - Summary of Performance HTML 41K
Stock Units (Detail)
80: R65 Share-Based Compensation - Summary of Restricted HTML 41K
Stock Units Activity (Detail)
81: R66 Share-Based Compensation - Summary of Term-Based HTML 66K
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Employee Stock Purchase Plan Activity (Detail)
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85: R70 Revenue - Schedule of Changes in Deferred Revenue HTML 35K
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86: R71 Revenue - Additional Information 1 (Detail) HTML 32K
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Computations of Net (Loss) Income per Basic and
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| 10-Q |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
i ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly reporting period ended i September 30, i 2023 /
i ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number i 001-38467
i Ceridian HCM Holding Inc.
(Exact name of registrant as specified in its charter)
i Delaware |
i 46-3231686 |
(State or Other Jurisdiction of |
(I.R.S. Employer Identification Number) |
i 3311 East Old Shakopee Road
i Minneapolis, i Minnesota i 55425
( i 952) i 853-8100
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
i Common stock, $0.01 par value |
|
i CDAY |
|
i New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
i Large accelerated filer |
☒ |
|
Accelerated filer |
☐ |
Non-accelerated filer |
☐ |
|
Smaller reporting company |
i ☐ |
|
|
|
Emerging growth company |
i ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No i ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as the latest practicable date: i 156,127,011 shares of common stock, $0.01 par value per share, as of November 2, 2023.
Ceridian HCM Holding Inc.
Table of Contents
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Item 1. |
4 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
25 |
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Item 3. |
42 |
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Item 4. |
43 |
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45 |
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Item 1. |
45 |
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Item 1A. |
45 |
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Item 2. |
46 |
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Item 3. |
46 |
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Item 4. |
46 |
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Item 5. |
46 |
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Item 6. |
47 |
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2 | 
Q3 2023 Form 10-Q
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q ("Form 10-Q") contains, or incorporates by reference, not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”) and that are subject to the safe harbor created by those sections. Forward-looking statements, including, without limitation, statements concerning the conditions of the human capital management solutions industry and our operations, performance, and financial condition, and including, in particular, statements relating to our business, growth strategies, product development efforts, and future expenses. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “assumes,” “projects,” “could,” “may,” “will,” “should,” and similar references to future periods, or by the inclusion of forecasts or projections.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Consequently, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national, or global political, economic, business, competitive, market, and regulatory conditions. In particular:
Please refer to Part II, Item IA. “Risk Factors” of this Form 10-Q and Part I, Item IA, “Risk Factors” of our most recently filed Annual Report on Form 10-K, for the year ended December 31, 2022 (“2022 Form 10-K”), for a further description of these and other factors. Although we have attempted to identify important risk factors, there may be other risk factors not presently known to us or that we presently believe are not material that could cause actual results and developments to differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. If any of these risks materialize, or if any of the above assumptions underlying forward-looking statements prove incorrect, actual results and developments may differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. For the reasons described above, we caution against relying on any forward-looking statements. Any forward-looking statement made by us in this Form 10-Q speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or to revise any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by law. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should be viewed as historical data.
3 | Q3 2023 Form 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Ceridian HCM Holding Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
September 30, |
|
|
|
|||
|
|
|
|
2022 |
|
|||
(Dollars in millions, except share data) |
|
|
|
|
|
|
||
ASSETS |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and equivalents |
|
$ |
i 510.3 |
|
|
$ |
i 431.9 |
|
Restricted cash |
|
|
i 0.8 |
|
|
|
i 0.8 |
|
Trade and other receivables, net |
|
|
i 236.3 |
|
|
|
i 180.1 |
|
Prepaid expenses and other current assets |
|
|
i 119.1 |
|
|
|
i 98.0 |
|
Total current assets before customer funds |
|
|
i 866.5 |
|
|
|
i 710.8 |
|
Customer funds |
|
|
i 5,048.1 |
|
|
|
i 4,729.5 |
|
Total current assets |
|
|
i 5,914.6 |
|
|
|
i 5,440.3 |
|
Right of use lease assets, net |
|
|
i 19.5 |
|
|
|
i 24.3 |
|
Property, plant, and equipment, net |
|
|
i 211.1 |
|
|
|
i 174.9 |
|
Goodwill |
|
|
i 2,270.7 |
|
|
|
i 2,280.0 |
|
Other intangible assets, net |
|
|
i 244.9 |
|
|
|
i 281.6 |
|
Other assets |
|
|
i 282.4 |
|
|
|
i 262.4 |
|
Total assets |
|
$ |
i 8,943.2 |
|
|
$ |
i 8,463.5 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Current portion of long-term debt |
|
$ |
i 7.5 |
|
|
$ |
i 7.8 |
|
Current portion of long-term lease liabilities |
|
|
i 6.9 |
|
|
|
i 10.0 |
|
Accounts payable |
|
|
i 66.5 |
|
|
|
i 54.3 |
|
Deferred revenue |
|
|
i 47.8 |
|
|
|
i 41.2 |
|
Employee compensation and benefits |
|
|
i 75.5 |
|
|
|
i 97.4 |
|
Other accrued expenses |
|
|
i 41.5 |
|
|
|
i 24.0 |
|
Total current liabilities before customer funds obligations |
|
|
i 245.7 |
|
|
|
i 234.7 |
|
Customer funds obligations |
|
|
i 5,165.8 |
|
|
|
i 4,845.1 |
|
Total current liabilities |
|
|
i 5,411.5 |
|
|
|
i 5,079.8 |
|
Long-term debt, less current portion |
|
|
i 1,210.9 |
|
|
|
i 1,213.4 |
|
Employee benefit plans |
|
|
i 12.1 |
|
|
|
i 17.7 |
|
Long-term lease liabilities, less current portion |
|
|
i 20.4 |
|
|
|
i 23.7 |
|
Other liabilities |
|
|
i 21.4 |
|
|
|
i 19.5 |
|
Total liabilities |
|
|
i 6,676.3 |
|
|
|
i 6,354.1 |
|
Commitments and contingencies (Note 13) |
|
|
|
|
|
|
||
Stockholders’ equity: |
|
|
|
|
|
|
||
Common stock, $ i i 0.01 / par,
i i 500,000,000 / shares authorized, i i 155,978,986 / and |
|
|
i 1.6 |
|
|
|
i 1.5 |
|
Additional paid in capital |
|
|
i 3,123.8 |
|
|
|
i 2,965.5 |
|
Accumulated deficit |
|
|
( i 363.4 |
) |
|
|
( i 372.6 |
) |
Accumulated other comprehensive loss |
|
|
( i 495.1 |
) |
|
|
( i 485.0 |
) |
Total stockholders’ equity |
|
|
i 2,266.9 |
|
|
|
i 2,109.4 |
|
Total liabilities and stockholders' equity |
|
$ |
i 8,943.2 |
|
|
$ |
i 8,463.5 |
|
See accompanying notes to condensed consolidated financial statements.
4 | Q3 2023 Form 10-Q
Ceridian HCM Holding Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
(Dollars in millions, except share and per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recurring |
|
$ |
i 325.4 |
|
|
$ |
i 263.8 |
|
|
$ |
i 958.2 |
|
|
$ |
i 762.8 |
|
Professional services and other |
|
|
i 52.1 |
|
|
|
i 51.8 |
|
|
|
i 155.8 |
|
|
|
i 147.3 |
|
Total revenue |
|
|
i 377.5 |
|
|
|
i 315.6 |
|
|
|
i 1,114.0 |
|
|
|
i 910.1 |
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recurring |
|
|
i 80.5 |
|
|
|
i 77.1 |
|
|
|
i 239.4 |
|
|
|
i 234.4 |
|
Professional services and other |
|
|
i 66.1 |
|
|
|
i 61.0 |
|
|
|
i 197.0 |
|
|
|
i 172.6 |
|
Product development and management |
|
|
i 53.3 |
|
|
|
i 44.8 |
|
|
|
i 153.5 |
|
|
|
i 125.0 |
|
Depreciation and amortization |
|
|
i 17.1 |
|
|
|
i 13.7 |
|
|
|
i 47.4 |
|
|
|
i 40.0 |
|
Total cost of revenue |
|
|
i 217.0 |
|
|
|
i 196.6 |
|
|
|
i 637.3 |
|
|
|
i 572.0 |
|
Gross profit |
|
|
i 160.5 |
|
|
|
i 119.0 |
|
|
|
i 476.7 |
|
|
|
i 338.1 |
|
Selling, general, and administrative |
|
|
i 134.0 |
|
|
|
i 122.7 |
|
|
|
i 382.4 |
|
|
|
i 367.2 |
|
Operating profit (loss) |
|
|
i 26.5 |
|
|
|
( i 3.7 |
) |
|
|
i 94.3 |
|
|
|
( i 29.1 |
) |
Interest expense, net |
|
|
i 8.9 |
|
|
|
i 7.4 |
|
|
|
i 27.2 |
|
|
|
i 19.9 |
|
Other expense, net |
|
|
i 5.1 |
|
|
|
i 5.9 |
|
|
|
i 6.6 |
|
|
|
i 11.4 |
|
Income (loss) before income taxes |
|
|
i 12.5 |
|
|
|
( i 17.0 |
) |
|
|
i 60.5 |
|
|
|
( i 60.4 |
) |
Income tax expense |
|
|
i 16.3 |
|
|
|
i 4.0 |
|
|
|
i 51.3 |
|
|
|
i 7.8 |
|
Net (loss) income |
|
$ |
( i 3.8 |
) |
|
$ |
( i 21.0 |
) |
|
$ |
i 9.2 |
|
|
$ |
( i 68.2 |
) |
Net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
( i 0.02 |
) |
|
$ |
( i 0.14 |
) |
|
$ |
i 0.06 |
|
|
$ |
( i 0.45 |
) |
Diluted |
|
$ |
( i 0.02 |
) |
|
$ |
( i 0.14 |
) |
|
$ |
i 0.06 |
|
|
$ |
( i 0.45 |
) |
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
i 155,693,712 |
|
|
|
i 153,184,846 |
|
|
|
i 155,026,472 |
|
|
|
i 152,691,008 |
|
Diluted |
|
|
i 155,693,712 |
|
|
|
i 153,184,846 |
|
|
|
i 158,184,807 |
|
|
|
i 152,691,008 |
|
See accompanying notes to condensed consolidated financial statements.
5 | Q3 2023 Form 10-Q
Ceridian HCM Holding Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income |
|
$ |
( i 3.8 |
) |
|
$ |
( i 21.0 |
) |
|
$ |
i 9.2 |
|
|
$ |
( i 68.2 |
) |
Items of other comprehensive loss before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in foreign currency translation adjustment |
|
|
( i 19.0 |
) |
|
|
( i 48.5 |
) |
|
|
( i 12.3 |
) |
|
|
( i 80.3 |
) |
Change in unrealized loss from invested customer funds |
|
|
( i 6.8 |
) |
|
|
( i 33.0 |
) |
|
|
( i 1.5 |
) |
|
|
( i 139.9 |
) |
Change in pension liability adjustment (a) |
|
|
i 1.5 |
|
|
|
i 2.9 |
|
|
|
i 4.5 |
|
|
|
i 8.9 |
|
Other comprehensive loss before income taxes |
|
|
( i 24.3 |
) |
|
|
( i 78.6 |
) |
|
|
( i 9.3 |
) |
|
|
( i 211.3 |
) |
Income tax (benefit) expense, net |
|
|
( i 1.4 |
) |
|
|
( i 8.0 |
) |
|
|
i 0.8 |
|
|
|
( i 34.8 |
) |
Other comprehensive loss after income taxes |
|
|
( i 22.9 |
) |
|
|
( i 70.6 |
) |
|
|
( i 10.1 |
) |
|
|
( i 176.5 |
) |
Comprehensive loss |
|
$ |
( i 26.7 |
) |
|
$ |
( i 91.6 |
) |
|
$ |
( i 0.9 |
) |
|
$ |
( i 244.7 |
) |
See accompanying notes to condensed consolidated financial statements.
6 | Q3 2023 Form 10-Q
Ceridian HCM Holding Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated |
|
|
Total |
|
|||||||||
|
|
Shares |
|
|
$ |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
||||||
(Dollars in millions, except share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance as of December 31, 2022 |
|
|
i 153,856,645 |
|
|
$ |
i 1.5 |
|
|
$ |
i 2,965.5 |
|
|
$ |
( i 372.6 |
) |
|
$ |
( i 485.0 |
) |
|
$ |
i 2,109.4 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 9.9 |
|
|
|
— |
|
|
|
i 9.9 |
|
Issuance of common stock under share-based compensation plans |
|
|
i 1,150,281 |
|
|
|
i 0.1 |
|
|
|
i 14.7 |
|
|
|
— |
|
|
|
— |
|
|
|
i 14.8 |
|
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 40.2 |
|
|
|
— |
|
|
|
— |
|
|
|
i 40.2 |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1.2 |
|
|
|
i 1.2 |
|
Change in unrealized loss, net of tax of ($ i 6.3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 17.6 |
|
|
|
i 17.6 |
|
Change in pension liability adjustment, net of tax of ($ i 0.4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1.1 |
|
|
|
i 1.1 |
|
Balance as of March 31, 2023 |
|
|
i 155,006,926 |
|
|
$ |
i 1.6 |
|
|
$ |
i 3,020.4 |
|
|
$ |
( i 362.7 |
) |
|
$ |
( i 465.1 |
) |
|
$ |
i 2,194.2 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 3.1 |
|
|
|
— |
|
|
|
i 3.1 |
|
Issuance of common stock under share-based compensation plans |
|
|
i 522,795 |
|
|
|
— |
|
|
|
i 8.5 |
|
|
|
— |
|
|
|
— |
|
|
|
i 8.5 |
|
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 41.5 |
|
|
|
— |
|
|
|
— |
|
|
|
i 41.5 |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 5.5 |
|
|
|
i 5.5 |
|
Change in unrealized loss, net of tax of $ i 4.9 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 13.7 |
) |
|
|
( i 13.7 |
) |
Change in pension liability adjustment, net of tax of ($ i 0.4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1.1 |
|
|
|
i 1.1 |
|
Balance as of June 30, 2023 |
|
|
i 155,529,721 |
|
|
$ |
i 1.6 |
|
|
$ |
i 3,070.4 |
|
|
$ |
( i 359.6 |
) |
|
$ |
( i 472.2 |
) |
|
$ |
i 2,240.2 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 3.8 |
) |
|
|
— |
|
|
|
( i 3.8 |
) |
Issuance of common stock under share-based compensation plans |
|
|
i 449,265 |
|
|
|
— |
|
|
|
i 17.1 |
|
|
|
— |
|
|
|
— |
|
|
|
i 17.1 |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 36.3 |
|
|
|
— |
|
|
|
— |
|
|
|
i 36.3 |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 19.0 |
) |
|
|
( i 19.0 |
) |
Change in unrealized loss, net of tax of $ i 1.8 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 5.0 |
) |
|
|
( i 5.0 |
) |
Change in pension liability adjustment, net of tax of ($ i 0.4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1.1 |
|
|
|
i 1.1 |
|
Balance as of September 30, 2023 |
|
|
i 155,978,986 |
|
|
$ |
i 1.6 |
|
|
$ |
i 3,123.8 |
|
|
$ |
( i 363.4 |
) |
|
$ |
( i 495.1 |
) |
|
$ |
i 2,266.9 |
|
7 | Q3 2023 Form 10-Q
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated |
|
|
Total |
|
|||||||||
|
|
Shares |
|
|
$ |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
||||||
(Dollars in millions, except share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance as of December 31, 2021 |
|
|
i 151,995,031 |
|
|
$ |
i 1.5 |
|
|
$ |
i 2,860.0 |
|
|
$ |
( i 309.2 |
) |
|
$ |
( i 324.8 |
) |
|
$ |
i 2,227.5 |
|
Cumulative-effect adjustments related to the adoption of ASU 2020-06 |
|
|
— |
|
|
|
— |
|
|
|
( i 77.7 |
) |
|
|
i 10.0 |
|
|
|
— |
|
|
|
( i 67.7 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 27.4 |
) |
|
|
— |
|
|
|
( i 27.4 |
) |
Issuance of common stock under share-based compensation plans |
|
|
i 535,418 |
|
|
|
— |
|
|
|
i 6.0 |
|
|
|
— |
|
|
|
— |
|
|
|
i 6.0 |
|
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 35.5 |
|
|
|
— |
|
|
|
— |
|
|
|
i 35.5 |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 15.6 |
|
|
|
i 15.6 |
|
Change in unrealized loss, net of tax of $( i 18.4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 51.0 |
) |
|
|
( i 51.0 |
) |
Change in pension liability adjustment, net of tax of $ i 0.8 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2.3 |
|
|
|
i 2.3 |
|
Balance as of March 31, 2022 |
|
|
i 152,530,449 |
|
|
$ |
i 1.5 |
|
|
$ |
i 2,823.8 |
|
|
$ |
( i 326.6 |
) |
|
$ |
( i 357.9 |
) |
|
$ |
i 2,140.8 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 19.8 |
) |
|
|
— |
|
|
|
( i 19.8 |
) |
Issuance of common stock under share-based compensation plans |
|
|
i 503,145 |
|
|
|
— |
|
|
|
i 7.3 |
|
|
|
— |
|
|
|
— |
|
|
|
i 7.3 |
|
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 38.8 |
|
|
|
— |
|
|
|
— |
|
|
|
i 38.8 |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 47.4 |
) |
|
|
( i 47.4 |
) |
Change in unrealized loss, net of tax of ($ i 10.0) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 27.5 |
) |
|
|
( i 27.5 |
) |
Change in pension liability adjustment, net of tax of $ i 0.8 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2.1 |
|
|
|
i 2.1 |
|
Balance as of June 30, 2022 |
|
|
i 153,033,594 |
|
|
$ |
i 1.5 |
|
|
$ |
i 2,869.9 |
|
|
$ |
( i 346.4 |
) |
|
$ |
( i 430.7 |
) |
|
$ |
i 2,094.3 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 21.0 |
) |
|
|
— |
|
|
|
( i 21.0 |
) |
Issuance of common stock under share-based compensation plans |
|
|
i 492,742 |
|
|
|
— |
|
|
|
i 9.3 |
|
|
|
— |
|
|
|
— |
|
|
|
i 9.3 |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 39.2 |
|
|
|
— |
|
|
|
— |
|
|
|
i 39.2 |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 48.5 |
) |
|
|
( i 48.5 |
) |
Change in unrealized loss, net of tax of ($ i 8.8) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 24.2 |
) |
|
|
( i 24.2 |
) |
Change in pension liability adjustment, net of tax of $ i 0.8 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2.1 |
|
|
|
i 2.1 |
|
Balance as of September 30, 2022 |
|
|
i 153,526,336 |
|
|
$ |
i 1.5 |
|
|
$ |
i 2,918.4 |
|
|
$ |
( i 367.4 |
) |
|
$ |
( i 501.3 |
) |
|
$ |
i 2,051.2 |
|
See accompanying notes to condensed consolidated financial statements.
8 | Q3 2023 Form 10-Q
Ceridian HCM Holding Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
|
2022 |
|
|||
(Dollars in millions) |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
i 9.2 |
|
|
$ |
( i 68.2 |
) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
||
Deferred income tax expense |
|
|
i 13.9 |
|
|
|
i 5.1 |
|
Depreciation and amortization |
|
|
i 84.1 |
|
|
|
i 64.4 |
|
Amortization of debt issuance costs and debt discount |
|
|
i 3.3 |
|
|
|
i 3.0 |
|
Provision for doubtful accounts |
|
|
i 4.2 |
|
|
|
i 2.2 |
|
Net periodic pension and postretirement cost |
|
|
i 0.9 |
|
|
|
i 3.6 |
|
Share-based compensation expense |
|
|
i 118.0 |
|
|
|
i 113.5 |
|
Change in fair value of contingent consideration |
|
|
i 11.8 |
|
|
|
i 3.2 |
|
Other |
|
|
i 0.3 |
|
|
|
— |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Trade and other receivables |
|
|
( i 62.0 |
) |
|
|
( i 16.2 |
) |
Prepaid expenses and other current assets |
|
|
( i 20.1 |
) |
|
|
( i 14.0 |
) |
Accounts payable and other accrued expenses |
|
|
i 8.5 |
|
|
|
i 4.5 |
|
Deferred revenue |
|
|
i 7.5 |
|
|
|
( i 3.5 |
) |
Employee compensation and benefits |
|
|
( i 23.2 |
) |
|
|
( i 2.8 |
) |
Accrued interest |
|
|
( i 0.1 |
) |
|
|
( i 0.3 |
) |
Accrued taxes |
|
|
i 11.0 |
|
|
|
( i 0.1 |
) |
Other assets and liabilities |
|
|
( i 37.7 |
) |
|
|
( i 3.6 |
) |
Net cash provided by operating activities |
|
|
i 129.6 |
|
|
|
i 90.8 |
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
||
Purchase of customer funds marketable securities |
|
|
( i 252.0 |
) |
|
|
( i 534.3 |
) |
Proceeds from sale and maturity of customer funds marketable securities |
|
|
i 326.4 |
|
|
|
i 304.2 |
|
Expenditures for property, plant, and equipment |
|
|
( i 15.4 |
) |
|
|
( i 10.4 |
) |
Expenditures for software and technology |
|
|
( i 72.9 |
) |
|
|
( i 54.5 |
) |
Other |
|
|
( i 1.0 |
) |
|
|
— |
|
Net cash used in investing activities |
|
|
( i 14.9 |
) |
|
|
( i 295.0 |
) |
Cash Flows from Financing Activities |
|
|
|
|
|
|
||
Increase in customer funds obligations, net |
|
|
i 311.0 |
|
|
|
i 706.9 |
|
Proceeds from issuance of common stock under share-based compensation plans |
|
|
i 40.3 |
|
|
|
i 22.6 |
|
Repayment of long-term debt obligations |
|
|
( i 6.0 |
) |
|
|
( i 6.3 |
) |
Net cash provided by financing activities |
|
|
i 345.3 |
|
|
|
i 723.2 |
|
Effect of exchange rate changes on cash, restricted cash, and equivalents |
|
|
i 5.1 |
|
|
|
( i 37.8 |
) |
Net increase in cash, restricted cash, and equivalents |
|
|
i 465.1 |
|
|
|
i 481.2 |
|
Cash, restricted cash, and equivalents at beginning of period |
|
|
i 3,151.2 |
|
|
|
i 2,643.3 |
|
Cash, restricted cash, and equivalents at end of period |
|
$ |
i 3,616.3 |
|
|
$ |
i 3,124.5 |
|
Reconciliation of cash, restricted cash, and equivalents to the condensed |
|
|
|
|
|
|
||
Cash and equivalents |
|
$ |
i 510.3 |
|
|
$ |
i 408.4 |
|
Restricted cash |
|
|
i 0.8 |
|
|
|
i 0.8 |
|
Restricted cash and equivalents included in customer funds |
|
|
i 3,105.2 |
|
|
|
i 2,715.3 |
|
Total cash, restricted cash, and equivalents |
|
$ |
i 3,616.3 |
|
|
$ |
i 3,124.5 |
|
See accompanying notes to condensed consolidated financial statements.
9 | Q3 2023 Form 10-Q
Ceridian HCM Holding Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Organization
Ceridian HCM Holding Inc. and its subsidiaries (also referred to in this report as “Ceridian,” “we,” “our,” “us,” or the “Company”) offer a broad range of services and software designed to help employers more effectively manage employment processes, such as payroll, payroll-related tax filing, human resource information systems, employee self-service, time and labor management, employee assistance programs, and recruitment and applicant screening. Our technology-based services are typically provided through long-term customer relationships that result in a high level of recurring revenue. While we operate in i 18 countries globally, our operations are primarily located in the United States and Canada.
/2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accounting policies we follow are set forth in Note 2, “Summary of Significant Accounting Policies,” to our audited consolidated financial statements in our 2022 Form 10-K. The following notes should be read in conjunction with these policies and other disclosures in our 2022 Form 10-K.
In the opinion of management, the unaudited condensed consolidated financial statements contained herein reflect all adjustments (consisting only of normal recurring adjustments, except as set forth in these notes to the condensed consolidated financial statements) necessary to present fairly in all material respects the financial position, results of operations, comprehensive income (loss), and cash flows from all periods presented. Interim results are not necessarily indicative of results for a full year.
Immaterial Correction of Prior Period Error
We recently discovered an error in the presentation of one Canadian bank account balance within “customer funds” and “customer funds obligations” and related items on the Company’s condensed consolidated balance sheet as of December 31, 2022 and in the Company’s net cash provided by financing activities within its condensed consolidated statement of cash flows for the nine months ended September 30, 2022. There was an understatement of customer funds within current assets and a corresponding understatement of customer funds obligations within current liabilities on the Company’s condensed consolidated balance sheets. As a result, the Company also erroneously presented certain changes related to customer funds and customer funds obligations on the Company’s condensed consolidated statements of cash flows. The line items affected include “customer funds” and “customer funds obligations” on our condensed consolidated balance sheets. The line items affected also include “increase (decrease) in customer funds obligations, net,” effect of exchange rate changes on cash, restricted cash, and equivalents,” “cash, restricted cash, and equivalents,” and “restricted cash and equivalents included in customer funds,” and “effect of exchange rate changes on cash, restricted cash, and equivalents” on our condensed consolidated statements of cash flows. i The amounts impacted by the correction are summarized as follows:
Condensed Consolidated Balance Sheets |
|
|
|
|
|
|
|
|
|
|||
(Selected financial statement line items only) |
|
|
|
|
|
|
|
|
|
|||
|
|
|
||||||||||
|
|
As reported |
|
|
As restated |
|
|
Change |
|
|||
|
|
(Dollars in millions) |
|
|||||||||
Customer funds |
|
$ |
i 4,183.2 |
|
|
$ |
i 4,729.5 |
|
|
$ |
i 546.3 |
|
Customer funds obligations |
|
|
i 4,298.8 |
|
|
|
i 4,845.1 |
|
|
|
i 546.3 |
|
10 | Q3 2023 Form 10-Q
Condensed Consolidated Statements of Cash Flows |
|
|
|
|
|
|
|
|
|
|||
(Selected financial statement line items only) |
|
|
|
|
|
|
|
|
|
|||
|
|
Nine Months Ended September 30, 2022 |
|
|||||||||
|
|
As reported |
|
|
As restated |
|
|
Change |
|
|||
|
|
(Dollars in millions) |
|
|||||||||
Increase in customer funds obligations, net |
|
$ |
i 1,010.4 |
|
|
$ |
i 706.9 |
|
|
$ |
( i 303.5 |
) |
Effect of exchange rate changes on cash, restricted cash, and equivalents |
|
|
( i 8.1 |
) |
|
|
( i 37.8 |
) |
|
|
( i 29.7 |
) |
Cash, restricted cash, and equivalents at beginning of period |
|
|
i 1,952.8 |
|
|
|
i 2,643.3 |
|
|
|
i 690.5 |
|
Cash, restricted cash, and equivalents at end of period |
|
|
i 2,767.2 |
|
|
|
i 3,124.5 |
|
|
|
i 357.3 |
|
Restricted cash and equivalents included in customer funds |
|
|
i 2,358.0 |
|
|
|
i 2,715.3 |
|
|
|
i 357.3 |
|
Deferred Costs
Deferred costs, which primarily consist of deferred sales commissions, included within other assets on our condensed consolidated balance sheets were $ i 176.7 million and $ i 151.2 million as of September 30, 2023, and December 31, 2022, respectively. Amortization expense for the deferred costs was $ i 5.3 million and $ i 13.1 million for the three months ended September 30, 2023, and 2022, respectively, and $ i 15.0 million and $ i 38.5 million for the nine months ended September 30, 2023, and 2022, respectively.
/Recently Issued and Adopted Accounting Pronouncements from the Financial Accounting Standards Board
There were no recently adopted accounting standards that had a material effect on our condensed consolidated financial statements and accompanying disclosures, and no recently issued accounting standards that are expected to have a material impact on our condensed consolidated financial statements and accompanying disclosures.
3. Fair Value Measurements
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Our financial assets and liabilities measured at fair value on a recurring basis were categorized as follows:
|
|
|
|||||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
|
Level 3 |
|
|
Total |
|
||||
|
|
(Dollars in millions) |
|
||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Available for sale customer funds assets |
|
$ |
— |
|
|
$ |
i 1,942.9 |
|
(a) |
|
$ |
— |
|
|
$ |
i 1,942.9 |
|
Total assets measured at fair value |
|
$ |
— |
|
|
$ |
i 1,942.9 |
|
|
|
$ |
— |
|
|
$ |
i 1,942.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
DataFuzion contingent consideration |
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
i 22.4 |
|
(b) |
$ |
i 22.4 |
|
Total liabilities measured at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
i 22.4 |
|
|
$ |
i 22.4 |
|
|
|
|
|||||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
|
Level 3 |
|
|
Total |
|
||||
|
|
(Dollars in millions) |
|
||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Available for sale customer funds assets |
|
$ |
— |
|
|
$ |
i 2,011.0 |
|
(a) |
|
$ |
— |
|
|
$ |
i 2,011.0 |
|
Total assets measured at fair value |
|
$ |
— |
|
|
$ |
i 2,011.0 |
|
|
|
$ |
— |
|
|
$ |
i 2,011.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
DataFuzion contingent consideration |
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
i 10.6 |
|
(b) |
$ |
i 10.6 |
|
Total liabilities measured at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
i 10.6 |
|
|
$ |
i 10.6 |
|
11 | Q3 2023 Form 10-Q
Due to the remeasurement of the DataFuzion contingent consideration, we recognized expense of $ i 4.6 million and $ i 1.2 million for the three months ended September 30, 2023, and 2022, respectively, and $ i 11.8 million and $ i 3.2 million for the nine months ended September 30, 2023, and 2022, respectively, within selling, general, and administrative expense in our condensed consolidated statements of operations.
Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
During the nine months ended September 30, 2023 and year ended December 31, 2022, we did not re-measure any financial assets or liabilities at fair value on a nonrecurring basis.
/4. Customer Funds
Overview
In certain jurisdictions, we collect funds for payment of payroll and taxes; temporarily hold such funds until payment is due; remit the funds to the customers’ employees and appropriate taxing authorities; file federal, state, and local tax returns; and handle related regulatory correspondence and amendments. The customer assets are held in segregated accounts intended for the specific purpose of satisfying customer funding obligations and therefore are not freely available for our general business use. In the U.S. and Canada, these customer funds are held in trusts.
Our customer funds are held and invested with the primary objectives being to protect the principal balance and to ensure adequate liquidity to meet cash flow requirements. Accordingly, we maintain on average approximately i 45% to i 55% of customer funds in liquidity portfolios with maturities ranging from one to 120 days, consisting of high-quality bank deposits, money market mutual funds, commercial paper, or collateralized short-term investments; and we maintain on average approximately i 45% to i 55% of customer funds in fixed income portfolios with maturities ranging from 120 days to 10 years, consisting of U.S. Treasury and agency securities, Canada government and provincial securities, as well as highly rated asset-backed, mortgage-backed, municipal, corporate, and bank securities. To maintain sufficient liquidity to meet payment obligations, we also have financing arrangements and may pledge fixed income securities for short-term financing.
Financial Statement Presentation
Investment income from invested customer funds, also referred to as float revenue or float, is a component of our compensation for providing services under agreements with our customers. Investment income from invested customer funds included in recurring revenue was $ i 38.8 million and $ i 21.3 million for the three months ended September 30, 2023, and 2022, respectively, and $ i 127.5 million and $ i 47.4 million for nine months ended September 30, 2023, and 2022, respectively. Investment income includes interest income, realized gains and losses from sales of customer funds’ investments, and unrealized credit losses determined to be unrecoverable.
12 | Q3 2023 Form 10-Q
The amortized cost of customer funds as of September 30, 2023, and December 31, 2022, is the original cost of assets acquired. i The amortized cost and fair values of investments of customer funds available for sale were as follows:
|
|
|
||||||||||||||
|
|
Amortized |
|
|
Gross Unrealized |
|
|
Fair |
|
|||||||
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
|
||||
|
|
(Dollars in millions) |
|
|||||||||||||
Money market securities, investments carried at cost |
|
$ |
i 3,093.8 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
i 3,093.8 |
|
Available for sale investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government and agency securities |
|
|
i 731.0 |
|
|
|
— |
|
|
|
( i 50.6 |
) |
|
|
i 680.4 |
|
Canadian and provincial government securities |
|
|
i 383.3 |
|
|
|
— |
|
|
|
( i 20.8 |
) |
|
|
i 362.5 |
|
Corporate debt securities |
|
|
i 629.6 |
|
|
|
i 0.1 |
|
|
|
( i 36.0 |
) |
|
|
i 593.7 |
|
Asset-backed securities |
|
|
i 195.7 |
|
|
|
— |
|
|
|
( i 6.2 |
) |
|
|
i 189.5 |
|
Mortgage-backed securities |
|
|
i 31.6 |
|
|
|
— |
|
|
|
( i 1.3 |
) |
|
|
i 30.3 |
|
Other short-term investments |
|
|
i 15.9 |
|
|
|
— |
|
|
|
— |
|
|
|
i 15.9 |
|
Other securities |
|
|
i 75.2 |
|
|
|
— |
|
|
|
( i 4.6 |
) |
|
|
i 70.6 |
|
Total available for sale investments |
|
|
i 2,062.3 |
|
|
|
i 0.1 |
|
|
|
( i 119.5 |
) |
|
|
i 1,942.9 |
|
Invested customer funds |
|
|
i 5,156.1 |
|
|
$ |
i 0.1 |
|
|
$ |
( i 119.5 |
) |
|
|
i 5,036.7 |
|
Receivables |
|
|
i 11.6 |
|
|
|
|
|
|
|
|
|
i 11.4 |
|
||
Total customer funds |
|
$ |
i 5,167.7 |
|
|
|
|
|
|
|
|
$ |
i 5,048.1 |
|
||
|
|
|
||||||||||||||
|
|
Amortized |
|
|
Gross Unrealized |
|
|
Fair |
|
|||||||
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
|
||||
|
|
(Dollars in millions) |
|
|||||||||||||
Money market securities, investments carried at cost |
|
$ |
i 2,698.7 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
i 2,698.7 |
|
Available for sale investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government and agency securities |
|
|
i 721.3 |
|
|
|
— |
|
|
|
( i 53.1 |
) |
|
|
i 668.2 |
|
Canadian and provincial government securities |
|
|
i 438.7 |
|
|
|
i 0.1 |
|
|
|
( i 17.8 |
) |
|
|
i 421.0 |
|
Corporate debt securities |
|
|
i 653.8 |
|
|
|
i 0.5 |
|
|
|
( i 35.5 |
) |
|
|
i 618.8 |
|
Asset-backed securities |
|
|
i 169.6 |
|
|
|
i 0.1 |
|
|
|
( i 6.1 |
) |
|
|
i 163.6 |
|
Mortgage-backed securities |
|
|
i 14.5 |
|
|
|
— |
|
|
|
( i 0.7 |
) |
|
|
i 13.8 |
|
Other short-term investments |
|
|
i 57.0 |
|
|
|
— |
|
|
|
— |
|
|
|
i 57.0 |
|
Other securities |
|
|
i 74.4 |
|
|
|
— |
|
|
|
( i 5.9 |
) |
|
|
i 68.6 |
|
Total available for sale investments |
|
|
i 2,129.3 |
|
|
|
i 0.7 |
|
|
|
( i 119.1 |
) |
|
|
i 2,011.0 |
|
Invested customer funds |
|
|
i 4,828.0 |
|
|
$ |
i 0.7 |
|
|
$ |
( i 119.1 |
) |
|
|
i 4,709.7 |
|
Receivables |
|
|
i 20.0 |
|
|
|
|
|
|
|
|
|
i 19.8 |
|
||
Total customer funds |
|
$ |
i 4,848.0 |
|
|
|
|
|
|
|
|
$ |
i 4,729.5 |
|
||
The following represents the gross unrealized losses and the related fair value of the investments of customer funds available for sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.
|
|
|
||||||||||||||||||||||
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|||||||||||||||
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
||||||
|
|
(Dollars in millions) |
|
|||||||||||||||||||||
U.S. government and agency securities |
|
$ |
( i 2.0 |
) |
|
$ |
i 103.3 |
|
|
$ |
( i 48.6 |
) |
|
$ |
i 574.0 |
|
|
$ |
( i 50.6 |
) |
|
$ |
i 677.3 |
|
Canadian and provincial government securities |
|
|
( i 4.0 |
) |
|
|
i 118.1 |
|
|
|
( i 16.8 |
) |
|
|
i 242.1 |
|
|
|
( i 20.8 |
) |
|
|
i 360.2 |
|
Corporate debt securities |
|
|
( i 3.3 |
) |
|
|
i 136.5 |
|
|
|
( i 32.7 |
) |
|
|
i 460.3 |
|
|
|
( i 36.0 |
) |
|
|
i 596.8 |
|
Asset-backed securities |
|
|
( i 1.4 |
) |
|
|
i 75.9 |
|
|
|
( i 4.8 |
) |
|
|
i 102.0 |
|
|
|
( i 6.2 |
) |
|
|
i 177.9 |
|
Mortgage-backed securities |
|
|
( i 0.3 |
) |
|
|
i 18.3 |
|
|
|
( i 1.0 |
) |
|
|
i 11.9 |
|
|
|
( i 1.3 |
) |
|
|
i 30.2 |
|
Other securities |
|
|
( i 0.1 |
) |
|
|
i 2.8 |
|
|
|
( i 4.5 |
) |
|
|
i 66.9 |
|
|
|
( i 4.6 |
) |
|
|
i 69.7 |
|
Total available for sale investments |
|
$ |
( i 11.1 |
) |
|
$ |
i 454.9 |
|
|
$ |
( i 108.4 |
) |
|
$ |
i 1,457.2 |
|
|
$ |
( i 119.5 |
) |
|
$ |
i 1,912.1 |
|
13 | Q3 2023 Form 10-Q
/
Management does not believe that any individual unrealized loss was unrecoverable as of September 30, 2023. The unrealized losses are primarily attributable to changes in interest rates and not to credit deterioration. We currently do not intend to sell or expect to be required to sell the securities before the time required to recover the amortized cost.
The amortized cost and fair value of investment securities available for sale at September 30, 2023, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or to prepay obligations with or without call or prepayment penalties.
|
|
|
||||||
|
|
Cost |
|
|
Fair Value |
|
||
|
|
(Dollars in millions) |
|
|||||
Due in one year or less |
|
$ |
i 3,444.8 |
|
|
$ |
i 3,438.5 |
|
Due in one to three years |
|
|
i 857.6 |
|
|
|
i 801.9 |
|
Due in three to five years |
|
|
i 758.2 |
|
|
|
i 704.6 |
|
Due after five years |
|
|
i 95.5 |
|
|
|
i 91.7 |
|
Invested customer funds |
|
$ |
i 5,156.1 |
|
|
$ |
i 5,036.7 |
|
5. Leases
Supplemental balance sheet information related to leases was as follows:
Lease Type |
|
Balance Sheet Classification |
|
|
|
|
||||
|
|
|
|
(Dollars in millions) |
|
|||||
ASSETS |
|
|
|
|
|
|
|
|
||
Operating lease assets |
|
Trade and other receivables, net |
|
$ |
i 0.9 |
|
|
$ |
i 0.1 |
|
Operating lease assets |
|
Prepaid expenses and other current assets |
|
|
i 2.7 |
|
|
|
i 2.8 |
|
Operating lease assets |
|
Right of use lease assets, net |
|
|
i 19.5 |
|
|
|
i 24.3 |
|
Financing lease assets |
|
Property, plant, and equipment, net |
|
|
i 6.0 |
|
|
|
i 7.0 |
|
Total lease assets |
|
|
|
$ |
i 29.1 |
|
|
$ |
i 34.2 |
|
LIABILITIES |
|
|
|
|
|
|
|
|
||
Current |
|
|
|
|
|
|
|
|
||
Financing lease liabilities |
|
Current portion of long-term debt |
|
$ |
i 0.8 |
|
|
$ |
i 1.0 |
|
Operating lease liabilities |
|
Current portion of long-term lease liabilities |
|
|
i 6.9 |
|
|
|
i 10.0 |
|
Noncurrent |
|
|
|
|
|
|
|
|
||
Financing lease liabilities |
|
Long-term debt, less current portion |
|
|
i 6.7 |
|
|
|
i 7.4 |
|
Operating lease liabilities |
|
Long-term lease liabilities, less current portion |
|
|
i 20.4 |
|
|
|
i 23.7 |
|
Total lease liabilities |
|
|
|
$ |
i 34.8 |
|
|
$ |
i 42.1 |
|
The components of lease expense were as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Lease Cost |
|
(Dollars in millions) |
|
|||||||||||||
Operating lease cost |
|
$ |
i 2.1 |
|
|
$ |
i 2.5 |
|
|
$ |
i 7.0 |
|
|
$ |
i 7.4 |
|
Financing lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation of lease assets |
|
|
i 0.4 |
|
|
|
i 0.3 |
|
|
|
i 1.3 |
|
|
|
i 1.0 |
|
Interest on lease liabilities |
|
|
i — |
|
|
|
i 0.1 |
|
|
|
i 0.2 |
|
|
|
i 0.3 |
|
Sublease income |
|
|
( i 0.1 |
) |
|
|
( i 0.1 |
) |
|
|
( i 0.3 |
) |
|
|
( i 0.3 |
) |
Total lease cost, net |
|
$ |
i 2.4 |
|
|
$ |
i 2.8 |
|
|
$ |
i 8.2 |
|
|
$ |
i 8.4 |
|
14 | Q3 2023 Form 10-Q
/
6. Goodwill and Other Intangible Assets, Net
Goodwill
Goodwill and changes therein were as follows:
|
|
(Dollars in millions) |
|
|
Balance at December 31, 2022 |
|
$ |
i 2,280.0 |
|
Foreign currency translation |
|
|
( i 9.3 |
) |
Balance at September 30, 2023 |
|
$ |
i 2,270.7 |
|
Other Intangible Assets, Net
Other intangible assets, net consisted of the following:
|
|
|||||||||||||
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net |
|
|
Estimated Life |
|||
|
|
(Dollars in millions) |
|
|
|
|||||||||
Customer lists and relationships |
|
$ |
i 295.7 |
|
|
$ |
( i 234.2 |
) |
|
$ |
i 61.5 |
|
|
i 4- i 12 |
Trade name |
|
|
i 183.0 |
|
|
|
( i 20.1 |
) |
|
|
i 162.9 |
|
|
i 2- i 5 and i Indefinite |
Technology |
|
|
i 211.5 |
|
|
|
( i 191.0 |
) |
|
|
i 20.5 |
|
|
i 3- i 5 |
Total other intangible assets |
|
$ |
i 690.2 |
|
|
$ |
( i 445.3 |
) |
|
$ |
i 244.9 |
|
|
|
|
|
|||||||||||||
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net |
|
|
Estimated Life |
|||
|
|
(Dollars in millions) |
|
|
|
|||||||||
Customer lists and relationships |
|
$ |
i 299.8 |
|
|
$ |
( i 228.6 |
) |
|
$ |
i 71.2 |
|
|
i 4- i 12 |
Trade name |
|
|
i 183.4 |
|
|
|
( i 4.7 |
) |
|
|
i 178.7 |
|
|
i 3- i 5 and i Indefinite |
Technology |
|
|
i 213.5 |
|
|
|
( i 181.8 |
) |
|
|
i 31.7 |
|
|
i 3- i 5 |
Total other intangible assets |
|
$ |
i 696.7 |
|
|
$ |
( i 415.1 |
) |
|
$ |
i 281.6 |
|
|
|
In the third quarter of 2023, our Board of Directors approved plans to transition our Company’s name and branding to Dayforce. Given the significance of this transition, we assessed the impact on the carrying amount of $ i 167.2 million related to our Ceridian® trade name intangible asset to determine whether an impairment exists, and/or if the asset is deemed to have a finite life and should be amortized. It was determined that the Ceridian trade name is not impaired, but the asset is now deemed to have a finite life of i two years and began being amortized in the third quarter of 2023.
As of October 1 each year, we perform an impairment assessment of our Dayforce® trade name indefinite-lived intangible asset, which has a carrying value of $ i 4.4 million as of September 30, 2023. We continue to evaluate the use of this trade name in our sales and marketing efforts. If there is a fundamental shift in the method of our branding in the future, we will assess the impact on the carrying amount of this asset to determine whether an impairment exists. If it is determined that an impairment has occurred, it would be recognized during the period in which the decision was made to make the fundamental shift.
Amortization expense related to definite-lived intangible assets was $ i 20.5 million and $ i 7.5 million for the three months ended September 30, 2023, and 2022, respectively, and $ i 32.7 million and $ i 22.9 million for the nine months ended September 30, 2023, and 2022, respectively.
/ 15 | Q3 2023 Form 10-Q
7. Debt
Overview
Our debt obligations consisted of the following:
|
|
September 30, |
|
|
|
|||
|
|
|
|
2022 |
|
|||
|
|
(Dollars in millions) |
|
|||||
Term Debt, interest rate of i 7.9% and i 6.9%, respectively |
|
$ |
i 646.0 |
|
|
$ |
i 651.1 |
|
Revolving Credit Facility ($ i 300 million available capacity less amounts reserved for letters of credit, which were $ i 1.2 million and $ i 1.4 million, respectively) |
|
|
— |
|
|
|
— |
|
Convertible Senior Notes, interest rate of i i 0.25 / % |
|
|
i 575.0 |
|
|
|
i 575.0 |
|
Australia Line of Credit (AUD $ i 0.7 million and $ i 1.5 million
letter of credit capacity, |
|
|
— |
|
|
|
— |
|
Financing lease liabilities (Note 5) |
|
|
i 7.5 |
|
|
|
i 8.4 |
|
Total debt |
|
|
i 1,228.5 |
|
|
|
i 1,234.5 |
|
Less unamortized discount on Term Debt |
|
|
i 0.5 |
|
|
|
i 0.6 |
|
Less unamortized debt issuance costs on Term Debt and Convertible Senior Notes |
|
|
i 9.6 |
|
|
|
i 12.7 |
|
Less current portion of long-term debt |
|
|
i 7.5 |
|
|
|
i 7.8 |
|
Long-term debt, less current portion |
|
$ |
i 1,210.9 |
|
|
$ |
i 1,213.4 |
|
Accrued interest and fees related to the debt obligations was $ i 0.5 million and $ i 0.7 million as of September 30, 2023 and December 31, 2022, respectively, and is included within other accrued expenses in our condensed consolidated balance sheets.
Senior Secured Credit Facility
On April 30, 2018, we completed the refinancing of our debt by entering into a new credit agreement. Pursuant to the terms of the new credit agreement, we became borrower of (i) a $ i 680.0 million term loan debt facility (the “Term Debt”) and (ii) a $ i 300.0 million revolving credit facility (the “Revolving Credit Facility”, and collectively with the Term Debt, the “Senior Secured Credit Facility”). Our obligations under the Senior Secured Credit Facility are secured by first priority security interests in substantially all of our assets and the domestic subsidiary guarantors, subject to permitted liens and certain exceptions.
The Term Debt and Revolving Credit Facility will mature on i April 30, 2025 and i January 29, 2025, respectively. We are required to make annual amortization payments in respect of the Term Debt in an amount equal to i 1.00% of the original principal amount thereof, payable in equal quarterly installments of i 0.25% of the original principal amount of the first lien term debt. On August 1, 2023, we completed the third amendment to our Senior Secured Credit Facility, which replaced LIBOR with Secured Overnight Financing Rate ("SOFR"). All outstanding LIBOR borrowings under the Senior Secured Credit Facility will continue to bear interest at LIBOR until the end of the current interest period or payment period. The Revolving Credit Facility does not require amortization payments.
Convertible Senior Notes
In March 2021, we issued $ i 575.0 million in aggregate principal amount of i 0.25% Convertible Senior Notes due 2026 in a private offering to qualified institutional buyers pursuant to Rule 144A promulgated under the Securities Act, and pursuant to exemptions from the prospectus requirements of applicable Canadian securities laws, including the exercise in full by the initial purchasers of their option to purchase an additional $ i 75.0 million in aggregate principal amount of i 0.25% Convertible Senior Notes due 2026 (collectively, the “Convertible Senior Notes”). i The Convertible Senior Notes bear interest at a rate of i 0.25% per year and interest is payable i semiannually in arrears on March 15 and September 15 of each year, beginning on i September 15, 2021. / The Convertible Senior Notes mature on i March 15, 2026, unless earlier converted, redeemed, or repurchased. The total net proceeds from the offering, after deducting initial purchase discounts and other debt issuance costs, were $ i 561.8 million.
16 | Q3 2023 Form 10-Q
The following table presents details of the Convertible Senior Notes:
|
|
Initial Conversion Rate per $ i 1,000 Principal |
|
Initial Conversion Price per Share |
|
|
|
|
|
|
|
|
|
Convertible Senior Notes |
|
i 7.5641 shares |
|
$ |
i 132.20 |
|
/
The Convertible Senior Notes will be convertible at the option of the holders at any time only under certain circumstances as outlined in Note 9, “Debt,” to our audited consolidated financial statements in our 2022 Form 10-K. The conditions allowing holders of the Convertible Senior Notes to convert have not been met and therefore were not convertible as of September 30, 2023.
On December 30, 2021, we notified the holders of the Convertible Senior Notes of our irrevocable election to settle the conversion obligation in connection with the Convertible Senior Notes submitted for conversion on or after January 1, 2022, or at maturity with a combination of cash and shares of our common stock. Generally, under this settlement method, the conversion value will be settled in cash in an amount no less than the principal amount being converted, and any excess of the conversion value over the principal amount will be settled, at our election, in cash or shares of common stock.
The Convertible Senior Notes are accounted for as a single liability, and the carrying amount of the Convertible Senior Notes was $ i 567.5 million as of September 30, 2023, with principal of $ i 575.0 million, net of issuance costs of $ i 7.5 million. The Convertible Senior Notes are included within Long-term debt, less current portion in our condensed consolidated balance sheets as of September 30, 2023. The issuance costs related to the Convertible Senior Notes are being amortized to interest expense over the contractual term of the Convertible Senior Notes at an effective interest rate of i 5.1%.
Interest expense recognized related to the Convertible Senior Notes was as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
|
|
(Dollars in millions) |
|
|||||||||||||
Contractual interest expense |
|
$ |
i 0.4 |
|
|
$ |
i 0.4 |
|
|
$ |
i 1.1 |
|
|
$ |
i 1.0 |
|
Amortization of debt issuance costs |
|
|
i 0.7 |
|
|
|
i 0.6 |
|
|
|
i 2.1 |
|
|
|
i 2.0 |
|
Total |
|
$ |
i 1.1 |
|
|
$ |
i 1.0 |
|
|
$ |
i 3.2 |
|
|
$ |
i 3.0 |
|
Capped Calls
In March 2021, in connection with the pricing of the Convertible Senior Notes, we entered into capped call transactions with the option counterparties (the “Capped Calls”). The Capped Calls each have an initial strike price of $ i 132.20 per share, and an initial cap price of $ i 179.26 per share, both subject to certain adjustments. The capped call transactions are generally expected to reduce potential dilution to our common stock upon any conversion of the Convertible Senior Notes and/or offset any potential cash payments we would be required to make in excess of the principal amount of converted Convertible Senior Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. For accounting purposes, the Capped Calls are separate transactions, and not part of the terms of the Convertible Senior Notes. As the Capped Calls qualify for a scope exception from derivative accounting for instruments that are both indexed to the issuer's own stock and classified in stockholder’s equity in our condensed consolidated balance sheet, we have recorded an amount of $ i 33.0 million as a reduction to additional paid-in capital which will not be remeasured. This represents the premium of $ i 45.0 million paid for the purchase of the Capped Calls, net of the deferred tax impact of $ i 12.0 million.
Future Payments and Maturities of Debt
The future principal payments and maturities of our indebtedness, excluding financing lease obligations, are as follows:
Years Ending December 31, |
|
Amount |
|
|
|
|
(Dollars in millions) |
|
|
2023 |
|
$ |
i 1.7 |
|
2024 |
|
|
i 6.8 |
|
2025 |
|
|
i 637.5 |
|
2026 |
|
|
i 575.0 |
|
|
|
$ |
i 1,221.0 |
|
17 | Q3 2023 Form 10-Q
/
Fair Value of Debt
Our debt does not trade in active markets and was considered to be a Level 2 measurement at September 30, 2023. The fair value of the Term Debt was based on the borrowing rates currently available to us for bank loans with similar terms and average maturities and the limited trades of our debt. The fair value of the Convertible Senior Notes was determined based on the closing trading price per $ i 1,000 of the Convertible Senior Notes as of the last day of trading for the period and is primarily affected by the trading price of our common stock and market interest rates. The fair value of our debt was estimated to be $ i 1,151.9 million and $ i 1,142.3 million as of September 30, 2023, and December 31, 2022, respectively.
/8. Employee Benefit Plans
The components of net periodic cost (gain) for our defined benefit pension plan and for our postretirement benefit plan are included in the following tables:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Net Periodic Pension Cost |
|
(Dollars in millions) |
|
|||||||||||||
Interest cost |
|
$ |
i 4.2 |
|
|
$ |
i 2.2 |
|
|
$ |
i 12.8 |
|
|
$ |
i 6.6 |
|
Actuarial loss amortization |
|
|
i 2.0 |
|
|
|
i 3.4 |
|
|
|
i 6.2 |
|
|
|
i 10.2 |
|
Less: Expected return on plan assets |
|
|
( i 5.6 |
) |
|
|
( i 4.0 |
) |
|
|
( i 16.7 |
) |
|
|
( i 11.9 |
) |
Net periodic pension cost |
|
$ |
i 0.6 |
|
|
$ |
i 1.6 |
|
|
$ |
i 2.3 |
|
|
$ |
i 4.9 |
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Net Periodic Postretirement Benefit |
|
(Dollars in millions) |
|
|||||||||||||
Interest cost |
|
$ |
i 0.1 |
|
|
$ |
i 0.1 |
|
|
$ |
i 0.3 |
|
|
$ |
i 0.2 |
|
Actuarial gain amortization |
|
|
( i 0.5 |
) |
|
|
( i 0.5 |
) |
|
|
( i 1.7 |
) |
|
|
( i 1.5 |
) |
Net periodic postretirement benefit gain |
|
$ |
( i 0.4 |
) |
|
$ |
( i 0.4 |
) |
|
$ |
( i 1.4 |
) |
|
$ |
( i 1.3 |
) |
9. Share-Based Compensation
Our share-based compensation consists of stock options, restricted stock units (“RSU”), and performance stock units (“PSU”). We also offer an employee stock purchase plan.
Under the 2013 Ceridian HCM Holding Inc. Stock Incentive Plan, as amended ("2013 SIP") and Ceridian HCM Holding Inc. 2018 Equity Incentive Plan (as amended and restated from time to time, the “2018 EIP”), we have shares reserved for issuance of common stock to eligible employees and our Board of Directors. The 2018 EIP serves as a successor to the 2013 SIP as we ceased granting awards under the 2013 SIP as of April 24, 2018, and we do not intend to grant any additional awards under the 2013 SIP. Most of our equity awards under the 2018 EIP vest either annually or quarterly on a pro rata basis, generally over a one-, three-, four-, or i five-year period or on a specific date if certain performance criteria are satisfied and certain equity values are attained. In addition, upon termination of service, all vested awards must be exercised generally within i 90 days after termination, or these awards will be forfeited. The equity awards have a i 10-year contractual term, and the options have an exercise price that is not less than the fair market value of the underlying stock on the date of grant.
As of September 30, 2023, there were i 738,370 stock options and RSUs outstanding under the 2013 SIP and there were i 11,998,634 stock options, RSUs, and PSUs outstanding and i 11,704,190 shares available for future grants of equity awards under the 2018 EIP.
Total share-based compensation expense was $ i 36.3 million and $ i 39.2 million for the three months ended September 30, 2023, and 2022, respectively, and $ i 118.0 million and $ i 113.5 million for nine months ended September 30, 2023, and 2022, respectively.
18 | Q3 2023 Form 10-Q
Performance-Based Stock Options
Performance-based stock option activity was as follows:
|
|
Shares |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Outstanding at December 31, 2022 |
|
|
i 1,760,438 |
|
|
$ |
i 66.10 |
|
|
|
i 7.4 |
|
|
$ |
i 0.1 |
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
( i 3,857 |
) |
|
|
( i 40.32 |
) |
|
|
— |
|
|
|
— |
|
Forfeited or expired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Outstanding at September 30, 2023 |
|
|
i 1,756,581 |
|
|
$ |
i 65.26 |
|
|
|
i 6.6 |
|
|
$ |
i 4.5 |
|
Exercisable at September 30, 2023 |
|
|
i 256,581 |
|
|
$ |
i 65.26 |
|
|
|
i 6.8 |
|
|
$ |
i 0.7 |
|
As of September 30, 2023, there is i no unrecognized expense related to unvested performance-based stock option awards.
Performance Stock Units
PSU activity was as follows:
|
|
Shares |
|
|
Outstanding at December 31, 2022 |
|
|
i 706,467 |
|
Granted |
|
|
i 662,723 |
|
Vested and released |
|
|
( i 270,948 |
) |
Forfeited or canceled |
|
|
( i 137,633 |
) |
Outstanding at September 30, 2023 |
|
|
i 960,609 |
|
Releasable at September 30, 2023 |
|
|
i 95,066 |
|
/
On February 28, 2023, we granted PSUs under the 2023 Ceridian HCM Holding Inc. Management Incentive Plan (the “2023 MIP”) for the incentive period of January 1, 2023 through December 31, 2023, and also as part of long term incentive grants to certain members of management. The vesting conditions for the PSUs are primarily based on key financial metrics and the probability of vesting will continue to be evaluated throughout 2023, and share-based compensation will be recognized in accordance with that probability.
As of September 30, 2023, there was $ i 32.6 million of share-based compensation expense related to unvested PSUs not yet recognized.
Restricted Stock Units
RSU activity was as follows:
|
|
Shares |
|
|
Outstanding at December 31, 2022 |
|
|
i 2,890,817 |
|
Granted |
|
|
i 1,748,812 |
|
Vested and released |
|
|
( i 960,885 |
) |
Forfeited or canceled |
|
|
( i 187,378 |
) |
Outstanding at September 30, 2023 |
|
|
i 3,491,366 |
|
Releasable at September 30, 2023 |
|
|
i 752,151 |
|
As of September 30, 2023, there was $ i 146.0 million of share-based compensation expense related to unvested RSUs not yet recognized, which is expected to be recognized over a weighted-average period of i 1.6 years.
19 | Q3
2023 Form 10-Q
Term-Based Stock Options
Term-based stock option activity was as follows:
|
|
Shares |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Outstanding at December 31, 2022 |
|
|
i 7,296,086 |
|
|
$ |
i 50.59 |
|
|
|
i 6.4 |
|
|
$ |
i 117.4 |
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
( i 700,872 |
) |
|
|
( i 42.89 |
) |
|
|
— |
|
|
|
— |
|
Forfeited or expired |
|
|
( i 66,005 |
) |
|
|
( i 64.63 |
) |
|
|
— |
|
|
|
— |
|
Outstanding at September 30, 2023 |
|
|
i 6,529,209 |
|
|
$ |
i 51.28 |
|
|
|
i 5.7 |
|
|
$ |
i 121.3 |
|
Exercisable at September 30, 2023 |
|
|
i 5,728,019 |
|
|
$ |
i 48.09 |
|
|
|
i 5.5 |
|
|
$ |
i 120.2 |
|
As of September 30, 2023, there was $ i 14.6 million of share-based compensation expense related to unvested term-based stock options not yet recognized, which is expected to be recognized over a weighted-average period of i 0.3 years.
Global Employee Stock Purchase Plan
We maintain the Ceridian HCM Holding Inc. Global Employee Stock Purchase Plan (“GESPP”) pursuant to which we have shares reserved for the issuance of common stock to eligible participants through quarterly purchases via payroll deductions. A total of i 1,472,021 shares of common stock are available for future issuances under the plan as of September 30, 2023. i The purchase price is the lower of i 85% of the fair market value of a share of common stock on (i) January 1 or (ii) the purchase date. /
Our GESPP activity was as follows:
Period Ended |
|
Shares Issued |
|
|
Purchase Price |
|
||
|
|
i 62,584 |
|
|
$ |
i 62.24 |
|
|
|
|
i 59,627 |
|
|
|
i 56.92 |
|
|
|
|
i 64,488 |
|
|
|
i 52.33 |
|
|
20 | Q3 2023 Form 10-Q
10. Revenue
Disaggregation of Revenue
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
|
|
(Dollars in millions) |
|
|||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recurring revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dayforce recurring |
|
$ |
i 279.6 |
|
|
$ |
i 207.8 |
|
|
$ |
i 819.0 |
|
|
$ |
i 590.7 |
|
Powerpay® recurring |
|
|
i 24.0 |
|
|
|
i 22.6 |
|
|
|
i 72.2 |
|
|
|
i 66.5 |
|
Total Cloud recurring |
|
|
i 303.6 |
|
|
|
i 230.4 |
|
|
|
i 891.2 |
|
|
|
i 657.2 |
|
Other recurring |
|
|
i 21.8 |
|
|
|
i 33.4 |
|
|
|
i 67.0 |
|
|
|
i 105.6 |
|
Total recurring revenue |
|
|
i 325.4 |
|
|
|
i 263.8 |
|
|
|
i 958.2 |
|
|
|
i 762.8 |
|
Professional services and other |
|
|
i 52.1 |
|
|
|
i 51.8 |
|
|
|
i 155.8 |
|
|
|
i 147.3 |
|
Total revenue |
|
$ |
i 377.5 |
|
|
$ |
i 315.6 |
|
|
$ |
i 1,114.0 |
|
|
$ |
i 910.1 |
|
Recurring revenue includes float revenue of $ i 38.8 million and $ i 21.3 million for the three months ended September 30, 2023, and 2022, respectively, and $ i 127.5 million and $ i 47.4 million for the nine months ended September 30, 2023, and 2022, respectively.
Contract Balances
A contract asset is generally recorded when revenue recognized for professional service performance obligations exceed the contractual amount of billings for implementation related professional services. Contract assets were $ i 81.5 million and $ i 68.5 million as of September 30, 2023, and December 31, 2022, respectively. Contract assets expected to be recognized in revenue within twelve months are included within prepaid expenses and other current assets, with the remaining contract assets included within other assets on our condensed consolidated balance sheets.
Deferred Revenue
Deferred revenue primarily consists of payments received in advance of revenue recognition. The changes in deferred revenue were as follows:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
|
2022 |
|
|||
|
|
(Dollars in millions) |
|
|||||
Deferred revenue, beginning of period |
|
$ |
i 41.2 |
|
|
$ |
i 48.7 |
|
New billings |
|
|
i 572.8 |
|
|
|
i 483.2 |
|
Revenue recognized |
|
|
( i 542.5 |
) |
|
|
( i 486.5 |
) |
Effect of exchange rate |
|
|
( i 23.7 |
) |
|
|
( i 2.8 |
) |
Deferred revenue, end of period |
|
$ |
i 47.8 |
|
|
$ |
i 42.6 |
|
Transaction Price for Remaining Performance Obligations
As of September 30, 2023, approximately $ i 1,181.1 million of revenue is expected to be recognized over the next i three years from remaining performance obligations, which represents contracted revenue for recurring services and fixed price professional services, primarily implementation services, that has not yet been recognized, including deferred revenue and unbilled amounts that will be recognized as revenue in future periods. i Performance obligations that are billed and recognized as they are delivered, primarily professional services contracts that are on a time and materials basis, are excluded from the transaction price for remaining performance obligations disclosed above.
/ 21 | Q3 2023 Form 10-Q
11. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss were as follows:
|
|
Foreign |
|
|
Unrealized Gain |
|
|
Pension |
|
|
Total |
|
||||
|
|
(Dollars in millions) |
|
|||||||||||||
Balance as of December 31, 2022 |
|
$ |
( i 234.0 |
) |
|
$ |
( i 96.4 |
) |
|
$ |
( i 154.6 |
) |
|
$ |
( i 485.0 |
) |
Other comprehensive income before income taxes and reclassifications |
|
|
( i 12.3 |
) |
|
|
( i 1.5 |
) |
|
|
i — |
|
|
|
( i 13.8 |
) |
Income tax expense |
|
|
— |
|
|
|
i 0.4 |
|
|
|
( i 1.2 |
) |
|
|
( i 0.8 |
) |
Reclassifications to earnings |
|
|
— |
|
|
|
— |
|
|
|
i 4.5 |
|
|
|
i 4.5 |
|
Other comprehensive income |
|
|
( i 12.3 |
) |
|
|
( i 1.1 |
) |
|
|
i 3.3 |
|
|
|
( i 10.1 |
) |
Balance as of September 30, 2023 |
|
$ |
( i 246.3 |
) |
|
$ |
( i 97.5 |
) |
|
$ |
( i 151.3 |
) |
|
$ |
( i 495.1 |
) |
12. Income Taxes
Our income tax provision represents federal, state, and international taxes on our income recognized for financial statement purposes and includes the effects of temporary differences between financial statement income and income recognized for tax return purposes. Deferred tax assets and liabilities are recorded for temporary differences between the financial reporting basis and the tax basis of assets and liabilities. We record a valuation allowance to reduce our deferred tax assets to reflect the net deferred tax assets that we believe will be realized. In assessing the likelihood that we will be able to recover our deferred tax assets and the need for a valuation allowance, we consider all available evidence, both positive and negative, including historical levels of pre-tax book income, expiration of net operating losses, changes in our debt and equity structure, expectations and risks associated with estimates of future taxable income, ongoing prudent and feasible tax planning strategies, as well as current tax laws. As of September 30, 2023, we have a valuation allowance of $ i 48.1 million against certain deferred tax assets consisting of $ i 31.0 million for deferred taxes attributable to previous business combinations, and $ i 17.1 million attributable to state and foreign net operating loss carryovers.
We recorded income tax expense of $ i 51.3 million during the nine months ended September 30, 2023, which included tax expense of $ i 12.7 million attributable to current operations, $ i 14.2 million attributable to share-based compensation, $ i 5.1 million attributable to the U.S. Base Erosion Anti-Abuse Tax, $ i 4.2 million attributable to international tax rate differences, $ i 4.1 million attributable to Global Intangible Low Taxed Income, and $ i 3.8 million attributable to U.S. state taxes.
There were i i no / unrecognized tax benefits as of September 30, 2023, and December 31, 2022. We make adjustments to these reserves when facts and circumstances change, such as the closing of tax audits or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results.
We file income tax returns in the U.S. federal jurisdiction, various states, and foreign jurisdictions. i With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2018.
/13. Commitments and Contingencies
Legal Matters
We are subject to claims and a number of judicial and administrative proceedings considered normal in the course of our current and past operations, including employment-related disputes, contract disputes, disputes with our competitors, intellectual property disputes, government audits and proceedings, customer disputes, and tort claims. In some proceedings, the claimant seeks damages as well as other relief, which, if granted, would require substantial expenditures on our part.
22 | Q3 2023 Form 10-Q
Our general terms and conditions in customer contracts frequently include a provision indicating we will indemnify and hold our customers harmless from and against any and all claims alleging that the services and materials furnished by us violate any third party’s patent, trade secret, copyright, or other intellectual property right. We are not aware of any material pending litigation concerning these indemnifications.
Some of these matters raise difficult and complex factual and legal issues and are subject to many uncertainties, including the facts and circumstances of each particular action, and the jurisdiction, forum, and law under which each action is proceeding. Because of these complexities, final disposition of some of these proceedings may not occur for several years. As such, we are not always able to estimate the amount of our possible future liabilities, if any.
There can be no certainty that we may not ultimately incur charges in excess of presently established or future financial accruals or insurance coverage. Although occasional adverse decisions or settlements may occur, it is management’s opinion that the final disposition of these proceedings will not, considering the merits of the claims and available resources or reserves and insurance, and based upon the facts and circumstances currently known, have a material adverse effect on our financial position or results of operations.
14. Net (Loss) Income per Share
We compute net (loss) income per share of common stock using the treasury stock method. i The basic and diluted net (loss) income per share computations were calculated as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
|
|
(Dollars in millions, except share and per share data) |
|
|||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income |
|
$ |
( i 3.8 |
) |
|
$ |
( i 21.0 |
) |
|
$ |
i 9.2 |
|
|
$ |
( i 68.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average shares outstanding - basic |
|
|
i 155,693,712 |
|
|
|
i 153,184,846 |
|
|
|
i 155,026,472 |
|
|
|
i 152,691,008 |
|
Effect of dilutive equity instruments |
|
|
— |
|
|
|
— |
|
|
|
i 3,158,335 |
|
|
|
— |
|
Weighted-average shares outstanding - diluted |
|
|
i 155,693,712 |
|
|
|
i 153,184,846 |
|
|
|
i 158,184,807 |
|
|
|
i 152,691,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income per share - basic |
|
$ |
( i 0.02 |
) |
|
$ |
( i 0.14 |
) |
|
$ |
i 0.06 |
|
|
$ |
( i 0.45 |
) |
Net (loss) income per share - diluted |
|
$ |
( i 0.02 |
) |
|
$ |
( i 0.14 |
) |
|
$ |
i 0.06 |
|
|
$ |
( i 0.45 |
) |
The following potentially dilutive weighted-average shares were excluded from the calculation of diluted net (loss) income per share because their effect would have been anti-dilutive:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Stock options |
|
|
i 3,051,487 |
|
|
|
i 5,356,629 |
|
|
|
i 2,447,755 |
|
|
|
i 5,633,051 |
|
Restricted stock units |
|
|
i 566,712 |
|
|
|
i 1,831,846 |
|
|
|
i 64,406 |
|
|
|
i 1,359,481 |
|
Performance stock units |
|
|
i 570,045 |
|
|
|
i 1,430,383 |
|
|
|
i 352 |
|
|
|
i 1,370,918 |
|
23 | Q3 2023 Form 10-Q
/
The shares underlying the conversion option in the Convertible Senior Notes were not considered in the calculation of diluted net income (loss) per share as the effect would have been anti-dilutive. Based on the initial conversion price, the entire outstanding principal amount of the Convertible Senior Notes as of September 30, 2023 would have been convertible into approximately i 4.3 million shares of our common stock. Since we expect to settle the principal amount of the Convertible Senior Notes in cash, we use the treasury stock method for calculating any potential dilutive effect on diluted net income per share, if applicable. As a result, only the amount by which the conversion value exceeds the aggregate principal amount of the Convertible Senior Notes (the “conversion spread”) is considered in the diluted earnings per share computation. The conversion spread has a dilutive impact on diluted net income per share when the average market price of our common stock for a given period exceeds the initial conversion price of $ i 132.20 per share for the Convertible Senior Notes. We excluded the potentially dilutive effect of the conversion spread of the Convertible Senior Notes as the average market price of our common stock during the three and nine months ended September 30, 2023 was less than the conversion price of the Convertible Senior Notes. In connection with the issuance of the Convertible Senior Notes, we entered into Capped Calls, which were not included for purposes of calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive.
/ 24 | Q3 2023 Form 10-Q
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of our financial condition and results of operations as of, and for, the periods presented and should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included elsewhere in this report and with our audited consolidated financial statements and notes thereto in our 2022 Form 10-K. This discussion and analysis contains forward-looking statements, including statements regarding industry outlook, our expectations for the future of our business, and our liquidity and capital resources as well as other non-historical statements. These statements are based on current expectations and are subject to numerous risks and uncertainties, including but not limited to the risks and uncertainties described in Part II, Item 1A, “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by these forward-looking statements. Any reference to a “Note” in this discussion relates to the accompanying notes to the unaudited condensed consolidated financial statements included elsewhere in this report unless otherwise indicated.
Overview
Ceridian is a global human capital management (“HCM”) software company. We categorize our solutions into three categories: Cloud recurring, other recurring (formerly referred to as Bureau), and professional services and other. Cloud recurring revenue is generated from HCM solutions that are primarily delivered via two offerings: Dayforce, our flagship Cloud HCM platform, and Powerpay, a Cloud human resources (“HR”) and payroll solution for the Canadian small business market. Revenue from our Cloud recurring and other recurring solutions includes investment income generated from holding customer funds before funds are remitted to taxing authorities, also referred to as float revenue or float.
Dayforce provides HR, payroll, benefits, workforce management, and talent management functionality. Our platform is used by organizations of all sizes, from small businesses to global organizations, regardless of industry, to optimize management of the entire employee lifecycle, including attracting, engaging, paying, deploying, and developing their people. Dayforce was built as a single application from the ground up that combines a modern, consumer-grade user experience with proprietary application architecture, including a single employee record and a rules engine spanning all areas of HCM. Dayforce provides continuous real-time calculations across all modules to enable, for example, payroll administrators access to data through the entire pay period, and managers access to real-time data to optimize work schedules. Our platform is designed to drive efficiencies for our customers and their employees by improving HCM decision-making processes, streamlining workflows, revealing strategic organizational insights, and simplifying legislative compliance. The platform is designed to ease administrative work for both employees and managers, creating opportunities for companies to increase employee engagement. We sell Dayforce through our direct sales force on a subscription per-employee, per-month ("PEPM") basis. Our subscriptions are typically structured with an initial fixed term of between three and five years, with evergreen renewal thereafter.
Dayforce Wallet is a digital payment solution for customers' employees that gives employees instant access to their net earnings. With Dayforce Wallet, employees’ funds are loaded onto a paycard, which when used, generates interchange fee revenue. As of September 30, 2023, we had more than 1,760 customers signed onto Dayforce Wallet, over 1,060 customers live on the product, and an average registration rate above 55% of all eligible employees.
Our Business Model
Our business model focuses on supporting the rapid growth of Dayforce and maximizing the lifetime value of our Dayforce customer relationships. Due to our subscription model, where we recognize subscription revenues ratably over the term of the subscription period, and our high customer retention rates, we have a high level of visibility into our future revenues. The profitability of a customer depends, in large part, on how long they have been a customer. We estimate that it takes approximately two years before we are able to recover our implementation, customer acquisition, and other direct costs on a new Dayforce customer contract.
Over the lifetime of the customer relationship, we have the opportunity to realize additional PEPM revenue, both as the customer grows or rolls out the Dayforce solution to additional employees, and also by selling additional functionality to existing customers that do not currently utilize our full suite of capabilities. We also incur costs to manage the account, to retain customers, and to sell additional functionality. These costs, however, are significantly less than the costs initially incurred to acquire and to take customers live.
25 | Q3 2023 Form 10-Q
Global Events
Beginning in 2022, the U.S. Federal Reserve and the Bank of Canada enacted several increases to the federal funds rate and the overnight rate target, respectively. The rate increases have favorably impacted our float revenue, and conversely, have increased the cost of our term debt borrowing. There continues to be uncertainty in the changing market and economic conditions, including the possibility of additional measures that could be taken by the U.S. Federal Reserve, the Bank of Canada, or other government agencies, related to concerns over inflation risk.
Recent Events
In the third quarter of 2023, our Board of Directors approved plans to transition our Company’s name and branding to Dayforce, expected to begin in the first quarter of 2024. Over the course of 2024, we expect that Ceridian HCM Holding Inc. and its global operating entities will evolve to reflect the Dayforce brand.
The Office of Comptroller of the Currency (the "OCC") authorized the Ceridian National Trust Bank to open on January 3, 2023. Effective on this day, the Ceridian National Trust Bank commenced banking operations, acting as trustee for our U.S. payroll trust. Historically, certain aspects of our U.S. client money movement activity were subject to regulation at both the federal and individual state levels with resulting inherent complexity across multiple jurisdictions. With the establishment of the Ceridian National Trust Bank, regulatory oversight will now be under the OCC, a single federal government agency. Our payroll trust structure will continue to benefit our customers by providing bankruptcy-remoteness protection for client funds pending remittance to employees of our clients, tax authorities, and other payees.
How We Assess Our Performance
In assessing our performance, we consider a variety of annual and quarterly performance indicators in addition to revenue and net income. Set forth below are descriptions of our quarterly key performance measures. Additional information on our annual performance measures is described in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "How We Assess Our Performance" contained in our 2022 Form 10-K. Please refer to the "Non-GAAP Financial Measures" and “Results of Operations” sections below for further description and definitions of certain performance indicators which are considered non-GAAP financial measures.
Live Dayforce Customers
We use the number of live Dayforce customers as an indicator of future revenue and the overall performance of the business and to assess the performance of our implementation services.
Dayforce Recurring Revenue Per Customer
We use Dayforce recurring revenue per customer, a non-GAAP financial measure, as an indicator of the average size of our Dayforce customer, which we believe is also useful to management and investors. We calculate and monitor Dayforce recurring revenue per customer on a quarterly basis. Our Dayforce recurring revenue per customer may fluctuate as a result of a number of factors, including the number of live Dayforce customers and the number of customers purchasing the comprehensive suite of Dayforce functionality.
Constant Currency Revenue
We present percentage change in revenue on a constant currency basis to assess how our underlying business performed, excluding the effect of foreign currency rate fluctuations. We believe this non-GAAP financial measure is useful to management and investors. The average U.S. dollar to Canadian dollar foreign exchange rate was $1.34, with a daily range of $1.31 to $1.37, for the three months ended September 30, 2023, compared to $1.30, with a daily range of $1.28 to $1.38 for the three months ended September 30, 2022. As of September 30, 2023, the U.S. dollar to Canadian dollar foreign exchange rate was $1.36.
26 | Q3 2023 Form 10-Q
Adjusted Operating Profit, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Cloud Recurring Gross Margin
We believe that Adjusted operating profit, Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Cloud recurring gross margin, non-GAAP financial measures, are useful to management and investors as supplemental measures to evaluate our overall operating performance. Adjusted EBITDA is a component of our management incentive plan and Adjusted Cloud recurring gross margin is a component of certain performance based equity awards for our named executive officers, and these metrics are used by management to assess performance and to compare our operating performance to our competitors. Management believes that Adjusted operating profit, Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Cloud recurring gross margin are helpful in highlighting management performance trends because these metrics exclude the results of decisions that are outside the normal course of our business operations.
Results of Operations
Three Months Ended September 30, 2023 Compared With Three Months Ended September 30, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Three Months Ended September 30, |
|
|
Increase/(Decrease) |
|
|
Percentage of Revenue |
|
|||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cloud |
|
$ |
303.6 |
|
|
$ |
230.4 |
|
|
$ |
73.2 |
|
|
|
31.8 |
% |
|
|
80.4 |
% |
|
|
73.0 |
% |
Other |
|
|
21.8 |
|
|
|
33.4 |
|
|
|
(11.6 |
) |
|
|
(34.7 |
)% |
|
|
5.8 |
% |
|
|
10.6 |
% |
Total recurring |
|
|
325.4 |
|
|
|
263.8 |
|
|
|
61.6 |
|
|
|
23.4 |
% |
|
|
86.2 |
% |
|
|
83.6 |
% |
Professional services and other |
|
|
52.1 |
|
|
|
51.8 |
|
|
|
0.3 |
|
|
|
0.6 |
% |
|
|
13.8 |
% |
|
|
16.4 |
% |
Total revenue |
|
|
377.5 |
|
|
|
315.6 |
|
|
|
61.9 |
|
|
|
19.6 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cloud |
|
|
69.9 |
|
|
|
64.3 |
|
|
|
5.6 |
|
|
|
8.7 |
% |
|
|
18.5 |
% |
|
|
20.4 |
% |
Other |
|
|
10.6 |
|
|
|
12.8 |
|
|
|
(2.2 |
) |
|
|
(17.2 |
)% |
|
|
2.8 |
% |
|
|
4.1 |
% |
Total recurring |
|
|
80.5 |
|
|
|
77.1 |
|
|
|
3.4 |
|
|
|
4.4 |
% |
|
|
21.3 |
% |
|
|
24.4 |
% |
Professional services and other |
|
|
66.1 |
|
|
|
61.0 |
|
|
|
5.1 |
|
|
|
8.4 |
% |
|
|
17.5 |
% |
|
|
19.3 |
% |
Product development and management |
|
|
53.3 |
|
|
|
44.8 |
|
|
|
8.5 |
|
|
|
19.0 |
% |
|
|
14.1 |
% |
|
|
14.2 |
% |
Depreciation and amortization |
|
|
17.1 |
|
|
|
13.7 |
|
|
|
3.4 |
|
|
|
24.8 |
% |
|
|
4.5 |
% |
|
|
4.3 |
% |
Total cost of revenue |
|
|
217.0 |
|
|
|
196.6 |
|
|
|
20.4 |
|
|
|
10.4 |
% |
|
|
57.5 |
% |
|
|
62.3 |
% |
Gross profit |
|
|
160.5 |
|
|
|
119.0 |
|
|
|
41.5 |
|
|
|
34.9 |
% |
|
|
42.5 |
% |
|
|
37.7 |
% |
Selling and marketing |
|
|
61.8 |
|
|
|
62.6 |
|
|
|
(0.8 |
) |
|
|
(1.3 |
)% |
|
|
16.4 |
% |
|
|
19.8 |
% |
General and administrative |
|
|
72.2 |
|
|
|
60.1 |
|
|
|
12.1 |
|
|
|
20.1 |
% |
|
|
19.1 |
% |
|
|
19.0 |
% |
Operating profit (loss) |
|
|
26.5 |
|
|
|
(3.7 |
) |
|
|
30.2 |
|
|
|
816.2 |
% |
|
|
7.0 |
% |
|
|
(1.2 |
)% |
Interest expense, net |
|
|
8.9 |
|
|
|
7.4 |
|
|
|
1.5 |
|
|
|
20.3 |
% |
|
|
2.4 |
% |
|
|
2.3 |
% |
Other expense, net |
|
|
5.1 |
|
|
|
5.9 |
|
|
|
(0.8 |
) |
|
|
(13.6 |
)% |
|
|
1.4 |
% |
|
|
1.9 |
% |
Income (loss) before income taxes |
|
|
12.5 |
|
|
|
(17.0 |
) |
|
|
29.5 |
|
|
|
173.5 |
% |
|
|
3.3 |
% |
|
|
(5.4 |
)% |
Income tax expense |
|
|
16.3 |
|
|
|
4.0 |
|
|
|
12.3 |
|
|
|
307.5 |
% |
|
|
4.3 |
% |
|
|
1.3 |
% |
Net loss |
|
$ |
(3.8 |
) |
|
$ |
(21.0 |
) |
|
$ |
17.2 |
|
|
|
81.9 |
% |
|
|
(1.0 |
)% |
|
|
(6.7 |
)% |
Net profit margin (a) |
|
|
(1.0 |
)% |
|
|
(6.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted EBITDA (b) |
|
$ |
107.2 |
|
|
$ |
63.5 |
|
|
$ |
43.7 |
|
|
|
68.8 |
% |
|
|
28.4 |
% |
|
|
20.1 |
% |
27 | Q3 2023 Form 10-Q
Revenue. The following table sets forth certain information regarding our revenues for the periods presented:
|
|
Three Months Ended September 30, |
|
|
Percentage change in revenue |
|
|
Impact of |
|
|
Percentage change in revenue on a constant currency basis (a) |
|
||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 vs. 2022 |
|
|
|
|
|
2023 vs. 2022 |
|
|||||
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Recurring revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Dayforce recurring, excluding float |
|
$ |
245.6 |
|
|
$ |
191.0 |
|
|
|
28.6 |
% |
|
|
(0.3 |
)% |
|
|
28.9 |
% |
Dayforce float |
|
|
34.0 |
|
|
|
16.8 |
|
|
|
102.4 |
% |
|
|
(1.3 |
)% |
|
|
103.7 |
% |
Total Dayforce recurring |
|
|
279.6 |
|
|
|
207.8 |
|
|
|
34.6 |
% |
|
|
(0.3 |
)% |
|
|
34.9 |
% |
Powerpay recurring, excluding float |
|
|
19.6 |
|
|
|
19.3 |
|
|
|
1.6 |
% |
|
|
(3.1 |
)% |
|
|
4.7 |
% |
Powerpay float |
|
|
4.4 |
|
|
|
3.3 |
|
|
|
33.3 |
% |
|
|
(4.3 |
)% |
|
|
37.6 |
% |
Total Powerpay recurring |
|
|
24.0 |
|
|
|
22.6 |
|
|
|
6.2 |
% |
|
|
(3.3 |
)% |
|
|
9.5 |
% |
Total Cloud recurring |
|
|
303.6 |
|
|
|
230.4 |
|
|
|
31.8 |
% |
|
|
(0.6 |
)% |
|
|
32.4 |
% |
Other recurring (b) |
|
|
21.8 |
|
|
|
33.4 |
|
|
|
(34.7 |
)% |
|
|
(1.6 |
)% |
|
|
(33.1 |
)% |
Total recurring revenue |
|
|
325.4 |
|
|
|
263.8 |
|
|
|
23.4 |
% |
|
|
(0.7 |
)% |
|
|
24.1 |
% |
Professional services and other (c) |
|
|
52.1 |
|
|
|
51.8 |
|
|
|
0.6 |
% |
|
|
(0.4 |
)% |
|
|
1.0 |
% |
Total revenue |
|
$ |
377.5 |
|
|
$ |
315.6 |
|
|
|
19.6 |
% |
|
|
(0.7 |
)% |
|
|
20.3 |
% |
Total revenue increased $61.9 million, or 19.6%, to $377.5 million for the three months ended September 30, 2023, compared to $315.6 million for the three months ended September 30, 2022. This increase was primarily attributable to the increase in live Dayforce customers, the increase in Dayforce recurring revenue per customer, and the increase in float revenue. The number of live Dayforce customers increased 8.5% to 6,346 at September 30, 2023 from 5,848 at September 30, 2022. Additionally, for the trailing twelve months ended September 30, 2023, Dayforce recurring revenue per customer grew to $138,838 compared to $118,348 for the comparable period in 2022.1 Please refer to the “Non-GAAP Financial Measures” section for discussion of Dayforce recurring revenue per customer.
The increase in Dayforce recurring revenue per customer is driven by the growing average size of our customers, as we have been expanding within the enterprise segment, as well as more customers purchasing the comprehensive suite of Dayforce functionality. Additionally, tax migration from legacy infrastructure to the same platform as Dayforce contributed approximately 450 basis points of growth for the three months ended September 30, 2023 to Dayforce recurring revenue, excluding float. The increase in float revenue is driven by an increase in average yield of 160 basis points compared to the three months ended September 30, 2022, in addition to a 3.9% increase in average float balance for our customer funds for the three months ended September 30, 2023, which increased to $4.02 billion, compared to $3.87 billion for the three months ended September 30, 2022.
Cost of revenue. Total cost of revenue for the three months ended September 30, 2023, was $217.0 million, an increase of $20.4 million, or 10.4%, compared to the three months ended September 30, 2022.
1 Excluding float revenue, the impact of lower employment levels due to the COVID-19 pandemic, Ascender and ADAM HCM revenue and on a constant currency basis. Please refer to the “Non-GAAP Financial Measures” section for discussion of revenue on a constant currency basis.
28 | Q3 2023 Form 10-Q
Recurring cost of revenue for the three months ended September 30, 2023, increased $3.4 million, or 4.4%, compared with the three months ended September 30, 2022, primarily due to additional labor-related costs incurred to support the growing Dayforce customer base globally, partially offset by a reduction in severance and restructuring costs related to the integration of acquisitions and re-balancing of resources across our global footprint during the three months ended September 30, 2022.
Professional services and other cost of revenue increased $5.1 million, or 8.4%, for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to increased labor-related costs incurred to take new customers live.
Product development and management expense increased $8.5 million, or 19.0%, for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. The increase primarily reflects additional personnel costs. For the three months ended September 30, 2023, and 2022, our investment in software development was $51.4 million and $42.0 million, respectively, consisting of $28.9 million and $24.3 million, of research and development expense, and $22.5 million and $17.7 million in capitalized software development costs, respectively.
Depreciation and amortization expense associated with cost of revenue increased $3.4 million, or 24.8%, for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, as we continue to capitalize Dayforce related and other development costs and subsequently amortize these costs.
Gross profit. The following table presents total gross margin and solution gross margins for the periods presented:
|
|
Three Months Ended September 30, |
|
|||||
|
|
|
|
2022 |
|
|||
Total gross margin |
|
|
42.5 |
% |
|
|
37.7 |
% |
Gross margin by solution: |
|
|
|
|
|
|
||
Cloud recurring |
|
|
77.0 |
% |
|
|
72.1 |
% |
Other recurring |
|
|
51.4 |
% |
|
|
61.7 |
% |
Professional services and other |
|
|
(26.9 |
)% |
|
|
(17.8 |
)% |
Total gross margin is defined as total gross profit as a percentage of total revenue, which is inclusive of product development and management costs, as well as depreciation and amortization associated with cost of revenue. Gross margin for each solution in the table above is defined as total revenue less cost of revenue for the applicable solution as a percentage of total revenue for that related solution, which is exclusive of any product development and management or depreciation and amortization cost allocations.
Total gross margin for the three months ended September 30, 2023 increased 480 basis points compared to total gross margin for the three months ended September 30, 2022 and gross profit increased by $41.5 million, or 34.9% for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, primarily due to the $61.9 million or 19.6% increase in revenue, including float revenue, which outpaced the increase in cost of revenue.
Cloud recurring gross margin was 77.0% for the three months ended September 30, 2023, compared to 72.1% for the three months ended September 30, 2022. Excluding the impact of share-based compensation and related employer taxes and certain other items, Adjusted Cloud recurring gross margin increased by 350 basis points to 78.3%. The increase in Cloud recurring gross margin was primarily due to the increase in float revenue and reduction in severance expense associated with the re-balancing of resources across our global footprint in 2022. The increase is also due to the growth of the proportion of Dayforce customers live for more than two years, which increased from 80% as of September 30, 2022 to 82% as of September 30, 2023. Please refer to the “Non-GAAP Financial Measures” section for a discussion and reconciliation of Adjusted Cloud recurring gross margin and additional information on the excluded items.
Professional services and other gross margin was (26.9)% for the three months ended September 30, 2023, compared to (17.8)% for the three months ended September 30, 2022, reflecting additional costs to take new customers live.
29 | Q3 2023 Form 10-Q
Selling, general, and administrative expense. Selling, general, and administrative expense increased $11.3 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. This reflects an increase of $12.1 million in general and administrative expense and a reduction of $0.8 million in sales and marketing expense. The increase in general and administrative expense is driven by an increase in amortization expense, an increase the remeasurement of the DataFuzion contingent consideration, and other employee-related costs, partially offset by a reduction in share-based compensation. In the third quarter of 2023, our Board of Directors approved plans to transition our Company’s name and branding to Dayforce. Given the significance of this transition, we assessed the impact on the carrying amount of $167.2 million related to our Ceridian® trade name intangible asset. It was determined that the Ceridian trade name is now deemed to have a finite life of two years and began being amortized in the third quarter of 2023, leading to this increase in amortization expense for the three months ended September 30, 2023. The reduction in sales and marketing expense is primarily driven by a reduction in commission expense due to increasing the expected period of benefit of our deferred sales commissions from five years to ten years, partially offset by an increase in investment in our sales force in order to support our growth initiatives.
Operating profit (loss). Operating profit for the three months ended September 30, 2023, was $26.5 million, compared to operating loss of $3.7 million for the three months ended September 30, 2022. The $30.2 million change was primarily due to the increase in revenue, including float revenue, gross margin expansion, and the reduction in commission expense. Partially offsetting these factors was increased cost of revenue and an increase in amortization expense. Adjusted operating profit increased by $39.3 million to $89.4 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. Please refer to the “Non-GAAP Financial Measures” section for a discussion and reconciliation of Adjusted operating profit and additional information on the excluded items.
Interest expense, net. Interest expense, net was $8.9 million and $7.4 million for the three months ended September 30, 2023, and 2022, respectively. The increase was primarily due to an increase in interest expense on our Term Debt due to the increase in applicable reference rates, partially offset by an increase in interest income.
Other expense, net. For the three months ended September 30, 2023, and 2022, we incurred other expense, net of $5.1 million and $5.9 million, respectively. Other expense, net was primarily comprised of foreign currency translation (gains) losses and net periodic pension expense.
Income tax expense. For the three months ended September 30, 2023, and 2022, we recorded income tax expense of $16.3 million and $4.0 million, respectively. The increase in income tax expense was primarily due to a $6.2 million increase attributable to current operations, a $3.3 million increase attributable to Global Intangible Low Taxed Income, and a $2.9 million increase attributable to international tax rate differences.
Net loss. We realized net loss of $3.8 million for the three months ended September 30, 2023, compared to $21.0 million for the three months ended September 30, 2022. Net loss decreased due to the increase in revenue, including float revenue, gross margin expansion, and the reduction in commission expense, partially offset by increases in amortization expense and income tax expense. As noted above, we began amortizing our Ceridian trade name intangible asset in the third quarter of 2023, leading to this increase in amortization expense. For the three months ended September 30, 2023 and 2022, net profit margin was (1.0)% and (6.7)%, respectively.
Adjusted EBITDA. Adjusted EBITDA increased by $43.7 million to $107.2 million, for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, and Adjusted EBITDA margin was 28.4% for the three months ended September 30, 2023, compared to 20.1% for the three months ended September 30, 2022. Please refer to the “Non-GAAP Financial Measures” section for a discussion and reconciliation of Adjusted EBITDA and Adjusted EBITDA margin and additional information on the excluded items.
30 | Q3 2023 Form 10-Q
Nine Months Ended September 30, 2023 Compared With Nine Months Ended September 30, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
Nine Months Ended September 30, |
|
|
Increase/(Decrease) |
|
|
Percentage of Revenue |
|
|||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
% |
|
|
2023 |
|
|
2022 |
|
||||||
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cloud |
|
$ |
891.2 |
|
|
$ |
657.2 |
|
|
$ |
234.0 |
|
|
|
35.6 |
% |
|
|
80.0 |
% |
|
|
72.2 |
% |
Other |
|
|
67.0 |
|
|
|
105.6 |
|
|
|
(38.6 |
) |
|
|
(36.6 |
)% |
|
|
6.0 |
% |
|
|
11.6 |
% |
Total recurring |
|
|
958.2 |
|
|
|
762.8 |
|
|
|
195.4 |
|
|
|
25.6 |
% |
|
|
86.0 |
% |
|
|
83.8 |
% |
Professional services and other |
|
|
155.8 |
|
|
|
147.3 |
|
|
|
8.5 |
|
|
|
5.8 |
% |
|
|
14.0 |
% |
|
|
16.2 |
% |
Total revenue |
|
|
1,114.0 |
|
|
|
910.1 |
|
|
|
203.9 |
|
|
|
22.4 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cloud |
|
|
204.8 |
|
|
|
189.1 |
|
|
|
15.7 |
|
|
|
8.3 |
% |
|
|
18.4 |
% |
|
|
20.8 |
% |
Other |
|
|
34.6 |
|
|
|
45.3 |
|
|
|
(10.7 |
) |
|
|
(23.6 |
)% |
|
|
3.1 |
% |
|
|
5.0 |
% |
Total recurring |
|
|
239.4 |
|
|
|
234.4 |
|
|
|
5.0 |
|
|
|
2.1 |
% |
|
|
21.5 |
% |
|
|
25.8 |
% |
Professional services and other |
|
|
197.0 |
|
|
|
172.6 |
|
|
|
24.4 |
|
|
|
14.1 |
% |
|
|
17.7 |
% |
|
|
19.0 |
% |
Product development and management |
|
|
153.5 |
|
|
|
125.0 |
|
|
|
28.5 |
|
|
|
22.8 |
% |
|
|
13.8 |
% |
|
|
13.7 |
% |
Depreciation and amortization |
|
|
47.4 |
|
|
|
40.0 |
|
|
|
7.4 |
|
|
|
18.5 |
% |
|
|
4.3 |
% |
|
|
4.4 |
% |
Total cost of revenue |
|
|
637.3 |
|
|
|
572.0 |
|
|
|
65.3 |
|
|
|
11.4 |
% |
|
|
57.2 |
% |
|
|
62.9 |
% |
Gross profit |
|
|
476.7 |
|
|
|
338.1 |
|
|
|
138.6 |
|
|
|
41.0 |
% |
|
|
42.8 |
% |
|
|
37.1 |
% |
Selling and marketing |
|
|
177.5 |
|
|
|
183.4 |
|
|
|
(5.9 |
) |
|
|
(3.2 |
)% |
|
|
15.9 |
% |
|
|
20.2 |
% |
General and administrative |
|
|
204.9 |
|
|
|
183.8 |
|
|
|
21.1 |
|
|
|
11.5 |
% |
|
|
18.4 |
% |
|
|
20.2 |
% |
Operating profit (loss) |
|
|
94.3 |
|
|
|
(29.1 |
) |
|
|
123.4 |
|
|
|
424.1 |
% |
|
|
8.5 |
% |
|
|
(3.2 |
)% |
Interest expense, net |
|
|
27.2 |
|
|
|
19.9 |
|
|
|
7.3 |
|
|
|
36.7 |
% |
|
|
2.4 |
% |
|
|
2.2 |
% |
Other expense, net |
|
|
6.6 |
|
|
|
11.4 |
|
|
|
(4.8 |
) |
|
|
(42.1 |
)% |
|
|
0.6 |
% |
|
|
1.3 |
% |
Income (loss) before income taxes |
|
|
60.5 |
|
|
|
(60.4 |
) |
|
|
120.9 |
|
|
|
200.2 |
% |
|
|
5.4 |
% |
|
|
(6.6 |
)% |
Income tax expense |
|
|
51.3 |
|
|
|
7.8 |
|
|
|
43.5 |
|
|
|
557.7 |
% |
|
|
4.6 |
% |
|
|
0.9 |
% |
Net income (loss) |
|
$ |
9.2 |
|
|
$ |
(68.2 |
) |
|
$ |
77.4 |
|
|
|
113.5 |
% |
|
|
0.8 |
% |
|
|
(7.5 |
)% |
Net profit margin (a) |
|
|
0.8 |
% |
|
|
(7.5 |
)% |
|
|
8.3 |
% |
|
|
111.0 |
% |
|
|
|
|
|
|
||
Adjusted EBITDA (b) |
|
$ |
311.0 |
|
|
$ |
182.7 |
|
|
$ |
128.3 |
|
|
|
70.2 |
% |
|
|
27.9 |
% |
|
|
20.1 |
% |
31 | Q3 2023 Form 10-Q
|
|
Nine Months Ended September 30, |
|
|
Percentage change in revenue |
|
|
Impact of |
|
|
Percentage change in revenue on a constant currency basis (a) |
|
||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 vs. 2022 |
|
|
|
|
|
2023 vs. 2022 |
|
|||||
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Recurring revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Dayforce recurring, excluding float |
|
$ |
706.5 |
|
|
$ |
554.5 |
|
|
|
27.4 |
% |
|
|
(1.2 |
)% |
|
|
28.6 |
% |
Dayforce float |
|
|
112.5 |
|
|
|
36.2 |
|
|
|
210.8 |
% |
|
|
(3.6 |
)% |
|
|
214.4 |
% |
Total Dayforce recurring |
|
|
819.0 |
|
|
|
590.7 |
|
|
|
38.6 |
% |
|
|
(1.4 |
)% |
|
|
40.0 |
% |
Powerpay recurring, excluding float |
|
|
58.8 |
|
|
|
58.3 |
|
|
|
0.9 |
% |
|
|
(5.1 |
)% |
|
|
6.0 |
% |
Powerpay float |
|
|
13.4 |
|
|
|
8.2 |
|
|
|
63.4 |
% |
|
|
(8.6 |
)% |
|
|
72.0 |
% |
Total Powerpay recurring |
|
|
72.2 |
|
|
|
66.5 |
|
|
|
8.6 |
% |
|
|
(5.5 |
)% |
|
|
14.1 |
% |
Total Cloud recurring |
|
|
891.2 |
|
|
|
657.2 |
|
|
|
35.6 |
% |
|
|
(1.8 |
)% |
|
|
37.4 |
% |
Other recurring (b) |
|
|
67.0 |
|
|
|
105.6 |
|
|
|
(36.6 |
)% |
|
|
(2.6 |
)% |
|
|
(34.0 |
)% |
Total recurring revenue |
|
|
958.2 |
|
|
|
762.8 |
|
|
|
25.6 |
% |
|
|
(1.9 |
)% |
|
|
27.5 |
% |
Professional services and other (c) |
|
|
155.8 |
|
|
|
147.3 |
|
|
|
5.8 |
% |
|
|
(1.8 |
)% |
|
|
7.6 |
% |
Total revenue |
|
$ |
1,114.0 |
|
|
$ |
910.1 |
|
|
|
22.4 |
% |
|
|
(1.9 |
)% |
|
|
24.3 |
% |
Total revenue increased $203.9 million, or 22.4%, to $1,114.0 million for the nine months ended September 30, 2023, compared to $910.1 million for the nine months ended September 30, 2022. This increase was primarily attributable to the increase in live Dayforce customers, the increase in Dayforce recurring revenue per customer, and the increase in float revenue. The number of live Dayforce customers increased 8.5% to 6,346 at September 30, 2023 from 5,848 at September 30, 2022. Additionally, for the trailing twelve months ended September 30, 2023, Dayforce recurring revenue per customer grew to $138,838 compared to $118,348 for the comparable period in 2022.1 Please refer to the “Non-GAAP Financial Measures” section for discussion of Dayforce recurring revenue per customer.
The increase in Dayforce recurring revenue per customer is driven by the growing average size of our customers, as we have been expanding within the enterprise segment, as well as more customers purchasing the comprehensive suite of Dayforce functionality. Additionally, the tax migration from legacy infrastructure to the same platform as Dayforce contributed approximately 510 basis points of growth for the nine months ended September 30, 2023 to Dayforce recurring revenue, excluding float. The increase in float revenue is driven by an increase in average yield of 220 basis points compared to the nine months ended September 30, 2022, in addition to a 4.8% increase in average float balance for our customer funds for the nine months ended September 30, 2023, which increased to $4.61 billion, compared to $4.40 billion for the nine months ended September 30, 2022.
Cost of revenue. Total cost of revenue for the nine months ended September 30, 2023, was $637.3 million, an increase of $65.3 million, or 11.4%, compared to the nine months ended September 30, 2022.
1 Excluding float revenue, the impact of lower employment levels due to the COVID-19 pandemic, Ascender and ADAM HCM revenue and on a constant currency basis. Please refer to the “Non-GAAP Financial Measures” section for discussion of revenue on a constant currency basis.
32 | Q3 2023 Form 10-Q
Recurring cost of revenue for the nine months ended September 30, 2023, increased $5.0 million, or 2.1%, compared with the nine months ended September 30, 2022, primarily due to additional labor-related costs incurred to support the growing Dayforce customer base globally. The increase in recurring cost of revenue was partially offset by an $18.6 million reduction in severance and restructuring costs related to the integration of acquisitions and re-balancing of resources across our global footprint during the nine months ended September 30, 2022.
Professional services and other cost of revenue increased $24.4 million, or 14.1%, for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to increased labor-related costs incurred to take new customers live and increased share-based compensation expense.
Product development and management expense increased $28.5 million, or 22.8%, for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. The increase primarily reflects additional personnel costs and share-based compensation expense. For the nine months ended September 30, 2023, and 2022, our investment in software development was $146.6 million and $118.2 million, respectively, consisting of $80.6 million and $67.7 million, of research and development expense, and $66.0 million and $50.5 million in capitalized software development costs, respectively.
Depreciation and amortization expense associated with cost of revenue increased $7.4 million, or 18.5%, for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, as we continue to capitalize Dayforce related and other development costs and subsequently amortize these costs.
Gross profit. The following table presents total gross margin and solution gross margins for the periods presented:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
|
2022 |
|
|||
|
|
|
|
|
|
|
||
Total gross margin |
|
|
42.8 |
% |
|
|
37.1 |
% |
Gross margin by solution: |
|
|
|
|
|
|
||
Cloud recurring |
|
|
77.0 |
% |
|
|
71.2 |
% |
Other recurring |
|
|
48.4 |
% |
|
|
57.1 |
% |
Professional services and other |
|
|
(26.4 |
)% |
|
|
(17.2 |
)% |
Total gross margin is defined as total gross profit as a percentage of total revenue, which is inclusive of product development and management costs, as well as depreciation and amortization associated with cost of revenue. Gross margin for each solution in the table above is defined as total revenue less cost of revenue for the applicable solution as a percentage of total revenue for that related solution, which is exclusive of any product development and management or depreciation and amortization cost allocations.
Total gross margin for the nine months ended September 30, 2023 increased 570 basis points compared to total gross margin for the nine months ended September 30, 2022 and gross profit increased by $138.6 million, or 41.0% for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, primarily due to the $203.9 million or 22.4% increase in revenue, including float revenue, which outpaced the increase in cost of revenue.
Cloud recurring gross margin was 77.0% for the nine months ended September 30, 2023, compared to 71.2% for the nine months ended September 30, 2022. Excluding the impact of share-based compensation and related employer taxes and certain other items, Adjusted Cloud recurring gross margin increased by 290 basis points to 78.4%. The increase in Cloud recurring gross margin was primarily due to the increase in float revenue and reduction in severance expense associated with the re-balancing of resources across our global footprint in 2022. The increase is also due to the growth of the proportion of Dayforce customers live for more than two years, which increased from 80% as of September 30, 2022 to 82% as of September 30, 2023. Please refer to the “Non-GAAP Financial Measures” section for a discussion and reconciliation of Adjusted Cloud recurring gross margin and additional information on the excluded items.
Professional services and other gross margin was (26.4)% for the nine months ended September 30, 2023, compared to (17.2)% for the nine months ended September 30, 2022, reflecting additional costs to take new customers live.
33 | Q3 2023 Form 10-Q
Selling, general, and administrative expense. Selling, general, and administrative expense increased $15.2 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. This reflects an increase of $21.1 million in general and administrative expense and a reduction of $5.9 million in sales and marketing expense. The increase in general and administrative expense is driven by an increase in amortization expense, an increase the remeasurement of the DataFuzion contingent consideration, and an increase in employee-related costs, partially offset by a reduction in share-based compensation expense primarily related to specific individual awards becoming fully vested in prior periods. In the third quarter of 2023, our Board of Directors approved plans to transition our Company’s name and branding to Dayforce. Given the significance of this transition, we assessed the impact on the carrying amount of $167.2 million related to our Ceridian® trade name intangible asset. It was determined that the Ceridian trade name is now deemed to have a finite life of two years and began being amortized in the third quarter of 2023, leading to this increase in amortization expense for the nine months ended September 30, 2023. The reduction in sales and marketing expense is primarily driven by a reduction in commission expense due to increasing the expected period of benefit of our deferred sales commissions from five years to ten years, partially offset by an increase in investment in our sales force in order to support our growth initiatives.
Operating profit (loss). Operating profit for the nine months ended September 30, 2023, was $94.3 million, compared to operating loss of $29.1 million for the nine months ended September 30, 2022. The $123.4 million change was primarily due to the increase in revenue, including float revenue, gross margin expansion, reductions in severance and restructuring expenses, and the reduction in commission expense, partially offset by an increase in amortization expense. Adjusted operating profit increased by $116.4 million to $260.9 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. Please refer to the “Non-GAAP Financial Measures” section for a discussion and reconciliation of Adjusted operating profit and additional information on the excluded items.
Interest expense, net. Interest expense, net was $27.2 million and $19.9 million for the nine months ended September 30, 2023, and 2022, respectively. The increase was primarily due to an increase in interest expense on our Term Debt due to the increase in applicable reference rates, partially offset by an increase in interest income.
Other expense, net. For the nine months ended September 30, 2023, and 2022, we incurred other expense, net of $6.6 million and $11.4 million, respectively. Other expense, net was primarily comprised of foreign currency translation (gains) losses and net periodic pension expense.
Income tax expense. For the nine months ended September 30, 2023, and 2022, we recorded income tax expense of $51.3 million and $7.8 million, respectively. The increase in income tax expense was primarily due to a $25.4 million increase attributable to current operations, a $5.8 million increase attributable to international tax rate differences, a $4.7 million increase attributable to share-based compensation, a $3.0 million increase in valuation allowance, and a $2.7 million increase attributable to state income taxes.
Net income (loss). We realized net income of $9.2 million for the nine months ended September 30, 2023, compared to net loss of $68.2 million for the nine months ended September 30, 2022. Net income increased due to the increase in revenue, including float revenue, gross margin expansion, and reductions in severance, restructuring and commission expenses, partially offset by increases in amortization expense and income tax expense. For the nine months ended September 30, 2023 and 2022, net profit margin was 0.8% and (7.5)%, respectively.
Adjusted EBITDA. Adjusted EBITDA increased by $128.3 million to $311.0 million, for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, and Adjusted EBITDA margin was 27.9% for the nine months ended September 30, 2023, compared to 20.1% for the nine months ended September 30, 2022. Please refer to the “Non-GAAP Financial Measures” section for a discussion and reconciliation of Adjusted EBITDA and Adjusted EBITDA margin and additional information on the excluded items.
Liquidity and Capital Resources
Our primary sources of liquidity are our existing cash and equivalents, cash provided by operating activities, availability under our Revolving Credit Facility, and proceeds from debt issuances and equity offerings. As of September 30, 2023, we had cash and equivalents of $510.3 million and our total debt was $1,228.5 million.
34 | Q3 2023 Form 10-Q
Our primary liquidity needs are related to funding of general business requirements, including the payment of interest and principal on our debt, capital expenditures, fulfilling our contractual commitments, product development, and funding Dayforce Wallet on demand pay requests on behalf of our customers. From time to time, we have made investments in businesses or acquisitions of companies, which are also liquidity needs.
We believe that our cash flow from operations, available cash and equivalents, and availability under our Revolving Credit Facility will be sufficient to meet our liquidity needs for the next twelve months and for the foreseeable future. Dayforce Wallet on demand pay requests are currently funded from our operating cash balances, until the amounts are reimbursed by our customers through their normal payroll funding cycles. We evaluate the creditworthiness of each customer utilizing the Dayforce Wallet feature. We anticipate that to the extent that we require additional liquidity, it will be funded through the issuance of equity, the incurrence of additional indebtedness, or a combination thereof. We cannot provide assurance that we will be able to obtain this additional liquidity on reasonable terms, or at all. Additionally, our liquidity and our ability to meet our obligations and to fund our capital requirements and Dayforce Wallet on demand pay requests are also dependent on our future financial performance, which is subject to general economic, financial, and other factors that are beyond our control. Accordingly, we cannot provide assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available from additional indebtedness or otherwise to meet our liquidity needs. If we decide to pursue one or more significant acquisitions, we may incur additional debt or raise additional equity to finance such acquisitions, which would result in additional expenses and/or dilution.
Our customer funds are held and invested with the primary objectives being to protect the principal balance and to ensure adequate liquidity to meet cash flow requirements. Accordingly, we maintain on average approximately 45% to 55% of customer funds in liquidity portfolios with maturities ranging from one to 120 days, consisting of high-quality bank deposits, money market mutual funds, commercial paper, or collateralized short-term investments; and we maintain on average approximately 45% to 55% of customer funds in fixed income portfolios with maturities ranging from 120 days to 10 years, consisting of U.S. Treasury and agency securities, Canada government and provincial securities, as well as highly rated asset-backed, mortgage-backed, municipal, corporate, and bank securities. To maintain sufficient liquidity to meet payment obligations, we also have financing arrangements and may pledge fixed income securities for short-term financing. The customer assets are held in segregated accounts intended for the specific purpose of satisfying customer funding obligations and therefore are not freely available for our general business use.
Statements of Cash Flows
Changes in cash flows due to purchases of customer fund marketable securities and proceeds from the sale or maturity of customer fund marketable securities, as well as the carrying value of customer fund accounts as of period end dates can vary significantly due to several factors, including the specific day of the week the period ends, which impacts the timing of funds collected from customers and payments made to satisfy customer obligations to employees, taxing authorities, and others. The customer funds are fully segregated from our operating cash accounts and are evaluated and tracked separately by management. The table below summarizes the activity within the condensed consolidated statements of cash flows:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
|
2022 |
|
|||
|
|
(Dollars in millions) |
|
|||||
Net cash provided by operating activities |
|
$ |
129.6 |
|
|
$ |
90.8 |
|
Net cash used in investing activities |
|
|
(14.9 |
) |
|
|
(295.0 |
) |
Net cash provided by financing activities |
|
|
345.3 |
|
|
|
723.2 |
|
Effect of exchange rate changes on cash, restricted cash, and equivalents |
|
|
5.1 |
|
|
|
(37.8 |
) |
Net increase in cash, restricted cash, and equivalents |
|
|
465.1 |
|
|
|
481.2 |
|
Cash, restricted cash, and equivalents at beginning of period |
|
|
3,151.2 |
|
|
|
2,643.3 |
|
Cash, restricted cash, and equivalents at end of period |
|
|
3,616.3 |
|
|
|
3,124.5 |
|
|
|
|
|
|
|
|
||
Cash and equivalents |
|
|
510.3 |
|
|
|
408.4 |
|
Restricted cash and equivalents |
|
|
3,106.0 |
|
|
|
2,716.1 |
|
Total cash, restricted cash, and equivalents |
|
$ |
3,616.3 |
|
|
$ |
3,124.5 |
|
35 | Q3 2023 Form 10-Q
Operating Activities
Net cash provided by operating activities was $129.6 million during the nine months ended September 30, 2023 compared to $90.8 million during the nine months ended September 30, 2022. For both periods, cash inflows from operating activities are primarily generated from the subscriptions of our solutions. Cash outflows from operating activities for both periods are primarily comprised of personnel-related expenditures that are integral to our business operations. The positive cash inflow in both periods is primarily due to our growing revenue, partially offset by our operating costs, mainly, investment in our sales force to support our growth initiatives and those product development and management costs which are not eligible for capitalization.
Investing Activities
During the nine months ended September 30, 2023, net cash used in investing activities was $14.9 million, consisting of purchases of customer funds marketable securities of $252.0 million and capital expenditures of $88.3 million, partially offset by proceeds from the sale and maturity of customer funds marketable securities of $326.4 million. Our capital expenditures included $72.9 million for software and technology and $15.4 million for property and equipment.
During the nine months ended September 30, 2022, net cash used in investing activities was $295.0 million, consisting of purchases of customer funds marketable securities of $534.3 million and capital expenditures of $64.9 million, partially offset by proceeds from the sale and maturity of customer funds marketable securities of $304.2 million. Our capital expenditures included $54.5 million for software and technology and $10.4 million for property and equipment.
Financing Activities
Net cash provided by financing activities was $345.3 million during the nine months ended September 30, 2023. This cash inflow is primarily attributable to an increase in net customer fund obligations of $311.0 million and proceeds from issuance of common stock under our share-based compensation plans of $40.3 million, partially offset by payments on our long-term debt obligations of $6.0 million.
Net cash provided by financing activities was $723.2 million during the nine months ended September 30, 2022. This cash inflow is primarily attributable to an increase in net customer fund obligations of $706.9 million and proceeds from issuance of common stock under our share-based compensation plans of $22.6 million, partially offset by payments on our long-term debt obligations of $6.3 million.
Backlog
Backlog is equivalent to our remaining performance obligations, which represents contracted revenue for recurring and fixed price professional services, primarily implementation services, that has not yet been recognized, including deferred revenue and unbilled amounts that will be recognized as revenue in future periods. As of September 30, 2023, our remaining performance obligations were approximately $1,181.1 million. Please refer to Note 10, “Revenue” for further discussion of our remaining performance obligations.
Off-Balance Sheet Arrangements
As of September 30, 2023, we did not have any “off-balance sheet arrangements” (as such term is defined in Item 303 of Regulation S-K).
Contractual Obligations
During the nine months ended September 30, 2023, there were no significant changes to our contractual obligations as described in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Contractual Obligations" contained in our 2022 Form 10-K.
Critical Accounting Policies and Estimates
During the nine months ended September 30, 2023, there were no significant changes to our critical accounting policies and estimates as described in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Critical Accounting Policies and Estimates" contained in our 2022 Form 10-K.
36 | Q3 2023 Form 10-Q
Non-GAAP Financial Measures
We use certain non-GAAP financial measures in this document including:
Non-GAAP Financial Measure |
GAAP Financial Measure |
EBITDA |
Net income (loss) |
Adjusted EBITDA |
Net income (loss) |
Adjusted EBITDA margin |
Net profit margin |
Adjusted Cloud recurring gross margin |
Cloud recurring gross margin |
Adjusted operating profit |
Operating profit (loss) |
Adjusted operating profit margin |
Operating profit (loss) margin |
Adjusted net income |
Net income (loss) |
Adjusted net profit margin |
Net profit margin |
Adjusted diluted net income per share |
Diluted net income (loss) per share |
Percentage change in revenue, including total revenue and revenue by solution, on a constant currency basis |
Percentage change in revenue, including total revenue and revenue by solution |
Dayforce recurring revenue per customer |
No directly comparable GAAP measure |
We believe that these non-GAAP financial measures are useful to management and investors as supplemental measures to evaluate our overall operating performance including comparison across periods and with competitors. Our management team uses these non-GAAP financial measures to assess operating performance because these financial measures exclude the results of decisions that are outside the normal course of our business operations, and are used for internal budgeting and forecasting purposes both for short- and long-term operating plans. Additionally, Adjusted EBITDA is a component of our management incentive plan and Adjusted Cloud recurring gross margin is a component of certain performance based equity awards for our named executive officers. These non-GAAP financial measures are not required by, defined under, or presented in accordance with, GAAP, and should not be considered as alternatives to our results as reported under GAAP, have important limitations as analytical tools, and our use of these terms may not be comparable to similarly titled measures of other companies in our industry. Our presentation of non-GAAP financial measures should not be construed to imply that our future results will be unaffected by similar items to those eliminated in this presentation.
We define our non-GAAP financial measures as follows:
37 | Q3 2023 Form 10-Q
The following tables reconcile our reported results to our non-GAAP financial measures:
|
|
Three Months Ended September 30, 2023 |
|
|||||||||||||||||||||||||
|
|
As reported |
|
|
As reported margins (a) |
|
|
Share-based |
|
|
Amortization |
|
|
Other (b) |
|
|
As adjusted (b) |
|
|
As adjusted margins (a) |
|
|||||||
|
|
(Dollars in millions, except per share data) |
|
|||||||||||||||||||||||||
Cost of Cloud recurring revenue |
|
$ |
69.9 |
|
|
|
77.0 |
% |
|
$ |
3.9 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
66.0 |
|
|
|
78.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating profit |
|
$ |
26.5 |
|
|
|
7.0 |
% |
|
$ |
36.4 |
|
|
$ |
20.5 |
|
|
$ |
6.0 |
|
|
$ |
89.4 |
|
|
|
23.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
EBITDA |
|
$ |
60.1 |
|
|
|
|
|
$ |
36.4 |
|
|
$ |
— |
|
|
$ |
10.7 |
|
|
$ |
107.2 |
|
|
|
28.4 |
% |
|
Interest expense, net |
|
|
8.9 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8.9 |
|
|
|
|
||
Income tax expense (c) |
|
|
16.3 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(5.5 |
) |
|
|
21.8 |
|
|
|
|
||
Depreciation and amortization |
|
|
38.7 |
|
|
|
|
|
|
— |
|
|
|
20.5 |
|
|
|
— |
|
|
|
18.2 |
|
|
|
|
||
Net (loss) income |
|
$ |
(3.8 |
) |
|
|
(1.0 |
)% |
|
$ |
36.4 |
|
|
$ |
20.5 |
|
|
$ |
5.2 |
|
|
$ |
58.3 |
|
|
|
15.4 |
% |
Net (loss) income per share - diluted (d) |
|
$ |
(0.02 |
) |
|
|
|
|
$ |
0.23 |
|
|
$ |
0.13 |
|
|
$ |
0.03 |
|
|
$ |
0.37 |
|
|
|
|
||
38 | Q3 2023 Form 10-Q
|
|
Three Months Ended September 30, 2022 |
|
|||||||||||||||||||||||||
|
|
As reported |
|
|
As reported margins (a) |
|
|
Share-based |
|
|
Amortization |
|
|
Other (b) |
|
|
As adjusted (b) |
|
|
As adjusted margins (a) |
|
|||||||
|
|
(Dollars in millions, except per share data) |
|
|||||||||||||||||||||||||
Cost of Cloud recurring revenue |
|
$ |
64.3 |
|
|
|
72.1 |
% |
|
$ |
3.9 |
|
|
$ |
— |
|
|
$ |
2.3 |
|
|
$ |
58.1 |
|
|
|
74.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating (loss) profit |
|
$ |
(3.7 |
) |
|
|
(1.2 |
)% |
|
$ |
39.4 |
|
|
$ |
7.5 |
|
|
$ |
6.9 |
|
|
$ |
50.1 |
|
|
|
15.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
EBITDA |
|
$ |
12.3 |
|
|
|
|
|
$ |
39.4 |
|
|
$ |
— |
|
|
$ |
11.8 |
|
|
$ |
63.5 |
|
|
|
20.1 |
% |
|
Interest expense, net |
|
|
7.4 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7.4 |
|
|
|
|
||
Income tax expense (c) |
|
|
4.0 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(6.6 |
) |
|
|
10.6 |
|
|
|
|
||
Depreciation and amortization |
|
|
21.9 |
|
|
|
|
|
|
— |
|
|
|
7.5 |
|
|
|
— |
|
|
|
14.4 |
|
|
|
|
||
Net (loss) income |
|
$ |
(21.0 |
) |
|
|
(6.7 |
)% |
|
$ |
39.4 |
|
|
$ |
7.5 |
|
|
$ |
5.2 |
|
|
$ |
31.1 |
|
|
|
9.9 |
% |
Net (loss) income per share - diluted (d) |
|
$ |
(0.14 |
) |
|
|
|
|
$ |
0.25 |
|
|
$ |
0.05 |
|
|
$ |
0.03 |
|
|
$ |
0.20 |
|
|
|
|
||
39 | Q3 2023 Form 10-Q
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||||||||||||||||||
|
|
As reported |
|
|
As reported margins (a) |
|
|
Share-based |
|
|
Amortization |
|
|
Other (b) |
|
|
As adjusted (b) |
|
|
As adjusted margins (a) |
|
|||||||
|
|
(Dollars in millions) |
|
|||||||||||||||||||||||||
Cost of Cloud recurring revenue |
|
$ |
204.8 |
|
|
|
77.0 |
% |
|
$ |
11.9 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
192.9 |
|
|
|
78.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating profit |
|
$ |
94.3 |
|
|
|
8.5 |
% |
|
$ |
118.3 |
|
|
$ |
32.7 |
|
|
$ |
15.6 |
|
|
$ |
260.9 |
|
|
|
23.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
EBITDA |
|
$ |
171.8 |
|
|
|
|
|
$ |
118.3 |
|
|
$ |
— |
|
|
$ |
20.9 |
|
|
$ |
311.0 |
|
|
|
27.9 |
% |
|
Interest expense, net |
|
|
27.2 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
27.2 |
|
|
|
|
||
Income tax expense (c) |
|
|
51.3 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(22.7 |
) |
|
|
74.0 |
|
|
|
|
||
Depreciation and amortization |
|
|
84.1 |
|
|
|
|
|
|
— |
|
|
|
32.7 |
|
|
|
— |
|
|
|
51.4 |
|
|
|
|
||
Net income |
|
$ |
9.2 |
|
|
|
0.8 |
% |
|
$ |
118.3 |
|
|
$ |
32.7 |
|
|
$ |
(1.8 |
) |
|
$ |
158.4 |
|
|
|
14.2 |
% |
Net income per share - diluted (d) |
|
$ |
0.06 |
|
|
|
|
|
$ |
0.75 |
|
|
$ |
0.21 |
|
|
$ |
(0.01 |
) |
|
$ |
1.00 |
|
|
|
|
||
40 | Q3 2023 Form 10-Q
|
|
Nine Months Ended September 30, 2022 |
|
|||||||||||||||||||||||||
|
|
As reported |
|
|
As reported margins (a) |
|
|
Share-based |
|
|
Amortization |
|
|
Other (b) |
|
|
As adjusted (b) |
|
|
As adjusted margins (a) |
|
|||||||
|
|
(Dollars in millions) |
|
|||||||||||||||||||||||||
Cost of Cloud recurring revenue |
|
$ |
189.1 |
|
|
|
71.2 |
% |
|
$ |
11.4 |
|
|
$ |
— |
|
|
$ |
16.9 |
|
|
$ |
160.8 |
|
|
|
75.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating (loss) profit |
|
$ |
(29.1 |
) |
|
|
(3.2 |
)% |
|
$ |
113.8 |
|
|
$ |
22.9 |
|
|
$ |
36.9 |
|
|
$ |
144.5 |
|
|
|
15.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
EBITDA |
|
$ |
23.9 |
|
|
|
|
|
$ |
113.8 |
|
|
$ |
— |
|
|
$ |
45.0 |
|
|
$ |
182.7 |
|
|
|
20.1 |
% |
|
Interest expense, net |
|
|
19.9 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
19.9 |
|
|
|
|
||
Income tax expense (c) |
|
|
7.8 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(28.9 |
) |
|
|
36.7 |
|
|
|
|
||
Depreciation and amortization |
|
|
64.4 |
|
|
|
|
|
|
— |
|
|
|
22.9 |
|
|
|
— |
|
|
|
41.5 |
|
|
|
|
||
Net (loss) income |
|
$ |
(68.2 |
) |
|
|
(7.5 |
)% |
|
$ |
113.8 |
|
|
$ |
22.9 |
|
|
$ |
16.1 |
|
|
$ |
84.6 |
|
|
|
9.3 |
% |
Net (loss) income per share - diluted (d) |
|
$ |
(0.45 |
) |
|
|
|
|
$ |
0.73 |
|
|
$ |
0.15 |
|
|
$ |
0.10 |
|
|
$ |
0.54 |
|
|
|
|
||
41 | Q3 2023 Form 10-Q
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks related to foreign currency exchange rates, interest rates, and pension obligations. We seek to minimize or to manage these market risks through normal operating and financing activities. These market risks may be amplified by events and factors surrounding global events. We do not trade or use instruments with the objective of earning financial gains on market fluctuations, nor do we use instruments where there are not underlying exposures.
Foreign Currency Risk. Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Canadian Dollar. Our exposure to foreign currency exchange rates has historically been partially hedged as our foreign currency denominated inflows create a natural hedge against our foreign currency denominated expenses. Accordingly, our results of operations and cash flows were not materially affected by fluctuation in foreign currency exchange rates, and we believe that a hypothetical 10% change in foreign currency exchange rates or an inability to access foreign funds would not materially affect our ability to meet our operational needs or result in a material foreign currency loss in the future. Due to the relative size of our international operations to date, we have not instituted an active hedging program. We expect our international operations to continue to grow in the near term, and we are monitoring the foreign currency exposure to determine if we should begin a hedging program.
Interest Rate Risk. Our operating results and financial condition are subject to fluctuations due to changes in interest rates, primarily in relation to: (1) our customer funds market valuation and float revenue derived therefrom, (2) our debt and the interest paid on such, and (3) our cash and equivalents and the interest income earned on these balances. Collectively, we do not believe that a change in interest rates of 100 basis points would have a material effect on our operating results or financial condition.
In certain jurisdictions, we collect funds for payment of payroll and taxes; temporarily hold such funds in segregated accounts until payment is due; remit the funds to the customers’ employees and appropriate taxing authority; file federal, state and local tax returns; and handle related regulatory correspondence and amendments. We invest the customer funds in high- quality bank deposits, money market mutual funds, commercial paper or collateralized short-term investments. We may also invest these funds in government securities, as well as highly rated asset-backed, mortgage-backed, corporate, and bank securities.
We have exposure to risks associated with changes in laws and regulations that may affect customer fund balances. For example, a change in regulations, either reducing the amount of taxes to be withheld or allowing less time to remit taxes to government authorities, would reduce our average customer fund balances and float revenue. Based on current market conditions, portfolio composition and investment practices, a 100 basis point decrease in market investment rates would result in approximately $25 million decrease in float revenue over the ensuing twelve month period. There are no incremental costs of revenue associated with changes in float revenue.
We pay floating rates of interest on our Term Debt and Revolving Credit Facility. The interest paid on these borrowings will fluctuate up or down in relation to changes in market interest rates. A 100 basis point decrease in the applicable reference rates would result in approximately $6 million decrease in our interest expense over the ensuring twelve-month period. Please refer to Note 7, "Debt" for additional information.
We do not enter into investments for trading or speculative purposes. Our cash equivalents and our portfolio of marketable securities are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectation due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates.
However, because we classify our securities as “available for sale,” no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be unrecoverable. Fluctuations in the value of our investment securities caused by a change in interest rates (gains or losses on the carrying value) are recorded in other comprehensive income, and are realized only if we sell the underlying securities. Please refer to Note 4, "Customer Funds" for additional information.
42 | Q3 2023 Form 10-Q
Pension Obligation Risk. We provide a pension plan for certain current and former U.S. employees that closed to new participants on January 2, 1995. In 2007, the U.S. pension plan was amended (1) to exclude from further participation any participant or former participant who was not employed by us or another participating employer on January 1, 2008, (2) to discontinue participant contributions, and (3) to freeze the accrual of additional benefits as of December 31, 2007. In applying relevant accounting policies, we have made critical estimates related to actuarial assumptions, including assumptions of expected returns on plan assets, discount rates, and health care cost trends. The cost of pension benefits in future periods will depend on actual returns on plan assets, assumptions for future periods, contributions, and benefit experience. The effective discount rate used in accounting for pension and other benefit obligations in 2022 ranged from 4.72% to 4.84%. The expected rate of return on plan assets for qualified pension benefits in 2023 is 5.20%.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Disclosure controls and procedures are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that as of September 30, 2023, our disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below. We have in place and are executing a remediation plan to address the material weaknesses described below.
As discussed in our Annual Report on Form 10-K/A, we identified a material weakness in our internal control over financial reporting as we have determined that our control was not operating effectively to assess the proper presentation of cash and cash equivalents for our Canada customer funds for financial reporting purposes, including the corresponding customer funds and customer funds obligations and related statements of cash flows presentation as of December 31, 2022, which continues to exist as of September 30, 2023. This material weakness was the result of the control operator not appropriately detecting and correcting the error, as a result of insufficient training.
Further, while reassessing the effectiveness of the Company’s internal control over financial reporting, management identified, in the aggregate, a material weakness related to controls over certain Professional Services and Powerpay revenue accounts as of December 31, 2022, which continues to exist as of September 30, 2023, resulting from an ineffective risk assessment process to properly design and implement controls over (1) certain process level activities related to Powerpay revenue, and (2) information technology access pertaining to a system implemented in September 2022 that adversely impacted the accuracy and completeness of information that is used to measure a component of its Professional Services revenue.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
In light of the material weaknesses, management performed additional analyses and other procedures to ensure that our consolidated financial statements were prepared in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP").
Management’s Plan to Remediate the Identified Material Weaknesses
With regard to the Canada Trust Material Weakness, the Company has implemented an additional control and training to ensure proper classification and presentation of cash and cash equivalents for its Canada customer funds.
In addition, we have enhanced our revenue risk assessment process and information technology general controls to prevent misstatements in Professional Services revenue accounts. We will also implement additional controls to prevent misstatements in Powerpay revenue accounts. We anticipate that the two material weaknesses will be fully remediated before December 31, 2023, but the material weaknesses cannot be considered fully remediated until the improved controls
43 | Q3 2023 Form 10-Q
have been in place and operate for a sufficient period of time to enable management to test and to conclude on the operating effectiveness of the controls.
Changes in Internal Control over Financial Reporting
With the exception of the controls implemented in response to the material weaknesses identified above, there were no changes to our internal control over financial reporting during the three months ended September 30, 2023 that have materially affected, or that are reasonably likely to materially affect, our internal controls over financial reporting.
44 | Q3 2023 Form 10-Q
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to claims and a number of judicial and administrative proceedings considered normal in the course of our current and past operations, including employment-related disputes, contract disputes, disputes with our competitors, intellectual property disputes, government audits and proceedings, customer disputes, and tort claims. In some proceedings, the claimant seeks damages as well as other relief, which, if granted, would require substantial expenditures on our part.
Some of these matters raise difficult and complex factual and legal issues and are subject to many uncertainties, including the facts and circumstances of each particular action, and the jurisdiction, forum, and law under which each action is proceeding. Because of these complexities, final disposition of some of these proceedings may not occur for several years. As such, we are not always able to estimate the amount of our possible future liabilities, if any. We are not presently a party to any legal proceedings that, if determined adversely to us, we believe would individually or taken together have a material adverse effect on our business, financial condition or liquidity.
Refer to Part I, Item 3. "Legal Proceedings" of our 2022 Form 10-K, Part II, Item 1. "Legal Proceedings" of our Form 10-Q for the fiscal quarter ended March 31, 2023, and Part II, Item 1. "Legal Proceedings" of our Form 10-Q for the fiscal quarter ended June 30, 2023 for a prior discussion of our legal proceedings.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Quarterly Report on Form 10-Q, such as Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations", the reader should carefully consider the factors discussed in Part I, Item 1A. "Risk Factors” in our 2022 Form 10-K. There have been no material changes in our risk factors from those disclosed in Part I, Item 1A. of our 2022 Form 10-K, with the exception of the item listed below, related to our internal control over financial reporting.
We have identified material weaknesses in our internal control over financial reporting and may identify material weaknesses in the future or otherwise fail to establish and maintain effective internal control over financial reporting, which could have a material adverse effect on our business, financial condition, and results of operations.
As a public company, we are required to design and maintain proper and effective internal control over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002, as amended, requires that we evaluate and determine the effectiveness of our internal control over financial reporting and provide a management report on the internal control over financial reporting, which must be attested to by our independent registered public accounting firm. Our independent registered public accounting firm may need to issue an adverse report if there is a material weakness in our internal control over financial reporting.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. When evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate prior to the date of our annual management report.
We recently identified material weaknesses in our internal control over financial reporting. For further discussion of the material weaknesses, see Part I, Item 4, Controls and Procedures.
We have commenced measures to remediate the identified material weaknesses, and anticipate that the material weaknesses will be fully remediated before December 31, 2023. Until the material weaknesses are remediated, we will continue to perform additional analyses and other post-closing procedures to ensure that our consolidated financial statements are prepared in accordance with U.S. GAAP. The material weaknesses cannot be considered remediated until the newly designed control activities operate for a sufficient period of time and management has concluded, through testing, that the controls are operating effectively. We can give no assurance that the measures we are taking and plan to take in the future will remediate the material weaknesses identified, or that any additional material weaknesses or restatements of financial results will not arise in the future. In addition, even if we are successful in strengthening our internal control over financial reporting, in the future those controls may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our consolidated financial statements.
45 | Q3 2023 Form 10-Q
Any failure to maintain effective internal control over financial reporting could adversely impact our ability to report our financial position and results of operations on a timely and accurate basis. If our financial statements are inaccurate, investors may not have a complete understanding of our operations and we could face the risk of stockholder litigation. Likewise, if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the stock exchanges on which our common stock is listed, the Securities and Exchange Commission or other regulatory authorities. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our consolidated financial statements, which could have a material adverse effect on our business, financial condition, and results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Insider Adoption or Termination of Trading Arrangements
On i September 19, 2023, i Christopher Armstrong, i Executive Vice President, Chief Operating Officer of the Company, adopted a “ i Rule 10b5-1 trading arrangement” as defined in Regulation S-K Item 408 (the “Armstrong Plan”). The Armstrong Plan provides for the potential sale of up to i 143,336 shares of the Company’s common stock, subject to certain conditions, from March 22, 2024 through September 13, 2024. The entry into the Armstrong Plan was effected within the Company’s open trading window periods and was done in compliance with the Company’s insider trading policy.
Other than the aforementioned, during the fiscal quarter ended September 30, 2023, none of the Company’s directors or officers i i adopted / or i i terminated / any contract, instruction, or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement.
/ 46 | Q3 2023 Form 10-Q
ITEM 6. EXHIBITS
(a) Exhibits
The following exhibits are filed or furnished as a part of this report:
47 | Q3 2023 Form 10-Q
Exhibit No. |
|
Description |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
4.1 |
|
|
|
|
|
4.2 |
|
|
|
|
|
4.3 |
|
|
|
|
|
4.4 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2^*+ |
|
Sales Incentive Plan for Sam Alkharrat, effective July 1, 2023 (redacted). |
|
|
|
10.3^* |
|
|
|
|
|
10.4^* |
|
Form of Restricted Stock Unit Award Agreement (for Canadian executive awards). |
|
|
|
10.5^* |
|
|
|
|
|
10.6^* |
|
Form of Performance Stock Unit Award Agreement (for Canadian executive awards). |
|
|
|
31.1^ |
|
|
|
|
|
31.2^ |
|
|
|
|
|
32.1# |
|
|
|
|
|
32.2# |
|
|
|
|
|
101.INS^ |
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
|
|
|
101.SCH^ |
|
Inline XBRL Taxonomy Extension Schema Document. |
|
|
|
101.CAL^ |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
101.DEF^ |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
101.LAB^ |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
101.PRE^ |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
104^ |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
|
|
|
* Management compensatory plan or arrangement.
+ Confidential portions of this exhibit have been redacted in compliance with Item 601(b)(10) of Regulation S-K.
48 | Q3 2023 Form 10-Q
# In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
49 | Q3 2023 Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
CERIDIAN HCM HOLDING INC. |
||
|
|
|
|
Date: November 13, 2023 |
By: |
/s/ David D. Ossip |
|
|
|
Name: |
|
|
|
Title: |
Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
|
Date: November 13, 2023 |
By: |
||
|
|
Name: |
|
|
|
Title: |
Executive Vice President and Chief Financial Officer |
|
|
|
(Principal Financial Officer) |
|
|
|
|
50 | Q3 2023 Form 10-Q
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 3/15/26 | ||||
| 4/30/25 | ||||
| 1/29/25 | ||||
| 9/13/24 | ||||
| 3/22/24 | ||||
| 12/31/23 | ||||
| Filed on: | 11/13/23 | 10-K/A, 10-Q/A, 8-K, NT 10-Q | ||
| 11/2/23 | ||||
| For Period end: | 9/30/23 | NT 10-Q | ||
| 9/19/23 | ||||
| 8/1/23 | ||||
| 6/30/23 | 10-Q, 10-Q/A, 144, 4 | |||
| 3/31/23 | 10-Q, 10-Q/A | |||
| 2/28/23 | 4 | |||
| 1/3/23 | ||||
| 1/1/23 | ||||
| 12/31/22 | 10-K, 10-K/A, ARS | |||
| 9/30/22 | 10-Q, 4 | |||
| 6/30/22 | 10-Q | |||
| 3/31/22 | 10-Q | |||
| 1/1/22 | ||||
| 12/31/21 | 10-K | |||
| 12/30/21 | 8-K, CORRESP | |||
| 9/15/21 | 4 | |||
| 4/30/18 | 8-K | |||
| 4/24/18 | 8-A12B, S-1/A | |||
| 1/1/08 | ||||
| 12/31/07 | ||||
| 1/2/95 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 2/28/24 Dayforce, Inc. 10-K 12/31/23 141:23M Donnelley … Solutions/FA |
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/02/23 Ceridian HCM Holding Inc. 10-Q 6/30/23 92:18M Donnelley … Solutions/FA 3/01/23 Ceridian HCM Holding Inc. 8-K:5,8,9 2/27/23 19:2M Donnelley … Solutions/FA 3/01/23 Ceridian HCM Holding Inc. 10-K 12/31/22 138:29M Donnelley … Solutions/FA 5/05/21 Ceridian HCM Holding Inc. 10-Q 3/31/21 97:13M ActiveDisclosure/FA 3/05/21 Ceridian HCM Holding Inc. 8-K:1,2,3,8 3/05/21 12:1.1M Donnelley … Solutions/FA 5/24/18 Ceridian HCM Holding Inc. 10-Q 3/31/18 96:7M Donnelley … Solutions/FA |