UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly reporting period ended
For the transition period from to
Commission file number
(Exact name of registrant as specified in its charter)
(State or Other Jurisdiction of |
(I.R.S. Employer Identification Number) |
(
(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 |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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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 of the latest practicable date:
Dayforce, Inc.
Table of Contents
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Item 1. |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
35 |
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Item 4. |
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Item 1. |
38 |
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Item 1A. |
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Item 2. |
38 |
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Item 3. |
38 |
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Item 4. |
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Item 5. |
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Item 6. |
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2 | 
Q1 2024 Form 10-Q
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, and 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,” “continues,” “likely,” “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. Consequently, 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. In particular:
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, 2023 (“2023 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 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.
3 | Q1 2024 Form 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dayforce, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
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March 31, |
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December 31, |
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2024 |
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2023 |
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(In millions, except per share data) |
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Assets |
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Current assets: |
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Cash and equivalents |
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$ |
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$ |
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Restricted cash |
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Trade and other receivables, net |
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Prepaid expenses and other current assets |
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Total current assets before customer funds |
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Customer funds |
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Total current assets |
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Right of use lease assets, net |
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Property, plant, and equipment, net |
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Goodwill |
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Other intangible assets, net |
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Deferred sales commissions |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders' equity |
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Current liabilities: |
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Current portion of long-term debt |
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$ |
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$ |
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Current portion of long-term lease liabilities |
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Accounts payable |
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Deferred revenue |
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Employee compensation and benefits |
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Other accrued expenses |
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Total current liabilities before customer funds obligations |
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Customer funds obligations |
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Total current liabilities |
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Long-term debt, less current portion |
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Employee benefit plans |
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Long-term lease liabilities, less current portion |
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Other liabilities |
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Total liabilities |
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(Note 14) |
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Stockholders’ equity: |
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Common stock, $ |
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Additional paid in capital |
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Accumulated deficit |
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( |
) |
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( |
) |
Accumulated other comprehensive loss |
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( |
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( |
) |
Total stockholders’ equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
4 | Q1 2024 Form 10-Q
Dayforce, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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(In millions, except per share data) |
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Revenue: |
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Recurring |
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$ |
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$ |
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Professional services and other |
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Total revenue |
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Cost of revenue: |
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Recurring |
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Professional services and other |
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Product development and management |
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Depreciation and amortization |
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Total cost of revenue |
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Gross profit |
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Selling and marketing |
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General and administrative |
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Operating profit |
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Interest expense, net |
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Other expense, net |
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Income before income taxes |
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Income tax expense |
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Net income |
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$ |
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$ |
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Net income per share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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See accompanying notes to condensed consolidated financial statements.
5 | Q1 2024 Form 10-Q
Dayforce, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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(In millions) |
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Net income |
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$ |
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$ |
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Items of other comprehensive (loss) income before income taxes: |
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Change in foreign currency translation adjustment |
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( |
) |
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Change in unrealized loss from invested customer funds |
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( |
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Change in pension liability adjustment |
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Other comprehensive (loss) income before income taxes |
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( |
) |
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Income tax (benefit) expense, net |
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( |
) |
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Other comprehensive (loss) income after income taxes |
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( |
) |
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Comprehensive (loss) income |
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$ |
( |
) |
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$ |
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See accompanying notes to condensed consolidated financial statements.
6 | Q1 2024 Form 10-Q
Dayforce, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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$ |
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Capital |
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Deficit |
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Loss |
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Equity |
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(In millions) |
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Balance as of December 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Issuance of common stock under share-based compensation plans |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Change in unrealized loss, net of tax of ($ |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Change in pension liability adjustment, net of tax of $ |
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— |
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— |
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— |
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— |
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Balance as of March 31, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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$ |
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Capital |
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Deficit |
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Loss |
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Equity |
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(In millions) |
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Balance as of December 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Issuance of common stock under share-based compensation plans |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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Change in unrealized loss, net of tax of ($ |
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— |
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— |
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— |
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— |
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Change in pension liability adjustment, net of tax of ($ |
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— |
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— |
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— |
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— |
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Balance as of March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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See accompanying notes to condensed consolidated financial statements.
7 | Q1 2024 Form 10-Q
Dayforce, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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(In millions) |
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Cash flows from operating activities |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Deferred income tax (benefit) expense |
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( |
) |
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Depreciation and amortization |
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Amortization of debt issuance costs and debt discount |
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Loss on debt extinguishment |
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— |
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Provision for doubtful accounts |
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Net periodic pension and postretirement cost |
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Share-based compensation expense |
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Change in fair value of contingent consideration |
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— |
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Other |
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— |
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Changes in operating assets and liabilities, excluding effects of acquisitions: |
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Trade and other receivables |
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( |
) |
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( |
) |
Prepaid expenses and other current assets |
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( |
) |
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( |
) |
Deferred sales commissions |
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( |
) |
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( |
) |
Accounts payable and other accrued expenses |
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( |
) |
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Deferred revenue |
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( |
) |
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Employee compensation and benefits |
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( |
) |
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( |
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Accrued taxes |
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Other assets and liabilities |
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( |
) |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities |
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Purchases of customer funds marketable securities |
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( |
) |
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( |
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Proceeds from sale and maturity of customer funds marketable securities |
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Purchases of marketable securities |
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( |
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— |
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Proceeds from sale and maturity of marketable securities |
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— |
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Expenditures for property, plant, and equipment |
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( |
) |
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( |
) |
Expenditures for software and technology |
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( |
) |
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( |
) |
Acquisition costs, net of cash acquired |
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( |
) |
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— |
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Other |
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— |
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( |
) |
Net cash used in investing activities |
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( |
) |
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( |
) |
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Cash flows from financing activities |
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Increase in customer funds obligations, net |
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Proceeds from issuance of common stock under share-based compensation plans |
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Proceeds from debt issuance |
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— |
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Repayment of long-term debt obligations |
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( |
) |
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( |
) |
Payment of debt refinancing costs |
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( |
) |
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— |
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash, restricted cash, and equivalents |
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( |
) |
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( |
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Net increase in cash, restricted cash, and equivalents |
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Cash, restricted cash, and equivalents at beginning of period |
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Cash, restricted cash, and equivalents at end of period |
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$ |
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$ |
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Reconciliation of cash, restricted cash, and equivalents to the condensed |
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Cash and equivalents |
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$ |
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$ |
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Restricted cash |
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Restricted cash and equivalents included in customer funds |
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Total cash, restricted cash, and equivalents |
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$ |
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$ |
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||
See accompanying notes to condensed consolidated financial statements.
8 | Q1 2024 Form 10-Q
Dayforce, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Organization
Dayforce, Inc. and its direct and indirect subsidiaries (also referred to in this report as “we,” “our,” “us,” or the “Company”) offer a broad range of services and software designed to help employers more effectively manage employment processes, such as payroll, payroll-related tax filing, human resource information systems, employee self-service, time and labor management, employee assistance programs, and recruitment and applicant screening. Our technology-based services are typically provided through long-term customer relationships that result in a high level of recurring revenue. While we operate in
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accounting policies we follow are set forth in Part II, Item 8, Note 2, “Summary of Significant Accounting Policies,” to our audited consolidated financial statements in our 2023 Form 10-K. The following notes should be read in conjunction with these policies and other disclosures in our 2023 Form 10-K.
In the opinion of management, the unaudited condensed consolidated financial statements contained herein reflect all adjustments (consisting only of normal recurring adjustments, except as set forth in these notes to the condensed consolidated financial statements) necessary to present fairly in all material respects the financial position, results of operations, comprehensive income (loss), and cash flows from all periods presented. Interim results are not necessarily indicative of results for a full year.
Recently Issued and Adopted Accounting Pronouncements from the Financial Accounting Standards Board
There were no recently adopted accounting standards that had a material effect on our condensed consolidated financial statements and accompanying disclosures, and no recently issued accounting standards that are expected to have a material impact on our condensed consolidated financial statements and accompanying disclosures.
3. Business Combinations
On February 1, 2024, we completed the purchase of
The purchase accounting has not been finalized as of March 31, 2024. Provisional amounts relate to final purchase price adjustments, specifically the net working capital, intangible assets and tax positions. We expect to finalize the allocation of the purchase price within the one-year measurement period following the acquisition. Intangible assets recorded for this acquisition consist of $
The major classes of assets and liabilities to which we have preliminarily allocated the purchase price were as follows:
|
(In millions) |
|
|
Cash and equivalents |
$ |
|
|
Trade receivables, prepaid expenses, and other current assets |
|
|
|
Goodwill |
|
|
|
Other intangible assets |
|
|
|
Other assets |
|
|
|
Accounts payable and accrued liabilities |
|
( |
) |
Deferred revenue |
|
( |
) |
Deferred tax liability |
|
( |
) |
Total purchase price |
$ |
|
|
9 | Q1 2024 Form 10-Q
4. Fair Value Measurements
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Our financial assets and liabilities measured at fair value on a recurring basis were categorized as follows:
|
|
March 31, 2024 |
|
||||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
|
Level 3 |
|
|
Total |
|
||||
|
|
(In millions) |
|
||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Available for sale customer funds assets |
|
$ |
— |
|
|
$ |
|
(a) |
|
$ |
— |
|
|
$ |
|
||
Total assets measured at fair value |
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
DataFuzion contingent consideration |
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
|
(b) |
$ |
|
||
Total liabilities measured at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
|
|
$ |
|
||
|
|
December 31, 2023 |
|
||||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
|
Level 3 |
|
|
Total |
|
||||
|
|
(In millions) |
|
||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Available for sale customer funds assets |
|
$ |
— |
|
|
$ |
|
(a) |
|
$ |
— |
|
|
$ |
|
||
Total assets measured at fair value |
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
DataFuzion contingent consideration |
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
|
(b) |
$ |
|
||
Total liabilities measured at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
|
|
$ |
|
||
Due to the remeasurement of the DataFuzion contingent consideration, we recognized
Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
5. Customer Funds
Overview
In certain jurisdictions, we collect funds for payment of payroll and taxes; temporarily hold such funds until payment is due; remit the funds to the customers’ employees and appropriate taxing authorities; file federal, state, and local tax returns; and handle related regulatory correspondence and amendments. The customer assets are held in segregated accounts intended for the specific purpose of satisfying customer funding obligations and therefore are not freely available for our general business use. In the U.S. and Canada, these customer funds are held in trusts.
10 | Q1 2024 Form 10-Q
Our customer funds are held and invested with the primary objectives being to protect the principal balance and to ensure adequate liquidity to meet cash flow requirements. Accordingly, we maintain on average approximately
Financial Statement Presentation
Investment income from invested customer funds, also referred to as float revenue or float, is a component of our compensation for providing services under agreements with our customers. Investment income from invested customer funds included in recurring revenue was $
The amortized cost of customer funds as of March 31, 2024, and December 31, 2023, is the original cost of assets acquired.
|
|
March 31, 2024 |
|
|||||||||||||
|
|
Amortized |
|
|
Gross Unrealized |
|
|
Fair |
|
|||||||
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
|
||||
|
|
(In millions) |
|
|||||||||||||
Money market securities, investments carried at cost |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Available for sale investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government and agency securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Canadian and provincial government securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Corporate debt securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Asset-backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Other short-term investments |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Other securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total available for sale investments |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Invested customer funds |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
|
|
|||
Receivables |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total customer funds |
|
$ |
|
|
|
|
|
|
|
|
$ |
|
||||
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Amortized |
|
|
Gross Unrealized |
|
|
Fair |
|
|||||||
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
|
||||
|
|
(In millions) |
|
|||||||||||||
Money market securities, investments carried at cost |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Available for sale investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government and agency securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Canadian and provincial government securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Corporate debt securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Asset-backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Other short-term investments |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Other securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total available for sale investments |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Invested customer funds |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
|
|
|||
Receivables |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total customer funds |
|
$ |
|
|
|
|
|
|
|
|
$ |
|
||||
11 | Q1 2024 Form 10-Q
The following represents the gross unrealized losses and the related fair value of the investments of customer funds available for sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.
|
|
March 31, 2024 |
|
|||||||||||||||||||||
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|||||||||||||||
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
||||||
|
|
(In millions) |
|
|||||||||||||||||||||
U.S. government and agency securities |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Canadian and provincial government securities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||
Corporate debt securities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||
Asset-backed securities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||
Mortgage-backed securities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||
Other securities |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||
Total available for sale investments |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Management does not believe that any individual unrealized loss was unrecoverable as of March 31, 2024. The unrealized losses are primarily attributable to changes in interest rates and not to credit deterioration. We currently do not intend to sell or expect to be required to sell the securities before the time required to recover the amortized cost.
The amortized cost and fair value of investment securities available for sale at March 31, 2024, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or to prepay obligations with or without call or prepayment penalties.
|
|
March 31, 2024 |
|
|||||
|
|
Cost |
|
|
Fair Value |
|
||
|
|
(In millions) |
|
|||||
Due in one year or less |
|
$ |
|
|
$ |
|
||
Due in one to three years |
|
|
|
|
|
|
||
Due in three to five years |
|
|
|
|
|
|
||
Due after five years |
|
|
|
|
|
|
||
Invested customer funds |
|
$ |
|
|
$ |
|
||
6. Leases
Supplemental balance sheet information related to leases was as follows:
Lease Type |
|
Balance Sheet Classification |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
|
|
|
|
(In millions) |
|
|||||
Assets |
|
|
|
|
|
|
|
|
||
Operating lease assets |
|
Trade and other receivables, net |
|
$ |
|
|
$ |
|
||
Operating lease assets |
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Operating lease assets |
|
Right of use lease assets, net |
|
|
|
|
|
|
||
Financing lease assets |
|
|
|
|
|
|
|
|||
Total lease assets |
|
|
|
$ |
|
|
$ |
|
||
Liabilities |
|
|
|
|
|
|
|
|
||
Financing lease liabilities |
|
Current portion of long-term debt |
|
|
|
$ |
|
|||
Operating lease liabilities |
|
Current portion of long-term lease liabilities |
|
|
|
|
|
|
||
Financing lease liabilities |
|
Long-term debt, less current portion |
|
|
|
|
|
|
||
Operating lease liabilities |
|
Long-term lease liabilities, less current portion |
|
|
|
|
|
|
||
Total lease liabilities |
|
|
|
$ |
|
|
$ |
|
||
12 | Q1 2024 Form 10-Q
The components of lease expense were as follows:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In millions) |
|
|||||
Operating lease cost |
|
$ |
|
|
$ |
|
||
Financing lease cost: |
|
|
|
|
|
|
||
Depreciation of lease assets |
|
|
|
|
|
|
||
Interest on lease liabilities |
|
|
|
|
|
|
||
Sublease income |
|
|
— |
|
|
|
( |
) |
Total lease cost, net |
|
$ |
|
|
$ |
|
||
7. Goodwill and Other Intangible Assets, Net
Goodwill
Goodwill and changes therein were as follows:
|
|
(In millions) |
|
|
Balance at December 31, 2023 |
|
$ |
|
|
Translation |
|
|
( |
) |
Acquisition |
|
|
|
|
Balance at March 31, 2024 |
|
$ |
|
|
Other Intangible Assets, Net
Other intangible assets, net consisted of the following:
|
|
March 31, 2024 |
|
|||||||||||||
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net |
|
|
Weighted Average Remaining Amortization Period |
|
||||
|
|
(In millions) |
|
|
(In years) |
|
||||||||||
Amortized - definite lived: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Customer lists and relationships |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|||
Trade name |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Technology |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Total definite-lived intangible assets |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unamortized - indefinite lived: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trade name |
|
|
|
|
|
( |
) |
|
|
|
|
n/a |
|
|||
Total other intangible assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
n/a |
|
|||
13 | Q1 2024 Form 10-Q
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net |
|
|
Weighted Average Remaining Amortization Period |
|
||||
|
|
(In millions) |
|
|
(In years) |
|
||||||||||
Amortized - definite lived: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Customer lists and relationships |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|||
Trade name |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Technology |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Total definite-lived intangible assets |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unamortized - indefinite lived: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trade name |
|
|
|
|
|
( |
) |
|
|
|
|
n/a |
|
|||
Total other intangible assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
n/a |
|
|||
Amortization expense related to definite-lived intangible assets was $
8. Debt
Overview
Our debt obligations consisted of the following:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In millions) |
|
|||||
2018 Term Debt, interest rate of |
|
$ |
— |
|
|
$ |
|
|
2024 Term Debt, interest rate of |
|
|
|
|
|
— |
|
|
2018 Revolving Credit Facility ($ |
|
|
— |
|
|
|
— |
|
2024 Revolving Credit Facility ($ |
|
|
— |
|
|
|
— |
|
Convertible Senior Notes, interest rate of |
|
|
|
|
|
|
||
Line of Credit ($ |
|
|
— |
|
|
|
— |
|
Financing lease liabilities (Note 6) |
|
|
|
|
|
|
||
Total debt |
|
|
|
|
|
|
||
Less unamortized debt issuance costs and discount |
|
|
|
|
|
|
||
Less current portion of long-term debt |
|
|
|
|
|
|
||
Long-term debt, less current portion |
|
$ |
|
|
$ |
|
||
Accrued interest and fees related to the debt obligations was $
2018 Senior Secured Credit Facility
On April 30, 2018, we entered into a credit agreement. Pursuant to the terms of the new credit agreement, we became borrower of (i) a $
14 | Q1 2024 Form 10-Q
The 2018 Term Debt and 2018 Revolving Credit Facility were set to mature on
2024 Senior Secured Credit Facility
On February 29, 2024, we completed the refinancing of our 2018 Senior Secured Credit Facility by entering into a new credit agreement. Pursuant to the terms of the new credit agreement, we became the borrower of (i) a $
The 2024 Term Debt is subject to amortization of principal, payable in equal quarterly installments on the last day of each fiscal quarter, commencing on
The 2024 Revolving Credit Facility bears interest at rates based upon, at our option, either (i) the base rate or the Canadian prime rate, as applicable, plus an applicable percentage of between
In connection with the refinancing of our debt, we capitalized $
Convertible Senior Notes
In March 2021, we issued $
The following table presents details of the Convertible Senior Notes:
|
|
Initial Conversion Rate per $ |
|
Initial Conversion Price per Share |
|
|
|
|
|
|
|
|
|
Convertible Senior Notes |
|
|
$ |
|
||
15 | Q1 2024 Form 10-Q
The Convertible Senior Notes will be convertible at the option of the holders at any time only under certain circumstances as outlined in Part II, Item 8, Note 9, “Debt,” to our audited consolidated financial statements in our 2023 Form 10-K. The conditions allowing holders of the Convertible Senior Notes to convert have not been met and therefore were not convertible as of March 31, 2024.
On December 30, 2021, we notified the holders of the Convertible Senior Notes of our irrevocable election to settle the conversion obligation in connection with the Convertible Senior Notes submitted for conversion on or after January 1, 2022, or at maturity with a combination of cash and shares of our common stock. Generally, under this settlement method, the conversion value will be settled in cash in an amount no less than the principal amount being converted, and any excess of the conversion value over the principal amount will be settled, at our election, in cash or shares of common stock.
The Convertible Senior Notes are accounted for as a single liability, and the carrying amount of the Convertible Senior Notes was $
Interest expense recognized related to the Convertible Senior Notes was as follows:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(Dollars in millions) |
|
|||||
Contractual interest expense |
|
$ |
|
|
$ |
|
||
Amortization of debt issuance costs |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Capped Calls
In March 2021, in connection with the pricing of the Convertible Senior Notes, we entered into capped call transactions with the option counterparties (the “Capped Calls”). The Capped Calls each have an initial strike price of $
Future Payments and Maturities of Debt
The future principal payments and maturities of our indebtedness, excluding financing lease obligations, are as follows:
Years Ending December 31, |
|
Amount |
|
|
|
|
(Dollars in millions) |
|
|
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
|
16 | Q1 2024 Form 10-Q
Fair Value of Debt
9. Employee Benefit Plans
The components of net periodic cost (gain) for our defined benefit pension plan and for our postretirement benefit plan are included in the following tables:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In millions) |
|
|||||
Interest cost |
|
$ |
|
|
$ |
|
||
Actuarial loss amortization |
|
|
|
|
|
|
||
Less: Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
Net periodic pension cost |
|
$ |
|
|
$ |
|
||
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In millions) |
|
|||||
Interest cost |
|
$ |
|
|
$ |
|
||
Actuarial gain amortization |
|
|
( |
) |
|
|
( |
) |
Net periodic postretirement benefit gain |
|
$ |
( |
) |
|
$ |
( |
) |
10. Share-Based Compensation
Our share-based compensation consists of stock options, restricted stock units (“RSU”), and performance stock units (“PSU”) and is used to compensate certain employees and non-employee directors. We also offer an employee stock purchase plan to eligible employees.
Most of our equity awards vest either annually on a pro rata basis, generally over a - or
As of March 31, 2024, there were
Total share-based compensation expense was $
17 | Q1 2024 Form 10-Q
Performance-Based Stock Options
Performance-based stock option activity was as follows:
|
|
Shares |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Outstanding at December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeited or expired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Outstanding at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
As of March 31, 2024, there is
Performance Stock Units
PSU activity was as follows:
|
|
Shares |
|
|
Outstanding at December 31, 2023 |
|
|
|
|
Granted |
|
|
|
|
Vested and released |
|
|
( |
) |
Forfeited or canceled |
|
|
( |
) |
Outstanding at March 31, 2024 |
|
|
|
|
Releasable at March 31, 2024 |
|
|
— |
|
In March 2024, we granted PSU awards under our Management Incentive Plan (“MIP”) for the incentive period of January 1, 2024 through December 31, 2024, and also as part of long-term incentive ("LTI") grants to certain members of management. These awards are primarily earned upon performance of key financial metrics and certain LTI awards are earned based upon our total shareholder return, a market condition, as compared to an indexed shareholder return over the course of a fiscal based
As of March 31, 2024, there was $
Restricted Stock Units
RSU activity was as follows:
|
|
Shares |
|
|
Outstanding at December 31, 2023 |
|
|
|
|
Granted |
|
|
|
|
Vested and released |
|
|
( |
) |
Forfeited or canceled |
|
|
( |
) |
Outstanding at March 31, 2024 |
|
|
|
|
Releasable at March 31, 2024 |
|
|
— |
|
As of March 31, 2024, there was $
18 | Q1 2024 Form 10-Q
Term-Based Stock Options
Term-based stock option activity was as follows:
|
|
Shares |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Outstanding at December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Forfeited or expired |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
Outstanding at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
As of March 31, 2024, there was $
Global Employee Stock Purchase Plan
Our Global Employee Stock Purchase Plan activity was as follows:
Period Ended |
|
Shares Issued |
|
|
Purchase Price |
|
||
March 31, 2024 |
|
|
|
|
$ |
|
||
A total of
11. Revenue and Revenue-Related Activity
Disaggregation of Revenue
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In millions) |
|
|||||
Revenue: |
|
|
|
|
|
|
||
Recurring revenue: |
|
|
|
|
|
|
||
Dayforce recurring |
|
$ |
|
|
$ |
|
||
Powerpay recurring |
|
|
|
|
|
|
||
Total Cloud recurring |
|
|
|
|
|
|
||
Other recurring |
|
|
|
|
|
|
||
Total recurring revenue |
|
|
|
|
|
|
||
Professional services and other |
|
|
|
|
|
|
||
Total revenue |
|
$ |
|
|
$ |
|
||
Recurring revenue includes float revenue of $
Trade and Other Receivables, Net
Trade and other receivables, net included total reserves for sales adjustments and allowances for doubtful accounts of $
19 | Q1 2024 Form 10-Q
Contract Balances
In accordance with Accounting Standards Codification ("ASC") 606, a contract asset is generally recorded when revenue recognized for professional service performance obligations exceed the contractual amount of billings for implementation related professional services. Additions to contract assets generally represent increases to professional services revenues, and reductions to contract assets generally represent reductions to recurring revenues during the initial contract term. Contract assets expected to be recognized in revenue within twelve months are included within prepaid expenses and other current assets, with the remaining contract assets included within other assets on our condensed consolidated balance sheets.
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In millions) |
|
|||||
Contract assets, beginning of period |
|
$ |
|
|
$ |
|
||
Additions |
|
|
|
|
|
|
||
Reductions |
|
|
( |
) |
|
|
( |
) |
Foreign currency translation |
|
|
( |
) |
|
|
|
|
Contract assets, end of period |
|
$ |
|
|
$ |
|
||
The activity for the year ended December 31, 2023 included $
Deferred Revenue
Deferred revenue primarily consists of payments received in advance of revenue recognition. The changes in deferred revenue were as follows:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In millions) |
|
|||||
Deferred revenue, beginning of period |
|
$ |
|
|
$ |
|
||
New billings |
|
|
|
|
|
|
||
Acquired billings |
|
|
|
|
|
— |
|
|
Revenue recognized |
|
|
( |
) |
|
|
( |
) |
Foreign currency translation |
|
|
( |
) |
|
|
( |
) |
Deferred revenue, end of period |
|
$ |
|
|
$ |
|
||
Deferred Sales Commissions
In accordance with ASC 606, sales commissions paid based on the annual contract value of a signed customer contract are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions paid based on the annual contract value are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be ten years. Amortization expense for deferred sales commissions was $
Transaction Price for Remaining Performance Obligations
As of March 31, 2024, approximately $
20 | Q1 2024 Form 10-Q
12. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss were as follows:
|
|
Foreign |
|
|
Unrealized Gain |
|
|
Pension |
|
|
Total |
|
||||
|
|
(In millions) |
|
|||||||||||||
Balance as of December 31, 2023 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive (loss) income before income taxes and reclassifications |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Income tax benefit (expense) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
||
Reclassifications to earnings |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Other comprehensive (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balance as of March 31, 2024 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
13. Income Taxes
Our income tax provision represents federal, state, and international taxes on our income recognized for financial statement purposes and includes the effects of temporary differences between financial statement income and income recognized for tax return purposes. Deferred tax assets and liabilities are recorded for temporary differences between the financial reporting basis and the tax basis of assets and liabilities. We record a valuation allowance to reduce our deferred tax assets to reflect the net deferred tax assets that we believe will be realized. In assessing the likelihood that we will be able to recover our deferred tax assets and the need for a valuation allowance, we consider all available evidence, both positive and negative, including historical levels of pre-tax book income, expiration of net operating losses, changes in our debt and equity structure, expectations and risks associated with estimates of future taxable income, ongoing prudent and feasible tax planning strategies, as well as current tax laws. As of March 31, 2024, we have a valuation allowance of $
We recorded income tax expense of $
The total amount of unrecognized tax benefits as of March 31, 2024, and December 31, 2023, was $
We file income tax returns in the U.S. federal jurisdiction, various states, and foreign jurisdictions.
14. Commitments and Contingencies
Legal Matters
We are subject to claims and a number of judicial and administrative proceedings considered normal in the course of our current and past operations, including employment-related disputes, contract disputes, disputes with our competitors, intellectual property disputes, government audits and proceedings, customer disputes, and tort claims. In some proceedings, the claimant seeks damages as well as other relief, which, if granted, would require substantial expenditures on our part.
21 | Q1 2024 Form 10-Q
Our general terms and conditions in customer contracts frequently include a provision indicating we will indemnify and hold our customers harmless from and against any and all claims alleging that the services and materials furnished by us violate any third party’s patent, trade secret, copyright, or other intellectual property right. We are not aware of any material pending litigation concerning these indemnifications.
Some of these matters raise difficult and complex factual and legal issues and are subject to many uncertainties, including the facts and circumstances of each particular action, and the jurisdiction, forum, and law under which each action is proceeding. Because of these complexities, final disposition of some of these proceedings may not occur for several years. As such, we are not always able to estimate the amount of our possible future liabilities, if any.
There can be no certainty that we may not ultimately incur charges in excess of presently established or future financial accruals or insurance coverage. Although occasional adverse decisions or settlements may occur, it is management’s opinion that the final disposition of these proceedings will not, considering the merits of the claims and available resources or reserves and insurance, and based upon the facts and circumstances currently known, have a material adverse effect on our financial position or results of operations.
15. Net Income per Share
We compute net income per share of common stock using the treasury stock method.
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In millions, except per share data) |
|
|||||
Numerator: |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Denominator: |
|
|
|
|
|
|
||
Weighted average shares outstanding - basic |
|
|
|
|
|
|
||
Effect of dilutive equity instruments |
|
|
|
|
|
|
||
Weighted average shares outstanding - diluted |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Net income per share - basic |
|
$ |
|
|
$ |
|
||
Net income per share - diluted |
|
$ |
|
|
$ |
|
||
The following potentially dilutive weighted average shares were excluded from the calculation of diluted net income per share because their effect would have been anti-dilutive:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In millions) |
|
|||||
Stock options |
|
|
|
|
|
|
||
Restricted stock units |
|
|
— |
|
|
|
|
|
Performance stock units |
|
|
— |
|
|
|
|
|
22 | Q1 2024 Form 10-Q
The shares underlying the conversion option in the Convertible Senior Notes were not considered in the calculation of diluted net income per share as the effect would have been anti-dilutive. Based on the initial conversion price, the entire outstanding principal amount of the Convertible Senior Notes as of March 31, 2024 would have been convertible into approximately
23 | Q1 2024 Form 10-Q
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of our financial condition and results of operations as of, and for, the periods presented and should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included elsewhere in this report and with our audited consolidated financial statements and notes thereto in our 2023 Form 10-K. This discussion and analysis contains forward-looking statements, including statements regarding industry outlook, our expectations for the future of our business, and our liquidity and capital resources as well as other non-historical statements. These statements are based on current expectations and are subject to numerous risks and uncertainties, including but not limited to the risks and uncertainties described in Part II, Item 1A, “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by these forward-looking statements. Any reference to a “Note” in this discussion relates to the accompanying notes to the unaudited condensed consolidated financial statements included elsewhere in this report unless otherwise indicated.
Overview
Dayforce, Inc. is a global human capital management (“HCM”) software company. We categorize our solutions into three categories: Cloud recurring, other recurring, and professional services and other. Cloud recurring revenue is generated from HCM solutions that are primarily delivered via two offerings: Dayforce, our flagship Cloud HCM platform, and Powerpay, a Cloud human resources (“HR”) and payroll solution for the Canadian small business market. Revenue from our Cloud recurring and other recurring solutions includes investment income generated from holding customer funds, also referred to as float revenue or float.
Dayforce provides HR, payroll and tax, benefits, workforce management, and talent management functionality. Our platform is used by organizations of all sizes, from small businesses to global organizations, regardless of industry, to optimize management of the entire employee lifecycle, including attracting, hiring, engaging, paying, and developing their people. Dayforce was built as a single application from the ground up that combines a modern, consumer-grade user experience with proprietary application architecture, including a single employee record and a rules engine spanning all areas of HCM. Dayforce provides continuous real-time calculations across all modules to enable, for example, payroll administrators access to data through the entire pay period, and managers access to real-time data to optimize work schedules. Our platform is designed to drive efficiencies for our customers and their employees by improving HCM decision-making processes, streamlining workflows, revealing strategic organizational insights, and simplifying legislative compliance. The platform is designed to ease administrative work for both employees and managers, creating opportunities for companies to increase employee engagement. We sell Dayforce through our direct sales force on a subscription per-employee, per-month ("PEPM") basis. Our subscriptions are typically structured with an initial fixed term of between three and five years, with evergreen renewal thereafter.
Our Business Model
Our business model focuses on supporting the growth of Dayforce and maximizing the lifetime value of our Dayforce customer relationships. Due to our subscription model, where we recognize subscription revenues ratably over the term of the subscription period, and our high customer retention rates, we have a high level of visibility into our future revenues. The profitability of a customer depends, in large part, on how long they have been a customer. We estimate that it takes approximately two years before we are able to recover our implementation, customer acquisition, and other direct costs on a new Dayforce customer contract.
Over the lifetime of the customer relationship, we have the opportunity to realize additional PEPM revenue, both as the customer grows or rolls out the Dayforce solution to additional employees, and also by selling additional functionality to existing customers that do not currently utilize our full HCM suite. We also incur costs to manage the account, to retain customers, and to sell additional functionality. These costs, however, are significantly less than the costs initially incurred to acquire and to take customers live.
24 | Q1 2024 Form 10-Q
Recent Events
Effective January 31, 2024, we changed our corporate name from Ceridian HCM Holding Inc. to Dayforce, Inc. Effective February 1, 2024, we ceased trading under the ticker symbol "CDAY" and began trading under our new ticker symbol, "DAY," on the New York Stock Exchange and the Toronto Stock Exchange.
On February 1, 2024, we completed the purchase of 100% of the outstanding shares of eloomi, a learning experience platform software provider based in Copenhagen, Denmark, and Orlando, Florida.
How We Assess Our Performance
In assessing our performance, we consider a variety of annual and quarterly performance indicators in addition to revenue and net income. Set forth below are descriptions of our quarterly key performance measures. Additional information on our annual performance measures is described in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "How We Assess Our Performance" contained in our 2023 Form 10-K. Please refer to the "Non-GAAP Financial Measures" and “Results of Operations” sections below for further description and definitions of certain performance indicators which are considered non-GAAP financial measures.
Live Dayforce Customers
We use the number of live Dayforce customers as an indicator of future revenue and the overall performance of the business and to assess the performance of our implementation services.
Dayforce Recurring Revenue Per Customer
We use Dayforce recurring revenue per customer, a non-GAAP financial measure, as an indicator of the average size of our Dayforce customer, which we believe is also useful to management and investors. We calculate and monitor Dayforce recurring revenue per customer on a quarterly basis. Our Dayforce recurring revenue per customer may fluctuate as a result of a number of factors, including the number of live Dayforce customers and the number of customers purchasing our full HCM suite.
Constant Currency Revenue
We present percentage change in revenue on a constant currency basis to assess how our underlying business performed, excluding the effect of foreign currency rate fluctuations. We believe this non-GAAP financial measure is useful to management and investors. The average U.S. dollar to Canadian dollar foreign exchange rate was $1.35 for the three months ended March 31, 2024 and 2023.
Adjusted Operating Profit, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Cloud Recurring Gross Margin
We believe that Adjusted operating profit, Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Cloud recurring gross margin, non-GAAP financial measures, are useful to management and investors as supplemental measures to evaluate our overall operating performance. Adjusted EBITDA is a component of our management incentive plan and Adjusted operating profit and Adjusted Cloud recurring gross margin are components of certain performance based equity awards for our named executive officers, and these metrics are used by management to assess performance and to compare our operating performance to our competitors. Management believes that these non-GAAP financial measures are helpful in highlighting management performance trends because these metrics exclude the results of decisions that are outside the normal course of our business operations.
25 | Q1 2024 Form 10-Q
Results of Operations
Three Months Ended March 31, 2024 Compared With Three Months Ended March 31, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Three Months Ended March 31, |
|
|
Increase/(Decrease) |
|
|
Percentage of Revenue |
|
|||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
% |
|
|
2024 |
|
|
2023 |
|
||||||
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cloud |
|
$ |
363.2 |
|
|
$ |
295.3 |
|
|
$ |
67.9 |
|
|
|
23.0 |
% |
|
|
84.2 |
% |
|
|
79.7 |
% |
Other |
|
|
19.5 |
|
|
|
22.6 |
|
|
|
(3.1 |
) |
|
|
(13.7 |
)% |
|
|
4.5 |
% |
|
|
6.1 |
% |
Total recurring |
|
|
382.7 |
|
|
|
317.9 |
|
|
|
64.8 |
|
|
|
20.4 |
% |
|
|
88.7 |
% |
|
|
85.8 |
% |
Professional services and other |
|
|
48.8 |
|
|
|
52.7 |
|
|
|
(3.9 |
) |
|
|
(7.4 |
)% |
|
|
11.3 |
% |
|
|
14.2 |
% |
Total revenue |
|
|
431.5 |
|
|
|
370.6 |
|
|
|
60.9 |
|
|
|
16.4 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Recurring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cloud |
|
|
76.3 |
|
|
|
66.9 |
|
|
|
9.4 |
|
|
|
14.1 |
% |
|
|
17.7 |
% |
|
|
18.1 |
% |
Other |
|
|
12.1 |
|
|
|
13.2 |
|
|
|
(1.1 |
) |
|
|
(8.3 |
)% |
|
|
2.8 |
% |
|
|
3.6 |
% |
Total recurring |
|
|
88.4 |
|
|
|
80.1 |
|
|
|
8.3 |
|
|
|
10.4 |
% |
|
|
20.5 |
% |
|
|
21.6 |
% |
Professional services and other |
|
|
66.1 |
|
|
|
63.9 |
|
|
|
2.2 |
|
|
|
3.4 |
% |
|
|
15.3 |
% |
|
|
17.2 |
% |
Product development and management |
|
|
53.1 |
|
|
|
51.0 |
|
|
|
2.1 |
|
|
|
4.1 |
% |
|
|
12.3 |
% |
|
|
13.8 |
% |
Depreciation and amortization |
|
|
18.5 |
|
|
|
15.3 |
|
|
|
3.2 |
|
|
|
20.9 |
% |
|
|
4.3 |
% |
|
|
4.1 |
% |
Total cost of revenue |
|
|
226.1 |
|
|
|
210.3 |
|
|
|
15.8 |
|
|
|
7.5 |
% |
|
|
52.4 |
% |
|
|
56.7 |
% |
Gross profit |
|
|
205.4 |
|
|
|
160.3 |
|
|
|
45.1 |
|
|
|
28.1 |
% |
|
|
47.6 |
% |
|
|
43.3 |
% |
Selling and marketing |
|
|
79.0 |
|
|
|
54.2 |
|
|
|
24.8 |
|
|
|
45.8 |
% |
|
|
18.3 |
% |
|
|
14.6 |
% |
General and administrative |
|
|
85.7 |
|
|
|
67.7 |
|
|
|
18.0 |
|
|
|
26.6 |
% |
|
|
19.9 |
% |
|
|
18.3 |
% |
Operating profit |
|
|
40.7 |
|
|
|
38.4 |
|
|
|
2.3 |
|
|
|
6.0 |
% |
|
|
9.4 |
% |
|
|
10.4 |
% |
Interest expense, net |
|
|
13.3 |
|
|
|
9.2 |
|
|
|
4.1 |
|
|
|
44.6 |
% |
|
|
3.1 |
% |
|
|
2.5 |
% |
Other expense, net |
|
|
9.0 |
|
|
|
0.8 |
|
|
|
8.2 |
|
|
|
1025.0 |
% |
|
|
2.1 |
% |
|
|
0.2 |
% |
Income before income taxes |
|
|
18.4 |
|
|
|
28.4 |
|
|
|
(10.0 |
) |
|
|
(35.2 |
)% |
|
|
4.3 |
% |
|
|
7.7 |
% |
Income tax expense |
|
|
11.3 |
|
|
|
18.5 |
|
|
|
(7.2 |
) |
|
|
(38.9 |
)% |
|
|
2.6 |
% |
|
|
5.0 |
% |
Net income |
|
$ |
7.1 |
|
|
$ |
9.9 |
|
|
$ |
(2.8 |
) |
|
|
(28.3 |
)% |
|
|
1.6 |
% |
|
|
2.7 |
% |
26 | Q1 2024 Form 10-Q
Revenue. The following table sets forth certain information regarding our revenues for the periods presented:
|
|
Three Months Ended March 31, |
|
|
Percentage change in revenue |
|
|
Impact of |
|
|
Percentage change in revenue on a constant currency basis (a) |
|
||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 vs. 2023 |
|
|
|
|
|
2024 vs. 2023 |
|
|||||
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Recurring revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Dayforce recurring, excluding float |
|
$ |
282.4 |
|
|
$ |
229.6 |
|
|
|
23.0 |
% |
|
|
(— |
)% |
|
|
23.0 |
% |
Dayforce float |
|
|
54.8 |
|
|
|
41.6 |
|
|
|
31.7 |
% |
|
|
(— |
)% |
|
|
31.7 |
% |
Total Dayforce recurring |
|
|
337.2 |
|
|
|
271.2 |
|
|
|
24.3 |
% |
|
|
(— |
)% |
|
|
24.3 |
% |
Powerpay recurring, excluding float |
|
|
20.5 |
|
|
|
19.5 |
|
|
|
5.1 |
% |
|
|
0.5 |
% |
|
|
4.6 |
% |
Powerpay float |
|
|
5.5 |
|
|
|
4.6 |
|
|
|
19.6 |
% |
|
|
(— |
)% |
|
|
19.6 |
% |
Total Powerpay recurring |
|
|
26.0 |
|
|
|
24.1 |
|
|
|
7.9 |
% |
|
|
0.4 |
% |
|
|
7.5 |
% |
Total Cloud recurring |
|
|
363.2 |
|
|
|
295.3 |
|
|
|
23.0 |
% |
|
|
0.1 |
% |
|
|
22.9 |
% |
Other recurring (b) |
|
|
19.5 |
|
|
|
22.6 |
|
|
|
(13.7 |
)% |
|
|
(2.2 |
)% |
|
|
(11.5 |
)% |
Total recurring revenue |
|
|
382.7 |
|
|
|
317.9 |
|
|
|
20.4 |
% |
|
|
(0.1 |
)% |
|
|
20.5 |
% |
Professional services and other (c) |
|
|
48.8 |
|
|
|
52.7 |
|
|
|
(7.4 |
)% |
|
|
(— |
)% |
|
|
(7.4 |
)% |
Total revenue |
|
$ |
431.5 |
|
|
$ |
370.6 |
|
|
|
16.4 |
% |
|
|
(0.1 |
)% |
|
|
16.5 |
% |
Total revenue increased $60.9 million, or 16.4%, to $431.5 million for the three months ended March 31, 2024, compared to $370.6 million for the three months ended March 31, 2023. This increase was primarily attributable to the increase in live Dayforce customers, the increase in Dayforce recurring revenue per customer, and the increase in float revenue. The number of live Dayforce customers increased 6.4% to 6,575 at March 31, 2024 from 6,179 at March 31, 2023. Additionally, for the trailing twelve months ended March 31, 2024, Dayforce recurring revenue per customer grew to $150,362 compared to $126,127 for the comparable period in 2023. Please refer to the "How We Assess Performance" and “Non-GAAP Financial Measures” section for discussion of and the definition of Dayforce recurring revenue per customer.
The increase in Dayforce recurring revenue per customer is driven by the growing average size of our customers, as we have been expanding within the enterprise segment, as well as more customers purchasing our full HCM suite. The increase in float revenue is driven by an increase in average yield of 80 basis points compared to the three months ended March 31, 2023, in addition to a 5.7% increase in average float balance for our customer funds for the three months ended March 31, 2024, which increased to $5.56 billion, compared to $5.26 billion for the three months ended March 31, 2023.
Cost of revenue. Total cost of revenue for the three months ended March 31, 2024, was $226.1 million, an increase of $15.8 million, or 7.5%, compared to the three months ended March 31, 2023.
Recurring cost of revenue for the three months ended March 31, 2024, increased $8.3 million, or 10.4%, compared with the three months ended March 31, 2023, primarily due to additional labor-related costs incurred to support the growing Dayforce customer base globally.
27 | Q1 2024 Form 10-Q
Professional services and other cost of revenue increased $2.2 million, or 3.4%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to increased labor-related costs incurred to take new customers live.
Product development and management expense increased $2.1 million, or 4.1%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase primarily reflects additional personnel costs. For the three months ended March 31, 2024, and 2023, our investment in software development was $50.4 million and $46.9 million, respectively, consisting of $28.4 million and $28.0 million of research and development expense, and $22.0 million and $18.9 million in capitalized software development costs, respectively.
Depreciation and amortization expense associated with cost of revenue increased $3.2 million, or 20.9%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, as we continue to capitalize Dayforce related and other development costs and subsequently amortize these costs.
Gross profit. The following table presents total gross margin and solution gross margins for the periods presented:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Total gross margin |
|
|
47.6 |
% |
|
|
43.3 |
% |
Gross margin by solution: |
|
|
|
|
|
|
||
Cloud recurring |
|
|
79.0 |
% |
|
|
77.3 |
% |
Other recurring |
|
|
37.9 |
% |
|
|
41.6 |
% |
Professional services and other |
|
|
(35.5 |
)% |
|
|
(21.3 |
)% |
Total gross margin is defined as total gross profit as a percentage of total revenue, which is inclusive of product development and management costs, as well as depreciation and amortization associated with cost of revenue. Gross margin for each solution in the table above is defined as total revenue less cost of revenue for the applicable solution as a percentage of total revenue for that related solution, which is exclusive of any product development and management or depreciation and amortization cost allocations.
Total gross margin for the three months ended March 31, 2024 increased 430 basis points compared to the three months ended March 31, 2023 and gross profit increased by $45.1 million, or 28.1% for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to the $60.9 million or 16.4% increase in revenue, including float revenue, which outpaced the increase in cost of revenue.
Cloud recurring gross margin was 79.0% for the three months ended March 31, 2024, compared to 77.3% for the three months ended March 31, 2023. The increase in Cloud recurring gross margin was primarily due to the increase in float revenue and due to the growth of the proportion of Dayforce customers live for more than two years, which increased from 82% as of March 31, 2023 to 85% as of March 31, 2024.
Professional services and other gross margin was (35.5)% for the three months ended March 31, 2024, compared to (21.3)% for the three months ended March 31, 2023, reflecting additional costs to take new customers live.
Selling and marketing expense. Selling and marketing expense increased $24.8 million, or 45.8%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase in selling and marketing expense is primarily driven by higher personnel-related costs and higher advertising expenses related to the transition of the Company's name and branding to Dayforce, Inc.
General and administrative expense. General and administrative expense increased $18.0 million, or 26.6%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase in general and administrative expense is driven by increases in amortization of acquisition-related intangible assets and employee-related costs, partially offset by a reduction in share-based compensation related to specific individual awards becoming fully vested or forfeited prior to the first quarter of 2024, and a lower expense related to the DataFuzion contingent consideration. Amortization of the Ceridian trade name contributed $20.9 million of expense for the three months ended March 31, 2024.
28 | Q1 2024 Form 10-Q
Operating profit. For the three months ended March 31, 2024, operating profit was $40.7 million, compared to $38.4 million for the three months ended March 31, 2023. Operating profit remained relatively consistent primarily due to the increase in revenue, including float revenue, and gross margin expansion, partially offset by an increase in cost of revenue and an increase in amortization expense.
Interest expense, net. Interest expense, net was $13.3 million and $9.2 million for the three months ended March 31, 2024, and 2023, respectively. The increase was primarily due to a $4.3 million loss on debt extinguishment recognized during the three months ended March 31, 2024 related to the refinancing of certain credit agreements. Please refer to Part I, Item 1. Note 8, "Debt" for additional information.
Other expense, net. For the three months ended March 31, 2024, and 2023, we incurred other expense, net of $9.0 million and $0.8 million, respectively. Other expense, net was primarily comprised of foreign currency translation losses (gains) and net periodic pension expense.
Income tax expense. For the three months ended March 31, 2024, and 2023, we recorded income tax expense of $11.3 million and $18.5 million, respectively. The decrease in income tax expense was primarily due to $3.1 million attributable to other U.S. domestic taxes, $2.1 million attributable to current operations, and $1.9 million attributable to share-based compensation.
Net income. We realized net income of $7.1 million for the three months ended March 31, 2024, compared to $9.9 million for the three months ended March 31, 2023. Net income was relatively consistent due to an increase in other expense, net and an increase in interest expense, net, partially offset by an increase in operating profit.
Liquidity and Capital Resources
Our primary sources of liquidity are our existing cash and equivalents, cash provided by operating activities, availability under our 2024 Revolving Credit Facility, and proceeds from debt issuances and equity offerings. As of March 31, 2024, we had cash and equivalents of $392.5 million and our total debt was $1,232.1 million.
Our primary liquidity needs are related to funding of general business requirements, including the payment of interest and principal on our debt, capital expenditures, fulfilling our contractual commitments, product development, and funding Dayforce Wallet on demand pay requests on behalf of our customers. From time to time, we have made investments in businesses or acquisitions of companies, which are also liquidity needs.
We believe that our cash flow from operations, available cash and equivalents, and availability under our 2024 Revolving Credit Facility will be sufficient to meet our liquidity needs for the next twelve months and for the foreseeable future. Dayforce Wallet on demand pay requests are currently funded from our operating cash balances, until the amounts are reimbursed by our customers through their normal payroll funding cycles. We evaluate the creditworthiness of each customer utilizing the Dayforce Wallet feature. We anticipate that to the extent that we require additional liquidity, it will be funded through the issuance of equity, the incurrence of additional indebtedness, or a combination thereof. We cannot provide assurance that we will be able to obtain this additional liquidity on reasonable terms, or at all. Additionally, our liquidity and our ability to meet our obligations and to fund our capital requirements and Dayforce Wallet on demand pay requests are also dependent on our future financial performance, which is subject to general economic, financial, and other factors that are beyond our control. Accordingly, we cannot provide assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available from additional indebtedness or otherwise to meet our liquidity needs. If we decide to pursue one or more significant acquisitions, we may incur additional debt or raise additional equity to finance such acquisitions, which would result in additional expenses and/or dilution.
Our customer funds are held and invested with the primary objectives being to protect the principal balance and to ensure adequate liquidity to meet cash flow requirements. Accordingly, we maintain on average approximately 45% to 55% of customer funds in liquidity portfolios with maturities ranging from one to 120 days, consisting of high-quality bank deposits, money market mutual funds, commercial paper, or collateralized short-term investments; and we maintain on average approximately 45% to 55% of customer funds in fixed income portfolios with maturities ranging from 120 days to 10 years, consisting of U.S. Treasury and agency securities, Canada government and provincial securities, as well as highly rated asset-backed, mortgage-backed, municipal, corporate, and bank securities. To maintain sufficient liquidity to meet payment obligations, we also have financing arrangements and may pledge fixed income securities for short-term financing. The customer assets are held in segregated accounts intended for the specific purpose of satisfying customer funding obligations and therefore are not freely available for our general business use.
29 | Q1 2024 Form 10-Q
Statements of Cash Flows
Changes in cash flows due to purchases of customer fund marketable securities and proceeds from the sale or maturity of customer fund marketable securities, as well as the carrying value of customer fund accounts as of period end dates can vary significantly due to several factors, including the specific day of the week the period ends, which impacts the timing of funds collected from customers and payments made to satisfy customer obligations to employees, taxing authorities, and others. The customer funds are fully segregated from our operating cash accounts and are evaluated and tracked separately by management. The table below summarizes the activity within the condensed consolidated statements of cash flows:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In millions) |
|
|||||
Net cash provided by operating activities |
|
$ |
9.1 |
|
|
$ |
11.3 |
|
Net cash used in investing activities |
|
|
(290.7 |
) |
|
|
(1.4 |
) |
Net cash provided by financing activities |
|
|
1,772.9 |
|
|
|
2,187.1 |
|
Effect of exchange rate changes on cash, restricted cash, and equivalents |
|
|
(13.5 |
) |
|
|
(6.8 |
) |
Net increase in cash, restricted cash, and equivalents |
|
|
1,477.8 |
|
|
|
2,190.2 |
|
Cash, restricted cash, and equivalents at beginning of period |
|
|
3,421.4 |
|
|
|
3,151.2 |
|
Cash, restricted cash, and equivalents at end of period |
|
|
4,899.2 |
|
|
|
5,341.4 |
|
|
|
|
|
|
|
|
||
Cash and equivalents |
|
|
392.5 |
|
|
|
428.6 |
|
Restricted cash and equivalents |
|
|
4,506.7 |
|
|
|
4,912.8 |
|
Total cash, restricted cash, and equivalents |
|
$ |
4,899.2 |
|
|
$ |
5,341.4 |
|
Operating Activities
Net cash provided by operating activities was $9.1 million during the three months ended March 31, 2024 compared to $11.3 million during the three months ended March 31, 2023. For both periods, cash inflows from operating activities are primarily generated from the subscriptions of our solutions. Cash outflows from operating activities for both periods are primarily comprised of personnel-related expenditures, including the payout of year-end employee compensation, and the renewals of prepaid annual contracts that are integral to our business operations. The positive cash inflow in both periods is primarily due to our growing revenue, partially offset by our operating costs, mainly, investment in our sales force to support our growth initiatives and those product development and management costs which are not eligible for capitalization.
Investing Activities
During the three months ended March 31, 2024, net cash used in investing activities was $290.7 million, consisting of acquisition costs, net of cash acquired, of $173.3 million, purchases of customer funds marketable securities of $139.6 million, capital expenditures of $27.9 million, and purchases of marketable securities of $0.5 million, partially offset by proceeds from the sale and maturity of customer funds marketable securities of $49.6 million and proceeds from the sale and maturity of marketable securities of $1.0 million. Our capital expenditures included $24.4 million for software and technology and $3.5 million for property, plant, and equipment.
During the three months ended March 31, 2023, net cash used in investing activities was $1.4 million, consisting of purchases of customer funds marketable securities of $72.5 million and capital expenditures of $28.4 million, partially offset by proceeds from the sale and maturity of customer funds marketable securities of $100.5 million. Our capital expenditures included $21.9 million for software and technology and $6.5 million for property, plant, and equipment.
Financing Activities
Net cash provided by financing activities was $1,772.9 million during the three months ended March 31, 2024. This cash inflow is primarily attributable to an increase in net customer fund obligations of $1,763.5 million, proceeds from our debt issuance of $650.0 million, and proceeds from issuance of common stock under our share-based compensation plans of $15.3 million, partially offset by payments on our long-term debt obligations of $644.5 million and payment of debt refinancing costs of $11.4 million.
30 | Q1 2024 Form 10-Q
Net cash provided by financing activities was $2,187.1 million during the three months ended March 31, 2023. This cash inflow is primarily attributable to an increase in net customer fund obligations of $2,174.4 million and proceeds from issuance of common stock under our share-based compensation plans of $14.8 million, partially offset by payments on our long-term debt obligations of $2.1 million.
Backlog
Backlog is equivalent to our remaining performance obligations, which represents contracted revenue for recurring and fixed price professional services, primarily implementation services, that has not yet been recognized, including deferred revenue and unbilled amounts that will be recognized as revenue in future periods. As of March 31, 2024, our remaining performance obligations were approximately $1,221.2 million. Please refer to Part 1, Item 1. Note 11, “Revenue” for further discussion of our remaining performance obligations.
Off-Balance Sheet Arrangements
As of March 31, 2024, we did not have any “off-balance sheet arrangements” (as such term is defined in Item 303 of Regulation S-K).
Contractual Obligations
During the three months ended March 31, 2024, there were no significant changes to our contractual obligations as described in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Contractual Obligations" contained in our 2023 Form 10-K.
Critical Accounting Policies and Estimates
During the three months ended March 31, 2024, there were no significant changes to our critical accounting policies and estimates as described in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Critical Accounting Policies and Estimates" contained in our 2023 Form 10-K.
Non-GAAP Financial Measures
We use certain non-GAAP financial measures in this document including:
Non-GAAP Financial Measure |
|
GAAP Financial Measure |
EBITDA |
|
Net income |
Adjusted EBITDA |
|
Net income |
Adjusted EBITDA margin |
|
Net profit margin |
Adjusted Cloud recurring gross margin |
|
Cloud recurring gross margin |
Adjusted operating profit |
|
Operating profit |
Adjusted operating profit margin |
|
Operating profit margin |
Adjusted net income |
|
Net income |
Adjusted net profit margin |
|
Net profit margin |
Adjusted diluted net income per share |
|
Diluted net income per share |
Percentage change in revenue, including total revenue and revenue by solution, on a constant currency basis |
|
Percentage change in revenue, including total revenue and revenue by solution |
Dayforce recurring revenue per customer |
|
No directly comparable GAAP measure |
31 | Q1 2024 Form 10-Q
We believe that these non-GAAP financial measures are useful to management and investors as supplemental measures to evaluate our overall operating performance including comparison across periods and with competitors. Our management team uses these non-GAAP financial measures to assess operating performance because these financial measures exclude the results of decisions that are outside the normal course of our business operations, and are used for internal budgeting and forecasting purposes both for short- and long-term operating plans. Additionally, Adjusted EBITDA is a component of our management incentive plan and Adjusted Cloud recurring gross margin and Adjusted operating profit are components of certain performance based equity awards for our named executive officers. These non-GAAP financial measures are not required by, defined under, or presented in accordance with, GAAP, and should not be considered as alternatives to our results as reported under GAAP, have important limitations as analytical tools, and our use of these terms may not be comparable to similarly titled measures of other companies in our industry. Our presentation of non-GAAP financial measures should not be construed to imply that our future results will be unaffected by similar items to those eliminated in this presentation.
We define our non-GAAP financial measures as follows:
32 | Q1 2024 Form 10-Q
The following tables reconcile our reported results to our non-GAAP financial measures:
|
|
Three Months Ended March 31, 2024 |
|
|||||||||||||||||||||||||
|
|
As reported |
|
|
As reported margins (a) |
|
|
Share-based |
|
|
Amortization |
|
|
Other (b) |
|
|
As adjusted (b) |
|
|
As adjusted margins (a) |
|
|||||||
|
|
(Dollars in millions, except per share data) |
|
|||||||||||||||||||||||||
Cost of Cloud recurring revenue |
|
$ |
76.3 |
|
|
|
79.0 |
% |
|
$ |
3.6 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
72.7 |
|
|
|
80.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating profit |
|
$ |
40.7 |
|
|
|
9.4 |
% |
|
$ |
38.0 |
|
|
$ |
28.4 |
|
|
$ |
2.0 |
|
|
$ |
109.1 |
|
|
|
25.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net income |
|
$ |
7.1 |
|
|
|
1.6 |
% |
|
$ |
38.0 |
|
|
$ |
28.4 |
|
|
$ |
(5.5 |
) |
|
$ |
68.0 |
|
|
|
15.8 |
% |
Interest expense, net |
|
|
13.3 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13.3 |
|
|
|
|
||
Income tax expense (c) |
|
|
11.3 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(16.9 |
) |
|
|
28.2 |
|
|
|
|
||
Depreciation and amortization |
|
|
48.8 |
|
|
|
|
|
|
— |
|
|
|
28.4 |
|
|
|
— |
|
|
|
20.4 |
|
|
|
|
||
EBITDA |
|
$ |
80.5 |
|
|
|
|
|
$ |
38.0 |
|
|
$ |
— |
|
|
$ |
11.4 |
|
|
$ |
129.9 |
|
|
|
30.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net income per share - diluted (d) |
|
$ |
0.04 |
|
|
|
|
|
$ |
0.24 |
|
|
$ |
0.18 |
|
|
$ |
(0.03 |
) |
|
$ |
0.43 |
|
|
|
|
||
33 | Q1 2024 Form 10-Q
|
|
Three Months Ended March 31, 2023 |
|
|||||||||||||||||||||||||
|
|
As reported |
|
|
As reported margins (a) |
|
|
Share-based |
|
|
Amortization |
|
|
Other (b) |
|
|
As adjusted (b) |
|
|
As adjusted margins (a) |
|
|||||||
|
|
(Dollars in millions, except per share data) |
|
|||||||||||||||||||||||||
Cost of Cloud recurring revenue |
|
$ |
66.9 |
|
|
|
77.3 |
% |
|
$ |
4.0 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
62.9 |
|
|
|
78.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating profit |
|
$ |
38.4 |
|
|
|
10.4 |
% |
|
$ |
40.2 |
|
|
$ |
5.5 |
|
|
$ |
4.4 |
|
|
$ |
88.5 |
|
|
|
23.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net income |
|
$ |
9.9 |
|
|
|
2.7 |
% |
|
$ |
40.2 |
|
|
$ |
5.5 |
|
|
$ |
(6.3 |
) |
|
$ |
49.3 |
|
|
|
13.3 |
% |
Interest expense, net |
|
|
9.2 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9.2 |
|
|
|
|
||
Income tax expense (c) |
|
|
18.5 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(11.8 |
) |
|
|
30.3 |
|
|
|
|
||
Depreciation and amortization |
|
|
22.1 |
|
|
|
|
|
|
— |
|
|
|
5.5 |
|
|
|
— |
|
|
|
16.6 |
|
|
|
|
||
EBITDA |
|
$ |
59.7 |
|
|
|
|
|
$ |
40.2 |
|
|
$ |
— |
|
|
$ |
5.5 |
|
|
$ |
105.4 |
|
|
|
28.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net income per share - diluted (d) |
|
$ |
0.06 |
|
|
|
|
|
$ |
0.25 |
|
|
$ |
0.03 |
|
|
$ |
(0.04 |
) |
|
$ |
0.31 |
|
|
|
|
||
34 | Q1 2024 Form 10-Q
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks related to foreign currency exchange rates, interest rates, and pension obligations. We seek to minimize or to manage these market risks through normal operating and financing activities. These market risks may be amplified by events and factors surrounding global events. We do not trade or use instruments with the objective of earning financial gains on market fluctuations, nor do we use instruments where there are not underlying exposures.
Foreign Currency Risk. Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Canadian Dollar. Our exposure to foreign currency exchange rates has historically been partially hedged as our foreign currency denominated inflows create a natural hedge against our foreign currency denominated expenses. Accordingly, our results of operations and cash flows were not materially affected by fluctuation in foreign currency exchange rates, and we believe that a hypothetical 10% change in foreign currency exchange rates or an inability to access foreign funds would not materially affect our ability to meet our operational needs or result in a material foreign currency loss in the future. Due to the relative size of our international operations to date, we have not instituted an active hedging program. We expect our international operations to continue to grow in the near term, and we are monitoring the foreign currency exposure to determine if we should begin a hedging program.
Interest Rate Risk. Our operating results and financial condition are subject to fluctuations due to changes in interest rates, primarily in relation to: (1) our customer funds market valuation and float revenue derived therefrom, (2) our debt and the interest paid on such, and (3) our cash and equivalents and the interest income earned on these balances. Collectively, we do not believe that a change in interest rates of 100 basis points would have a material effect on our operating results or financial condition.
In certain jurisdictions, we collect funds for payment of payroll and taxes; temporarily hold such funds in segregated accounts until payment is due; remit the funds to the customers’ employees and appropriate taxing authority; file federal, state and local tax returns; and handle related regulatory correspondence and amendments. We invest the customer funds in high- quality bank deposits, money market mutual funds, commercial paper or collateralized short-term investments. We may also invest these funds in government securities, as well as highly rated asset-backed, mortgage-backed, corporate, and bank securities.
We have exposure to risks associated with changes in laws and regulations that may affect customer fund balances. For example, a change in regulations, either reducing the amount of taxes to be withheld or allowing less time to remit taxes to government authorities, would reduce our average customer fund balances and float revenue. Based on current market conditions, portfolio composition and investment practices, a 100 basis point decrease in market investment rates would result in approximately $26 million decrease in float revenue over the ensuing twelve month period. There are no incremental costs of revenue associated with changes in float revenue.
We pay floating rates of interest on our 2024 Term Debt and 2024 Revolving Credit Facility. The interest paid on these borrowings will fluctuate up or down in relation to changes in market interest rates. A 100 basis point decrease in the applicable reference rates would result in approximately $6 million decrease in our interest expense over the ensuring twelve-month period. Please refer to Part I, Item 1. Note 8, "Debt" for additional information.
We do not enter into investments for trading or speculative purposes. Our cash equivalents and our portfolio of marketable securities are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectation due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates.
However, because we classify our securities as “available for sale,” no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be unrecoverable. Fluctuations in the value of our investment securities caused by a change in interest rates (gains or losses on the carrying value) are recorded in other comprehensive income, and are realized only if we sell the underlying securities. Please refer to Part I, Item 1. Note 5, "Customer Funds" for additional information.
35 | Q1 2024 Form 10-Q
Pension Obligation Risk. We provide a pension plan for certain current and former U.S. employees that closed to new participants on January 2, 1995. In 2007, the U.S. pension plan was amended (1) to exclude from further participation any participant or former participant who was not employed by us or another participating employer on January 1, 2008, (2) to discontinue participant contributions, and (3) to freeze the accrual of additional benefits as of December 31, 2007. In applying relevant accounting policies, we have made critical estimates related to actuarial assumptions, including assumptions of expected returns on plan assets, discount rates, and health care cost trends. The cost of pension benefits in future periods will depend on actual returns on plan assets, assumptions for future periods, contributions, and benefit experience. The effective discount rate used in accounting for pension and other benefit obligations in 2023 ranged from 4.52% to 4.65%. The expected rate of return on plan assets for qualified pension benefits in 2024 is 4.80%.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Disclosure controls and procedures are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that as of March 31, 2024, our disclosure controls and procedures were not effective due to the GITC Material Weakness, as defined below. The GITC Material Weakness continues to be the sole material weakness in our internal control over financial reporting as of March 31, 2024. We have in place and are continuing to execute a remediation plan to address the GITC Material Weakness.
As discussed in our 2023 Form 10-K, we identified a material weakness with respect to ineffective general information technology controls (“GITCs”) related to user access and change management over the information technology ("IT") systems supporting our Canada trust and Powerpay revenue processes (the “GITC Material Weakness”). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The GITC Material Weakness was primarily due to ineffective reporting lines necessary to plan, execute, control, and periodically assess our IT activities. In addition, there was an insufficient number of trained resources with expertise, responsibility, and accountability for the design, documentation, implementation, and operation of GITCs. As a result, we did not perform an effective risk assessment related to the impact of ineffective GITCs on the operation of manual and automated control activities in order to identify all relevant risks of material misstatement to the consolidated financial statements.
Specifically, we did not effectively design control activities to restrict technology access rights to authorized users commensurate with their job responsibilities; we did not have an effective information and communication process that identified and assessed the controls necessary to ensure the reliability of information used in financial reporting; and we lacked effective ongoing evaluations of whether GITCs are present and functioning.
In light of the GITC Material Weakness, management performed additional analyses and other procedures to ensure that our condensed consolidated financial statements were prepared in accordance with GAAP. Accordingly, management believes that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows as of and for the periods presented, in accordance with GAAP.
36 | Q1 2024 Form 10-Q
Management’s Plan to Remediate the Identified Material Weakness
We continue our efforts and activities in the process to remediate the GITC Material Weakness. We expect that the GITC Material Weakness will be remediated promptly, however, it will not be considered fully remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively, which we expect to occur in connection with our annual audit covering the year ended December 31, 2024. These remediation activities consist of enhanced risk assessments; modified reporting lines of key control owners to improve the planning, execution, and periodic assessment of the IT activities; improved training of our resources, and in some cases additional resources, focused on the design, implementation, operation, and documentation of GITCs; and the implementation of improved monitoring procedures, stronger user access controls, and greater segregation of duties in certain areas around our Canada trust and Powerpay revenue processes.
Changes in Internal Control over Financial Reporting
With the exception of the on-going remediation activities in response to the GITC Material Weakness identified above, there were no changes to our internal control over financial reporting during the three months ended March 31, 2024 that have materially affected, or that are reasonably likely to materially affect, our internal controls over financial reporting.
37 | Q1 2024 Form 10-Q
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to claims and a number of judicial and administrative proceedings considered normal in the course of our current and past operations, including employment-related disputes, contract disputes, disputes with our competitors, intellectual property disputes, government audits and proceedings, customer disputes, and tort claims. In some proceedings, the claimant seeks damages as well as other relief, which, if granted, would require substantial expenditures on our part.
Some of these matters raise difficult and complex factual and legal issues and are subject to many uncertainties, including the facts and circumstances of each particular action, and the jurisdiction, forum, and law under which each action is proceeding. Because of these complexities, final disposition of some of these proceedings may not occur for several years. As such, we are not always able to estimate the amount of our possible future liabilities, if any. We are not presently a party to any legal proceedings that, if determined adversely to us, we believe would individually or taken together have a material adverse effect on our business, financial condition or liquidity.
Refer to Part I, Item 3. "Legal Proceedings" of our 2023 Form 10-K for a prior discussion of our legal proceedings.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Quarterly Report on Form 10-Q, such as Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations", the reader should carefully consider the factors discussed in Part I, Item 1A. "Risk Factors” in our 2023 Form 10-K. There have been no material changes in our risk factors from those disclosed in Part I, Item 1A. of our 2023 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
38 | Q1 2024 Form 10-Q
ITEM 6. EXHIBITS
(a) Exhibits
The following exhibits are filed or furnished as a part of this report:
Exhibit No. |
|
Description |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
4.1 |
|
|
|
|
|
4.2 |
|
|
|
|
|
4.3 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2* |
|
|
|
|
|
10.3* |
|
|
|
|
|
10.4* |
|
|
|
|
|
10.5* |
|
|
|
|
|
10.6* |
|
|
|
|
|
10.7* |
|
|
|
|
|
10.8* |
|
|
|
|
|
10.9*^+ |
|
|
|
|
|
31.1^ |
|
|
|
|
|
31.2^ |
|
|
|
|
|
32.1# |
|
|
|
|
|
39 | Q1 2024 Form 10-Q
32.2# |
|
|
|
|
|
101.INS^ |
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
|
|
|
101.SCH^ |
|
Inline XBRL Taxonomy Extension Schema with Embedded Linkbases Document. |
|
|
|
104^ |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
|
|
|
* Management compensatory plan or arrangement.
^ Filed herewith.
+ Confidential portions of this exhibit have been redacted in compliance with Item 601(b)(10) of Regulation S-K.
# In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
40 | Q1 2024 Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
DAYFORCE, INC. |
||
|
|
|
|
Date: May 1, 2024 |
By: |
/s/ David D. Ossip |
|
|
|
Name: |
David D. Ossip |
|
|
Title: |
Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
|
Date: May 1, 2024 |
By: |
/s/ Jeremy R. Johnson |
|
|
|
Name: |
Jeremy R. Johnson |
|
|
Title: |
Executive Vice President and Chief Financial Officer |
|
|
|
(Principal Financial Officer) |
|
|
|
|
41 | Q1 2024 Form 10-Q