Ceridian(DAY) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) The unaudited financial statements detail the company's financial position, operations, and cash flows as of September 30, 2021 Condensed Consolidated Financial Statements The financial statements show significant growth in assets and liabilities, primarily due to acquisitions and debt issuance Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $9,001.5 | $6,701.3 | | Cash and equivalents | $378.8 | $188.2 | | Customer funds | $5,380.3 | $3,759.4 | | Goodwill | $2,318.1 | $2,031.8 | | Total Liabilities | $6,779.7 | $4,603.1 | | Customer funds obligations | $5,345.5 | $3,697.8 | | Long-term debt, less current portion | $1,121.8 | $660.6 | | Total Stockholders' Equity | $2,221.8 | $2,098.2 | Condensed Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $257.2 | $204.4 | $742.1 | $619.7 | | Gross profit | $93.1 | $76.7 | $278.4 | $255.8 | | Operating (loss) profit | $(16.0) | $(0.6) | $(38.1) | $29.7 | | Net (loss) income | $(20.9) | $(0.8) | $(65.9) | $13.3 | | Diluted EPS | $(0.14) | $(0.01) | $(0.44) | $0.09 | Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended, in millions) | Cash Flow Activity | Sep 30, 2021 | Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $48.9 | $47.3 | | Net cash (used in) provided by investing activities | $(510.5) | $176.3 | | Net cash provided by (used in) financing activities | $2,214.4 | $(244.1) | Notes to Condensed Consolidated Financial Statements The notes detail key events including a major debt issuance, two acquisitions, revenue disaggregation, and share-based compensation - In March 2021, the company issued $575.0 million in 0.25% Convertible Senior Notes due 2026, with net proceeds of $561.8 million after costs[32][64] - The company completed two key acquisitions in 2021: Ascender HCM Pty Ltd for $359.6 million on March 1, and O5 Systems, Inc (Ideal) for $41.4 million on April 30[39][42] - As of September 30, 2021, the company had approximately $1,026.4 million in remaining performance obligations, representing contracted revenue expected to be recognized over the next three years[103] Disaggregation of Revenue (Nine Months Ended Sep 30, in millions) | Revenue Source | 2021 | 2020 | | :--- | :--- | :--- | | Total Cloud Revenue | $631.7 | $535.5 | | - Dayforce | $569.4 | $478.1 | | - Powerpay | $62.3 | $57.4 | | Total Bureau Revenue | $110.4 | $84.2 | | Total Revenue | $742.1 | $619.7 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses company performance, focusing on Dayforce platform growth, COVID-19 impacts, operational results, and liquidity Results of Operations Revenue grew 25.8% in Q3 2021, driven by Cloud services, though operating loss widened due to higher growth-related expenses - The COVID-19 pandemic's impact from lower employment levels at customers was estimated to be a $3.5 million revenue reduction in Q3 2021[144] - Float revenue decreased to $9.9 million in Q3 2021 from $10.6 million in Q3 2020, as the average yield declined by 36 basis points to 1.16%, despite a 25.0% increase in the average float balance[148] - Cloud recurring gross margin improved to 72.7% in Q3 2021 from 70.4% in Q3 2020, driven by economies of scale as the proportion of Dayforce customers live for more than two years increased to 80% from 74%[155] Q3 2021 vs. Q3 2020 Performance (in millions) | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $257.2 | $204.4 | 25.8% | | Cloud Revenue | $219.6 | $176.7 | 24.3% | | Gross Profit | $93.1 | $76.7 | 21.4% | | Operating Loss | $(16.0) | $(0.6) | (2566.7)% | | Net Loss | $(20.9) | $(0.8) | (2512.5)% | | Adjusted EBITDA | $39.4 | $33.2 | 18.7% | Liquidity and Capital Resources The company's liquidity was significantly bolstered by a $575.0 million convertible notes issuance, ensuring sufficient capital - As of September 30, 2021, the company had cash and equivalents of $378.8 million and total debt of $1,244.5 million[185] - In March 2021, the company raised $561.8 million in net proceeds from a convertible senior notes offering, using part of the funds to repay $295.0 million under its Revolving Credit Facility[186] - For the nine months ended September 30, 2021, net cash from operating activities (excluding customer funds) was $48.9 million, while net cash used in investing activities was $438.1 million, primarily for acquisitions ($392.4 million) and capital expenditures ($45.7 million)[195][198] Non-GAAP Measures This section reconciles GAAP net loss to the non-GAAP measure of Adjusted EBITDA, which was $39.4 million for Q3 2021 Reconciliation of Net (Loss) Income to Adjusted EBITDA (in millions) | Line Item | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income | $(20.9) | $(0.8) | $(65.9) | $13.3 | | Interest expense, net | $10.0 | $5.9 | $25.5 | $19.4 | | Income tax benefit | $(8.5) | $(5.5) | $(13.9) | $(5.7) | | Depreciation and amortization | $21.0 | $13.0 | $59.3 | $36.9 | | Share-based compensation | $31.0 | $19.3 | $85.9 | $48.5 | | Other adjustments | $5.8 | $1.3 | $24.9 | $13.5 | | Adjusted EBITDA | $39.4 | $33.2 | $123.8 | $125.9 | | Adjusted EBITDA Margin | 15.3% | 16.2% | 16.7% | 20.3% | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks include foreign currency exchange rates, interest rate fluctuations, and pension obligations - The company's primary market risks are related to foreign currency exchange rates (especially Canadian Dollar), interest rates, and pension obligations[219] - A 100 basis point increase in market investment rates would increase annual float revenue by approximately $22 million[222] - A 100 basis point increase in LIBOR rates would increase annual interest expense by approximately $7 million[225] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[228] - No material changes were made to the company's internal controls over financial reporting during the third quarter of 2021[229] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company faces a proposed class action lawsuit in Canada, but management believes the likelihood of a material loss is remote - A proposed class action lawsuit was filed against the company and certain officers and directors in Ontario, Canada, on October 21, 2021, concerning disclosures made in 2018[231] - Management believes that the likelihood of a material loss arising from this new legal claim is remote[232] Item 1A. Risk Factors New risk factors relate to the March 2021 issuance of Convertible Senior Notes, including accounting impacts and potential dilution - There are no material changes to risk factors from the 2020 Form 10-K, except for new risks related to the Convertible Senior Notes and Capped Calls issued in March 2021[233] - The accounting method for the Convertible Notes could adversely affect reported financial results by increasing non-cash interest expense, though a future accounting standard update (ASU 2020-06) is expected to mitigate this[234][235] - The company is subject to counterparty risk, meaning the financial institutions for the Capped Call transactions could default on their obligations, potentially leading to greater stock dilution[244] Other Items (Items 2, 3, 4, 5, 6) This section confirms no unregistered equity sales, defaults, or other material events occurred during the quarter - The company reported no unregistered sales of equity securities, defaults upon senior securities, or other material information for the period[250][251][253] - Mine safety disclosures are not applicable to the company[252]