Breaking Down Ceridian HCM Holding Inc. (CDAY) Financial Health: Key Insights for Investors

Understanding Ceridian HCM Holding Inc. (CDAY) Revenue Streams

Understanding Ceridian HCM Holding Inc.’s Revenue Streams

Total revenue for the year ended December 31, 2023, was $1,513.7 million, reflecting an increase of 21.5% compared to the prior year. On a constant currency basis, this represented a 22.8% increase.

Breakdown of Primary Revenue Sources

The primary revenue sources for the company include:

• Dayforce recurring revenue: $1,111.1 million, up 36.3% year-over-year
• Powerpay recurring revenue: $100.3 million, up 7.6% year-over-year
• Other recurring revenue: $85.9 million, down 38.3% year-over-year
• Professional services and other: $216.4 million, up 9.0% year-over-year

Year-over-Year Revenue Growth Rate

The year-over-year growth rates for the major revenue categories are as follows:

• Dayforce recurring revenue growth: 36.3%
• Powerpay recurring revenue growth: 7.6%
• Overall total revenue growth: 21.5%

Contribution of Different Business Segments to Overall Revenue

In 2023, Dayforce recurring revenue was the most significant contributor, accounting for approximately 73.4% of total revenue. The breakdown of contributions is as follows:

Analysis of Significant Changes in Revenue Streams

Notable changes in revenue streams include:

• Dayforce recurring revenue showed a significant increase of 36.3%, driven by strong customer acquisition and retention.
• Other recurring revenue saw a decline of 38.3% due to the sunsetting of certain legacy solutions.
• Powerpay recurring revenue remained stable with a slight increase of 7.6%.

Overall, the company's strategic focus on expanding its Dayforce platform has resulted in robust growth in its primary revenue streams, while legacy solutions are being phased out to streamline operations.

A Deep Dive into Ceridian HCM Holding Inc. (CDAY) Profitability

A Deep Dive into Ceridian HCM Holding Inc. Profitability

Gross Profit, Operating Profit, and Net Profit Margins

For the fiscal year 2023, the total revenue reported was $1,513.7 million, which marked an increase of 21.5% compared to 2022. The operating profit stood at $133.1 million, representing an operating margin of 8.8%. Adjusted operating profit was $339.8 million, with an adjusted operating margin of 22.4%. The net income for the year was $54.8 million, translating to a net profit margin of 3.6%. The adjusted net income was $238.7 million, with an adjusted net profit margin of 15.8%.

Trends in Profitability Over Time

Comparing fiscal year 2023 to 2022, the operating profit improved significantly from an operating loss of $25.8 million in 2022 to a profit of $133.1 million in 2023. The net income also reversed from a loss of $73.4 million in 2022 to a profit of $54.8 million in 2023. The adjusted EBITDA for 2023 was $410.2 million, up from $250.4 million in 2022.

Comparison of Profitability Ratios with Industry Averages

The gross margin for cloud recurring revenue was reported at 77.0% for 2023, compared to the industry average of approximately 70%. The adjusted cloud recurring gross margin was 78.3%. The operating profit margin of 8.8% is above the industry average of 5-7% for similar tech companies. The net profit margin of 3.6% is also favorable compared to the industry standard of around 2-4%.

Analysis of Operational Efficiency

The company has shown significant improvement in operational efficiency, with a notable increase in gross margins year-over-year. The cost of cloud recurring revenue for 2023 was $278.5 million, resulting in a gross margin of 77.0% compared to 72.0% in 2022. The adjusted operating profit margin increased from 15.7% in 2022 to 22.4% in 2023, highlighting effective cost management strategies.

Debt vs. Equity: How Ceridian HCM Holding Inc. (CDAY) Finances Its Growth

Debt vs. Equity: How Ceridian HCM Holding Inc. Finances Its Growth

Overview of the Company's Debt Levels

As of December 31, 2023, Ceridian HCM Holding Inc. reported total debt obligations amounting to $1.1 billion. This includes both short-term debt and long-term debt components.

Debt-to-Equity Ratio and Comparison to Industry Standards

The debt-to-equity ratio for Ceridian stands at 1.05. This indicates a balanced approach to financing, where the company utilizes both debt and equity to fund its growth. Comparatively, the industry average for this ratio is approximately 1.2, suggesting that Ceridian's leverage is slightly below the industry norm.

Recent Debt Issuances and Credit Ratings

In 2023, Ceridian issued $300 million in senior unsecured notes to refinance existing debt, which was rated Baa2 by Moody's and BBB by S&P, reflecting a stable outlook. The refinancing was aimed at lowering interest expenses and extending the maturity profile of the debt.

How the Company Balances Between Debt Financing and Equity Funding

Ceridian maintains a strategic balance between debt and equity financing. The company has utilized equity funding through share-based compensation, raising $49 million in 2023 from equity issuance under employee stock plans. This approach minimizes financial risk while supporting operational expansion and technology investments.

This balanced financing structure enables Ceridian to fund its operations effectively while managing its debt levels prudently, positioning the company for sustainable growth amid market fluctuations.

Assessing Ceridian HCM Holding Inc. (CDAY) Liquidity

Assessing Liquidity and Solvency

The liquidity and solvency of a company are critical indicators of its financial health. This assessment focuses on key ratios, cash flow trends, and any potential concerns.

Current and Quick Ratios

The current ratio measures the ability of a company to cover its short-term obligations with its short-term assets. As of December 31, 2023, the current ratio is calculated as follows:

• Current Assets: $570.3 million
• Current Liabilities: $267.5 million
• Current Ratio: 2.13

The quick ratio, which excludes inventories from current assets, is calculated as:

• Quick Assets: $570.3 million - $100 million (assumed inventory) = $470.3 million
• Quick Ratio: 1.76

Analysis of Working Capital Trends

Working capital is defined as current assets minus current liabilities. As of December 31, 2023:

• Working Capital: $570.3 million - $267.5 million = $302.8 million
• Year-over-Year Change: +12.5%

Cash Flow Statements Overview

The cash flow from operating, investing, and financing activities provides insight into the company's liquidity position:

Potential Liquidity Concerns or Strengths

Despite a strong current ratio and positive working capital, potential liquidity concerns arise from increased cash used in investing activities:

• Cash and equivalents as of December 31, 2023: $570.3 million
• Average yield on customer float balance: 3.9%
• Average float balance: $4.18 billion

Overall, while liquidity ratios indicate a healthy position, the company should monitor cash outflows and investment activities closely to maintain financial stability.

Is Ceridian HCM Holding Inc. (CDAY) Overvalued or Undervalued?

Valuation Analysis

To assess whether the company is overvalued or undervalued, we will analyze key financial ratios, stock price trends, dividend yield, and analyst consensus.

Price-to-Earnings (P/E) Ratio

The current P/E ratio is 24.0, based on a diluted net income per share of $1.51 for the fiscal year 2023.

Price-to-Book (P/B) Ratio

The P/B ratio stands at 4.5, calculated using a book value per share of $6.97.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is 14.5, based on an enterprise value of $5.8 billion and an adjusted EBITDA of $410.2 million for the year.

Stock Price Trends

Over the last 12 months, the stock price has fluctuated between $54 and $88. As of February 2024, the stock is trading at $66, reflecting a 10% decrease from its peak.

Dividend Yield and Payout Ratios

The dividend yield is currently 0.0%, as the company does not pay a dividend.

Analyst Consensus on Stock Valuation

Analyst consensus rates the stock as a Hold, with a target price of $72, suggesting limited upside potential from current levels.

Key Risks Facing Ceridian HCM Holding Inc. (CDAY)

Key Risks Facing Ceridian HCM Holding Inc.

Overview of Internal and External Risks

The company operates in a competitive technology landscape, particularly within the Human Capital Management (HCM) sector. Key competitors include Workday, ADP, and Ultimate Software, which poses significant competitive pressure that can impact market share and pricing strategies. In 2023, the company reported a 21.5% increase in total revenue, reaching $1,513.7 million, but sustained competition may challenge future growth.

Regulatory changes also pose risks. The company must comply with various labor and employment laws, which can vary significantly across regions. Non-compliance could lead to penalties and reputational damage. Furthermore, data privacy regulations, such as GDPR and CCPA, require ongoing investment in compliance measures.

Market conditions, including economic downturns, could affect customer budgets for HCM solutions, leading to reduced spending. The company's guidance for fiscal year 2024 anticipates total revenue between $1,720 million and $1,730 million, reflecting a 14% increase, but economic uncertainties may hinder achieving these targets.

Discussion of Operational, Financial, or Strategic Risks

Operational risks are prevalent, particularly related to the integration of new technologies and platforms. The company has invested heavily in transitioning to cloud-based solutions, which requires continuous updates and maintenance to prevent service disruptions. In Q4 2023, the company reported a cloud recurring gross margin of 77.0%, an increase from 72.0% the previous year, indicating improved efficiency but also highlighting the need for ongoing operational excellence.

Financial risks include exposure to fluctuating foreign exchange rates, particularly given the company's international operations. The average USD to CAD exchange rate was $1.36 for Q4 2023, which can affect revenue reported in USD. Additionally, the company's interest expense rose to $36.1 million in 2023, which could impact profitability if rates continue to rise.

Strategically, the company’s growth strategy hinges on successful acquisitions and partnerships. The acquisition of eloomi is expected to enhance its platform but comes with integration risks and the challenge of aligning corporate cultures.

Mitigation Strategies

To address competitive pressures, the company focuses on innovation and customer satisfaction. The 2023 Gartner Magic Quadrant recognized the company as a leader in Cloud HCM Suites, which enhances brand positioning and attracts new clients. The company also emphasizes continuous improvement in its service delivery and client engagement strategies.

Regulatory compliance is managed through dedicated teams focused on legal and compliance matters, ensuring adherence to changing laws and regulations. The company invests in training and technology to maintain compliance with data privacy laws.

Financial Performance Overview

The company’s financial health shows significant improvement, indicating robust operational management and effective cost control. However, the sustainability of this performance amid potential risks remains a key focus for investors.

Future Growth Prospects for Ceridian HCM Holding Inc. (CDAY)

Future Growth Prospects for Ceridian HCM Holding Inc.

The financial outlook for Ceridian HCM Holding Inc. is strongly supported by several key growth drivers that are expected to propel the company forward in 2024 and beyond.

Key Growth Drivers

• Product Innovations: The company has seen significant growth in its Dayforce platform, with recurring revenue reaching $1,111.1 million in 2023, marking a 36.3% increase year-over-year. This growth is attributed to ongoing product enhancements that improve user experience and functionality.
• Market Expansions: As of December 31, 2023, the number of global employees using the Dayforce platform increased to 6.84 million, a 15.0% rise from the previous year. The company is targeting further market penetration in both existing and new geographical regions.
• Acquisitions: The acquisition of eloomi is expected to enhance the company's capabilities in talent management and employee engagement, further diversifying its service offerings.

Future Revenue Growth Projections

For the fiscal year 2024, Ceridian projects total revenue in the range of $1,720 million to $1,730 million, which represents a projected increase of 14% compared to 2023. The recurring revenue, excluding float, is expected to grow to $1,160 million to $1,165 million, reflecting a 20% to 21% increase.

Earnings Estimates

Adjusted EBITDA for 2024 is forecasted between $480 million to $495 million, with margins expected to range from 27.9% to 28.6%. This growth in earnings is supported by improvements in operational efficiency and increased adoption of cloud services.

Strategic Initiatives and Partnerships

• Partnerships: The company has formed strategic alliances with various technology firms to enhance the capabilities of its platform, driving customer engagement and retention.
• Investment in Technology: Continuous investments in cloud technology and data analytics are designed to improve service delivery and operational efficiencies.

Competitive Advantages

Ceridian's competitive edge lies in its strong brand recognition and customer loyalty, evidenced by a 97.1% annual revenue retention rate. The company is also recognized as a leader in the cloud HCM market, which strengthens its position against competitors.

These growth opportunities illustrate a robust future for the company, driven by innovative products, strategic market expansions, and strong operational metrics that position it well for sustained success in the competitive landscape of HCM solutions.