UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
FORM 10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly reporting period ended March 31, 20182024
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period fromto
Commission file number001-38467
Ceridian HCM Holding Inc.
Dayforce, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 46-3231686 | |
(State or Other Jurisdiction of
| (I.R.S. Employer Identification Number) |
3311 East Old Shakopee Road
Minneapolis, Minnesota55425
(952)(952) 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 | ||
Common stock, $0.01 par value | DAY | 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. Yes ☐☒ No ☒☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐☒ No ☒☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule12b-2 of the Exchange Act in Rule12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ | |||||
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 7(a)(2)(B)13(a) of the SecuritiesExchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule12b-2 of the Exchange Act). Yes ☐ No☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 136,703,308157.9 million shares of Common Stock,common stock, $0.01 par value per share, as of May 23, 2018.April 24, 2024.
Dayforce, Inc.
Table of Contents
Page | ||||||
3 | ||||||
4 | ||||||
Item 1. | 4 | |||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 | ||||
Item 3. | 35 | |||||
Item 4. | 36 | |||||
38 | ||||||
| ||||||
Item | 38 | |||||
Item 1A. | 38 | |||||
Item 2. | 38 | |||||
Item 3. | 38 | |||||
Item 4. | 38 | |||||
| ||||||
Item 5. | 38 | |||||
Item 6. | 39 | |||||
2 | 
Q1 2024 Form 10-Q
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form10-Q (“ ("Form10-Q” 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 (“HCM”) solutions industry and our operations, performance, and financial condition, and including, in particular, statements relating to our business, growth strategies, product development efforts, and future expenses. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “assumes,” “projects,” “could,” “continues,” “likely,” “may,” “will,” “should,” and similar references to future periods, or by the inclusion of forecasts or projections. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance, such as those contained in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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. As a result,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 and the following:conditions. In particular:
See Part II.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, 2023 (“2023 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 Form10-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 Form10-Q. For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this Form10-Q.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 | Q1 2024 Form 10-Q
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Ceridian HCM HoldingDayforce, Inc.
Condensed Consolidated Balance Sheets
(Dollars in millions, except share data)(Unaudited)
| March 31, 2018 | December 31, 2017 |
| March 31, |
|
| December 31, |
| |||||||||
| (unaudited) |
| 2024 |
|
| 2023 |
| ||||||||||
ASSETS | ||||||||||||||||
(In millions, except per share data) |
|
|
|
|
|
| ||||||||||
Assets |
|
|
|
|
|
| ||||||||||
Current assets: |
|
|
|
|
|
| ||||||||||
Cash and equivalents | $ | 62.2 | $ | 99.6 |
| $ | 392.5 |
|
| $ | 570.3 |
| ||||
Restricted cash |
|
| 0.8 |
|
|
| 0.8 |
| ||||||||
Trade and other receivables, net | 81.1 | 79.9 |
|
| 276.0 |
|
|
| 228.8 |
| ||||||
Prepaid expenses | 49.2 | 37.9 | ||||||||||||||
Other current assets | 1.8 | 5.3 | ||||||||||||||
|
| |||||||||||||||
Total current assets before customer trust funds | 194.3 | 222.7 | ||||||||||||||
Customer trust funds | 4,293.9 | 4,099.7 | ||||||||||||||
|
| |||||||||||||||
Prepaid expenses and other current assets |
|
| 139.5 |
|
|
| 126.7 |
| ||||||||
Total current assets before customer funds |
|
| 808.8 |
|
|
| 926.6 |
| ||||||||
Customer funds |
|
| 6,746.6 |
|
|
| 5,028.6 |
| ||||||||
Total current assets | 4,488.2 | 4,322.4 |
|
| 7,555.4 |
|
|
| 5,955.2 |
| ||||||
Right of use lease assets, net |
|
| 16.0 |
|
|
| 19.1 |
| ||||||||
Property, plant, and equipment, net | 103.4 | 103.8 |
|
| 215.3 |
|
|
| 210.1 |
| ||||||
Goodwill | 2,075.8 | 2,087.3 |
|
| 2,386.0 |
|
|
| 2,293.9 |
| ||||||
Other intangible assets, net | 206.6 | 212.4 |
|
| 286.5 |
|
|
| 230.2 |
| ||||||
Deferred sales commissions |
|
| 197.2 |
|
|
| 192.1 |
| ||||||||
Other assets | 5.5 | 4.0 |
|
| 118.8 |
|
|
| 110.3 |
| ||||||
|
| |||||||||||||||
Total assets | $ | 6,879.5 | $ | 6,729.9 |
| $ | 10,775.2 |
|
| $ | 9,010.9 |
| ||||
|
|
|
|
|
|
|
| |||||||||
LIABILITIES AND EQUITY | ||||||||||||||||
Liabilities and stockholders' equity |
|
|
|
|
|
| ||||||||||
Current liabilities: |
|
|
|
|
|
| ||||||||||
Current portion of long-term debt | $ | — | $ | — |
| $ | 5.6 |
|
| $ | 7.6 |
| ||||
Current portion of long-term lease liabilities |
|
| 6.4 |
|
|
| 7.0 |
| ||||||||
Accounts payable | 47.6 | 48.8 |
|
| 69.2 |
|
|
| 66.7 |
| ||||||
Accrued interest | 2.7 | 15.9 | ||||||||||||||
Deferred revenue | 18.5 | 16.8 |
|
| 45.5 |
|
|
| 40.2 |
| ||||||
Employee compensation and benefits | 55.7 | 70.0 |
|
| 64.3 |
|
|
| 92.9 |
| ||||||
Other accrued expenses | 16.7 | 15.5 |
|
| 41.6 |
|
|
| 30.4 |
| ||||||
|
| |||||||||||||||
Total current liabilities before customer trust funds obligations | 141.2 | 167.0 | ||||||||||||||
Customer trust funds obligations | 4,313.2 | 4,105.5 | ||||||||||||||
|
| |||||||||||||||
Total current liabilities before customer funds obligations |
|
| 232.6 |
|
|
| 244.8 |
| ||||||||
Customer funds obligations |
|
| 6,816.4 |
|
|
| 5,090.1 |
| ||||||||
Total current liabilities | 4,454.4 | 4,272.5 |
|
| 7,049.0 |
|
|
| 5,334.9 |
| ||||||
Long-term debt, less current portion | 1,120.5 | 1,119.8 |
|
| 1,211.5 |
|
|
| 1,210.1 |
| ||||||
Employee benefit plans | 147.3 | 152.4 |
|
| 26.8 |
|
|
| 27.7 |
| ||||||
Long-term lease liabilities, less current portion |
|
| 15.9 |
|
|
| 18.9 |
| ||||||||
Other liabilities | 53.8 | 56.2 |
|
| 39.2 |
|
|
| 21.1 |
| ||||||
|
| |||||||||||||||
Total liabilities | 5,776.0 | 5,600.9 |
|
| 8,342.4 |
|
|
| 6,612.7 |
| ||||||
Commitments and contingencies (Note 15) | ||||||||||||||||
Commitments and contingencies (Note 14) |
|
|
|
|
|
| ||||||||||
Stockholders’ equity: |
|
|
|
|
|
| ||||||||||
Senior preferred stock, $0.01 par, 70,000,000 shares authorized, 16,802,144 shares issued and outstanding as of March 31, 2018 and December 31, 2017 | 190.1 | 184.8 | ||||||||||||||
Junior preferred stock, $0.01 par, 70,000,000 shares authorized, 58,244,308 shares issued and outstanding as of March 31, 2018 and December 31, 2017 | 0.6 | 0.6 | ||||||||||||||
Common stock, $0.01 par, 150,000,000 shares authorized, 65,374,309 shares issued and outstanding as of March 31, 2018 and 65,285,962 shares issued and outstanding as of December 31, 2017 | 0.7 | 0.7 | ||||||||||||||
Common stock, $0.01 par, 500.0 shares authorized, 157.9 and 156.3 shares issued and outstanding, respectively |
|
| 1.6 |
|
|
| 1.6 |
| ||||||||
Additional paid in capital | 1,568.3 | 1,565.4 |
|
| 3,204.4 |
|
|
| 3,151.1 |
| ||||||
Accumulated deficit | (355.6 | ) | (348.2 | ) |
|
| (310.7 | ) |
|
| (317.8 | ) | ||||
Accumulated other comprehensive loss | (337.7 | ) | (312.1 | ) |
|
| (462.5 | ) |
|
| (436.7 | ) | ||||
|
| |||||||||||||||
Total stockholders’ equity | 1,066.4 | 1,091.2 |
|
| 2,432.8 |
|
|
| 2,398.2 |
| ||||||
Noncontrolling interest | 37.1 | 37.8 | ||||||||||||||
|
| |||||||||||||||
Total equity | 1,103.5 | 1,129.0 | ||||||||||||||
|
| |||||||||||||||
Total liabilities and equity | $ | 6,879.5 | $ | 6,729.9 | ||||||||||||
|
| |||||||||||||||
Total liabilities and stockholders' equity |
| $ | 10,775.2 |
|
| $ | 9,010.9 |
| ||||||||
See accompanying notes to condensed consolidated financial statements.
4 | Q1 2024 Form 10-Q
Dayforce, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
(In millions, except per share data) |
|
|
|
|
|
| ||
Revenue: |
|
|
|
|
|
| ||
Recurring |
| $ | 382.7 |
|
| $ | 317.9 |
|
Professional services and other |
|
| 48.8 |
|
|
| 52.7 |
|
Total revenue |
|
| 431.5 |
|
|
| 370.6 |
|
Cost of revenue: |
|
|
|
|
|
| ||
Recurring |
|
| 88.4 |
|
|
| 80.1 |
|
Professional services and other |
|
| 66.1 |
|
|
| 63.9 |
|
Product development and management |
|
| 53.1 |
|
|
| 51.0 |
|
Depreciation and amortization |
|
| 18.5 |
|
|
| 15.3 |
|
Total cost of revenue |
|
| 226.1 |
|
|
| 210.3 |
|
Gross profit |
|
| 205.4 |
|
|
| 160.3 |
|
Selling and marketing |
|
| 79.0 |
|
|
| 54.2 |
|
General and administrative |
|
| 85.7 |
|
|
| 67.7 |
|
Operating profit |
|
| 40.7 |
|
|
| 38.4 |
|
Interest expense, net |
|
| 13.3 |
|
|
| 9.2 |
|
Other expense, net |
|
| 9.0 |
|
|
| 0.8 |
|
Income before income taxes |
|
| 18.4 |
|
|
| 28.4 |
|
Income tax expense |
|
| 11.3 |
|
|
| 18.5 |
|
Net income |
| $ | 7.1 |
|
| $ | 9.9 |
|
Net income per share: |
|
|
|
|
|
| ||
Basic |
| $ | 0.05 |
|
| $ | 0.06 |
|
Diluted |
| $ | 0.04 |
|
| $ | 0.06 |
|
Weighted average shares outstanding: |
|
|
|
|
|
| ||
Basic |
|
| 156.9 |
|
|
| 154.2 |
|
Diluted |
|
| 159.9 |
|
|
| 157.7 |
|
See accompanying notes to condensed consolidated financial statements.
5 | Q1 2024 Form 10-Q
Ceridian HCM HoldingDayforce, Inc.
Condensed Consolidated Statements of OperationsComprehensive Income (Loss)
(Unaudited; dollars in millions, except share and per share data)(Unaudited)
| Three Months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
Revenue: | ||||||||
Recurring services | $ | 188.7 | $ | 171.4 | ||||
Professional services and other | 20.2 | 15.6 | ||||||
|
|
|
| |||||
Total revenue | 208.9 | 187.0 | ||||||
Cost of revenue: | ||||||||
Recurring services | 62.7 | 58.8 | ||||||
Professional services and other | 32.8 | 33.9 | ||||||
Product development and management | 15.4 | 12.8 | ||||||
Depreciation and amortization | 8.8 | 7.7 | ||||||
|
|
|
| |||||
Total cost of revenue | 119.7 | 113.2 | ||||||
|
|
|
| |||||
Gross profit | 89.2 | 73.8 | ||||||
Costs and expenses: | ||||||||
Selling, general, and administrative | 65.6 | 60.7 | ||||||
Other (income) expense, net | (2.8 | ) | 0.9 | |||||
Interest expense, net | 22.2 | 21.4 | ||||||
|
|
|
| |||||
Total costs and expenses | 85.0 | 83.0 | ||||||
|
|
|
| |||||
Income (loss) from continuing operations before income taxes | 4.2 | (9.2 | ) | |||||
Income tax expense | 6.8 | 2.5 | ||||||
|
|
|
| |||||
Loss from continuing operations | (2.6 | ) | (11.7 | ) | ||||
Income from discontinued operations | — | 0.5 | ||||||
|
|
|
| |||||
Net loss | (2.6 | ) | (11.2 | ) | ||||
|
|
|
| |||||
Net loss attributable to noncontrolling interest | (0.5 | ) | — | |||||
|
|
|
| |||||
Net loss attributable to Ceridian | $ | (2.1 | ) | $ | (11.2 | ) | ||
|
|
|
| |||||
Net loss per share attributable to Ceridian—basic and diluted (Note 18) | $ | (0.11 | ) | $ | (0.24 | ) | ||
Weighted-average shares used to compute net loss per share attributable to Ceridian—basic and diluted (Note 18) | 65,314,462 | 65,034,610 | ||||||
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
(In millions) |
|
|
|
|
|
| ||
Net income |
| $ | 7.1 |
|
| $ | 9.9 |
|
Items of other comprehensive (loss) income before income taxes: |
|
|
|
|
|
| ||
Change in foreign currency translation adjustment |
|
| (22.7 | ) |
|
| 1.2 |
|
Change in unrealized loss from invested customer funds |
|
| (7.4 | ) |
|
| 23.9 |
|
Change in pension liability adjustment |
|
| 3.2 |
|
|
| 1.5 |
|
Other comprehensive (loss) income before income taxes |
|
| (26.9 | ) |
|
| 26.6 |
|
Income tax (benefit) expense, net |
|
| (1.1 | ) |
|
| 6.7 |
|
Other comprehensive (loss) income after income taxes |
|
| (25.8 | ) |
|
| 19.9 |
|
Comprehensive (loss) income |
| $ | (18.7 | ) |
| $ | 29.8 |
|
See accompanying notes to condensed consolidated financial statements.
6 | Q1 2024 Form 10-Q
Ceridian HCM HoldingDayforce, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)Stockholders’ Equity
(Unaudited, dollars in millions)(Unaudited)
| Three Months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
Net loss | $ | (2.6 | ) | $ | (11.2 | ) | ||
Items of other comprehensive income (loss) before income taxes: | ||||||||
Change in foreign currency translation adjustment | (16.1 | ) | 4.9 | |||||
Change in unrealized (loss) gain from invested customer trust funds | (13.4 | ) | 1.8 | |||||
Change in pension liability adjustment(1) | 2.9 | 2.6 | ||||||
|
|
|
| |||||
Other comprehensive (loss) income before income taxes | (26.6 | ) | 9.3 | |||||
Income tax expense, net | 0.8 | 1.6 | ||||||
|
|
|
| |||||
Other comprehensive (loss) income after income taxes | (27.4 | ) | 7.7 | |||||
|
|
|
| |||||
Comprehensive loss | (30.0 | ) | (3.5 | ) | ||||
Comprehensive (loss) income attributable to noncontrolling interest | (0.7 | ) | 0.1 | |||||
|
|
|
| |||||
Comprehensive loss attributable to Ceridian | $ | (29.3 | ) | $ | (3.6 | ) | ||
|
|
|
| |||||
|
| Common Stock |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total |
| |||||||||
|
| Shares |
|
| $ |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Equity |
| ||||||
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance as of December 31, 2023 |
|
| 156.3 |
|
| $ | 1.6 |
|
| $ | 3,151.1 |
|
| $ | (317.8 | ) |
| $ | (436.7 | ) |
| $ | 2,398.2 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7.1 |
|
|
| — |
|
|
| 7.1 |
|
Issuance of common stock under share-based compensation plans |
|
| 1.6 |
|
|
| — |
|
|
| 15.3 |
|
|
| — |
|
|
| — |
|
|
| 15.3 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 38.0 |
|
|
| — |
|
|
| — |
|
|
| 38.0 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (22.7 | ) |
|
| (22.7 | ) |
Change in unrealized loss, net of tax of ($1.9) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5.5 | ) |
|
| (5.5 | ) |
Change in pension liability adjustment, net of tax of $0.8 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.4 |
|
|
| 2.4 |
|
Balance as of March 31, 2024 |
|
| 157.9 |
|
| $ | 1.6 |
|
| $ | 3,204.4 |
|
| $ | (310.7 | ) |
| $ | (462.5 | ) |
| $ | 2,432.8 |
|
|
| Common Stock |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total |
| |||||||||
|
| Shares |
|
| $ |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Equity |
| ||||||
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance as of December 31, 2022 |
|
| 153.9 |
|
| $ | 1.5 |
|
| $ | 2,965.5 |
|
| $ | (372.6 | ) |
| $ | (485.0 | ) |
| $ | 2,109.4 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9.9 |
|
|
| — |
|
|
| 9.9 |
|
Issuance of common stock under share-based compensation plans |
|
| 1.1 |
|
|
| 0.1 |
|
|
| 14.7 |
|
|
| — |
|
|
| — |
|
|
| 14.8 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 40.2 |
|
|
| — |
|
|
| — |
|
|
| 40.2 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.2 |
|
|
| 1.2 |
|
Change in unrealized loss, net of tax of ($6.3) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 17.6 |
|
|
| 17.6 |
|
Change in pension liability adjustment, net of tax of ($0.4) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.1 |
|
|
| 1.1 |
|
Balance as of March 31, 2023 |
|
| 155.0 |
|
| $ | 1.6 |
|
| $ | 3,020.4 |
|
| $ | (362.7 | ) |
| $ | (465.1 | ) |
| $ | 2,194.2 |
|
See accompanying notes to condensed consolidated financial statements.
7 | Q1 2024 Form 10-Q
Ceridian HCM HoldingDayforce, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, dollars in millions)(Unaudited)
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
(In millions) |
|
|
|
|
|
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net income |
| $ | 7.1 |
|
| $ | 9.9 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| ||
Deferred income tax (benefit) expense |
|
| (11.8 | ) |
|
| 6.1 |
|
Depreciation and amortization |
|
| 48.8 |
|
|
| 22.1 |
|
Amortization of debt issuance costs and debt discount |
|
| 1.1 |
|
|
| 1.1 |
|
Loss on debt extinguishment |
|
| 4.3 |
|
|
| — |
|
Provision for doubtful accounts |
|
| 0.8 |
|
|
| 2.4 |
|
Net periodic pension and postretirement cost |
|
| 2.6 |
|
|
| 0.4 |
|
Share-based compensation expense |
|
| 38.0 |
|
|
| 40.2 |
|
Change in fair value of contingent consideration |
|
| — |
|
|
| 3.5 |
|
Other |
|
| — |
|
|
| 0.5 |
|
Changes in operating assets and liabilities, excluding effects of acquisitions: |
|
|
|
|
|
| ||
Trade and other receivables |
|
| (48.1 | ) |
|
| (26.9 | ) |
Prepaid expenses and other current assets |
|
| (13.1 | ) |
|
| (20.6 | ) |
Deferred sales commissions |
|
| (6.3 | ) |
|
| (4.8 | ) |
Accounts payable and other accrued expenses |
|
| (1.8 | ) |
|
| 4.2 |
|
Deferred revenue |
|
| (2.3 | ) |
|
| 6.0 |
|
Employee compensation and benefits |
|
| (27.8 | ) |
|
| (40.1 | ) |
Accrued taxes |
|
| 17.8 |
|
|
| 8.3 |
|
Other assets and liabilities |
|
| (0.2 | ) |
|
| (1.0 | ) |
Net cash provided by operating activities |
|
| 9.1 |
|
|
| 11.3 |
|
|
|
|
|
|
| |||
Cash flows from investing activities |
|
|
|
|
|
| ||
Purchases of customer funds marketable securities |
|
| (139.6 | ) |
|
| (72.5 | ) |
Proceeds from sale and maturity of customer funds marketable securities |
|
| 49.6 |
|
|
| 100.5 |
|
Purchases of marketable securities |
|
| (0.5 | ) |
|
| — |
|
Proceeds from sale and maturity of marketable securities |
|
| 1.0 |
|
|
| — |
|
Expenditures for property, plant, and equipment |
|
| (3.5 | ) |
|
| (6.5 | ) |
Expenditures for software and technology |
|
| (24.4 | ) |
|
| (21.9 | ) |
Acquisition costs, net of cash acquired |
|
| (173.3 | ) |
|
| — |
|
Other |
|
| — |
|
|
| (1.0 | ) |
Net cash used in investing activities |
|
| (290.7 | ) |
|
| (1.4 | ) |
|
|
|
|
|
| |||
Cash flows from financing activities |
|
|
|
|
|
| ||
Increase in customer funds obligations, net |
|
| 1,763.5 |
|
|
| 2,174.4 |
|
Proceeds from issuance of common stock under share-based compensation plans |
|
| 15.3 |
|
|
| 14.8 |
|
Proceeds from debt issuance |
|
| 650.0 |
|
|
| — |
|
Repayment of long-term debt obligations |
|
| (644.5 | ) |
|
| (2.1 | ) |
Payment of debt refinancing costs |
|
| (11.4 | ) |
|
| — |
|
Net cash provided by financing activities |
|
| 1,772.9 |
|
|
| 2,187.1 |
|
|
|
|
|
|
| |||
Effect of exchange rate changes on cash, restricted cash, and equivalents |
|
| (13.5 | ) |
|
| (6.8 | ) |
Net increase in cash, restricted cash, and equivalents |
|
| 1,477.8 |
|
|
| 2,190.2 |
|
Cash, restricted cash, and equivalents at beginning of period |
|
| 3,421.4 |
|
|
| 3,151.2 |
|
Cash, restricted cash, and equivalents at end of period |
| $ | 4,899.2 |
|
| $ | 5,341.4 |
|
|
|
|
|
|
| |||
Reconciliation of cash, restricted cash, and equivalents to the condensed |
|
|
|
|
|
| ||
Cash and equivalents |
| $ | 392.5 |
|
| $ | 428.6 |
|
Restricted cash |
|
| 0.8 |
|
|
| 0.8 |
|
Restricted cash and equivalents included in customer funds |
|
| 4,505.9 |
|
|
| 4,912.0 |
|
Total cash, restricted cash, and equivalents |
| $ | 4,899.2 |
|
| $ | 5,341.4 |
|
| Three Months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
Net loss | $ | (2.6 | ) | $ | (11.2 | ) | ||
Income from discontinued operations | — | (0.5 | ) | |||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Deferred income tax benefit | (0.1 | ) | (0.3 | ) | ||||
Depreciation and amortization | 14.9 | 14.1 | ||||||
Amortization of debt issuance costs and debt discount | 1.0 | 0.8 | ||||||
Net periodic pension and postretirement cost | 0.6 | 0.3 | ||||||
Share-based compensation | 2.9 | 4.5 | ||||||
Other | (0.1 | ) | (0.4 | ) | ||||
Changes in operating assets and liabilities excluding effects of acquisitions and divestitures: | ||||||||
Trade and other receivables | (1.9 | ) | 4.0 | |||||
Prepaid expenses and other current assets | (11.4 | ) | (9.3 | ) | ||||
Accounts payable and other accrued expenses | (0.5 | ) | (5.5 | ) | ||||
Deferred revenue | 1.7 | 0.7 | ||||||
Employee compensation and benefits | (16.7 | ) | (19.9 | ) | ||||
Accrued interest | (13.1 | ) | (13.5 | ) | ||||
Accrued taxes | 6.3 | (8.5 | ) | |||||
Other assets and liabilities | (4.3 | ) | 0.7 | |||||
|
|
|
| |||||
Net cash used in operating activities—continuing operations | (23.3 | ) | (44.0 | ) | ||||
Net cash used in operating activities—discontinued operations | (0.1 | ) | (0.7 | ) | ||||
|
|
|
| |||||
Net cash used in operating activities | (23.4 | ) | (44.7 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Purchase of customer trust funds marketable securities | (520.6 | ) | (185.7 | ) | ||||
Proceeds from sale and maturity of customer trust funds marketable securities | 175.4 | 133.8 | ||||||
Net change in restricted cash and other restricted assets held to satisfy customer trust funds obligations | 114.8 | (860.1 | ) | |||||
Expenditures for property, plant, and equipment | (2.9 | ) | (2.6 | ) | ||||
Expenditures for software and technology | (7.4 | ) | (6.2 | ) | ||||
Net proceeds from divestitures | — | 0.9 | ||||||
|
|
|
| |||||
Net cash used in investing activities | (240.7 | ) | (919.9 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Increase in customer trust funds obligations, net | 230.4 | 912.0 | ||||||
Repurchase of stock | — | (1.8 | ) | |||||
Repayment of long-term debt obligations | (0.3 | ) | — | |||||
|
|
|
| |||||
Net cash provided by financing activities | 230.1 | 910.2 | ||||||
Effect of Exchange Rate Changes on Cash | (3.4 | ) | 0.7 | |||||
|
|
|
| |||||
Net decrease in cash and equivalents | (37.4 | ) | (53.7 | ) | ||||
Cash and equivalents at beginning of period | 99.6 | 131.4 | ||||||
|
|
|
| |||||
Cash and equivalents at end of period | $ | 62.2 | $ | 77.7 | ||||
|
|
|
| |||||
See accompanying notes to condensed consolidated financial statements.
8 | Q1 2024 Form 10-Q
Ceridian HCM HoldingDayforce, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Unaudited, dollars in millions, except share and per share data)
1. Organization
Ceridian HCM HoldingDayforce, Inc. and its direct and indirect subsidiaries (also referred to in this report as “Ceridian,” “we,” “our,” and “us”“us,” or the “Company”) offer a broad range of services and software designed to help employers to 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. OurWhile we operate in 19 countries globally, our operations are primarily located in the United States and Canada.
As of March 31, 2018, Ceridian owned a controlling financial interest in a joint venture, WorkAngel Organisation Limited (“LifeWorks”) (the “Joint Venture Company”), which offers an employee engagement platform that delivers employee assistance programs, social recognition, exclusive perks and discounts, a private social network, employee and corporate wellness, and employee engagement analytics in the United States, Canada, and the United Kingdom. Prior to the formation of the joint venture, employee assistance programs were provided by Ceridian. On January 20, 2017, WorkAngel Organisation Limited changed its name to LifeWorks Corporation Ltd. On April 30, 2018, we distributed our ownership interest in the Joint Venture Company to our stockholders of record (the “LifeWorks Disposition”) prior to our initial public offering (“IPO”). Please refer to Note 19, “Subsequent Events,” for further discussion of the LifeWorks Disposition.
As of March 31, 2018, Ceridian HCM Holding Inc. was primarily owned by Ceridian LLC (the “Parent”) and Ceridian Holding II LLC (“Ceridian Holding II”). The Parent was 100% owned by Foundation Holding LLC, which in turn was 100% owned by Ceridian Holding LLC (“Ceridian Holding”).
The owners of Ceridian Holding and Ceridian Holding II included (i) affiliates andco-investors of Thomas H. Lee Partners, L.P. (“THL Partners”) and Cannae Holdings, LLC (“Cannae”) (THL Partners and Cannae are together referred to as the “Sponsors”), who collectively owned approximately 96% of the outstanding interests of both Ceridian Holding and Ceridian Holding II, and (ii) other individuals, who collectively owned approximately 4% of the outstanding interests of each holding company. The Sponsors initially acquired their indirect ownership interest in Ceridian Holding on November 9, 2007, when the Sponsors completed the acquisition of all of the outstanding equity of the Ceridian entities (the “2007 Merger”). The Sponsors acquired their ownership interest in Ceridian Holding II on March 30, 2016, when the Sponsors and other individuals purchased equity in Ceridian Holding II, which in turn purchased equity in Ceridian HCM Holding Inc. This equity financing transaction with Ceridian Holding II raised $150.2, of which $75.0 was contributed by Ceridian Holding II to Ceridian HCM Holding Inc. on March 30, 2016. The remaining $75.2 was committed to be funded to Ceridian HCM Holding Inc. within the following three years, and during the second quarter of 2017, the Board of Directors of Ceridian Holding II approved the funding of the remaining $75.2, which was transferred to Ceridian HCM Holding Inc. on June 28, 2017.
On April 30, 2018, we completed our IPO, in which we issued and sold 21,000,000 shares of common stock at a public offering price of $22.00 per share. We granted the underwriters a30-day option to purchase an additional 3,150,000 shares of common stock at the offering price, which was exercised in full. A total of 24,150,000 shares of common stock were issued on April 30, 2018. Concurrently, we issued 4,545,455 shares of our common stock in a private placement at $22.00 per share. We received gross proceeds of $631.3 from the IPO and concurrent private placement before deducting underwriting discounts, commissions, and other offering related expenses. Subsequent to the IPO and concurrent private placement, we completed an internal corporate reorganization, pursuant to which the limited liability companies that hold shares in us were merged with and into Ceridian HCM Holding Inc. At the time of these transactions, these limited liability companies had no assets other than equity interests in us or the other limited liability companies. As a result of these transactions, our previous stockholders now hold shares of our common stock directly, rather than through a series of limited liability companies. These transactions had no impact on our assets, liabilities, or operations. Please refer to Note 19, “Subsequent Events,” for further discussion of the IPO and concurrent private placement. The condensed consolidated financial statements as of March 31, 2018, including share and per share amounts, do not give effect to the IPO, the concurrent private placement, or the internal reorganization, as the IPO and such transactions were completed subsequent to March 31, 2018.
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 (“U.S. GAAP”) for interim financial information. Accordingly, theythe unaudited condensed consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. The accounting policies we follow are set forth in Part II, Item 8, Note 2, “Summary of Significant Accounting Policies,” to Ceridian’s audited consolidated financial statements, included in our audited consolidated financial statements and notes thereto for the year ended December 31, 2017 (our “2017 Annual Report”), included withinin our prospectus dated April 25, 2018, as filed with the Securities and Exchange Commission (the “SEC”) on April 26, 2018, pursuant to Rule 424(b) under the Securities Act of 1933, as amended (FileNo. 333-223905) (the “Prospectus”)2023 Form 10-K. The following notes should be read in conjunction with suchthese policies and other disclosures in our 2017 Annual Report and Prospectus.2023 Form 10-K.
In the opinion of management, the unaudited condensed consolidated financial statements contained herein reflect all adjustments (consisting only of normal recurring adjustments, except as set forth in these notes to the condensed consolidated financial statements) necessary to present fairly in all material aspectsrespects the financial position, results of operations, comprehensive loss,income (loss), and cash flows from all periods presented. Interim results are not necessarily indicative of results for a full year.
Reverse Stock Split
On April 10, 2018, we effected a1-for-2 reverse stock split of our common stock. All of the common share and per share information referenced throughout this interim report have been retroactively adjusted to reflect this reverse stock split. Please refer to Note 19, “Subsequent Events,” for further discussion of other transactions occurring after period end which are not reflected in the condensed consolidated financial statements.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates that could significantly affect our results of operations or financial condition involve the assignment of fair values to goodwill and other intangible assets, the testing of impairment of long-lived assets, the determination of our liability for pensions and postretirement benefits, the determination of fair value of stock options granted, and the resolution of tax matters and legal contingencies. Please refer to our 2017 Annual Report for a further discussion of these estimates.
Internally Developed Software Costs
In accordance with Accounting Standards Codification (“ASC”) Topic 350, we capitalize costs associated with software developed or obtained for internal use when both the preliminary project stage is completed and our management has authorized further funding for the project, which it deems probable of completion. Capitalized software costs include only: (1) external direct costs of materials and services consumed in developing or obtaining the software; (2) payroll and payroll-related costs for employees who are directly associated with and who devote time to the project; and (3) interest costs incurred while developing the software. Capitalization of these costs ceases no later than the point at which the project is substantially complete and ready for its intended purpose. We do not include general and administrative costs and overhead costs in capitalizable costs. We charge research and development costs and other software maintenance costs related to software development to earnings as incurred.
Foreign Currency Translation
We have international operations whereby the local currencies serve as functional currencies. We translate foreign currency denominated assets and liabilities at theend-of-period exchange rates and foreign currency denominated statements of operations at the weighted-average exchange rates for each period. We report the effect of changes in the U.S. dollar carrying values of assets and liabilities of our international operations that are due to changes in exchange rates between the U.S. dollar and their functional currency as foreign currency translation within accumulated other comprehensive income (loss) in the accompanying condensed consolidated statements of comprehensive income (loss). Gains and losses from transactions and translation of assets and liabilities denominated in currencies other than the functional currency of the international operation are recorded in the condensed consolidated statements of operations within other expense, net.
Recently Issued and Adopted Accounting Pronouncements
In May 2014 from the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)No. 2014-09, “Revenue from Contracts with Customers,” which replaced all existing revenue guidance created by ASC Topic 606, including prescriptive industry-specific guidance. This standard’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Entities will need to apply more judgment and make more estimates than under the previous guidance. In July 2015 the FASB deferred the effective date for all entities by one year, making the guidance fornon-public companies effective for annual reporting periods beginning after December 15, 2018. Early adoption was permitted to the original effective date of December 15, 2016 (including interim reporting periods within that reporting period). The standard permits the use of either the retrospective or cumulative effect transition method. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards. An emerging growth company can, therefore, delay adoption of certain
There were no recently adopted accounting standards until those standards would otherwise apply to private companies. Management has chosen to take advantage of this extended transition period to adopt ASU2014-09 beginning in the first quarter of 2019. Management anticipates using the retrospective method for adoption.
In preparation for this planned adoption, we have been evaluating the impact of the new standard to our financial statements and accompanying disclosures in the notes to our consolidated financial statements. Our assessment of the impact includes an evaluation of the five-step process set forth in the new standard along with the enhancement of disclosures that will be required. To date, we have developed our initial plan for implementing the standard, which includes identifying customer contracts within the scope of the new standard, identifying performance obligations within those customer contracts, and evaluating the impact of incremental variable consideration paid to obtain those customer contracts. We have also undertaken a comprehensive review of all contracts that fall under the scope of the new standard; and, as of the date of this report, we have substantially completed our review ofin-scope contracts.
Based on analysis performed to date, we expect that adoption of the new standard will result in changes to the classification and timing of our revenue recognition. Specifically, we expect an increase in revenue classified as professional services and other revenue and a reduction in revenue classified as recurring services revenue under the new standard, as compared to current U.S. GAAP. Further, we expect that the new standard will result in changes to the timing of our revenue recognition compared to current U.S. GAAP. In compliance with the new standard, a contractual asset will be reflected on the consolidated balance sheets and will be amortized over the customers’ period of benefit, which is generally three years. We also expect changes to the timing of certain incremental selling, general, and administrative expenses, as the new standard will also require capitalizing and amortizing certain selling expenses, such as commissions and bonuses paid to the sales force. These sales expenses will be amortized over the customer’s period of benefit.
In periods of revenue growth, the changes above are expected to result in higher overall earnings before income taxes and net income when compared to current U.S. GAAP. We have not yet determined the impact of the disclosure requirements.
The following table presents the anticipated impacts that the adoption of ASC 606 would have for the periods presented:
| Three Months ended March 31, 2018 | ||||||||||||
| As Reported | Under ASC 606 | Impact | ||||||||||
Revenue: | ||||||||||||
Recurring services | $ | 188.7 | $ | 182.3 | $ | (6.4 | ) | |||||
Professional services and other | 20.2 | 28.9 | 8.7 | |||||||||
|
|
|
|
|
| |||||||
Total revenue | $ | 208.9 | $ | 211.2 | $ | 2.3 | ||||||
Operating profit | $ | 26.4 | $ | 30.6 | $ | 4.2 | ||||||
| Three Months ended March 31, 2017 | ||||||||||||
| As Reported | Under ASC 606 | Impact | ||||||||||
Revenue: | ||||||||||||
Recurring services | $ | 171.4 | $ | 165.5 | $ | (5.9 | ) | |||||
Professional services and other | 15.6 | 22.5 | 6.9 | |||||||||
|
|
|
|
|
| |||||||
Total revenue | $ | 187.0 | $ | 188.0 | $ | 1.0 | ||||||
Operating profit | $ | 12.2 | $ | 14.6 | $ | 2.4 | ||||||
In February 2016, the FASB issued ASUNo. 2016-02, “Leases,” which is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This standard requires balance sheet recognition for both finance leases and operating leases. This guidance is effective fornon-public companies for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The guidance is required to be adopted using a modified retrospective approach. An entity will, in effect, continue to account for leases that commence before the effective date in accordance with previous U.S. GAAP unless the lease is modified, except that lessees are required to recognize aright-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous U.S. GAAP. We are currently evaluating the impact of the adoption of this standard.
In February 2018 the FASB issued ASU2018-02, “Income Statement—Reporting Comprehensive Income,” which is in response to a narrow-scope financial reporting issue that arose because of the Tax Cuts and Jobs Act. The amendment in this update allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This amendment is intended to improve the usefulness of information reported to financial statement users by requiring certain disclosures about stranded tax effects. The amendment in this update is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard. Please refer to Note 14, “Income Taxes,” for further discussion of this new guidance.
3. Discontinued Operations
Sale of Divested Benefits Continuation Businesses
In the third quarter of 2013, we entered into an agreement for the sale of certain of our customer contracts for consumer-directed benefit services, including flexible spending accounts, health reimbursement accounts, health savings accounts, commuter (parking or transit) premium-only plans, and tuition reimbursement plans (collectively, the “Consumer-Directed Benefit Services”). During the third quarter of 2015, we completed two separate transactions that resulted in the sale of our benefits administration and post-employment health insurance portability compliance businesses (the “Divested Benefits Continuation Businesses”).
These three transactions represented a strategic shift in our overall business and have had a significant impactmaterial effect on the financial statement results. Accordingly, the Divested Benefits Continuation Businesses, as well as the Consumer-Directed Benefit Services, have been presented as discontinued operations within the HCM segment in theour condensed consolidated financial statements and accompanying notes for all periods presented. The amounts indisclosures, and no recently issued accounting standards that are expected to have a material impact on our condensed consolidated financial statements and accompanying disclosures.
3. Business Combinations
On February 1, 2024, we completed the table below reflect the operating results and gain on salepurchase of 100% of the Divested Benefits Continuation Businesses reported as discontinued operations, as well as supplemental disclosuresoutstanding shares of the discontinued operations:eloomi A/S ("eloomi"), a learning experience platform software provider based in Copenhagen, Denmark, and Orlando, Florida.
| Three Months ended March 31, | ||||
| 2017 | ||||
Net revenues | $ | — | ||
Loss from operations before income taxes | (0.1 | ) | ||
Gain on sale of businesses | 0.9 | |||
Income tax expense | (0.3 | ) | ||
Income from discontinued operations, net of income taxes | $ | 0.5 | ||
For both sales of the Divested Benefits Continuation Businesses, consideration received was contingent upon the number and dollar value of successful customer transitions and was recorded when earned. Proceeds of $0.9 were received and earned based on the customers transitioned during the three months ended March 31, 2017. These proceeds were for a finalThe purchase pricetrue-up related to one of the transactions.
The remaining liabilities related to discontinued operations for the Divested Benefits Continuation Businessesaccounting has not been finalized as of March 31, 2018,2024. Provisional amounts relate to final purchase price adjustments, specifically the net working capital, intangible assets and December 31, 2017, are immaterial amounts included in Other accrued expenses in our condensed consolidated balance sheets.
4. Noncontrolling Interest
On March 1, 2016, we entered into a strategic joint venture with WorkAngel Technology Limited (“WorkAngel”) in which we contributed our existing LifeWorks businesstax positions. We expect to a newly formed English limited company (WorkAngel Organisation Limited orfinalize the “Joint Venture Company”). On January 20, 2017, WorkAngel Organisation Limited changed its name to LifeWorks Corporation Ltd. We have a controlling interest in the Joint Venture Company, including certain preferential distribution rights; therefore, the Joint Venture Company is consolidated within our financial statements, and the other joint venture ownership interest component is presented as a noncontrolling interest.
Shareholder distributions will occur upon a liquidation event, as defined by the joint venture agreement. We hold allallocation of the Class A shares,purchase price within the one-year measurement period following the acquisition. Intangible assets recorded for this acquisition consist of $86.9 million of developed technology and former WorkAngel shareholders hold all$1.8 million of customer relationships. The goodwill arising from the Class B shares. Holders of Class A shares will have rights to 75 percent of the distributions up to $250 million, 25 percent of the distributions between $250 and $500 million, and 50 percent thereafter. Holders of Class B shares have rights to the remaining distributions. Income attributable to noncontrolling interest has been calculated by applying the Class B distribution percentages to the joint venture earnings as reported on a stand-alone basis. During the three months ended March 31, 2018, and 2017, there was losseloomi acquisition is primarily attributable to the noncontrolling interest of $0.5potential to achieve synergies and $0.0, respectively.
On April 30, 2018, we distributedother cost savings through integration with our ownership interest in the Joint Venture Company to our stockholders of record prior to our IPO. Please refer to Note 19, “Subsequent Events,” for further discussionexisting operations. None of the LifeWorks Disposition.
5. Fair Value Measurements
Fair valuegoodwill associated with this acquisition is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). U.S. GAAP outlines a valuation framework and creates a fair value hierarchy intended to increase the consistency and comparabilitydeductible for income tax purposes.
The major classes of fair value measurements and the related disclosures. Certain assets and liabilities must be measured at fair value, and disclosures are required for items measured at fair value.
We measure our financial instruments using inputs fromto which we have preliminarily allocated the following three levels of the fair value hierarchy. The three levels arepurchase price were as follows:
| (In millions) |
| |
Cash and equivalents | $ | 6.5 |
|
Trade receivables, prepaid expenses, and other current assets |
| 4.6 |
|
Goodwill |
| 111.3 |
|
Other intangible assets |
| 88.7 |
|
Other assets |
| 0.7 |
|
Accounts payable and accrued liabilities |
| (3.9 | ) |
Deferred revenue |
| (8.6 | ) |
Deferred tax liability |
| (19.5 | ) |
Total purchase price | $ | 179.8 |
|
9 | Q1 2024 Form 10-Q
4. Fair Value Measurements
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of March 31, 2018, ourOur financial assets and liabilities measured at fair value on a recurring basis were categorized as follows:
|
| March 31, 2024 |
| ||||||||||||||||||||||||||||||
| Level 1 |
|
| Level 2 |
|
|
| Level 3 |
|
| Total |
| |||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 |
| (In millions) |
| |||||||||||||||||||||||||||
Assets |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Available for sale customer trust funds assets | $ | 2,092.1 | $ | — | $ | 2,092.1 | (a) | $ | — | ||||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||||||||||
Available for sale customer funds assets |
| $ | — |
|
| $ | 2,240.7 |
| (a) |
| $ | — |
|
| $ | 2,240.7 |
| ||||||||||||||||
Total assets measured at fair value | $ | 2,092.1 | $ | — | $ | 2,092.1 | $ | — |
| $ | — |
|
| $ | 2,240.7 |
|
| $ | — |
|
| $ | 2,240.7 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Liabilities |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
DataFuzion contingent consideration |
| $ | — |
|
| $ | — |
|
|
| $ | 14.9 |
| (b) | $ | 14.9 |
| ||||||||||||||||
Total liabilities measured at fair value |
| $ | — |
|
| $ | — |
|
| $ | 14.9 |
|
| $ | 14.9 |
| |||||||||||||||||
As
|
| December 31, 2023 |
| ||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
|
| Level 3 |
|
| Total |
| ||||
|
| (In millions) |
| ||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Available for sale customer funds assets |
| $ | — |
|
| $ | 2,178.3 |
| (a) |
| $ | — |
|
| $ | 2,178.3 |
|
Total assets measured at fair value |
| $ | — |
|
| $ | 2,178.3 |
|
|
| $ | — |
|
| $ | 2,178.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
DataFuzion contingent consideration |
| $ | — |
|
| $ | — |
|
|
| $ | 14.9 |
| (b) | $ | 14.9 |
|
Total liabilities measured at fair value |
| $ | — |
|
| $ | — |
|
|
| $ | 14.9 |
|
| $ | 14.9 |
|
Due to the remeasurement of the DataFuzion contingent consideration, we recognized no expense for the three months ended March 31, 2024, and we recognized expense of $3.5 million for the three months ended March 31, 2023, within general and administrative expense in our condensed consolidated statements of operations.
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets | ||||||||||||||||
Available for sale customer trust funds assets | $ | 1,782.1 | $ | — | $ | 1,782.1 | (a) | $ | — | |||||||
|
|
|
|
|
|
|
| |||||||||
Total assets measured at fair value | $ | 1,782.1 | $ | — | $ | 1,782.1 | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
During the three months ended March 31, 2018,2024, assets acquired and liabilities assumed as part of the business combination and liabilities recognized as part of our debt issuance have been measured at fair value on a nonrecurring basis. During the year ended December 31, 2017,2023, we did notre-measure any financial assets or liabilities at fair value on a nonrecurring basis.
5. Customer Funds
6. Customer Trust FundsOverview
Overview
In connection with our U.S. and Canadian payroll and tax filing services,certain jurisdictions, we collect funds for payment of payroll and taxes; temporarily hold such funds in trust until payment is due; remit the funds to the clients’customers’ employees and appropriate taxing authority;authorities; file federal, state, and local tax returns; and handle related regulatory correspondence and amendments. The customer assets are held in trust aresegregated accounts intended for the specific purpose of satisfying client fundcustomer 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.
10 | Q1 2024 Form 10-Q
Our customer trust 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 and to protect the principal balance. In accordance with these objectives,requirements. Accordingly, we maintain on average approximately 45%45% to 55% of customer trust 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 55%45% to 55% of customer trust 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 in the trust to meet payment obligations, we also have financing arrangements and may pledge fixed income securities for short-term financing.
Financial Statement Presentation
Investment income from invested customer trust funds, constitutesalso 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 trust funds included in recurring revenue was $17.6$60.7 million and $11.4$46.9 million for the three months ended March 31, 2018,2024, and 2017,2023, respectively. Investment income includes interest income, realized gains and losses from sales of customer trust funds’ investments, and unrealized credit losses determined to be other-than-temporary.unrecoverable.
The amortized cost of customer trust funds as of as of March 31, 20182024, and December 31, 2017,2023, is comprised of the original cost of assets acquired. The amortized cost and fair values of investments of customer trust funds available for sale atwere as follows:
|
| March 31, 2024 |
| |||||||||||||
|
| Amortized |
|
| Gross Unrealized |
|
| Fair |
| |||||||
|
| Cost |
|
| Gain |
|
| Loss |
|
| Value |
| ||||
|
| (In millions) |
| |||||||||||||
Money market securities, investments carried at cost |
| $ | 4,476.0 |
|
| $ | — |
|
| $ | — |
|
| $ | 4,476.0 |
|
Available for sale investments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. government and agency securities |
|
| 798.9 |
|
|
| 0.4 |
|
|
| (37.3 | ) |
|
| 762.0 |
|
Canadian and provincial government securities |
|
| 473.1 |
|
|
| 0.5 |
|
|
| (12.5 | ) |
|
| 461.1 |
|
Corporate debt securities |
|
| 684.5 |
|
|
| 1.6 |
|
|
| (18.8 | ) |
|
| 667.3 |
|
Asset-backed securities |
|
| 208.7 |
|
|
| 0.7 |
|
|
| (3.1 | ) |
|
| 206.3 |
|
Mortgage-backed securities |
|
| 63.7 |
|
|
| 0.4 |
|
|
| (1.0 | ) |
|
| 63.1 |
|
Other short-term investments |
|
| 8.6 |
|
|
| — |
|
|
| — |
|
|
| 8.6 |
|
Other securities |
|
| 75.0 |
|
|
| 0.1 |
|
|
| (2.8 | ) |
|
| 72.3 |
|
Total available for sale investments |
|
| 2,312.5 |
|
|
| 3.7 |
|
|
| (75.5 | ) |
|
| 2,240.7 |
|
Invested customer funds |
|
| 6,788.5 |
|
| $ | 3.7 |
|
| $ | (75.5 | ) |
|
| 6,716.7 |
|
Receivables |
|
| 29.9 |
|
|
|
|
|
|
|
|
| 29.9 |
| ||
Total customer funds |
| $ | 6,818.4 |
|
|
|
|
|
|
|
| $ | 6,746.6 |
| ||
|
| December 31, 2023 |
| |||||||||||||
|
| Amortized |
|
| Gross Unrealized |
|
| Fair |
| |||||||
|
| Cost |
|
| Gain |
|
| Loss |
|
| Value |
| ||||
|
| (In millions) |
| |||||||||||||
Money market securities, investments carried at cost |
| $ | 2,800.7 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,800.7 |
|
Available for sale investments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. government and agency securities |
|
| 768.3 |
|
|
| 2.3 |
|
|
| (35.1 | ) |
|
| 735.5 |
|
Canadian and provincial government securities |
|
| 448.7 |
|
|
| 1.3 |
|
|
| (11.3 | ) |
|
| 438.7 |
|
Corporate debt securities |
|
| 664.7 |
|
|
| 2.6 |
|
|
| (19.4 | ) |
|
| 647.9 |
|
Asset-backed securities |
|
| 208.9 |
|
|
| 1.0 |
|
|
| (3.3 | ) |
|
| 206.6 |
|
Mortgage-backed securities |
|
| 60.3 |
|
|
| 0.8 |
|
|
| (0.7 | ) |
|
| 60.4 |
|
Other short-term investments |
|
| 16.1 |
|
|
| — |
|
|
| — |
|
|
| 16.1 |
|
Other securities |
|
| 76.2 |
|
|
| 0.1 |
|
|
| (3.2 | ) |
|
| 73.1 |
|
Total available for sale investments |
|
| 2,243.2 |
|
|
| 8.1 |
|
|
| (73.0 | ) |
|
| 2,178.3 |
|
Invested customer funds |
|
| 5,043.9 |
|
| $ | 8.1 |
|
| $ | (73.0 | ) |
|
| 4,979.0 |
|
Receivables |
|
| 49.6 |
|
|
|
|
|
|
|
|
| 49.6 |
| ||
Total customer funds |
| $ | 5,093.5 |
|
|
|
|
|
|
|
| $ | 5,028.6 |
| ||
11 | Q1 2024 Form 10-Q
Table of March 31, 2018 and December 31, 2017, are as follows:Contents
Investments of Customer Trust Funds at March 31, 2018
| Amortized Cost | Gross Unrealized | Fair Value | ||||||||||||||
| Gain | Loss | |||||||||||||||
Money market securities, investments carried at cost and other cash equivalents | $ | 2,191.8 | $ | 2,191.8 | ||||||||||||
Available for sale investments: | ||||||||||||||||
U.S. government and agency securities | 623.1 | — | (14.4 | ) | 608.7 | |||||||||||
Canadian and provincial government securities | 411.9 | 4.8 | (1.9 | ) | 414.8 | |||||||||||
Corporate debt securities | 781.9 | 0.5 | (4.8 | ) | 777.6 | |||||||||||
Asset-backed securities | 264.6 | 0.1 | (3.1 | ) | 261.6 | |||||||||||
Mortgage-backed securities | 12.9 | — | (0.3 | ) | 12.6 | |||||||||||
Other securities | 17.0 | — | (0.2 | ) | 16.8 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total available for sale investments | 2,111.4 | 5.4 | (24.7 | ) | 2,092.1 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Invested customer trust funds | 4,303.2 | $ | 5.4 | $ | (24.7 | ) | 4,283.9 | |||||||||
|
|
|
| |||||||||||||
Trust receivables | 10.0 | 10.0 | ||||||||||||||
|
|
|
| |||||||||||||
Total customer trust funds | $ | 4,313.2 | $ | 4,293.9 | ||||||||||||
|
|
|
| |||||||||||||
Investments of Customer Trust Funds at December 31, 2017
| Amortized Cost | Gross Unrealized | Fair Value | ||||||||||||||
| Gain | Loss | |||||||||||||||
Money market securities, investments carried at cost and other cash equivalents | $ | 2,309.3 | $ | — | $ | — | $ | 2,309.3 | ||||||||
Available for sale investments: | ||||||||||||||||
U.S. government and agency securities | 584.6 | 0.1 | (7.1 | ) | 577.6 | |||||||||||
Canadian and provincial government securities | 418.2 | 6.6 | (1.5 | ) | 423.3 | |||||||||||
Corporate debt securities | 472.3 | 0.8 | (2.5 | ) | 470.6 | |||||||||||
Asset-backed securities | 280.8 | — | (1.8 | ) | 279.0 | |||||||||||
Mortgage-backed securities | 15.0 | — | (0.2 | ) | 14.8 | |||||||||||
Other securities | 17.0 | — | (0.2 | ) | 16.8 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total available for sale investments | 1,787.9 | 7.5 | (13.3 | ) | 1,782.1 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Invested customer trust funds | 4,097.2 | $ | 7.5 | $ | (13.3 | ) | 4,091.4 | |||||||||
|
|
|
| |||||||||||||
Trust receivables (a) | 8.3 | 8.3 | ||||||||||||||
|
|
|
| |||||||||||||
Total customer trust funds | $ | 4,105.5 | $ | 4,099.7 | ||||||||||||
|
|
|
| |||||||||||||
The following represents the gross unrealized losses and the related fair value of the investments of customer trust funds available for sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2018. position.
|
| March 31, 2024 |
| |||||||||||||||||||||||||||||||||||||||||||||
| Less than 12 months |
|
| 12 months or more |
|
| Total |
| ||||||||||||||||||||||||||||||||||||||||
| Less than 12 months | 12 months or more | Total |
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
| ||||||||||||||||||||||||||||
| Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value |
| (In millions) |
| ||||||||||||||||||||||||||||||||||||||||
U.S. government and agency securities | $ | (9.5 | ) | $ | 493.6 | $ | (4.9 | ) | $ | 112.0 | $ | (14.4 | ) | $ | 605.6 |
| $ | (2.4 | ) |
| $ | 175.6 |
|
| $ | (35.0 | ) |
| $ | 507.7 |
|
| $ | (37.4 | ) |
| $ | 683.3 |
| |||||||||
Canadian and provincial government securities | (1.9 | ) | 138.1 | — | — | (1.9 | ) | 138.1 |
|
| (1.9 | ) |
|
| 132.6 |
|
|
| (10.6 | ) |
|
| 229.2 |
|
|
| (12.5 | ) |
|
| 361.8 |
| ||||||||||||||||
Corporate debt securities | (4.0 | ) | 300.8 | (0.8 | ) | 39.0 | (4.8 | ) | 339.8 |
|
| (0.5 | ) |
|
| 68.2 |
|
|
| (18.3 | ) |
|
| 431.5 |
|
|
| (18.8 | ) |
|
| 499.7 |
| |||||||||||||||
Asset-backed securities | (2.9 | ) | 211.9 | (0.2 | ) | 17.8 | (3.1 | ) | 229.7 |
|
| (0.4 | ) |
|
| 48.5 |
|
|
| (2.7 | ) |
|
| 109.1 |
|
|
| (3.1 | ) |
|
| 157.6 |
| |||||||||||||||
Mortgage-backed securities | (0.1 | ) | 3.3 | (0.2 | ) | 9.1 | (0.3 | ) | 12.4 |
|
| (0.3 | ) |
|
| 12.7 |
|
|
| (0.7 | ) |
|
| 10.9 |
|
|
| (1.0 | ) |
|
| 23.6 |
| |||||||||||||||
Other securities | (a) | 5.0 | (0.2 | ) | 12.5 | (0.2 | ) | 17.5 |
|
| — |
|
|
| 1.2 |
|
|
| (2.7 | ) |
|
| 66.6 |
|
|
| (2.7 | ) |
|
| 67.8 |
| ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total available for sale investments | $ | (18.4 | ) | $ | 1,152.7 | $ | (6.3 | ) | $ | 190.4 | $ | (24.7 | ) | $ | 1,343.1 |
| $ | (5.5 | ) |
| $ | 438.8 |
|
| $ | (70.0 | ) |
| $ | 1,355.0 |
|
| $ | (75.5 | ) |
| $ | 1,793.8 |
| |||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Management does not believe that any individual unrealized loss was unrecoverable as of March 31, 2018, represents an other-than-temporary impairment.2024. 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 March 31, 2018,2024, 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.
Due in one year or less Due in one to three years Due in three to five years Due after five years Invested customer trust funds March 31, 2018 Cost Fair Value $ 2,864.5 $ 2,864.6 525.6 522.0 544.8 538.0 368.3 359.3 $ 4,303.2 $ 4,283.9
|
| March 31, 2024 |
| |||||
|
| Cost |
|
| Fair Value |
| ||
|
| (In millions) |
| |||||
Due in one year or less |
| $ | 4,794.3 |
|
| $ | 4,789.6 |
|
Due in one to three years |
|
| 890.5 |
|
|
| 850.6 |
|
Due in three to five years |
|
| 851.0 |
|
|
| 826.7 |
|
Due after five years |
|
| 252.7 |
|
|
| 249.8 |
|
Invested customer funds |
| $ | 6,788.5 |
|
| $ | 6,716.7 |
|
7. Property, Plant, and Equipment
6. Leases
Property, plant, and equipment consist
Supplemental balance sheet information related to leases was as follows:
Lease Type |
| Balance Sheet Classification |
| March 31, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
| (In millions) |
| |||||
Assets |
|
|
|
|
|
|
|
| ||
Operating lease assets |
| Trade and other receivables, net |
| $ | 0.9 |
|
| $ | 0.9 |
|
Operating lease assets |
| Prepaid expenses and other current assets |
|
| 2.8 |
|
|
| 2.3 |
|
Operating lease assets |
| Right of use lease assets, net |
|
| 16.0 |
|
|
| 19.1 |
|
Financing lease assets |
| Property, plant, and equipment, net |
|
| 5.6 |
|
|
| 5.8 |
|
Total lease assets |
|
|
| $ | 25.3 |
|
| $ | 28.1 |
|
Liabilities |
|
|
|
|
|
|
|
| ||
Financing lease liabilities |
| Current portion of long-term debt |
| $ | 0.8 |
|
| $ | 0.8 |
|
Operating lease liabilities |
| Current portion of long-term lease liabilities |
|
| 6.4 |
|
|
| 7.0 |
|
Financing lease liabilities |
| Long-term debt, less current portion |
|
| 6.3 |
|
|
| 6.5 |
|
Operating lease liabilities |
| Long-term lease liabilities, less current portion |
|
| 15.9 |
|
|
| 18.9 |
|
Total lease liabilities |
|
|
| $ | 29.4 |
|
| $ | 33.2 |
|
12 | Q1 2024 Form 10-Q
Table of the following:Contents
| March 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
Land | $ | 7.5 | $ | 7.5 | ||||
Software | 212.1 | 207.2 | ||||||
Machinery and equipment | 123.0 | 122.1 | ||||||
Buildings and improvements | 36.8 | 36.6 | ||||||
|
|
|
| |||||
Total property, plant, and equipment | 379.4 | 373.4 | ||||||
Accumulated depreciation | (276.0 | ) | (269.6 | ) | ||||
|
|
|
| |||||
Property, plant, and equipment, net | $ | 103.4 | $ | 103.8 | ||||
|
|
|
| |||||
DepreciationThe components of lease expense of property, plant, and equipment totaled $9.4 and $8.7 for the three months ended March 31, 2018, and 2017, respectively.were as follows:
8.
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (In millions) |
| |||||
Operating lease cost |
| $ | 1.4 |
|
| $ | 2.4 |
|
Financing lease cost: |
|
|
|
|
|
| ||
Depreciation of lease assets |
|
| 0.5 |
|
|
| 0.4 |
|
Interest on lease liabilities |
|
| 0.1 |
|
|
| 0.1 |
|
Sublease income |
|
| — |
|
|
| (0.1 | ) |
Total lease cost, net |
| $ | 2.0 |
|
| $ | 2.8 |
|
7. Goodwill and Other Intangible Assets, Net
Goodwill
Goodwill and changes therein were as follows for the three months ended March 31, 2018 and the year ended December 31, 2017:follows:
| HCM | LifeWorks | Total | ||||||||||
Balance at December 31, 2016 | $ | 1,933.1 | $ | 124.9 | $ | 2,058.0 | ||||||
Translation | 27.9 | 1.4 | 29.3 | |||||||||
|
|
|
|
|
| |||||||
Balance at December 31, 2017 | 1,961.0 | 126.3 | 2,087.3 | |||||||||
Translation | (11.0 | ) | (0.5 | ) | (11.5 | ) | ||||||
|
|
|
|
|
| |||||||
Balance at March 31, 2018 | $ | 1,950.0 | $ | 125.8 | $ | 2,075.8 | ||||||
|
|
|
|
|
| |||||||
|
| (In millions) |
| |
Balance at December 31, 2023 |
| $ | 2,293.9 |
|
Translation |
|
| (19.2 | ) |
Acquisition |
|
| 111.3 |
|
Balance at March 31, 2024 |
| $ | 2,386.0 |
|
Other Intangible Assets, Net
Other intangible assets, consistnet consisted of the following asfollowing:
|
| March 31, 2024 |
| |||||||||||||
|
| Gross Carrying |
|
| Accumulated |
|
| Net |
|
| Weighted Average Remaining Amortization Period |
| ||||
|
| (In millions) |
|
| (In years) |
| ||||||||||
Amortized - definite lived: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Customer lists and relationships |
| $ | 299.8 |
|
| $ | (237.8 | ) |
| $ | 62.0 |
|
|
| 6.6 |
|
Trade name |
|
| 176.8 |
|
|
| (63.2 | ) |
|
| 113.6 |
|
|
| 1.3 |
|
Technology |
|
| 311.7 |
|
|
| (205.3 | ) |
|
| 106.4 |
|
|
| 8.2 |
|
Total definite-lived intangible assets |
|
| 788.3 |
|
|
| (506.3 | ) |
|
| 282.0 |
|
|
| 5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unamortized - indefinite lived: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Trade name |
|
| 6.4 |
|
|
| (1.9 | ) |
|
| 4.5 |
|
| n/a |
| |
Total other intangible assets |
| $ | 794.7 |
|
| $ | (508.2 | ) |
| $ | 286.5 |
|
| n/a |
| |
13 | Q1 2024 Form 10-Q
Table of March 31, 2018:Contents
| Gross Carrying Amount | Accumulated Amortization | Net | Estimated Life Range (Years) | |||||||||||||
Customer lists and relationships | $ | 246.8 | $ | (213.2 | ) | $ | 33.6 | 5-15 | ||||||||
Trade name | 173.9 | (2.0 | ) | 171.9 | — | |||||||||||
Technology | 154.4 | (153.3 | ) | 1.1 | 2-7 | |||||||||||
|
|
|
|
|
| |||||||||||
Total other intangible assets | $ | 575.1 | $ | (368.5 | ) | $ | 206.6 | |||||||||
|
|
|
|
|
| |||||||||||
|
| December 31, 2023 |
| |||||||||||||
|
| Gross Carrying |
|
| Accumulated |
|
| Net |
|
| Weighted Average Remaining Amortization Period |
| ||||
|
| (In millions) |
|
| (In years) |
| ||||||||||
Amortized - definite lived: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Customer lists and relationships |
| $ | 302.3 |
|
| $ | (239.5 | ) |
| $ | 62.8 |
|
|
| 6.6 |
|
Trade name |
|
| 177.1 |
|
|
| (39.9 | ) |
|
| 137.2 |
|
|
| 1.6 |
|
Technology |
|
| 227.5 |
|
|
| (201.8 | ) |
|
| 25.7 |
|
|
| 2.3 |
|
Total definite-lived intangible assets |
|
| 706.9 |
|
|
| (481.2 | ) |
|
| 225.7 |
|
|
| 3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unamortized - indefinite lived: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Trade name |
|
| 6.5 |
|
|
| (2.0 | ) |
|
| 4.5 |
|
| n/a |
| |
Total other intangible assets |
| $ | 713.4 |
|
| $ | (483.2 | ) |
| $ | 230.2 |
|
| n/a |
| |
Other intangible assets consist of the following as of December 31, 2017:
| Gross Carrying Amount | Accumulated Amortization | Net | Estimated Life Range (Years) | |||||||||||||
Customer lists and relationships | $ | 248.4 | $ | (209.3 | ) | $ | 39.1 | 5-15 | ||||||||
Trade name | 174.0 | (2.1 | ) | 171.9 | — | |||||||||||
Technology | 155.6 | (154.2 | ) | 1.4 | 2-7 | |||||||||||
|
|
|
|
|
| |||||||||||
Total other intangible assets | $ | 578.0 | $ | (365.6 | ) | $ | 212.4 | |||||||||
|
|
|
|
|
| |||||||||||
Amortization expense related to definite-lived intangible assets was $5.5$28.4 million and $5.4$5.5 million for the three months ended March 31, 2018,2024, and 2017,2023, respectively.
8. Debt
9. DebtOverview
Overview
Our debt obligations consisted of the followingfollowing:
|
| March 31, |
|
| December 31, |
| ||
|
| 2024 |
|
| 2023 |
| ||
|
| (In millions) |
| |||||
2018 Term Debt, interest rate of 8.0% as of December 31, 2023 |
| $ | — |
|
| $ | 644.3 |
|
2024 Term Debt, interest rate of 7.8% as of March 31, 2024 |
|
| 650.0 |
|
|
| — |
|
2018 Revolving Credit Facility ($300.0 million available capacity less $1.3 million as of December 31, 2023, reserved for letters of credit) |
|
| — |
|
|
| — |
|
2024 Revolving Credit Facility ($350.0 million available capacity less $0.8 million as of March 31, 2024, reserved for letters of credit) |
|
| — |
|
|
| — |
|
Convertible Senior Notes, interest rate of 0.25% |
|
| 575.0 |
|
|
| 575.0 |
|
Line of Credit ($0.7 million and $0.5 million letter of credit capacity, respectively, which were fully utilized) |
|
| — |
|
|
| — |
|
Financing lease liabilities (Note 6) |
|
| 7.1 |
|
|
| 7.3 |
|
Total debt |
|
| 1,232.1 |
|
|
| 1,226.6 |
|
Less unamortized debt issuance costs and discount |
|
| 15.0 |
|
|
| 8.9 |
|
Less current portion of long-term debt |
|
| 5.6 |
|
|
| 7.6 |
|
Long-term debt, less current portion |
| $ | 1,211.5 |
|
| $ | 1,210.1 |
|
Accrued interest and fees related to the debt obligations was $0.7 million and $0.9 million as of the periods presented:March 31, 2024 and December 31, 2023, respectively, and is included within other accrued expenses in our condensed consolidated balance sheets.
| March 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
Term Debt, interest rate of 5.4% and 5.1% as of March 31, 2018 and December 31, 2017, respectively | $ | 657.0 | $ | 657.3 | ||||
Senior Notes, interest rate of 11.0% as of March 31, 2018 and December 31, 2017, respectively | 475.0 | 475.0 | ||||||
Revolving Credit Facility ($130.0 available capacity less amounts reserved for letters of credit, which were $8.1 and $8.4 as of March 31, 2018 and December 31, 2017, respectively) | — | — | ||||||
|
|
|
| |||||
Total debt | 1,132.0 | 1,132.3 | ||||||
Less unamortized discount on Term Debt | 0.7 | 0.9 | ||||||
Less unamortized debt issuance costs on Senior Notes and Term Debt | 10.8 | 11.6 | ||||||
Less current portion of long-term debt | — | — | ||||||
|
|
|
| |||||
Long-term debt, less current portion | $ | 1,120.5 | $ | 1,119.8 | ||||
|
|
|
| |||||
2018 Senior Secured Credit Facility
CeridianOn April 30, 2018, we entered into a credit agreement dated as of November 14, 2014, pursuantagreement. Pursuant to the terms of which Ceridianthe new credit agreement, we became borrower of (i) a $702.0$680.0 million term loan debt facility (the “Term“2018 Term Debt”) and (ii) a $130.0$300.0 million revolving credit facility (the “Revolving“2018 Revolving Credit Facility”, and collectively with the 2018 Term Debt, the “2018 Senior Secured Credit Facility”) (the. 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.
14 | Q1 2024 Form 10-Q
The 2018 Term Debt and the2018 Revolving Credit Facility are together referredwere set to asmature on April 30, 2025 and January 29, 2025, respectively. We were required to make annual amortization payments in respect of the “SeniorTerm Debt in an amount equal to 1.00% of the original principal amount thereof, payable in equal quarterly installments of 0.25% of the original principal amount of the first lien term debt. The 2018 Revolving Credit Facility did not require amortization payments. We repaid in full the 2018 Senior Secured Credit Facility in connection with our debt refinancing completed in February 2024.
2024 Senior Secured Credit Facility
On February 29, 2024, we completed the refinancing of our 2018 Senior Secured Credit Facility by entering into a new credit agreement. Pursuant to the terms of the new credit agreement, we became the borrower of (i) a $650.0 million senior secured term loan facility (the “2024 Term Debt”) and (ii) a $350.0 million senior secured revolving credit facility (the “2024 Revolving Credit Facility”, and collectively, with the 2024 Term Debt, the “2024 Senior Secured Credit Facility”). The 2024 Term Debt and the 2024 Revolving Credit Facility will mature on March 1, 2031 and March 1, 2029, respectively. The 2024 Senior Secured Credit Facility isreplaced the 2018 Senior Secured Credit Facility, and we repaid in full all outstanding obligations under the 2018 Senior Secured Credit Facility on February 29, 2024. Our obligations under the 2024 Senior Secured Credit Facility are secured by a lien on substantially all of our assets, of Ceridianas well as guarantees and is seniorpledged assets by our domestic subsidiaries, subject to Ceridian’s other debt. certain exceptions.
The 2024 Term Debt has ais subject to amortization of principal, payable in equal quarterly installments on the last day of each fiscal quarter, commencing on September 30, 2024, with 0.25% of the aggregate principal amount of all initial term loans outstanding at closing to be payable each quarter prior to the maturity date of September 2020, and the 2024 Term Debt. The remaining initial aggregate principal amount will be payable at the maturity date of the 2024 Term Debt. The 2024 Term Debt bears interest at rates based upon, at our option, either (i) a base rate plus an applicable percentage of 1.5% or (ii) a term Secured Overnight Financing Rate ("SOFR") plus an applicable percentage of 2.5%.
The 2024 Revolving Credit Facility hasbears interest at rates based upon, at our option, either (i) the base rate or the Canadian prime rate, as applicable, plus an applicable percentage of between 1.25% and 1.75% per annum, depending on our consolidated first lien leverage ratio or (ii) the term SOFR rate or the Canadian Overnight Repo Rate Average ("CORRA") rate plus an applicable percentage of between 2.25% and 2.75% per annum, depending on our consolidated first lien leverage ratio.
In connection with the refinancing of our debt, we capitalized $7.5 million of additional financing costs and recognized a maturity dateloss on debt extinguishment of September 2019. During$4.3 million within interest expense, net in our condensed consolidated statements of operations for the three months ended March 31, 2018, Ceridian made2024.
The 2024 Senior Secured Credit Facility documents contain a final mandatorypre-paymentrequirement that we maintain a ratio of $0.3 towardsfirst lien net leverage to Credit Facility EBITDA below specified levels on a quarterly basis; however, such requirement is applicable only if more than 35% of the 2024 Revolving Credit Facility is utilized. As of March 31, 2024, no portion of the 2024 Revolving Credit Facility was utilized.
Convertible Senior Notes
In March 2021, we issued $575.0 million in aggregate principal amount of 0.25% Convertible Senior Notes due 2026 in a private offering to qualified institutional buyers pursuant to Rule 144A promulgated under the Securities Act, and pursuant to exemptions from the prospectus requirements of applicable Canadian securities laws, including the exercise in full by the initial purchasers of their option to purchase an additional $75.0 million in aggregate principal amount of 0.25% Convertible Senior Notes due 2026 (collectively, the “Convertible Senior Notes”). The Convertible Senior Notes bear interest at a rate of 0.25% per year and interest is payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2021. The Convertible Senior Notes mature on 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 $561.8 million.
The following table presents details of the Convertible Senior Notes:
|
| Initial Conversion Rate per $1,000 Principal |
| Initial Conversion Price per Share |
| |
|
|
|
|
|
| |
Convertible Senior Notes |
| 7.5641 shares |
| $ | 132.20 |
|
15 | Q1 2024 Form 10-Q
The Convertible Senior Notes will be convertible at the option of the holders at any time only under certain circumstances as outlined in Part II, Item 8, Note 9, “Debt,” to our audited consolidated financial statements in our 2023 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 March 31, 2024.
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 balanceamount being converted, and any excess of the Term Debt fromconversion value over the proceeds received fromprincipal amount will be settled, at our election, in cash or shares of common stock.
The Convertible Senior Notes are accounted for as a single liability, and the 2016 salecarrying amount of our United Kingdom and Ireland business.
the Convertible Senior Notes was $568.9 million as of March 31, 2024, with principal of $575.0 million, net of issuance costs of $6.1 million. The Convertible Senior Notes are included within Long-term debt, less current portion in our condensed consolidated balance sheets as of March 31, 2024. 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 5.1%.
Interest expense recognized related to the Convertible Senior Notes was as follows:
Ceridian issued its senior notes due
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (Dollars in millions) |
| |||||
Contractual interest expense |
| $ | 0.4 |
|
| $ | 0.4 |
|
Amortization of debt issuance costs |
|
| 0.7 |
|
|
| 0.7 |
|
Total |
| $ | 1.1 |
|
| $ | 1.1 |
|
Capped Calls
In March 2021, (“in connection with the pricing of the Convertible Senior Notes”Notes, we entered into capped call transactions with the option counterparties (the “Capped Calls”) on October 1, 2013,. The Capped Calls each have an initial strike price of $132.20 per share, and an initial cap price of $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 $475.0 guaranteed by Parent and its payment systems business unit (“Comdata”). In connection with the Parent’s divestiture of Comdata on November 14, 2014, Ceridian met the credit conditions to allow theconverted Convertible Senior Notes, as the case may be, with such reduction and/or offset subject to transitiona 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 stand-alone obligationsthe issuer's own stock and classified in stockholder’s equity in our condensed consolidated balance sheet, we have recorded an amount of Ceridian. The Senior Notes are unsecured.
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 | |||
2018 | $ | — | ||
2019 | — | |||
2020 | 657.0 | |||
2021 | 475.0 | |||
2022 | — | |||
Thereafter | — | |||
|
| |||
| $ | 1,132.0 | |||
|
| |||
Years Ending December 31, |
| Amount |
| |
|
| (Dollars in millions) |
| |
2024 |
| $ | 3.2 |
|
2025 |
|
| 6.5 |
|
2026 |
|
| 581.5 |
|
2027 |
|
| 6.5 |
|
2028 |
|
| 6.5 |
|
Thereafter |
|
| 620.8 |
|
| $ | 1,225.0 |
| |
16 | Q1 2024 Form 10-Q
Fair Value of Debt
Our debt does not trade in active markets. Basedmarkets and was considered to be a Level 2 measurement at March 31, 2024. The fair value of the 2018 Term Debt and 2024 Term Debt were based on the borrowing rates currently available to us for bank loans with similar terms, and average maturities, and volumes as our debt. The fair value of the limited tradesConvertible Senior Notes was determined based on the closing trading price per $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 debt, thecommon stock and market interest rates. The fair value of our indebtednessdebt was estimated to be $1,150.2$1,177.7 million and $1,154.1$1,163.2 million as of March 31, 20182024, and December 31, 2017,2023, respectively.
Debt Refinancing
Using the net proceeds received from the IPO and concurrent private placement, we satisfied and discharged the indenture governing our Senior Notes on April 30, 2018, and the Senior Notes will be redeemed as of May 30, 2018. Concurrently, we completed the refinancing of our Senior Secured Credit Facility. Please refer to Note 19, “Subsequent Events,” for further discussion of these transactions.
10.9. Employee Benefit Plans
The components of net periodic cost (gain) for our defined benefit pension plan and for our postretirement benefit plan are included in the following tables:
| Three Months ended March 31, |
| Three Months Ended March 31, |
| |||||||||||||
| 2018 | 2017 |
| 2024 |
|
| 2023 |
| |||||||||
Net Periodic Pension Cost | ||||||||||||||||
|
| (In millions) |
| |||||||||||||
Interest cost | $ | 4.1 | $ | 4.3 |
| $ | 4.1 |
|
| $ | 4.3 |
| ||||
Expected return on plan assets | (6.5 | ) | (6.6 | ) | ||||||||||||
Actuarial loss amortization | 3.6 | 3.2 |
|
| 3.3 |
|
|
| 2.1 |
| ||||||
|
| |||||||||||||||
Less: Expected return on plan assets |
|
| (4.4 | ) |
|
| (5.5 | ) | ||||||||
Net periodic pension cost | $ | 1.2 | $ | 0.9 |
| $ | 3.0 |
|
| $ | 0.9 |
| ||||
|
| |||||||||||||||
| Three Months ended March 31, |
| Three Months Ended March 31, |
| |||||||||||||
| 2018 | 2017 |
| 2024 |
|
| 2023 |
| |||||||||
Net Periodic Postretirement Benefit | ||||||||||||||||
Service cost | $ | (0.1 | ) | $ | (0.1 | ) | ||||||||||
|
| (In millions) |
| |||||||||||||
Interest cost | 0.1 | 0.1 |
| $ | 0.1 |
|
| $ | 0.1 |
| ||||||
Actuarial gain amortization | (0.6 | ) | (0.6 | ) |
|
| (0.5 | ) |
|
| (0.6 | ) | ||||
|
| |||||||||||||||
Net periodic postretirement benefit gain | $ | (0.6 | ) | $ | (0.6 | ) |
| $ | (0.4 | ) |
| $ | (0.5 | ) | ||
|
| |||||||||||||||
11.10. Share-Based Compensation
HCM Share-Based Compensation Plans
Prior to November 1, 2013, Ceridian employees participated in aOur share-based compensation plan of the ultimate parent of Ceridian. The 2007 Stock Incentive Plan (“2007 SIP”) authorized the issuance of up to 10,540,540 shares of common stock of Parent to eligible participants through stock options and stock awards. Eligible participants in the 2007 SIP included the Parent’s directors, employees and consultants.
Effective November 1, 2013, most participants who held stock options under the 2007 SIP converted their options to a newly created option plan, the 2013 Ceridian HCM Holding Inc. Stock Incentive Plan (“2013 HCM SIP”). A small number of participants maintained their stock options in the 2007 SIP. As of March 31, 2018, there were 10,000 stock options outstanding under the 2007 SIP.
The 2013 HCM SIP authorized the issuance of up to 12,500,000 shares of common stock of Ceridian to eligible participants through stock options and other stock awards. On March 20, 2017, the Board of Directors approved an increase to the number of authorized shares under the 2013 HCM SIP to 15,000,000. Eligible participants in the 2013 HCM SIP include Ceridian’s directors, employees, and consultants.
As part of the 2013 HCM SIP, the Board of Directors approved a stock appreciation rights program that authorized the issuance of up to 600,000 stock appreciation rights. As of March 31, 2018, there were 260,850 outstanding stock appreciation rights.
As of March 31, 2018, there were 1,823,963 shares available for future grantsconsists of stock options, restricted stock units (“RSU”), and performance stock awards under the 2013 HCM SIP.units (“PSU”) and is used to compensate certain employees and non-employee directors. We also offer an employee stock purchase plan to eligible employees.
Stock options awarded under the 2013 HCM SIPMost of our equity awards vest either annually on a pro rata basis, generally over a four-one- or five-yearthree-year period or on a specific date if certain performance criteria are satisfied and certain equity values are attained. In addition, upon termination of employment,service, all vested options become eligible toawards must be exercised generally within 90 days after termination.termination, or these awards will be forfeited. The stock option awardsoptions have a10-year contractual term and have an exercise price that is not less than the fair market value of the underlying common stock on the date of grant.
Share-basedAs of March 31, 2024, there were 12.8 million stock options, RSUs, and PSUs outstanding and 9.7 million shares available for grant under approved equity compensation plans.
Total share-based compensation expense was $38.0 million and $40.2 million for the HCM plans was $2.7 and $4.2 for three months ended March 31, 2018,2024, and 2017,2023, respectively.
17 | Q1 2024 Form 10-Q
On April 24, 2018, in connection with the IPO, the Board of Directors approved the 2018 Equity Incentive Plan (“2018 EIP”), which authorizes the issuance of up to 13,500,000 shares of common stock to eligible participants through equity awards. Concurrent with the IPO, 4,673,605 stock options were granted to current employees under the 2018 EIP. The exercise price of such stock options is $22.00, the IPO price, and the options will vest over four years.
Performance-Based Stock Options
Performance-based stock option activity for the period the period iswas as follows:
| Shares | Weighted Average Exercise Price (per share) | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in millions) |
| Shares |
|
| Weighted |
|
| Weighted |
|
| Aggregate |
| |||||||||||||||||
Options outstanding at December 31, 2017 | 1,035,647 | $ | 13.46 | 3.5 | $ | — | ||||||||||||||||||||||||||
Outstanding at December 31, 2023 |
|
| 1,754,781 |
|
| $ | 65.26 |
|
|
| 6.4 |
|
| $ | 3.3 |
| ||||||||||||||||
Granted | — | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||
Exercised | — | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||
Forfeited or expired | (5,572 | ) | (13.46 | ) | — | — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Options outstanding at March 31, 2018 | 1,030,075 | $ | 13.46 | 3.2 | $ | — | ||||||||||||||||||||||||||
Outstanding at March 31, 2024 |
|
| 1,754,781 |
|
| $ | 65.26 |
|
|
| 6.1 |
|
| $ | 1.7 |
| ||||||||||||||||
Exercisable at March 31, 2024 |
|
| 1,004,781 |
|
| $ | 65.26 |
|
|
| 6.2 |
|
| $ | 1.0 |
| ||||||||||||||||
As of March 31, 2018,2024, there is no unrecognized expense related to unvested performance-based stock option awards.
Performance Stock Units
PSU activity was as follows:
Shares | ||||
Outstanding at December 31, 2023 | 778,024 | |||
Granted | 793,447 | |||
Vested and released | (336,513 | ) | ||
Forfeited or canceled | (98,661 | ) | ||
Outstanding at March 31, 2024 | 1,136,297 | |||
Releasable at March 31, 2024 | — | |||
In March 2024, we granted PSU awards under our Management Incentive Plan (“MIP”) for the incentive period of January 1, 2024 through December 31, 2024, and also as part of long-term incentive ("LTI") grants to certain members of management. These awards are primarily earned upon performance of key financial metrics and certain LTI awards are earned based upon our total shareholder return, a market condition, as compared to an indexed shareholder return over the course of a fiscal based three-year performance period, starting in the year of grant. The probability of vesting will continue to be evaluated throughout 2024, and share-based compensation will be recognized in accordance with that probability. Earned awards typically vest in the quarter following the conclusion of the performance period.
As of March 31, 2024, there was $5.3$59.0 million of share-based compensation expense related to unvested performance-based stock options not yet recognized.
Term-Based Stock Options
Term-based option activity for the period is as follows:
| Shares | Weighted Average Exercise Price (per share) | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in millions) | |||||||||||||
Options outstanding at December 31, 2017 | 10,991,681 | $ | 16.52 | 6.9 | $ | 48.8 | ||||||||||
Granted | 175,000 | 20.96 | — | — | ||||||||||||
Exercised | (17,357 | ) | (19.76 | ) | — | — | ||||||||||
Forfeited or expired | (41,988 | ) | (17.38 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Options outstanding at March 31, 2018 | 11,107,336 | $ | 16.59 | 6.7 | $ | 48.5 | ||||||||||
Options exercisable at March 31, 2018 | 7,214,169 | $ | 16.19 | 5.6 | $ | 34.4 | ||||||||||
As of March 31, 2018, there was $20.8 of share-based compensation expense related to unvested term based awardsPSUs not yet recognized, which is expected to be recognized over a weighted average period of 1.22.9 years.
Restricted Stock Units
RSU activity was as follows:
Shares | ||||
Outstanding at December 31, 2023 | 3,245,092 | |||
Granted | 1,954,807 | |||
Vested and released | (986,423 | ) | ||
Forfeited or canceled | (68,939 | ) | ||
Outstanding at March 31, 2024 | 4,144,537 | |||
Releasable at March 31, 2024 | — | |||
As of March 31, 2018, there were 7,214,169 vested term-based stock options.
Restricted Stock Units
Restricted stock units (“RSUs”) activity for the period is as follows.
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
During the three months ended March 31, 2018, 201,190 restricted stock units vested. Of the vested restricted stock units, 76,190 shares of common stock were issued, and 125,000 restricted stock units remained vested and releasable. As of March 31, 2018, there were 404,800 unvested restricted stock units outstanding. Restricted stock units generally vest annually over a three- or four-year period. As of March 31, 2018,2024, there was $6.3$211.7 million of share-based compensation expense related to unvested restricted stock units not yet recognized, which expected to be recognized over a weighted average period of 3.0 years.
Joint Venture Company Share-Based Compensation Plan
In connection with the formation of the Joint Venture Company, a share-based compensation scheme under English law (the “JV SIP”) was created. The JV SIP has authorized the issuance of 3,551,911 options to purchase Class C or Class D shares of the Joint Venture Company. Class C shares are ordinary shares in the Joint Venture Company with rights and liquidation preferences comparable to Class B shares. Class D shares are ordinary shares in the Joint Venture Company with rights and liquidation preferences comparable to Class A shares. Eligible participants in the JV SIP include the Joint Venture Company directors and employees.
Share-based compensation expense for the JV SIP was $0.2 and $0.3 for the years ended March 31, 2018 and 2017, respectively.
Class C Stock Options
Class C stock option activity for the period is as follows:
| Shares | Weighted Average Exercise Price (per share) | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in millions) | |||||||||||||
Options outstanding at December 31, 2017 | 1,104,474 | $ | 2.44 | 6.9 | $ | 3.0 | ||||||||||
Granted | 31,416 | 3.90 | — | — | ||||||||||||
Exercised | — | — | — | — | ||||||||||||
Forfeited or expired | (21,590 | ) | (4.57 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Options outstanding at March 31, 2018 | 1,114,300 | $ | 2.44 | 6.7 | $ | 3.1 | ||||||||||
Options exercisable at March 31, 2018 | 624,820 | $ | 1.74 | 6.5 | $ | 2.2 | ||||||||||
Class D Stock Options
Class D stock option activity for the period is as follows:
| Shares | Weighted Average Exercise Price (per share) | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in millions) | |||||||||||||
Options outstanding at December 31, 2017 | 986,525 | $ | 8.60 | 5.8 | $ | 1.0 | ||||||||||
Granted | 31,414 | 7.91 | — | — | ||||||||||||
Exercised | — | — | — | — | ||||||||||||
Forfeited or expired | (26,200 | ) | (8.83 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Options outstanding at March 31, 2018 | 991,739 | $ | 8.57 | 5.5 | $ | 1.1 | ||||||||||
Options exercisable at March 31, 2018 | 404,014 | $ | 8.58 | 5.5 | $ | 0.4 | ||||||||||
As of March 31, 2018, there was $2.4 of share-based compensation related to unvested awardsRSUs not yet recognized, which is expected to be recognized over a weighted average period of 1.82.0 years.
18 | Q1 2024 Form 10-Q
Term-Based Stock Options
Term-based stock option activity was as follows:
|
| Shares |
|
| Weighted |
|
| Weighted |
|
| Aggregate |
| ||||
Outstanding at December 31, 2023 |
|
| 6,213,998 |
|
| $ | 51.34 |
|
|
| 5.5 |
|
| $ | 110.8 |
|
Granted |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exercised |
|
| (329,339 | ) |
|
| (56.06 | ) |
|
| — |
|
|
| — |
|
Forfeited or expired |
|
| (94,845 | ) |
|
| (77.57 | ) |
|
| — |
|
|
| — |
|
Outstanding at March 31, 2024 |
|
| 5,789,814 |
|
| $ | 50.64 |
|
|
| 5.3 |
|
| $ | 102.5 |
|
Exercisable at March 31, 2024 |
|
| 5,243,179 |
|
| $ | 48.21 |
|
|
| 5.1 |
|
| $ | 102.3 |
|
As of March 31, 2018,2024, there were 624,820 vested Class Cwas $6.1 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 0.1 years.
Global Employee Stock Purchase Plan
Our Global Employee Stock Purchase Plan activity was as follows:
Period Ended |
| Shares Issued |
|
| Purchase Price |
| ||
March 31, 2024 |
|
| 58,349 |
|
| $ | 56.12 |
|
A total of 1.4 million shares of common stock are available for future issuances under the plan as of March 31, 2024.
11. Revenue and 404,014 vested Class D options.Revenue-Related Activity
Disaggregation of Revenue
12. Supplementary Data to Statements
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (In millions) |
| |||||
Revenue: |
|
|
|
|
|
| ||
Recurring revenue: |
|
|
|
|
|
| ||
Dayforce recurring |
| $ | 337.2 |
|
| $ | 271.2 |
|
Powerpay recurring |
|
| 26.0 |
|
|
| 24.1 |
|
Total Cloud recurring |
|
| 363.2 |
|
|
| 295.3 |
|
Other recurring |
|
| 19.5 |
|
|
| 22.6 |
|
Total recurring revenue |
|
| 382.7 |
|
|
| 317.9 |
|
Professional services and other |
|
| 48.8 |
|
|
| 52.7 |
|
Total revenue |
| $ | 431.5 |
|
| $ | 370.6 |
|
Recurring revenue includes float revenue of Operations
Other (income) expense, net consisted of foreign currency translation income of $2.8$60.7 million and $46.9 million for the three months ended March 31, 2018,2024, and 2023, respectively.
Trade and Other Receivables, Net
Trade and other receivables, net included total reserves for sales adjustments and allowances for doubtful accounts of $16.6 million and $14.0 million as of March 31, 2024 and December 31, 2023, respectively.
19 | Q1 2024 Form 10-Q
Contract Balances
In accordance with Accounting Standards Codification ("ASC") 606, 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. Additions to contract assets generally represent increases to professional services revenues, and reductions to contract assets generally represent reductions to recurring revenues during the initial contract term. 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. The changes in total contract assets were as follows:
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (In millions) |
| |||||
Contract assets, beginning of period |
| $ | 89.0 |
|
| $ | 68.5 |
|
Additions |
|
| 22.4 |
|
|
| 23.7 |
|
Reductions |
|
| (19.5 | ) |
|
| (18.9 | ) |
Foreign currency translation |
|
| (0.6 | ) |
|
| 0.1 |
|
Contract assets, end of period |
| $ | 91.3 |
|
| $ | 73.4 |
|
The activity for the year ended December 31, 2023 included $98.4 million of additions, $78.6 million of reductions, and $0.7 million related to foreign currency translationtranslation.
Deferred Revenue
Deferred revenue primarily consists of payments received in advance of revenue recognition. The changes in deferred revenue were as follows:
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (In millions) |
| |||||
Deferred revenue, beginning of period |
| $ | 40.2 |
|
| $ | 41.2 |
|
New billings |
|
| 213.0 |
|
|
| 147.8 |
|
Acquired billings |
|
| 8.6 |
|
|
| — |
|
Revenue recognized |
|
| (215.4 | ) |
|
| (141.7 | ) |
Foreign currency translation |
|
| (0.9 | ) |
|
| (0.3 | ) |
Deferred revenue, end of period |
| $ | 45.5 |
|
| $ | 47.0 |
|
Deferred Sales Commissions
In accordance with ASC 606, sales commissions paid based on the annual contract value of a signed customer contract are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions paid based on the annual contract value are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be ten years. Amortization expense of $0.9for deferred sales commissions was $6.3 million and $4.7 million for the three months ended March 31, 2017. For the three months ended2024, and 2023, respectively.
Transaction Price for Remaining Performance Obligations
As of March 31, 2018,2024, approximately $1,221.2 million of revenue is expected to be recognized over the next three years from remaining performance obligations, which represents contracted revenue for recurring services and 2017,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. 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 foreign currency translation is primarily related to foreign currency remeasurement gains and losses resulting from intercompany receivables or payables denominated in foreign currencies.transaction price for remaining performance obligations disclosed above.
20 | Q1 2024 Form 10-Q
13.12. Accumulated Other Comprehensive Income (Loss)Loss
The components of accumulated other comprehensive income (loss)loss were as follows:
| Foreign Currency Translation Adjustment | Unrealized Gain (Loss) from Invested Customer Trust Funds | Pension Liability Adjustment | Total | |||||||||||||
Balance as of December 31, 2017 | $ | (160.6 | ) | $ | (9.0 | ) | $ | (142.5 | ) | $ | (312.1 | ) | ||||
Other comprehensive income (loss) before income taxes and reclassifications | (15.9 | ) | (13.4 | ) | (0.1 | ) | (29.4 | ) | ||||||||
Income tax benefit | — | 0.8 | — | 0.8 | ||||||||||||
Reclassifications to earnings | — | — | 3.0 | 3.0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other comprehensive income (loss) attributable to Ceridian | (15.9 | ) | (12.6 | ) | 2.9 | (25.6 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Balance as of March 31, 2018 | $ | (176.5 | ) | $ | (21.6 | ) | $ | (139.6 | ) | $ | (337.7 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
|
| Foreign |
|
| Unrealized Gain |
|
| Pension |
|
| Total |
| ||||
|
| (In millions) |
| |||||||||||||
Balance as of December 31, 2023 |
| $ | (217.4 | ) |
| $ | (56.3 | ) |
| $ | (163.0 | ) |
| $ | (436.7 | ) |
Other comprehensive (loss) income before income taxes and reclassifications |
|
| (22.7 | ) |
|
| (7.4 | ) |
|
| 0.4 |
|
|
| (29.7 | ) |
Income tax benefit (expense) |
|
| — |
|
|
| 1.9 |
|
|
| (0.8 | ) |
|
| 1.1 |
|
Reclassifications to earnings |
|
| — |
|
|
| — |
|
|
| 2.8 |
|
|
| 2.8 |
|
Other comprehensive (loss) income |
|
| (22.7 | ) |
|
| (5.5 | ) |
|
| 2.4 |
|
|
| (25.8 | ) |
Balance as of March 31, 2024 |
| $ | (240.1 | ) |
| $ | (61.8 | ) |
| $ | (160.6 | ) |
| $ | (462.5 | ) |
During the three months ended March 31, 2018, other comprehensive loss attributable to noncontrolling interest was $0.2, entirely related to foreign currency translation. During the three months ended March 31, 2017, other comprehensive income attributable to noncontrolling interest was $0.1, entirely related to foreign currency translation.
14.13. Income Taxes
Our income tax provision (benefit) represents federal, state, and international taxes on our income recognized for financial statement purposes whichand includes the effecteffects of temporary differences between financial statement income and income recognized for tax return purposes. Our incomeDeferred tax provision is negatively affected byassets and liabilities are recorded for temporary differences between the need for a valuation allowance against our deferredfinancial reporting basis and the tax assets.basis of assets and liabilities. We record a valuation allowance to reduce our deferred tax asset when it is more likely than not that all or a portion ofassets to reflect the net deferred tax assetassets that we believe will not be realized. In determiningassessing the requirementlikelihood that we will be able to recover our deferred tax assets and the need for a valuation allowance, we assess theconsider all available evidence, both positive and negative, evidence to estimate if sufficientincluding 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, will be generated to utilize our deferredongoing prudent and feasible tax assets not already identifiedplanning strategies, as requiring a valuation allowance.well as current tax laws. As of March 31, 2018, and December 31, 2017, excluding the Joint Venture Company,2024, we continued to recordhave a full valuation allowance of $54.2 million against our domesticcertain deferred tax assets that are not offset by the reversalconsisting primarily of deferred tax liabilities. In the future, if it is determined that we no longer have a requirement$27.2 million attributable to record a valuation allowance against all or a portion of ournet operating loss carryovers and $23.8 million attributable to other deferred tax assets the releaseconsisting largely of the valuation allowance would have a positive impact on our income tax provision.foreign intangible assets.
On December 22, 2017, the Tax Cut and Jobs Act legislation (the “Act”) was signed into law. The Act made broad and complex changes to the U.S. tax code including: (a) lower U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, (b) accelerated expensing of qualified capital investments for a specific period, and (c) a transition from a worldwide tax system to a territorial tax system.
ASC 740, Income Taxes, requires a company to record the effects of a tax law change in the period of enactment; however, shortly after enactment of the Tax Act, the SEC staff issued Staff Accounting Bulletin (“SAB”) 118, which allows a company to record a provisional amount when it does not have the necessary information available to complete its accounting for the change in the tax law. The FASB subsequently issued ASU2018-05 to codify SAB 118 by amending ASC 740. ASU2018-05 continues to allow a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law. The measurement period ends when the company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.
We recorded income tax expense of $6.8$11.3 million during the three months ended March 31, 2018. Included in this amount are the estimated impacts2024, which included tax expense of requiring a$3.9 million attributable to current inclusion in U.S. federal income of certain earnings of controlled foreign corporations, allowing a domestic corporation an immediate deduction in the U.S. taxable income for a portion of its foreign-derived intangible income,operations, $3.1 million attributable to Global Intangible Low Taxed Income, $2.4 million attributable to share-based compensation, and the base erosion anti-abuse tax.
In January and April of 2018, the Internal Revenue Service (the “IRS”) issued guidance that provides additional clarification on certain aspects of the transition tax calculation. We did not record any change to our transition tax liability during the three months ended March 31, 2018. We are considering the additional IRS guidance as we continue to gather additional information related to the transition tax estimates and deferred tax estimates to more precisely compute the transition tax and remeasurement of deferred taxes. We anticipate additional IRS guidance relative to the impacts of the Act will be forthcoming throughout 2018.
The total amount of unrecognized tax benefits as of March 31, 2018,2024, and December 31, 2017, were $10.5, including $2.1 of accrued interest,2023, was $1.1 million and $10.5, including $2.2 of accrued interest,$1.0 million, respectively. Of the total amount of unrecognized tax benefits as of March 31, 2018, $9.9The $1.1 million represents the amount that, if recognized, would favorably impact our effective income tax rate. It is reasonable to expectrate as of March 31, 2024. We adjust 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 amountfinal tax outcome of unrecognized tax benefitsthese matters is different than the amounts recorded, such differences will changeaffect the provision for income taxes in the next twelve months; however, we do not expect the change toperiod in which such determination is made and could have a significantmaterial impact on our results of operations or financial condition.condition and operating results.
We file income tax returns in the U.S. federal jurisdiction, various states, and foreign jurisdictions. With a few exceptions, we are no longer subject to U.S. federal, state and local, ornon-U.S. income tax examinations by tax authorities for years before 2014.2019.
15.14. 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.
21 | Q1 2024 Form 10-Q
Our general terms and conditions in customer contracts frequently include a provision indicating we will indemnify and hold our customers harmless from and against any and all claims alleging that the services and materials furnished by us violate any third party’s patent, trade secret, copyright, or other intellectual property right. We are not aware of any material pending litigation concerning these indemnifications.
Some of these matters raise difficult and complex factual and legal issues and are subject to many uncertainties, including the facts and circumstances of each particular action, and the jurisdiction, forum, and law under which each action is proceeding. Because of these complexities, final disposition of some of these proceedings may not occur for several years. As such, we are not always able to estimate the amount of our possible future liabilities, if any.
There can be no certainty that we may not ultimately incur charges in excess of presently established or future financial accruals or insurance coverage. Although occasional adverse decisions or settlements may occur, it is management’s opinion that the final disposition of these proceedings will not, considering the merits of the claims and available resources or reserves and insurance, and based upon the facts and circumstances currently known, have a material adverse effect on our financial position or results of operations.
16. Related Party Transactions
Management Agreements
Ceridian is party to management agreements with affiliates of our Sponsors, Fidelity National Financial, Inc. (“FNF”) and THLM. FNF assigned its management agreement to Cannae in November 2017. Pursuant to these management agreements, Cannae and THLM each, respectively, agree to provide the Company with financial advisory, strategic, and general oversight services. These management agreements provide that we will pay annual management fees to each of Cannae and THLM in an amount equal to the greater of (a) $0.9, or (b) 0.5 percent of Adjusted EBITDA. Adjusted EBITDA, for purposes of the management agreements, is EBITDA as defined in the Ceridian Senior Secured Credit Facility, further adjusted to exclude the payments made pursuant to the management agreements and certain stock options or other equity compensation.
We recorded a management fee expense in selling, general, and administrative expense of $0.5, and $0.5 for the three months ended March 31, 2018, and 2017, respectively, related to these management agreements.
In April 2018, the management agreements terminated upon consummation of our IPO. Upon termination, the management agreements provided that we pay a termination fee equal to the net present value of the management fee for a seven year period, which was $11.3 million.
Indebtedness
Prior to itssplit-off from FNF, Cannae was an affiliate of FNF. FNF and its subsidiaries owned $24.0 and $24.0 of the Senior Notes as of March 31, 2018, and December 31, 2017, respectively. Based on this ownership, $0.8 and $0.8 in interest payments were made to FNF and its subsidiaries during the three months ended March 31, 2018, and 2017, respectively. FNF and its subsidiaries conducted the debt transactions through third parties in the ordinary course of their business and not directly with us. Following Cannae’ssplit-off from FNF, FNF retained ownership of the Senior Notes.
Service and Vendor Related Agreements
Ceridian is a party to a service agreement with CompuCom Systems, Inc. (“CompuCom”), an investment portfolio company of THL Partners. Pursuant to the service agreement, CompuCom agrees to provide us with service desk and desk side support services. Pursuant to this arrangement, we made payments to CompuCom totaling $0.2, and $0.5 during the three months ended March 31, 2018, and 2017, respectively.
Other Transactions
We provide Dayforce and related services to The Stronach Group, for which we recorded revenue of $0.1 for the three months ended March 31, 2018. Alon Ossip, the brother of David Ossip, is the chief executive officer of The Stronach Group.
We provide Dayforce and related services to FNF for which we recorded revenue of $0.1 and $0.3 for the three months ended March 31, 2018, and 2017, respectively.
17. Financial Data by Segment and Geographic Area
Segments
As of March 31, 2018, Ceridian had two operating and reportable segments, HCM and LifeWorks, based on the separate management teams, solutions, and objectives of the businesses. Our operating and reportable segments align with how management monitored operating performance, allocates resources, and deploys capital. There were two chief operating decision makers (“CODM”), the Chief Executive Officer (“CEO”) of HCM and the CEO of LifeWorks. Both reported directly to their separate Boards of Directors.
Segment performance is based on revenues and operating income or income (loss) before interest expense and income taxes. Interest expense and income taxes are not indicative of operating performance, and, as a result are not included in the measures that are reviewed by the CODMs. The amounts in the following tables are obtained from reports used by our senior management team. There are no significantnon-cash items reported in segment profit or loss other than depreciation and amortization and share-based compensation. Total assets by segment were $6,723.8 for HCM and $155.7 for LifeWorks as of March 31, 2018, and $6,573.7 for HCM and $156.2 for LifeWorks as of December 31, 2017. Please refer to Note 8, “Goodwill and Intangible Assets,” for goodwill balances by segment.
| Three Months ended March 31, 2018 | ||||||||||||
| HCM | LifeWorks | Total | ||||||||||
Cloud revenue | $ | 125.2 | $ | — | $ | 125.2 | ||||||
Bureau revenue | 62.0 | — | 62.0 | |||||||||
LifeWorks revenue | — | 21.7 | 21.7 | |||||||||
|
|
|
|
|
| |||||||
Total revenue | 187.2 | 21.7 | 208.9 | |||||||||
Operating profit (loss) | 27.3 | (0.9 | ) | 26.4 | ||||||||
Depreciation and amortization | 13.9 | 1.0 | 14.9 | |||||||||
Capital expenditures | $ | 10.3 | $ | — | $ | 10.3 | ||||||
| Three Months ended March 31, 2017 | ||||||||||||
| HCM | LifeWorks | Total | ||||||||||
Cloud revenue | $ | 90.7 | $ | — | $ | 90.7 | ||||||
Bureau revenue | 76.7 | — | 76.7 | |||||||||
LifeWorks revenue | — | 19.6 | 19.6 | |||||||||
|
|
|
|
|
| |||||||
Total revenue | 167.4 | 19.6 | 187.0 | |||||||||
Operating profit | 10.9 | 1.3 | 12.2 | |||||||||
Depreciation and amortization | 13.1 | 1.0 | 14.1 | |||||||||
Capital expenditures | $ | 8.7 | $ | 0.1 | $ | 8.8 | ||||||
Our Solutions
We categorize our solutions into three categories: Cloud HCM (“Cloud”), Bureau HCM (“Bureau”), and LifeWorks offerings.
Revenue by solution is as follows:
| Three Months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
Cloud | $ | 125.2 | $ | 90.7 | ||||
Bureau | 62.0 | 76.7 | ||||||
LifeWorks | 21.7 | 19.6 | ||||||
|
|
|
| |||||
Total revenue | $ | 208.9 | $ | 187.0 | ||||
18.15. Net LossIncome per Share
We compute net lossincome per share of common stock using the treasury stock method.
Basic net loss per share is computed by dividing net loss attributable to Ceridian available to common stockholders by the weighted-average number of shares of common stock outstanding during the period.
For the calculation of diluted net loss per share, net loss per share is adjusted by the effect of dilutive securities, including awards under our share-based compensation plans. Diluted net loss per share is computed by dividing the resulting net loss attributable to Ceridian available to common stockholders by the weighted-average number of fully diluted common shares outstanding. During the three months ended March 31, 2018, and 2017, our potential dilutive shares, such as stock options, RSUs, and shares of senior and junior convertible preferred stock were not included in the computation of diluted net loss per share as the effect of including these shares in the calculation would have been anti-dilutive.
The numerators and denominators of the basic and diluted net lossincome per share computations arewere calculated as follows:
| Three Months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
Numerator: | ||||||||
Net loss attributable to Ceridian | $ | (2.1 | ) | $ | (11.2 | ) | ||
Less: Income from discontinued operations | — | 0.5 | ||||||
|
|
|
| |||||
Net loss from continuing operations attributable to Ceridian | (2.1 | ) | (11.7 | ) | ||||
Less: Senior Preferred Stock dividends declared | 5.3 | 4.7 | ||||||
|
|
|
| |||||
Net loss from continuing operations attributable to Ceridian available to common stockholders | $ | (7.4 | ) | $ | (16.4 | ) | ||
|
|
|
| |||||
Denominator: | ||||||||
Weighted-average shares outstanding—basic | 65,314,462 | 65,034,610 | ||||||
Weighted-average shares outstanding—diluted | 65,314,462 | 65,034,610 | ||||||
Net loss per share from continuing operations attributable to Ceridian—basic and diluted | $ | (0.11 | ) | $ | (0.25 | ) | ||
Net income per share from discontinued operations—basic and diluted | $ | — | $ | 0.01 | ||||
|
|
|
| |||||
Net loss per share attributable to Ceridian—basic and diluted | $ | (0.11 | ) | $ | (0.24 | ) | ||
|
|
|
| |||||
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (In millions, except per share data) |
| |||||
Numerator: |
|
|
|
|
|
| ||
Net income |
| $ | 7.1 |
|
| $ | 9.9 |
|
|
|
|
|
|
|
| ||
Denominator: |
|
|
|
|
|
| ||
Weighted average shares outstanding - basic |
|
| 156.9 |
|
|
| 154.2 |
|
Effect of dilutive equity instruments |
|
| 3.0 |
|
|
| 3.5 |
|
Weighted average shares outstanding - diluted |
|
| 159.9 |
|
|
| 157.7 |
|
|
|
|
|
|
|
| ||
Net income per share - basic |
| $ | 0.05 |
|
| $ | 0.06 |
|
Net income per share - diluted |
| $ | 0.04 |
|
| $ | 0.06 |
|
The following potentially dilutive weighted average shares were excluded from the calculation of diluted net lossincome per share because their effect would have been anti-dilutive:
| Three Months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
Senior convertible preferred stock | 16,802,144 | 16,802,144 | ||||||
Junior convertible preferred stock | 58,244,308 | 58,244,308 | ||||||
Stock options | 12,055,839 | 10,715,493 | ||||||
Outstanding RSUs | 581,440 | 218,741 | ||||||
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (In millions) |
| |||||
Stock options |
|
| 0.8 |
|
|
| 2.5 |
|
Restricted stock units |
|
| — |
|
|
| 0.6 |
|
Performance stock units |
|
| — |
|
|
| 0.1 |
|
22 | Q1 2024 Form 10-Q
Pro Forma Net Loss Per Share
Pro forma basic andThe shares underlying the conversion option in the Convertible Senior Notes were not considered in the calculation of diluted net lossincome 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 March 31, 2024 would have been convertible into approximately 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 $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 months ended March 31, 2018, has been computed to reflect2024 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 that will be outstanding, after the internal corporate reorganization subsequent to our IPO and concurrent private placement, in which our senior convertible preferred stock and junior convertible preferred stock was converted into common stock. Pro forma basic and diluted net loss per share does not giveas their effect to our IPO or concurrent private placement and the use of proceeds therefrom.
The numerators and denominators of pro forma basic and diluted net loss per share computations are calculated as follows:
| Three Months ended March 31, | ||||
| 2018 | ||||
Numerator: | ||||
Net loss attributable to Ceridian | $ | (2.1 | ) | |
Less: Income from discontinued operations | — | |||
|
| |||
Net loss from continuing operations attributable to Ceridian | $ | (2.1 | ) | |
|
| |||
Denominator: | ||||
Weighted-average shares outstanding—basic and diluted | 65,314,462 | |||
Pro forma adjustment to reflect assumed conversion of senior convertible preferred stock | 13,124,574 | |||
Pro forma adjustment to reflect assumed conversion of junior convertible preferred stock | 29,122,075 | |||
|
| |||
Pro forma weighted-average shares outstanding used to computed pro forma net loss per share—basic and diluted | 107,561,111 | |||
Pro forma net loss per share from continuing operations attributable to Ceridian—basic and diluted | $ | (0.02 | ) | |
Pro forma net income per share from discontinued operations—basic and diluted | $ | — | ||
|
| |||
Pro forma net loss per share attributable to Ceridian—basic and diluted | $ | (0.02 | ) | |
|
| |||
19. Subsequent Events
Reverse Stock Split
On April 10, 2018, we effected a1-for-2 reverse stock split of our common stock. All of the common share and per share information referenced throughout this interim reportwould have been retroactively adjusted to reflect this reverse stock split.anti-dilutive.
23 | Q1 2024 Form 10-Q
Initial Public Offering and Concurrent Private Placement
On April 30, 2018, we completed our initial public offering (“IPO”), in which we issued and sold 21,000,000 shares of common stock at a public offering price of $22.00 per share. We granted the underwriters a30-day option to purchase an additional 3,150,000 shares of common stock at the offering price, which was exercised in full. A total of 24,150,000 shares of common stock were issued on April 30, 2018, with gross proceeds of $531.3 from the IPO before deducting underwriting discounts, commissions, and other offering expenses. Immediately subsequent to the closing of our IPO on April 30, 2018, THL / Cannae Investors LLC, one of our existing stockholders controlled by our Sponsors, purchased from us in a private placement $100.0 of our common stock at a price per share equal to the offering price. Based on the offering price of $22.00 per share, 4,545,455 shares were issued in this private placement. The condensed consolidated financial statements as of March 31, 2018, including share and per share amounts, do not give effect to the IPO, concurrent private placement, or the internal corporate reorganization discussed in Note 1, “Organization,” as the IPO and related transactions were completed subsequent to March 31, 2018.
Debt Refinancing
Concurrently with closing of the IPO and the concurrent private placement, we applied the net proceeds from the IPO to satisfy and to discharge the indenture governing our outstanding $475.0 principal amount Senior Notes, and they will be redeemed on May 30, 2018. We also refinanced our remaining indebtedness under our (i) $702.0 (original principal amount) Senior Term Debt and (ii) $130.0 Revolving Credit Facility, including accrued interest and related costs and expenses, with new senior credit facilities consisting of a $680.0 term loan debt facility and a $300.0 revolving credit facility.
LifeWorks Disposition
Contemporaneously with the IPO and concurrent private placement, we distributed our interest in LifeWorks to our existing stockholders of record prior to the IPO on a pro rata basis in accordance with their pro rata interests in us. As a result of the LifeWorks Disposition, we no longer have any material obligations under the LifeWorks joint venture agreement. In addition, upon completion of the LifeWorks Disposition, LifeWorks is no longer a separate reportable segment, and we will no longer have anon-controlling interest on our consolidated financial statements.
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 theour unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form10-Q (this “Form10-Q”)report and in conjunction with our audited consolidated financial statements and notes thereto in our 2023 Form 10-K. This discussion and analysis contains forward-looking statements, including statements regarding industry outlook, our expectations for the year ended December 31, 2017 (our “2017 Annual Report”) included withinfuture of our prospectus dated April 25, 2018,business, and our liquidity and capital resources as filed withwell 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 Securitiesrisks and Exchange Commission (the “SEC”) on April 26, 2018, pursuant to Rule 424(b) under the Securities Act of 1933, as amended (FileNo. 333-223905) (the “Prospectus”).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 Form10-Qreport unless otherwise indicated.
Overview
CeridianDayforce, Inc. is a global human capital management (“HCM”) software company. We categorize our solutions into three categories: Cloud recurring, other recurring, and professional services and other. Cloud recurring revenue is generated from HCM solutions that are primarily delivered via two offerings: Dayforce, our flagship cloudCloud HCM platform, providesand Powerpay, a Cloud human resources (“HR”), and payroll solution for the Canadian small business market. Revenue from our Cloud recurring and other recurring solutions includes investment income generated from holding customer funds, also referred to as float revenue or float.
Dayforce provides HR, payroll and tax, 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, or size, to optimize management of the entire employee lifecycle, including attracting, hiring, 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 betterdrive efficiencies for our customers and their employees by improving HCM decision-making processes, streamlining workflows, exposingrevealing 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 are afounder-led organization, and our culture combines the agility and innovation of astart-up with a history of deep domain and operational expertise.
We sell Dayforce through our direct sales force on a subscriptionper-employee,per-month (“PEPM” ("PEPM") basis. Our subscriptions are typically structured with an initial fixed term of between three and five years, with evergreen renewal thereafter. Dayforce can serve customers of all sizes, ranging from 100 to over 100,000 employees. We have rapidly grown the Dayforce platform to more than 3,150 live Dayforce customers as of March 31, 2018. For the three months ended March 31, 2018, we added over 150 new live Dayforce customers.
In addition to Dayforce, we sell Powerpay, a cloud HR and payroll solution for the Canadian small business market, through both direct sales and established partner channels. We also continue to support customers using our Bureau solutions, which we generally stopped actively selling to new customers following the acquisition of Dayforce. We invest in maintenance and necessary updates to support our Bureau customers and continue to migrate them to Dayforce. We also own a controlling financial interest in a joint venture, LifeWorks, which offers an employee engagement platform that delivers employee assistance programs, social recognition, exclusive perks and discounts, a private social network, employee and corporate wellness programs, and employee engagement analytics in the United States, Canada, and the United Kingdom.
How We Generate Revenue
We generate recurring revenues primarily from recurring fees charged for the use of our Cloud HCM solutions, Dayforce and Powerpay, as well as from our Bureau solutions and LifeWorks joint venture. We also generate professional services and other revenue associated primarily with the work performed to assist customers with the planning, design, implementation, and staging of their cloud-based solution. Our HCM solutions are typically provided through long-term customer relationships that result in a high level of recurring revenue. For Dayforce, we primarily charge monthly recurring fees on a PEPM basis, generallyone-month in advance of service, based on the number and type of solutions provided to the customer and the number of employees and other users at the customer. Our standard Dayforce contracts are generally for a three to five-year period. The average time it takes to implement Dayforce typically ranges from three months for smaller customers to nine months for larger customers. Once Dayforce is implemented, the customer goes live, and we begin to generate recurring revenue. For Powerpay, we charge customers recurring fees on aper-employee,per-process basis. Powerpay can typically be implemented on a remote basis within one to three days, at which point we start receiving recurring fees. For our Bureau solutions, we primarily charge recurring fees on aper-process basis. We also generate recurring revenue from investment income from funds held in trust on behalf of our customers. The LifeWorks joint venture also generates recurring revenue, primarily from employee assistance, wellness, recognition, and incentive programs.
Our Solutions
We categorize our solutions into three categories: Cloud HCM, Bureau HCM, and LifeWorks solutions.
Cloud revenue is generated from HCM solutions that are delivered via two cloud offerings: Dayforce and Powerpay. The Dayforce offering is differentiated from our market competition as being a single application that offers a comprehensive range of functionality, including global HR, payroll, benefits, workforce management, and talent management on web and native iOS and Android platforms. Dayforce revenue is primarily generated from monthly recurring fees charged on a PEPM basis, generallyone-month in advance of service. Also included within Dayforce revenue is implementation, staging, and other professional services revenue; revenues from the sale, rental, and maintenance of time clocks; and billable travel expenses. The Powerpay offering is our solution designed primarily for small market Canadian customers. The typical Powerpay customer has fewer than 20 employees, and the majority of the revenue is generated from recurring fees charged on aper-employee,per-process basis. Typical processes include the customer’s payroll runs,year-end tax packages, and delivery of customers’ remittance advices or checks. In addition to the direct revenue earned from the Dayforce and Powerpay offerings, Cloud revenue also includes investment income generated from holding Cloud customer funds in trust before funds are remitted to taxing authorities, Cloud customer employees, or other third parties; and revenue from the sale of third party services.
Bureau revenue is generated primarily from HCM solutions delivered via a service-bureau model. These solutions are delivered via three primary service lines: payroll, payroll-related tax filing services, and outsourced human resource solutions. Revenue from payroll services is generated from recurring fees charged on aper-process basis. Typical processes include the customer’s payroll runs,year-end tax packages, and delivery of customers’ remittance advices or checks. In addition to customers who use our payroll services, certain customers use our tax filing services on a stand-alone basis. Our outsourced human resource solutions are tailored to meet the needs of individual customers, and entail our contracting to perform many of the duties of a customer’s human resources department, including payroll processing, time and labor management, performance management, and recruiting. We also performHCM-related individual services for customers, such as check printing, wage attachment and disbursement, and ACA management. Additional items included in Bureau revenue are custom professional services revenue; investment income generated from holding Bureau customer funds in trust before funds are remitted to taxing authorities, Bureau customer employees, or other third parties; consulting services related to Bureau offerings; and revenue from the sale of third party services.
LifeWorks joint venture revenue is primarily generated from employee assistance, wellness, recognition, and incentive programs offered directly by LifeWorks in the United States, Canada, the United Kingdom and various other countries through LifeWorks’ network of contractors. LifeWorks offers employee engagement services, such as employee assistance programs, social recognition, discounts from participating vendors, a private social network, employee and corporate wellness, and employee engagement analytics.
Our History
Ceridian was acquired in 2007 by affiliates andco-investors of Thomas H. Lee Partners, L.P. (“THL Partners”) and Cannae Holdings, Inc., formerly known as Fidelity National Financial Ventures, LLC (“Cannae”) (THL Partners and Cannae are together referred to as the “Sponsors”). In April 2012, Ceridian acquired Dayforce Corporation, which had built Dayforce, a Cloud HCM solution. In the months following the acquisition, Dayforce founder David D. Ossip was named Chief Executive Officer of Ceridian HCM, and shortly thereafter, we generally stopped actively selling our Bureau solutions to new customers in the United States to focus our resources on expanding the Dayforce platform and growing Cloud HCM solutions. For each quarter since September 30, 2016, our Cloud HCM revenue has surpassed our Bureau HCM revenue.
As part of our strategy to focus on the growth of our Cloud HCM solutions business, we (i) sold our consumer-directed benefit services business in 2013, (ii) merged Comdata, our payment systems business unit, with FleetCor Technologies Inc. in 2014, (iii) sold our benefits administration and post-employment compliance business in 2015, and (iv) sold our United Kingdom and Ireland businesses and a portion of our operations that supported such businesses in the Republic of Mauritius in 2016. Our benefits administration and post-employee compliance business, our United Kingdom and Ireland businesses, and our divested Mauritius operations are presented as discontinued operations in our financial statements. Our consumer-directed
benefits services business and our benefits administration and post-employment compliance business are collectively referred to as our “Divested Benefits Businesses.” As a result of these transactions, we only actively sell Dayforce and Powerpay in our HCM segment, which we believe simplifies our business model and positions us well for continued growth. In 2016, we contributed our LifeWorks employee assistance program business to a joint venture, LifeWorks, that provides employee assistance, wellness, recognition, and incentives programs in the United States, Canada, and the United Kingdom. Prior to the formation of the LifeWorks joint venture, employee assistance programs were provided by Ceridian.
Recent Developments
On April 30, 2018, we completed our initial public offering (“IPO”), in which we issued and sold 21,000,000 shares of common stock at a public offering price of $22.00 per share. We granted the underwriters a30-day option to purchase an additional 3,150,000 shares of common stock at the offering price, which was exercised in full. A total of 24,150,000 shares of common stock were issued on April 30, 2018, with gross proceeds of $531.3 million from the IPO before deducting underwriting discounts, commissions, and other offering expenses. Immediately subsequent to the closing of our IPO on April 30, 2018, THL / Cannae Investors LLC, one of our existing stockholders controlled by our Sponsors, purchased from us in a private placement $100.0 million of our common stock at a price per share equal to the offering price. Based on the offering price of $22.00 per share, 4,545,455 shares were issued in this private placement.
We applied the net proceeds from the IPO to satisfy and to discharge the indenture governing our outstanding $475.0 million principal amount Senior Notes, and they will be redeemed on May 30, 2018. Concurrently, we also refinanced our remaining indebtedness under our (i) $702.0 million (original principal amount) Senior Term Debt and (ii) $130.0 million Revolving Credit Facility, including accrued interest and related costs and expenses, with new senior credit facilities consisting of a $680.0 million term loan debt facility and a $300.0 million revolving credit facility.
Contemporaneously with the IPO and concurrent private placement, we distributed our interest in LifeWorks to our existing stockholders of record prior to the IPO on a pro rata basis in accordance with their pro rata interests in us (“LifeWorks Disposition”). As a result of the LifeWorks Disposition, we no longer have any material obligations under the LifeWorks joint venture agreement.
Please refer to Note 19, “Subsequent Events,” for further discussion of these transactions.
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 to our business depends, in large part, on how long they have been a customer. Because in our business model, PEPM subscription fees are not charged until the customer goes live, and because we incur costs in advance of receiving PEPM revenue that are not offset by our implementation fees, weWe estimate that it takes an average of 2.5approximately two years before we are able to recover our implementation, customer acquisition, and other direct costs on a new Dayforce customer contract. As the proportion of Dayforce customers who have been live for two or more years increases, our related profitability increases. The following sets forth the number of live Dayforce customers at the end of each quarter presented:
| March 31, | December 31, | September 30, | June 30, | March 31, | December 31, | |||||||||||||||||||
| 2018 | 2017 | 2017 | 2017 | 2017 | 2016 | |||||||||||||||||||
Live Dayforce customers | 3,154 | 3,001 | 2,855 | 2,690 | 2,480 | 2,339 | ||||||||||||||||||
Dayforce customers live for two or more years | 1,872 | 1,770 | 1,628 | 1,524 | 1,377 | 1,276 | ||||||||||||||||||
Proportion of Dayforce customers live for two or more years | 59 | % | 59 | % | 57 | % | 57 | % | 56 | % | 55 | % | ||||||||||||
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 platform.HCM suite. We also incur costs to manage the account, to supportretain customers, and to sell additional functionality. These costs, however, are significantly less than the costs initially incurred to acquire and to implementtake customers live.
24 | Q1 2024 Form 10-Q
Recent Events
Effective January 31, 2024, we changed our corporate name from Ceridian HCM Holding Inc. to Dayforce, Inc. Effective February 1, 2024, we ceased trading under the customer.
Key Factors and Trends Affecting Our ResultsOn February 1, 2024, we completed the purchase of Operations
Set forth below is a discussion of some100% of the key factorsoutstanding shares of eloomi, a learning experience platform software provider based in Copenhagen, Denmark, and trends affecting our results of operations.Orlando, Florida.
Growing our Dayforce Customer Base
A key part of our strategy is to continue to grow our Dayforce customer base. We have developed sales and marketing efforts that are designed for effective customer acquisition. As of March 31, 2018, we had more than 3,150 live Dayforce customers, an increase of approximately 670 customers as compared to the total at March 31, 2017. Our continued focus on sales execution is important to drive further penetration of the Dayforce platform and to expand our market share. We also believe that there is a significant opportunity for our solution outside of our core North American markets. Dayforce was designed as a global platform; and we intend to expand globally through both the expansion of our own proprietary payroll functionality, as well as through new and existing partnerships with local vendors, including our existing membership in the Payroll Services Alliance.
Extending Product Leadership
We are committed to delivering market-leading HCM solutions preferred by employers and employees alike. We believe that maintaining our product leadership is critical to driving further revenue growth. Our leading market position in technology is based on our ability to innovate and to bring new solutions to market. Dayforce is designed around our proprietary single application architecture, which features continuous calculation and includes a single cross-domain rules engine and a complete employee record, which facilitates new innovation. Since 2012, we have developed a full suite of HCM functionality. We intend to continue to extend the functionality and breadth of our platform in the future. We have a roadmap for continued development, which includes adding native payroll capabilities for additional countries. We intend to continue to invest in our product development and innovation to maintain our strong, differentiated technology position.
Retaining and Expanding Revenue from Existing Dayforce Customers
The economic benefits of our business model include persistent, long-lived customer relationships, as well as the opportunity to realize additional revenue from existing customers. Our annual Cloud revenue retention rate was over 95% in 2017, reflecting high retention rates with Dayforce customers, driving strong customer lifetime value. Because our subscription revenue is based on a PEPM charge, as customers grow and add more employees, we realize a corresponding increase in PEPM revenue. Moreover, with the continued launch of new functionality for our Dayforce platform, we have the opportunity to realize incremental revenue by selling additional functionality to existing customers that do not currently utilize our full platform. We believe that this opportunity is particularly strong in the enterprise segment, where customers often start with a subset of our Dayforce platform in conjunction with point solutions from other vendors that we target to replace over time.
Managing the Migration of our Bureau Customers to Dayforce
We generally stopped actively selling our Bureau solutions to new customers in the United States in 2012 and have been marketing our Dayforce platform to new and existing customers since that time. For the three months ended March 31, 2018, Bureau revenue declined by $14.7 million, or 19.2%, as compared to the three months ended March 31, 2017. Of the $14.7 million decline in Bureau revenue for the three months ended March 31, 2018, $6.1 million was associated with customers migrating to Dayforce, which represented 18% of the increase in Cloud revenue during this period. As the number of Bureau customers continues to decline, our results of operations will depend, in part, on replacing the revenue from Bureau customer attrition and on maintaining the profitability of services to our remaining Bureau customers. We believe that our cloud Dayforce platform is attractive to many customers that currently use an outsourced service bureau for their payroll andHCM-related needs; and, as a result, that sales to new customers and sales of additional functionality to our growing Dayforce customer base will continue to more than offset the decline in revenue from Bureau customers. We also believe that we will continue to be able to provide services to our remaining Bureau customers at attractive margins. As we migrate our Bureau customers to Dayforce, we typically experience a revenue increase from such customers driven by increased product density on the Dayforce platform.
Profitably Managing our Growth
We carefully designed and built Dayforce to meet the needs of a homogeneous market with a common set of requirements and compliance challenges across organization sizes and industries. To support our rapid growth, we have rigorously managed our implementation and customer support operations to maintain consistent, repeatable methods and processes and to take advantage of automation. We believe that our business model enables us to realize significant operating leverage and economies of scale and that we can continue to acquire, to implement, and to support more customers and to generate more revenue without a corresponding increase in expenses. Our profitability depends in part upon our ability to achieve a balance in the timing and magnitude of required investments in sales and marketing, implementation, and customer support.
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 is a descriptionare descriptions of our quarterly key performance measures.
The following table sets forth Additional information on our keyannual performance measures is described in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "How We Assess Our Performance" contained in our 2023 Form 10-K. Please refer to the "Non-GAAP Financial Measures" and“Results of Operations”sections below for further description and definitions of certain performance indicators for the periods presented.which are considered non-GAAP financial measures.
| Three Months Ended March 31, | ||||||||
| 2018 | 2017 | |||||||
Live Dayforce customers | 3,154 | 2,480 | ||||||
HCM Adjusted EBITDA (a) (Dollars in millions) | $ | 43.6 | $ | 31.2 | ||||
HCM Adjusted EBITDA margin | 23.3 | % | 18.6 | % | ||||
Live Dayforce Customers
In our business model, PEPM subscription fees are not charged until the customer goes live on the platform, and weWe use the number of customers live on 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 have 3,154use Dayforce recurring revenue per customer, a non-GAAP financial measure, as an indicator of the average size of our Dayforce customer, which we believe is also useful to management and investors. We calculate and monitor Dayforce recurring revenue per customer on a quarterly basis. Our Dayforce recurring revenue per customer may fluctuate as a result of a number of factors, including the number of live Dayforce customers liveand the number of customers purchasing our full HCM suite.
Constant Currency Revenue
We present percentage change in revenue on Dayforce asa 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 $1.35 for the three months ended March 31, 2018.2024 and 2023.
HCMAdjusted Operating Profit, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Cloud Recurring Gross Margin
We believe that HCMAdjusted operating profit, Adjusted EBITDA, and HCM Adjusted EBITDA margin, and Adjusted Cloud recurring gross margin, non-GAAP financial measures, are useful to management and investors as supplemental measures to evaluate our overall operating performance. HCM Adjusted EBITDA and HCM Adjusted EBITDA margin are componentsis a component of our management incentive plan and Adjusted operating profit and Adjusted Cloud recurring gross margin are components of certain performance based equity awards for our named executive officers, and these metrics are used by management to assess performance and to compare our operating performance to our competitors. We define HCM Adjusted EBITDA as net income or loss before interest, taxes, depreciation, and amortization, as adjusted to exclude net income or loss from discontinued operations, LifeWorks EBITDA, sponsor management fees,non-cash charges for asset impairments, gains or losses on assets and liabilities held in a foreign currency other than the functional currency of a company subsidiary,non-cash share-based compensation expense, severance charges, restructuring consulting fees, and environmental reserve charges. HCM Adjusted EBITDA margin is determined by calculating the percentage HCM Adjusted EBITDA is of Total HCM Revenue. Management believes that HCM Adjusted EBITDA and HCM Adjusted EBITDA marginthese non-GAAP financial measures are helpful in highlighting management performance trends because HCM Adjusted EBITDA and HCM Adjusted EBITDA marginthese metrics exclude the results of decisions that are outside the control of operating management.
Our presentation of HCM Adjusted EBITDA and HCM Adjusted EBITDA margin are intended as supplemental measuresnormal course of our performance that are not required by, or presented in accordance with, U.S. GAAP. HCM Adjusted EBITDA and HCM Adjusted EBITDA margin should not be considered as alternatives to operating income (loss), net income (loss), earnings per share, or any other performance measures derived in accordance with U.S. GAAP, or as measuresbusiness operations.
25 | Q1 2024 Form 10-Q
Results of HCM Adjusted EBITDA and HCM Adjusted EBITDA margin should not be construed to imply that our future results will be unaffected by these items. HCM Adjusted EBITDA and HCM Adjusted EBITDA margin are included in this discussion because they are key metrics used by management to assess our operating performance.
Three Months Ended March 31, 2024 Compared With Three Months Ended March 31, 2023
HCM Adjusted EBITDA and HCM Adjusted EBITDA margin are not defined under U.S. GAAP, are not measures
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| Three Months Ended March 31, |
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| Increase/(Decrease) |
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| Percentage of Revenue |
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| 2023 |
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| Amount |
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Revenue: |
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Recurring |
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Cloud |
| $ | 363.2 |
|
| $ | 295.3 |
|
| $ | 67.9 |
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|
| 23.0 | % |
|
| 84.2 | % |
|
| 79.7 | % |
Other |
|
| 19.5 |
|
|
| 22.6 |
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|
| (3.1 | ) |
|
| (13.7 | )% |
|
| 4.5 | % |
|
| 6.1 | % |
Total recurring |
|
| 382.7 |
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|
| 317.9 |
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|
| 64.8 |
|
|
| 20.4 | % |
|
| 88.7 | % |
|
| 85.8 | % |
Professional services and other |
|
| 48.8 |
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|
| 52.7 |
|
|
| (3.9 | ) |
|
| (7.4 | )% |
|
| 11.3 | % |
|
| 14.2 | % |
Total revenue |
|
| 431.5 |
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| 370.6 |
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|
| 60.9 |
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|
| 16.4 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cloud |
|
| 76.3 |
|
|
| 66.9 |
|
|
| 9.4 |
|
|
| 14.1 | % |
|
| 17.7 | % |
|
| 18.1 | % |
Other |
|
| 12.1 |
|
|
| 13.2 |
|
|
| (1.1 | ) |
|
| (8.3 | )% |
|
| 2.8 | % |
|
| 3.6 | % |
Total recurring |
|
| 88.4 |
|
|
| 80.1 |
|
|
| 8.3 |
|
|
| 10.4 | % |
|
| 20.5 | % |
|
| 21.6 | % |
Professional services and other |
|
| 66.1 |
|
|
| 63.9 |
|
|
| 2.2 |
|
|
| 3.4 | % |
|
| 15.3 | % |
|
| 17.2 | % |
Product development and management |
|
| 53.1 |
|
|
| 51.0 |
|
|
| 2.1 |
|
|
| 4.1 | % |
|
| 12.3 | % |
|
| 13.8 | % |
Depreciation and amortization |
|
| 18.5 |
|
|
| 15.3 |
|
|
| 3.2 |
|
|
| 20.9 | % |
|
| 4.3 | % |
|
| 4.1 | % |
Total cost of revenue |
|
| 226.1 |
|
|
| 210.3 |
|
|
| 15.8 |
|
|
| 7.5 | % |
|
| 52.4 | % |
|
| 56.7 | % |
Gross profit |
|
| 205.4 |
|
|
| 160.3 |
|
|
| 45.1 |
|
|
| 28.1 | % |
|
| 47.6 | % |
|
| 43.3 | % |
Selling and marketing |
|
| 79.0 |
|
|
| 54.2 |
|
|
| 24.8 |
|
|
| 45.8 | % |
|
| 18.3 | % |
|
| 14.6 | % |
General and administrative |
|
| 85.7 |
|
|
| 67.7 |
|
|
| 18.0 |
|
|
| 26.6 | % |
|
| 19.9 | % |
|
| 18.3 | % |
Operating profit |
|
| 40.7 |
|
|
| 38.4 |
|
|
| 2.3 |
|
|
| 6.0 | % |
|
| 9.4 | % |
|
| 10.4 | % |
Interest expense, net |
|
| 13.3 |
|
|
| 9.2 |
|
|
| 4.1 |
|
|
| 44.6 | % |
|
| 3.1 | % |
|
| 2.5 | % |
Other expense, net |
|
| 9.0 |
|
|
| 0.8 |
|
|
| 8.2 |
|
|
| 1025.0 | % |
|
| 2.1 | % |
|
| 0.2 | % |
Income before income taxes |
|
| 18.4 |
|
|
| 28.4 |
|
|
| (10.0 | ) |
|
| (35.2 | )% |
|
| 4.3 | % |
|
| 7.7 | % |
Income tax expense |
|
| 11.3 |
|
|
| 18.5 |
|
|
| (7.2 | ) |
|
| (38.9 | )% |
|
| 2.6 | % |
|
| 5.0 | % |
Net income |
| $ | 7.1 |
|
| $ | 9.9 |
|
| $ | (2.8 | ) |
|
| (28.3 | )% |
|
| 1.6 | % |
|
| 2.7 | % |
26 | Q1 2024 Form 10-Q
HCM Adjusted EBITDA and HCM Adjusted EBITDA margin have important limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
In evaluating HCM Adjusted EBITDA and HCM Adjusted EBITDA margin, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation.
Revenue.The following table reconciles HCM operating profit to HCM Adjusted EBITDAsets forth certain information regarding our revenues for the periods presented:
| Three Months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| (Dollar in millions) | ||||||||
HCM operating profit | $ | 27.3 | $ | 10.9 | ||||
Depreciation and amortization | 13.9 | 13.1 | ||||||
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HCM EBITDA from continuing operations (1) | 41.2 | 24.0 | ||||||
Sponsorship management fees (2) | 0.5 | 0.5 | ||||||
Intercompany foreign exchange loss (gain) | (2.8 | ) | 0.8 | |||||
Share-based compensation (3) | 2.7 | 4.2 | ||||||
Severance charges (4) | 1.9 | 1.9 | ||||||
Restructuring consulting fees (5) | 0.1 | (0.2 | ) | |||||
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| |||||
HCM Adjusted EBITDA | $ | 43.6 | $ | 31.2 | ||||
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Components of Our Results of Operations
Three Months Ended March 31, Percentage change in revenue Impact of Percentage change in revenue on a constant currency basis (a) 2024 2023 2024 vs. 2023 2024 vs. 2023 (In millions) Revenue: Recurring revenue: Dayforce recurring, excluding float $ 282.4 $ 229.6 23.0 % (— )% 23.0 % Dayforce float 54.8 41.6 31.7 % (— )% 31.7 % Total Dayforce recurring 337.2 271.2 24.3 % (— )% 24.3 % Powerpay recurring, excluding float 20.5 19.5 5.1 % 0.5 % 4.6 % Powerpay float 5.5 4.6 19.6 % (— )% 19.6 % Total Powerpay recurring 26.0 24.1 7.9 % 0.4 % 7.5 % Total Cloud recurring 363.2 295.3 23.0 % 0.1 % 22.9 % Other recurring (b) 19.5 22.6 (13.7 )% (2.2 )% (11.5 )% Total recurring revenue 382.7 317.9 20.4 % (0.1 )% 20.5 % Professional services and other (c) 48.8 52.7 (7.4 )% (— )% (7.4 )% Total revenue $ 431.5 $ 370.6 16.4 % (0.1 )% 16.5 %
changes in
foreign
currency (a)
Revenues
We have two categories of revenues: (i) recurring services and (ii) professional services and other. Recurring services revenues consist of the recurring fees that we charge for our Cloud HCM and Bureau HCM solutions, as well as LifeWorks solutions. For our Dayforce solutions, we primarily charge monthly recurring feescalculated percentage change in revenue on a PEPMconstant currency basis generallyone-monthby applying the average foreign exchange rate in advance of service, based oneffect during the number and type of solutions providedcomparable prior period. Please refer to the customer
The following table presents our Cloud HCM revenue for both recurring and professional services and other, for both our Dayforce and Powerpay solutions for the periods presented.
| Three Months ended March 31, | Growth rate year-over-year | Growth rate on a constant currency basis (a) | ||||||||||||||
| 2018 | 2017 | 2018 vs. 2017 | 2018 vs. 2017 | |||||||||||||
| (Dollar in millions) | ||||||||||||||||
Dayforce | $ | 102.4 | $ | 71.0 | 44.2 | % | 42.8 | % | ||||||||
PowerPay | 22.8 | 19.7 | 15.7 | % | 10.0 | % | ||||||||||
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Total Cloud revenue | $ | 125.2 | $ | 90.7 | 38.0 | % | 35.6 | % | ||||||||
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Cloud revenue was $125.2$0.7 million for the three months ended March 31, 2018, an increase of 38.0% when compared to three months ended March 31, 2017. Dayforce revenue increased 44.2%,2024, and Powerpay revenue increased 15.7% for2023, respectively.
Total revenue increased 42.8%, and Powerpay revenue increased 10.0% for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017. Our new business sales to Dayforce customers comprised 82% of our increase in Cloud revenue for the three months ended March 31, 2018, including sales to new Dayforce customers and sales of additional functionality to existing Dayforce customers; and the remaining 18% consisted primarily of customer migration to Dayforce from our Bureau solutions.
As we focused on our Cloud HCM solutions, we generally ceased marketing our Bureau solutions to new customers in the United States in 2012 and in Canada in 2015, and have been actively marketing our Dayforce platform to these customers since that time. During the three months ended March 31, 2018, Bureau revenue declined by $14.7$60.9 million, or 19.2%16.4%, as compared to the three months ended March 31, 2017.
Our customer trust funds are invested with safety of principal and liquidity as the primary objectives. As a secondary objective, we also seek to maximize float revenue, which is affected by the balances held in our customer trust funds and the interest rates earned on invested funds. The average float balance for our customer trust funds for the three months ended March 31, 2018, was $4,072.0 million, compared to $3,764.9$431.5 million for the three months ended March 31, 2017. The average
yield was 1.75% during2024, compared to $370.6 million for the three months ended March 31, 2018,2023. 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 6.4% to 6,575 at March 31, 2024 from 6,179 at March 31, 2023. Additionally, for the trailing twelve months ended March 31, 2024, Dayforce recurring revenue per customer grew to $150,362 compared to $126,127 for the comparable period in 2023.Please refer to the "How We Assess Performance" and “Non-GAAP Financial Measures” section for discussion of and the definition of Dayforce recurring revenue per customer.
The increase in Dayforce recurring revenue per customer is driven by the growing average size of our customers, as we have been expanding within the enterprise segment, as well as more customers purchasing our full HCM suite. The increase in float revenue is driven by an increase in average yield of 5280 basis points compared to the three months ended March 31, 2017. Investment income from invested2023, in addition to a 5.7% increase in average float balance for our customer trust funds included in revenue was $17.6 and $11.4 for the three months ended March 31, 2018, and 2017, respectively.
Cost of Revenue
Cost of revenue consists of costs2024, which increased to deliver our solutions. Most of these costs are recognized as incurred. Some costs of revenue are recognized in the period that a service is sold and delivered. Other costs of revenue are recognized over the period of use or in proportion$5.56 billion, compared to the related revenue.
Share-Based Compensation Expense
We grant share-based compensation awards to certain employees, officers, andnon-employee directors as long-term incentive compensation. We recognize the related expense for time-based awards ratably over the applicable vesting period. We recognize the related expense for performance-based awards upon the achievement of the performance criteria. Such expense is recognized as either cost of revenue or selling, general, and administrative expense. The following table shows the allocation of share-based compensation expense among our expense line items for the periods presented:
| Three Months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| (Dollar in millions) | ||||||||
Cost of revenue: | ||||||||
Recurring services | $ | 0.1 | $ | 0.2 | ||||
Professional services and other | 0.1 | 0.3 | ||||||
Product development and management | 0.1 | 0.2 | ||||||
Selling, general, and administrative | 2.6 | 3.8 | ||||||
|
|
|
| |||||
Total share-based compensation expense | $ | 2.9 | $ | 4.5 | ||||
|
|
|
| |||||
Included within selling, general, and administrative expense was $0.4 million and $0.4 million of share-based compensation expense related to sales and marketing$5.26 billion for the three months ended March 31, 2018, and 2017, respectively.
Results of Operations
Three Months ended March 31, 2018, Compared with Three Months ended March 31, 2017
Consolidated Results
The following table sets forth our results of operations for the periods presented.
| Three Months Ended | Increase / | |||||||||||||||||||||||
| March 31, | (Decrease) | % of Revenue | ||||||||||||||||||||||
| 2018 | 2017 | Amount | % | 2018 | 2017 | |||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||
Recurring services | ||||||||||||||||||||||||
Cloud | $ | 106.0 | $ | 76.4 | $ | 29.6 | 38.7 | % | 50.7 | % | 40.9 | % | ||||||||||||
Bureau | 61.0 | 75.4 | (14.4 | ) | (19.1 | )% | 29.2 | % | 40.3 | % | ||||||||||||||
LifeWorks | 21.7 | 19.6 | 2.1 | 10.7 | % | 10.4 | % | 10.5 | % | |||||||||||||||
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| |||||||||||||
Total recurring services | 188.7 | 171.4 | 17.3 | 10.1 | % | 90.3 | % | 91.7 | % | |||||||||||||||
Professional services and other | 20.2 | 15.6 | 4.6 | 29.5 | % | 9.7 | % | 8.3 | % | |||||||||||||||
|
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| |||||||||||||
Total revenue | 208.9 | 187.0 | 21.9 | 11.7 | % | 100.0 | % | 100.0 | % | |||||||||||||||
Cost of revenue: | ||||||||||||||||||||||||
Recurring services | ||||||||||||||||||||||||
Cloud | 33.1 | 28.9 | 4.2 | 14.5 | % | 15.8 | % | 15.5 | % | |||||||||||||||
Bureau | 17.6 | 20.4 | (2.8 | ) | (13.7 | )% | 8.4 | % | 10.9 | % | ||||||||||||||
LifeWorks | 12.0 | 9.5 | 2.5 | 26.3 | % | 5.7 | % | 5.1 | % | |||||||||||||||
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| |||||||||||||
Total recurring services | 62.7 | 58.8 | 3.9 | 6.6 | % | 30.0 | % | 31.4 | % | |||||||||||||||
Professional services and other | 32.8 | 33.9 | (1.1 | ) | (3.2 | )% | 15.7 | % | 18.1 | % | ||||||||||||||
Product development and management | 15.4 | 12.8 | 2.6 | 20.3 | % | 7.4 | % | 6.8 | % | |||||||||||||||
Depreciation and amortization | 8.8 | 7.7 | 1.1 | 14.3 | % | 4.2 | % | 4.1 | % | |||||||||||||||
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| |||||||||||||
Total cost of revenue | 119.7 | 113.2 | 6.5 | 5.7 | % | 57.3 | % | 60.5 | % | |||||||||||||||
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Gross profit | 89.2 | 73.8 | 15.4 | 20.9 | % | 42.7 | % | 39.5 | % | |||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||
Selling, general, and administrative | 65.6 | 60.7 | 4.9 | 8.1 | % | 31.4 | % | 32.5 | % | |||||||||||||||
Other (income) expense, net | (2.8 | ) | 0.9 | (3.7 | ) | (411.1 | )% | (1.3 | )% | 0.5 | % | |||||||||||||
Interest expense, net | 22.2 | 21.4 | 0.8 | 3.7 | % | 10.6 | % | 11.4 | % | |||||||||||||||
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Total costs and expenses | 85.0 | 83.0 | 2.0 | 2.4 | % | 40.7 | % | 44.4 | % | |||||||||||||||
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Income (loss) from continuing operations before income taxes | 4.2 | (9.2 | ) | 13.4 | 145.7 | % | 2.0 | % | (4.9 | )% | ||||||||||||||
Income tax expense | 6.8 | 2.5 | 4.3 | 172.0 | % | 3.3 | % | 1.3 | % | |||||||||||||||
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Loss from continuing operations | (2.6 | ) | (11.7 | ) | 9.1 | 77.8 | % | (1.2 | )% | (6.3 | )% | |||||||||||||
Income from discontinued operations | — | 0.5 | (0.5 | ) | (100.0 | )% | — | % | 0.3 | % | ||||||||||||||
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Net loss | (2.6 | ) | (11.2 | ) | 8.6 | 76.8 | % | (1.2 | )% | (6.0 | )% | |||||||||||||
Net loss attributable to noncontrolling interest | (0.5 | ) | — | (0.5 | ) | n.m. | (0.2 | )% | — | % | ||||||||||||||
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Net loss attributable to Ceridian | $ | (2.1 | ) | $ | (11.2 | ) | $ | 9.1 | 81.3 | % | (1.0 | )% | (6.0 | )% | ||||||||||
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Revenue.The following table sets forth certain information regarding our consolidated revenues for the three months ended March 31, 2018, compared with the three months ended March 31, 2017.
| Percentage change in revenue as reported | Impact of changes in foreign currency (a) | Percentage change in revenue on constant currency basis (a) | ||||||||||
Revenue: | ||||||||||||
Cloud | ||||||||||||
Recurring services | 38.7 | % | 2.0 | % | 36.7 | % | ||||||
Professional services and other | 34.3 | % | 4.4 | % | 29.9 | % | ||||||
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| |||||||
Total Cloud revenue | 38.0 | % | 2.4 | % | 35.6 | % | ||||||
Bureau (b) | (19.2 | )% | 0.8 | % | (20.0 | )% | ||||||
LifeWorks | 10.7 | % | 3.2 | % | 7.5 | % | ||||||
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| |||||||
Total revenue | 11.7 | % | 1.8 | % | 9.9 | % | ||||||
Total revenue increased $21.9 million, or 11.7%, to $208.9 million for the three months ended March 31, 2018, compared to $187.0 million for the three months ended March 31, 2017. This increase was primarily attributable to an increase in Cloud revenue of $34.5 million, or 38.0%, from $90.7 million for the three months ended March 31, 2017, to $125.2 million for the three months ended March 31, 2018. The Cloud revenue increase was driven by an increase of $29.6 million, or 38.7%, in Cloud recurring services revenue, and $4.9 million, or 34.3%, in Cloud professional services and other revenue. The increase in Cloud recurring services revenue of $29.6 million was due to $17.7 million from new customers,add-ons, and revenue uplift from migrations of Bureau customers, net of customer losses; $6.1 million from the migration of Bureau customers; and $5.8 million from increased float revenue related to Cloud recurring services revenue. The increase in Cloud revenue of $34.5 million and the increase in LifeWorks revenue of $2.1 million were partially offset by a decline in Bureau revenue of $14.7 million, or 19.2%. Excluding the impact of migrations to Dayforce, Bureau revenue declined by $8.6 million, or 11.2%.
On a constant currency basis, total revenue grew 9.9%. This adjusted revenue growth was driven by an increase of 35.6% in Cloud revenue and 7.5% in LifeWorks revenue, partially offset by a decline of 20.0% in Bureau revenue. On a constant currency basis, Cloud revenue growth for the three months ended March 31, 2018, compared to the three months ended March 31, 2017, was driven by Cloud recurring services revenue, which increased by 36.7%, and professional services and other revenue, which increased by 29.9%, as we continued to sign and to activate new customers. Of the decline in Bureau revenue, approximately 60% was attributable to customer attrition and approximately 40% was due to customer migrations to Dayforce.
Cost of revenue.revenue. Total cost of revenue for the three months ended March 31, 2018,2024, was $119.7$226.1 million, an increase of $6.5$15.8 million, or 5.7%7.5%, compared to the three months ended March 31, 2017.2023.
Recurring services cost of revenue increased by $3.9 million for the three months ended March 31, 2018,2024, increased $8.3 million, or 10.4%, compared towith the three months ended March 31, 2017,2023, primarily due to additional labor-related costs incurred to support the growing Dayforce customer base partially offset by reductions in Bureau costs.globally.
27 | Q1 2024 Form 10-Q
The reduction in
Professional services and other cost of revenue for professional services and other of $1.1increased $2.2 million, or 3.4%, for the three months ended March 31, 2018,2024, compared to the three months ended March 31, 2017, was2023, primarily due to productivity improvements in implementingincreased labor-related costs incurred to take new customers reflecting the increased experience of our implementation consultants and the continued use of automation in our implementation processes.live.
Product development and management expense includes costs related to software development activities that do not qualify for capitalization, such as development, quality assurance, testing of new technologies, enhancements to our existing solutions that do not result in additional functionality, and costs related to the management of our solutions. The increase in product development and management expense of $2.6increased $2.1 million, or 4.1%, for the three months ended March 31, 2018,2024, compared to the
three months ended March 31, 2017, reflected increases in Dayforce product development efforts.2023. The increase primarily reflects additional personnel costs. For the three months ended March 31, 2018,2024, and 2017,2023, our investment in software development was $14.2$50.4 million and $12.6$46.9 million, respectively, comprisedconsisting of $8.1$28.4 million and $7.2$28.0 million of research and development expense, which is included within product development and management expense, and $6.1$22.0 million and $5.4$18.9 million in capitalized software development costs, respectively.
Depreciation and amortization expense associated with cost of revenue increased by $1.1$3.2 million, or 20.9%, for the three months ended March 31, 2018,2024, compared to the three months ended March 31, 2017,2023, as we continue to capitalize Dayforce related and other development costs and subsequently amortize thosethese costs.
The overall 11.7% increase in revenue outpaced the 5.7% increase in cost of revenue, and gross profit increased by $15.4 million, or 20.9%, as we continued to leverage our investment in people and processes to realize economies of scale.
Selling, general, and administrative expense. Selling, general, and administrative expense increased $4.9 million for the three months ended March 31, 2018, compared to the three months ended March 31, 2017, reflecting increases in sales and marketing expenses and LifeWorks expenses, partially offset by a reduction in share-based compensation expense. Sales and marketing expense was $31.7 million for the three months ended March 31, 2018, compared to $27.2 million for the three months ended March 31, 2017.
Other expense. For the three months ended March 31, 2018, we incurred $2.8 million of other income, net, compared to $0.9 million of other expense, net, for the three months ended March 31, 2017. The other income and expense, net, for the three months ended March 31, 2018, and 2017, respectively, was primarily related to foreign currency remeasurement gains and losses on intercompany receivables or payables denominated in foreign currencies. Please refer to Note 12, “Supplementary Data to Statement of Operations,” for further discussion.
Interest expense. Interest expense for the three months ended March 31, 2018, was $22.2 million, compared to $21.4 million for the three months ended March 31, 2017.
Income tax expense. For the three months ended March 31, 2018, we incurred income tax expense of $6.8 million, compared to $2.5 million for the three months ended March 31, 2017.
Discontinued operations.For the three months ended March 31, 2017, income from discontinued operations was $0.5 million. This income primarily relates to a final purchase pricetrue-up related to one of the divested benefits businesses.
Net loss attributable to Ceridian. Net loss attributable to Ceridian improved by $9.1 million to $2.1 million of net loss for the three months ended March 31, 2018, compared to $11.2 million of net loss for the three months ended March 31, 2017.
HCM Segment Results
Gross profit.The following table presents certain financial information concerning the HCM segment’s results of operations for the periods presented.
| Three Months ended | Increase / | |||||||||||||||||||||||
| March 31, | (Decrease) | % of Revenue | ||||||||||||||||||||||
| 2018 | 2017 | Amount | % | 2018 | 2017 | |||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||
Cloud revenue | $ | 125.2 | $ | 90.7 | $ | 34.5 | 38.0 | % | 66.9 | % | 54.2 | % | ||||||||||||
Bureau revenue | 62.0 | 76.7 | (14.7 | ) | (19.2 | )% | 33.1 | % | 45.8 | % | ||||||||||||||
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Total HCM revenue | $ | 187.2 | $ | 167.4 | $ | 19.8 | 11.8 | % | 100.0 | % | 100.0 | % | ||||||||||||
Operating profit | $ | 27.3 | $ | 10.9 | $ | 16.4 | 150.5 | % | 14.6 | % | 6.5 | % | ||||||||||||
Depreciation and amortization | 13.9 | 13.1 | 0.8 | 6.1 | % | 7.4 | % | 7.8 | % | |||||||||||||||
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HCM EBITDA from continuing operations (a) | 41.2 | 24.0 | 17.2 | 71.7 | % | 22.0 | % | 14.3 | % | |||||||||||||||
Other adjustments (b) | 2.4 | 7.2 | (4.8 | ) | (66.7 | )% | 1.3 | % | 4.3 | % | ||||||||||||||
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HCM Adjusted EBITDA (c) | $ | 43.6 | $ | 31.2 | $ | 12.4 | 39.7 | % | 23.3 | % | 18.6 | % | ||||||||||||
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HCM revenue increased $19.8 million, or 11.8%, to $187.2 million for the three months ended March 31, 2018, compared to $167.4 million for the three months ended March 31, 2017. On a constant currency basis, revenue increased 10.2%. This adjusted revenue growth was driven by an increase of 35.6%, in Cloud revenue, which was partially offset by a decline of 20.0%, in Bureau revenue. The increase in Cloud revenue was driven by Cloud recurring services revenue, which increased by 36.7%, and Cloud professional services and other revenue, which increased by 29.9%. The decline in Bureau revenue was primarily attributable to customer attrition and customer migrations to Dayforce.
The table below presents total HCM segment gross margin and HCM solution gross margins for the periods presented:
| Three Months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
Total HCM segment gross margin | 43.4 | % | 39.3 | % | ||||
Gross margin by HCM solution: | ||||||||
Cloud recurring services | 68.8 | % | 62.2 | % | ||||
Bureau recurring services | 71.1 | % | 72.9 | % | ||||
Professional services and other | (62.4 | )% | (117.3 | )% | ||||
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Total gross margin |
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| 47.6 | % |
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| 43.3 | % |
Gross margin by solution: |
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Cloud recurring |
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| 79.0 | % |
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| 77.3 | % |
Other recurring |
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| 37.9 | % |
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| 41.6 | % |
Professional services and other |
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| (35.5 | )% |
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| (21.3 | )% |
HCM segment
Total gross margin is defined as total HCM gross profit as a percentage of total HCM revenue, which is inclusive of HCM product development and management costs, as well as HCM depreciation and amortization associated with cost of revenue. Gross margin for each HCM 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 HCM solution, which is exclusive of any product development and management or depreciation and amortization cost allocations. Cloud recurring services
Total gross margin was 68.8% for the three months ended March 31, 2018,2024 increased 430 basis points compared to 62.2%the three months ended March 31, 2023 and gross profit increased by $45.1 million, or 28.1% for the three months ended March 31, 2017. Bureau2024 compared to the three months ended March 31, 2023, primarily due to the $60.9 million or 16.4% increase in revenue, including float revenue, which outpaced the increase in cost of revenue.
Cloud recurring services gross margin was 71.1%79.0% for the three months ended March 31, 2018,2024, compared to 72.9%77.3% for the three months ended March 31, 2017. 2023. The increase in Cloud recurring gross margin was primarily due to the increase in float revenue and due to the growth of the proportion of Dayforce customers live for more than two years, which increased from 82% as of March 31, 2023 to 85% as of March 31, 2024.
Professional services and other gross margin was (62.4)(35.5)% for the three months ended March 31, 2018, improving from (117.3)2024, compared to (21.3)% for the three months ended March 31, 2017,2023, reflecting an increase in profitable postgo-live professional servicesadditional costs to take new customers live.
Selling and productivity improvements in implementing new customers.
HCM operating profitmarketing expense. Selling and HCM Adjusted EBITDAmarketing expense increased $16.4$24.8 million, and $12.4 million, respectively,or 45.8%, for the three months ended March 31, 2018,2024, compared to the three months ended March 31, 2017, primarily due to a $19.8 million2023. The increase in revenue, which flowed throughselling and marketing expense is primarily driven by higher personnel-related costs and higher advertising expenses related to improve gross margin.
LifeWorks Segment Results
The following table presents certain financial information concerning the LifeWorks segment’s financial results:
| Three Months ended | Increase / | |||||||||||||||||||||||
| March 31, | (Decrease) | % of Revenue | ||||||||||||||||||||||
| 2018 | 2017 | Amount | % | 2018 | 2017 | |||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||
Revenue | $ | 21.7 | $ | 19.6 | $ | 2.1 | 10.7 | % | 100.0 | % | 100.0 | % | ||||||||||||
Operating (loss) profit | $ | (0.9 | ) | $ | 1.3 | $ | (2.2 | ) | (169.2 | )% | (4.1 | )% | 6.6 | % | ||||||||||
Depreciation and amortization | 1.0 | 1.0 | — | — | % | 4.6 | % | 5.1 | % | |||||||||||||||
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LifeWorks EBITDA (a) | 0.1 | 2.3 | (2.2 | ) | (95.7 | )% | 0.5 | % | 11.7 | % | ||||||||||||||
Other adjustments (b) | 0.2 | 0.3 | (0.1 | ) | (33.3 | )% | 0.9 | % | 1.5 | % | ||||||||||||||
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LifeWorks Adjusted EBITDA | $ | 0.3 | $ | 2.6 | $ | (2.3 | ) | (88.5 | )% | 1.4 | % | 13.3 | % | |||||||||||
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On a constant currency basis, LifeWorks revenueGeneral and administrative expense. General and administrative expense increased 7.5%$18.0 million, or 26.6%, for the three months ended March 31, 2018,2024, compared to the three months ended March 31, 2017.
LifeWorks operating (loss) profit2023. The increase in general and LifeWorks Adjusted EBITDA declined $2.2administrative expense is driven by increases in amortization of acquisition-related intangible assets and employee-related costs, partially offset by a reduction in share-based compensation related to specific individual awards becoming fully vested or forfeited prior to the first quarter of 2024, and a lower expense related to the DataFuzion contingent consideration. Amortization of the Ceridian trade name contributed $20.9 million and $2.3 million, respectively,of expense for the three months ended March 31, 2018, compared to2024.
28 | Q1 2024 Form 10-Q
Operating profit. For the three months ended March 31, 2017, primarily driven by an increase of $1.92024, operating profit was $40.7 million, in selling, general, and administrative expense.
LifeWorks Adjusted EBITDA
We report our financial results in accordance with U.S. GAAP. To supplement this information, we also use LifeWorks Adjusted EBITDA, anon-GAAP financial measure, in this Form10-Q. We define LifeWorks Adjusted EBITDA as net income or loss before interest, taxes, depreciation, and amortization, as adjustedcompared to excludenon-cash share-based compensation expense for our LifeWorks segment. Management believes that LifeWorks Adjusted EBITDA is helpful in highlighting management performance trends because LifeWorks Adjusted EBITDA excludes the results of decisions that are outside the control of operating management. By providing thisnon-GAAP financial measure, management believes we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives.
Our presentation of LifeWorks Adjusted EBITDA is intended as a supplemental measure of our performance that is not required by, or presented in accordance with, U.S. GAAP. LifeWorks Adjusted EBITDA should not be considered as an alternative to operating income (loss), net income (loss), earnings per share, or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance or operating cash flows or as measures of liquidity. Our presentation of LifeWorks Adjusted EBITDA should not be construed to imply that our future results will be unaffected by these items. LifeWorks Adjusted EBITDA is included in this Form10-Q because it is a key metric used by management to assess our operating performance.
LifeWorks Adjusted EBITDA is not defined under U.S. GAAP, is not a measure of net income, operating income or any other performance measure derived in accordance with U.S. GAAP, and is subject to important limitations. Our use of the term LifeWorks Adjusted EBITDA may not be comparable to similarly titled measures of other companies in our industry and is not a measure of performance calculated in accordance with U.S. GAAP.
LifeWorks Adjusted EBITDA has important limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
In evaluating LifeWorks Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation.
Unaudited Pro Forma Consolidated Financial Data
The following unaudited pro forma condensed consolidated financial data consists of our unaudited pro forma condensed consolidated statement of operations and unaudited pro forma condensed consolidated statement of cash flows$38.4 million for the three months ended March 31, 2018,2023. Operating profit remained relatively consistent primarily due to the increase in revenue, including float revenue, and our unaudited pro forma condensed consolidated balance sheet asgross margin expansion, partially offset by an increase in cost of March 31, 2018. You should read the information set forth below together with the “Results of Operations” section above, the historical condensed consolidated financial statementsrevenue and the corresponding notes included elsewherean increase in this Form10-Q. The unaudited pro forma condensed consolidated statement of operationsamortization expense.
Interest expense, net. Interest expense, net was $13.3 million and unaudited pro forma condensed consolidated statement of cash flows$9.2 million for the three months ended March 31, 20182024, and 2023, respectively. The increase was primarily due to a $4.3 million loss on debt extinguishment recognized during the unaudited pro forma condensed consolidated balance sheet as ofthree months ended March 31, 2018, have been adjusted to give effect2024 related to the distributionrefinancing of sharescertain credit agreements. Please refer to Part I, Item 1. Note 8, "Debt" for additional information.
Other expense, net. For the three months ended March 31, 2024, and 2023, we incurred other expense, net of LifeWorks. The stockholders will receive these interests in a taxable distribution;$9.0 million and based on current estimates of the value of our interest in LifeWorks at the time of the disposition, we currently anticipate that we will incur approximately $3.2$0.8 million, respectively. Other expense, net was primarily comprised of foreign taxescurrency translation losses (gains) and use approximately $96.0 million of our U.S. federal net operating losses to offset the U.S. tax gain. The net operating losses are currently subject to a full valuation allowance, therefore, the tax gain recognition and resulting use of the net operating loss and release of the valuation allowance result in no anticipated U.S.periodic pension expense.
Income tax expense.
The following unaudited pro forma condensed consolidated balance sheet, statement of operations, and statement of cash flows have been derived from our historical condensed consolidated financial statements included elsewhere in this Form10-Q. The statements are for informational purposes only and do not purport to represent what our financial position and results of operations actually would have been had For the LifeWorks disposition occurred on the dates indicated, or to project our financial performance for any future period.
The unaudited pro forma condensed consolidated balance sheet adjustments assume that our distribution of LifeWorks occurred as ofthree months ended March 31, 2018. The unaudited pro forma consolidated statements of operations2024, and unaudited pro forma condensed consolidated statement of cash flows assume that the separation occurred as of January 1, 2018.
The adjustment amounts primarily represent the LifeWorks segment amounts as presented in our financial statements with the addition of $3.2 million of foreign tax expense expected to be incurred by Ceridian as a result of expected gains recognized on the taxable distribution of LifeWorks to our stockholders. The adjustment to the2023, we recorded income tax expense is comprised of two components: (i) the elimination of the LifeWorks$11.3 million and $18.5 million, respectively. The decrease in income tax expense was primarily due to $3.1 million attributable to other U.S. domestic taxes, $2.1 million attributable to current operations, and $1.9 million attributable to share-based compensation.
Net income. We realized net income of $1.0$7.1 million and (ii) the addition of the $3.2 million expected tax expense to be incurred on the distribution. No pro forma adjustments are necessary for the expected use ofthree months ended March 31, 2024, compared to $9.9 million for the three months ended March 31, 2023. Net income was relatively consistent due to an increase in other expense, net and an increase in interest expense, net, partially offset by an increase in operating losses to offset taxable gains expected in the U.S., as they are subject to a full valuation allowance and would not have an impact on our financial statements. No other adjustments were necessary.
Ceridian HCM Holding Inc. Unaudited Pro Forma Condensed ASSETS Current assets: Cash and equivalents Trade and other receivables, net Prepaid expenses Other current assets Total current assets before customer trust funds Customer trust funds Total current assets Property, plant, and equipment, net Goodwill Other intangible assets, net Other assets Total assets LIABILITIES AND EQUITY Current liabilities: Current portion of long-term debt Accounts payable Accrued interest Deferred revenue Employee compensation and benefits Other accrued expenses Total current liabilities before customer trust funds obligations Customer trust funds obligations Total current liabilities Long-term debt, less current portion Employee benefit plans Other liabilities Total liabilities Total equity Total liabilities and equity
Consolidated Balance Sheet March 31, 2018 Ceridian
Historical Adjustments Ceridian
Pro Forma (Dollars in millions) $ 62.2 $ 7.6 $ 54.6 81.1 15.1 66.0 49.2 1.7 47.5 1.8 — 1.8 194.3 24.4 169.9 4,293.9 — 4,293.9 4,488.2 24.4 4,463.8 103.4 1.6 101.8 2,075.8 125.8 1,950.0 206.6 5.1 201.5 5.5 2.0 3.5 $ 6,879.5 $ 158.9 $ 6,720.6 $ — $ — $ — 47.6 6.0 41.6 2.7 — 2.7 18.5 2.5 16.0 55.7 1.5 54.2 16.7 0.4 16.3 141.2 10.4 130.8 4,313.2 — 4,313.2 4,454.4 10.4 4,444.0 1,120.5 — 1,120.5 147.3 — 147.3 53.8 10.6 43.2 5,776.0 21.0 5,755.0 1,103.5 137.9 965.6 $ 6,879.5 $ 158.9 $ 6,720.6
Ceridian HCM Holding Inc. Unaudited Pro Forma Condensed Revenue: Recurring services Professional services and other Total revenue Cost of revenue: Recurring services Professional services and other Product development and management Depreciation and amortization Total cost of revenue Gross profit Costs and expenses: Selling, general, and administrative Other (income) expense, net Interest expense, net Total costs and expenses Income (loss) from continuing operations before income taxes Income tax expense Loss from continuing operations Income from discontinued operations Net loss Net loss attributable to noncontrolling interest Net loss attributable to Ceridian
Consolidated Statement of Operations Three Months Ended March 31, 2018 Ceridian
Historical Adjustments Ceridian
Pro Forma (Dollars in millions) $ 188.7 $ 21.7 $ 167.0 20.2 — 20.2 208.9 21.7 187.2 62.7 12.0 50.7 32.8 — 32.8 15.4 1.7 13.7 8.8 0.1 8.7 119.7 13.8 105.9 89.2 7.9 81.3 65.6 8.8 56.8 (2.8 ) — (2.8 ) 22.2 — 22.2 85.0 8.8 76.2 4.2 (0.9 ) 5.1 6.8 (2.2 ) 9.0 (2.6 ) 1.3 (3.9 ) — — — (2.6 ) 1.3 (3.9 ) (0.5 ) (0.5 ) — $ (2.1 ) $ 1.8 $ (3.9 )
Ceridian HCM Holding Inc. Unaudited Pro Forma Condensed Net loss Adjustments to reconcile net loss to net cash used in operating activities: Deferred income tax benefit Depreciation and amortization Amortization of debt issuance costs and debt discount Net periodic pension and postretirement cost Share-based compensation Other Changes in operating assets and liabilities excluding effects of acquisitions and divestitures: Net cash used in operating activities—continuing operations Net cash used in operating activities—discontinued operations Net cash used in operating activities Cash Flows from Investing Activities Purchase of customer trust funds marketable securities Proceeds from sale and maturity of customer trust funds marketable securities Net change in restricted cash and other restricted assets held to satisfy customer trust funds obligations Expenditures for property, plant, and equipment Expenditures for software and technology Net cash used in investing activities Cash Flows from Financing Activities Increase in customer trust funds obligations, net Repayment of long-term debt obligations Net cash provided by financing activities Effect of Exchange Rate Changes on Cash Net decrease in cash and equivalents Cash and equivalents at beginning of period Cash and equivalents at end of period
Consolidated Statement of Cash Flows Three Months Ended March 31, 2018 Ceridian
Historical Adjustments Ceridian
Pro Forma (Dollars in millions) $ (2.6 ) $ 1.3 $ (3.9 ) — (0.1 ) — (0.1 ) 14.9 1.0 13.9 1.0 — 1.0 0.6 — 0.6 2.9 0.2 2.7 (0.1 ) — (0.1 ) (39.9 ) (0.2 ) (39.7 ) (23.3 ) 2.3 (25.6 ) (0.1 ) — (0.1 ) (23.4 ) 2.3 (25.7 ) — (520.6 ) — (520.6 ) 175.4 — 175.4 114.8 — 114.8 (2.9 ) — (2.9 ) (7.4 ) — (7.4 ) (240.7 ) — (240.7 ) — 230.4 — 230.4 (0.3 ) — (0.3 ) 230.1 — 230.1 (3.4 ) — (3.4 ) (37.4 ) 2.3 (39.7 ) 99.6 5.3 94.3 $ 62.2 $ 7.6 $ 54.6
Liquidity and Capital Resources
Our primary sources of liquidity are our existing cash and equivalents, cash provided by operating activities, borrowingsavailability under our credit facilities,2024 Revolving Credit Facility, and proceeds from debt issuances and equity offerings. As of March 31, 2018,2024, we had cash and equivalents of $62.2$392.5 million and availability under our revolving credit facility of $45.0total debt was $1,232.1 million. No cash amounts were drawn on the revolving credit facility as of March 31, 2018. Our total indebtedness was $1,132.0 million as of March 31, 2018. Please refer to Note 9, “Debt,” to our condensed consolidated financial statements, for further information on our indebtedness.
Our primary liquidity needs are related to funding of general business requirements, including the payment of interest and principal on our indebtedness, working capital,debt, capital expenditures, pension contributions,fulfilling our contractual commitments, product development, and product development.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.
Concurrently with closing of the IPOWe believe that our cash flow from operations, available cash and the concurrent private placement on April 30, 2018, we applied the net proceeds to satisfyequivalents, and discharge the indenture governing our outstanding $475.0 million principal amount Senior Notes, and they will be redeemed on May 30, 2018. We also refinanced our remaining indebtednessavailability under our (i) $702.0 million (original principal amount) Senior Term Debt and (ii) $130.0 million2024 Revolving Credit Facility accrued interestwill be sufficient to meet our liquidity needs for the next twelve months and related costsfor the foreseeable future. Dayforce Wallet on demand pay requests are currently funded from our operating cash balances, until the amounts are reimbursed by our customers through their normal payroll funding cycles. We evaluate the creditworthiness of each customer utilizing the Dayforce Wallet feature. We anticipate that to the extent that we require additional liquidity, it will be funded through the issuance of equity, the incurrence of additional indebtedness, or a combination thereof. We cannot provide assurance that we will be able to obtain this additional liquidity on reasonable terms, or at all. Additionally, our liquidity and our ability to meet our obligations and to fund our capital requirements and Dayforce Wallet on demand pay requests are also dependent on our future financial performance, which is subject to general economic, financial, and other factors that are beyond our control. Accordingly, we cannot provide assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available from additional indebtedness or otherwise to meet our liquidity needs. If we decide to pursue one or more significant acquisitions, we may incur additional debt or raise additional equity to finance such acquisitions, which would result in additional expenses with new senior credit facilities consisting of a $680.0 million term loan debt facility and a $300.0 million revolving credit facility. Please refer to Note 19, “Subsequent Events,” for further discussion of these transactions.and/or dilution.
Our customer trust 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 and to protect the principal balance. In accordance with these objectives,requirements. Accordingly, we maintain on average approximately 45% to 55% of customer trust 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 trust 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,mortgage-backed, municipal, corporate, and bank securities. To maintain sufficient liquidity in the trust 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 trust aresegregated accounts intended for the specific purpose of satisfying client fundcustomer funding obligations and therefore are not freely available for our general business use.
29 | Q1 2024 Form 10-Q
We believe that our cash flow from operations, availability under our revolving credit facility, and available cash and equivalents will be sufficient to meet our liquidity needs for the foreseeable future. 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 assure you 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 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 assure you 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. Although we have no specific current plans to do so, if we decide to pursue one or more significant acquisitions, we may incur additional debt or sell additional equity to finance such acquisitions, which would result in additional expenses or dilution.
Statements of Cash Flows
The following table provides a summary of cash flows from operating, investing, and financing activities from the periods presented.
| Three Months ended March 31, | ||||||||
| 2018 | 2017 | |||||||
Net cash flows | ||||||||
Net cash used in operating activities—continuing operations | $ | (23.3 | ) | $ | (44.0 | ) | ||
Net cash used in investing activities | (240.7 | ) | (919.9 | ) | ||||
Net cash provided by financing activities | 230.1 | 910.2 | ||||||
Net cash flows used in discontinued operations | (0.1 | ) | (0.7 | ) | ||||
Effect of exchange rate on cash | (3.4 | ) | 0.7 | |||||
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Net cash flows used | (37.4 | ) | (53.7 | ) | ||||
Cash and equivalents at end of period | $ | 62.2 | $ | 77.7 | ||||
Net cash flows of customer trust funds | ||||||||
Net cash used in investing activities—continuing operations | $ | (230.4 | ) | $ | (912.0 | ) | ||
Net cash provided by financing activities—continuing operations | 230.4 | 912.0 | ||||||
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Net cash flows provided by customer trust funds—continuing operations | $ | — | $ | — | ||||
Changes in cash flows due to purchases of customer trust fund marketable securities and proceeds from the sale or maturity of customer trust fund marketable securities, andas well as the net increase (decrease)carrying value of restricted cash heldcustomer fund accounts as of period end dates can vary significantly due to satisfy customer trust fund obligations are primarily due toseveral 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. Customer trust fund cash flows are significantly affected by the period end day of the week relativeobligations to customer payment cycles.employees, taxing authorities, and others. The customer trust funds are fully segregated from our operating cash accounts and are evaluated and tracked separately by management. Therefore, to provide meaningful information toThe table below summarizes the readers,activity within the following discussion is regarding the netcondensed consolidated statements of cash flows excluding customer trust funds.flows:
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| Three Months Ended March 31, |
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| 2024 |
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| 2023 |
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| (In millions) |
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Net cash provided by operating activities |
| $ | 9.1 |
|
| $ | 11.3 |
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Net cash used in investing activities |
|
| (290.7 | ) |
|
| (1.4 | ) |
Net cash provided by financing activities |
|
| 1,772.9 |
|
|
| 2,187.1 |
|
Effect of exchange rate changes on cash, restricted cash, and equivalents |
|
| (13.5 | ) |
|
| (6.8 | ) |
Net increase in cash, restricted cash, and equivalents |
|
| 1,477.8 |
|
|
| 2,190.2 |
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Cash, restricted cash, and equivalents at beginning of period |
|
| 3,421.4 |
|
|
| 3,151.2 |
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Cash, restricted cash, and equivalents at end of period |
|
| 4,899.2 |
|
|
| 5,341.4 |
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Cash and equivalents |
|
| 392.5 |
|
|
| 428.6 |
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Restricted cash and equivalents |
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| 4,506.7 |
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| 4,912.8 |
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Total cash, restricted cash, and equivalents |
| $ | 4,899.2 |
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| $ | 5,341.4 |
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Operating Activities
Net cash used inprovided by operating activities from continuing operations of $23.3was $9.1 million during the three months ended March 31, 2018, was primarily attributable2024 compared to net changes in working capital of $39.9 million and net loss of $2.6 million, partially offset by certainnon-cash items, primarily $14.9 million of depreciation and amortization and $2.9 million of share-based compensation expense. Net changes in working capital included reductions in liabilities for employee compensation and benefits, primarily due to payments of accrued incentive compensation; reductions in liabilities for accrued interest primarily as a result of $34.8 million in cash interest payments on our long-term debt; and increases in prepaid expenses and other current assets, primarily due to annual maintenance contracts. Included within net cash flows used in operating activities for the three months ended March 31, 2018, was $5.5 million in cash taxes and $1.9 million in pension payments.
Net cash used in operating activities from continuing operations of $44.0$11.3 million during the three months ended March 31, 2017, was2023. For both periods, cash inflows from operating activities are primarily attributablegenerated from the subscriptions of our solutions. Cash outflows from operating activities for both periods are primarily comprised of personnel-related expenditures, including the payout of year-end employee compensation, and the renewals of prepaid annual contracts that are integral to net changesour business operations. The positive cash inflow in working capital of $51.3 million and net loss of $11.2 million,both periods is primarily due to our growing revenue, partially offset by certainnon-cash items, primarily $14.1 million of depreciationour operating costs, mainly, investment in our sales force to support our growth initiatives and amortizationthose product development and $4.5 million of share-based compensation expense. Net changes in working capital included reductions in liabilitiesmanagement costs which are not eligible for employee compensation and benefits, primarily due to payments of accrued incentive compensation; reductions in liabilities for accrued interest, primarily due to semi-annual payments on our long-term debt; increases in prepaid expenses and other current assets, primarily due to annual maintenance contracts, and reductions in liabilities for accrued taxes.capitalization.
Investing Activities
During the three months ended March 31, 2018,2024, net cash used in investing activities was $290.7 million, consisting of acquisition costs, net of cash acquired, of $173.3 million, purchases of customer funds marketable securities of $139.6 million, capital expenditures of $27.9 million, and purchases of marketable securities of $0.5 million, partially offset by proceeds from continuing operations excludingthe sale and maturity of customer trust fund activity was $10.3funds marketable securities of $49.6 million related to capital expenditures.and proceeds from the sale and maturity of marketable securities of $1.0 million. Our capital expenditures included $7.4$24.4 million for software and technology and $2.9$3.5 million for property, plant, and equipment. For the three months ended March 31, 2018, capital expenditures for software development were $6.1 million which is included in capitalized expenditures for software and technology.
During the three months ended March 31, 2017,2023, net cash used in investing activities from continuing operations excludingwas $1.4 million, consisting of purchases of customer trust fund activity was $7.9funds marketable securities of $72.5 million primarily related toand capital expenditures of $28.4 million, partially offset by net proceeds from divestituresthe sale and maturity of $0.9customer funds marketable securities of $100.5 million. Our capital expenditures included $6.2$21.9 million for software and technology and $2.6$6.5 million for property, plant, and equipment. For the three months ended March 31, 2017, capital expenditures for software development were $5.4 million which is included in capitalized expenditures for software and technology.
Financing Activities
Net cash used inprovided by financing activities from continuing operations excluding the change in customer trust fund obligation was $0.3$1,772.9 million during the three months ended March 31, 2018, related2024. This cash inflow is primarily attributable to repaymentan increase in net customer fund obligations of $1,763.5 million, proceeds from our debt issuance of $650.0 million, and proceeds from issuance of common stock under our share-based compensation plans of $15.3 million, partially offset by payments on our long-term debt obligations.obligations of $644.5 million and payment of debt refinancing costs of $11.4 million.
30 | Q1 2024 Form 10-Q
Net cash used inprovided by financing activities from continuing operations excluding the change in customer trust fund obligation was $1.8$2,187.1 million during the three months ended March 31, 2017, related2023. This cash inflow is primarily attributable to the repurchasean increase in net customer fund obligations of $2,174.4 million and proceeds from issuance of common stock under our share-based compensation plans of $14.8 million, partially offset by payments on our long-term debt obligations of $2.1 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 March 31, 2024, our remaining performance obligations were approximately $1,221.2 million. Please refer to Part 1, Item 1. Note 11, “Revenue” for further discussion of our stock.remaining performance obligations.
Cash Flows from Discontinued OperationsOff-Balance Sheet Arrangements
As of March 31, 2024, we did not have any “off-balance sheet arrangements” (as such term is defined in Item 303 of Regulation S-K).
Contractual Obligations
During the three months ended March 31, 2018, net cash used in discontinued operations was $0.1 million. During the three months ended March 31, 2017, net cash used in discontinued operations was $0.7 million. The cash flows from discontinued operations for all periods primarily relate to changes in working capital.
Critical Accounting Policies and Estimates
There have been2024, there were no materialsignificant changes to our critical accounting policies and estimates from the information providedcontractual obligations as described in the “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Critical Accounting Policies and Estimates” contained in our 2017 Annual Report. For discussion of recently issued and adopted accounting pronouncements, please refer to Note 2, “Summary of Significant Accounting Policies,” to our condensed consolidated financial statements included herein.
Off-Balance Sheet Arrangements
We do not and, as of March 31, 2018, we did not, have anyoff-balance sheet arrangements (as that term is defined in applicable SEC rules) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Forward-Looking Statements
The foregoing Management’sPart II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of OperationsOperations" under the heading "Contractual Obligations" contained in our 2023 Form 10-K.
Critical Accounting Policies and Estimates
During the following Quantitativethree months ended March 31, 2024, there were no significant changes to our critical accounting policies and Qualitative Disclosures about Market Risk containestimates as described in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Critical Accounting Policies and Estimates" contained in our 2023 Form 10-K.
Non-GAAP Financial Measures
We use certain forward-looking statements withinnon-GAAP financial measures in this document including:
Non-GAAP Financial Measure | GAAP Financial Measure | |
EBITDA | Net income | |
Adjusted EBITDA | Net income | |
Adjusted EBITDA margin | Net profit margin | |
Adjusted Cloud recurring gross margin | Cloud recurring gross margin | |
Adjusted operating profit | Operating profit | |
Adjusted operating profit margin | Operating profit margin | |
Adjusted net income | Net income | |
Adjusted net profit margin | Net profit margin | |
Adjusted diluted net income per share | Diluted net income per share | |
Percentage change in revenue, including total revenue and revenue by solution, on a constant currency basis | Percentage change in revenue, including total revenue and revenue by solution | |
Dayforce recurring revenue per customer | No directly comparable GAAP measure |
31 | Q1 2024 Form 10-Q
We believe that these non-GAAP financial measures are useful to management and investors as supplemental measures to evaluate our overall operating performance including comparison across periods and with competitors. Our management team uses these non-GAAP financial measures to assess operating performance because these financial measures exclude the meaningresults of Section 27Adecisions that are outside the normal course of our business operations, and are used for internal budgeting and forecasting purposes both for short- and long-term operating plans. Additionally, Adjusted EBITDA is a component of our management incentive plan and Adjusted Cloud recurring gross margin and Adjusted operating profit are components of certain performance based equity awards for our named executive officers. These non-GAAP financial measures are not required by, defined under, or presented in accordance with, GAAP, and should not be considered as alternatives to our results as reported under GAAP, have important limitations as analytical tools, and our use of these terms may not be comparable to similarly titled measures of other companies in our industry. Our presentation of non-GAAP financial measures should not be construed to imply that our future results will be unaffected by similar items to those eliminated in this presentation.
We define our non-GAAP financial measures as follows:
32 | Q1 2024 Form 10-Q
The following tables reconcile our expectations or beliefs, including, but not limitedreported results to our expectations concerningnon-GAAP financial measures:
|
| Three Months Ended March 31, 2024 |
| |||||||||||||||||||||||||
|
| As reported |
|
| As reported margins (a) |
|
| Share-based |
|
| Amortization |
|
| Other (b) |
|
| As adjusted (b) |
|
| As adjusted margins (a) |
| |||||||
|
| (Dollars in millions, except per share data) |
| |||||||||||||||||||||||||
Cost of Cloud recurring revenue |
| $ | 76.3 |
|
|
| 79.0 | % |
| $ | 3.6 |
|
| $ | — |
|
| $ | — |
|
| $ | 72.7 |
|
|
| 80.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Operating profit |
| $ | 40.7 |
|
|
| 9.4 | % |
| $ | 38.0 |
|
| $ | 28.4 |
|
| $ | 2.0 |
|
| $ | 109.1 |
|
|
| 25.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income |
| $ | 7.1 |
|
|
| 1.6 | % |
| $ | 38.0 |
|
| $ | 28.4 |
|
| $ | (5.5 | ) |
| $ | 68.0 |
|
|
| 15.8 | % |
Interest expense, net |
|
| 13.3 |
|
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13.3 |
|
|
|
| ||
Income tax expense (c) |
|
| 11.3 |
|
|
|
|
|
| — |
|
|
| — |
|
|
| (16.9 | ) |
|
| 28.2 |
|
|
|
| ||
Depreciation and amortization |
|
| 48.8 |
|
|
|
|
|
| — |
|
|
| 28.4 |
|
|
| — |
|
|
| 20.4 |
|
|
|
| ||
EBITDA |
| $ | 80.5 |
|
|
|
|
| $ | 38.0 |
|
| $ | — |
|
| $ | 11.4 |
|
| $ | 129.9 |
|
|
| 30.1 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income per share - diluted (d) |
| $ | 0.04 |
|
|
|
|
| $ | 0.24 |
|
| $ | 0.18 |
|
| $ | (0.03 | ) |
| $ | 0.43 |
|
|
|
| ||
33 | Q1 2024 Form 10-Q
|
| Three Months Ended March 31, 2023 |
| |||||||||||||||||||||||||
|
| As reported |
|
| As reported margins (a) |
|
| Share-based |
|
| Amortization |
|
| Other (b) |
|
| As adjusted (b) |
|
| As adjusted margins (a) |
| |||||||
|
| (Dollars in millions, except per share data) |
| |||||||||||||||||||||||||
Cost of Cloud recurring revenue |
| $ | 66.9 |
|
|
| 77.3 | % |
| $ | 4.0 |
|
| $ | — |
|
| $ | — |
|
| $ | 62.9 |
|
|
| 78.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Operating profit |
| $ | 38.4 |
|
|
| 10.4 | % |
| $ | 40.2 |
|
| $ | 5.5 |
|
| $ | 4.4 |
|
| $ | 88.5 |
|
|
| 23.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income |
| $ | 9.9 |
|
|
| 2.7 | % |
| $ | 40.2 |
|
| $ | 5.5 |
|
| $ | (6.3 | ) |
| $ | 49.3 |
|
|
| 13.3 | % |
Interest expense, net |
|
| 9.2 |
|
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9.2 |
|
|
|
| ||
Income tax expense (c) |
|
| 18.5 |
|
|
|
|
|
| — |
|
|
| — |
|
|
| (11.8 | ) |
|
| 30.3 |
|
|
|
| ||
Depreciation and amortization |
|
| 22.1 |
|
|
|
|
|
| — |
|
|
| 5.5 |
|
|
| — |
|
|
| 16.6 |
|
|
|
| ||
EBITDA |
| $ | 59.7 |
|
|
|
|
| $ | 40.2 |
|
| $ | — |
|
| $ | 5.5 |
|
| $ | 105.4 |
|
|
| 28.4 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income per share - diluted (d) |
| $ | 0.06 |
|
|
|
|
| $ | 0.25 |
|
| $ | 0.03 |
|
| $ | (0.04 | ) |
| $ | 0.31 |
|
|
|
| ||
34 | Q1 2024 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 an inability to access foreign funds would not materially affect our ability to meet our operational needs or result in a material foreign currency loss in the future. Due to the relative size of our international operations to date, we have not instituted an active hedging program. We expect our international operations to continue to grow in the near term, and we are monitoring the foreign currency exposure to determine if we should begin a hedging program.
Interest Rate Risk. Our operating results and financial condition are subject to fluctuations due to changes in interest rates, primarily in relation to: (1) our customer funds market valuation and float revenue derived therefrom, (2) our debt and the interest paid on such, and (3) our cash and equivalents and the interest income earned on these balances. Collectively, we do not believe that a change in interest rates of 100 basis points would have a material effect on our operating results or financial condition.
In connection with our U.S. and Canadian payroll and tax filing services,certain jurisdictions, we collect funds for payment of payroll and taxes; temporarily hold such funds in trustsegregated 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 U.S. customer trust funds primarily in high- quality bank deposits, money market mutual funds, commercial paper or collateralized short-term investments. We may also invest these funds in U.S. Treasury and agencygovernment securities, as well as highly rated asset-backed, mortgage-backed, municipal,corporate, and corporatebank securities. Our Canadian
We have exposure to risks associated with changes in laws and regulations that may affect customer trust fundsfund balances. For example, a change in regulations, either reducing the amount of taxes to be withheld or allowing less time to remit taxes to government authorities, would reduce our average customer fund balances and float revenue. Based on current market conditions, portfolio composition and investment practices, a 100 basis point decrease in market investment rates would result in approximately $26 million decrease in float revenue over the ensuing twelve month period. There are investedno incremental costs of revenue associated with changes in securities issued byfloat revenue.
We pay floating rates of interest on our 2024 Term Debt and 2024 Revolving Credit Facility. The interest paid on these borrowings will fluctuate up or down in relation to changes in market interest rates. A 100 basis point decrease in the government and provinces of Canada, highly rated Canadian banks and corporations, asset-backed trusts, and mortgages.applicable reference rates would result in approximately $6 million decrease in our interest expense over the ensuring twelve-month period. Please refer to Part I, Item 1. Note 8, "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 other-than-temporary.
We do not believe that an increase or decrease in interest rates of 100 basis points would have a material effect on our operating results or financial condition.unrecoverable. Fluctuations in the value of our investment securities caused by a change in interest rates (gains or losses on the carrying value) are recorded in other comprehensive income, and are realized only if we sell the underlying securities. Please refer to Part I, Item 1. Note 5, "Customer Funds" for additional information.
35 | Q1 2024 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 companyus 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. In 2017, we contributed $25.3 million to our pension plan. The effective discount rate used in accounting for pension and other benefit obligations in 20172023 ranged from 3.01%4.52% to 3.25%4.65%. The expected rate of return on plan assets for qualified pension benefits in 20182024 is 6.30%4.80%.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management has evaluated,Management, under the supervision and with the participation of ourthe Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as(as defined in Rule13(a)-15(e) ofRules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act). Disclosure controls and procedures are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act of 1934 (the “Exchange Act”), as ofis recorded, processed, summarized, and reported within the end oftime periods specified in the period coveredSEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by this Quarterly Report on Form10-Q pursuant to Rule13a-15(b) ofa company in the reports that it files or submits under the Exchange Act. Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that as of March 31, 2024, our disclosure controls and procedures were not effective due to the GITC Material Weakness, as of the end of the period covered by this Quarterly Report on Form10-Q are effective at a reasonable assurance level in ensuring that information requireddefined below. The GITC Material Weakness continues to be disclosedthe sole material weakness 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 Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent or detect all errors and all fraud. We have not engaged an independent registered accounting firm to perform an audit of our internal control over financial reporting as of any balance sheet date or for any period reportedMarch 31, 2024. We have in place and are continuing to execute a remediation plan to address the GITC Material Weakness.
As discussed in our financial statements. Presently,2023 Form 10-K, we are not an accelerated filer, as such termidentified a material weakness with respect to ineffective general information technology controls (“GITCs”) related to user access and change management over the information technology ("IT") systems supporting our Canada trust and Powerpay revenue processes (the “GITC Material Weakness”). A material weakness is defined by Rule12b-2a deficiency, or a combination of the Exchange Act, therefore; our management is not presently required to perform an annual assessment of the effectiveness of our internal control over financial reporting. This requirement could apply as early as our Annual Report on Form10-K for the year ending December 31, 2019 if certain triggers requiring accelerated filing deadlines are met prior to that. Our independent public registered accounting firm will first be required to attest to the effectiveness of ourdeficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The GITC Material Weakness was primarily due to ineffective reporting lines necessary to plan, execute, control, and periodically assess our IT activities. In addition, there was an insufficient number of trained resources with expertise, responsibility, and accountability for the design, documentation, implementation, and operation of GITCs. As a result, we did not perform an effective risk assessment related to the impact of ineffective GITCs on the operation of manual and automated control activities in order to identify all relevant risks of material misstatement to the consolidated financial statements.
Specifically, we did not effectively design control activities to restrict technology access rights to authorized users commensurate with their job responsibilities; we did not have an effective information and communication process that identified and assessed the controls necessary to ensure the reliability of information used in financial reporting; and we lacked effective ongoing evaluations of whether GITCs are present and functioning.
In light of the GITC Material Weakness, management performed additional analyses and other procedures to ensure that our Annualcondensed consolidated financial statements were prepared in accordance with GAAP. Accordingly, management believes that the condensed consolidated financial statements included in this Quarterly Report on Form10-K 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows as of and for the firstperiods presented, in accordance with GAAP.
36 | Q1 2024 Form 10-Q
Management’s Plan to Remediate the Identified Material Weakness
We continue our efforts and activities in the process to remediate the GITC Material Weakness. We expect that the GITC Material Weakness will be remediated promptly, however, it will not be considered fully remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively, which we expect to occur in connection with our annual audit covering the year we are no longer an “emerging growth company”. Whileended December 31, 2024. These remediation activities consist of enhanced risk assessments; modified reporting lines of key control owners to improve the planning, execution, and periodic assessment of the IT activities; improved training of our disclosureresources, and in some cases additional resources, focused on the design, implementation, operation, and documentation of GITCs; and the implementation of improved monitoring procedures, stronger user access controls, and procedures are designed to provide reasonable assurancegreater segregation of their effectiveness, because of the inherent limitationsduties in all control systems, no evaluation of controls can provide absolute assurance that all control issuescertain areas around our Canada trust and instances of fraud, if any, within the company have been detected.Powerpay revenue processes.
Changes in Internal Control over Financial Reporting
ThereWith the exception of the on-going remediation activities in response to the GITC Material Weakness identified above, there were no changes to our internal control over financial reporting during the three months ended March 31, 2018,2024 that have materially affected, or that are reasonably likely to materially affect, our internal controlcontrols over financial reporting.
37 | Q1 2024 Form 10-Q
From timeWe are subject to time, we may become involved in legalclaims and a number of judicial and administrative proceedings arisingconsidered normal in the ordinary course of our business.current and past operations, including employment-related disputes, contract disputes, disputes with our competitors, intellectual property disputes, government audits and proceedings, customer disputes, and tort claims. In some proceedings, the claimant seeks damages as well as other relief, which, if granted, would require substantial expenditures on our part.
Some of these matters raise difficult and complex factual and legal issues and are subject to many uncertainties, including the facts and circumstances of each particular action, and the jurisdiction, forum, and law under which each action is proceeding. Because of these complexities, final disposition of some of these proceedings may not occur for several years. As such, we are not always able to estimate the amount of our possible future liabilities, if any. We are not presently a party to any legal proceedings that, if determined adversely to us, we believe would individually or taken together have a material adverse effect on our business, financial condition or liquidity.
Refer to Part I, Item 3. "Legal Proceedings" of our 2023 Form 10-K for a prior discussion of our legal proceedings.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, such as Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations", the reader should carefully consider the factors discussed in Part I, Item 1A. "Risk Factors” in our 2023 Form 10-K. There have been no material changes toin our principal risks that we believe are material to our business, results of operations and financial condition, from the risk factors previouslyfrom those disclosed in the prospectus, dated April 25, 2018, filed pursuant to Rule 424(b)(4) with the SEC on April 26, 2018, relating toPart I, Item 1A. of our initial public offering which is accessible on the SEC’s website at www.sec.gov.2023 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Initial Public OfferingNone.
On April 30, 2018, we completed an initial public offering (“IPO”) of our common stock. In connection with the IPO, we issued and sold 24,150,000 shares of common stock at a price to the public of $22.00 per share. Prior to completion of the IPO, those shares were unregistered. However, as a result of their registration and sale pursuant to the IPO, we received approximately $531.3 million in gross proceeds before deducting underwriting discounts, commissions and other offering related expenses. None of the expenses associated with the IPO were paid to directors, officers, persons owning 10% or more of any class of our equity securities or to their associates or to our affiliates. Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC acted as representatives of the underwriters for the offering.
We registered the shares under the Securities Act on a Registration Statement on FormS-1 (RegistrationNo. 333-223905), which was filed with the SEC on March 26, 2018 and declared effective on April 25, 2018.
The IPO closed on April 30, 2018. The offering terminated after all of the shares of common stock were sold.
There was no material change in the planned use of proceeds from our IPO as described in our Prospectus.
Concurrent Private Placement
Immediately subsequent to our IPO on April 30, 2018, THL / Cannae Investors LLC, one of our existing stockholders controlled by our Sponsors, purchased from us in a private placement $100.0 million of our common stock at a price per share equal to the initial public offering price. Based on the IPO price of $22.00 per share, 4,545,455 shares were issued in this private placement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
38 | Q1 2024 Form 10-Q
(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 | ||
10.1 | ||
10.2* | ||
10.3* | ||
10.4* | ||
10.5* | ||
10.6* | ||
10.7* | ||
10.8* | ||
10.9*^+ | ||
31.1^ | ||
31.2^ | ||
32.1# | ||
39 | Q1 2024 Form 10-Q
32.2# | ||
101.INS^ | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). | |
101.SCH^ | Inline XBRL Taxonomy Extension Schema | |
104^ | Cover Page Interactive Data File (formatted as Inline XBRL | |
SIGNATURES* Management compensatory plan or arrangement.
^ Filed herewith.
+ Confidential portions of this exhibit have been redacted in compliance with Item 601(b)(10) of Regulation S-K.
# In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
40 | Q1 2024 Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1933,1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DAYFORCE, INC. | ||||||||
Date: May | 1, 2024 | By: | /s/ David D. Ossip | |||||
Name: | David D. Ossip | |||||||
Title: | Chief Executive Officer | |||||||
| ||||||||
(Principal Executive Officer) | ||||||||
Date: May 1, 2024 | By: | /s/ Jeremy R. Johnson | ||||||
Name: | Jeremy R. Johnson | |||||||
Title: | Executive Vice President and Chief Financial Officer | |||||||
(Principal Financial | ||||||||
|
| |||||||
41 | Q1 2024 Form 10-Q
56