Prospectus Summary
PROSPECTUS SUMMARY This summary highlights information appearing elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before making a decision to participate in the offering. You should carefully read the entire prospectus, including the information presented under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and notes related thereto included elsewhere in this prospectus before making an investment decision. Unless the context requires otherwise, references to “our company,” “we,” “us,” “our,” and “Ceridian” refer to Ceridian HCM Holding Inc. and its direct and indirect subsidiaries on a consolidated basis.Overview
Ceridian is a global human capital management (“HCM”) software company. Dayforce, our flagship cloud HCM platform, provides human resources (“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. Our platform is designed to make work life better for our customers and their employees by improving HCM decision-making processes, streamlining workflows, exposing 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.
The employer-employee relationship has undergone significant change. Employees historically viewed their jobs primarily as a source of income. Now, employees increasingly demand transparency, schedule flexibility, career growth, and better work-life balance with real-time access to their personal HR data anytime, anywhere. As organizations try to respond to these trends to attract and retain talent, they are empowering managers to think more strategically about their people. These challenges require organizations to find more efficient ways to manage employees and HCM functions, while navigating changing global operating and regulatory environments at the same time. However, HCM data in status quo solutions are stored in disparate databases, are difficult to access, and are often inaccurate. These status quo solutions that most organizations rely on were not built to manage a modern workforce, do not allow for real-time decision-making, and are not flexible enough to adapt to a changing global and regulatory environment.
We built Dayforce from the ground up to provide a comprehensive, next-generation platform that can solve complex human capital management problems. We carefully designed Dayforce to meet the needs of a homogeneous market with a common set of requirements and compliance challenges across organization sizes and industries. Our solutions deliver the right data to the right user at the right time for actionable intelligence and a superior employee experience. Our scalable platform is built on modern cloud technologies with a single, flexible rules engine capable of addressing complex global regulatory requirements, combined with a data architecture that can continuously calculate payroll throughout the pay period and a single database that enables advanced insights and predictive analytics. We believe that our architecture enables our customers to continue to benefit from advancements in technology, such as artificial intelligence and big data.
The breadth of benefits that Dayforce provides throughout an organization has been critical to our success. Employees benefit from our user experience and access to real-time data, which enables organizations to better empower employees with more self-service capabilities. The user experience and self-service capabilities drive faster adoption and free managers and HR administrators from many administrative burdens. Business-level managers benefit from deeper insights into their employee data, which enables them to better optimize their resources and to use predictive analytics to improve operations, such as scheduling, budgeting, and retention. Executive leadership benefits from better real-time data visibility, allowing them to better understand and to manage risk, to monitor and to track broader strategic initiatives, and to reduce technology and operational costs.
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 across multiple industries. We have rapidly grown the Dayforce platform to more than 3,000 live Dayforce customers, representing over 2.5 million active global users as of December 31, 2017. In addition, we had $69.3 million and $62.9 million in Dayforce backlog, as of December 31, 2017 and December 31, 2016, respectively. We monitor these projects on an account-by-account basis and expect the majority of the Dayforce backlog, as of December 31, 2017, to be taken live in 2018. In 2017, we added over 650 new live Dayforce customers. We have experienced significant Cloud revenue growth at scale, particularly from Dayforce, which has grown at a compound annual growth rate (“CAGR”) of more than 60% since 2012. We believe that our intense focus on solving complex problems and our superior customer experience lead to our high retention rates, as evidenced by our annual Cloud revenue retention rate of over 95% in 2017. Our new business sales to Dayforce customers primarily made up 73% of our increase in Cloud revenue for the years ended December 31, 2017 and 2016, and the remaining 27% consisted primarily of customer migration to Dayforce from our Bureau solutions.
Our total revenue increased from $693.9 million in 2015 to $704.2 million in 2016 and to $750.7 million in 2017. Our total Cloud revenue, which consists primarily of revenues from Dayforce and excludes revenues from our Bureau solutions, increased from $225.2 million in 2015 to $297.8 million in 2016 and to $404.3 million in 2017, representing increases of 32.2% and 35.8%, respectively. We generated HCM operating profit (loss) of $(1.1) million in 2015 compared to $(8.6) million in 2016 and $33.0 million in 2017. We generated HCM Adjusted EBITDA of $99.7 million in 2015 compared to $88.9 million in 2016 and $117.8 million in 2017.
We define HCM Adjusted EBITDA as net income or loss before interest, taxes, depreciation, amortization, as adjusted to exclude net income and loss from discontinued operations, LifeWorks EBITDA, sponsor management fees, non-cash charges for asset impairments, gains or losses on assets and liabilities held in a foreign currency other than the functional currency of a company subsidiary, non-cash share-based compensation expense, severance charges, restructuring consulting fees, and environmental reserve charges. HCM Adjusted EBITDA is a non-GAAP financial measure. Refer to “Summary Historical Consolidated Financial and Other Data” for discussion regarding our use of HCM Adjusted EBITDA and a reconciliation of HCM Adjusted EBITDA to HCM operating profit, the most directly comparable measure calculated in accordance with U.S. generally accepted accounting principles (“GAAP”).
For additional discussion of Cloud and Bureau revenue, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Solutions.”
Industry Background
There are several important market dynamics that are transforming the way organizations manage and engage their employees. These trends impact organizations regardless of size, industry, and geography, and represent a significant global opportunity for Ceridian.
The employer-employee relationship has changed
Employees expect modern, intuitive solutions that provide them with self-service access to pay, schedules, benefits, performance reviews, learning opportunities, and other key employee data in real-time and on the device of their choice. Organizations now acknowledge the strategic importance of developing and engaging their employees as a means to increase productivity and, in turn, improve business outcomes in a rapidly changing competitive business environment.
Organizations need better access to their data
Organizations have historically captured large amounts of employee-related data, but have been challenged to leverage these data as assets for decision-making. The data are difficult to use because they are inconsistently collected and therefore inaccurate, stored in multiple systems, and not easily consolidated. Insights from their data are poor; reporting is manual, error-prone, and time-consuming; and options for intelligent analytics are extremely limited.
Predictive technologies are changing the way we work
Organizations are generating large volumes of data that can power predictive models to solve extremely complex business problems. Artificial intelligence and other predictive technologies are playing a larger role in organizations and customers are now demanding these predictive technologies in human capital management, particularly in employee scheduling, hiring, retention, and compensation management.
Regulatory requirements are becoming increasingly complex and a source of organizational risk
The complexity of today’s regulatory environment, including labor, tax, and compliance regulations, is a burden on businesses of all sizes. Organizations must comply with complex federal legislation, such as the Affordable Care Act (“ACA”) and the Fair Labor Standards Act in the United States, and also comply with a growing number of changes at the state and local level. In addition to complex labor and tax legislation, data privacy requirements add to the tangle of shifting and sometimes conflicting rules related to HCM. Non-compliance with applicable laws and regulations can result in significant financial penalties for the organization and damage to employment and company brands when failures occur.
Global markets continue to be underserved by HCM solutions
Globalization has resulted in a more internationally distributed and mobile workforce. This trend increases operational complexity by requiring organizations to understand and to comply with ever-changing regulations with respect to tax and employment laws across multiple countries. Legacy HCM and first-generation cloud solutions often lack the capability to develop localized functionality to meet country-specific requirements, which results in unintegrated and error-prone workflows, isolated employee data by country, and a poor user experience for employees. While core HCM solutions for employee data are more mature, areas such as time and attendance and payroll still remain materially underserved.
Incumbent HCM products are plagued by disparate technologies and struggle to meet today’s needs
Many existing solutions have been assembled through a combination of platform acquisitions and vendor partnerships, all of which use different core architectures, multiple databases, and disparate user interfaces. As a result, many of the products offered in the market today spread data across multiple application frameworks and different code bases. These datasets have, in many cases, become liabilities rather than assets for organizations. In world-class products, data must be accessed in real-time, stored in a unified platform, and analyzed to achieve better insights and to drive better decisions.
The HCM technology market is large and underserved
The HCM technology market is one of the largest in the software industry. According to an International Data Corporation (“IDC”) market forecast report, titled “Worldwide Human Capital Management and Payroll Applications Forecast, 2017-2021,” published in June 2017, the global market for HCM Payroll and Applications in 2018 is predicted to be $19.7 billion, of which $4.7 billion is for Payroll Applications, and is expected to grow to $25.4 billion by 2021, representing a 9.0% CAGR. The market includes payroll, HR, talent acquisition, workforce management, document management, performance management, compensation management, and succession planning.
Our Dayforce Solution
Dayforce is built from the ground up to provide businesses with a comprehensive modern cloud HCM platform for managing the entire employee lifecycle. Our award-winning software addresses all key areas of HCM, including HR, payroll, benefits, workforce management, and talent management functionality.
The key benefits of Dayforce include:
With the business and technological benefits of our platform, customers are able to unlock substantial value through measurable improvements in efficiency, productivity, and accuracy. We believe that Dayforce delivers a superior return on investment to our customers, with Dayforce customers reporting that they recover their investment approximately 40% faster than organizations using competitors for core HR functionality, and approximately 70% faster than organizations using competitors for workforce management.
Our Growth Strategies
We build technology that makes work life better for people around the world. Our growth strategies include:
100 Best Places to Work (Canada and United States), Great Places to Work (Canada and United States), Canada’s Top 100 Employers, and recognition by the Brandon Hall Group as Best Advance in Corporate Culture Transformation.
Our History
Ceridian was acquired in 2007 by affiliates and co-investors of Thomas H. Lee Partners, L.P. (“THL”) and Cannae Holdings, Inc. (“Cannae”), which recently split-off from Fidelity National Financial, Inc. (“FNF”). In April 2012, Ceridian acquired Dayforce Corporation, which had built Dayforce, a Cloud HCM solution. In the months following the acquisition, Dayforce founder, David D. Ossip, was named Chief Executive Officer of Ceridian, and shortly thereafter, we generally stopped actively selling our Bureau solutions to new customers in the United States to focus our resources on expanding the Dayforce platform and growing Cloud HCM solutions. For each quarter since September 30, 2016, our Cloud HCM revenue has surpassed our Bureau HCM revenue. Cloud revenue grew from 39% of total HCM revenue during the quarter ended December 31, 2015 to 64% of total HCM revenue during the quarter ended December 31, 2017.
As part of our strategy to focus on the growth of our Cloud solutions business, we (i) sold our consumer-directed benefit services business in 2013, (ii) merged Comdata, our payment systems business unit, with FleetCor Technologies Inc. (“FleetCor Technologies”) in 2014, (iii) sold our benefits administration and post-employment compliance business in 2015, and (iv) sold our United Kingdom and Ireland businesses and a portion of our operations that supported such business in the Republic of Mauritius in 2016. Our benefits administration and post-employee compliance business, our United Kingdom and Ireland businesses, and our divested Mauritius operations are presented as discontinued operations in our financial statements. As a result of these transactions, we only actively sell Dayforce and Powerpay in our HCM segment, which we believe simplifies our business model and positions us well for continued growth. In 2016, we contributed our LifeWorks employee assistance program business to a joint venture, LifeWorks Corporation Ltd. (“LifeWorks”), that provides employee assistance, wellness, recognition, and incentive programs in the United States, Canada, and the United Kingdom.
LifeWorks Disposition
Contemporaneous with this offering, we intend to distribute our interest in LifeWorks to our existing stockholders on a pro rata basis in accordance with their pro rata interests in us through a series of inter-company transactions (the ”LifeWorks Disposition”). As a result of the LifeWorks Disposition, we will no longer have any material obligations under the LifeWorks joint venture agreement. In addition, LifeWorks will no longer be a separate segment and will be reclassified to discontinued operations in our consolidated financial statements for all periods presented. LifeWorks accounted for $79.9 million in revenue and $0.4 million in operating loss for the year ended December 31, 2017. As a result, our consolidated revenues and operating profit are expected to decline in the near term. Additionally, we will no longer have a non-controlling interest on our consolidated balance sheets or statements of operations. At the time of the distribution, the interests in LifeWorks received by our existing stockholders will be valued at approximately $ million. The holders will receive these interests in a taxable distribution. Based on current estimates of the value of our interest in LifeWorks at the time of the distribution, we currently anticipate that we will incur approximately $3.2 million in taxes and use approximately $96.0 million of our net operating losses in connection with the series of intercompany transactions and the distribution.
Debt Refinancing
Immediately following the closing of this offering and the repayment of a portion of our outstanding debt using a portion of the net proceeds received by us therefrom, we intend to refinance our remaining indebtedness under our (i) $702.0 million (original principal amount) term loan debt facility (the “Senior Term Loan”) and (ii) $130.0 million revolving credit facility (the “Revolving Facility”) (the Senior Term Loan and the Revolving Facility are together referred to as the “Senior Credit Facilities”), accrued interest and related costs and expenses, with new senior credit facilities. Assuming we sell the number of shares of our common stock set forth on the cover of this prospectus at an initial public offering price of $ per share (the midpoint of the estimated public offering price range set forth on the cover of this prospectus) and we apply the net proceeds to be received by us as described in “Use of Proceeds,” the new senior credit facilities will consist of . We expect to incur a charge of up to $ million related to the repayment of certain of our indebtedness in connection with the use of proceeds and the Debt Refinancing. Such charge will be included in other expense, net for the same quarter as this offering. We refer to this throughout this prospectus as the “Debt Refinancing.” In addition, we expect to redeem all $475.0 million aggregate principal amount of our outstanding 11% senior notes due 2021 (the “Senior Notes”) immediately following the closing of this offering. For an additional description of our Senior Notes, please see “Description of Material Indebtedness.”
Our Financial Sponsors
THL is a premier private equity firm investing in middle market growth companies, headquartered in North America, exclusively in four industry sectors: Business & Financial Services, Consumer & Retail, Healthcare, and Media, Information Services & Technology. Using the firm’s deep domain expertise and the internal operating capabilities of its Strategic Resource Group, THL seeks to create deal sourcing advantages, to accelerate growth, and to improve operations in its portfolio companies in partnership with management teams. Since its founding in 1974, THL has raised over $22.0 billion of equity capital, acquired over 140 portfolio companies, and completed over 360 add-on acquisitions, which collectively represent a combined enterprise value at the time of acquisition of over $200.0 billion.
Cannae, which recently split off from FNF, is a diversified holding company with investments in restaurants, technology enabled healthcare services, and diversified services. Cannae’s highly experienced and successful management team looks to prudently monetize existing investments with the primary objective of maximizing returns for its stockholders. As of December 31, 2017, Cannae had over $1.0 billion in net asset value under its management. THL and Cannae together are referred to as the “Sponsors.”
Following the closing of this offering, funds managed by the Sponsors are expected to own approximately % of our outstanding common stock, or %, if the underwriters’ option to purchase additional shares is fully exercised. As a result, the Sponsors will be able to exercise significant voting influence over fundamental and significant corporate matters and transactions. Therefore, we expect to be a “controlled company” within the meaning of the corporate governance standards of the stock exchange on which we intend to apply to list our shares of common stock. See “Risk Factors–Risks Relating to This Offering and Ownership of Our Common Stock” and “Principal Stockholders.”
Risks Associated with our Business
Investing in our common stock involves a number of risks. These risks represent challenges to the successful implementation of our strategy and the growth of our business. Some of these risks are:
For a discussion of these and other risks you should consider before making an investment in our common stock, see the section entitled “Risk Factors.”
Corporate Information
Ceridian HCM Holding Inc. was incorporated in Delaware on July 3, 2013. Our principal executive offices are located at 3311 East Old Shakopee Road, Minneapolis, Minnesota 55425, and our telephone number is (952) 853-8100. Our corporate website address is www.ceridian.com. Our website and the information contained on, or that can be accessed through, the website is not deemed to be incorporated by reference in, and is not considered part of, this prospectus. You should not rely on any such information in making your decision whether to purchase our common stock.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in gross revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and other regulatory requirements for up to five years that are otherwise applicable generally to public companies. These provisions include, among other matters: