Ceridian(DAY) - 2020 Q1 - Quarterly Report

Part I. Financial Information Condensed Consolidated Financial Statements (unaudited) For Q1 2020, Ceridian reported total revenue of $222.7 million, a 9.3% increase, and net income of $8.6 million, with total assets rising to $6.47 billion due to increased customer trust funds Condensed Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $6,470.1 | $6,085.7 | | Cash and equivalents | $255.3 | $281.3 | | Customer trust funds | $3,649.5 | $3,204.1 | | Goodwill | $1,939.5 | $1,973.5 | | Total Liabilities | $4,584.5 | $4,203.4 | | Customer trust funds obligations | $3,605.2 | $3,193.6 | | Long-term debt, less current portion | $665.0 | $666.3 | | Total Stockholders' Equity | $1,885.6 | $1,882.3 | Condensed Consolidated Statement of Operations (in millions, except per share data) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Total Revenue | $222.7 | $203.7 | | Gross Profit | $100.5 | $93.6 | | Operating Profit | $26.3 | $27.4 | | Net Income | $8.6 | $11.2 | | Diluted EPS | $0.06 | $0.08 | Condensed Consolidated Statement of Cash Flows Highlights (in millions) | Cash Flow Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $1.4 | $(8.8) | | Net cash provided by (used in) investing activities | $9.3 | $(117.6) | | Net cash provided by financing activities | $489.5 | $1,934.5 | Note 4: Customer Trust Funds Investment income from customer trust funds decreased to $19.6 million in Q1 2020, primarily due to interest rate changes, while total funds held increased to $3.65 billion - Investment income from invested customer trust funds (float revenue) was $19.6 million for Q1 2020, compared to $24.3 million for Q1 2019[39] Customer Trust Funds (in millions) | Date | Total Customer Trust Funds | | :--- | :--- | | March 31, 2020 | $3,649.5 | | December 31, 2019 | $3,204.1 | Note 6: Debt Total debt was $681.2 million as of March 31, 2020, with the company amending its credit facility to reduce interest rates and borrowing $295.0 million as a COVID-19 precautionary measure - On February 19, 2020, Ceridian amended its credit facility, reducing the Term Debt interest rate to LIBOR plus 2.50%[53] - On April 2, 2020, the company borrowed $295.0 million under its revolving credit facility as a precautionary measure in response to the COVID-19 pandemic[54] Note 9: Revenue Total revenue for Q1 2020 was $222.7 million, driven by significant Cloud revenue growth to $190.9 million, while Bureau revenue declined, with remaining performance obligations at $908.3 million Revenue Disaggregation (in millions) | Revenue Source | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Total Cloud Revenue | $190.9 | $154.6 | | - Dayforce | $168.8 | $132.8 | | - Powerpay | $22.1 | $21.8 | | Total Bureau Revenue | $31.8 | $49.1 | | Total Revenue | $222.7 | $203.7 | - As of March 31, 2020, approximately $908.3 million of revenue is expected to be recognized over the next three years from remaining performance obligations[77] Note 16: Subsequent Events On May 6, 2020, the company agreed to acquire Excelity Global Solutions Pte. Ltd., an Asia-Pacific human capital management service provider, with the transaction expected to close in Q2 2020 - On May 6, 2020, Ceridian agreed to acquire Excelity Global Solutions Pte. Ltd., an HCM provider in the Asia-Pacific region, with the deal expected to close in Q2 2020[95] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the 9.3% year-over-year revenue growth primarily to strong Cloud solutions performance, anticipating adverse effects on future revenue due to COVID-19 and lower interest rates, while Adjusted EBITDA increased to $55.2 million - The number of live Dayforce customers grew to 4,480 as of March 31, 2020, from 3,851 a year prior[107] - Management anticipates adverse effects on revenue for the remainder of 2020 due to declining employment levels at customers (especially in retail and hospitality) and lower interest rates impacting float revenue[105] Adjusted EBITDA Reconciliation (in millions) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Operating profit | $26.3 | $27.4 | | Adjustments (Depreciation, Amortization, Share-based comp, etc.) | $28.9 | $22.4 | | Adjusted EBITDA | $55.2 | $49.8 | | Adjusted EBITDA Margin | 24.8% | 24.4% | Results of Operations Total revenue increased by $19.0 million (9.3%) to $222.7 million in Q1 2020, driven by 23.5% Cloud revenue growth, while Bureau revenue declined 35.2%, partly due to customer migrations Revenue Growth Analysis (Q1 2020 vs Q1 2019) | Revenue Category | Reported Growth | Constant Currency Growth | | :--- | :--- | :--- | | Total Revenue | 9.3% | 9.5% | | Total Cloud Revenue | 23.5% | 23.7% | | - Dayforce Revenue | 27.1% | 27.3% | | Total Bureau Revenue | (35.2)% | (35.0)% | - Float revenue decreased to $19.6 million from $24.3 million year-over-year, primarily due to a 49 basis point decline in the average yield on investments[118] - Cloud recurring services gross margin increased to 72.6% from 70.1% in Q1 2019, reflecting economies of scale and a higher proportion of mature customers[125] Liquidity and Capital Resources As of March 31, 2020, the company had $255.3 million in cash and equivalents and $300.0 million available credit, drawing $295.0 million as a COVID-19 precaution, believing existing liquidity is sufficient - Primary sources of liquidity are cash on hand ($255.3 million as of March 31, 2020), cash from operations, and borrowings under the credit facility[132] - On April 2, 2020, Ceridian borrowed $295.0 million under its revolving credit facility to increase its cash position and preserve financial flexibility amid the COVID-19 pandemic[135] - The company believes its current liquidity sources are sufficient to meet its needs for the foreseeable future[137] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from foreign currency exchange rates, interest rates affecting float revenue and debt expense, and pension obligations, but does not currently hedge foreign currency risk - Key market risks include foreign currency fluctuations (especially CAD), interest rate changes impacting float revenue and debt expense, and pension obligations[159] - A 100 basis point change in interest rates is not expected to have a material effect on operating results or financial condition[163] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal controls, though remote work impacts due to COVID-19 are being evaluated - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the reporting period[166] - No material changes were made to internal controls over financial reporting in Q1 2020, but the company is monitoring the impact of remote work due to COVID-19[167] Part II. Other Information Legal Proceedings The company is not currently a party to any legal proceedings expected to have a material adverse effect on its business, financial condition, or liquidity - Ceridian is not presently a party to any legal proceedings that would have a material adverse effect on the company[169] Risk Factors This section highlights material risks, including significant new focus on COVID-19 impacts on revenue and operations, potential fraud from Dayforce Wallet, reliance on third-party service providers, and credit risk from advancing funds - The COVID-19 pandemic is identified as a major risk, potentially affecting revenue through customer job cuts, delayed sales decisions, and reduced float revenue from lower interest rates[171][172][173] - The Dayforce Wallet service introduces new risks, including potential fraud, credit risk from advancing wages on behalf of customers, and increased regulatory requirements[176][192][193] - The company relies heavily on third-party providers for essential services, including data centers, electronic funds transfer processing, and program management for the Dayforce Wallet. A failure by these providers could materially harm the business[183][184][186] - Customer funds held in trust are subject to market, interest rate, and credit risks. A significant loss of principal could adversely affect the company's financial condition[196] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - None[197] Defaults Upon Senior Securities There were no defaults upon senior securities during the period - None[198] Mine Safety Disclosures This item is not applicable to the company - Not applicable[199] Other Information There was no other information to report for the period - None[200] Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to employment and credit agreements, various award agreements, and required CEO/CFO certifications - Exhibits filed include the First Amendment to the Senior Secured Credit Agreement and various management compensation plans and agreements[202]