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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/02/22 Ceridian HCM Holding Inc. 10-Q 9/30/22 90:17M Donnelley … Solutions/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 5.87M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 30K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 30K
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5: EX-32.1 Certification -- §906 - SOA'02 HTML 27K
6: EX-32.2 Certification -- §906 - SOA'02 HTML 27K
7: EX-32.3 Certification -- §906 - SOA'02 HTML 27K
13: R1 Document and Entity Information HTML 77K
14: R2 Condensed Consolidated Balance Sheets HTML 138K
15: R3 Condensed Consolidated Balance Sheets HTML 33K
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16: R4 Condensed Consolidated Statements of Operations HTML 112K
17: R5 Condensed Consolidated Statements of Comprehensive HTML 69K
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18: R6 Condensed Consolidated Statements of Comprehensive HTML 27K
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19: R7 Condensed Consolidated Statements of Stockholders' HTML 124K
Equity
20: R8 Condensed Consolidated Statements of Stockholders' HTML 31K
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21: R9 Condensed Consolidated Statements of Cash Flows HTML 134K
22: R10 Organization HTML 28K
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24: R12 Business Combinations HTML 51K
25: R13 Fair Value Measurements HTML 158K
26: R14 Customer Funds HTML 376K
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32: R20 Accumulated Other Comprehensive Loss HTML 85K
33: R21 Income Taxes HTML 38K
34: R22 Leases HTML 153K
35: R23 Commitments and Contingencies HTML 32K
36: R24 Net Loss per Share HTML 143K
37: R25 Summary of Significant Accounting Policies HTML 57K
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39: R27 Fair Value Measurements (Tables) HTML 152K
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Additional Information (Detail)
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Measured at Fair Value Measured on Recurring Basis
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56: R44 Customer Funds - Gross Unrealized Losses and HTML 64K
Related Fair Value of Investment (Detail)
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Investment Security Available for Sale (Detail)
58: R46 Goodwill and Intangible Assets - Schedule of HTML 35K
Changes in Goodwill (Detail)
59: R47 Goodwill and Intangible Assets - Schedule of HTML 65K
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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 2022 /
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 i ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as the latest practicable date: i 153,594,867 shares of common stock, $0.01 par value per share, as of October 27, 2022.
Ceridian HCM Holding Inc.
Table of Contents
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3 |
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4 |
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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 |
26 |
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Item 3. |
46 |
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Item 4. |
47 |
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48 |
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Item 1. |
48 |
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Item 1A. |
48 |
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Item 2. |
48 |
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Item 3. |
48 |
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Item 4. |
48 |
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Item 5. |
48 |
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Item 6. |
49 |
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2 | 
Q3 2022 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, 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, 2021 (“2021 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 2022 Form 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Ceridian HCM Holding Inc.
Condensed Consolidated Balance Sheets
|
|
September 30, |
|
|
|
|||
|
|
|
|
2021 |
|
|||
(Dollars in millions, except share data) |
|
(unaudited) |
|
|
|
|
||
ASSETS |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and equivalents |
|
$ |
i 408.4 |
|
|
$ |
i 367.5 |
|
Restricted cash |
|
|
i 0.8 |
|
|
|
i 1.9 |
|
Trade and other receivables, net |
|
|
i 155.4 |
|
|
|
i 146.3 |
|
Prepaid expenses and other current assets |
|
|
i 107.3 |
|
|
|
i 92.6 |
|
Total current assets before customer funds |
|
|
i 671.9 |
|
|
|
i 608.3 |
|
Customer funds |
|
|
i 4,335.3 |
|
|
|
i 3,535.8 |
|
Total current assets |
|
|
i 5,007.2 |
|
|
|
i 4,144.1 |
|
Right of use lease asset |
|
|
i 27.5 |
|
|
|
i 29.4 |
|
Property, plant, and equipment, net |
|
|
i 144.7 |
|
|
|
i 128.2 |
|
Goodwill |
|
|
i 2,261.8 |
|
|
|
i 2,323.6 |
|
Other intangible assets, net |
|
|
i 298.4 |
|
|
|
i 332.5 |
|
Other assets |
|
|
i 266.8 |
|
|
|
i 208.4 |
|
Total assets |
|
$ |
i 8,006.4 |
|
|
$ |
i 7,166.2 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Current portion of long-term debt |
|
$ |
i 8.1 |
|
|
$ |
i 8.3 |
|
Current portion of long-term lease liabilities |
|
|
i 14.9 |
|
|
|
i 11.3 |
|
Accounts payable |
|
|
i 56.7 |
|
|
|
i 51.7 |
|
Deferred revenue |
|
|
i 42.6 |
|
|
|
i 48.7 |
|
Employee compensation and benefits |
|
|
i 72.6 |
|
|
|
i 77.3 |
|
Other accrued expenses |
|
|
i 24.2 |
|
|
|
i 24.7 |
|
Total current liabilities before customer funds obligations |
|
|
i 219.1 |
|
|
|
i 222.0 |
|
Customer funds obligations |
|
|
i 4,456.6 |
|
|
|
i 3,519.9 |
|
Total current liabilities |
|
|
i 4,675.7 |
|
|
|
i 3,741.9 |
|
Long-term debt, less current portion |
|
|
i 1,214.1 |
|
|
|
i 1,124.4 |
|
Employee benefit plans |
|
|
i 19.3 |
|
|
|
i 20.7 |
|
Long-term lease liabilities, less current portion |
|
|
i 23.0 |
|
|
|
i 32.7 |
|
Other liabilities |
|
|
i 23.1 |
|
|
|
i 19.0 |
|
Total liabilities |
|
|
i 5,955.2 |
|
|
|
i 4,938.7 |
|
Commitments and contingencies (Note 14) |
|
|
|
|
|
|
||
Stockholders’ equity: |
|
|
|
|
|
|
||
Common stock, $ i i 0.01 / par,
i i 500,000,000 / shares authorized, i i 153,526,336 / and |
|
|
i 1.5 |
|
|
|
i 1.5 |
|
Additional paid in capital |
|
|
i 2,918.4 |
|
|
|
i 2,860.0 |
|
Accumulated deficit |
|
|
( i 367.4 |
) |
|
|
( i 309.2 |
) |
Accumulated other comprehensive loss |
|
|
( i 501.3 |
) |
|
|
( i 324.8 |
) |
Total stockholders’ equity |
|
|
i 2,051.2 |
|
|
|
i 2,227.5 |
|
Total liabilities and equity |
|
$ |
i 8,006.4 |
|
|
$ |
i 7,166.2 |
|
See accompanying notes to condensed consolidated financial statements.
4 | Q3 2022 Form 10-Q
Ceridian HCM Holding Inc.
Condensed Consolidated Statements of Operations
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
|
(Dollars in millions, except share and per share data, unaudited) |
|
|||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recurring |
|
$ |
i 263.8 |
|
|
$ |
i 215.0 |
|
|
$ |
i 762.8 |
|
|
$ |
i 619.1 |
|
Professional services and other |
|
|
i 51.8 |
|
|
|
i 42.2 |
|
|
|
i 147.3 |
|
|
|
i 123.0 |
|
Total revenue |
|
|
i 315.6 |
|
|
|
i 257.2 |
|
|
|
i 910.1 |
|
|
|
i 742.1 |
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recurring |
|
|
i 77.1 |
|
|
|
i 66.0 |
|
|
|
i 234.4 |
|
|
|
i 191.1 |
|
Professional services and other |
|
|
i 61.0 |
|
|
|
i 48.9 |
|
|
|
i 172.6 |
|
|
|
i 140.9 |
|
Product development and management |
|
|
i 44.8 |
|
|
|
i 36.6 |
|
|
|
i 125.0 |
|
|
|
i 94.2 |
|
Depreciation and amortization |
|
|
i 13.7 |
|
|
|
i 12.6 |
|
|
|
i 40.0 |
|
|
|
i 37.5 |
|
Total cost of revenue |
|
|
i 196.6 |
|
|
|
i 164.1 |
|
|
|
i 572.0 |
|
|
|
i 463.7 |
|
Gross profit |
|
|
i 119.0 |
|
|
|
i 93.1 |
|
|
|
i 338.1 |
|
|
|
i 278.4 |
|
Selling, general, and administrative |
|
|
i 122.7 |
|
|
|
i 109.1 |
|
|
|
i 367.2 |
|
|
|
i 316.5 |
|
Operating loss |
|
|
( i 3.7 |
) |
|
|
( i 16.0 |
) |
|
|
( i 29.1 |
) |
|
|
( i 38.1 |
) |
Interest expense, net |
|
|
i 7.4 |
|
|
|
i 10.0 |
|
|
|
i 19.9 |
|
|
|
i 25.5 |
|
Other expense, net |
|
|
i 5.9 |
|
|
|
i 3.4 |
|
|
|
i 11.4 |
|
|
|
i 16.2 |
|
Loss before income taxes |
|
|
( i 17.0 |
) |
|
|
( i 29.4 |
) |
|
|
( i 60.4 |
) |
|
|
( i 79.8 |
) |
Income tax expense (benefit) |
|
|
i 4.0 |
|
|
|
( i 8.5 |
) |
|
|
i 7.8 |
|
|
|
( i 13.9 |
) |
Net loss |
|
$ |
( i 21.0 |
) |
|
$ |
( i 20.9 |
) |
|
$ |
( i 68.2 |
) |
|
$ |
( i 65.9 |
) |
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
( i 0.14 |
) |
|
$ |
( i 0.14 |
) |
|
$ |
( i 0.45 |
) |
|
$ |
( i 0.44 |
) |
Diluted |
|
$ |
( i 0.14 |
) |
|
$ |
( i 0.14 |
) |
|
$ |
( i 0.45 |
) |
|
$ |
( i 0.44 |
) |
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
i 153,184,846 |
|
|
|
i 150,450,595 |
|
|
|
i 152,691,008 |
|
|
|
i 149,083,666 |
|
Diluted |
|
|
i 153,184,846 |
|
|
|
i 150,450,595 |
|
|
|
i 152,691,008 |
|
|
|
i 149,083,666 |
|
See accompanying notes to condensed consolidated financial statements.
5 | Q3 2022 Form 10-Q
Ceridian HCM Holding Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
|
(Dollars in millions, unaudited) |
|
|||||||||||||
Net loss |
|
$ |
( i 21.0 |
) |
|
$ |
( i 20.9 |
) |
|
$ |
( i 68.2 |
) |
|
$ |
( i 65.9 |
) |
Items of other comprehensive loss before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in foreign currency translation adjustment |
|
|
( i 48.5 |
) |
|
|
( i 19.7 |
) |
|
|
( i 80.3 |
) |
|
|
i 4.3 |
|
Change in unrealized loss from invested customer funds |
|
|
( i 33.0 |
) |
|
|
( i 8.4 |
) |
|
|
( i 139.9 |
) |
|
|
( i 30.5 |
) |
Change in pension liability adjustment (a) |
|
|
i 2.9 |
|
|
|
i 3.8 |
|
|
|
i 8.9 |
|
|
|
i 11.4 |
|
Other comprehensive loss before income taxes |
|
|
( i 78.6 |
) |
|
|
( i 24.3 |
) |
|
|
( i 211.3 |
) |
|
|
( i 14.8 |
) |
Income tax benefit, net |
|
|
( i 8.0 |
) |
|
|
( i 1.3 |
) |
|
|
( i 34.8 |
) |
|
|
( i 5.1 |
) |
Other comprehensive loss after income taxes |
|
|
( i 70.6 |
) |
|
|
( i 23.0 |
) |
|
|
( i 176.5 |
) |
|
|
( i 9.7 |
) |
Comprehensive loss |
|
$ |
( i 91.6 |
) |
|
$ |
( i 43.9 |
) |
|
$ |
( i 244.7 |
) |
|
$ |
( i 75.6 |
) |
See accompanying notes to condensed consolidated financial statements.
6 | Q3 2022 Form 10-Q
Ceridian HCM Holding Inc.
Condensed Consolidated Statements of Stockholders’ Equity
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated |
|
|
Total |
|
|||||||||
|
|
Shares |
|
|
$ |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
||||||
|
|
(Dollars in millions, except share data, unaudited) |
|
|||||||||||||||||||||
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 |
|
|
— |
|
|
|
— |
|
|
|
i 35.5 |
|
|
|
— |
|
|
|
— |
|
|
|
i 35.5 |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 15.6 |
|
|
|
i 15.6 |
|
Change in unrealized gain, 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 |
|
|
— |
|
|
|
— |
|
|
|
i 38.8 |
|
|
|
— |
|
|
|
— |
|
|
|
i 38.8 |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 47.4 |
) |
|
|
( i 47.4 |
) |
Change in unrealized gain, 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 |
|
7 | Q3 2022 Form 10-Q
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated |
|
|
Total |
|
|||||||||
|
|
Shares |
|
|
$ |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
||||||
|
|
(Dollars in millions, except share data, unaudited) |
|
|||||||||||||||||||||
Balance as of December 31, 2020 |
|
|
i 148,571,412 |
|
|
$ |
i 1.5 |
|
|
$ |
i 2,606.5 |
|
|
$ |
( i 233.8 |
) |
|
$ |
( i 276.0 |
) |
|
$ |
i 2,098.2 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 19.2 |
) |
|
|
— |
|
|
|
( i 19.2 |
) |
Issuance of common stock under share-based compensation plans |
|
|
i 341,975 |
|
|
|
— |
|
|
|
i 11.3 |
|
|
|
— |
|
|
|
— |
|
|
|
i 11.3 |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 22.8 |
|
|
|
— |
|
|
|
— |
|
|
|
i 22.8 |
|
Equity component of convertible senior notes |
|
|
— |
|
|
|
— |
|
|
|
i 77.7 |
|
|
|
— |
|
|
|
— |
|
|
|
i 77.7 |
|
Purchase of capped calls related to convertible senior notes |
|
|
— |
|
|
|
— |
|
|
|
( i 33.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 33.0 |
) |
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 11.0 |
|
|
|
i 11.0 |
|
Change in unrealized gain, net of tax of $( i 4.4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 12.3 |
) |
|
|
( i 12.3 |
) |
Change in pension liability adjustment, net of tax of $ i 1.0 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2.8 |
|
|
|
i 2.8 |
|
Balance as of March 31, 2021 |
|
|
i 148,913,387 |
|
|
$ |
i 1.5 |
|
|
$ |
i 2,685.3 |
|
|
$ |
( i 253.0 |
) |
|
$ |
( i 274.5 |
) |
|
$ |
i 2,159.3 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 25.8 |
) |
|
|
— |
|
|
|
( i 25.8 |
) |
Issuance of common stock under share-based compensation plans |
|
|
i 838,862 |
|
|
|
— |
|
|
|
i 23.1 |
|
|
|
— |
|
|
|
— |
|
|
|
i 23.1 |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 31.4 |
|
|
|
— |
|
|
|
— |
|
|
|
i 31.4 |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 13.0 |
|
|
|
i 13.0 |
|
Change in unrealized gain, net of tax of ($ i 1.4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 4.0 |
) |
|
|
( i 4.0 |
) |
Change in pension liability adjustment, net of tax of $ i 1.0 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2.8 |
|
|
|
i 2.8 |
|
Balance as of June 30, 2021 |
|
|
i 149,752,249 |
|
|
$ |
i 1.5 |
|
|
$ |
i 2,739.8 |
|
|
$ |
( i 278.8 |
) |
|
$ |
( i 262.7 |
) |
|
$ |
i 2,199.8 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 20.9 |
) |
|
|
— |
|
|
|
( i 20.9 |
) |
Issuance of common stock under share-based compensation plans |
|
|
i 1,412,928 |
|
|
|
— |
|
|
|
i 36.5 |
|
|
|
— |
|
|
|
— |
|
|
|
i 36.5 |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 29.4 |
|
|
|
— |
|
|
|
— |
|
|
|
i 29.4 |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 19.7 |
) |
|
|
( i 19.7 |
) |
Change in unrealized loss, net of tax of ($ i 2.3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 6.1 |
) |
|
|
( i 6.1 |
) |
Change in pension liability adjustment, net of tax of $ i 1.0 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2.8 |
|
|
|
i 2.8 |
|
Balance as of September 30, 2021 |
|
|
i 151,165,177 |
|
|
$ |
i 1.5 |
|
|
$ |
i 2,805.7 |
|
|
$ |
( i 299.7 |
) |
|
$ |
( i 285.7 |
) |
|
$ |
i 2,221.8 |
|
See accompanying notes to condensed consolidated financial statements.
8 | Q3 2022 Form 10-Q
Ceridian HCM Holding Inc.
Condensed Consolidated Statements of Cash Flows
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
|
2021 |
|
|||
|
|
(Dollars in millions, unaudited) |
|
|||||
Net loss |
|
$ |
( i 68.2 |
) |
|
$ |
( i 65.9 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
||
Deferred income tax expense (benefit) |
|
|
i 5.1 |
|
|
|
( i 45.0 |
) |
Depreciation and amortization |
|
|
i 64.4 |
|
|
|
i 59.3 |
|
Amortization of debt issuance costs and debt discount |
|
|
i 3.0 |
|
|
|
i 11.5 |
|
Provision for doubtful accounts |
|
|
i 2.2 |
|
|
|
i 1.5 |
|
Net periodic pension and postretirement cost |
|
|
i 3.6 |
|
|
|
i 6.6 |
|
Share-based compensation |
|
|
i 113.5 |
|
|
|
i 83.6 |
|
Change in fair value of contingent consideration |
|
|
i 3.2 |
|
|
|
— |
|
Other |
|
|
— |
|
|
|
i 0.6 |
|
Changes in operating assets and liabilities excluding effects of acquisitions and divestitures: |
|
|
|
|
|
|
||
Trade and other receivables |
|
|
( i 16.2 |
) |
|
|
( i 5.3 |
) |
Prepaid expenses and other current assets |
|
|
( i 14.0 |
) |
|
|
( i 13.9 |
) |
Accounts payable and other accrued expenses |
|
|
i 4.5 |
|
|
|
i 1.9 |
|
Deferred revenue |
|
|
( i 3.5 |
) |
|
|
i 5.2 |
|
Employee compensation and benefits |
|
|
( i 2.8 |
) |
|
|
( i 5.1 |
) |
Accrued interest |
|
|
( i 0.3 |
) |
|
|
i 0.3 |
|
Accrued taxes |
|
|
( i 0.1 |
) |
|
|
i 20.9 |
|
Other assets and liabilities |
|
|
( i 3.6 |
) |
|
|
( i 7.3 |
) |
Net cash provided by operating activities |
|
|
i 90.8 |
|
|
|
i 48.9 |
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
||
Purchase of customer funds marketable securities |
|
|
( i 534.3 |
) |
|
|
( i 500.5 |
) |
Proceeds from sale and maturity of customer funds marketable securities |
|
|
i 304.2 |
|
|
|
i 409.2 |
|
Expenditures for property, plant, and equipment |
|
|
( i 10.4 |
) |
|
|
( i 7.3 |
) |
Expenditures for software and technology |
|
|
( i 54.5 |
) |
|
|
( i 38.4 |
) |
Acquisition costs, net of cash and restricted cash acquired |
|
|
— |
|
|
|
( i 373.5 |
) |
Net cash used in investing activities |
|
|
( i 295.0 |
) |
|
|
( i 510.5 |
) |
Cash Flows from Financing Activities |
|
|
|
|
|
|
||
Increase in customer funds obligations, net |
|
|
i 1,010.4 |
|
|
|
i 1,631.0 |
|
Proceeds from issuance of common stock under share-based compensation plans |
|
|
i 22.6 |
|
|
|
i 70.9 |
|
Repayment of long-term debt obligations |
|
|
( i 6.3 |
) |
|
|
( i 4.3 |
) |
Proceeds from revolving credit facility |
|
|
— |
|
|
|
i 295.0 |
|
Repayment of revolving credit facility |
|
|
— |
|
|
|
( i 295.0 |
) |
Proceeds from issuance of convertible senior notes, net of issuance costs |
|
|
— |
|
|
|
i 561.8 |
|
Purchases of capped calls related to convertible senior notes |
|
|
— |
|
|
|
( i 45.0 |
) |
Net cash provided by financing activities |
|
|
i 1,026.7 |
|
|
|
i 2,214.4 |
|
Effect of exchange rate changes on cash, restricted cash, and equivalents |
|
|
( i 8.1 |
) |
|
|
( i 0.5 |
) |
Net increase in cash, restricted cash, and equivalents |
|
|
i 814.4 |
|
|
|
i 1,752.3 |
|
Cash, restricted cash, and equivalents at beginning of period |
|
|
i 1,952.8 |
|
|
|
i 2,228.5 |
|
Cash, restricted cash, and equivalents at end of period |
|
$ |
i 2,767.2 |
|
|
$ |
i 3,980.8 |
|
Reconciliation of cash, restricted cash, and equivalents to the condensed |
|
|
|
|
|
|
||
Cash and equivalents |
|
$ |
i 408.4 |
|
|
$ |
i 378.8 |
|
Restricted cash |
|
|
i 0.8 |
|
|
|
i 1.9 |
|
Restricted cash and equivalents included in customer funds |
|
|
i 2,358.0 |
|
|
|
i 3,600.1 |
|
Total cash, restricted cash, and equivalents |
|
$ |
i 2,767.2 |
|
|
$ |
i 3,980.8 |
|
See accompanying notes to condensed consolidated financial statements.
9 | Q3 2022 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.
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 2021 Form 10-K. The following notes should be read in conjunction with these policies and other disclosures in our 2021 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 condensed consolidated financial statements) necessary to present fairly in all material aspects 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.
Deferred Costs
Deferred costs, which primarily consist of deferred sales commissions, included within Other assets on our condensed consolidated balance sheets were $ i 141.0 million and $ i 144.5 million as of September 30, 2022, and December 31, 2021, respectively. Amortization expense for the deferred costs was $ i 13.1 million and $ i 11.7 million for the three months ended September 30, 2022, and 2021, respectively, and $ i 38.5 million and $ i 34.0 million for the nine months ended September 30, 2022, and 2021, respectively.
/ 10 | Q3 2022 Form 10-Q
Recently Issued and Adopted Accounting Pronouncements from the Financial Accounting Standards Board
Standard |
|
Issuance Date |
|
Description |
|
Adoption Date |
|
Effect on the Financial Statements |
Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) |
|
August 2020 |
|
This amendment simplifies the accounting for convertible instruments by removing certain separation models required under current GAAP for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost. |
|
January 2022 |
|
We i adopted the guidance as of i January 1, 2022, using the modified retrospective method of transition. The adoption resulted in the elimination of the debt discount (and related deferred tax liability) that was recorded within equity related to our Convertible Senior Notes. The net impact of the adjustments was recorded to the opening balance of accumulated deficit and additional paid in capital. The impact to the condensed consolidated balance sheet was as follows: (1) increase of $ i 92.9 million to long-term debt, (2) decrease of $ i 77.7 million to additional paid-in capital, net of allocated issuance costs of $ i 2.7 million and deferred tax impact of $ i 28.2 million, and (3) decrease to accumulated deficit of $ i 10.0 million. |
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting |
|
March 2020 |
|
This amendment provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. |
|
Not yet adopted |
|
This amendment may be elected over time through December 31, 2022 as reference rate reform activities occur. We do not expect the adoption of this guidance to have a significant impact on our financial statements. |
3. Business Combinations
ADAM HCM
On December 3, 2021, we completed the acquisition of i 100% of the outstanding interests in ATI ROW, LLC and ADAM HCM MEXICO, S. de R.L de C.V (collectively, "ADAM HCM") for $ i 34.5 million. ADAM HCM is a payroll and HCM company in Latin America.
The purchase accounting was considered complete as of June 30, 2022. Intangible assets recorded for this acquisition consist of $ i 7.5 million of customer relationships, $ i 2.9 million of developed technology, and $ i 0.4 million of trade name. Of the goodwill associated with this acquisition, $ i 24.0 million is deductible for income tax purposes.
11 | Q3 2022 Form 10-Q
The major classes of assets and liabilities to which we have allocated the purchase price were as follows:
|
|
(Dollars in millions) |
|
|
Cash and equivalents |
|
$ |
i 0.2 |
|
Trade receivables, prepaid expenses, and other current assets |
|
|
i 0.9 |
|
Goodwill |
|
|
i 24.0 |
|
Other intangible assets |
|
|
i 10.8 |
|
Other assets |
|
|
i 0.2 |
|
Accounts payable and other current liabilities |
|
|
( i 1.6 |
) |
Total purchase price |
|
$ |
i 34.5 |
|
4. 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 1,977.3 |
|
(a) |
|
$ |
— |
|
|
$ |
i 1,977.3 |
|
Total assets measured at fair value |
|
$ |
— |
|
|
$ |
i 1,977.3 |
|
|
|
$ |
— |
|
|
$ |
i 1,977.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
DataFuzion contingent consideration |
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
i 9.2 |
|
(b) |
$ |
i 9.2 |
|
Total liabilities measured at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
i 9.2 |
|
|
$ |
i 9.2 |
|
|
|
|
|||||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
|
Level 3 |
|
|
Total |
|
||||
|
|
(Dollars in millions) |
|
||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Available for sale customer funds assets |
|
$ |
— |
|
|
$ |
i 1,952.4 |
|
(a) |
|
$ |
— |
|
|
$ |
i 1,952.4 |
|
Total assets measured at fair value |
|
$ |
— |
|
|
$ |
i 1,952.4 |
|
|
|
$ |
— |
|
|
$ |
i 1,952.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
DataFuzion contingent consideration |
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
i 6.0 |
|
(b) |
$ |
i 6.0 |
|
Total liabilities measured at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
i 6.0 |
|
|
$ |
i 6.0 |
|
During the three and nine months ended September 30, 2022, we recognized expense of $ i 1.2 million and $ i 3.2 million, respectively, within selling, general, and administrative expense in our condensed consolidated statements of operations due to the remeasurement of the DataFuzion contingent consideration.
12 | Q3
2022 Form 10-Q
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
During the nine months ended September 30, 2022, we did not re-measure any financial assets or liabilities at fair value on a nonrecurring basis. During the year ended December 31, 2021, assets and liabilities acquired as part of business combinations and recognized as part of our convertible debt issuance have been recorded at fair value on a nonrecurring basis.
/5. Customer Funds
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.
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 21.3 million and $ i 9.9 million for the three months ended September 30, 2022, and 2021, respectively, and $ i 47.4 million and $ i 31.0 million for the nine months ended September 30, 2022, and 2021. Investment income includes interest income, realized gains and losses from sales of customer funds’ investments, and unrealized credit losses determined to be unrecoverable.
The amortized cost of customer funds as of September 30, 2022, and December 31, 2021, is the original cost of assets acquired. 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 2,346.0 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
i 2,346.0 |
|
Available for sale investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government and agency securities |
|
|
i 701.4 |
|
|
|
— |
|
|
|
( i 55.2 |
) |
|
|
i 646.2 |
|
Canadian and provincial government securities |
|
|
i 428.3 |
|
|
|
i 0.1 |
|
|
|
( i 17.5 |
) |
|
|
i 410.9 |
|
Corporate debt securities |
|
|
i 653.6 |
|
|
|
i 0.4 |
|
|
|
( i 38.1 |
) |
|
|
i 615.9 |
|
Asset-backed securities |
|
|
i 169.2 |
|
|
|
— |
|
|
|
( i 5.9 |
) |
|
|
i 163.3 |
|
Mortgage-backed securities |
|
|
i 15.1 |
|
|
|
— |
|
|
|
( i 0.8 |
) |
|
|
i 14.3 |
|
Other short-term investments |
|
|
i 58.4 |
|
|
|
— |
|
|
|
— |
|
|
|
i 58.4 |
|
Other securities |
|
|
i 74.4 |
|
|
|
— |
|
|
|
( i 6.1 |
) |
|
|
i 68.3 |
|
Total available for sale investments |
|
|
i 2,100.4 |
|
|
|
i 0.5 |
|
|
|
( i 123.6 |
) |
|
|
i 1,977.3 |
|
Invested customer funds |
|
|
i 4,446.4 |
|
|
$ |
i 0.5 |
|
|
$ |
( i 123.6 |
) |
|
|
i 4,323.3 |
|
Receivables |
|
|
i 10.2 |
|
|
|
|
|
|
|
|
|
i 12.0 |
|
||
Total customer funds |
|
$ |
i 4,456.6 |
|
|
|
|
|
|
|
|
$ |
i 4,335.3 |
|
||
13 | Q3 2022 Form 10-Q
|
|
|
||||||||||||||
|
|
Amortized |
|
|
Gross Unrealized |
|
|
Fair |
|
|||||||
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
|
||||
|
|
(Dollars in millions) |
|
|||||||||||||
Money market securities, investments carried at cost |
|
$ |
i 1,562.4 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
i 1,562.4 |
|
Available for sale investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government and agency securities |
|
|
i 697.8 |
|
|
|
i 9.5 |
|
|
|
( i 5.8 |
) |
|
|
i 701.5 |
|
Canadian and provincial government securities |
|
|
i 399.9 |
|
|
|
i 5.3 |
|
|
|
( i 1.3 |
) |
|
|
i 403.9 |
|
Corporate debt securities |
|
|
i 551.4 |
|
|
|
i 8.3 |
|
|
|
( i 3.1 |
) |
|
|
i 556.6 |
|
Asset-backed securities |
|
|
i 174.2 |
|
|
|
i 1.5 |
|
|
|
( i 0.3 |
) |
|
|
i 175.4 |
|
Mortgage-backed securities |
|
|
i 2.7 |
|
|
|
— |
|
|
|
— |
|
|
|
i 2.7 |
|
Other short-term investments |
|
|
i 41.4 |
|
|
|
— |
|
|
|
— |
|
|
|
i 41.4 |
|
Other securities |
|
|
i 71.7 |
|
|
|
— |
|
|
|
( i 0.8 |
) |
|
|
i 70.9 |
|
Total available for sale investments |
|
|
i 1,939.1 |
|
|
|
i 24.6 |
|
|
|
( i 11.3 |
) |
|
|
i 1,952.4 |
|
Invested customer funds |
|
|
i 3,501.5 |
|
|
$ |
i 24.6 |
|
|
$ |
( i 11.3 |
) |
|
|
i 3,514.8 |
|
Receivables |
|
|
i 18.4 |
|
|
|
|
|
|
|
|
|
i 21.0 |
|
||
Total customer funds |
|
$ |
i 3,519.9 |
|
|
|
|
|
|
|
|
$ |
i 3,535.8 |
|
||
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 27.1 |
) |
|
$ |
i 413.3 |
|
|
$ |
( i 28.1 |
) |
|
$ |
i 230.0 |
|
|
$ |
( i 55.2 |
) |
|
$ |
i 643.3 |
|
Canadian and provincial government securities |
|
|
( i 11.9 |
) |
|
|
i 344.8 |
|
|
|
( i 5.6 |
) |
|
|
i 58.4 |
|
|
|
( i 17.5 |
) |
|
|
i 403.2 |
|
Corporate debt securities |
|
|
( i 24.1 |
) |
|
|
i 488.0 |
|
|
|
( i 14.0 |
) |
|
|
i 116.1 |
|
|
|
( i 38.1 |
) |
|
|
i 604.1 |
|
Asset-backed securities |
|
|
( i 4.5 |
) |
|
|
i 136.0 |
|
|
|
( i 1.4 |
) |
|
|
i 25.8 |
|
|
|
( i 5.9 |
) |
|
|
i 161.8 |
|
Mortgage-backed securities |
|
|
( i 0.8 |
) |
|
|
i 14.3 |
|
|
|
— |
|
|
|
— |
|
|
|
( i 0.8 |
) |
|
|
i 14.3 |
|
Other securities |
|
|
( i 2.3 |
) |
|
|
i 31.6 |
|
|
|
( i 3.8 |
) |
|
|
i 36.6 |
|
|
|
( i 6.1 |
) |
|
|
i 68.2 |
|
Total available for sale investments |
|
$ |
( i 70.7 |
) |
|
$ |
i 1,428.0 |
|
|
$ |
( i 52.9 |
) |
|
$ |
i 466.9 |
|
|
$ |
( i 123.6 |
) |
|
$ |
i 1,894.9 |
|
Management does not believe that any individual unrealized loss was unrecoverable as of September 30, 2022. 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, 2022, 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 2,734.6 |
|
|
$ |
i 2,731.8 |
|
Due in one to three years |
|
|
i 649.4 |
|
|
|
i 618.8 |
|
Due in three to five years |
|
|
i 819.6 |
|
|
|
i 753.6 |
|
Due after five years |
|
|
i 242.8 |
|
|
|
i 219.1 |
|
Invested customer funds |
|
$ |
i 4,446.4 |
|
|
$ |
i 4,323.3 |
|
14 | Q3 2022 Form 10-Q
6. Goodwill and Intangible Assets
Goodwill
Goodwill and changes therein were as follows:
|
|
(Dollars in millions) |
|
|
Balance at December 31, 2020 |
|
$ |
i 2,031.8 |
|
Acquisitions |
|
|
i 308.2 |
|
Translation |
|
|
( i 16.4 |
) |
Balance at December 31, 2021 |
|
|
i 2,323.6 |
|
Acquisition (a) |
|
|
i 0.5 |
|
Translation |
|
|
( i 62.3 |
) |
Balance at September 30, 2022 |
|
$ |
i 2,261.8 |
|
Intangible Assets
Intangible assets consisted of the following:
|
|
|||||||||||||
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net |
|
|
Estimated Life |
|||
|
|
(Dollars in millions) |
|
|
|
|||||||||
Customer lists and relationships |
|
$ |
i 295.1 |
|
|
$ |
( i 224.3 |
) |
|
$ |
i 70.8 |
|
|
i 4- i 12 |
Trade name |
|
|
i 182.9 |
|
|
|
( i 4.0 |
) |
|
|
i 178.9 |
|
|
i 3- i 5 and i Indefinite |
Technology |
|
|
i 223.8 |
|
|
|
( i 175.1 |
) |
|
|
i 48.7 |
|
|
i 3- i 5 |
Total other intangible assets |
|
$ |
i 701.8 |
|
|
$ |
( i 403.4 |
) |
|
$ |
i 298.4 |
|
|
|
|
|
|||||||||||||
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net |
|
|
Estimated Life |
|||
|
|
(Dollars in millions) |
|
|
|
|||||||||
Customer lists and relationships |
|
$ |
i 308.4 |
|
|
$ |
( i 220.4 |
) |
|
$ |
i 88.0 |
|
|
i 4- i 12 |
Trade name |
|
|
i 184.4 |
|
|
|
( i 3.2 |
) |
|
|
i 181.2 |
|
|
i 3- i 5 and i Indefinite |
Technology |
|
|
i 233.9 |
|
|
|
( i 170.6 |
) |
|
|
i 63.3 |
|
|
i 3- i 5 |
Total other intangible assets |
|
$ |
i 726.7 |
|
|
$ |
( i 394.2 |
) |
|
$ |
i 332.5 |
|
|
|
As of October 1 each year, we perform an impairment assessment of our indefinite-lived intangible assets, which includes our Ceridian and Dayforce trade names, which have a carrying value of $ i 167.2 million and $ i 4.4 million, respectively as of September 30, 2022. We continue to evaluate the use of our trade names and branding 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 our trade name intangible assets 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 7.5 million and $ i 7.3 million for the three months ended September 30, 2022, and 2021, respectively, and $ i 22.9 million and $ i 19.3 million for the nine months ended September 30, 2022, and 2021 respectively.
/
15 | Q3 2022 Form 10-Q
7. Debt
Overview
Our debt obligations consisted of the following as of the periods presented:
|
|
September 30, |
|
|
|
|||
|
|
|
|
2021 |
|
|||
|
|
(Dollars in millions) |
|
|||||
Term Debt, interest rate of i 5.6% and i 2.6%, respectively |
|
$ |
i 652.8 |
|
|
$ |
i 657.9 |
|
Revolving Credit Facility ($ i i 300.0 / million
available capacity less amounts reserved for |
|
|
— |
|
|
|
— |
|
Convertible Senior Notes, interest rate of i i 0.25 / % |
|
|
i 575.0 |
|
|
|
i 575.0 |
|
Australia Line of Credit (AUD $ i 1.5 million and $ i 2.9 million letter of credit capacity, respectively, which were fully utilized; USD $ i 1.0 million and USD $ i 2.1 million, respectively) |
|
|
— |
|
|
|
— |
|
Financing lease liabilities (Please refer to Note 13) |
|
|
i 8.8 |
|
|
|
i 9.6 |
|
Total debt |
|
|
i 1,236.6 |
|
|
|
i 1,242.5 |
|
Less unamortized discount on Term Debt and Convertible Senior Notes (a) |
|
|
i 0.7 |
|
|
|
i 95.5 |
|
Less unamortized debt issuance costs on Term Debt and Convertible Senior Notes (a) |
|
|
i 13.7 |
|
|
|
i 14.3 |
|
Less current portion of long-term debt |
|
|
i 8.1 |
|
|
|
i 8.3 |
|
Long-term debt, less current portion |
|
$ |
i 1,214.1 |
|
|
$ |
i 1,124.4 |
|
Accrued interest and fees related to the debt obligations was $ i 0.2 million and $ i 0.5 million as of September 30, 2022 and December 31, 2021, 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”) (collectively, 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 will mature on i April 30, 2025. 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 December 15, 2021, we completed the second amendment to our Senior Secured Credit Facility, which extended that maturity date of the Revolving Credit Facility from i April 30, 2023 to i January 29, 2025. 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 of 1933, as amended, 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 2022 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 2021 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, 2022.
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.
On January 1, 2022, we adopted ASU 2020-06 using the modified retrospective transition method. Under such transition, prior-period information has not been retrospectively adjusted for this change in accounting guidance.
Upon the adoption of ASU 2020-06, the Convertible Senior Notes are accounted for as a single liability, and the carrying amount of the Convertible Senior Notes was $ i 564.7 million as of September 30, 2022, with principal of $ i 575.0 million, net of issuance costs of $ i 10.3 million. The Convertible Senior Notes are included within Long-term debt, less current portion in our condensed consolidated balance sheets as of September 30, 2022. 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, 2022 |
|
|
Three Months Ended September 30, 2021 |
|
|
Nine Months Ended September 30, 2022 |
|
|
Nine Months Ended September 30, 2021 |
|
||||
|
|
(Post-adoption of ASU 2020-06) |
|
|
(Pre-adoption of ASU 2020-06) |
|
|
(Post-adoption of ASU 2020-06) |
|
|
(Pre-adoption of ASU 2020-06) |
|
||||
|
|
(Dollars in millions) |
|
|||||||||||||
Contractual interest expense |
|
$ |
i 0.4 |
|
|
$ |
i 0.4 |
|
|
$ |
i 1.0 |
|
|
$ |
i 0.9 |
|
Amortization of debt discount |
|
|
— |
|
|
|
i 4.4 |
|
|
|
— |
|
|
|
i 9.5 |
|
Amortization of debt issuance costs |
|
|
i 0.6 |
|
|
|
i 0.5 |
|
|
|
i 2.0 |
|
|
|
i 1.1 |
|
Total |
|
$ |
i 1.0 |
|
|
$ |
i 5.3 |
|
|
$ |
i 3.0 |
|
|
$ |
i 11.5 |
|
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.
17 | Q3 2022 Form 10-Q
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) |
|
|
2022 |
|
$ |
i 1.7 |
|
2023 |
|
|
i 6.8 |
|
2024 |
|
|
i 6.8 |
|
2025 |
|
|
i 637.5 |
|
2026 |
|
|
i 575.0 |
|
|
|
$ |
i 1,227.8 |
|
Fair Value of Debt
Our debt does not trade in active markets and was considered to be a Level 2 measurement at September 30, 2022. 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 1,086.1 million and $ i 1,248.9 million as of September 30, 2022, and December 31, 2021, respectively.
/8. Employee Benefit Plans
The components of net periodic cost 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, |
|
||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Net Periodic Pension Cost |
|
(Dollars in millions) |
|
|||||||||||||
Interest cost |
|
$ |
i 2.2 |
|
|
$ |
i 1.7 |
|
|
$ |
i 6.6 |
|
|
$ |
i 5.1 |
|
Actuarial loss amortization |
|
|
i 3.4 |
|
|
|
i 4.4 |
|
|
|
i 10.2 |
|
|
|
i 13.0 |
|
Less: Expected return on plan assets |
|
|
( i 4.0 |
) |
|
|
( i 3.3 |
) |
|
|
( i 11.9 |
) |
|
|
( i 9.9 |
) |
Net periodic pension cost |
|
$ |
i 1.6 |
|
|
$ |
i 2.8 |
|
|
$ |
i 4.9 |
|
|
$ |
i 8.2 |
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Net Periodic Postretirement Benefit |
|
(Dollars in millions) |
|
|||||||||||||
Interest cost |
|
$ |
i 0.1 |
|
|
$ |
— |
|
|
$ |
i 0.2 |
|
|
$ |
i 0.1 |
|
Actuarial gain amortization |
|
|
( i 0.5 |
) |
|
|
( i 0.5 |
) |
|
|
( i 1.5 |
) |
|
|
( i 1.5 |
) |
Prior service credit amortization |
|
|
— |
|
|
|
( i 0.1 |
) |
|
|
— |
|
|
|
( i 0.2 |
) |
Net periodic postretirement benefit gain |
|
$ |
( i 0.4 |
) |
|
$ |
( i 0.6 |
) |
|
$ |
( i 1.3 |
) |
|
$ |
( i 1.6 |
) |
9. Share-Based Compensation
Our share-based compensation consists of stock options, restricted stock units (“RSU”), and performance-based stock units (“PSU”). We also offer an employee stock purchase plan.
18 | Q3
2022 Form 10-Q
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.
Pursuant to the evergreen refresh provision of the 2018 EIP, on February 23, 2022, the Board of Directors approved an increase to the share reserve of the i three percent of the number of shares of common stock outstanding on January 31, 2022 to take place on March 31, 2022. Further, our Board of Directors approved an amendment effective April 1, 2022, to remove the evergreen refresh provision of the 2018 EIP that permitted the share reserve to be increased on March 31 of each of the first ten calendar years during the term of the 2018 EIP, by the lesser of (i) i three percent of the number of shares of our common stock outstanding on each January 31 immediately prior to the date of increase or (ii) such number of shares of our common stock determined by the Board of Directors.
As of September 30, 2022, there were i 914,330 stock options and RSUs outstanding under the 2013 SIP and there were i 11,963,525 stock options, RSUs, and PSUs outstanding and i 13,789,715 shares available for future grants of equity awards under the 2018 EIP.
Total share-based compensation expense was $ i 39.2 million and $ i 29.4 million for the three months ended September 30, 2022, and 2021, respectively, and $ i 113.5 million and $ i 83.6 million for the nine months ended September 30, 2022, and 2021.
Performance-Based Stock Options
Performance-based stock option activity under the 2013 SIP and the 2018 EIP was as follows:
|
|
Shares |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Performance-based options outstanding at December 31, 2021 |
|
|
i 1,777,050 |
|
|
$ |
i 64.72 |
|
|
|
i 8.3 |
|
|
$ |
i 70.6 |
|
Granted |
|
|
i — |
|
|
|
i — |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
( i 12,755 |
) |
|
|
( i 13.46 |
) |
|
|
— |
|
|
|
— |
|
Forfeited or expired |
|
|
( i 1,857 |
) |
|
|
( i 13.46 |
) |
|
|
— |
|
|
|
— |
|
Performance-based options outstanding at September 30, 2022 |
|
|
i 1,762,438 |
|
|
$ |
i 65.15 |
|
|
|
i 7.6 |
|
|
$ |
i 0.2 |
|
Performance-based options exercisable at September 30, 2022 |
|
|
i 262,438 |
|
|
$ |
i 64.50 |
|
|
|
i 7.7 |
|
|
$ |
i 0.2 |
|
19 | Q3 2022 Form 10-Q
/
As of September 30, 2022, there was $ i 4.5 million of share-based compensation expense related to unvested performance-based stock option awards not yet recognized, which is expected to be recognized over a weighted-average period of i 0.5 years.
Performance Stock Units
PSU activity under the 2018 EIP was as follows:
|
|
Shares |
|
|
PSUs outstanding at December 31, 2021 |
|
|
i 318,745 |
|
Granted |
|
|
i 582,662 |
|
Shares issued upon vesting of PSUs |
|
|
( i 168,414 |
) |
Forfeited or canceled |
|
|
( i 22,069 |
) |
PSUs outstanding at September 30, 2022 |
|
|
i 710,924 |
|
PSUs releasable at September 30, 2022 |
|
|
i — |
|
In 2021, we granted PSUs under the Ceridian HCM Holding Inc. 2021 Management Incentive Plan (the “2021 MIP”) for the incentive period of January 1, 2021 through December 31, 2021, and also as part of long term incentive grants to certain members of management. One-third of the PSUs granted in 2021 as part of long term incentive grants to certain members of management vested on i March 8, 2022, and will vest on each of i March 8, 2023, and i March 8, 2024.
On February 24, 2022, we granted PSUs under the 2022 Ceridian HCM Holding, Inc. Management Incentive Plan (the “2022 MIP”) for the incentive period of January 1, 2022 through December 31, 2022, and also as part of long term incentive grants to certain members of management. The vesting conditions for the PSUs granted on February 24, 2022, are based on the following performance criteria: (1) the Cloud revenue, excluding float revenue (the “Cloud Revenue Goal”) (2) the adjusted EBITDA, excluding float revenue (the “Adjusted EBITDA Goal”), and (3) the Sales per employee per month (“PEPM”) annual contract value (“ACV”) (the “Sales PEPM ACV Goal”), for fiscal year 2022 (collectively the “Performance Goals”).
Both the Cloud Revenue Goal and the Adjusted EBITDA Goal are calculated based on our operating results on a constant currency basis as adjusted to exclude: float revenue; foreign exchange gain (loss); share-based compensation expense and related employer taxes; severance charges; restructuring consulting fees; significant acquisitions or disposals and related transaction costs; as well as other non-recurring items, subject to the Board of Directors approval. The Sales PEPM ACV Goal is calculated based on the sales of our solutions on a constant currency basis that contribute to Cloud recurring revenue. Any cash payment under the 2022 MIP and the vesting conditions for the PSU awards granted in 2022 will be determined based on our performance against the achievement of the Performance Goals, and the payout that a participant can receive may be between i 0% for not meeting the applicable thresholds of any of the Performance Goals, up to a maximum total payout of i 167% for achieving the maximum level of all of the Performance Goals. Upon vesting of a PSU, a participant will receive shares of common stock of the Company. The probability of vesting of the PSUs related to the 2022 MIP and as part of long term incentive grants to certain members of management will continue to be evaluated throughout 2022, and share-based compensation will be recognized in accordance with that probability.
As of September 30, 2022, there was $ i 22.7 million of share-based compensation expense related to unvested PSUs not yet recognized.
Restricted Stock Units
RSU activity under the 2013 SIP and the 2018 EIP was as follows:
|
|
Shares |
|
|
RSUs outstanding at December 31, 2021 |
|
|
i 1,935,939 |
|
Granted |
|
|
i 1,507,286 |
|
Shares issued upon vesting of RSUs |
|
|
( i 456,617 |
) |
Forfeited or canceled |
|
|
( i 140,140 |
) |
RSUs outstanding at September 30, 2022 |
|
|
i 2,846,468 |
|
RSUs releasable at September 30, 2022 |
|
|
i 660,613 |
|
20 | Q3 2022 Form 10-Q
/
During the nine months ended September 30, 2022, i 519,294 RSUs vested. As of September 30, 2022, there were i 2,185,855 unvested RSUs outstanding and i 660,613 vested RSUs outstanding. As of September 30, 2022, there was $ i 115.6 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 1.5 years.
Term-Based Stock Options
Term-based stock option activity under the 2013 SIP and the 2018 EIP was as follows:
|
|
Shares |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Term-based options outstanding at December 31, 2021 |
|
|
i 8,515,869 |
|
|
$ |
i 48.87 |
|
|
|
i 7.3 |
|
|
$ |
i 473.4 |
|
Granted |
|
|
i 81,145 |
|
|
|
i 56.29 |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
( i 693,875 |
) |
|
|
( i 32.70 |
) |
|
|
— |
|
|
|
— |
|
Forfeited or expired |
|
|
( i 345,114 |
) |
|
|
( i 58.31 |
) |
|
|
— |
|
|
|
— |
|
Term-based options outstanding at September 30, 2022 |
|
|
i 7,558,025 |
|
|
$ |
i 50.00 |
|
|
|
i 6.6 |
|
|
$ |
i 84.4 |
|
Term-based options exercisable at September 30, 2022 |
|
|
i 5,169,434 |
|
|
$ |
i 43.57 |
|
|
|
i 6.3 |
|
|
$ |
i 78.8 |
|
As of September 30, 2022, there was $ i 37.8 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 0.8 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 1,701,453 shares of common stock are available for future issuances under the plan as of September 30, 2022. 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 56,208 |
|
|
$ |
i 58.11 |
|
|
|
|
i 84,541 |
|
|
|
i 40.02 |
|
|
|
|
i 59,599 |
|
|
|
i 47.50 |
|
|
21 | Q3 2022 Form 10-Q
10. Revenue
Disaggregation of Revenue
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
|
(Dollars in millions) |
|
|||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cloud |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dayforce |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recurring |
|
$ |
i 207.8 |
|
|
$ |
i 160.3 |
|
|
$ |
i 590.7 |
|
|
$ |
i 456.2 |
|
Professional services and other |
|
|
i 46.4 |
|
|
|
i 38.4 |
|
|
|
i 134.2 |
|
|
|
i 113.2 |
|
Total Dayforce revenue |
|
|
i 254.2 |
|
|
|
i 198.7 |
|
|
|
i 724.9 |
|
|
|
i 569.4 |
|
Powerpay |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recurring |
|
|
i 22.6 |
|
|
|
i 20.7 |
|
|
|
i 66.5 |
|
|
|
i 61.5 |
|
Professional services and other |
|
|
i 0.1 |
|
|
|
i 0.2 |
|
|
|
i 0.4 |
|
|
|
i 0.8 |
|
Total Powerpay revenue |
|
|
i 22.7 |
|
|
|
i 20.9 |
|
|
|
i 66.9 |
|
|
|
i 62.3 |
|
Total Cloud revenue |
|
|
i 276.9 |
|
|
|
i 219.6 |
|
|
|
i 791.8 |
|
|
|
i 631.7 |
|
Bureau |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recurring |
|
|
i 33.4 |
|
|
|
i 34.0 |
|
|
|
i 105.6 |
|
|
|
i 101.4 |
|
Professional services and other |
|
|
i 5.3 |
|
|
|
i 3.6 |
|
|
|
i 12.7 |
|
|
|
i 9.0 |
|
Total Bureau revenue |
|
|
i 38.7 |
|
|
|
i 37.6 |
|
|
|
i 118.3 |
|
|
|
i 110.4 |
|
Total revenue |
|
$ |
i 315.6 |
|
|
$ |
i 257.2 |
|
|
$ |
i 910.1 |
|
|
$ |
i 742.1 |
|
Recurring revenue includes float revenue of $ i 21.3 million and $ i 9.9 million for the three months ended September 30, 2022, and 2021, respectively, and $ i 47.4 million and $ i 31.0 million for the nine months ended September 30, 2022, and 2021, 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 69.2 million and $ i 62.7 million as of September 30, 2022, and December 31, 2021, 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, |
|
|||||
|
|
|
|
2021 |
|
|||
|
|
(Dollars in millions) |
|
|||||
Deferred revenue, beginning of period |
|
$ |
i 48.7 |
|
|
$ |
i 24.4 |
|
New billings |
|
|
i 483.2 |
|
|
|
i 399.6 |
|
Acquired billings |
|
|
— |
|
|
|
i 17.0 |
|
Revenue recognized |
|
|
( i 486.5 |
) |
|
|
( i 394.0 |
) |
Effect of exchange rate |
|
|
( i 2.8 |
) |
|
|
( i 0.5 |
) |
Deferred revenue, end of period |
|
$ |
i 42.6 |
|
|
$ |
i 46.5 |
|
22 | Q3 2022 Form 10-Q
Transaction Price for Remaining Performance Obligations
As of September 30, 2022, approximately $ i 1,076.3 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 In accordance with the practical expedient provided in ASC Topic 606, 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.
/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, 2021 |
|
$ |
( i 177.3 |
) |
|
$ |
i 2.8 |
|
|
$ |
( i 150.3 |
) |
|
$ |
( i 324.8 |
) |
Other comprehensive (loss) income before income taxes and reclassifications |
|
|
( i 80.3 |
) |
|
|
( i 139.9 |
) |
|
|
i 0.2 |
|
|
|
( i 220.0 |
) |
Income tax benefit (expense) |
|
|
— |
|
|
|
i 37.2 |
|
|
|
( i 2.4 |
) |
|
|
i 34.8 |
|
Reclassifications to earnings |
|
|
— |
|
|
|
— |
|
|
|
i 8.7 |
|
|
|
i 8.7 |
|
Other comprehensive (loss) income |
|
|
( i 80.3 |
) |
|
|
( i 102.7 |
) |
|
|
i 6.5 |
|
|
|
( i 176.5 |
) |
Balance as of September 30, 2022 |
|
$ |
( i 257.6 |
) |
|
$ |
( i 99.9 |
) |
|
$ |
( i 143.8 |
) |
|
$ |
( i 501.3 |
) |
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, 2022, we have a valuation allowance of $ i 45.4 million against certain deferred tax assets consisting primarily of $ i 12.6 million attributable to state net operating loss carryovers, and $ i 31.0 million attributable to deferred tax assets recorded as part of a previous acquisition.
We recorded an income tax expense of $ i 7.8 million during the nine months ended September 30, 2022, consisting of tax expense of $ i 9.5 million attributable to share-based compensation, $ i 8.5 million attributable to the U.S Global Intangible Low Tax Income ("GILTI"), and $ i 2.5 million attributable to the U.S. Base Erosion and Anti-Abuse Tax ("BEAT"), partially offset by a $ i 12.7 million tax benefit from current operations.
There were i i no / unrecognized tax benefits as of September 30, 2022, and December 31, 2021. 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 2017.
/ 23 | Q3 2022 Form 10-Q
13. 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 0.1 |
|
|
$ |
i 0.2 |
|
Operating lease assets |
|
Prepaid expenses and other current assets |
|
|
i 2.6 |
|
|
|
i 3.4 |
|
Operating lease assets |
|
Right of use lease asset |
|
|
i 27.5 |
|
|
|
i 29.4 |
|
Financing lease assets |
|
Property, plant, and equipment, net |
|
|
i 7.3 |
|
|
|
i 8.3 |
|
Total lease assets |
|
|
|
$ |
i 37.5 |
|
|
$ |
i 41.3 |
|
LIABILITIES |
|
|
|
|
|
|
|
|
||
Current |
|
|
|
|
|
|
|
|
||
Financing lease liabilities |
|
Current portion of long-term debt |
|
$ |
i 1.3 |
|
|
$ |
i 1.5 |
|
Operating lease liabilities |
|
Current portion of long-term lease liabilities |
|
|
i 14.9 |
|
|
|
i 11.3 |
|
Noncurrent |
|
|
|
|
|
|
|
|
||
Financing lease liabilities |
|
Long-term debt, less current portion |
|
|
i 7.5 |
|
|
|
i 8.1 |
|
Operating lease liabilities |
|
Long-term lease liabilities, less current portion |
|
|
i 23.0 |
|
|
|
i 32.7 |
|
Total lease liabilities |
|
|
|
$ |
i 46.7 |
|
|
$ |
i 53.6 |
|
The components of lease expense were as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Lease Cost |
|
(Dollars in millions) |
|
|||||||||||||
Operating lease cost |
|
$ |
i 2.5 |
|
|
$ |
i 1.3 |
|
|
$ |
i 7.4 |
|
|
$ |
i 3.9 |
|
Financing lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation of lease assets |
|
|
i 0.3 |
|
|
|
i 0.3 |
|
|
|
i 1.0 |
|
|
|
i 1.0 |
|
Interest on lease liabilities |
|
|
i 0.1 |
|
|
|
i 0.1 |
|
|
|
i 0.3 |
|
|
|
i 0.2 |
|
Sublease income |
|
|
( i 0.1 |
) |
|
|
( i 0.6 |
) |
|
|
( i 0.3 |
) |
|
|
( i 1.9 |
) |
Total lease cost, net |
|
$ |
i 2.8 |
|
|
$ |
i 1.1 |
|
|
$ |
i 8.4 |
|
|
$ |
i 3.2 |
|
14. 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.
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.
24 | Q3 2022 Form 10-Q
15. Net Loss per Share
We compute net loss per share of common stock using the treasury stock method. i The basic and diluted net loss per share computations were calculated as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
|
(Dollars in millions, except share and per share data) |
|
|||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
( i 21.0 |
) |
|
$ |
( i 20.9 |
) |
|
$ |
( i 68.2 |
) |
|
$ |
( i 65.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average shares outstanding - basic |
|
|
i 153,184,846 |
|
|
|
i 150,450,595 |
|
|
|
i 152,691,008 |
|
|
|
i 149,083,666 |
|
Effect of dilutive equity instruments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Weighted-average shares outstanding - diluted |
|
|
i 153,184,846 |
|
|
|
i 150,450,595 |
|
|
|
i 152,691,008 |
|
|
|
i 149,083,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share - basic |
|
$ |
( i 0.14 |
) |
|
$ |
( i 0.14 |
) |
|
$ |
( i 0.45 |
) |
|
$ |
( i 0.44 |
) |
Net loss per share - diluted |
|
$ |
( i 0.14 |
) |
|
$ |
( i 0.14 |
) |
|
$ |
( i 0.45 |
) |
|
$ |
( i 0.44 |
) |
The following potentially dilutive weighted-average shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Stock options |
|
|
i 5,356,629 |
|
|
|
i 5,709,780 |
|
|
|
i 5,633,051 |
|
|
|
i 5,594,020 |
|
Restricted stock units |
|
|
i 1,831,846 |
|
|
|
i 564,902 |
|
|
|
i 1,359,481 |
|
|
|
i 555,521 |
|
Performance stock units |
|
|
i 1,430,383 |
|
|
|
i 912,970 |
|
|
|
i 1,370,918 |
|
|
|
i 735,166 |
|
The shares underlying the conversion option in the Convertible Senior Notes were not considered in the calculation of diluted net 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, 2022 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, 2022 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.
/ 25 | Q3 2022 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 Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2022 (our “2021 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 two categories: Cloud and Bureau solutions. Cloud revenue is generated from HCM solutions that are delivered via two cloud offerings: Dayforce, our flagship cloud HCM platform, and Powerpay, a cloud human resources (“HR”) and payroll solution for the Canadian small business market. We also continue to support customers using our legacy North America Bureau solutions, which we generally stopped actively selling to new customers following the acquisition of Dayforce, and customers using our acquired Bureau solutions in Asia Pacific Japan ("APJ"). We invest in maintenance and necessary updates to support our Bureau customers and continue to migrate them to Dayforce. Revenue from our Cloud and Bureau 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 make work life better 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 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 wallet for customers' employees on the Dayforce platform, which was launched in the U.S. in 2020 and Canada in 2021. The Dayforce Wallet gives our customers’ employees greater control over their financial well-being by providing them with instant access to their earnings. This on-demand pay feature allows employees more choice over when they get paid by making any day payday. Dayforce Wallet enables workers to access their already-earned wages anytime during the pay period, net of taxes, withholdings and other payroll deductions. Leveraging Dayforce’s continuous pay calculations, Dayforce Wallet processes a same-day payroll each time a worker requests their pay. The solution is compliant with federal, state, and local remittances and requires no changes to payroll processing including the funding, timing, and close-out of pay. The on-demand wages are loaded onto a paycard, which customers’ employees can use anywhere credit or debit cards are accepted, generating interchange fee revenue. The Dayforce Wallet mobile app makes it easy for customers' employees to check their pay deposits, account balance, and transaction history. As of September 30, 2022, we had more than 1,340 customers signed onto Dayforce Wallet with over 750 customers live on the product. As of September 30, 2022, the average registration rate was 45% of all eligible employees.
26 | Q3 2022 Form 10-Q
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.
Global Events
In March 2020, the World Health Organization declared the outbreak of coronavirus (COVID-19) to be a pandemic. The global spread of the COVID-19 pandemic created significant global volatility, uncertainty, and economic disruption. We experienced curtailed customer demand, primarily as a result of declining employment levels at our customers in certain sectors, such as retail and hospitality, as well as lower customer utilization of professional services, due to the effects of the COVID-19 pandemic. While we experienced adverse impacts on our revenue in 2021 and 2020, we ended 2021 with employment levels at our customers in-line with pre-pandemic levels. Additionally, the federal funds rate cuts by the U.S. Federal Reserve and the overnight rate target by the Bank of Canada in March 2020 had negative effects on our float revenue in 2021 and 2020. Conversely, the federal funds rate hikes by the U.S. Federal Reserve and the overnight rate target by the Bank of Canada in 2022 has had positive effects on our float revenue in 2022. The continued, broader implications of the pandemic on our results of operations and overall financial performance will depend on numerous evolving factors. Consequently, the extent of any potential future impacts of COVID-19 remain uncertain and cannot be reasonably estimated.
In February 2022, the Russian Federation (“Russia”) and Belarus commenced a military action with the country of Ukraine. We are closely monitoring the unfolding events due to the Russia-Ukraine conflict and its regional and global ramifications. We do not have operations in Russia, Ukraine or Belarus. We are monitoring any broader economic impact from the current crisis, including increased cybersecurity risks. The specific impact on our financial condition, results of operations, and cash flows is not material as of the date of these financial statements. However, to the extent that such military action spreads to other countries, intensifies, or otherwise remains active, such action could adversely affect our business, financial condition, and results of operations.
Recent Events
Acquisitions
On March 1, 2021, we completed the purchase of 100% of the outstanding shares of Ascender HCM Pty Limited (“Ascender”) for $359.6 million. Ascender is a payroll and HR solutions provider in the APJ region.
On April 30, 2021, we acquired 100% of the outstanding shares of O5 Systems, Inc. dba Ideal (“Ideal”) for $41.4 million. Ideal is a talent intelligence software provider based in Toronto, Ontario, Canada.
On October 4, 2021, we completed the acquisition of certain assets and liabilities of DataFuzion, for $12.5 million in cash consideration and future contingent consideration payments. DataFuzion designs, implements, and supports customer specific data solutions that integrate HCM and ERP systems on their FUZE platform.
On December 3, 2021, we completed the acquisition of 100% of the outstanding interests in ADAM HCM for $34.5 million. ADAM HCM is a payroll and HCM company in Latin America.
27 | Q3 2022 Form 10-Q
Financing and Other
In March 2021, we issued $575.0 million in aggregate principal amount of 0.25% Convertible Senior Notes due 2026. In connection with the pricing of the Convertible Senior Notes, we entered into capped call transactions with the option counterparties.
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" under the heading "How We Assess Our Performance" contained in our 2021 Form 10-K. Please refer to the "Non-GAAP Measures" and “Results of Operations” sections below for further description and definitions of certain performance indicators which are considered non-GAAP 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 recurring 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 full HCM suite.
Constant Currency Revenue
We present 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 $1.30, with a daily range of $1.28 to $1.38, for the three months ended September 30, 2022, compared to $1.26, with a daily range of $1.23 to $1.29 for the three months ended September 30, 2021. As of September 30, 2022, the U.S. dollar to Canadian dollar foreign exchange rate was $1.37.
EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin
We believe that EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin, non-GAAP financial measures, are useful to management and investors as supplemental measures to evaluate our overall operating performance. Adjusted EBITDA and Adjusted EBITDA margin are components of our management incentive plan and are used by management to assess performance and to compare our operating performance to our competitors. Management believes that EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin are helpful in highlighting management performance trends because EBITDA, Adjusted EBITDA and Adjusted EBITDA margin exclude the results of decisions that are outside the normal course of our business operations.
28 | Q3 2022 Form 10-Q
Results of Operations
Three Months Ended September 30, 2022 Compared With Three Months Ended September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Three Months Ended September 30, |
|
|
Increase/(Decrease) |
|
|
% of Revenue |
|
|||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
|
2022 |
|
|
2021 |
|
||||||
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cloud |
|
$ |
230.4 |
|
|
$ |
181.0 |
|
|
$ |
49.4 |
|
|
|
27.3 |
% |
|
|
73.0 |
% |
|
|
70.4 |
% |
Bureau |
|
|
33.4 |
|
|
|
34.0 |
|
|
|
(0.6 |
) |
|
|
(1.8 |
)% |
|
|
10.6 |
% |
|
|
13.2 |
% |
Total recurring |
|
|
263.8 |
|
|
|
215.0 |
|
|
|
48.8 |
|
|
|
22.7 |
% |
|
|
83.6 |
% |
|
|
83.6 |
% |
Professional services and other |
|
|
51.8 |
|
|
|
42.2 |
|
|
|
9.6 |
|
|
|
22.7 |
% |
|
|
16.4 |
% |
|
|
16.4 |
% |
Total revenue |
|
|
315.6 |
|
|
|
257.2 |
|
|
|
58.4 |
|
|
|
22.7 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cloud |
|
|
64.3 |
|
|
|
49.4 |
|
|
|
14.9 |
|
|
|
30.2 |
% |
|
|
20.4 |
% |
|
|
19.2 |
% |
Bureau |
|
|
12.8 |
|
|
|
16.6 |
|
|
|
(3.8 |
) |
|
|
(22.9 |
)% |
|
|
4.1 |
% |
|
|
6.5 |
% |
Total recurring |
|
|
77.1 |
|
|
|
66.0 |
|
|
|
11.1 |
|
|
|
16.8 |
% |
|
|
24.4 |
% |
|
|
25.7 |
% |
Professional services and other |
|
|
61.0 |
|
|
|
48.9 |
|
|
|
12.1 |
|
|
|
24.7 |
% |
|
|
19.3 |
% |
|
|
19.0 |
% |
Product development and management |
|
|
44.8 |
|
|
|
36.6 |
|
|
|
8.2 |
|
|
|
22.4 |
% |
|
|
14.2 |
% |
|
|
14.2 |
% |
Depreciation and amortization |
|
|
13.7 |
|
|
|
12.6 |
|
|
|
1.1 |
|
|
|
8.7 |
% |
|
|
4.3 |
% |
|
|
4.9 |
% |
Total cost of revenue |
|
|
196.6 |
|
|
|
164.1 |
|
|
|
32.5 |
|
|
|
19.8 |
% |
|
|
62.3 |
% |
|
|
63.8 |
% |
Gross profit |
|
|
119.0 |
|
|
|
93.1 |
|
|
|
25.9 |
|
|
|
27.8 |
% |
|
|
37.7 |
% |
|
|
36.2 |
% |
Selling, general, and administrative |
|
|
122.7 |
|
|
|
109.1 |
|
|
|
13.6 |
|
|
|
12.5 |
% |
|
|
38.9 |
% |
|
|
42.4 |
% |
Operating loss |
|
|
(3.7 |
) |
|
|
(16.0 |
) |
|
|
12.3 |
|
|
|
76.9 |
% |
|
|
(1.2 |
)% |
|
|
(6.2 |
)% |
Interest expense, net |
|
|
7.4 |
|
|
|
10.0 |
|
|
|
(2.6 |
) |
|
|
(26.0 |
)% |
|
|
2.3 |
% |
|
|
3.9 |
% |
Other expense, net |
|
|
5.9 |
|
|
|
3.4 |
|
|
|
2.5 |
|
|
|
73.5 |
% |
|
|
1.9 |
% |
|
|
1.3 |
% |
Loss before income taxes |
|
|
(17.0 |
) |
|
|
(29.4 |
) |
|
|
12.4 |
|
|
|
42.2 |
% |
|
|
(5.4 |
)% |
|
|
(11.4 |
)% |
Income tax expense (benefit) |
|
|
4.0 |
|
|
|
(8.5 |
) |
|
|
12.5 |
|
|
|
147.1 |
% |
|
|
1.3 |
% |
|
|
(3.3 |
)% |
Net loss |
|
$ |
(21.0 |
) |
|
$ |
(20.9 |
) |
|
$ |
(0.1 |
) |
|
|
(0.5 |
)% |
|
|
(6.7 |
)% |
|
|
(8.1 |
)% |
Net profit margin (a) |
|
|
(6.7 |
)% |
|
|
(8.1 |
)% |
|
|
1.5 |
% |
|
|
18.1 |
% |
|
|
|
|
|
|
||
Adjusted EBITDA (b) |
|
$ |
63.5 |
|
|
$ |
39.4 |
|
|
$ |
24.1 |
|
|
|
61.2 |
% |
|
|
20.1 |
% |
|
|
15.3 |
% |
Adjusted EBITDA margin (b) |
|
|
20.1 |
% |
|
|
15.3 |
% |
|
|
4.8 |
% |
|
|
31.3 |
% |
|
|
|
|
|
|
||
29 | Q3 2022 Form 10-Q
Revenue. The following table sets forth certain information regarding our revenues for the periods presented:
|
|
Three Months Ended September 30, |
|
|
Percentage |
|
|
Impact of |
|
|
Percentage |
|
||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
|
|
|
|
2022 vs. 2021 |
|
|||||
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Dayforce recurring, excluding float |
|
$ |
191.0 |
|
|
$ |
153.0 |
|
|
|
24.8 |
% |
|
|
(1.9 |
)% |
|
|
26.7 |
% |
Dayforce float |
|
|
16.8 |
|
|
|
7.3 |
|
|
|
130.1 |
% |
|
|
(2.8 |
)% |
|
|
132.9 |
% |
Total Dayforce recurring |
|
|
207.8 |
|
|
|
160.3 |
|
|
|
29.6 |
% |
|
|
(2.0 |
)% |
|
|
31.6 |
% |
Powerpay recurring, excluding float |
|
|
19.3 |
|
|
|
18.7 |
|
|
|
3.2 |
% |
|
|
(3.8 |
)% |
|
|
7.0 |
% |
Powerpay float |
|
|
3.3 |
|
|
|
2.0 |
|
|
|
65.0 |
% |
|
|
(5.0 |
)% |
|
|
70.0 |
% |
Total Powerpay recurring |
|
|
22.6 |
|
|
|
20.7 |
|
|
|
9.2 |
% |
|
|
(3.8 |
)% |
|
|
13.0 |
% |
Total Cloud recurring |
|
|
230.4 |
|
|
|
181.0 |
|
|
|
27.3 |
% |
|
|
(2.1 |
)% |
|
|
29.4 |
% |
Dayforce professional services and other |
|
|
46.4 |
|
|
|
38.4 |
|
|
|
20.8 |
% |
|
|
(2.9 |
)% |
|
|
23.7 |
% |
Powerpay professional services and other |
|
|
0.1 |
|
|
|
0.2 |
|
|
|
(50.0 |
)% |
|
|
(— |
)% |
|
|
(50.0 |
)% |
Total Cloud professional services and |
|
|
46.5 |
|
|
|
38.6 |
|
|
|
20.5 |
% |
|
|
(2.8 |
)% |
|
|
23.3 |
% |
Total Cloud revenue |
|
|
276.9 |
|
|
|
219.6 |
|
|
|
26.1 |
% |
|
|
(2.3 |
)% |
|
|
28.4 |
% |
Bureau recurring, excluding float |
|
|
32.2 |
|
|
|
33.4 |
|
|
|
(3.6 |
)% |
|
|
(4.5 |
)% |
|
|
0.9 |
% |
Bureau float |
|
|
1.2 |
|
|
|
0.6 |
|
|
|
100.0 |
% |
|
|
(— |
)% |
|
|
100.0 |
% |
Total Bureau recurring |
|
|
33.4 |
|
|
|
34.0 |
|
|
|
(1.8 |
)% |
|
|
(4.4 |
)% |
|
|
2.6 |
% |
Bureau professional services and other |
|
|
5.3 |
|
|
|
3.6 |
|
|
|
47.2 |
% |
|
|
(8.4 |
)% |
|
|
55.6 |
% |
Total Bureau revenue |
|
|
38.7 |
|
|
|
37.6 |
|
|
|
2.9 |
% |
|
|
(4.8 |
)% |
|
|
7.7 |
% |
Total revenue |
|
$ |
315.6 |
|
|
$ |
257.2 |
|
|
|
22.7 |
% |
|
|
(2.6 |
)% |
|
|
25.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Dayforce |
|
$ |
254.2 |
|
|
$ |
198.7 |
|
|
|
27.9 |
% |
|
|
(2.1 |
)% |
|
|
30.0 |
% |
Powerpay |
|
|
22.7 |
|
|
|
20.9 |
|
|
|
8.6 |
% |
|
|
(3.8 |
)% |
|
|
12.4 |
% |
Total Cloud revenue |
|
$ |
276.9 |
|
|
$ |
219.6 |
|
|
|
26.1 |
% |
|
|
(2.3 |
)% |
|
|
28.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Dayforce, excluding float |
|
$ |
237.4 |
|
|
$ |
191.4 |
|
|
|
24.0 |
% |
|
|
(2.1 |
)% |
|
|
26.1 |
% |
Powerpay, excluding float |
|
|
19.4 |
|
|
|
18.9 |
|
|
|
2.6 |
% |
|
|
(3.7 |
)% |
|
|
6.3 |
% |
Cloud revenue, excluding float |
|
|
256.8 |
|
|
|
210.3 |
|
|
|
22.1 |
% |
|
|
(2.2 |
)% |
|
|
24.3 |
% |
Cloud float |
|
|
20.1 |
|
|
|
9.3 |
|
|
|
116.1 |
% |
|
|
(3.3 |
)% |
|
|
119.4 |
% |
Total Cloud revenue |
|
$ |
276.9 |
|
|
$ |
219.6 |
|
|
|
26.1 |
% |
|
|
(2.3 |
)% |
|
|
28.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cloud recurring, excluding float |
|
$ |
210.3 |
|
|
$ |
171.7 |
|
|
|
22.5 |
% |
|
|
(2.1 |
)% |
|
|
24.6 |
% |
Bureau recurring, excluding float |
|
|
32.2 |
|
|
|
33.4 |
|
|
|
(3.6 |
)% |
|
|
(4.5 |
)% |
|
|
0.9 |
% |
Total recurring, excluding float |
|
|
242.5 |
|
|
|
205.1 |
|
|
|
18.2 |
% |
|
|
(2.5 |
)% |
|
|
20.7 |
% |
Total revenue, excluding float |
|
$ |
294.3 |
|
|
$ |
247.3 |
|
|
|
19.0 |
% |
|
|
(2.6 |
)% |
|
|
21.6 |
% |
Total revenue increased $58.4 million, or 22.7%, to $315.6 million for the three months ended September 30, 2022, compared to $257.2 million for the three months ended September 30, 2021. 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 11.9% to 5,848 at September 30, 2022 from 5,227 at September 30, 2021.1 Additionally, for the trailing twelve months ended September 30, 2022, Dayforce recurring revenue per customer grew to $118,348 compared to $107,576 for the comparable period in 2021.2
1 Excluding the 2021 acquisitions of Ascender and ADAM HCM
2 Excluding float revenue, the impact of lower employment levels in 2021 and 2020 due to the COVID-19 pandemic, Ascender and ADAM HCM revenue and on a constant currency basis
30 | Q3 2022 Form 10-Q
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. The increase in float revenue is driven by the 12.8% increase in average float balance for our customer funds for the three months ended September 30, 2022, which increased to $3,871.4 million, compared to $3,432.6 million for the three months ended September 30, 2021, in addition to an increase in average yield of 103 basis points compared to the three months ended September 30, 2021.
Cost of revenue. Total cost of revenue for the three months ended September 30, 2022, was $196.6 million, an increase of $32.5 million, or 19.8%, compared to the three months ended September 30, 2021. Recurring cost of revenue for the three months ended September 30, 2022, increased $11.1 million, or 16.8%, compared with the three months ended September 30, 2021, primarily due to the increase in recurring revenue and the integration of our APJ acquisitions. Further, the increase in recurring cost of revenue is primarily due to additional labor-related and hosting costs incurred to support the growing Dayforce customer base globally. Professional services and other cost of revenue increased $12.1 million, or 24.7%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily due to costs incurred to take new customers live as well as expansion of our capabilities to serve international customers.
Product development and management expense increased $8.2 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase primarily reflects additional personnel costs and share-based compensation expense. For the three months ended September 30, 2022, and 2021, our investment in software development was $42.0 million and $35.1 million, respectively, consisting of $24.3 million and $22.2 million, of research and development expense, and $17.7 million and $12.9 million in capitalized software development costs, respectively.
Depreciation and amortization expense associated with cost of revenue increased by $1.1 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, 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, |
|
|||||
|
|
|
|
2021 |
|
|||
Total gross margin |
|
|
37.7 |
% |
|
|
36.2 |
% |
Gross margin by solution: |
|
|
|
|
|
|
||
Cloud recurring |
|
|
72.1 |
% |
|
|
72.7 |
% |
Bureau recurring |
|
|
61.7 |
% |
|
|
51.2 |
% |
Professional services and other |
|
|
(17.8 |
)% |
|
|
(15.9 |
)% |
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, 2022 increased 150 basis points compared to total gross margin for the three months ended September 30, 2021 and gross profit increased by $25.9 million, or 27.8% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to the $58.4 million or 22.7% increase in revenue which outpaced the increase in cost of revenue.
31 | Q3 2022 Form 10-Q
Cloud recurring gross margin was 72.1% for the three months ended September 30, 2022, compared to 72.7% for the three months ended September 30, 2021. Excluding the impact of share-based compensation and related employer taxes, and severance expense, cloud recurring gross margin increased by 50 basis points to 74.8%. The increase in cloud recurring gross margin and adjusted cloud recurring gross margin was primarily due to the increase in float revenue. Bureau recurring gross margin increased from 51.2% for the three months ended September 30, 2021, to 61.7% for the three months ended September 30, 2022. Professional services and other gross margin was (17.8)% for the three months ended September 30, 2022, compared to (15.9)% for the three months ended September 30, 2021, reflecting additional costs to take new customers live, expansion of our capabilities to serve international customers, and increased share-based compensation expense.
Selling, general, and administrative expense. Selling, general, and administrative expense increased $13.6 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. This increase reflects an increase of $7.1 million in general and administrative expense and $6.5 million in sales and marketing expense, both of which are primarily driven by employee-related costs. The increase in general and administrative expense is also driven by the remeasurement of the DataFuzion contingent consideration. The increase in sales and marketing expense primarily represents investment in our sales force in order to support our growth initiatives.
Interest expense, net. Interest expense, net was $7.4 million and $10.0 million for the three months ended September 30, 2022, and 2021, respectively. The decrease was primarily due to the adoption of ASU 2020-06 in 2022 which eliminated the non-cash interest expense related to the amortization of the debt discount on our Convertible Senior Notes, partially offset by an increase in interest expense on our Term Debt due to the increase in LIBOR rates.
Other expense, net. For the three months ended September 30, 2022, and 2021, we incurred other expense, net of $5.9 million and $3.4 million, respectively. Other expense, net was comprised of foreign currency translation loss and net periodic pension expense for the three months ended September 30, 2022 and 2021.
Income tax expense (benefit). For the three months ended September 30, 2022, and 2021, we recorded income tax expense of $4.0 million and income tax benefit of $8.5 million, respectively. The $12.5 million increase in income tax expense was primarily due to a $6.9 million increase attributable to share-based compensation and a $2.2 million increase attributable to the U.S. GILTI.
Net loss. We realized net loss of $21.0 million for the three months ended September 30, 2022, compared to $20.9 million for the three months ended September 30, 2021. Net loss remained relatively consistent, with an increase in revenue, including float revenue, as well as the reduction in interest expense and other expense, offset by higher investments in product development and selling capabilities, share-based compensation, and further integration of the APJ acquisitions. For the three months ended September 30, 2022 and 2021, net profit margin was (6.7)% and (8.1)%, respectively.
Adjusted EBITDA. Adjusted EBITDA increased by $24.1 million to $63.5 million, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, and Adjusted EBITDA margin was 20.1% for the three months ended September 30, 2022, compared to 15.3% for the three months ended September 30, 2021. Please refer to the “Non-GAAP Measures” section for a discussion and reconciliation of Adjusted EBITDA and Adjusted EBITDA margin and additional information on the excluded items.
32 | Q3 2022 Form 10-Q
Nine Months Ended September 30, 2022 Compared With Nine Months Ended September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
Nine Months Ended September 30, |
|
|
Increase/(Decrease) |
|
|
% of Revenue |
|
|||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
Amount |
|
|
% |
|
|
2022 |
|
|
2021 |
|
||||||
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cloud |
|
$ |
657.2 |
|
|
$ |
517.7 |
|
|
$ |
139.5 |
|
|
|
26.9 |
% |
|
|
72.2 |
% |
|
|
69.8 |
% |
Bureau |
|
|
105.6 |
|
|
|
101.4 |
|
|
|
4.2 |
|
|
|
4.1 |
% |
|
|
11.6 |
% |
|
|
13.7 |
% |
Total recurring |
|
|
762.8 |
|
|
|
619.1 |
|
|
|
143.7 |
|
|
|
23.2 |
% |
|
|
83.8 |
% |
|
|
83.4 |
% |
Professional services and other |
|
|
147.3 |
|
|
|
123.0 |
|
|
|
24.3 |
|
|
|
19.8 |
% |
|
|
16.2 |
% |
|
|
16.6 |
% |
Total revenue |
|
|
910.1 |
|
|
|
742.1 |
|
|
|
168.0 |
|
|
|
22.6 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cloud |
|
|
189.1 |
|
|
|
143.4 |
|
|
|
45.7 |
|
|
|
31.9 |
% |
|
|
20.8 |
% |
|
|
19.3 |
% |
Bureau |
|
|
45.3 |
|
|
|
47.7 |
|
|
|
(2.4 |
) |
|
|
(5.0 |
)% |
|
|
5.0 |
% |
|
|
6.4 |
% |
Total recurring |
|
|
234.4 |
|
|
|
191.1 |
|
|
|
43.3 |
|
|
|
22.7 |
% |
|
|
25.8 |
% |
|
|
25.8 |
% |
Professional services and other |
|
|
172.6 |
|
|
|
140.9 |
|
|
|
31.7 |
|
|
|
22.5 |
% |
|
|
19.0 |
% |
|
|
19.0 |
% |
Product development and management |
|
|
125.0 |
|
|
|
94.2 |
|
|
|
30.8 |
|
|
|
32.7 |
% |
|
|
13.7 |
% |
|
|
12.7 |
% |
Depreciation and amortization |
|
|
40.0 |
|
|
|
37.5 |
|
|
|
2.5 |
|
|
|
6.7 |
% |
|
|
4.4 |
% |
|
|
5.1 |
% |
Total cost of revenue |
|
|
572.0 |
|
|
|
463.7 |
|
|
|
108.3 |
|
|
|
23.4 |
% |
|
|
62.9 |
% |
|
|
62.5 |
% |
Gross profit |
|
|
338.1 |
|
|
|
278.4 |
|
|
|
59.7 |
|
|
|
21.4 |
% |
|
|
37.1 |
% |
|
|
37.5 |
% |
Selling, general, and administrative |
|
|
367.2 |
|
|
|
316.5 |
|
|
|
50.7 |
|
|
|
16.0 |
% |
|
|
40.3 |
% |
|
|
42.6 |
% |
Operating loss |
|
|
(29.1 |
) |
|
|
(38.1 |
) |
|
|
9.0 |
|
|
|
23.6 |
% |
|
|
(3.2 |
)% |
|
|
(5.1 |
)% |
Interest expense, net |
|
|
19.9 |
|
|
|
25.5 |
|
|
|
(5.6 |
) |
|
|
(22.0 |
)% |
|
|
2.2 |
% |
|
|
3.4 |
% |
Other expense, net |
|
|
11.4 |
|
|
|
16.2 |
|
|
|
(4.8 |
) |
|
|
(29.6 |
)% |
|
|
1.3 |
% |
|
|
2.2 |
% |
Loss before income taxes |
|
|
(60.4 |
) |
|
|
(79.8 |
) |
|
|
19.4 |
|
|
|
24.3 |
% |
|
|
(6.6 |
)% |
|
|
(10.8 |
)% |
Income tax expense (benefit) |
|
|
7.8 |
|
|
|
(13.9 |
) |
|
|
21.7 |
|
|
|
(156.1 |
)% |
|
|
0.9 |
% |
|
|
(1.9 |
)% |
Net loss |
|
$ |
(68.2 |
) |
|
$ |
(65.9 |
) |
|
$ |
(2.3 |
) |
|
|
(3.5 |
)% |
|
|
(7.5 |
)% |
|
|
(8.9 |
)% |
Net profit margin (a) |
|
|
(7.5 |
)% |
|
|
(8.9 |
)% |
|
|
1.4 |
% |
|
|
15.6 |
% |
|
|
|
|
|
|
||
Adjusted EBITDA (b) |
|
$ |
182.7 |
|
|
$ |
123.8 |
|
|
$ |
58.9 |
|
|
|
47.6 |
% |
|
|
20.1 |
% |
|
|
16.7 |
% |
Adjusted EBITDA margin (b) |
|
|
20.1 |
% |
|
|
16.7 |
% |
|
|
3.4 |
% |
|
|
20.3 |
% |
|
|
|
|
|
|
||
33 | Q3 2022 Form 10-Q
Revenue. The following table sets forth certain information regarding our revenues for the periods presented:
|
|
Nine Months Ended September 30, |
|
|
Percentage |
|
|
Impact of |
|
|
Percentage |
|
||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
|
|
|
|
2022 vs. 2021 |
|
|||||
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Dayforce recurring, excluding float |
|
$ |
554.5 |
|
|
$ |
433.7 |
|
|
|
27.9 |
% |
|
|
(1.0 |
)% |
|
|
28.9 |
% |
Dayforce float |
|
|
36.2 |
|
|
|
22.5 |
|
|
|
60.9 |
% |
|
|
(1.8 |
)% |
|
|
62.7 |
% |
Total Dayforce recurring |
|
|
590.7 |
|
|
|
456.2 |
|
|
|
29.5 |
% |
|
|
(1.1 |
)% |
|
|
30.6 |
% |
Powerpay recurring, excluding float |
|
|
58.3 |
|
|
|
55.6 |
|
|
|
4.9 |
% |
|
|
(2.8 |
)% |
|
|
7.7 |
% |
Powerpay float |
|
|
8.2 |
|
|
|
5.9 |
|
|
|
39.0 |
% |
|
|
(3.4 |
)% |
|
|
42.4 |
% |
Total Powerpay recurring |
|
|
66.5 |
|
|
|
61.5 |
|
|
|
8.1 |
% |
|
|
(3.0 |
)% |
|
|
11.1 |
% |
Total Cloud recurring |
|
|
657.2 |
|
|
|
517.7 |
|
|
|
26.9 |
% |
|
|
(1.4 |
)% |
|
|
28.3 |
% |
Dayforce professional services and other |
|
|
134.2 |
|
|
|
113.2 |
|
|
|
18.6 |
% |
|
|
(2.1 |
)% |
|
|
20.7 |
% |
Powerpay professional services and other |
|
|
0.4 |
|
|
|
0.8 |
|
|
|
(50.0 |
)% |
|
|
(— |
)% |
|
|
(50.0 |
)% |
Total Cloud professional services and other |
|
|
134.6 |
|
|
|
114.0 |
|
|
|
18.1 |
% |
|
|
(2.1 |
)% |
|
|
20.2 |
% |
Total Cloud revenue |
|
|
791.8 |
|
|
|
631.7 |
|
|
|
25.3 |
% |
|
|
(1.5 |
)% |
|
|
26.8 |
% |
Bureau recurring, excluding float |
|
|
102.6 |
|
|
|
98.8 |
|
|
|
3.8 |
% |
|
|
(3.2 |
)% |
|
|
7.0 |
% |
Bureau float |
|
|
3.0 |
|
|
|
2.6 |
|
|
|
15.4 |
% |
|
|
(— |
)% |
|
|
15.4 |
% |
Total Bureau recurring |
|
|
105.6 |
|
|
|
101.4 |
|
|
|
4.1 |
% |
|
|
(3.1 |
)% |
|
|
7.2 |
% |
Bureau professional services and other |
|
|
12.7 |
|
|
|
9.0 |
|
|
|
41.1 |
% |
|
|
(5.6 |
)% |
|
|
46.7 |
% |
Total Bureau revenue |
|
|
118.3 |
|
|
|
110.4 |
|
|
|
7.2 |
% |
|
|
(3.2 |
)% |
|
|
10.4 |
% |
Total revenue |
|
$ |
910.1 |
|
|
$ |
742.1 |
|
|
|
22.6 |
% |
|
|
(1.8 |
)% |
|
|
24.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Dayforce |
|
$ |
724.9 |
|
|
$ |
569.4 |
|
|
|
27.3 |
% |
|
|
(1.3 |
)% |
|
|
28.6 |
% |
Powerpay |
|
|
66.9 |
|
|
|
62.3 |
|
|
|
7.4 |
% |
|
|
(2.9 |
)% |
|
|
10.3 |
% |
Total Cloud revenue |
|
$ |
791.8 |
|
|
$ |
631.7 |
|
|
|
25.3 |
% |
|
|
(1.5 |
)% |
|
|
26.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Dayforce, excluding float |
|
$ |
688.7 |
|
|
$ |
546.9 |
|
|
|
25.9 |
% |
|
|
(1.3 |
)% |
|
|
27.2 |
% |
Powerpay, excluding float |
|
|
58.7 |
|
|
|
56.4 |
|
|
|
4.1 |
% |
|
|
(2.8 |
)% |
|
|
6.9 |
% |
Cloud revenue, excluding float |
|
|
747.4 |
|
|
|
603.3 |
|
|
|
23.9 |
% |
|
|
(1.4 |
)% |
|
|
25.3 |
% |
Cloud float |
|
|
44.4 |
|
|
|
28.4 |
|
|
|
56.3 |
% |
|
|
(2.2 |
)% |
|
|
58.5 |
% |
Total Cloud revenue |
|
$ |
791.8 |
|
|
$ |
631.7 |
|
|
|
25.3 |
% |
|
|
(1.5 |
)% |
|
|
26.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cloud recurring, excluding float |
|
$ |
612.8 |
|
|
$ |
489.3 |
|
|
|
25.2 |
% |
|
|
(1.3 |
)% |
|
|
26.5 |
% |
Bureau recurring, excluding float |
|
|
102.6 |
|
|
|
98.8 |
|
|
|
3.8 |
% |
|
|
(3.2 |
)% |
|
|
7.0 |
% |
Total recurring, excluding float |
|
|
715.4 |
|
|
|
588.1 |
|
|
|
21.6 |
% |
|
|
(1.6 |
)% |
|
|
23.2 |
% |
Total revenue, excluding float |
|
$ |
862.7 |
|
|
$ |
711.1 |
|
|
|
21.3 |
% |
|
|
(1.7 |
)% |
|
|
23.0 |
% |
Total revenue increased $168.0 million, or 22.6%, to $910.1 million for the nine months ended September 30, 2022, compared to $742.1 million for the nine months ended September 30, 2021. This increase was primarily attributable to the increase in live Dayforce customers, the increase in Dayforce recurring revenue per customer, revenue in 2022 from businesses acquired during 2021, and the increase in float revenue. The number of live Dayforce customers increased 11.9% to 5,848 at September 30, 2022 from 5,227 at September 30, 2021.1 Additionally, for the trailing twelve months ended September 30, 2022, Dayforce recurring revenue per customer grew to $118,348 compared to $107,576 for the comparable period in 2021.2
1 Excluding the 2021 acquisitions of Ascender and ADAM HCM
2 Excluding float revenue, the impact of lower employment levels in 2021 and 2020 due to the COVID-19 pandemic, Ascender and ADAM HCM revenue and on a constant currency basis
34 | Q3 2022 Form 10-Q
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. The increase in float revenue is driven by the 14.5% increase in average float balance for our customer funds for the nine months ended September 30, 2022, which increased to $4,399.7 million, compared to $3,841.7 million for the nine months ended September 30, 2021, in addition to an increase in average yield of 35 basis points compared to the nine months ended September 30, 2021.
Cost of revenue. Total cost of revenue for the nine months ended September 30, 2022, was $572.0 million, an increase of $108.3 million, or 23.4%, compared to the nine months ended September 30, 2021. Recurring cost of revenue for the nine months ended September 30, 2022, increased $43.3 million, or 22.7%, compared with the nine months ended September 30, 2021, primarily due to the integration of our APJ acquisitions, specifically $18.6 million of severance and restructuring costs associated with re-balancing our resources across our global footprint. Further, the increase in recurring cost of revenue is due to additional costs related to global expansion and costs to support the growing Dayforce customer base. Professional services and other cost of revenue increased $31.7 million, or 22.5% for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily due to costs incurred to take new customers live as well as expansion of our capabilities to serve international customers.
Product development and management expense increased $30.8 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase reflects additional personnel costs, including share-based compensation and severance. For the nine months ended September 30, 2022, and 2021, our investment in software development was $118.2 million and $94.4 million, respectively, consisting of $67.7 million and $56.2 million, of research and development expense, and $50.5 million and $38.2 million in capitalized software development costs, respectively.
Depreciation and amortization expense associated with cost of revenue increased by $2.5 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, 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, |
|
|||||
|
|
|
|
2021 |
|
|||
|
|
|
|
|
|
|
||
Total gross margin |
|
|
37.1 |
% |
|
|
37.5 |
% |
Gross margin by solution: |
|
|
|
|
|
|
||
Cloud recurring |
|
|
71.2 |
% |
|
|
72.3 |
% |
Bureau recurring |
|
|
57.1 |
% |
|
|
53.0 |
% |
Professional services and other |
|
|
(17.2 |
)% |
|
|
(14.6 |
)% |
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, 2022 declined 40 basis points compared to total gross margin for the nine months ended September 30, 2021 due to increased severance related to the re-balancing of our resources across our global footprint and increased share-based compensation expense, as well as continued development and expansion of our service offerings. Gross profit increased by $59.7 million, or 21.4% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to the $168.0 million or 22.6% increase in revenue which outpaced the increase in cost of revenue.
35 | Q3 2022 Form 10-Q
Cloud recurring gross margin was 71.2% for the nine months ended September 30, 2022, compared to 72.3% for the nine months ended September 30, 2021. The decrease in cloud recurring gross margin is primarily due to the integration of our APJ acquisitions, specifically a re-balancing of our resources across our global footprint resulting in severance and restructuring costs. Excluding the impact of share-based compensation and related employer taxes, and severance expense, cloud recurring gross margin increased by 160 basis points to 75.5%, primarily due to the increase in float revenue. Bureau recurring gross margin increased from 53.0% for the nine months ended September 30, 2021, to 57.1% for the nine months ended September 30, 2022. Professional services and other gross margin was (17.2)% for the nine months ended September 30, 2022, compared to (14.6)% for the nine months ended September 30, 2021, reflecting additional costs to take new customers live, expansion of our capabilities to serve international customers, and increased share-based compensation.
Selling, general, and administrative expense. Selling, general, and administrative expense increased $50.7 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. Excluding the impact of share-based compensation and related employer taxes, restructuring consulting fees, severance expense, amortization of acquisition-related intangible assets, and certain other non-recurring items, selling, general, and administrative expenses increased by $35.8 million. This adjusted increase reflects an increase of $18.4 million in sales and marketing expense and $17.4 million in general and administrative expense, both of which are primarily driven by employee-related costs and represents investment in our sales force in order to support our growth initiatives. Please refer to the “Non-GAAP Measures” section for additional information on the excluded items.
Interest expense, net. Interest expense, net was $19.9 million and $25.5 million for the nine months ended September 30, 2022, and 2021, respectively. The decrease was primarily due to the adoption of ASU 2020-06 in 2022 which eliminated the non-cash interest expense related to the amortization of the debt discount on our Convertible Senior Notes, partially offset by an increase in interest expense on our Term Debt due to the increase in LIBOR rates.
Other expense, net. For the nine months ended September 30, 2022, and 2021, we incurred other expense, net of $11.4 million and $16.2 million, respectively, which was comprised of foreign currency translation loss and net periodic pension expense for both periods.
Income tax expense (benefit). For the nine months ended September 30, 2022, and 2021, we recorded income tax expense of $7.8 million and income tax benefit of $13.9 million, respectively. The $21.7 million increase in income tax expense was primarily due to a $10.4 million increase attributable to share-based compensation and a $8.5 million increase attributable to the U.S. GILTI.
Net loss. We realized net loss of $68.2 million for the nine months ended September 30, 2022, compared to $65.9 million for the nine months ended September 30, 2021. Net loss remained relatively consistent, with higher investments in product development and selling capabilities, share-based compensation, and further integration of the APJ acquisitions, specifically a re-balancing of our resources across our global footprint, partially offset by the increase in revenue, including float revenue, as well as the reduction in interest expense and other expense. For the nine months ended September 30, 2022, and 2021, net profit margin was (7.5)% and (8.9)%, respectively.
Adjusted EBITDA. Adjusted EBITDA increased by $58.9 million to $182.7 million, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, and Adjusted EBITDA margin was 20.1% for the nine months ended September 30, 2022, compared to 16.7% for the nine months ended September 30, 2021. Please refer to the “Non-GAAP 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, 2022, we had cash and equivalents of $408.4 million and our total debt balance was $1,236.6 million.
Our primary liquidity needs are related to funding of general business requirements, including the payment of interest and principal on our debt, capital expenditures, 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.
36 | Q3 2022 Form 10-Q
As of September 30, 2022, we held $0.8 million of restricted cash as collateral for bank guarantees. The bank guarantees provide financial assurance that we will fulfill certain lease obligations. The cash is restricted as to withdrawal or use while the related bank guarantee is outstanding.
On February 26, 2021, we elected to borrow $295.0 million under the Revolving Credit Facility to fund our acquisition of Ascender on March 1, 2021. We repaid the $295.0 million draw on March 5, 2021 with proceeds from the issuance of our Convertible Senior Notes.
In March 2021, we issued $575.0 million in aggregate principal amount of 0.25% Convertible Senior Notes due 2026. The total net proceeds from the offering, after deducting initial purchase discounts and issuance costs, were $561.8 million. In connection with the Convertible Senior Notes, we entered into capped call transactions which are expected to reduce the potential dilution of our common stock upon any conversion of the Convertible Senior Notes and/or offset any cash payments we could be required to make in excess of the principal amount of converted Convertible Senior Notes. We used an aggregate amount of $45.0 million of the net proceeds of the Convertible Senior Notes to purchase the Capped Calls. Please refer to Note 7, “Debt,” to our condensed consolidated financial statements for further information on our Convertible Senior Notes, and the related indenture. We used the remainder of the net proceeds from the offering (i) to repay $295.0 million principal amount under the Revolving Credit Facility and pay related accrued interest and (ii) for general corporate purposes.
On December 15, 2021, we completed the second amendment to the Senior Secured Credit Facility, in which the maturity date of the Revolving Credit Facility was extended from April 30, 2023 to January 29, 2025.
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 foreseeable future. Dayforce Wallet on demand pay requests are currently funded from our operating cash balances, until it is 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.
37 | Q3 2022 Form 10-Q
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, |
|
|||||
|
|
|
|
2021 |
|
|||
|
|
(Dollars in millions) |
|
|||||
Net cash provided by operating activities |
|
$ |
90.8 |
|
|
$ |
48.9 |
|
Net cash used in investing activities |
|
|
(295.0 |
) |
|
|
(510.5 |
) |
Net cash provided by financing activities |
|
|
1,026.7 |
|
|
|
2,214.4 |
|
Effect of exchange rate changes on cash, restricted cash, and equivalents |
|
|
(8.1 |
) |
|
|
(0.5 |
) |
Net increase in cash, restricted cash, and equivalents |
|
|
814.4 |
|
|
|
1,752.3 |
|
Cash, restricted cash, and equivalents at beginning of period |
|
|
1,952.8 |
|
|
|
2,228.5 |
|
Cash, restricted cash, and equivalents at end of period |
|
|
2,767.2 |
|
|
|
3,980.8 |
|
|
|
|
|
|
|
|
||
Cash and equivalents |
|
|
408.4 |
|
|
|
378.8 |
|
Restricted cash and equivalents |
|
|
2,358.8 |
|
|
|
3,602.0 |
|
Total cash, restricted cash, and equivalents |
|
$ |
2,767.2 |
|
|
$ |
3,980.8 |
|
Operating Activities
Net cash provided by operating activities was $90.8 million during the nine months ended September 30, 2022 compared to $48.9 million during the nine months ended September 30, 2021. For both periods, cash inflows from operating activities are primarily generated from the subscriptions of our solutions by our human capital management software, typically structured with an initial fixed term of between three and five years, with evergreen renewal thereafter. 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 and collections of such revenue, partially offset by our operating costs, mainly, investment in our sales force to support our growth initiatives and our product development and management costs which are not eligible for capitalization.
Investing Activities
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.
During the nine months ended September 30, 2021, net cash used in investing activities was $510.5 million, consisting of purchases of customer funds marketable securities of $500.5 million, acquisition costs, net of cash acquired of $392.4 million and capital expenditures of $45.7 million, partially offset by proceeds from the sale and maturity of customer funds marketable securities of $409.2 million. Our capital expenditures included $38.4 million for software and technology and $7.3 million for property and equipment.
Financing Activities
Net cash provided by financing activities was $1,026.7 million during the nine months ended September 30, 2022. This cash inflow is primarily attributable to an increase in net customer fund obligations of $1,010.4 million and proceeds from issuance of common stock upon exercise of stock options of $22.6 million, partially offset by payments on our long-term debt obligations of $6.3 million.
38 | Q3 2022 Form 10-Q
Net cash provided by financing activities was $2,214.4 million during the nine months ended September 30, 2021. This cash inflow is primarily attributable to an increase in net customer fund obligations of $1,631.0 million, proceeds from the issuance of our Convertible Senior Notes of $561.8 million and proceeds from issuance of common stock upon exercise of stock options of $70.9 million, partially offset by the purchase of the capped calls related to the Convertible Senior Notes of $45.0 million and payments on our long-term debt obligations of $4.3 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, 2022, our remaining performance obligations were approximately $1,076.3 million. Please refer to Note 10, “Revenue,” to our condensed consolidated financial statements for further discussion of our remaining performance obligations.
Off-Balance Sheet Arrangements
As of September 30, 2022, we did not have any “off-balance sheet arrangements” (as such term is defined in Item 303 of Regulation S-K).
Critical Accounting Policies and Estimates
During the nine months ended September 30, 2022, there were no significant changes to our critical accounting policies and estimates as described in Part II, “Item 7. Management's Discussion and Analysis" under the heading "Critical Accounting Policies and Estimates" contained in our 2021 Form 10-K.
Non-GAAP Measures
We use certain non-GAAP financial measures in this document including EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted operating profit, Adjusted net income, Adjusted diluted net income per share, revenue on a constant currency basis, Dayforce recurring revenue per customer, and Adjusted Cloud recurring gross margin. 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 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 and Adjusted EBITDA margin are components of our management incentive plan.
We define our non-GAAP financial measures as follows:
39 | Q3 2022 Form 10-Q
Our presentation of EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Cloud recurring gross margin, Adjusted operating profit, Adjusted net income, Adjusted diluted net income per share, revenue on a constant currency basis, and Dayforce recurring revenue per customer are intended as supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. These non-GAAP financial measures should not be considered as alternatives to net income (loss), earnings (loss) per share, revenue, or any other performance measures derived in accordance with GAAP, or as measures of operating cash flows or liquidity. 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.
EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Cloud recurring gross margin, Adjusted operating profit, Adjusted net income, Adjusted diluted net income per share, revenue on a constant currency basis, and Dayforce recurring revenue per customer are not defined under GAAP, are not measures of net income (loss) or any other performance measures derived in accordance with GAAP, and are subject to important limitations. Our use of these terms may not be comparable to similarly titled measures of other companies in our industry and are not measures of performance calculated in accordance with GAAP. These non-GAAP financial measures have important limitations as analytical tools, and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. In evaluating non-GAAP financial measures, users should be aware that in the future we may incur expenses similar to those eliminated in this presentation.
40 | Q3 2022 Form 10-Q
The following tables present a reconciliation of our reported results to the non-GAAP financial measures EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted operating profit, Adjusted net loss, and Adjusted Cloud recurring gross margin for the periods presented:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
|
(Dollars in millions) |
|
|||||||||||||
Net loss |
|
$ |
(21.0 |
) |
|
$ |
(20.9 |
) |
|
$ |
(68.2 |
) |
|
$ |
(65.9 |
) |
Interest expense, net |
|
|
7.4 |
|
|
|
10.0 |
|
|
|
19.9 |
|
|
|
25.5 |
|
Income tax expense (benefit) |
|
|
4.0 |
|
|
|
(8.5 |
) |
|
|
7.8 |
|
|
|
(13.9 |
) |
Depreciation and amortization |
|
|
21.9 |
|
|
|
21.0 |
|
|
|
64.4 |
|
|
|
59.3 |
|
EBITDA |
|
|
12.3 |
|
|
|
1.6 |
|
|
|
23.9 |
|
|
|
5.0 |
|
Foreign exchange loss |
|
|
4.5 |
|
|
|
1.5 |
|
|
|
7.3 |
|
|
|
8.5 |
|
Share-based compensation (a) |
|
|
39.4 |
|
|
|
31.0 |
|
|
|
113.8 |
|
|
|
85.9 |
|
Severance charges (b) |
|
|
4.3 |
|
|
|
2.1 |
|
|
|
28.6 |
|
|
|
5.8 |
|
Restructuring consulting fees (c) |
|
|
1.4 |
|
|
|
1.8 |
|
|
|
5.1 |
|
|
|
13.9 |
|
Other non-recurring items (d) |
|
|
1.6 |
|
|
|
1.4 |
|
|
|
4.0 |
|
|
|
4.7 |
|
Adjusted EBITDA |
|
$ |
63.5 |
|
|
$ |
39.4 |
|
|
$ |
182.7 |
|
|
$ |
123.8 |
|
Net profit margin (e) |
|
|
(6.7 |
)% |
|
|
(8.1 |
)% |
|
|
(7.5 |
)% |
|
|
(8.9 |
)% |
Adjusted EBITDA margin |
|
|
20.1 |
% |
|
|
15.3 |
% |
|
|
20.1 |
% |
|
|
16.7 |
% |
41 | Q3 2022 Form 10-Q
|
|
Three Months Ended September 30, 2022 |
|
|||||||||||||||||
|
|
As reported |
|
|
Share-based |
|
|
Severance |
|
|
Other (a) |
|
|
Adjusted (b) |
|
|||||
|
|
(Dollars in millions) |
|
|||||||||||||||||
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cloud |
|
$ |
64.3 |
|
|
$ |
3.9 |
|
|
$ |
2.3 |
|
|
$ |
— |
|
|
$ |
58.1 |
|
Bureau |
|
|
12.8 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
— |
|
|
|
12.2 |
|
Total recurring |
|
|
77.1 |
|
|
|
4.2 |
|
|
|
2.6 |
|
|
|
— |
|
|
|
70.3 |
|
Professional services and other |
|
|
61.0 |
|
|
|
3.8 |
|
|
|
— |
|
|
|
— |
|
|
|
57.2 |
|
Product development and management |
|
|
44.8 |
|
|
|
6.7 |
|
|
|
0.3 |
|
|
|
— |
|
|
|
37.8 |
|
Depreciation and amortization |
|
|
13.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13.7 |
|
Total cost of revenue |
|
|
196.6 |
|
|
|
14.7 |
|
|
|
2.9 |
|
|
|
— |
|
|
|
179.0 |
|
Sales and marketing |
|
|
62.6 |
|
|
|
7.4 |
|
|
|
0.8 |
|
|
|
— |
|
|
|
54.4 |
|
General and administrative |
|
|
60.1 |
|
|
|
17.3 |
|
|
|
0.6 |
|
|
|
10.1 |
|
|
|
32.1 |
|
Operating (loss) profit |
|
|
(3.7 |
) |
|
|
39.4 |
|
|
|
4.3 |
|
|
|
10.1 |
|
|
|
50.1 |
|
Other expense, net |
|
|
5.9 |
|
|
|
— |
|
|
|
— |
|
|
|
4.9 |
|
|
|
1.0 |
|
Depreciation and amortization |
|
|
21.9 |
|
|
|
— |
|
|
|
— |
|
|
|
(7.5 |
) |
|
|
14.4 |
|
EBITDA |
|
|
12.3 |
|
|
|
39.4 |
|
|
|
4.3 |
|
|
|
7.5 |
|
|
|
63.5 |
|
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 |
) |
|
$ |
39.4 |
|
|
$ |
4.3 |
|
|
$ |
8.4 |
|
|
$ |
31.1 |
|
Net (loss) income per share - basic (d) |
|
$ |
(0.14 |
) |
|
$ |
0.26 |
|
|
$ |
0.03 |
|
|
$ |
0.05 |
|
|
$ |
0.20 |
|
Net (loss) income per share - diluted (d) |
|
$ |
(0.14 |
) |
|
$ |
0.25 |
|
|
$ |
0.03 |
|
|
$ |
0.05 |
|
|
$ |
0.20 |
|
42 | Q3 2022 Form 10-Q
|
|
Three Months Ended September 30, 2021 |
|
|||||||||||||||||
|
|
As reported |
|
|
Share-based |
|
|
Severance |
|
|
Other (a) |
|
|
Adjusted (b) |
|
|||||
|
|
(Dollars in millions) |
|
|||||||||||||||||
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cloud |
|
$ |
49.4 |
|
|
$ |
3.0 |
|
|
$ |
(0.1 |
) |
|
$ |
— |
|
|
$ |
46.5 |
|
Bureau |
|
|
16.6 |
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
— |
|
|
|
15.7 |
|
Total recurring |
|
|
66.0 |
|
|
|
3.5 |
|
|
|
0.3 |
|
|
|
— |
|
|
|
62.2 |
|
Professional services and other |
|
|
48.9 |
|
|
|
2.5 |
|
|
|
— |
|
|
|
— |
|
|
|
46.4 |
|
Product development and management |
|
|
36.6 |
|
|
|
5.3 |
|
|
|
0.3 |
|
|
|
— |
|
|
|
31.0 |
|
Depreciation and amortization |
|
|
12.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12.6 |
|
Total cost of revenue |
|
|
164.1 |
|
|
|
11.3 |
|
|
|
0.6 |
|
|
|
— |
|
|
|
152.2 |
|
Sales and marketing |
|
|
56.1 |
|
|
|
3.6 |
|
|
|
0.6 |
|
|
|
— |
|
|
|
51.9 |
|
General and administrative |
|
|
53.0 |
|
|
|
16.1 |
|
|
|
0.9 |
|
|
|
9.1 |
|
|
|
26.9 |
|
Operating (loss) profit |
|
|
(16.0 |
) |
|
|
31.0 |
|
|
|
2.1 |
|
|
|
9.1 |
|
|
|
26.2 |
|
Other expense, net |
|
|
3.4 |
|
|
|
— |
|
|
|
— |
|
|
|
2.9 |
|
|
|
0.5 |
|
Depreciation and amortization |
|
|
21.0 |
|
|
|
— |
|
|
|
— |
|
|
|
(7.3 |
) |
|
|
13.7 |
|
EBITDA |
|
|
1.6 |
|
|
|
31.0 |
|
|
|
2.1 |
|
|
|
4.7 |
|
|
|
39.4 |
|
Interest expense, net |
|
|
10.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10.0 |
|
Income tax benefit (c) |
|
|
(8.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
(8.4 |
) |
|
|
(0.1 |
) |
Depreciation and amortization |
|
|
21.0 |
|
|
|
— |
|
|
|
— |
|
|
|
7.3 |
|
|
|
13.7 |
|
Net (loss) income |
|
$ |
(20.9 |
) |
|
$ |
31.0 |
|
|
$ |
2.1 |
|
|
$ |
3.6 |
|
|
$ |
15.8 |
|
Net (loss) income per share - basic (d) |
|
$ |
(0.14 |
) |
|
$ |
0.21 |
|
|
$ |
0.01 |
|
|
$ |
0.02 |
|
|
$ |
0.11 |
|
Net (loss) income per share - diluted (d) |
|
$ |
(0.14 |
) |
|
$ |
0.20 |
|
|
$ |
0.01 |
|
|
$ |
0.02 |
|
|
$ |
0.10 |
|
43 | Q3 2022 Form 10-Q
|
|
Nine Months Ended September 30, 2022 |
|
|||||||||||||||||
|
|
As reported |
|
|
Share-based |
|
|
Severance |
|
|
Other (a) |
|
|
Adjusted (b) |
|
|||||
|
|
(Dollars in millions) |
|
|||||||||||||||||
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cloud |
|
$ |
189.1 |
|
|
$ |
11.4 |
|
|
$ |
16.9 |
|
|
$ |
— |
|
|
$ |
160.8 |
|
Bureau |
|
|
45.3 |
|
|
|
1.0 |
|
|
|
2.4 |
|
|
|
— |
|
|
|
41.9 |
|
Total recurring |
|
|
234.4 |
|
|
|
12.4 |
|
|
|
19.3 |
|
|
|
— |
|
|
|
202.7 |
|
Professional services and other |
|
|
172.6 |
|
|
|
10.5 |
|
|
|
0.5 |
|
|
|
— |
|
|
|
161.6 |
|
Product development and management |
|
|
125.0 |
|
|
|
18.9 |
|
|
|
4.0 |
|
|
|
— |
|
|
|
102.1 |
|
Depreciation and amortization |
|
|
40.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
40.0 |
|
Total cost of revenue |
|
|
572.0 |
|
|
|
41.8 |
|
|
|
23.8 |
|
|
|
— |
|
|
|
506.4 |
|
Sales and marketing |
|
|
183.4 |
|
|
|
18.9 |
|
|
|
3.3 |
|
|
|
— |
|
|
|
161.2 |
|
General and administrative |
|
|
183.8 |
|
|
|
53.1 |
|
|
|
1.5 |
|
|
|
31.2 |
|
|
|
98.0 |
|
Operating (loss) profit |
|
|
(29.1 |
) |
|
|
113.8 |
|
|
|
28.6 |
|
|
|
31.2 |
|
|
|
144.5 |
|
Other expense, net |
|
|
11.4 |
|
|
|
— |
|
|
|
— |
|
|
|
8.1 |
|
|
|
3.3 |
|
Depreciation and amortization |
|
|
64.4 |
|
|
|
— |
|
|
|
— |
|
|
|
(22.9 |
) |
|
|
41.5 |
|
EBITDA |
|
|
23.9 |
|
|
|
113.8 |
|
|
|
28.6 |
|
|
|
16.4 |
|
|
|
182.7 |
|
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 |
) |
|
$ |
113.8 |
|
|
$ |
28.6 |
|
|
$ |
10.4 |
|
|
$ |
84.6 |
|
Net (loss) income per share - basic (d) |
|
$ |
(0.45 |
) |
|
$ |
0.75 |
|
|
$ |
0.19 |
|
|
$ |
0.07 |
|
|
$ |
0.55 |
|
Net (loss) income per share - diluted (d) |
|
$ |
(0.45 |
) |
|
$ |
0.73 |
|
|
$ |
0.18 |
|
|
$ |
0.07 |
|
|
$ |
0.54 |
|
44 | Q3 2022 Form 10-Q
|
|
Nine Months Ended September 30, 2021 |
|
|||||||||||||||||
|
|
As reported |
|
|
Share-based |
|
|
Severance |
|
|
Other (a) |
|
|
Adjusted (b) |
|
|||||
|
|
(Dollars in millions) |
|
|||||||||||||||||
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cloud |
|
$ |
143.4 |
|
|
$ |
8.2 |
|
|
$ |
0.1 |
|
|
$ |
— |
|
|
$ |
135.1 |
|
Bureau |
|
|
47.7 |
|
|
|
1.5 |
|
|
|
1.5 |
|
|
|
— |
|
|
|
44.7 |
|
Total recurring |
|
|
191.1 |
|
|
|
9.7 |
|
|
|
1.6 |
|
|
|
— |
|
|
|
179.8 |
|
Professional services and other |
|
|
140.9 |
|
|
|
7.1 |
|
|
|
0.1 |
|
|
|
— |
|
|
|
133.7 |
|
Product development and management |
|
|
94.2 |
|
|
|
13.2 |
|
|
|
0.5 |
|
|
|
— |
|
|
|
80.5 |
|
Depreciation and amortization |
|
|
37.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
37.5 |
|
Total cost of revenue |
|
|
463.7 |
|
|
|
30.0 |
|
|
|
2.2 |
|
|
|
— |
|
|
|
431.5 |
|
Sales and marketing |
|
|
154.5 |
|
|
|
10.1 |
|
|
|
1.6 |
|
|
|
— |
|
|
|
142.8 |
|
General and administrative |
|
|
162.0 |
|
|
|
45.8 |
|
|
|
2.0 |
|
|
|
33.6 |
|
|
|
80.6 |
|
Operating (loss) profit |
|
|
(38.1 |
) |
|
|
85.9 |
|
|
|
5.8 |
|
|
|
33.6 |
|
|
|
87.2 |
|
Other expense, net |
|
|
16.2 |
|
|
|
— |
|
|
|
— |
|
|
|
12.8 |
|
|
|
3.4 |
|
Depreciation and amortization |
|
|
59.3 |
|
|
|
— |
|
|
|
— |
|
|
|
(19.3 |
) |
|
|
40.0 |
|
EBITDA |
|
|
5.0 |
|
|
|
85.9 |
|
|
|
5.8 |
|
|
|
27.1 |
|
|
|
123.8 |
|
Interest expense, net |
|
|
25.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25.5 |
|
Income tax (benefit) expense (c) |
|
|
(13.9 |
) |
|
|
— |
|
|
|
— |
|
|
|
(21.8 |
) |
|
|
7.9 |
|
Depreciation and amortization |
|
|
59.3 |
|
|
|
— |
|
|
|
— |
|
|
|
19.3 |
|
|
|
40.0 |
|
Net (loss) income |
|
$ |
(65.9 |
) |
|
$ |
85.9 |
|
|
$ |
5.8 |
|
|
$ |
24.6 |
|
|
$ |
50.4 |
|
Net (loss) income per share - basic (d) |
|
$ |
(0.44 |
) |
|
$ |
0.58 |
|
|
$ |
0.04 |
|
|
$ |
0.17 |
|
|
$ |
0.34 |
|
Net (loss) income per share - diluted (d) |
|
$ |
(0.44 |
) |
|
$ |
0.58 |
|
|
$ |
0.04 |
|
|
$ |
0.16 |
|
|
$ |
0.32 |
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
|
(Dollars in millions) |
|
|||||||||||||
Cloud recurring revenue |
|
$ |
230.4 |
|
|
$ |
181.0 |
|
|
$ |
657.2 |
|
|
$ |
517.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue - Cloud recurring - as reported |
|
$ |
64.3 |
|
|
$ |
49.4 |
|
|
$ |
189.1 |
|
|
$ |
143.4 |
|
Share-based compensation |
|
|
3.9 |
|
|
|
3.0 |
|
|
|
11.4 |
|
|
|
8.2 |
|
Severance charges |
|
|
2.3 |
|
|
|
(0.1 |
) |
|
|
16.9 |
|
|
|
0.1 |
|
Cost of revenue - Cloud recurring - as adjusted (a) |
|
$ |
58.1 |
|
|
$ |
46.5 |
|
|
$ |
160.8 |
|
|
$ |
135.1 |
|
Gross margin - Cloud recurring - as reported |
|
|
72.1 |
% |
|
|
72.7 |
% |
|
|
71.2 |
% |
|
|
72.3 |
% |
Gross margin - Cloud recurring - as adjusted (a) |
|
|
74.8 |
% |
|
|
74.3 |
% |
|
|
75.5 |
% |
|
|
73.9 |
% |
45 | Q3 2022 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 the 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 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 increase in market investment rates would result in approximately $24 million increase 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 increase in the LIBOR rates would result in approximately $7 million increase 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.
46 | Q3 2022 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 the company 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 2021 ranged from 2.00% to 2.36%. The expected rate of return on plan assets for qualified pension benefits in 2022 is 3.30%.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures, as defined in Rule 13(a)-15(e) of the Exchange Act, are controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner and (2) accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management has evaluated, under the supervision and with the participation of our Co-Chief Executive Officers and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q pursuant to Rule 13a-15(b) of the Exchange Act. Based on that evaluation, our Co-Chief Executive Officers and Chief Financial Officer have concluded that our disclosure controls and procedures as of the end of the period covered by this Form 10-Q are effective. While our disclosure controls and procedures are designed to provide reasonable assurance of their effectiveness, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected.
Changes in Internal Control over Financial Reporting
There were no changes to our internal controls over financial reporting during the three months ended September 30, 2022 that have materially affected, or that are reasonably likely to materially affect, our internal controls over financial reporting.
47 | Q3 2022 Form 10-Q
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. 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.
On October 21, 2021, a claim was issued by purported stockholder, Bluemoon Capital Ltd., in the Superior Court of Justice of Ontario, Canada. The claim is against the Company, together with David Ossip, Chair and Co-Chief Executive Officer of the Company, Arthur Gitajn, former EVP and Chief Financial Officer of the Company, Gnaneshwar Rao, director of the Company and Brent Bickett, director of the Company, as well as certain third parties. The action, which is a proposed class action, alleges misrepresentations and negligence in connection with the disclosure made by the Company in its April 25, 2018 Prospectuses (which were later incorporated by reference into the Company’s May 24, 2018 Interim Financial Statements and MD&A) regarding matters surrounding the Company’s distribution to its pre-IPO stockholders of its 50% interest in LifeWorks Corporation Ltd. On January 19, 2022, the Ontario court rejected the Norwich Application for discovery by plaintiff (equitable or discretionary remedy in Canada for disclosure of documentation to form an action), which had been filed prior to filing the class action on the basis that it did not meet the key criteria for pre-action discovery. Plaintiff has appealed this decision.
The action seeks unspecified monetary damages under the Ontario Securities Act and at common law.
At this early stage of the proceeding, the ultimate disposition is not yet determinable, but we believe that the likelihood of a material loss arising out of this claim is remote.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Quarterly Report on Form 10-Q, such as Item 2 on Part I - under the heading "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 Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
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
None.
48 | Q3 2022 Form 10-Q
ITEM 6. EXHIBITS
(a) Exhibits
The following exhibits are filed or furnished as a part of this report:
Exhibit No. |
|
Description |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
4.1 |
|
|
|
|
|
4.2 |
|
|
|
|
|
4.3 |
|
|
|
|
|
4.4 |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
31.3* |
|
|
|
|
|
32.1* |
|
|
|
|
|
32.2* |
|
|
|
|
|
32.3* |
|
|
|
|
|
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). |
|
|
|
49 | Q3 2022 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 2, 2022 |
By: |
/s/ David D. Ossip |
|
|
|
Name: |
|
|
|
Title: |
Co-Chief Executive Officer |
|
|
|
(Co-Principal Executive Officer) |
|
|
|
|
Date: November 2, 2022 |
By: |
/s/ Leagh E. Turner |
|
|
|
Name: Leagh E. Turner |
|
|
|
Title: Co-Chief Executive Officer |
|
|
|
(Co-Principal Executive Officer) |
|
|
|
|
|
Date: November 2, 2022 |
By: |
||
|
|
Name: |
|
|
|
Title: |
Executive Vice President and Chief Financial Officer |
|
|
|
(Principal Financial Officer) |
|
|
|
|
50 | Q3 2022 Form 10-Q
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 3/15/26 | ||||
| 4/30/25 | ||||
| 1/29/25 | ||||
| 3/8/24 | ||||
| 4/30/23 | ||||
| 3/8/23 | ||||
| 12/31/22 | ||||
| Filed on: | 11/2/22 | 8-K | ||
| 10/27/22 | ||||
| For Period end: | 9/30/22 | 4 | ||
| 6/30/22 | 10-Q | |||
| 4/1/22 | ||||
| 3/31/22 | 10-Q | |||
| 3/8/22 | 4 | |||
| 2/28/22 | 10-K | |||
| 2/24/22 | 3, 4, 8-K | |||
| 2/23/22 | 3, 8-K | |||
| 1/31/22 | ||||
| 1/19/22 | ||||
| 1/1/22 | ||||
| 12/31/21 | 10-K | |||
| 12/30/21 | 8-K, CORRESP | |||
| 12/15/21 | 4, 8-K | |||
| 12/3/21 | ||||
| 10/21/21 | ||||
| 10/4/21 | ||||
| 9/30/21 | 10-Q | |||
| 9/15/21 | 4 | |||
| 6/30/21 | 10-Q | |||
| 4/30/21 | 8-K | |||
| 3/31/21 | 10-Q | |||
| 3/5/21 | 8-K | |||
| 3/1/21 | 3, 4, 8-K | |||
| 2/26/21 | 10-K, 8-K | |||
| 1/1/21 | ||||
| 12/31/20 | 10-K, 4 | |||
| 5/24/18 | 10-Q | |||
| 4/30/18 | 8-K | |||
| 4/25/18 | 3, CERT, EFFECT, S-1/A, S-8 | |||
| 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 2/28/22 Ceridian HCM Holding Inc. 10-K 12/31/21 138:25M Donnelley … Solutions/FA 2/09/22 Ceridian HCM Holding Inc. 8-K:5,9 2/08/22 13:659K 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 |