Ceridian(CDAY) - 2021 Q4 - Annual Report

PART I Business Ceridian is a global Human Capital Management (HCM) software company, centered on its Dayforce cloud platform and strategic growth initiatives across customer, platform, and global markets - Ceridian's core business is its flagship cloud HCM platform, Dayforce, offering a single application for HR, payroll, benefits, workforce, and talent management[17][18] - The company's five strategic growth levers include acquiring new customers, extending the Dayforce platform, expanding in the Enterprise segment, accelerating global expansion, and innovating in adjacent markets like the Dayforce Wallet[17] Dayforce Customer Growth | Metric | As of Dec 31, 2012 | As of Dec 31, 2021 | | :--- | :--- | :--- | | Live Dayforce Customers | 482 | 5,434* | | Active Global Users | N/A | ~5.1 million* | Excluding 2021 acquisitions of Ascender and ADAM HCM - Dayforce Wallet, a digital wallet offering on-demand pay, launched in the U.S. in 2020 and Canada in 2021, enabling employees to access earned wages anytime[23] - As of December 31, 2021, Ceridian had 7,462 employees, with women representing approximately 49% of the global workforce and 43% of manager-level roles and above[42][44] Risk Factors The company identifies significant risks across its business, operations, and financial structure, including intense competition, data security, and debt obligations - Business risks include intense market competition, the need to keep pace with rapid technological changes, and potential difficulties in managing aggressive growth and international expansion[66][70][71] - The company faces significant risks from potential information security breaches, unauthorized data access, and the need to comply with numerous data protection laws like GDPR and CCPA, as well as an ongoing FTC consent order regarding data protection[76][78][79] - Operational risks include dependence on third-party service providers, potential for application failures, and the need to replace or update aging software infrastructure[75][83][88] - Financial risks are associated with outstanding debt, including the Senior Secured Credit Facility and Convertible Senior Notes, and the Dayforce Wallet service introduces credit risk as the company advances wages to customers' employees before being reimbursed[95][115][119] - The COVID-19 pandemic continues to be a general risk factor, with potential adverse effects on business operations, financial results, and customer demand[128] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[136] Properties Ceridian's corporate headquarters is in a leased facility in Minneapolis, Minnesota, with another major leased office in Toronto, Ontario, and other leased spaces globally - The company's corporate headquarters is located in Minneapolis, Minnesota, with a major office in Toronto, Canada, both in leased facilities[137] Legal Proceedings The company is not currently a party to any legal proceedings that it believes would have a material adverse effect, but discloses a proposed class action lawsuit in Ontario, Canada - A proposed class action lawsuit was filed against the company in Ontario, Canada, on October 21, 2021, but the company believes the likelihood of a material loss is remote[138] Mine Safety Disclosures This item is not applicable to the company - Not applicable[139] PART II Market for Common Equity and Related Matters Ceridian's common stock trades on the NYSE and TSX, and the company does not currently intend to pay cash dividends - The company's common stock trades on the NYSE and TSX under the symbol "CDAY"[143] - Ceridian does not currently intend to pay cash dividends on its common stock[144] - As of December 31, 2021, there were 64 stockholders of record[145] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) This section provides management's perspective on the company's financial condition and results of operations for fiscal year 2021, detailing revenue, net loss, liquidity, and key performance indicators Overview and Key Metrics Ceridian assesses its performance through key metrics such as live Dayforce customers, Cloud ARR, and Adjusted EBITDA, noting the impact of the COVID-19 pandemic and recent acquisitions Key Performance Indicators (2021 vs. 2020) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Live Dayforce customers | 5,434 | 4,906 | | Cloud ARR (in millions)* | $779.8 | $617.9 | | Annual Cloud revenue retention rate* | 96.8% | 95.8% | | Dayforce recurring revenue per customer** | $108,631 | $98,655 | | Adjusted EBITDA (in millions) | $162.5 | $159.0 | | Adjusted EBITDA margin | 15.9% | 18.9% | *Excluding 2021 acquisitions of Ascender and ADAM HCM **Excluding float revenue and on a constant currency basis - The COVID-19 pandemic had an adverse impact, with an estimated $21 million reduction in 2021 revenue due to lower employment levels at customers[188] - The company completed several strategic acquisitions in 2021, including Ascender (APJ payroll/HR), Ideal (talent intelligence), DataFuzion (data integration), and ADAM HCM (Latin America payroll/HCM)[178] Results of Operations For 2021, total revenue increased by 21.6% to $1.02 billion, driven by Cloud revenue growth, but the company reported a wider net loss of $75.4 million due to increased operating expenses and lower float revenue Consolidated Results of Operations (2021 vs. 2020) | Metric (in millions) | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $1,024.2 | $842.5 | 21.6% | | Cloud Revenue | $873.1 | $729.4 | 19.7% | | Gross Profit | $382.3 | $341.3 | 12.0% | | Operating (Loss) Profit | $(35.5) | $7.8 | (555.1)% | | Net Loss | $(75.4) | $(4.0) | (1785.0)% | - Float revenue decreased to $41.1 million in 2021 from $52.3 million in 2020, due to a 54 basis point decline in the average yield on customer funds, despite an increase in the average float balance[188] - Product development and management expense increased 60.1% to $134.0 million, reflecting investments in Dayforce Wallet and international offerings[188] - Selling, general, and administrative (SG&A) expense increased 25.3% to $417.8 million, driven by higher sales and marketing costs and expenses related to recent acquisitions, partially offset by a $19.1 million gain on the sale of a facility[190][193] Liquidity and Capital Resources Ceridian's primary liquidity sources are cash on hand, cash from operations, and its $300 million Revolving Credit Facility, supplemented by $575.0 million in Convertible Senior Notes issued in 2021 Cash and Debt Position (as of Dec 31, 2021) | Item (in millions) | Amount | | :--- | :--- | | Cash and equivalents | $367.5 | | Revolving Credit Facility (drawn) | $0 | | Total Debt | $1,242.5 | - In March 2021, the company issued $575.0 million in 0.25% Convertible Senior Notes due 2026, with net proceeds of $561.8 million[194] Summary of Cash Flows (FY 2021 vs. FY 2020) | Cash Flow (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash from operating activities | $48.8 | $(30.2) | | Net cash from investing activities | $(711.1) | $38.8 | | Net cash from financing activities | $407.5 | $565.3 | - Net cash used in investing activities of $711.1 million in 2021 was primarily driven by $409.5 million for acquisitions and $275.8 million in net purchases of customer funds marketable securities[202] Critical Accounting Policies and Estimates The company highlights revenue recognition and business combinations as critical accounting policies requiring significant judgment and estimation - Revenue Recognition: Determining the stand-alone selling price (SSP) for performance obligations, especially for professional services, requires significant assumptions about market conditions and expected service hours[213] - Business Combinations: The company made significant estimates to determine the fair value of intangible assets acquired in 2021, including $84.1 million in customer relationships and $78.2 million in developed technology from the Ascender, Ideal, DataFuzion, and ADAM HCM acquisitions[214] Quantitative and Qualitative Disclosures About Market Risk Ceridian is exposed to market risks primarily from foreign currency exchange rates, interest rates affecting float revenue and debt, and pension obligations - The company is primarily exposed to foreign currency risk from the Canadian Dollar[229] Interest Rate Risk Sensitivity | Scenario | Impact | Approximate Annual Financial Effect | | :--- | :--- | :--- | | 100 bps increase in market investment rates | Increase in float revenue | +$23 million | | 100 bps increase in LIBOR rates | Increase in interest expense | +$7 million | - The company's U.S. pension plan was fully funded as of December 31, 2021, with the fair value of plan assets exceeding the projected benefit obligation by $1.6 million[232] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for the fiscal year ended December 31, 2021, along with the independent auditor's report and detailed notes Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified audit opinion on the consolidated financial statements and internal control over financial reporting, identifying critical audit matters related to revenue recognition and acquisition valuation - KPMG LLP issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting[239] - The audit of internal control over financial reporting excluded Ascender HCM Pty Limited, which was acquired during 2021[239] - Critical audit matters identified were the stand-alone selling price of cloud professional services and the acquisition-date fair value of the customer relationships intangible asset from the Ascender acquisition[245][246] Consolidated Financial Statements The consolidated financial statements present Ceridian's financial position with total assets of $7.17 billion and a net loss of $75.4 million for 2021 Key Financial Statement Data (FY 2021) | Metric | Amount (in millions) | | :--- | :--- | | Balance Sheet (as of 12/31/2021): | | | Total Assets | $7,166.2 | | Total Liabilities | $4,938.7 | | Total Stockholders' Equity | $2,227.5 | | Statement of Operations (for year ended 12/31/2021): | | | Total Revenue | $1,024.2 | | Net Loss | $(75.4) | | Diluted EPS | $(0.50) | | Statement of Cash Flows (for year ended 12/31/2021): | | | Cash from Operations | $48.8 | | Cash from Investing | $(711.1) | | Cash from Financing | $407.5 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on 2021 business combinations, debt structure including Convertible Senior Notes, share-based compensation, disaggregated revenue, and income tax provisions - Note 3 details the 2021 acquisitions of Ascender for $359.6 million and Ideal for $41.4 million, among others[321][322] - Note 9 describes the company's debt structure, including the issuance of $575.0 million in 0.25% Convertible Senior Notes due 2026[365][375] - Note 11 reports share-based compensation expense of $113.4 million for 2021, up from $65.8 million in 2020[416] Revenue by Solution (FY 2021) | Solution | Revenue (in millions) | | :--- | :--- | | Total Dayforce | $785.9 | | Total Powerpay | $87.2 | | Total Cloud | $873.1 | | Total Bureau | $151.1 | | Total Revenue | $1,024.2 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure - None[479] Controls and Procedures Management concluded that disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2021, excluding the recently acquired Ascender - Management concluded that disclosure controls and procedures were effective as of December 31, 2021[479] - The assessment of internal control over financial reporting excluded the Ascender acquisition, which was completed on March 1, 2021[482] - No material changes in internal control over financial reporting occurred during the fourth quarter of 2021[483] Other Information The company reports no other information for this item - None[485] PART III This part of the report incorporates information by reference from the company's Definitive Proxy Statement for its 2022 Annual Meeting of Stockholders, covering corporate governance, executive compensation, and auditor relationships Directors, Executive Officers and Corporate Governance Information regarding the company's directors, executive officers, code of ethics, and audit committee is incorporated by reference from its 2022 Proxy Statement - Information for this item is incorporated by reference from the Registrant's Definitive Proxy Statement for the 2022 Annual Meeting of Stockholders[490][491][494] Executive Compensation Information regarding director and executive compensation, as well as equity compensation plan details, is incorporated by reference from the company's 2022 Proxy Statement - Information for this item is incorporated by reference from the Proxy Statement under the headings 'Director Compensation', 'Executive Compensation', and 'Equity Compensation Plan Information'[495] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding securities authorized for issuance under equity compensation plans and the security ownership of certain beneficial owners and management is incorporated by reference from the company's 2022 Proxy Statement - Information for this item is incorporated by reference from the Proxy Statement under the headings 'Equity Compensation Plan Information' and 'Security Ownership of Certain Beneficial Owners and Management'[496][499] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related party transactions, and director independence is incorporated by reference from the company's 2022 Proxy Statement - Information for this item is incorporated by reference from the Proxy Statement[500] Principal Accounting Fees and Services Information regarding the fees paid to and services provided by the company's independent registered public accounting firm, KPMG LLP, is incorporated by reference from the company's 2022 Proxy Statement - The company's independent registered public accounting firm is KPMG LLP, and information on fees and services is incorporated by reference from the Proxy Statement[501] PART IV This final part of the report lists the exhibits and financial statement schedules filed with the Form 10-K and includes the report's signatures Exhibits, Financial Statement Schedules This item lists the consolidated financial statements included in Item 8 and provides a comprehensive list of all exhibits filed with the Form 10-K - This section provides an index of all exhibits filed with the Form 10-K, including governance documents, debt agreements, employment agreements, and certifications[507] - All financial statement schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes[506] Form 10-K Summary This item is not applicable - Not applicable[513]