DAYFORCE, INC. The following is a discussion and analysis of our financial condition and results of operations as of, and for, the periods presented. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and notes thereto included elsewhere in this report and in conjunction with our audited consolidated financial statements and notes thereto for the year endedDecember 31, 2020 , in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSecurities and Exchange Commission ("SEC") onFebruary 26, 2021 (our " 2020 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
Ceridian is a global human capital management ("HCM") software company. We
categorize our solutions into two categories: Cloud and Bureau solutions. Cloud
revenue is generated from HCM solutions that are delivered via two cloud
offerings: Dayforce, our flagship cloud HCM platform, and Powerpay, a cloud
human resources ("HR") and payroll solution for the Canadian small business
market. We also continue to support customers using our legacy North America
Bureau solutions, which we generally stopped actively selling to new customers
following the acquisition of Dayforce in 2012, and customers using our acquired
Bureau solutions. We invest in maintenance and necessary updates to support our
Bureau customers and continue to migrate them to Dayforce. Revenue from our
Cloud and Bureau solutions include an allocation of investment income generated
from holding customer funds before funds are remitted to taxing authorities,
also referred to as float revenue or float.
Dayforce provides HR, payroll, benefits, workforce management, and talent
management functionality. Our platform is used by organizations, regardless of
industry or size, to optimize management of the entire employee lifecycle,
including attracting, engaging, paying, deploying, 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 make work life better 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 are a founder-led organization, and our culture combines
the agility and innovation of a start-up with a history of deep domain and
operational expertise.
In the first half of 2020, we launched the Dayforce Wallet in the U.S. and
followed that with the launch in Canada in 2021. The Dayforce Wallet gives our
customers' employees greater control over their financial well-being by
providing them with instant access to their earnings. This on-demand pay feature
allows employees more choice over when they get paid by making any day payday.
Dayforce Wallet enables workers to access their already-earned wages anytime
during the pay period, net of taxes, withholdings and other payroll deductions.
Leveraging Dayforce's continuous pay calculations, Dayforce Wallet processes a
same-day payroll each time a worker requests their pay. The solution is
compliant with federal, state, and local remittances and requires no changes to
employers' payroll processing including the funding, timing, and close-out of
pay. The on-demand wages are loaded onto a paycard, which customers' employees
can use anywhere credit or debit cards are accepted, generating interchange fee
revenue.
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. Dayforce can serve customers of all sizes, ranging from 100 to over
100,000 employees. We have rapidly grown the Dayforce platform to 5,227 live
Dayforce customers as of September 30, 2021 . For the three and nine months ended
September 30, 2021 , we added 63 and 321 net new live Dayforce customers,
respectively.
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Our Business Model
Our business model focuses on supporting the rapid 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 high customer retention rates, we have
historically had 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
platform. 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 implement the customer.
COVID-19 Pandemic
InMarch 2020 , theWorld Health Organization declared the outbreak of coronavirus (COVID-19) to be a pandemic. The global spread of the COVID-19 pandemic has continued to create global volatility, uncertainty, and economic disruption. We have experienced and may continue to experience curtailed customer demand, primarily as a result of declining employment levels at our customers in certain sectors, such as retail and hospitality, as well as lower customer utilization of professional services, due to the effects of the COVID-19 pandemic. Additionally, the federal funds rate cuts by theU.S. Federal Reserve and the overnight rate target by theBank of Canada have had and are expected to continue to have negative effects on our float revenue. The broader implications of the pandemic on our results of operations and overall financial performance continue to generate uncertainty. Please refer to the "Results of Operations" section below for further discussion of the financial impacts of the COVID-19 pandemic during the three and nine months endedSeptember 30, 2021 .
Recent Events
OnApril 30, 2021 , we acquired 100% of the outstanding shares ofO5 Systems, Inc. dba Ideal ("Ideal"), a talent intelligence software provider based inToronto, Ontario for$41.4 million . The financial results of Ideal have been included in our consolidated results of operations from the acquisition date forward and are classified as a Cloud solution based on nature of services provided. OnMarch 1, 2021 , we completed the purchase of 100% of the outstanding shares ofAscender HCM Pty Ltd ("Ascender"), a payroll and HR solutions provider in the Asia Pacific Japan region, for$359.6 million . The financial results of Ascender have been included in our consolidated results of operations from the acquisition date forward and are classified within bothCloud and Bureau solutions based on nature of services provided. InMarch 2021 , we issued$575.0 million in aggregate principal amount of 0.25% Convertible Senior Notes due 2026 (the "Notes"), including the exercise in full by the initial purchasers of the Notes of their option to purchase an additional$75.0 million principal amount of the Notes. OnMay 29, 2020 , we completed the purchase of 100% of the outstanding shares ofExcelity Global Solutions Pte. Ltd. ("Excelity") for$77.2 million . Excelity is a payroll and HR solutions provider in theAsia Pacific region.
How We Assess Our Performance
In assessing our performance, we consider a variety of performance indicators in addition to revenue and net income. Set forth below is a description of our key performance measures. Live Dayforce Customers
We use the number of customers live on Dayforce as an indicator of future
revenue and the overall performance of the business and to assess the
performance of our implementation services. We had 5,227 customers live on
Dayforce as of
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Constant Currency Revenue
We present 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. We have calculated revenue on a constant currency basis by applying
the average foreign exchange rate in effect during the comparable prior period.
Please refer to the "Results of Operations" section below for further
information on constant currency revenue. The average U.S. dollar to Canadian
dollar foreign exchange rate was $1.26 , with a daily range of $1.23 to $1.29 ,
for the three months ended September 30, 2021 , compared to $1.33 , with a daily
range of $1.30 to $1.36 for the three months ended September 30, 2020 . As of
September 30, 2021 , the U.S. dollar to Canadian dollar foreign exchange rate was
$1.27 .
Adjusted EBITDA and Adjusted EBITDA margin
We believe that Adjusted EBITDA and Adjusted EBITDA margin, non-GAAP financial measures, are useful to management and investors as supplemental measures to evaluate our overall operating performance. Adjusted EBITDA and Adjusted EBITDA margin are components of our management incentive plan and are used by management to assess performance and to compare our operating performance to our competitors. We define Adjusted EBITDA as net income or loss before interest, taxes, depreciation, and amortization, as adjusted to exclude foreign exchange gain (loss), share-based compensation expense and related employer taxes, severance charges, restructuring consulting fees, and certain other non-recurring charges. Adjusted EBITDA margin is determined by calculating the percentage that Adjusted EBITDA is of total revenue. Management believes that Adjusted EBITDA and Adjusted EBITDA margin are helpful in highlighting management performance trends because Adjusted EBITDA and Adjusted EBITDA margin exclude the results of decisions that are outside the normal course of our business operations. Please refer to the "Results of Operations" section below for a discussion of Adjusted EBITDA and Adjusted EBITDA margin.
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Results of Operations
Three Months Ended September 30, 2021 Compared With Three Months Ended
September 30, 2020
Three Months Ended
September 30, Increase/(Decrease) % of Revenue
2021 2020 Amount % 2021 2020
(Dollars in millions)
Revenue:
Recurring
Cloud $ 181.0 $ 141.3 $ 39.7 28.1 % 70.4 % 69.1 %
Bureau 34.0 26.8 7.2 26.9 % 13.2 % 13.1 %
Total recurring 215.0 168.1 46.9 27.9 % 83.6 % 82.2 %
Professional services and
other 42.2 36.3 5.9 16.3 % 16.4 % 17.8 %
Total revenue 257.2 204.4 52.8 25.8 % 100.0 % 100.0 %
Cost of revenue:
Recurring
Cloud 49.4 41.8 7.6 18.2 % 19.2 % 20.5 %
Bureau 16.6 12.5 4.1 32.8 % 6.5 % 6.1 %
Total recurring 66.0 54.3 11.7 21.5 % 25.7 % 26.6 %
Professional services and
other 48.9 40.2 8.7 21.6 % 19.0 % 19.7 %
Product development and
management 36.6 22.9 13.7 59.8 % 14.2 % 11.2 %
Depreciation and
amortization 12.6 10.3 2.3 22.3 % 4.9 % 5.0 %
Total cost of revenue 164.1 127.7 36.4 28.5 % 63.8 % 62.5 %
Gross profit 93.1 76.7 16.4 21.4 % 36.2 % 37.5 %
Selling, general, and
administrative 109.1 77.3 31.8 41.1 % 42.4 % 37.8 %
Operating loss (16.0 ) (0.6 ) (15.4 ) (2566.7 )% (6.2 )% (0.3 )%
Interest expense, net 10.0 5.9 4.1 69.5 % 3.9 % 2.9 %
Other expense (income), net 3.4 (0.2 ) 3.6 1800.0 % 1.3 % (0.1 )%
Loss before income taxes (29.4 ) (6.3 ) (23.1 ) (366.7 )% (11.4 )% (3.1 )%
Income tax benefit (8.5 ) (5.5 ) (3.0 ) (54.5 )% (3.3 )% (2.7 )%
Net loss $ (20.9 ) $ (0.8 ) $ (20.1 ) (2512.5 )% (8.1 )% (0.4 )%
Adjusted EBITDA (a) $ 39.4 $ 33.2 $ 6.2 18.7 % 15.3 % 16.2 %
Adjusted EBITDA margin (a) 15.3 % 16.2 % (0.9 )% (5.6 )%
(a) Please refer to the "Non-GAAP Measures" section for a discussion and
reconciliation of Adjusted EBITDA and Adjusted EBITDA margin, non-GAAP
financial measures.
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Revenue. The following table sets forth certain information regarding our revenues for the periods presented:
Percentage
change in
Percentage Impact of revenue on
change in changes in constant
Three Months Ended revenue as foreign currency
September 30, reported currency (a) basis (a)
2021 2020 2021 vs. 2020 2021 vs. 2020
(Dollars in millions)
Revenue:
Dayforce recurring, excluding $ 115.1
float $ 153.0 32.9 % 1.5 % 31.4 %
Dayforce float 7.3 7.6 (3.9 )% 2.7 % (6.6 )%
Total Dayforce recurring 160.3 122.7 30.6 % 1.6 % 29.0 %
Powerpay recurring, excluding 18.7 16.7
float 12.0 % 6.6 % 5.4 %
Powerpay float 2.0 1.9 5.3 % 10.6 % (5.3 )%
Total Powerpay recurring 20.7 18.6 11.3 % 7.0 % 4.3 %
Total Cloud recurring 181.0 141.3 28.1 % 2.3 % 25.8 %
Dayforce professional services 38.4 35.1
and other 9.4 % 1.7 % 7.7 %
Powerpay professional services
and other 0.2 0.3 (33.3 )% (- )% (33.3 )%
Total Cloud professional 38.6 35.4 9.0 % 1.7 % 7.3 %
services and
other
Total Cloud revenue 219.6 176.7 24.3 % 2.2 % 22.1 %
Bureau recurring, excluding 33.4 25.7
float 30.0 % 0.8 % 29.2 %
Bureau float 0.6 1.1 (45.5 )% (9.1 )% (36.4 )%
Total Bureau recurring 34.0 26.8 26.9 % 0.4 % 26.5 %
Bureau professional services 3.6 0.9
and other 300.0 % (11.1 )% 311.1 %
Total Bureau revenue 37.6 27.7 35.7 % (- )% 35.7 %
Total revenue $ 257.2 $ 204.4 25.8 % 1.9 % 23.9 %
Dayforce $ 198.7 $ 157.8 25.9 % 1.6 % 24.3 %
Powerpay 20.9 18.9 10.6 % 6.9 % 3.7 %
Total Cloud revenue $ 219.6 $ 176.7 24.3 % 2.2 % 22.1 %
Dayforce, excluding float $ 191.4 $ 150.2 27.4 % 1.6 % 25.8 %
Powerpay, excluding float 18.9 17.0 11.2 % 6.5 % 4.7 %
Cloud revenue, excluding float 210.3 167.2 25.8 % 2.1 % 23.7 %
Cloud float 9.3 9.5 (2.1 )% 4.2 % (6.3 )%
Total Cloud revenue $ 219.6 $ 176.7 24.3 % 2.2 % 22.1 %
(a) We have calculated revenue on a constant currency basis by applying the
average foreign exchange rate in effect during the comparable prior period.
The COVID-19 pandemic has had an adverse impact on our revenue streams during the three months endedSeptember 30, 2021 , primarily in the form of lower employment levels at our customers, lower float revenue resulting from reductions in theU.S. Federal Reserve federal funds rate and theBank of Canada overnight rate target, and lower demand for professional services, among other effects. For the three months endedSeptember 30, 2021 , we estimate the impact of lower employment levels at our customers was an approximately$3.5 million reduction in our revenue, of which approximately$3 million was related to Dayforce and approximately$0.5 million was related to Powerpay.
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Total revenue increased $52.8 million , or 25.8%, to $257.2 million for the three
months ended September 30, 2021 , compared to $204.4 million for the three months
ended September 30, 2020 . This increase was primarily attributable to an
increase in Cloud revenue of $42.9 million , or 24.3%, from $176.7 million for
the three months ended September 30, 2020 , to $219.6 million for the three
months ended September 30, 2021 . The Cloud revenue increase was driven by an
increase of $39.7 million , or 28.1%, in Cloud recurring revenue and an increase
of $3.2 million , or 9.0%, in Cloud professional services and other revenue.
Bureau revenue increased $9.9 million , which included $14.9 million of Ascender
revenue for the three months ended September 30, 2021 .
Excluding float revenue and on a constant currency basis, total revenue grew
25.7%, reflecting an 23.7% increase in Cloud revenue and a 38.7% increase in
Bureau revenue. Excluding float revenue and on a constant currency basis, Cloud
revenue growth reflected a 28.1% increase in Cloud recurring revenue and a 7.3%
increase in Cloud professional services and other revenue.
Dayforce revenue increased 25.9%, and Powerpay revenue increased 10.6% for the
three months ended September 30, 2021 , as compared to the three months ended
September 30, 2020 . For the three months ended September 30, 2021 , Ascender
revenue included within Dayforce revenue was $5.5 million . Excluding float
revenue and on a constant currency basis, Dayforce revenue increased 25.8%,
reflecting a 31.4% increase in Dayforce recurring revenue and an 7.7% increase
in Dayforce professional services and other revenue. Excluding float revenue and
on a constant currency basis, Powerpay revenue increased 4.7%.
Float revenue included in recurring revenue was $9.9 million and $10.6 million
for the three months ended September 30, 2021 , and 2020, respectively. Float
revenue associated with Cloud revenue was $9.3 million and $9.5 million for the
three months ended September 30, 2021 , and 2020, respectively. The average float
balance for our customer funds for the three months ended September 30, 2021 ,
was $3,432.6 million , compared to $2,745.1 million for the three months ended
September 30, 2020 , an increase of 25.0%. On a constant currency basis, the
average float balance for our customer funds for the three months ended
September 30, 2021 , increased 22.4% compared to the three months ended
September 30, 2020 . The average yield was 1.16% during the three months ended
September 30, 2021 , a decline of 36 basis points compared to the average yield
during the three months ended September 30, 2020 . For both the three months
ended September 30, 2021 and 2020, approximately 39% of our average float
balance consisted of international customer funds.
Cost of revenue. Total cost of revenue for the three months ended September 30,
2021 , was $164.1 million , an increase of $36.4 million , or 28.5%, compared to
the three months ended September 30, 2020 . Recurring cost of revenue for the
three months ended September 30, 2021 , increased $11.7 million , or 21.5%,
compared with the three months ended September 30, 2020 , primarily due to
additional costs related to global expansion, including Ascender costs
classified among both Cloud and Bureau . Professional services and other cost of
revenue increased $8.7 million , or 21.6%, for the three months ended
September 30, 2021 , compared to the three months ended September 30, 2020 ,
primarily due to costs incurred to take new customers live.
Product development and management expense increased $13.7 million for the three
months ended September 30, 2021 , compared to the three months ended
September 30, 2020 . The increase reflects additional personnel costs and
Dayforce product development efforts as well as additional share-based
compensation. For the three months ended September 30, 2021 , and 2020, our
investment in software development was $35.1 million and $19.7 million ,
respectively, consisting of $22.2 million and $9.4 million , of research and
development expense, which is included within product development and management
expense, and $12.9 million and $10.3 million in capitalized software development
costs, respectively.
Depreciation and amortization expense associated with cost of revenue increased
by $2.3 million for the three months ended September 30, 2021 , compared to the
three months ended September 30, 2020 , as we continue to capitalize Dayforce
related and other development costs and subsequently to amortize these costs.
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Gross profit. The following table presents total gross margin and solution gross margins for the periods presented:
Three Months Ended September 30,
2021 2020
Total gross margin 36.2 % 37.5 %
Gross margin by solution:
Cloud recurring 72.7 % 70.4 %
Bureau recurring 51.2 % 53.4 %
Professional services and other (15.9 )% (10.7 )%
Total gross margin is defined as total gross profit as a percentage of total
revenue, 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, exclusive of any product development and management or
depreciation and amortization cost allocations.
Total gross margin for the three months ended September 30, 2021 , declined 130
basis points compared to total gross margin for the three months ended
September 30, 2020 , and gross profit increased by $16.4 million , or 21.4% as we
continued developing and expanding our service offerings.
Cloud recurring gross margin was 72.7% for the three months ended September 30,
2021 , compared to 70.4% for the three months ended September 30, 2020 . Excluding
float revenue, Cloud recurring gross margin improved 290 basis points for the
three months ended September 30, 2021 , compared to the three months ended
September 30, 2020 . The increase in Cloud recurring gross margin, excluding
float revenue, reflects an increase in the proportion of Dayforce customers live
for more than two years, which increased from 74% as of September 30, 2020 , to
80% as of September 30, 2021 , and was also attributable to consistent
configuration that has enabled us to continue to realize economies of scale in
hosting and customer support. Bureau recurring gross margin declined from 53.4%
for the three months ended September 30, 2020 , to 51.2% for the three months
ended September 30, 2021 , reflecting lower associated float revenue and a higher
proportion of customer support costs to support the end-of-life of our legacy
Bureau payroll services, as well as lower margins on acquired Bureau services
for Ascender. Professional services and other gross margin was (15.9)% for the
three months ended September 30, 2021 , compared to (10.7)% for the three months
ended September 30, 2020 , reflecting additional costs to take new customers live
as well as expansion of our international implementation.
Selling, general, and administrative expense. Selling, general, and
administrative expense increased $31.8 million for the three months ended
September 30, 2021 , compared to the three months ended September 30, 2020 .
Excluding the impact of share-based compensation and related employer taxes,
restructuring consulting fees, severance expense, and certain other
non-recurring charges; selling, general, and administrative expenses would have
increased by $23.3 million . This adjusted increase reflects an increase of $14.8
million in sales and marketing expense and $8.5 million in general and
administrative expense, both of which are primarily driven by employee-related
costs. The increase in sales and marketing expense aligns with our growth
initiatives. The increase in general and administrative expense is also driven
by an increase in amortization expense associated with the intangible assets
recognized in relation to our recent acquisitions. Please refer to the
"Non-GAAP Measures" section for additional information on the excluded items.
Interest expense, net. Interest expense, net was
Other expense (income), net. For the three months endedSeptember 30, 2021 , and 2020, we incurred other expense, net of$3.4 million and realized other income, net of$0.2 million , respectively. Other expense, net was comprised of foreign currency translation loss and net periodic pension expense for the three months endedSeptember 30, 2021 . For the three months endedSeptember 30, 2020 , other income, net was comprised of foreign currency translation gain, partially offset by net periodic pension expense. Income tax benefit. For the three months endedSeptember 30, 2021 , and 2020, we recorded income tax benefit of$8.5 million and$5.5 million , respectively. The$3.0 million increase in income tax benefit was primarily due to the$4.9 million tax benefit from current operations, a$4.2 million tax benefit attributable to share-based compensation, and a$2.5
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million tax benefit attributable to U.S. state tax, partially offset by a $6.9
million increase attributed to the base erosion anti-abuse tax ("BEAT") in the
U.S , and a $2.3 million increase attributed to the valuation allowance.
Net loss. We realized net loss of
Adjusted EBITDA. Adjusted EBITDA increased by$6.2 million to$39.4 million , for the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 , and Adjusted EBITDA margin was 15.3% for the three months endedSeptember 30, 2021 , compared with Adjusted EBITDA margin of 16.2% for the three months ended September 30, 2020. Please refer to the "Non-GAAP Measures" section for additional information on the excluded items. Nine Months EndedSeptember 30, 2021 Compared With Nine Months EndedSeptember 30, 2020 Nine Months Ended September 30, Increase/(Decrease) % of Revenue 2021 2020 Amount % 2021 2020 (Dollars in millions) Revenue: Recurring Cloud$ 517.7 $ 425.9 $ 91.8 21.6 % 69.8 % 68.7 % Bureau 101.4 82.8 18.6 22.5 % 13.7 % 13.4 % Total recurring 619.1 508.7 110.4 21.7 % 83.4 % 82.1 % Professional services and 123.0 other 111.0 12.0 10.8 % 16.6 % 17.9 % Total revenue 742.1 619.7 122.4 19.8 % 100.0 % 100.0 % Cost of revenue: Recurring Cloud 143.4 122.2 21.2 17.3 % 19.3 % 19.7 % Bureau 47.7 33.6 14.1 42.0 % 6.4 % 5.4 % Total recurring 191.1 155.8 35.3 22.7 % 25.8 % 25.1 % Professional services and 140.9 other 120.7 20.2 16.7 % 19.0 % 19.5 % Product development and management 94.2 57.5 36.7 63.8 % 12.7 % 9.3 % Depreciation and 37.5 amortization 29.9 7.6 25.4 % 5.1 % 4.8 % Total cost of revenue 463.7 363.9 99.8 27.4 % 62.5 % 58.7 % Gross profit 278.4 255.8 22.6 8.8 % 37.5 % 41.3 % Selling, general, and 316.5 administrative 226.1 90.4 40.0 % 42.6 % 36.5 % Operating (loss) profit (38.1 ) 29.7 (67.8 ) (228.3 )% (5.1 )% 4.8 % Interest expense, net 25.5 19.4 6.1 31.4 % 3.4 % 3.1 % Other expense, net 16.2 2.7 13.5 500.0 % 2.2 % 0.4 % (Loss) income before income (79.8 ) taxes 7.6 (87.4 ) (1150.0 )% (10.8 )% 1.2 % Income tax benefit (13.9 ) (5.7 ) (8.2 ) 143.9 % (1.9 )% (0.9 )% Net (loss) income$ (65.9 ) $ 13.3 $ (79.2 ) (595.5 )% (8.9 )% 2.1 % Adjusted EBITDA (a)$ 123.8 $ 125.9 $ (2.1 ) (1.7 )% 16.7 % 20.3 % Adjusted EBITDA margin (a) 16.7 % 20.3 % (3.6 )% (17.7 )%
(a) Please refer to the "Non-GAAP Measures" section for a discussion and
reconciliation of Adjusted EBITDA and Adjusted EBITDA margin, non-GAAP
financial measures.
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Revenue. The following table sets forth certain information regarding our revenues for the periods presented:
Percentage
change in
Percentage Impact of revenue on
change in changes in constant
Nine Months Ended revenue as foreign currency
September 30, reported currency (a) basis (a)
2021 2020 2021 vs. 2020 2021 vs. 2020
(Dollars in millions)
Revenue:
Dayforce recurring, excluding
27.8 % 2.1 % 25.7 %
Dayforce float 22.5 30.0 (25.0 )% 2.0 % (27.0 )%
Total Dayforce recurring 456.2 369.3 23.5 % 2.1 % 21.4 %
Powerpay recurring, excluding 55.6 50.1
float 11.0 % 8.4 % 2.6 %
Powerpay float 5.9 6.5 (9.2 )% 7.7 % (16.9 )%
Total Powerpay recurring 61.5 56.6 8.7 % 8.3 % 0.4 %
Total Cloud recurring 517.7 425.9 21.6 % 3.0 % 18.6 %
Dayforce professional services 113.2 108.8
and other 4.0 % 2.5 % 1.5 %
Powerpay professional services 0.8 0.8
and other (- )% 12.5 % (12.5 )%
Total Cloud professional 114.0 109.6 4.0 % 2.6 % 1.4 %
services and other
Total Cloud revenue 631.7 535.5 18.0 % 2.9 % 15.1 %
Bureau recurring, excluding 98.8 77.6
float 27.3 % 1.4 % 25.9 %
Bureau float 2.6 5.2 (50.0 )% (- )% (50.0 )%
Total Bureau recurring 101.4 82.8 22.5 % 1.4 % 21.1 %
Bureau professional services 9.0 1.4
and other 542.9 % (7.1 )% 550.0 %
Total Bureau revenue 110.4 84.2 31.1 % 1.2 % 29.9 %
Total revenue $ 742.1 $ 619.7 19.8 % 2.7 % 17.1 %
Dayforce $ 569.4 $ 478.1 19.1 % 2.2 % 16.9 %
Powerpay 62.3 57.4 8.5 % 8.3 % 0.2 %
Total Cloud revenue $ 631.7 $ 535.5 18.0 % 2.9 % 15.1 %
Dayforce, excluding float $ 546.9 $ 448.1 22.0 % 2.2 % 19.8 %
Powerpay, excluding float 56.4 50.9 10.8 % 8.4 % 2.4 %
Cloud revenue, excluding float 603.3 499.0 20.9 % 2.8 % 18.1 %
Cloud float 28.4 36.5 (22.2 )% 3.0 % (25.2 )%
Total Cloud revenue $ 631.7 $ 535.5 18.0 % 2.9 % 15.1 %
(a) We have calculated revenue on a constant currency basis by applying the
average foreign exchange rate in effect during the comparable prior period.
The COVID-19 pandemic has had an adverse impact on our revenue streams during the nine months endedSeptember 30, 2021 , primarily in the form of lower employment levels at our customers, lower float revenue resulting from reductions in theU.S. Federal Reserve federal funds rate and theBank of Canada overnight rate target, lower average float balances for our customer funds, and lower demand for professional services, among other effects. We estimate the impact of lower employment levels at our customers was an approximately$18.5 million reduction in our revenue for the nine months endedSeptember 30, 2021 , of which approximately$15 million was related to Dayforce and approximately$3.5 million was related to Powerpay. Total revenue increased$122.4 million , or 19.8%, to$742.1 million for the nine months endedSeptember 30, 2021 , compared to$619.7 million for the nine months endedSeptember 30, 2020 . This increase was primarily attributable to an increase in Cloud revenue of$96.2 million , or 18.0%, from$535.5 million for the nine months endedSeptember 30, 2020 , to$631.7 million for the nine months endedSeptember 30, 2021 . Bureau revenue increased$26.2 million , which included$36.3 million of Ascender revenue and$22.0 million of Excelity revenue for the nine months endedSeptember 30, 2021 .
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The Cloud revenue increase was driven by an increase of $91.8 million , or 21.6%,
in Cloud recurring revenue and an increase of $4.4 million , or 4.0%, in Cloud
professional services and other revenue.
Excluding float revenue and on a constant currency basis, total revenue grew
20.4%, reflecting a 18.1% increase in Cloud revenue and a 35.2% increase in
Bureau revenue. Excluding float revenue and on a constant currency basis, Cloud
revenue growth reflected a 22.8% increase in Cloud recurring revenue and 1.4%
increase in Cloud professional services and other revenue.
Dayforce revenue increased 19.1%, and Powerpay revenue increased 8.5% for the
nine months ended September 30, 2021 , as compared to the nine months ended
September 30, 2020 . For the nine months ended September 30, 2021 , Ascender
revenue included within Dayforce revenue was $13.7 million . Excluding float
revenue and on a constant currency basis, Dayforce revenue increased 19.8%,
reflecting a 25.7% increase in Dayforce recurring revenue and a 1.5% increase in
Dayforce professional services and other revenue. Excluding float revenue and on
a constant currency basis, Powerpay revenue increased 2.4%.
Float revenue included in recurring revenue was $31.0 million and $41.7 million
for the nine months ended September 30, 2021 , and 2020, respectively. Float
revenue associated with Cloud revenue was $28.4 million and $36.5 million for
the nine months ended September 30, 2021 , and 2020, respectively. The average
float balance for our customer funds for the nine months ended September 30,
2021 , was $3,841.7 million , compared to $3,269.7 million for the nine months
ended September 30, 2020 , an increase of 17.5%. On a constant currency basis,
the average float balance for our customer funds for the nine months ended
September 30, 2021 , increased 14.5% compared to the nine months ended
September 30, 2020 . The average yield was 1.09% during the nine months ended
September 30, 2021 , a decline of 61 basis points compared to the average yield
during the nine months ended September 30, 2020 . For the nine months ended
September 30, 2021 , approximately 35% of our average float balance consisted of
international customer funds, compared to approximately 34% for the nine months
ended September 30, 2020 .
Cost of revenue. Total cost of revenue for the nine months ended September 30,
2021 , was $463.7 million , an increase of $99.8 million , or 27.4%, compared to
the nine months ended September 30, 2020 . Recurring cost of revenue for the nine
months ended September 30, 2021 , increased $35.3 million , or 22.7%, compared
with the nine months ended September 30, 2020 , primarily due to additional costs
related to global expansion, including Ascender costs classified among both
Cloud and Bureau and Excelity costs classified as Bureau. Additionally, the
increase is due to costs to support the growing Dayforce customer base.
Professional services and other cost of revenue increased $20.2 million , or
16.7%, for the nine months ended September 30, 2021 , compared to the nine months
ended September 30, 2020 , primarily due to costs incurred to take new customers
live.
Product development and management expense increased $36.7 million for the nine
months ended September 30, 2021 , compared to the nine months ended September 30,
2020 . The increase reflects additional personnel costs and Dayforce product
development efforts that are not eligible for capitalization and additional
share-based compensation. For the nine months ended September 30, 2021 , and
2020, our investment in software development was $94.4 million and $53.9
million , respectively, consisting of $56.2 million and $25.1 million ,
respectively, of research and development expense, which is included within
product development and management expense, and $38.2 million and $28.8 million
in capitalized software development costs, respectively.
Depreciation and amortization expense associated with cost of revenue increased
by $7.6 million for the nine months ended September 30, 2021 , compared to the
nine months ended September 30, 2020 , as we continue to capitalize Dayforce
related and other development costs and subsequently to amortize these costs.
Gross profit. The following table presents total gross margin and solution gross margins for the periods presented:
Nine Months Ended September 30,
2021 2020
Total gross margin 37.5 % 41.3 %
Gross margin by solution:
Cloud recurring 72.3 % 71.3 %
Bureau recurring 53.0 % 59.4 %
Professional services and other (14.6 )% (8.7 )%
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Total gross margin is defined as total gross profit as a percentage of total
revenue, 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, exclusive of any product development and management or
depreciation and amortization cost allocations.
Total gross margin for the nine months ended September 30, 2021 , declined 380
basis points compared to total gross margin for the nine months ended
September 30, 2020 , and gross profit increased by $22.6 million , or 8.8% as we
continued to leverage our investment in people and processes, while also
developing and expanding our service offerings.
Cloud recurring gross margin was 72.3% for the nine months ended September 30,
2021 , compared to 71.3% for the nine months ended September 30, 2020 . Excluding
float revenue, Cloud recurring gross margin improved by 210 basis points for the
nine months ended September 30, 2021 , compared to the nine months ended
September 30, 2020 . The increase in Cloud recurring gross margin, excluding
float revenue, reflects an increase in the proportion of Dayforce customers live
for more than two years, which increased from 74% as of September 30, 2020 , to
80% as of September 30, 2021 , and was also attributable to consistent
configuration that has enabled us to continue to realize economies of scale in
hosting and customer support. Bureau recurring gross margin declined from 59.4%
for the nine months ended September 30, 2020 , to 53.0% for the nine months ended
September 30, 2021 , reflecting lower associated float revenue and a higher
proportion of customer support costs to support the end-of-life process of our
legacy Bureau payroll services, as well as lower margins on acquired Bureau
services for Excelity and Ascender. Professional services and other gross margin
was (14.6)% for the nine months ended September 30, 2021 , compared to (8.7)% for
the nine months ended September 30, 2020 , reflecting additional costs incurred
to take new customers live as well as expansion of our international customer
implementations.
Selling, general, and administrative expense. Selling, general, and
administrative expense increased $90.4 million for the nine months ended
September 30, 2021 , compared to the nine months ended September 30, 2020 .
Excluding the impact of share-based compensation and related employer taxes,
restructuring consulting fees, severance expense, and certain other
non-recurring charges; selling, general, and administrative expenses would have
increased by $62.6 million . This adjusted increase reflects an increase of $34.0
million in sales and marketing and $28.6 million in general and administrative
expense, both of which are primarily driven by employee-related costs. The
increase in sales and marketing expense aligns with our growth initiatives. The
increase in general and administrative expense is also driven by an increase in
amortization expense associated with the intangible assets recognized in
relation to our recent acquisitions. Please refer to the "Non-GAAP Measures"
section for additional information on the excluded items.
Interest expense, net. Interest expense, net was $25.5 million and $19.4 million
for the nine months ended September 30, 2021 , and 2020, respectively. The
increase was primarily due to interest on our convertible debt that was issued
in March 2021 .
Other expense, net. For the nine months ended
Income tax benefit. For the nine months endedSeptember 30, 2021 , and 2020, we recorded income tax benefit of$13.9 million and$5.7 million , respectively. The$8.2 million increase in income tax benefit was primarily due to the$18.4 million tax benefit from current operations and a$8.3 million tax benefit attributable toU.S. state tax, partially offset by a$13.1 million increase attributable to the base erosion anti-abuse tax ("BEAT") in theU.S. , a$2.8 million increase attributable to the valuation allowance, and a$1.9 million increase attributed to non-deductible share-based compensation. Net (loss) income. We realized net loss of$65.9 million for the nine months endedSeptember 30, 2021 , compared to net income of$13.3 million for the nine months endedSeptember 30, 2020 . Adjusted EBITDA. Adjusted EBITDA declined by$2.1 million to$123.8 million , for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 , and Adjusted EBITDA margin was 16.7% for the nine months endedSeptember 30, 2021 , compared with Adjusted EBITDA margin of 20.3% for the nine months endedSeptember 30, 2020 . Please refer to the "Non-GAAP Measures" section for additional information on the excluded items.
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Liquidity and Capital Resources
Our primary sources of liquidity are our existing cash and equivalents, cash provided by operating activities, availability under our Revolving Credit Facility, and proceeds from debt issuances and equity offerings. As ofSeptember 30, 2021 , we had cash and equivalents of$378.8 million and our total debt balance was$1,244.5 million . OnMarch 5, 2021 , we completed the private offering of$500.0 million Notes, and onMarch 16, 2021 , the initial purchasers exercised their full option to purchase an additional$75.0 million Notes, resulting in an aggregate principal amount of$575.0 million . The total net proceeds from the offering, after deducting initial purchase discounts and issuance costs, were$561.8 million . In connection with the Notes, we entered into capped call transactions which are expected to reduce the potential dilution of our common stock upon any conversion of the Notes and/or offset any cash payments we could be required to make in excess of the principal amount of converted Notes. We used an aggregate amount of$45.0 million of the net proceeds of the Notes to purchase the capped calls. Please refer to Note 7, "Debt," to our condensed consolidated financial statements for further information on our Notes, and the related indenture. We used the remainder of the net proceeds from the offering (i) to repay$295.0 million principal amount under the Revolving Credit Facility and pay related accrued interest and (ii) for general corporate purposes, which may include potential investments in businesses or acquisitions of companies that we may identify in the future. OnFebruary 19, 2020 , we completed the first amendment to the Senior Secured Credit Facility, in which the Term Debt interest rate was reduced from LIBOR plus 3.00% to LIBOR plus 2.50%. Further, the interest rate trigger under the applicable rating by Moody's Investor Service was removed by the first amendment. Please refer to Note 7, "Debt," to our condensed consolidated financial statements for further information on our Senior Secured Credit Facility. OnApril 2, 2020 , in light of the uncertainty in the global capital markets resulting from the COVID-19 pandemic, we elected to borrow$295.0 million under the 2018 Revolving Credit Facility as a precautionary measure to increase our cash position and to preserve financial flexibility. We repaid the$295.0 million draw onDecember 8, 2020 . Our primary liquidity needs are related to funding of general business requirements, including the payment of interest and principal on our debt, capital expenditures, and product development. As ofSeptember 30, 2021 , we held$1.9 million of restricted cash as collateral for bank guarantees. The bank guarantees provide financial assurance that we will fulfill certain lease obligations. The cash is restricted as to withdrawal or use while the related bank guarantee is outstanding. We believe that our cash flow from operations, available cash and equivalents, and availability under our Revolving Credit Facility will be sufficient to meet our liquidity needs for the foreseeable future. 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 assure you 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 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 assure you 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. Although we have no specific current plans to do so, if we decide to pursue one or more significant acquisitions, we may incur additional debt or sell additional equity to finance such acquisitions, which would result in additional expenses 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. In accordance with these objectives, we maintain approximately 56% 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, collateralized short-term investments or government securities; and we maintain approximately 44% of customer funds in fixed income portfolios with maturities ranging from 120 days to 10 years, consisting of government securities, as well as highly rated asset-backed, mortgage-backed, 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 client fund obligations and therefore are not freely available for our general business use.
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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.
Therefore, we have provided the table below excluding the cash flows and
restricted cash and equivalents held within our customer funds to provide
supplemental information regarding the cash flows related to our core business.
Nine Months Ended September 30,
2021 2020
(Dollars in millions) Net cash provided by operating activities, excluding customer funds
$ 48.9 $ 36.1
Net cash used in investing activities, excluding
customer funds (438.1 ) (114.8 )
Net cash provided by financing activities, excluding customer funds
583.4 357.3
Effect of exchange rate changes on cash and equivalents (1.7 ) (5.3 )
Net increase in cash and equivalents and restricted cash, excluding customer funds
192.5 273.3
Cash and equivalents and restricted cash, excluding customer funds at beginning of period
188.2 281.3
Cash and equivalents and restricted cash, excluding customer funds at end of period
380.7 554.6
Net customer funds restricted cash provided by operating activities
- 11.2
Net customer funds restricted cash (used in) provided by investing activities
(72.4 ) 291.1
Net customer funds restricted cash provided by (used in) financing activities
1,631.0 (601.4 )
Effect of exchange rate changes on restricted cash and equivalents
1.2 (2.6 )
Net increase (decrease) in restricted cash and
equivalents including customer funds 1,559.8 (301.7 )
Restricted cash and equivalents included in customer funds at beginning of period
2,040.3 1,377.3
Restricted cash and equivalents included in customer funds at end of period
3,600.1 1,075.6
Net increase (decrease) in cash, restricted cash, and equivalents
1,752.3 (28.4 )
Cash, restricted cash, and equivalents at beginning of period
2,228.5 1,658.6
Cash, restricted cash, and equivalents at end of period
$ 1,630.2 Operating Activities Net cash provided by operating activities, excluding customer fund activity, was$48.9 million during the nine months endedSeptember 30, 2021 , primarily attributable to net loss of$65.9 million offset by the net impact of adjustments for certain non-cash items of$118.1 million , including$83.6 million of non-cash share-based compensation expense and$59.3 million of depreciation and amortization, reduced by the deferred income tax benefit of$45.0 million . Additionally, there were net working capital reductions of$3.3 million . The net working capital reductions included an increase of$13.9 million in prepaid expenses and other current assets, primarily due to an increase in contract assets, a net change of$7.3 million in other assets and liabilities, primarily due to a decrease in lease liabilities, partially offset by a reduction of$20.9 million of accrued taxes primarily due to accrual for future tax payments. Included within net cash flows provided by operating activities for the nine months endedSeptember 30, 2021 , was$14.3 million in cash interest payments on our long-term debt and$18.0 million in cash tax payments, net of refunds. Net cash provided by operating activities, excluding customer fund activity, was$36.1 million during the nine months endedSeptember 30, 2020 , primarily attributable to net income of$13.3 million and the net impact of adjustments for certain non-cash items of$87.2 million , including$46.3 million of non-cash share-based compensation expense and$36.9 million of depreciation and amortization. These items were partially offset by net working capital reductions of$64.4 million , which included a$20.1 million net change in other assets and liabilities primarily due to deferred commissions and contract assets, a$12.0 million reduction in accounts payable and other current assets due to timing of payments, an$8.7 million reduction of accrued taxes, primarily due to cash tax payments partially offset by additional provision accruals, and an$8.0 million increase in prepaid expenses and other current assets, primarily due to payments for annual maintenance contracts. Included within net cash flows provided by operating activities for the nine months endedSeptember 30, 2020 , was$20.5 million in cash interest payments on our long-term debt and$1.9 million in cash tax payments, net of refunds.
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Investing Activities
During the nine months ended September 30, 2021 , net cash used in investing
activities, excluding customer funds activity, was $438.1 million , consisting of
acquisition costs, net of cash acquired of $392.4 million and capital
expenditures of $45.7 million . Our capital expenditures included $38.4 million
for software and technology and $7.3 million for property and equipment.
During the nine months ended September 30, 2020 , net cash used in investing
activities, excluding customer fund activity, was $114.8 million , related to
acquisition costs, net of cash and restricted cash acquired of $70.6 million and
capital expenditures of $44.2 million . Our capital expenditures included
$30.6 million for software and technology and $13.6 million for property and
equipment.
Financing Activities
Net cash provided by financing activities, excluding the change in customer fund
obligations, was $583.4 million during the nine months ended September 30, 2021 .
This cash inflow is primarily attributable to proceeds from the issuance of our
Notes of $561.8 million and proceeds from issuance of common stock upon exercise
of stock options of $70.9 million , partially offset by the purchase of the
capped calls related to the Notes of $45.0 million and payments on our long-term
debt obligations of $4.3 million .
Net cash provided by financing activities, excluding the change in customer fund
obligations, was $357.3 million during the nine months ended September 30, 2020 .
This cash inflow is primarily attributable to proceeds from a draw on the
Revolving Credit Facility of $295.0 million and proceeds from the issuance of
common stock upon exercise of stock options of $70.2 million , partially offset
by payments on our long-term debt obligations of $7.9 million . The payments on
our long-term debt obligations included $5.1 million in principal payments
towards our Term Debt and $2.8 million in payments towards our financing lease
obligations.
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 September 30, 2021 , our remaining performance obligations
were approximately $1,026.4 million . Please refer to Note 10, "Revenue," to
our condensed consolidated financial statements for further discussion of our remaining performance obligations.
Off-Balance Sheet Arrangements
As of
Critical Accounting Policies and Estimates
During the nine months ended
Non-GAAP Measures
Adjusted EBITDA and Adjusted EBITDA Margin
We believe that Adjusted EBITDA and Adjusted EBITDA margin, non-GAAP financial measures, are useful to management and investors as supplemental measures to evaluate our overall operating performance. Adjusted EBITDA and Adjusted EBITDA margin are components of our management incentive plan and are used by management to assess performance and to compare our operating performance to our competitors. We define Adjusted EBITDA as net income (loss) before interest, taxes, depreciation, and amortization, as adjusted to exclude foreign exchange gain (loss), share-based compensation expense and related employer taxes, severance charges, restructuring consulting fees, and certain other non-recurring charges. Adjusted EBITDA margin is determined by calculating the percentage Adjusted EBITDA is of total revenue. Management believes that Adjusted EBITDA and Adjusted EBITDA margin are helpful in highlighting management performance trends because Adjusted EBITDA and Adjusted EBITDA margin exclude the results of decisions that are outside the control of operating management.
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Our presentation of Adjusted EBITDA and Adjusted EBITDA margin are intended as
supplemental measures of our performance that are not required by, or presented
in accordance with, GAAP. Adjusted EBITDA and Adjusted EBITDA margin should not
be considered as alternatives to net income (loss), earnings per share, or any
other performance measures derived in accordance with GAAP, or as measures of
operating cash flows or liquidity. Our presentation of Adjusted EBITDA and
Adjusted EBITDA margin should not be construed to imply that our future results
will be unaffected by these items. Adjusted EBITDA and Adjusted EBITDA margin
are included in this discussion because they are key metrics used by management
to assess our operating performance.
Adjusted EBITDA and Adjusted EBITDA margin are not defined under GAAP, are not
measures of net income (loss) or any other performance measures derived in
accordance with GAAP, and are subject to important limitations. Our use of the
terms Adjusted EBITDA and Adjusted EBITDA margin may not be comparable to
similarly titled measures of other companies in our industry and are not
measures of performance calculated in accordance with GAAP.
Adjusted EBITDA and Adjusted EBITDA margin have important limitations as
analytical tools, and you should not consider them in isolation or as
substitutes for analysis of our results as reported under GAAP. Some of these
limitations are that Adjusted EBITDA and Adjusted EBITDA margin do not reflect
the following:
• our cash expenditures or future requirements for capital expenditures or
contractual commitments;
• changes in, or cash requirements for, our working capital needs;
• any charges for the assets being depreciated and amortized that may need to
be replaced in the future;
• the impact of share-based compensation and related employer taxes upon our
results of operations;
• the significant interest expense or the cash requirements necessary to
service interest or principal payments on our debt;
• our income tax expense or the cash requirements to pay our income taxes; and
• certain other non-recurring charges.
In evaluating Adjusted EBITDA and Adjusted EBITDA margin, you should be aware
that in the future we may incur expenses similar to those eliminated in this
presentation.
The following table reconciles net income (loss) to Adjusted EBITDA for the
periods presented:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(Dollars in millions)
Net (loss) income $ (20.9 ) $ (0.8 ) $ (65.9 ) $ 13.3
Interest expense, net 10.0 5.9 25.5 19.4
Income tax benefit (8.5 ) (5.5 ) (13.9 ) (5.7 )
Depreciation and amortization 21.0 13.0 59.3 36.9
EBITDA (a) 1.6 12.6 5.0 63.9
Foreign exchange loss (gain) 1.5 (1.2 ) 8.5 0.1
Share-based compensation (b) 31.0 19.3 85.9 48.5
Severance charges (c) 2.1 2.2 5.8 6.9
Restructuring consulting fees (d) 1.8 0.3 13.9 6.9
Other non-recurring charges (e) 1.4 - 4.7 (0.4 )
Adjusted EBITDA $ 39.4 $ 33.2 $ 123.8 $ 125.9
Adjusted EBITDA margin 15.3 % 16.2 % 16.7 % 20.3 %
(a) We define EBITDA as net income or loss before interest, taxes, and
depreciation and amortization.
(b) Represents share-based compensation expense and related employer taxes.
(c) Represents costs for severance compensation paid to employees whose positions
have been eliminated or
(d) Represents consulting fees and expenses incurred during the periods presented
in connection with any acquisition, investment, disposition,
recapitalization, equity offering, issuance or repayment of debt, issuance of
equity interests, or refinancing.
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(e) Represents (1) in 2021 the difference between the historical five-year
average pension expense and the current period actuarially determined pension
expense associated with the planned termination of the frozen
plan and related changes in investment strategy associated with protecting
the now fully funded status, (2) charges of
months ended
facilities, and (3) recovery in 2020 of duplicate payments associated with
the 2019 isolated service incident.
The following tables present a reconciliation of our reported results to our non-GAAP Adjusted EBITDA basis for all periods presented:
Three Months Ended September 30, 2021
Other
Share-based Severance operating
As reported compensation charges expenses (a) Adjusted
(Dollars in millions)
Cost of revenue:
Recurring $ 66.0 $ 3.5 $ 0.3 $ - $ 62.2
Professional services and other 48.9 2.5 - - 46.4
Product development and management 36.6 5.3 0.3 - 31.0
Depreciation and amortization 12.6 - - - 12.6
Total cost of revenue 164.1 11.3 0.6 - 152.2
Sales and marketing 56.1 3.6 0.6 - 51.9
General and administrative 53.0 16.1 0.9 1.8 34.2
Operating (loss) profit (16.0 ) 31.0 2.1 1.8 18.9
Other expense, net 3.4 - - 2.9 0.5
Depreciation and amortization 21.0 - - - 21.0
EBITDA $ 1.6 $ 31.0 $ 2.1 $ 4.7 $ 39.4 (a) Other operating expenses includes foreign exchange loss, restructuring
consulting fees, and the difference between the historical five-year
average pension expense and the current period actuarially determined
pension expense associated with the planned termination of the frozen
pension plan and related changes in investment strategy associated with
protecting the now fully funded status.
Three Months Ended September 30, 2020
Other
Share-based Severance operating
As reported compensation charges expenses (a) Adjusted
(Dollars in millions)
Cost of revenue:
Recurring $ 54.3 $ 1.8 $ 0.8 $ - $ 51.7
Professional services and other 40.2 1.0 - - 39.2
Product development and management 22.9 2.9 0.8 - 19.2
Depreciation and amortization 10.3 - - - 10.3
Total cost of revenue 127.7 5.7 1.6 - 120.4
Sales and marketing 39.5 2.0 0.4 - 37.1
General and administrative 37.8 11.6 0.2 0.3 25.7
Operating (loss) profit (0.6 ) 19.3 2.2 0.3 21.2
Other (income) expense, net (0.2 ) - - (1.2 ) 1.0
Depreciation and amortization 13.0 - - - 13.0
EBITDA $ 12.6 $ 19.3 $ 2.2 $ (0.9 ) $ 33.2
(a) Other operating expenses includes foreign exchange gain and restructuring
consulting fees.
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Nine Months Ended September 30, 2021
Other
Share-based Severance operating
As reported compensation charges expenses (a) Adjusted
(Dollars in millions)
Cost of revenue:
Recurring $ 191.1 $ 9.7 $ 1.6 $ - $ 179.8
Professional services and other 140.9 7.1 0.1 - 133.7
Product development and management 94.2 13.2 0.5 - 80.5
Depreciation and amortization 37.5 - - - 37.5
Total cost of revenue 463.7 30.0 2.2 - 431.5
Sales and marketing 154.5 10.1 1.6 - 142.8
General and administrative 162.0 45.8
2.0 14.3 99.9
Operating (loss) profit (38.1 ) 85.9 5.8 14.3 67.9
Other expense, net 16.2 - - 12.8 3.4
Depreciation and amortization 59.3 - - - 59.3
EBITDA $ 5.0 $ 85.9 $ 5.8 $ 27.1 $ 123.8 (a) Other operating expenses includes foreign exchange loss, restructuring
consulting fees, the difference between the historical five-year average
pension expense and the current period actuarially determined pension
expense associated with the planned termination of the frozen
plan and related changes in investment strategy associated with protecting
the now fully funded status, and charges related to the abandonment of
certain leased facilities.
Nine Months Ended September 30, 2020
Other
Share-based Severance operating
As reported compensation charges expenses (a) Adjusted
(Dollars in millions)
Cost of revenue:
Recurring $ 155.8 $ 4.5 $ 1.6 $ - $ 149.7
Professional services and other 120.7 2.5 0.9 - 117.3
Product development and management 57.5 5.2 1.2 - 51.1
Depreciation and amortization 29.9 - - - 29.9
Total cost of revenue 363.9 12.2 3.7 - 348.0
Sales and marketing 116.2 6.0 1.4 - 108.8
General and administrative 109.9 30.3 1.8 6.5 71.3
Operating profit 29.7 48.5 6.9 6.5 91.6
Other expense, net 2.7 - - 0.1 2.6
Depreciation and amortization 36.9 - - - 36.9
EBITDA $ 63.9 $ 48.5 $ 6.9 $ 6.6 $ 125.9 (a) Other operating expenses includes foreign exchange loss, restructuring
consulting fees, and recovery of duplicate payments associated with the
2019 isolated service incident.
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