Ceridian(US:DAY)2023-03-01 21:25PART I Item 1. Business Ceridian is a global HCM software company, providing its Dayforce Cloud platform for comprehensive HR, payroll, and talent management - Ceridian is a global HCM software company, with Dayforce as its flagship Cloud HCM platform offering HR, payroll, benefits, workforce management, and talent intelligence17 - The company's five strategic growth levers include acquiring new customers, extending the Dayforce platform, expanding within the Enterprise segment, accelerating global expansion, and innovating in adjacent markets like Dayforce Wallet22 Dayforce Customer Growth (2012-2022) | Year | Live Dayforce Customers | Global Employees (approx.) | | :--- | :---------------------- | :------------------------- | | 2012 | 482 | - | | 2022 | 5,993 | 5.9 million | - Dayforce Wallet, a digital payment solution providing on-demand access to earned pay, launched in the U.S. in 2020, Canada in 2021, and the UK in 2022, with ongoing feature enhancements2527 - As of December 31, 2022, Ceridian had 8,526 employees globally, with 49% women in the global workforce and 44% in manager-level roles or above4849 Item 1A. Risk Factors The company faces significant risks from maintaining Cloud growth, payroll fund disruptions, aging infrastructure, data security, and market competition - Failure to maintain high Cloud solutions growth rate, especially for Dayforce Wallet, could materially adversely affect market valuation and financial results7173 - Disruptions in payroll-related fund movements, due to errors, non-compliance with regulations, or system failures, could lead to significant losses, monetary damages, and reputational harm74 - Aging software infrastructure, ongoing migration to new platforms, and the integration of acquired systems increase costs and vulnerability to cyber-attacks, system outages, and data loss7677 - Non-compliance with privacy, data protection, and information security laws (e.g., GDPR, CCPA, CPRA), including an FTC consent order, could result in significant penalties, legal liability, reputational damage, and restrictions on data usage for AI-driven insights7881 - The company's aggressive growth strategy, particularly international expansion and acquisitions, poses risks related to managing operations, adapting to technology changes, and integrating acquired businesses, potentially impacting service quality and profitability828688 - Dependence on third-party service providers and licensed software for critical operations means disruptions or failures from these partners could materially impact business, financial condition, and results of operations9596 - The company faces risks from customer defaults on Dayforce Wallet 'on demand pay' advances, as well as market, interest rate, credit, and liquidity risks associated with holding customer funds106107 - The price of common stock may be volatile due to various market and company-specific factors, and anti-takeover provisions could discourage beneficial acquisitions130134 Item 1B. Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - No unresolved staff comments148 Item 2. Properties Ceridian's corporate headquarters is in Minneapolis, Minnesota, with major offices in Toronto and other leased spaces globally - Corporate headquarters in Minneapolis, Minnesota, and a major office in Toronto, Ontario, Canada, are leased facilities149 - The company leases office space in various locations across North America, APJ, and EMEA149 Item 3. Legal Proceedings Ceridian is involved in ordinary course legal proceedings, including a proposed class action lawsuit, but expects no material adverse effects - A proposed class action lawsuit was filed on October 21, 2021, alleging misrepresentations and negligence in connection with the company's April 25, 2018 Prospectuses related to the distribution of its 50% interest in LifeWorks Corporation Ltd151 - The Ontario court rejected the plaintiff's Norwich Application for discovery, and the appeal was denied on December 14, 2022151 - The company believes the likelihood of a material loss from this class action is remote, with a motion to strike the application set for March 31, 2023152 - No current legal proceedings are expected to have a material adverse effect on the business, financial condition, or liquidity150 Item 4. Mine Safety Disclosures This item is not applicable to Ceridian HCM Holding Inc - Not applicable153 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Ceridian's common stock trades on NYSE and TSX, with no cash dividends planned, and no recent unregistered sales or issuer purchases - Common stock trades on NYSE and Toronto Stock Exchange under "CDAY" since April 26, 2018156 - As of December 31, 2022, there were 58 stockholders of record158 - The company does not intend to pay cash dividends in the foreseeable future, planning to retain earnings for business operations and expansion133157 - No recent sales of unregistered securities or issuer purchases of equity securities159160 Item 6. Reserved This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Ceridian saw significant 2022 growth, driven by Dayforce Cloud, with total revenue up 21.7% and improved Adjusted EBITDA - Ceridian is a global HCM software company, categorizing solutions into Cloud (Dayforce, Powerpay) and Bureau offerings, with a focus on migrating Bureau customers to Dayforce168 - Dayforce, the principal Cloud HCM platform, provides continuous real-time calculations across HR, payroll, workforce management, benefits, and talent intelligence, serving organizations of all sizes169 Key Performance Measures (Year Ended December 31) | Indicator | 2022 | 2021 | 2020 | | :-------------------------------------- | :---------- | :---------- | :---------- | | Live Dayforce customers | 5,993 | 5,434 | 4,906 | | Cloud annualized recurring revenue (ARR) | $1,041.3 M | $779.8 M | $617.9 M | | Annual Dayforce revenue retention rate | 97.1 % | 97.1 % | 96.0 % | | Dayforce recurring revenue per customer | $121,425 | $108,631 | $98,655 | | Adjusted EBITDA | $250.4 M | $162.5 M | $159.0 M | | Adjusted EBITDA margin | 20.1 % | 15.9 % | 18.9 % | Total Revenue Breakdown (Year Ended December 31) | Revenue Category | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :--------------------------- | :-------- | :-------- | :---------- | :--------- | | Cloud Recurring | 908.4 | 712.9 | 195.5 | 27.4 % | | Bureau Recurring | 139.2 | 137.8 | 1.4 | 1.0 % | | Total Recurring | 1,047.6 | 850.7 | 196.9 | 23.1 % | | Professional services & other | 198.6 | 173.5 | 25.1 | 14.5 % | | Total Revenue | 1,246.2 | 1,024.2 | 222.0 | 21.7 % | - Float revenue increased significantly due to a 12.4% increase in average float balance to $4,370.7 million and a 76 basis point increase in average yield in 2022 compared to 2021212 Net Loss and Adjusted EBITDA (Year Ended December 31) | Metric | 2022 ($M) | 2021 ($M) | Change ($M) | Change (%) | | :--------------- | :-------- | :-------- | :---------- | :--------- | | Net loss | (73.4) | (75.4) | 2.0 | 2.7 % | | Adjusted EBITDA | 250.4 | 162.5 | 87.9 | 54.1 % | - Liquidity is strong with $431.9 million in cash and equivalents and $300 million available under the Revolving Credit Facility as of December 31, 2022227 - The Ceridian National Trust Bank commenced banking operations on January 3, 2023, acting as trustee for the U.S. payroll trust, centralizing regulatory oversight under the OCC201202546 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Ceridian faces market risks from foreign currency, interest rates, and pension obligations, with interest rate changes significantly impacting float revenue and debt costs - Foreign currency risk is primarily from Canadian Dollar fluctuations, partially hedged by natural inflows, and not currently material, but is being monitored for future hedging programs279 - Interest rate risk affects float revenue, debt interest, and cash interest income. A 100 basis point increase in market investment rates is estimated to increase float revenue by approximately $24 million over twelve months280282 - A 100 basis point increase in LIBOR rates would increase interest expense on Term Debt and Revolving Credit Facility by approximately $7 million over twelve months283 - Pension obligation risk is managed through actuarial assumptions; the U.S. pension plan was fully funded as of December 31, 2022, with a projected benefit obligation exceeding plan assets by $11.1 million287452458 Item 8. Financial Statements and Supplementary Data This section presents Ceridian's audited consolidated financial statements for 2022, 2021, and 2020, with an unqualified opinion from KPMG LLP - KPMG LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022295 Consolidated Balance Sheet Highlights (Dollars in millions) | Metric | Dec 31, 2022 | Dec 31, 2021 | | :--------------------------- | :----------- | :----------- | | Cash and equivalents | $431.9 | $367.5 | | Customer funds | $4,183.2 | $3,535.8 | | Total assets | $7,917.2 | $7,166.2 | | Total current liabilities | $4,533.5 | $3,741.9 | | Customer funds obligations | $4,298.8 | $3,519.9 | | Long-term debt, less current portion | $1,213.4 | $1,124.4 | | Total liabilities | $5,807.8 | $4,938.7 | | Total stockholders' equity | $2,109.4 | $2,227.5 | Consolidated Statements of Operations Highlights (Dollars in millions) | Metric | 2022 ($M) | 2021 ($M) | 2020 ($M) | | :--------------------------- | :-------- | :-------- | :-------- | | Total revenue | 1,246.2 | 1,024.2 | 842.5 | | Gross profit | 473.2 | 382.3 | 341.3 | | Operating (loss) profit | (25.8) | (35.5) | 7.8 | | Net loss | (73.4) | (75.4) | (4.0) | | Net loss per share - Basic | (0.48) | (0.50) | (0.03) | | Net loss per share - Diluted | (0.48) | (0.50) | (0.03) | Consolidated Statements of Cash Flows Highlights (Dollars in millions) | Metric | 2022 ($M) | 2021 ($M) | 2020 ($M) | | :----------------------------------------- | :-------- | :-------- | :-------- | | Net cash provided by (used in) operating activities | 132.6 | 48.8 | (30.2) | | Net cash (used in) provided by investing activities | (342.5) | (711.1) | 38.8 | | Net cash provided by financing activities | 870.1 | 407.5 | 565.3 | - The company adopted ASU 2020-06 on January 1, 2022, simplifying accounting for convertible instruments by eliminating the debt discount and related deferred tax liability for Convertible Senior Notes, impacting accumulated deficit and additional paid-in capital383 - Goodwill and indefinite-lived intangible assets are tested for impairment annually as of October 1. The company performed a qualitative assessment in 2022 and concluded no impairment344416417 - As of December 31, 2022, approximately $1,143.6 million of revenue is expected to be recognized over the next three years from remaining performance obligations509 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Ceridian reported no changes in or disagreements with its accountants on accounting and financial disclosure matters - No changes in or disagreements with accountants on accounting and financial disclosure548 Item 9A. Controls and Procedures Management concluded that Ceridian's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2022550 - Management concluded that internal control over financial reporting was effective as of December 31, 2022, based on the COSO 2013 framework551 - The integration of Ascender into the assessment of internal control over financial reporting was completed for fiscal year 2022552 - No material changes in internal control over financial reporting were identified during the fiscal quarter ended December 31, 2022, other than Ascender integration activities553 Item 9B. Other Information This item reports that there is no other information required to be disclosed - No other information to report556 PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - Information on Directors, Executive Officers, and Corporate Governance is incorporated by reference from the 2023 Annual Meeting of Stockholders Proxy Statement558559 - The company has adopted a 'Code of Conduct' applicable to all employees, contractors, officers, and directors, available on its website560 Item 11. Executive Compensation Executive compensation details, including director and equity plan information, are incorporated by reference from the Proxy Statement - Executive compensation details are incorporated by reference from the Proxy Statement, covering director compensation, executive compensation, equity compensation plan information, and corporate governance563 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Details on equity compensation plans and security ownership are incorporated by reference from the Proxy Statement - Information on securities authorized for issuance under equity compensation plans and security ownership of certain beneficial owners and management is incorporated by reference from the Proxy Statement564565 Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related party transactions, and director independence is incorporated by reference from the Proxy Statement - Information on certain relationships, related party transactions, and director independence is incorporated by reference from the Proxy Statement567 Item 14. Principal Accounting Fees and Services KPMG LLP is the independent registered public accounting firm, with fee information incorporated by reference from the Proxy Statement - KPMG LLP is the independent registered public accounting firm (Auditor Firm ID: 185)568 - Information on principal accounting fees and services is incorporated by reference from the Proxy Statement568 PART IV Item 15. Exhibits, Financial Statement Schedules This section lists consolidated financial statements and a comprehensive list of exhibits filed with the Annual Report on Form 10-K - Consolidated Financial Statements are included as part of Item 8570 - All financial statement schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes571 - A comprehensive list of exhibits is provided, including the Fourth Amended and Restated Certificate of Incorporation, Second Amended and Restated Bylaws, Credit Agreement, Convertible Senior Notes Indenture, various employment agreements, and equity incentive plans573574575576577