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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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 September 30, 2020

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                     to                    

Commission file number 001-38467

 

Ceridian HCM Holding Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

46-3231686

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer

Identification Number)

3311 East Old Shakopee Road

Minneapolis, Minnesota 55425

(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

 

CDAY

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-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 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as the latest practicable date: 147,803,003 shares of Common Stock, $0.01 par value per share, as of October 30, 2020.

 

 


Table of Contents

 

Ceridian HCM Holding Inc.

Table of Contents

 

 

 

Page

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

3

 

 

PART I. FINANCIAL INFORMATION

5

 

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

5

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

42

 

 

 

Item 4.

Controls and Procedures

43

 

 

PART II. OTHER INFORMATION

44

 

 

 

Item 1.

Legal Proceedings

44

 

 

 

Item 1A.

Risk Factors

44

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

 

 

 

Item 3.

Defaults Upon Senior Securities

49

 

 

 

Item 4.

Mine Safety Disclosures

49

 

 

 

Item 5.

Other Information

49

 

 

 

Item 6.

Exhibits

50

2


Table of Contents

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Form 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 solutions industry and our operations, performance, and financial condition, 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,” “may,” “will,” “should,” and similar references to future periods, or by the inclusion of forecasts or projections.

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, 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:

 

 

the impact of the Coronavirus disease 2019 (“COVID-19”) pandemic on our business, operations, and financial results;

 

our inability to attain or to maintain profitability;

 

significant competition for our solutions;

 

our inability to continue to develop or to sell our existing Cloud solutions;

 

our inability to manage our growth effectively;

 

the risk that we may not be able to successfully migrate our Bureau customers to our Cloud solutions or to offset the decline in Bureau revenue with Cloud revenue;

 

the decline or slower than expected development of the market for enterprise cloud computing;

 

failure of our efforts to increase use of our Cloud solutions and our other applications may not succeed;

 

our failure to provide enhancements and new features and modifications to our solutions;

 

failure to comply with the Federal Trade Commission’s (“FTC”) ongoing consent order regarding data protection;

 

system interruptions or failures, including cyber-security breaches, identity theft, or other disruptions that could compromise our information;

 

our failure to comply with applicable privacy, security, data, and financial services laws, regulations and standards;

 

changes in regulations governing financial services, privacy concerns, and laws or other domestic or foreign data protection regulations;

 

the risk of loss caused by customer failure to repay distribution of earned net wages and associated tax amounts made on behalf of our customers for our Dayforce Wallet or other services;

 

our inability to successfully expand our current offerings into new markets or further penetrate existing markets;

 

our inability to meet the more complex configuration and integration demands of our large customers;

 

reductions in our customers’ employment levels or other overall declines in the financial viability of our current and prospective customers;

 

the risk of our customers declining to renew their agreements with us or renewing at lower performance fee levels;

 

our failure to manage our technical operations infrastructure;

 

our inability to maintain necessary third party relationships and third party software licenses, and identify errors in the software we license;

 

our inability to protect our intellectual property rights, proprietary technology, information, processes, and know-how;

 

our failure to keep pace with rapid technological changes and evolving industry standards;

 

general economic, political and market forces beyond our control; or

 

changes in laws and regulations related to the Internet or changes in the Internet infrastructure itself.

3


Table of Contents

 

Please refer to Part 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, 2019 (“2019 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 Form 10-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 Form 10-Q. For the reasons described above, we caution you against relying on any forward-looking 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.

4


Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Ceridian HCM Holding Inc.

Condensed Consolidated Balance Sheets

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

(Dollars in millions, except share data)

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and equivalents

 

$

554.6

 

 

$

281.3

 

Trade and other receivables, net

 

 

91.4

 

 

 

80.4

 

Prepaid expenses and other current assets

 

 

78.7

 

 

 

57.9

 

Total current assets before customer trust funds

 

 

724.7

 

 

 

419.6

 

Customer trust funds

 

 

2,646.6

 

 

 

3,204.1

 

Total current assets

 

 

3,371.3

 

 

 

3,623.7

 

Right of use lease asset

 

 

37.5

 

 

 

32.0

 

Property, plant, and equipment, net

 

 

132.2

 

 

 

128.3

 

Goodwill

 

 

2,011.3

 

 

 

1,973.5

 

Other intangible assets, net

 

 

197.3

 

 

 

177.9

 

Other assets

 

 

168.4

 

 

 

150.3

 

Total assets

 

$

5,918.0

 

 

$

6,085.7

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

7.7

 

 

$

10.8

 

Current portion of long-term lease liabilities

 

 

10.3

 

 

 

8.8

 

Accounts payable

 

 

26.6

 

 

 

43.2

 

Deferred revenue

 

 

26.1

 

 

 

25.5

 

Employee compensation and benefits

 

 

75.8

 

 

 

75.9

 

Other accrued expenses

 

 

13.7

 

 

 

13.9

 

Total current liabilities before customer trust funds obligations

 

 

160.2

 

 

 

178.1

 

Customer trust funds obligations

 

 

2,581.2

 

 

 

3,193.6

 

Total current liabilities

 

 

2,741.4

 

 

 

3,371.7

 

Long-term debt, less current portion

 

 

957.2

 

 

 

666.3

 

Employee benefit plans

 

 

108.2

 

 

 

117.2

 

Long-term lease liabilities, less current portion

 

 

34.1

 

 

 

30.1

 

Other liabilities

 

 

40.8

 

 

 

18.1

 

Total liabilities

 

 

3,881.7

 

 

 

4,203.4

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par, 500,000,000 shares authorized, 147,647,117 and

   144,386,618 shares issued and outstanding, respectively

 

 

1.5

 

 

 

1.4

 

Additional paid in capital

 

 

2,565.5

 

 

 

2,449.1

 

Accumulated deficit

 

 

(216.5

)

 

 

(229.8

)

Accumulated other comprehensive loss

 

 

(314.2

)

 

 

(338.4

)

Total stockholders’ equity

 

 

2,036.3

 

 

 

1,882.3

 

Total liabilities and equity

 

$

5,918.0

 

 

$

6,085.7

 

 

See accompanying notes to condensed consolidated financial statements.

5


Table of Contents

 

 

Ceridian HCM Holding Inc.

Condensed Consolidated Statements of Operations

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(Dollars in millions, except share and per share data, Unaudited)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring services

 

$

168.1

 

 

$

167.4

 

 

$

508.7

 

 

$

503.7

 

Professional services and other

 

 

36.3

 

 

 

34.9

 

 

 

111.0

 

 

 

98.6

 

Total revenue

 

 

204.4

 

 

 

202.3

 

 

 

619.7

 

 

 

602.3

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring services

 

 

54.3

 

 

 

49.4

 

 

 

155.8

 

 

 

149.0

 

Professional services and other

 

 

40.2

 

 

 

37.6

 

 

 

120.7

 

 

 

107.1

 

Product development and management

 

 

22.9

 

 

 

17.5

 

 

 

57.5

 

 

 

49.1

 

Depreciation and amortization

 

 

10.3

 

 

 

9.0

 

 

 

29.9

 

 

 

26.7

 

Total cost of revenue

 

 

127.7

 

 

 

113.5

 

 

 

363.9

 

 

 

331.9

 

Gross profit

 

 

76.7

 

 

 

88.8

 

 

 

255.8

 

 

 

270.4

 

Selling, general, and administrative

 

 

77.3

 

 

 

82.3

 

 

 

226.1

 

 

 

217.8

 

Operating (loss) profit

 

 

(0.6

)

 

 

6.5

 

 

 

29.7

 

 

 

52.6

 

Interest expense, net

 

 

5.9

 

 

 

7.8

 

 

 

19.4

 

 

 

25.2

 

Other (income) expense, net

 

 

(0.2

)

 

 

1.6

 

 

 

2.7

 

 

 

4.7

 

(Loss) income before income taxes

 

 

(6.3

)

 

 

(2.9

)

 

 

7.6

 

 

 

22.7

 

Income tax benefit

 

 

(5.5

)

 

 

(65.6

)

 

 

(5.7

)

 

 

(57.5

)

Net (loss) income

 

$

(0.8

)

 

$

62.7

 

 

$

13.3

 

 

$

80.2

 

Net (loss) income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.01

)

 

$

0.44

 

 

$

0.09

 

 

$

0.57

 

Diluted

 

$

(0.01

)

 

$

0.42

 

 

$

0.09

 

 

$

0.54

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

147,141,403

 

 

 

142,780,819

 

 

 

145,798,169

 

 

 

141,369,339

 

Diluted

 

 

147,141,403

 

 

 

149,153,227

 

 

 

152,105,719

 

 

 

148,279,943

 

 

See accompanying notes to condensed consolidated financial statements.

6


Table of Contents

 

Ceridian HCM Holding Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(Dollars in millions, Unaudited)

 

Net (loss) income

 

$

(0.8

)

 

$

62.7

 

 

$

13.3

 

 

$

80.2

 

Items of other comprehensive income before income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

 

12.8

 

 

 

(6.5

)

 

 

(14.7

)

 

 

17.3

 

Change in unrealized (loss) gain from invested customer trust funds

 

 

(0.2

)

 

 

3.1

 

 

 

43.3

 

 

 

42.3

 

Change in pension liability adjustment (1)

 

 

3.3

 

 

 

2.5

 

 

 

9.9

 

 

 

7.5

 

Other comprehensive income (loss) before income taxes

 

 

15.9

 

 

 

(0.9

)

 

 

38.5

 

 

 

67.1

 

Income tax expense, net

 

 

1.4

 

 

 

8.8

 

 

 

14.3

 

 

 

12.4

 

Other comprehensive income (loss) after income taxes

 

 

14.5

 

 

 

(9.7

)

 

 

24.2

 

 

 

54.7

 

Comprehensive income

 

$

13.7

 

 

$

53.0

 

 

$

37.5

 

 

$

134.9

 

 

(1)

The amount of the pension liability adjustment recognized in the condensed consolidated statements of operations within other (income) expense, net was $3.3 million and $2.6 million during the three months ended September 30, 2020, and 2019, respectively, and $9.9 million and $7.8 million during the nine months ended September 30, 2020, and 2019, respectively. 

 

See accompanying notes to condensed consolidated financial statements.

7


Table of Contents

 

Ceridian HCM Holding Inc.

Condensed Consolidated Statements of Stockholders’ Equity

 

 

 

Common Stock

 

 

Additional

Paid In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders'

 

 

 

Shares

 

 

$

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

 

 

(Dollars in millions, except share data, Unaudited)

 

Balance as of December 31, 2019

 

 

144,386,618

 

 

$

1.4

 

 

$

2,449.1

 

 

$

(229.8

)

 

$

(338.4

)

 

$

1,882.3

 

Net income

 

 

 

 

 

 

 

 

 

 

 

8.6

 

 

 

 

 

 

8.6

 

Issuance of common stock under share-based compensation plans

 

 

551,328

 

 

 

 

 

 

11.4

 

 

 

 

 

 

 

 

 

11.4

 

Share-based compensation

 

 

 

 

 

 

 

 

12.5

 

 

 

 

 

 

 

 

 

12.5

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(49.1

)

 

 

(49.1

)

Change in unrealized gain, net of tax of $6.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17.4

 

 

 

17.4

 

Change in pension liability adjustment, net of tax of $0.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.5

 

 

 

2.5

 

Balance as of March 31, 2020

 

 

144,937,946

 

 

$

1.4

 

 

$

2,473.0

 

 

$

(221.2

)

 

$

(367.6

)

 

$

1,885.6

 

Net income

 

 

 

 

 

 

 

 

 

 

 

5.5

 

 

 

 

 

 

5.5

 

Issuance of common stock under share-based compensation plans

 

 

1,865,986

 

 

 

0.1

 

 

 

40.1

 

 

 

 

 

 

 

 

 

40.2

 

Share-based compensation

 

 

 

 

 

 

 

 

15.3

 

 

 

 

 

 

 

 

 

15.3

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21.6

 

 

 

21.6

 

Change in unrealized gain, net of tax of $5.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15.0

 

 

 

15.0

 

Change in pension liability adjustment, net of tax of $0.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.5

 

 

 

2.5

 

Balance as of June 30, 2020

 

 

146,803,932

 

 

$

1.5

 

 

$

2,528.4

 

 

$

(215.7

)

 

$

(328.5

)

 

$

1,985.7

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(0.8

)

 

 

 

 

 

(0.8

)

Issuance of common stock under share-based compensation plans

 

 

843,185

 

 

 

 

 

 

18.6

 

 

 

 

 

 

 

 

 

18.6

 

Share-based compensation

 

 

 

 

 

 

 

 

18.5

 

 

 

 

 

 

 

 

 

18.5

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12.8

 

 

 

12.8

 

Change in unrealized loss, net of tax of $0.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.7

)

 

 

(0.7

)

Change in pension liability adjustment, net of tax of $1.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.2

 

 

 

2.2

 

Balance as of September 30, 2020

 

 

147,647,117

 

 

$

1.5

 

 

$

2,565.5

 

 

$

(216.5

)

 

$

(314.2

)

 

$

2,036.3

 

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders'

 

 

 

Shares

 

 

$

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

 

 

(Dollars in millions, except share data, Unaudited)

 

Balance as of December 31, 2018

 

 

139,453,710

 

 

$

1.4

 

 

$

2,325.6

 

 

$

(335.6

)

 

$

(375.9

)

 

$

1,615.5

 

Cumulative-effect adjustment to accumulated deficit related to

   the adoption of ASU 2018-02

 

 

 

 

 

 

 

 

 

 

 

27.1

 

 

 

(27.1

)

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

11.2

 

 

 

 

 

 

11.2

 

Issuance of common stock under share-based compensation plans

 

 

1,221,622

 

 

 

 

 

 

20.1

 

 

 

 

 

 

 

 

 

20.1