DAYFORCE, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes thereto included elsewhere in this report. 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 "Risk Factors" and "Forward-Looking Statements." Our actual results may differ materially from those contained in or implied by these forward-looking statements. The following discussion and analysis of our financial condition and results of operations covers fiscal 2021 and fiscal 2020 items and year-over-year comparisons between fiscal 2021 and fiscal 2020. Discussions of fiscal 2019 items and year-over-year comparisons between fiscal 2020 and 2019 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , that was filed with theSEC onFebruary 26, 2021 .
Overview
Ceridian is a global 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 HR and payroll solution for the Canadian small business market. We also continue to support customers using our legacyNorth America Bureau solutions, which we generally stopped actively selling to new customers following the acquisition of Dayforce, and customers using our acquired Bureau solutions which we also intend to stop actively selling to new customers on a stand-alone basis. We invest in maintenance and necessary updates to support our Bureau customers and continue to migrate them to Dayforce. 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. Dayforce Wallet is a digital wallet for customers' employees on the Dayforce platform, which was launched in theU.S. in 2020 andCanada 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 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. The Dayforce Wallet mobile app makes it easy for customers' employees to check their pay deposits, account balance and transaction history. As ofDecember 31, 2021 , we had more than 950 customers signed onto Dayforce Wallet with over 400 customers live on the product. As ofDecember 31, 2021 , the average registration rate increased to 33% of all eligible employees.
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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 5,434 live
Dayforce customers*, representing approximately 5.1 million active global users*
as of December 31, 2021 . In 2021, we added 528 net new live Dayforce customers.
Our customers vary across industries, and no single customer constituted more
than 1% of our revenues for the year ended December 31, 2021 . Our annual Cloud
revenue retention rate continues to exceed 95% due to our focus on solving
complex problems and our superior customer experience. Please see below under
"How We Assess Our Performance" for further explanation of our Cloud retention rate.
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 our high customer retention rates, we have a high level of visibility into our future revenues. The profitability of a customer to our business 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 take customers live.
Revenues
We generate recurring revenues primarily from recurring fees charged for the use of our Cloud solutions, Dayforce and Powerpay, as well as from our Bureau solutions. We also generate professional services and other revenue associated primarily with the work performed to assist customers with the planning, design, and implementation of their cloud-based solution. Our solutions are typically provided through long-term customer relationships that result in a high level of recurring revenue. We also generate recurring revenue from investment income on ourCloud and Bureau customer funds before such funds are remitted to taxing authorities, customer employees, or other third parties. We refer to this investment income as float revenue. For Dayforce, we primarily charge monthly recurring fees on a PEPM basis, generally one-month in advance of service, based on the number and type of solutions provided to the customer and the number of employees and other users at the customer. Our standard Dayforce contracts are generally for a three to five-year period. The average time it takes to implement Dayforce typically ranges from three months for smaller customers to twelve months for larger customers. We begin to generate recurring revenue when we provide a production instance to the customer, generally when they are ready to go live. We also provide outsourced human resource solutions to certain of our Dayforce customers, which are tailored to meet their individual needs, and entail performing the duties of a customer's human resources department, including payroll processing, time and labor management, performance management, and recruiting, as needed. The Powerpay offering serves our small market Canadian customers. The typical Powerpay customer has fewer than 20 employees, and the majority of the revenue is generated from recurring fees charged on a per-employee, per-process basis. Typical processes include the customer's payroll runs, year-end tax packages, and delivery of customers' remittance advices or checks. Powerpay can typically be implemented on a remote basis within one to three days, at which point we start receiving recurring fees. For our Bureau solutions, we typically charge recurring fees on a per-process basis. Typical processes include the customer's payroll runs, year-end tax packages, and delivery of customers' remittance advices or checks. In addition to customerswho use our payroll services, certain customers use our tax filing services on a stand-alone basis. Our outsourced human resource solutions are tailored to meet the needs of individual customers, and entail our contracting to perform many of the duties of a customer's human resources department, including payroll processing, time and labor management, performance management, and recruiting. We also perform individual services for customers, such as check printing, wage attachment and disbursement, and ACA management.
*Excluding the 2021 acquisitions of Ascender and ADAM HCM
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COVID-19 Pandemic
In March 2020 , the World Health Organization declared the outbreak of COVID-19
to be a pandemic. The global spread of the COVID-19 pandemic has continued to
create significant 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 the U.S. Federal Reserve and the
overnight rate target by the Bank of Canada have had 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 years
ended December 31, 2021 and 2020, and to Part II , Item 1A "Risk Factors "
for further discussion of the potential impact of the pandemic on our business.
How We Assess Our Performance
In assessing our performance, we consider a variety of performance indicators in
addition to revenue and net income (loss). Set forth below is a description of
our key performance measures.
Year Ended December 31,
2021 2020 2019
Live Dayforce customers (a) 5,434 4,906 4,363
Cloud annualized recurring revenue (ARR)
(a,b,d) (in millions) $ 779.8 $ 617.9 $ 582.0
Annual Cloud revenue retention rate (a,b,d) 96.8 % 95.8 % 96.3 %
Dayforce recurring revenue per customer
(c,d) $ 108,631 $ 98,655 $ 86,615
Adjusted EBITDA (d) (in millions) $ 162.5 $ 159.0 $ 184.6
Adjusted EBITDA margin (d) 15.9 % 18.9 % 22.4 %
(a)Excluding the 2021 acquisitions of Ascender and ADAM HCM.
(b)
Annual Cloud revenue retention rate and Cloud ARR are calculated on an annual basis, and the disclosure reflects data as of the most recent fiscal year end. Please see below for further explanation.
(c)
Excluding float revenue, the impact of lower employment levels due to the COVID-19 pandemic, Ascender and ADAM HCM revenue, and on a constant currency basis. (d) This is a Non-GAAP financial measure. For Non-GAAP financial measures with a directly comparable financial measure, a reconciliation of the GAAP to non-GAAP financial measure has been provided in the " Non-GAAP Measures " section. An explanation of these measures is included below.
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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. As shown in the table below, the number of customers
live on Dayforce has increased from 482 as of December 31, 2012 to 5,434 as of
December 31, 2021 *. For 2021, our 5,434 live Dayforce customers represented
approximately 5.1 million active global users*.
We market Dayforce to customers of all sizes, including small (under 500
employees), major (500 to 5,999 employees), and enterprise (6,000 or more
employees). For 2021, small businesses accounted for 10% of the total number of
active global users, major businesses accounted for 49% of the total number of
active global users, and enterprise businesses accounted for 41% of the total
number of active global users*. In 2021, we continued to grow our global
customer base, particularly in the Enterprise market, which aligns with our
strategic growth lever to expand within this segment. In addition to the
increase in the number of Enterprise customers, we are successfully selling the
broader HCM suite.
The following table sets forth the number of live Dayforce customers* at the end of the years presented:
[[Image Removed: img213354928_3.jpg]]Cloud Annualized Recurring Revenue ("ARR")
We derive the majority of our Cloud revenues from recurring fees, primarily PEPM subscription charges. We also derive recurring revenue from fees related to the rental and maintenance of clocks, charges for once-a-year services, such as year-end tax statements, and investment income on our customer funds before such funds are remitted to taxing authorities, customer employees, or other third parties (often referred to as "float revenue"). To calculate Cloud ARR, we start with recurring revenue at year end, excluding revenue from Ascender and ADAM HCM, subtract the once-a-year charges, annualize the revenue for customers live for less than a full year to reflect the revenue that would have been realized if the customer had been live for a full year, and add back the once-a-year charges. We set annual targets for Cloud ARR and monitor progress toward those targets on a quarterly basis.
*Excluding the 2021 acquisitions of Ascender and ADAM HCM.
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Annual Cloud Revenue Retention Rate
Our annual Cloud revenue retention rate measures the percentage of revenues that we retain from our existing Cloud customers. We use this retention rate as an indicator of customer satisfaction and future revenues. We calculate the annual Cloud revenue retention rate as a percentage, excluding Ascender and ADAM HCM, where the numerator is the Cloud ARR for the prior year, less the Cloud ARR from lost Cloud customers during that year; and the denominator is the Cloud ARR for the prior year. Our annual Cloud revenue retention rate has been 95% or above for the years endedDecember 31, 2021 , 2020, and 2019. We set annual targets for Cloud revenue retention rate and monitor progress toward those targets on a quarterly basis by reviewing known and anticipated customer losses. Our Cloud revenue retention rate may fluctuate as a result of a number of factors, including the mix of Cloud solutions used by customers, the level of customer satisfaction, and changes in the number of users live on our Cloud solutions.
Dayforce Recurring Revenue Per Customer
Our Dayforce recurring revenue per customer is an indicator of the average size of our Dayforce recurring customer. To calculate Dayforce recurring revenue per customer, we start with Dayforce recurring revenue on a constant currency basis by applying the same exchange rate to all comparable periods for the trailing twelve months and exclude float revenue, the impact of lower employment levels due to the COVID-19 pandemic, and Ascender and ADAM HCM revenue. This amount is divided by the number of live Dayforce customers at the end of the trailing twelve month period, excluding Ascender and ADAM HCM. We set quarterly targets for Dayforce recurring revenue per customer and monitor progress toward those targets 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 the full HCM suite. We have not reconciled the Dayforce recurring revenue per customer because there is no directly comparable GAAP financial measure.
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 " Non-GAAP Measures " section for a reconciliation of this Non-GAAP financial measure. The averageU.S. dollar to Canadian dollar foreign exchange rate was$1.25 , with a daily range of$1.20 to$1.29 for the twelve months endedDecember 31, 2021 , compared to$1.34 , with a daily range of$1.27 to$1.45 for the twelve months endedDecember 31, 2020 . As ofDecember 31, 2021 , theU.S. dollar to Canadian dollar foreign exchange rate was$1.27 .
EBITDA, Adjusted EBITDA and Adjusted EBITDA margin
We believe that EBITDA, 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. EBITDA, 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 EBITDA as net income or loss before interest, taxes, depreciation, and amortization, and 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 items. Adjusted EBITDA margin is determined by calculating the percentage that Adjusted EBITDA is of total revenue. Management believes that EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are helpful in highlighting management performance trends because EBITDA, 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 EBITDA, Adjusted EBITDA and Adjusted EBITDA margin.
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Recent Events
Acquisitions
On
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 human capital management service provider in the APJ region. OnMarch 1, 2021 , we completed the purchase of 100% of the outstanding shares ofAscender HCM Pty Limited ("Ascender") for$359.6 million . Ascender is a payroll and HR solutions provider in the APJ region.
On
OnOctober 4, 2021 , we completed the acquisition of certain assets and liabilities ofDataFuzion HCM, Inc. ("DataFuzion"), for$12.5 million in cash consideration and future contingent consideration payments. DataFuzion designs, implements, and supports customer specific data solutions that integrate HCM and ERP systems on their FUZE platform. OnDecember 3, 2021 , we completed the acquisition of 100% of the outstanding interests inATI ROW, LLC and ADAM HCMMEXICO ,S. de R.L. de C.V. (collectively, "ADAM HCM") for$34.3 million . ADAM HCM is a payroll and HCM company inLatin America . Financing and Other
In
On
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Results of Operations
Year Ended
The following table sets forth our results of operations for the periods
presented:
Year Ended Increase/
December 31, (Decrease) % of Revenue
2021 2020 Amount % 2021 2020
(Dollars in millions)
Revenue:
Recurring
Cloud $ 712.9 $ 579.7 $ 133.2 23.0 % 69.6 % 68.8 %
Bureau 137.8 110.5 27.3 24.7 % 13.5 % 13.1 %
Total recurring 850.7 690.2 160.5 23.3 % 83.1 % 81.9 %
Professional services 173.5 152.3 21.2 13.9 % 16.9 % 18.1 %
and other
Total revenue 1,024.2 842.5 181.7 21.6 % 100.0 % 100.0 %
Cost of revenue:
Recurring
Cloud 197.7 166.9 30.8 18.5 % 19.3 % 19.8 %
Bureau 64.7 46.4 18.3 39.4 % 6.3 % 5.5 %
Total recurring 262.4 213.3 49.1 23.0 % 25.6 % 25.3 %
Professional services 194.6 163.7 30.9 18.9 % 19.0 % 19.4 %
and other
Product development 134.0 83.7 50.3 60.1 % 13.1 % 9.9 %
and management
Depreciation and 50.9 40.5 10.4 25.7 % 5.0 % 4.8 %
amortization
Total cost of revenue 641.9 501.2 140.7 28.1 % 62.7 % 59.5 %
Gross profit 382.3 341.3 41.0 12.0 % 37.3 % 40.5 %
Selling, general, and 417.8 333.5 84.3 25.3 % 40.8 % 39.6 %
administrative
Operating profit (35.5 ) 7.8 (43.3 ) (555.1 )% (3.5 )% 0.9 %
Interest expense, net 35.9 25.1 10.8 43.0 % 3.5 % 3.0 %
Other expense, net 18.9 2.7 16.2 600.0 % 1.8 % 0.3 %
Loss before income (90.3 ) (20.0 ) (70.3 ) (351.5 )% (8.8 )% (2.4 )%
taxes
Income tax benefit (14.9 ) (16.0 ) 1.1 6.9 % (1.4 )% (1.9 )%
Net loss (75.4 ) (4.0 ) (71.4 ) (1785.0 )% (7.4 )% (0.5 )%
Net profit margin (a) (7.4 )% (0.5 )% (6.9 )% (1450.6 )%
Adjusted EBITDA (b) $ 162.5 $ 159.0 $ 3.5 2.2 % 15.9 % 18.9 %
Adjusted EBITDA margin 15.9 % 18.9 % (3.0 )% (15.9 )%
(b)
(a)Net profit margin is determined by calculating the percentage that net (loss) income is of total revenue.
(b)
For a reconciliation of Adjusted EBITDA to net income, please refer to the " Non-GAAP Measures " section.
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Revenue. The following table sets forth certain information regarding our consolidated revenues for periods presented:
Percentage
change in
Percentage Impact of revenue on
change in changes in a constant
Year Ended revenue as foreign currency
December 31, reported currency (a) basis (a)
2021 vs. 2021 vs.
2021 2020 2020 2020
(Dollars in millions)
Revenue:
Dayforce recurring, excluding 596.9 463.1 28.9% 1.8% 27.1%
float $ $
Dayforce float 29.7 37.1 (19.9)% 1.7% (21.6)%
Total Dayforce recurring 626.6 500.2 25.3% 1.8% 23.5%
Powerpay recurring, excluding 78.2 70.8 10.5% 7.0% 3.5%
float
Powerpay float 8.1 8.7 (6.9)% 6.9% (13.8)%
Total Powerpay recurring 86.3 79.5 8.6% 7.0% 1.6%
Total Cloud recurring 712.9 579.7 23.0% 2.5% 20.5%
Dayforce professional 159.3 148.6 7.2% 2.1% 5.1%
services and other
Powerpay professional 0.9 1.1 (18.2)% (-)% (18.2)%
services and other
Total Cloud professional 160.2 149.7 7.0% 2.1% 4.9%
services and other
Total Cloud revenue 873.1 729.4 19.7% 2.4% 17.3%
Bureau recurring, excluding 134.5 104.0 29.3% 1.4% 27.9%
float
Bureau float 3.3 6.5 (49.2)% (-)% (49.2)%
Total Bureau recurring 137.8 110.5 24.7% 1.4% 23.3%
Bureau professional services 13.3 2.6 411.5% (11.6)% 423.1%
and other
Total Bureau revenue 151.1 113.1 33.6% 1.1% 32.5%
Total revenue $ 1,024.2 $ 842.5 21.6% 2.2% 19.4%
Dayforce $ 785.9 $ 648.8 21.1% 1.8% 19.3%
Powerpay 87.2 80.6 8.2% 6.8% 1.4%
Total Cloud revenue $ 873.1 $ 729.4 19.7% 2.4% 17.3%
Dayforce, excluding float $ 756.2 $ 611.7 23.6% 1.8% 21.8%
Powerpay, excluding float 79.1 71.9 10.0% 6.8% 3.2%
Cloud float 37.8 45.8 (17.5)% 2.6% (20.1)%
Total Cloud revenue $ 873.1 729.4 19.7% 2.4% 17.3%
Cloud recurring, excluding 675.1 533.9 26.4% 2.4% 24.0%
float $ $
Bureau recurring, excluding 134.5 104.0 29.3% 1.4% 27.9%
float
Total recurring, excluding 809.6 637.9 26.9% 2.3% 24.6%
float
Total revenue, excluding 983.1 790.2 24.4% 2.2% 22.2%
float $ $
(a)Please refer to " Non-GAAP Measures " section for additional information on our constant currency revenue, a non-GAAP financial measure.
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The COVID-19 pandemic has had an adverse impact on our revenue streams during the year endedDecember 31, 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. For the year endedDecember 31, 2021 , we estimate the impact of lower employment levels at our customers was an approximately$21 million reduction in our revenue, of which approximately$17 million was related to Dayforce and approximately$4 million was related to Powerpay. Total revenue increased$181.7 million , or 21.6%, to$1,024.2 million for the year endedDecember 31, 2021 , compared to$842.5 million for the year endedDecember 31, 2020 . This increase was primarily driven by an increase in Cloud revenue of$143.7 million , or 19.7%, from$729.4 million for the year endedDecember 31, 2020 , to$873.1 million for the year endedDecember 31, 2021 . The Cloud revenue increase was primarily due to an increase of$133.2 million , or 23.0%, in Cloud recurring revenue, and$10.5 million , or 7.0%, in Cloud professional services and other revenue. Cloud revenue growth was driven by both an increase in customers live on the Dayforce platform and an increase in recurring revenue per customer, as well as the Cloud revenue generated from acquired businesses during 2021. Excluding float revenue and on a constant currency basis, total revenue grew 22.2% reflecting a 19.8% increase in Cloud revenue and a 37.5% increase in Bureau revenue. Excluding float revenue and on a constant currency basis, Cloud revenue growth reflected a 24.0% increase in Cloud recurring revenue and a 4.9% increase in Cloud professional services and other revenue. Excluding float revenue and on a constant currency basis, Dayforce revenue increased 21.8%, reflecting a 27.1% increase in Dayforce recurring revenue and a 5.1% increase in Dayforce professional services and other revenue. Excluding float revenue and on a constant currency basis, Powerpay revenue increased 3.2%. Dayforce revenue grew 21.1%, and Powerpay revenue increased 8.2% in 2021 as compared to 2020. On a constant currency basis, Dayforce revenue increased 19.3%, and Powerpay revenue increased 1.4% for the year-endedDecember 31, 2021 , compared to the year endedDecember 31, 2020 . Powerpay is designed primarily for small market Canadian customers, which typically have fewer than 20 employees, and we believe those customers have been more adversely affected by the COVID-19 pandemic than larger Dayforce customers. In addition to the increase in Cloud revenue, Bureau revenue increased by$38.0 million , or 33.6%. The increase is primarily due to Bureau revenue associated with our recent Ascender and Excelity acquisitions. The increase was partially offset by a reduction in Bureau revenue associated with our legacy technology of the North American platforms as we continue to sunset the technology. For the year endedDecember 31, 2021 , recurring revenue from Bureau payroll customers accounted for$103.4 million , including$70.3 million from our two recent acquisitions in APJ, and Bureau stand-alone tax recurring revenue accounted for$34.4 million , compared to$73.0 million and$37.5 million in the prior year for payroll and stand-alone tax customers, respectively. Float revenue included in recurring revenue was$41.1 million and$52.3 million for the years endedDecember 31, 2021 and 2020, respectively. Float revenue allocated to Cloud revenue was$37.8 million and$45.8 million for the years endedDecember 31, 2021 and 2020, respectively. The average float balance for our customer funds for the year endedDecember 31, 2021 , was$3,889.5 million , compared to$3,240.8 million for the year endedDecember 31, 2020 . On a constant currency basis, the average float balance for our customer funds increased 17.4% for the year endedDecember 31, 2021 , compared to year endedDecember 31, 2020 . The average yield was 1.07% during the year endedDecember 31, 2021 , a decline of 54 basis points compared to the average yield for the year endedDecember 31, 2020 . For the years endedDecember 31, 2021 and 2020, approximately 35% of our average float balance consisted of customer funds outside of the US., primarily our Canadian customers. Cost of revenue. Total cost of revenue for the year endedDecember 31, 2021 , was$641.9 million , an increase of$140.7 million , or 28.1%, compared to the year endedDecember 31, 2020 . Recurring cost of revenue increased by$49.1 million for the year endedDecember 31, 2021 , compared to the year endedDecember 31, 2020 , primarily due to additional costs related to global expansion, including Ascender and Excelity costs, which are primarily classified as Bureau. Additionally, the increase is due to costs to support the growing Dayforce customer base. The increase in cost of revenue for professional services and other of$30.9 million for the year endedDecember 31, 2021 , compared to the year endedDecember 31, 2020 , was primarily due to costs incurred to take new customers live. Product development and management expense increased$50.3 million for the year endedDecember 31, 2021 , compared to the year endedDecember 31, 2020 . The increase reflects increases in personnel costs as well as share-based compensation. Excluding the impact of share-based compensation and related employer taxes, and severance expense, product development and management expense would have increased by$41.9 million . This increase reflects additional personnel costs as we work to build out the Dayforce Wallet and our international offerings. For the years endedDecember 31, 2021 , and 2020, our investment in software development was$131.7 million and$78.3 million ,
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respectively, consisting of$81.1 million and$39.6 million of research and development expense, which is included within product development and management expense, and$50.6 million and$38.7 million of capitalized software development, respectively. Please refer to Note 2, "Summary of Significant Accounting Policies," for further discussion of our accounting policy for capitalizing internally developed software costs. Depreciation and amortization expense associated with cost of revenue increased by$10.4 million for the year endedDecember 31, 2021 , compared to the year endedDecember 31, 2020 , as we continue to capitalize Dayforce related and other development costs and subsequently amortize those costs. Gross profit and gross margin. Total gross profit for the year endedDecember 31, 2021 , increased by$41.0 million , or 12.0%, compared to the year endedDecember 31, 2020 . The$41.0 million increase in gross profit was primarily attributable to the$133.2 million increase in Cloud recurring revenue for the year endedDecember 31, 2021 , compared to the year endedDecember 31, 2020 . The following table presents total gross margin and solution gross margins for the periods presented: Year Ended December 31, 2021 2020 Total gross margin 37.3 % 40.5 % Gross margin by solution: Cloud recurring 72.3 % 71.2 % Bureau recurring 53.0 % 58.0 %
Professional services and other (12.2 )% (7.5 )%
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. Cloud recurring gross margin was 72.3% for the year endedDecember 31, 2021 , compared to 71.2% for the year endedDecember 31, 2020 . Excluding float revenue, Cloud recurring gross margin was 70.7% for the year endedDecember 31, 2021 , compared to 68.7% for the year endedDecember 31, 2020 . The increase in Cloud recurring gross margin reflects an increase in the proportion of Dayforce customers live for more than two years, which increased from 76% as ofDecember 31, 2020 to 80% as ofDecember 31, 2021 , and was also attributable to consistent configuration that has enabled us to realize economies of scale in hosting and customer support. Bureau recurring gross margin declined from 58.0% for the year endedDecember 31, 2020 , to 53.0% for the year endedDecember 31, 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 (12.2)% for the year endedDecember 31, 2021 , declining from (7.5)% for the year endedDecember 31, 2020 , reflecting additional costs incurred to take new customers live as well as expansion of our capabilities to serve international customers. Selling, general, and administrative expense. Selling, general, and administrative expense increased$84.3 million for the year endedDecember 31, 2021 , compared to the year endedDecember 31, 2020 . Excluding the impact of share-based compensation and related employer taxes, severance expense, and certain other non-recurring items, selling, general, and administrative expenses would have increased$85.6 million . This adjusted increase of$85.6 million was due to a$48.5 million increase in sales and marketing expenses and a$37.1 million increase 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, partially offset by the gain on sale of our office facility in St. Peterburg, Florida. Please refer to the "Non-GAAP Measures" section for additional information on the excluded items. Interest expense, net. Interest expense, net for the year endedDecember 31, 2021 , was$35.9 million , compared to$25.1 million for the year endedDecember 31, 2020 . This$10.8 million increase in interest expense, net was primarily due to interest on our Convertible Senior Notes that were issued inMarch 2021 .
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Other expense, net. For the years endedDecember 31, 2021 and 2020, other expense, net of$18.9 million and$2.7 million , respectively, was comprised of net periodic pension expense, as well as foreign currency translation expense in 2021 compared to foreign currency translation income in 2020. Income tax benefit. For the years endedDecember 31, 2021 and 2020, we had income tax benefit of$14.9 million and$16.0 million , respectively. The$1.1 million reduction in tax benefit was primarily due to a tax increase of$8.2 million attributed to the base erosion anti-abuse tax (BEAT) in theU.S. , a$4.0 million increase attributed to share-based compensation, a$4.0 million increase attributed to international tax rate differences, and other increases of$4.6 million , partially offset by a$14.8 million tax benefit from current operations, and a$4.9 million tax benefit attributable toU.S. state tax. We record a valuation allowance to reduce our deferred tax assets to reflect the net deferred tax assets that we believe will be realized. As ofDecember 31, 2021 , we will continue to record a valuation allowance against certain deferred tax assets including some state net operating loss carryovers and tax basis intangibles. Net loss. Net loss was$75.4 million for the year endedDecember 31, 2021 , compared to$4.0 million for the year endedDecember 31, 2020 . The increase in net loss is primarily due to higher share-based compensation, lower employment levels at our customers and lower float revenue income due to the COVID-19 pandemic, investments in product development, selling capabilities, and business acquisitions to support our growth initiatives in 2021, partially offset by the gain of$19.1 million on the sale of ourSt. Petersburg, Florida facility. For the years endedDecember 31, 2021 and 2020, net profit margin was (7.4)% and (0.5)%, respectively. Adjusted EBITDA. Adjusted EBITDA increased by$3.5 million to$162.5 million , for the year endedDecember 31, 2021 , compared to the year endedDecember 31, 2020 , primarily due to the increase in cloud recurring margin, partially offset by the increase in sales and marketing and product development and management expense as well as the reduction in float revenue. Adjusted EBITDA margin declined to 15.9% in 2021 from 18.9% in 2020. Adjusted EBITDA, excluding float revenue, increased$14.7 million to$121.4 million , for the year endedDecember 31, 2021 , compared to the year endedDecember 31, 2020 . Please refer to the "Non-GAAP Measures" section for a discussion and reconciliation of Adjusted EBITDA and Adjusted EBITDA margin and additional information on the excluded items.
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 issuance and equity offerings. As ofDecember 31, 2021 , we had cash and equivalents of$367.5 million and there was no amount drawn on our Revolving Credit Facility of$300 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, product development, and funding Dayforce Wallet on demand pay requests. We have made investments in businesses or acquisitions of companies, which are also liquidity needs. Our total debt balance was$1,242.5 million as of December 31, 2021. Please refer to Note 9, "Debt," to our consolidated financial statements and "Our Indebtedness" section below for further information on our debt. OnFebruary 26, 2021 , we elected to borrow$295.0 million under the Revolving Credit Facility to fund our acquisition of Ascender onMarch 1, 2021 . We repaid the$295.0 million draw onMarch 5, 2021 with proceeds from the issuance of our Convertible Senior Notes. OnApril 2, 2020 , we elected to borrow$295.0 million under the Revolving Credit Facility as a precautionary measure to increase our cash position and to preserve financial flexibility, given the uncertainty in the global capital markets resulting from the initial onset of the COVID-19 pandemic. We repaid the$295.0 million draw onDecember 8, 2020 . InMarch 2021 , we issued$575.0 million in aggregate principal amount of 0.25% Convertible Senior Notes due 2026. The total net proceeds from the offering, after deducting initial purchase discounts and issuance costs, were$561.8 million . In connection with the Convertible Senior Notes, we entered into capped call transactions which are expected to reduce the potential dilution of our common stock upon any conversion of the Convertible Senior Notes and/or offset any cash payments we could be required to make in excess of the principal amount of converted Convertible Senior Notes. We used an aggregate amount of$45.0 million of the net proceeds of the Convertible Senior Notes to purchase the Capped Calls. 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. 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.
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OnDecember 15, 2021 , we completed the second amendment to the Senior Secured Credit Facility, in which the maturity date of the Revolving Credit Facility was extended fromApril 30, 2023 toJanuary 29, 2025 . We believe that our cash flow from operations, availability under our Revolving Credit Facility, and available cash and equivalents will be sufficient to meet our liquidity needs for the foreseeable future. Dayforce Wallet on demand pay requests are currently funded from our operating cash balances, until it is reimbursed by the customers through their normal payroll funding cycles. We evaluate the creditworthiness of each customer for 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 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. Please refer to Note 5, "Customer Funds," for further discussion of these funds.
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 consolidated statements of
cash flows:
Year Ended December 31,
2021 2020
(Dollars in millions)
Net cash provided by (used in) operating activities
(711.1 ) 38.8
Net cash provided by financing activities 407.5
565.3
Effect of exchange rate on cash and equivalents (20.9 )
(4.0 ) Net (decrease) increase in cash, restricted cash, and equivalents
(275.7 ) 569.9
Cash, restricted cash, and equivalents at beginning of period
2,228.5 1,658.6
Cash, restricted cash, and equivalents at end of period 1,952.8 2,228.5 Cash and equivalents 367.5$ 188.2 Restricted cash and equivalents in customer funds 1,585.3
2,040.3
Total cash, restricted cash, and equivalents$ 1,952.8 $ 2,228.5 Operating Activities Net cash provided by operating activities was$48.8 million during the year endedDecember 31, 2021 , primarily attributed to a net loss of$75.4 million offset by the net impact of adjustments for certain non-cash items of$165.2 million , including$113.4 million of non-cash share-based compensation expense, and$77.5 million of depreciation and amortization. Additionally, there were net working capital reductions of$41.0 million . The net working capital reductions included a$34.8 million increase in trade and other receivables, a$12.3 million increase in prepaid expenses and other current assets, a$11.8 million decrease in working capital related to other assets and liabilities, and a$9.3 million decrease in accounts payable and other accrued expenses. Net cash used in operating activities was$30.2 million during the year endedDecember 31, 2020 , primarily attributed to net changes in working capital that resulted in a$161.1 million reduction in cash and a net loss of$4.0 million , partially offset by the net impact of adjustments for certain non-cash items of$134.9 million , including$65.8 million
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of non-cash share-based compensation expense,$51.8 million of depreciation and amortization, and$16.8 million of lease abandonment costs. Net changes in working capital were primarily attributable to a$104.0 million reduction in liabilities for employee compensation and benefits, primarily due to$106.9 million in pension contributions,$32.0 million decrease in working capital related to other assets and liabilities, a$12.0 million increase in trade and other receivables, and a$6.8 million increase in prepaid expenses and other current assets. Investing Activities During the year endedDecember 31, 2021 , net cash used in investing activities was$711.1 million , related to acquisition costs, net of cash acquired, of$409.5 million , net purchases of customer funds marketable securities of$275.8 million , and capital expenditures of$63.7 million . Our capital expenditures included$52.2 million for software and technology and$11.5 million for property and equipment. During the year endedDecember 31, 2020 , net cash provided by investing activities was$38.8 million , related to net proceeds from customer funds marketable securities of$156.9 million , partially offset by capital expenditures of$59.8 million and acquisition costs, net of cash acquired, of$58.3 million . Our capital expenditures included$41.7 million for software and technology and$18.1 million for property and equipment.
Financing Activities
Net cash provided by financing activities was$407.5 million during the year endedDecember 31, 2021 . This cash inflow was primarily attributable to proceeds from the issuance of our Convertible Senior Notes of$561.8 million , and proceeds from the issuance of common stock under share-based compensation plans of$95.4 million , partially offset by the net decrease in our customer funds obligations of$195.7 million , and payments on our long-term debt obligations of$7.8 million . Net cash provided by financing activities was$565.3 million during the year endedDecember 31, 2020 . This cash inflow was primarily attributable to the net increase in our customer funds obligations of$483.6 million , and proceeds from the issuance of common stock under share-based compensation plans of$91.7 million , partially offset by payments on our long-term debt obligations of$10.0 million . Backlog and Seasonality 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 ofDecember 31, 2021 , approximately$1,118.5 million of revenue is expected to be recognized over the next three years from remaining performance obligations.
For a discussion of seasonality, please refer to Part 1, Item I, "Business" of this Form 10-K.
Our Indebtedness Our primary liquidity needs are related to funding of general business requirements, including the payment of interest and principal on our debt, capital expenditures, product development, and funding Dayforce Wallet. From time to time, we have made investments in businesses or acquisitions of companies, which are also liquidity needs. We believe our current sources of liquidity 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. During 2021 and 2020, we incurred additional debt in the form of draws on our Revolving Credit Facility, which was subsequently repaid, and issuance of our Convertible Senior Notes for purposes of either (i) conserving our liquidity position during the uncertainty created by the COVID-19 pandemic, and (ii) general corporate purposes, including acquisitions of companies.
Senior Secured Credit Facility
OnApril 30, 2018 , we entered into a credit agreement pursuant to which the lenders agreed to provide Senior Secured Credit Facility, consisting of the Term Debt in the original principal amount of$680.0 million and a$300.0 million Revolving Credit Facility. The Revolving Credit Facility may, at our option, be made available inUnited States Dollars, Canadian Dollars, Euros and/or Pounds Sterling; up to$70.0 million may, at our option, be made available for letters of
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credit and
The Term Debt will mature onApril 30, 2025 . We are required to make annual amortization payments in respect of the Term Debt in an amount equal to 1.00% of the original principal amount thereof, payable in equal quarterly installments of 0.25% of the original principal amount of the first lien term debt. OnDecember 15, 2021 , we completed the second amendment to our Senior Secured Credit Facility, which extended the maturity of the Revolving Credit Facility fromApril 30, 2023 toJanuary 29, 2025 . The Revolving Credit Facility does not require amortization payments.
Convertible Senior Notes
InMarch 2021 , we issued$575.0 million in aggregate principal amount of 0.25% Convertible Senior Notes due 2026. The total net proceeds from the offering, after deducting initial purchase discounts and issuance costs, were$561.8 million . In connection with the Convertible Senior Notes, we entered into capped call transactions which are expected to reduce the potential dilution of our common stock upon any conversion of the Convertible Senior 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 Convertible Senior Notes to purchase the Capped Calls. 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.
For an additional description of the Senior Secured Credit Facility and the Senior Convertible Notes, please refer to Note 9, "Debt," to our consolidated financial statements.
Contractual Obligations
Our future contractual obligations generally consist of long-term debt, leases, retirement plans, and vendor payments. Our long-term debt obligations are described in Note 9, "Debt," to our consolidated financial statements, and the "Our Indebtedness" section above. As ofDecember 31, 2021 , all of our facilities are leased. Most of these leases contain renewal options and require payments for taxes, insurance, and maintenance. We also lease equipment for use in our business. We ceased use of certain leased facilities during 2021 and 2020 and recognized lease abandonment charges within our consolidated statements of operations; however, we are still required to make future payments under the existing lease terms. Refer to Note 15, "Leases," to our consolidated financial statements for additional discussion of our leases. Payments of retirement plan obligations include employer commitments to fund our defined benefit and postretirement plans and do not include estimated future benefit payments to participants expected to be made from liquidation of the assets in our defined benefit plan trusts. During the year endedDecember 31, 2020 , we contributed$105.0 million to our largestU.S. pension plan, satisfying all expected contributions for the foreseeable future for this defined benefit plan. As ofDecember 31, 2021 , our defined benefit pension plans had a fair value of the plans' assets that exceeded the projected benefit obligation by$1.6 million and our postretirement benefit plan had a projected benefit obligation that exceeded the fair value of the plans' assets by$12.6 million . We expect to satisfy these remaining obligations through investment income from and appreciation in the fair value of plan assets and from future employer contributions. Refer to Note 10, "Employee Benefit Plans," to our consolidated financial statements for additional discussion of our employee benefit plans.
The amount of our future contractual obligation to vendors as of
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements and related notes, which have been prepared in accordance with GAAP. The preparation of these financial statements and related notes requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, our evaluation of trends in the industry, information provided by our customers, and information available from other outside sources, as appropriate. We evaluate our estimates and judgments on an on-going basis. Our actual results may differ from these estimates. We believe the following are our critical accounting estimates:
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Revenue Recognition
Description: We recognize revenue for professional services and cloud
subscription services performance obligations based on an allocation of the
total transaction price to each performance obligation using the respective
stand-alone selling prices ("SSP"). This can result in revenue being recognized
in an amount that exceeds the amount we are contractually allowed to bill our
customer as of a certain point in time, resulting in the recognition of a
contract asset up until the period at which billings are equal to or exceed
revenue recognition. We recognized $160.2 million of cloud professional services
revenue for the year ended December 31, 2021 , and the related contract assets
were $62.7 million as of December 31, 2021 .
Judgments and Uncertainties: The determination of our stand-alone selling price
for the performance obligations requires us to make assumptions based on market
conditions and observable inputs, as well as an estimate of the total
professional service hours expected to be incurred in connection with each
customer implementation.
Sensitivity of Estimate to Change: The consideration allocated to professional
services performed to activate a new customer is recognized as professional
services revenues based on the proportion of total work performed to date
compared to an estimation of total work expected to complete the implementation
project for that customer account. To the extent this consideration exceeds the
customer billings, a contract asset would be recognized. An increase or decrease
in the estimation of total work expected to complete the implementation would
impact the amount of consideration allocated to each of the performance
obligations as well as the timing of revenue recognition, as professional
services revenue related to implementation activities is generally recognized at
the beginning of the contract.
Business Combinations
Description: We account for business combinations using the acquisition method of accounting. We allocate the purchase price of an acquired business to the assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date with the excess recorded as goodwill. Judgments and Uncertainties: The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair value of the acquired assets and liabilities. Fair value of the assets and liabilities acquired is determined through established valuation techniques, such as the income, cost or market approach. Generally, we use third-party valuation experts to assist in certain fair value determinations. The fair value measurements of identifiable intangibles are based on available historical information and expectations and assumptions about the future. Significant assumptions used to value identifiable intangible assets may include projected revenue growth, discount rates, royalty rates, customer attrition rates, and other factors.
Determining the useful life of an intangible asset also requires judgment. All acquired assets were determined to have useful lives.
Sensitivity of Estimate to Change: In 2021, we acquired Ascender, Ideal, DataFuzion, and ADAM HCM for$359.6 million ,$41.4 million ,$17.9 million , and$34.3 million , respectively, which included the acquisition of$7.1 million of trade names,$84.1 million of customer relationships, and$78.2 million in developed technology. We utilized third-party valuation specialists to perform the valuation of certain assets and liabilities acquired for each acquisition.Trade Names : From the Ascender, Ideal, and ADAM HCM acquisitions, we acquired trade names, which were determined to have a total fair value of$7.1 million using the relief from royalty method. Key assumptions used to calculate the fair value of the trade names using this method included revenue projections, royalty rates, and discount rates. Customer Relationships: From the Ascender, Ideal, and ADAM HCM acquisitions, we acquired customer relationships, which were determined to have a total fair value of$84.1 million using the Multi-Period Excess Earnings Method ("MPEEM") a form of the income approach, or variations of the MPEEM, such as the distributor method. Assumptions used in valuing these assets included future earnings projections, customer attrition rates, and discount rates, among others. Developed Technology: From the Ascender, Ideal, DataFuzion, and ADAM HCM acquisitions, we acquired developed technology, which were determined to have a total fair value of$78.2 million using various methods, such as the relief from royalty method and the MPEEM, including the distributor method. Assumptions used in valuing these assets included future earnings projections, technology migration factors, royalty rates, tax rates, and discount rates, among others.
Contingent Consideration: From the DataFuzion acquisition, we recognized
contingent consideration, which was determined to have a total fair value of
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pricing model ("OPM"), specifically the Black Scholes Merton model. Key assumptions used in the SMB include possible outcomes, probability of occurrence, and discount factor. Key assumptions used in the OPM include expected present value of certain ARR, and volatility.
We believe the estimates applied to the valuations are based on reasonable assumptions, but are inherently uncertain. As a result, actual results may differ from the assumptions and judgments used to determine the fair value of the assets acquired, which could result in impairment losses in the future.
Please refer to Note 2, "Summary of Significant Accounting Policies," for a description of our revenue recognition and business combination policy and our significant accounting policies.
Recently Issued Accounting Pronouncements
Please refer to Note 2, "Summary of Significant Accounting Policies," for a full discussion of recent accounting pronouncements.
Non-GAAP Measures
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin
We believe that EBITDA, 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 EBITDA as net income (loss) before interest, taxes, depreciation, and amortization, and Adjusted EBITDA as EBITDA, as adjusted to exclude foreign exchange gains (losses), share-based compensation expense and related employer taxes, severance charges, restructuring consulting fees, and certain other non-recurring items. Adjusted EBITDA margin is determined by calculating the percentage that Adjusted EBITDA is of total revenue. Management believes that EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are helpful in highlighting management performance trends because EBITDA, Adjusted EBITDA and Adjusted EBITDA margin exclude the results of decisions that are outside the control of operating management. Our presentation of EBITDA, 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. EBITDA, 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 EBITDA, Adjusted EBITDA and Adjusted EBITDA margin should not be construed to imply that our future results will be unaffected by similar items to those eliminated in this presentation. EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are included in this discussion because they are key metrics used by management to assess our operating performance. EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are not defined under GAAP, are not measures of net income or any other performance measures derived in accordance with GAAP, and are subject to important limitations. Our use of the terms EBITDA, 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. EBITDA, 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 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
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•certain other non-recurring items.
In evaluating EBITDA, 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 loss to EBITDA and Adjusted EBITDA for the
periods presented:
Year Ended December 31,
2021 2020
(Dollars in millions)
Net loss $ (75.4 ) $ (4.0 )
Interest expense, net 35.9 25.1
Income tax benefit (14.9 ) (16.0 )
Depreciation and amortization 77.5 51.8
EBITDA 23.1 56.9
Foreign exchange loss (gain) 9.5 (1.0 )
Share-based compensation (a) 116.8 68.9
Severance charges (b) 7.4 9.7
Restructuring consulting fees (c) 16.7 8.1
Other non-recurring items (d) (11.0 ) 16.4
Adjusted EBITDA $ 162.5 $ 159.0
Net profit margin (e) (7.4 )% (0.5 )%
Adjusted EBITDA margin 15.9 % 18.9 %
(a)
Represents share-based compensation expense and related employer taxes.
(b)
Represents costs for severance compensation paid to employees whose positions
have been eliminated or who have been terminated not for cause.
(c)
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.
(d)
Represents (1) impacts of changes to our facilities, resulting in a net gain of
$19.1 million during 2021 primarily as a result of the sale of our St.
Petersburg, Florida facility and charges of $16.8 million during 2020 related to
the abandonment of certain leased facilities, (2) 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 U.S. pension plan and related changes in investment strategy
associated with protecting the now fully funded status, (3) the impact of the
fair value adjustment for the DataFuzion contingent consideration during 2021,
and (4) recovery in 2020 of duplicate payments associated with the 2019 isolated
service incident. Please refer to Note 15, "Leases" , Note 3, "Business
Combinations," , and Note 16, "Commitments and Contingencies" for further
discussion of these items.
(e)
Net profit margin is determined by calculating the percentage that net (loss)
income is of total revenue.
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The following tables present a reconciliation of our reported results to our non-GAAP EBITDA and Adjusted EBITDA basis for all periods presented:
Year Ended December 31, 2021
Other
Share-based Severance operating
As reported compensation charges expenses (a) Adjusted (b)
(Dollars in millions)
Cost of revenue:
Recurring $ 262.4 $ 12.9 $ 2.0 $ - $ 247.5
Professional services and other 194.6 9.5 0.2 - 184.9
Product development and management 134.0 18.0 0.6 - 115.4
Depreciation and amortization 50.9 - - - 50.9
Total cost of revenue 641.9 40.4 2.8 - 598.7
Sales and marketing 218.5 13.8 1.9 - 202.8
General and administrative 199.3 62.6 2.7 (2.0 ) 136.0
Operating (loss) profit (35.5 ) 116.8 7.4 (2.0 ) 86.7
Other expense, net 18.9 - - 17.2 1.7
Depreciation and amortization 77.5 - - - 77.5
EBITDA $ 23.1 $ 116.8 $ 7.4 $ 15.2 $ 162.5
Interest expense, net 35.9 - - - 35.9
Income tax (benefit) expense (c) (14.9 ) - - (23.6 ) 8.7
Depreciation and amortization 77.5 - - - 77.5
Net (loss) income $ (75.4 ) $ 116.8 $ 7.4 $ (8.4 ) $ 40.4
(a)
Other operating expenses includes net gain of $19.1 million during 2021
primarily as a result of the sale of our St. Petersburg, Florida facility,
intercompany 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 U.S. pension plan and related changes in
investment strategy associated with protecting the now fully funded status, and
the impact of the fair value adjustment for the DataFuzion contingent
consideration.
(b)
The Adjusted amount is a non-GAAP financial measure.
(c)
Income tax effects have been calculated based on the statutory tax rates in
effect in the U.S. and foreign jurisdictions during the period.
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Year Ended December 31, 2020
Other
Share-based Severance operating
As reported compensation charges expenses (a) Adjusted (b)
(Dollars in millions)
Cost of revenue:
Recurring $ 213.3 $ 6.1 $ 1.8 $ - $ 205.4
Professional services and other 163.7 3.8 0.9 - 159.0
Product development and management 83.7 8.7 1.5 - 73.5
Depreciation and amortization 40.5 - - - 40.5
Total cost of revenue 501.2 18.6 4.2 - 478.4
Sales and marketing 165.6 8.0 3.3 - 154.3
General and administrative 167.9 42.3 2.2 24.5 98.9
Operating profit 7.8 68.9 9.7 24.5 110.9
Other expense (income), net 2.7 - - (1.0 ) 3.7
Depreciation and amortization 51.8 - - - 51.8
EBITDA $ 56.9 $ 68.9 $ 9.7 $ 23.5 $ 159.0
Interest expense, net 25.1 - - - 25.1
Income tax (benefit) expense (c) (16.0 ) - - (25.0 ) 9.0
Depreciation and amortization 51.8 - - - 51.8
Net (loss) income $ (4.0 ) $ 68.9 $ 9.7 $ (1.5 ) $ 73.1
(a)
Other operating expenses includes lease abandonment charges, intercompany
foreign exchange loss, restructuring consulting fees, and recovery of duplicate
payments associated with the 2019 isolated service incident.
(b)
The Adjusted amount is a non-GAAP financial measure.
(c)
Income tax effects have been calculated based on the statutory tax rates in
effect in the U.S. and foreign jurisdictions during the period.
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