28/02/2024 - Ceridian HCM Holding Inc.: Fourth Quarter 2023 Management's Discussion and Analysis

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following is a discussion and analysis of our financial condition and results of operations 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 "Cautionary Note Regarding 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 2023 and fiscal 2022 items and year-over-year comparisons between fiscal 2023 and fiscal 2022. Discussions of fiscal 2021 items and year-over- year comparisons between fiscal 2022 and 2021 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-Kfor the fiscal year ended December 31, 2022,that was filed with the SEC on March 1, 2023.

Overview

Dayforce, Inc., formerly known as Ceridian HCM Holding Inc., is a global HCM software company. We categorize our solutions into three categories: Cloud recurring, other recurring (formerly referred to as Bureau), and professional services and other. Cloud recurring revenue is primarily 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 legacy North America solutions and customers using our acquired solutions in APJ. We invest in maintenance and necessary updates to support our customers and continue to migrate them to Dayforce. Revenue from our Cloud recurring and other recurring solutions includes investment income generated from holding customer funds, also referred to as float revenue or float.

Dayforce provides global HR, payroll and tax, workforce management, benefits, and talent intelligence functionality. Our platform is used by organizations of all sizes, from small businesses to global organizations, regardless of industry, to optimize management of the entire employee lifecycle, including attracting, hiring, engaging, paying, and developing their people. Dayforce was built as a single application from the ground up that combines a modern, consumer-grade user experience with proprietary application architecture, including a single employee record and a rules engine spanning all areas of HCM. Dayforce provides continuous real-time calculations across all modules to enable, for example, payroll administrators access to data through the entire pay period, and managers access to real-time data to optimize work schedules. Our platform is designed to drive efficiencies for our customers and their employees by improving HCM decision- making processes, streamlining workflows, revealing strategic organizational insights, and simplifying legislative compliance. The platform is designed to ease administrative work for both employees and managers, creating opportunities for companies to increase employee engagement. We sell Dayforce through our direct sales force and partner ecosystem on a subscription PEPM basis. Our subscriptions are typically structured with an initial fixed term of between three and five years, with evergreen renewal thereafter.

Our Business Model

Our business model focuses on supporting the 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 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 suite. We also incur costs to manage the account, to retain customers, and to sell additional functionality. These costs, however, are significantly less than the costs initially incurred to acquire and to take customers live.

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2023 MDA

Revenues

We generate recurring revenues primarily from recurring fees charged for the use of our Cloud recurring solutions, Dayforce and Powerpay, as well as from our other recurring 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 our recurring 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. We also provide outsourced HR solutions to certain of our Dayforce customers, which are tailored to meet their individual needs, and entail performing the duties of a customer's HR department, including payroll processing, time and labor management, performance management, and recruiting, as needed.

We offer Powerpay for Canadian organizations with fewer than 100 employees. The majority of Powerpay 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 Other recurring 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 customers who use our payroll services, certain customers use our tax filing services on a stand-alone basis. Our outsourced HR solutions are tailored to meet the needs of individual customers, and entail our contracting to perform many of the duties of a customer's HR 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.

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.

1. Refer below and to the "Non-GAAPFinancial Measures" section for further description and definition of this performance indicator which is considered a non-GAAP financial measure.
2. Excluding float revenue, Ascender and ADAM HCM revenue, and on a constant currency basis.

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. 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).

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2023 MDA

The following table sets forth the number of live Dayforce customers* at the end of the years presented:

Cloud Annualized Recurring Revenue ("ARR")

We use Cloud ARR, a non-GAAP financial measure, to measure the size and growth of our recurring Cloud business, which we believe is useful to management and investors. 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 float revenue on our customer funds before such funds are remitted to taxing authorities, customer employees, or other third parties. We set annual targets for Cloud ARR and monitor progress toward those targets on a quarterly basis.

Annual Dayforce Revenue Retention Rate

We use annual Dayforce revenue retention rate, a non-GAAP financial measure, to measure the percentage of revenues that we retain from our existing Dayforce customers, which we believe is useful to management and investors as an indicator of customer satisfaction and future revenues. Our annual Dayforce revenue retention rate was above 97% for the years ended December 31, 2023, 2022, and 2021. We set annual targets for Dayforce revenue retention rate and monitor progress toward those targets on a quarterly basis by reviewing known and anticipated customer losses. Our Dayforce revenue retention rate may fluctuate as a result of a number of factors, including the mix of Dayforce solutions used by customers, the level of customer satisfaction, and changes in the number of employees live on our Dayforce solutions.

Dayforce Recurring Revenue Per Customer

We use Dayforce recurring revenue per customer, a non-GAAP financial measure, as an indicator of the average size of our Dayforce customer, which we believe is also useful to management and investors. We calculate and monitor Dayforce recurring revenue per customer on a quarterly basis. Our Dayforce recurring revenue per customer may fluctuate as a result of a number of factors, including the number of live Dayforce customers and the number of customers purchasing the full HCM suite.

Constant Currency Revenue

We present percentage change in revenue on a constant currency basis to assess how our underlying business performed, excluding the effect of foreign currency rate fluctuations. We believe this non-GAAP financial measure is useful to management and investors. We have calculated percentage change in revenue on a constant currency basis by applying the average foreign exchange rate in effect during the comparable prior period. The average U.S. dollar to Canadian dollar foreign exchange rate was $1.35, with a daily range of $1.31 to $1.39 for the twelve months ended December 31, 2023, compared to $1.30, with a daily range of $1.25 to $1.39 for the twelve months ended December 31, 2022. As of December 31, 2023, the U.S. dollar to Canadian dollar foreign exchange rate was $1.33.

*Excluding the 2021 acquisitions of Ascender and ADAM HCM.

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2023 MDA

Adjusted Operating Profit, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Cloud Recurring Gross Margin

We believe that Adjusted operating profit, Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Cloud recurring gross margin, non-GAAP financial measures, are useful to management and investors as supplemental measures to evaluate our overall operating performance. Adjusted EBITDA is a component of our management incentive plan and Adjusted Cloud recurring gross margin is a component of certain performance based equity awards for our named executive officers, and these metrics are used by management to assess performance and to compare our operating performance to our competitors. Management believes that Adjusted operating profit, Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Cloud recurring gross margin are helpful in highlighting management performance trends because these metrics exclude the results of decisions that are outside the normal course of our business operations.

Recent Events

Effective January 31, 2024, Ceridian HCM Holding Inc. changed its corporate name to Dayforce, Inc. Effective February 1, 2024, we ceased trading under the ticker symbol "CDAY" and began trading under our new ticker symbol, "DAY," on the NYSE and the TSX.

On February 1, 2024 we completed the purchase of 100% of the outstanding shares of eloomi A/S, a learning experience platform software provider based in Copenhagen, Denmark, and Orlando, Florida.

Results of Operations

Year Ended December 31, 2023 Compared with Year Ended December 31, 2022

The following table sets forth our results of operations for the periods presented:

	Year Ended December 31,		Increase/(Decrease)	Percentage of Revenue
		2023		2022		Amount	%	2023	2022
		(In millions)
Revenue:
Recurring
Cloud	$	1,211.4	$	908.4	$	303.0	33.4%	80.0%	72.9%
Other		85.9		139.2		(53.3)	(38.3)%	5.7%	11.2%
Total recurring		1,297.3		1,047.6		249.7	23.8%	85.7%	84.1%
Professional services and other		216.4		198.6		17.8	9.0%	14.3%	15.9%
Total revenue		1,513.7		1,246.2		267.5	21.5%	100.0%	100.0%
Cost of revenue:
Recurring
Cloud		278.5		254.4		24.1	9.5%	18.4%	20.4%
Other		46.4		55.0		(8.6)	(15.6)%	3.1%	4.4%
Total recurring		324.9		309.4		15.5	5.0%	21.5%	24.8%
Professional services and other		265.6		238.7		26.9	11.3%	17.5%	19.2%
Product development and management		209.9		169.9		40.0	23.5%	13.9%	13.6%
Depreciation and amortization		66.8		55.0		11.8	21.5%	4.4%	4.4%
Total cost of revenue		867.2		773.0		94.2	12.2%	57.3%	62.0%
Gross profit		646.5		473.2		173.3	36.6%	42.7%	38.0%
Selling and marketing		250.2		251.5		(1.3)	(0.5)%	16.5%	20.2%
General and administrative		263.2		247.5		15.7	6.3%	17.4%	19.8%
Operating profit (loss)		133.1		(25.8)		158.9	615.9%	8.8%	(2.1)%
Interest expense, net		36.1		28.6		7.5	26.2%	2.4%	2.3%
Other expense, net		1.0		8.5		(7.5)	(88.2)%	0.1%	0.7%
Income (loss) before income taxes		96.0		(62.9)		158.9	252.6%	6.3%	(5.0)%
Income tax expense		41.2		10.5		30.7	292.4%	2.7%	0.8%
Net income (loss)	$	54.8	$	(73.4)	$	128.2	174.7%	3.6%	(5.9)%

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2023 MDA

Revenue. The following table sets forth certain information regarding our consolidated revenues for the periods presented:

							Percentage
						Impact of	change in
						changes in	revenue on
					Percentage	foreign	a constant
					change in	currency	currency
		Year Ended December 31,	revenue	(a)	basis (a)
					2023 vs.		2023 vs.
		2023		2022	2022		2022
		(In millions)
Revenue:
Recurring revenue:
Dayforce recurring, excluding float	$	962.9	$	752.8	27.9%	(0.8)%	28.7%
Dayforce float		148.2		62.4	137.5%	(2.1)%	139.6%
Total Dayforce recurring		1,111.1		815.2	36.3%	(0.9)%	37.2%
Powerpay recurring, excluding float		81.9		80.7	1.5%	(3.7)%	5.2%
Powerpay float		18.4		12.5	47.2%	(5.6)%	52.8%
Total Powerpay recurring		100.3		93.2	7.6%	(4.0)%	11.6%
Total Cloud recurring		1,211.4		908.4	33.4%	(1.2)%	34.6%
Other recurring (b)		85.9		139.2	(38.3)%	(2.0)%	(36.3)%
Total recurring revenue		1,297.3		1,047.6	23.8%	(1.4)%	25.2%
Professional services and other (c)		216.4		198.6	9.0%	(1.1)%	10.1%
Total revenue	$	1,513.7	$	1,246.2	21.5%	(1.3)%	22.8%

1. We have calculated percentage change in revenue on a constant currency by applying the average foreign exchange rate in effect during the comparable prior period. Please refer to the "Non-GAAPFinancial Measures"section for discussion of percentage change in revenue on a constant currency basis.
2. Other recurring contains solutions previously described as Bureau. Float attributable to this solution was $2.1 million and $5.3 million for the years ended December 31, 2023, and 2022, respectively.
3. For the year ended December 31, 2023, Professional services and other consisted of $202.1 million, $13.8 million, and $0.5 million associated with Dayforce, Other, and Powerpay, respectively. For the year ended December 31, 2022, Professional services and other consisted of $181.7 million, $16.2 million, and $0.7 million associated with Dayforce, Other, and Powerpay, respectively.

Total revenue increased $267.5 million, or 21.5%, to $1,513.7 million for the year ended December 31, 2023, compared to $1,246.2 million for the year ended December 31, 2022. This increase was primarily driven by an increase in live Dayforce customers, the increase in Dayforce recurring revenue per customer, and the increase in float revenue. The number of live Dayforce customers increased 6.7% to 6,393 at December 31, 2023 from 5,993 at December 31, 2022, representing approximately 6.84 million global employees*. Additionally for the trailing twelve months ended December 31, 2023, Dayforce recurring revenue per customer grew to $146,771 compared to $121,425 for the comparable period in 2022.

The increase in Dayforce recurring revenue per customer is driven by our growing average customer size, as we have been expanding within the enterprise segment, as well as more customers purchasing the comprehensive suite of Dayforce functionality. At the end of 2023, enterprise businesses, major businesses, and small businesses accounted for 59%, 36% and 5% of the total number of global employees, respectively, as compared to the end of 2022, when enterprise businesses, major businesses, and small businesses accounted for 51%, 41% and 8% of the total number of global employees, respectively.*

Tax migration from legacy infrastructure to the same platform as Dayforce contributed approximately 490 basis points of growth for the year ended December 31, 2023 to Dayforce recurring revenue, excluding float.

The increase in float revenue is driven by the 3.0% increase in average float balance for our customer funds for the year ended December 31, 2023, which increased to $4.50 billion, compared to $4.37 billion for the year ended December 31, 2022, in addition to an increase in average yield of 192 basis points compared to the year ended December 31, 2022.

Cost of revenue. Total cost of revenue for the year ended December 31, 2023, was $867.2 million, an increase of $94.2 million, or 12.2%, compared to the year ended December 31, 2022.

*Excluding the 2021 acquisitions of Ascender and ADAM HCM.

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2023 MDA

Recurring cost of revenue increased by $15.5 million, or 5.0%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to additional labor-related costs incurred to support the growing Dayforce customer base globally, partially offset by a reduction in severance and restructuring costs related to the integration of acquisitions and re-balancing of resources across our global footprint during the year ended December 31, 2022.

Professional services and other cost of revenue increased $26.9 million, or 11.3%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to increased labor-related costs incurred to take new customers live and increased share-based compensation expense.

Product development and management expense increased $40.0 million, or 23.5%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. The increase reflects additional personnel costs, including share-based compensation. For the years ended December 31, 2023, and 2022, our investment in software development was $198.5 million and $162.2 million, respectively, consisting of $112.0 million and $92.3 million of research and development expense, and $86.5 million and $69.9 million of capitalized software development, respectively. Please refer to Part II, Item 8, 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 $11.8 million, or 21.5%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, as we continue to capitalize Dayforce related and other development costs and subsequently amortize those costs.

Gross profit and gross margin.The following table presents total gross margin and solution gross margins for the periods presented:

Year Ended December 31,
2023	2022
Total gross margin	42.7%	38.0%
Gross margin by solution:
Cloud recurring	77.0%	72.0%
Other recurring	46.0%	60.5%
Professional services and other	(22.7)%	(20.2)%

Total gross margin is defined as total gross profit as a percentage of total revenue, which is inclusive of product development and management costs, as well as depreciation and amortization associated with cost of revenue. Gross margin for each solution in the table above is defined as total revenue less cost of revenue for the applicable solution as a percentage of total revenue for that related solution, which is exclusive of any product development and management or depreciation and amortization cost allocations.

Total gross margin for the year ended December 31, 2023 increased 470 basis points compared to December 31, 2022, and gross profit increased by $173.3 million, or 36.6%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase in gross margin and gross profit was primarily due to the increase in revenue, including float revenue, which outpaced the increase in cost of revenue.

Cloud recurring gross margin was 77.0% for the year ended December 31, 2023, compared to 72.0% for the year ended December 31, 2022. The increase in Cloud recurring gross margin was primarily due to the increase in float revenue and reduction in severance expense associated with the re-balancing of resources across our global footprint in 2022. The increase is also due to the growth of the proportion of Dayforce customers live for more than two years, which increased from 82% as of December 31, 2022 to 85% as of December 31, 2023.

Professional services and other gross margin was (22.7)% for the year ended December 31, 2023, declining from (20.2)% for the year ended December 31, 2022, reflecting additional costs incurred to take new customers live, expansion of our capabilities to serve international customers, and increased share-based compensation.

Selling and marketing expense.Selling and marketing expense decreased $1.3 million, or 0.5%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. The reduction in selling and marketing expense is primarily driven by a reduction in commission expense due to increasing the expected period of benefit of our deferred sales commissions from five years to ten years, partially offset by an increase in investment in our sales force in order to support our growth initiatives.

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2023 MDA

General and administrative expense.General and administrative expense increased $15.7 million, or 6.3%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. The increase in general and administrative expense is driven by increases in amortization of acquisition-related intangible assets and employee-related costs, partially offset by a reduction in share-based compensation related to specific individual awards becoming fully vested or forfeited during 2023. In the third quarter of 2023, our Board of Directors approved plans to transition our Company's name and branding from Ceridian HCM Holding Inc. to Dayforce, Inc. Given the significance of this transition, we assessed the impact on the carrying amount of $167.2 million related to our Ceridian trade name intangible asset. The Ceridian trade name was deemed to have a finite life of two years and began being amortized in the third quarter of 2023, leading to an increase in amortization expense for the year ended December 31, 2023.

Operating profit (loss).Operating profit for the year ended December 31, 2023, was $133.1 million, compared to operating loss of $25.8 million for the year ended December 31, 2022. The $158.9 million change was primarily due to the increase in revenue, including float revenue, gross margin expansion, reductions in severance and restructuring expenses, and the reduction in commission expense, partially offset by an increase in amortization expense.

Interest expense, net.Interest expense, net for the year ended December 31, 2023, was $36.1 million, compared to $28.6 million for the year ended December 31, 2022. The increase was primarily due to an increase in applicable reference rates on our Term Debt, partially offset by an increase in interest income.

Other expense, net.For the years ended December 31, 2023 and 2022, other expense, net of $1.0 million and $8.5 million, respectively, was comprised of foreign currency translation (gains) losses and net periodic pension expense.

Income tax expense.For the years ended December 31, 2023 and 2022, we had income tax expense of $41.2 million and $10.5 million, respectively. The $30.7 million increase in tax expense was primarily due to increases of $33.4 million attributed to current operations, $11.4 million attributed to valuation allowances, $5.0 million attributed to state taxes, and other tax expense of $6.2 million, offset by decreases of $15.1 million attributed to U.S. Global Intangible Low Tax Income regime, $5.7 million attributed to tax credits, and $4.5 million attributed to share-based compensation. 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 of December 31, 2023, we will continue to record a valuation allowance against certain deferred tax assets including state net operating loss carryovers and tax basis intangibles.

Net income (loss).Net income was $54.8 million for the year ended December 31, 2023, compared to net loss of $73.4 million for the year ended December 31, 2022. The increase in net income was primarily due to an increase in revenue, including float revenue, gross margin expansion, and reductions in severance, restructuring and commission expenses, partially offset by increases in amortization expense and income tax expense.

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2023 MDA

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. Our primary liquidity needs are related to funding of general business requirements, including the payment of interest and principal on our debt, capital expenditures, fulfilling our contractual commitments, product development, and funding Dayforce Wallet on-demand pay requests on behalf of our customers. From time to time, we have made investments in businesses or acquisitions of companies. As of December 31, 2023, we had cash and equivalents of $570.3 million and our total debt balance was $1,226.6 million. Please refer to Part II, Item 8, Note 9, "Debt," to our consolidated financial statements and "Our Indebtedness"section below for further information on our debt.

We believe that our cash flow from operations, available cash and equivalents, and availability under our Revolving Credit Facility will be sufficient to meet our liquidity needs for the next twelve months and for the foreseeable future. Dayforce Wallet on-demand pay requests are currently funded from our operating cash balances, until it is reimbursed by our 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 and/or dilution.

Our customer funds are held and invested with the primary objectives being to protect the principal balance and to ensure adequate liquidity to meet cash flow requirements. The customer assets are held in segregated accounts intended for the specific purpose of satisfying customer funding obligations and therefore are not freely available for our general business use. Please refer to Part II, Item 8, Note 4, "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,
		2023		2022
		(In millions)
Net cash provided by operating activities	$	219.5	$	132.6
Net cash used in investing activities		(202.8)		(342.5)
Net cash provided by financing activities		242.0		764.6
Effect of exchange rate changes on cash, restricted cash, and equivalents		11.5		(46.8)
Net increase in cash, restricted cash, and equivalents		270.2		507.9
Cash, restricted cash, and equivalents at beginning of period		3,151.2		2,643.3
Cash, restricted cash, and equivalents at end of period		3,421.4		3,151.2
Cash and equivalents		570.3		431.9
Restricted cash and equivalents		2,851.1		2,719.3
Total cash, restricted cash, and equivalents	$	3,421.4	$	3,151.2

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2023 MDA

Operating Activities

Net cash provided by operating activities was $219.5 million during the year ended December 31, 2023, compared to $132.6 million during the year ended December 31, 2022. For both periods, cash inflows from operating activities are primarily generated from the subscriptions of our solutions. Cash outflows from operating activities for both periods are primarily comprised of personnel-related expenditures that are integral to our business operations. The net positive cash inflow in both periods is primarily due to our growing revenue, partially offset by our operating costs, mainly, investment in our sales force to support our growth initiatives and our product development and management costs which are not eligible for capitalization.

Investing Activities

During the year ended December 31, 2023, net cash used in investing activities was $202.8 million, primarily consisting of purchases of customer funds marketable securities of $528.1 million, capital expenditures of $114.4 million, and purchases of marketable securities of $6.8 million, partially offset by proceeds from the sale and maturity of customer funds marketable securities of $445.5 million, and proceeds from the sale and maturity of marketable securities of $2.0 million. Our capital expenditures included $95.4 million for software and technology and $19.0 million for property, plant and equipment.

During the year ended December 31, 2022, net cash used in investing activities was $342.5 million, consisting of purchases of customer funds marketable securities of $652.8 million and capital expenditures of $94.5 million, partially offset by proceeds from the sale and maturity of customer funds marketable securities of $404.8 million. Our capital expenditures included $74.3 million for software and technology and $20.2 million for property, plant and equipment.

Financing Activities

Net cash provided by financing activities was $242.0 million during the year ended December 31, 2023. This cash inflow was primarily attributable to the net increase in our customer funds obligations of $200.9 million and proceeds from the issuance of common stock under our share-based compensation plans of $49.0 million, partially offset by payments on our long-term debt obligations of $7.9 million.

Net cash provided by financing activities was $764.6 million during the year ended December 31, 2022. This cash inflow was primarily attributable to the net increase in our customer funds obligations of $734.6 million and proceeds from the issuance of common stock under our share-based compensation plans of $38.4 million, partially offset by payments on our long-term debt obligations of $8.4 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 of December 31, 2023, approximately $1.22 billion 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, fulfilling our contractual commitments, product development, and funding Dayforce Wallet on-demand pay requests on behalf of our customers. From time to time, we have made investments in businesses or acquisitions of companies, which are also liquidity needs. We believe 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.

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Senior Secured Credit Facility

On April 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 in U.S. Dollars, Canadian Dollars, Euros and/or Pounds Sterling; up to $70.0 million may, at our option, be made available for letters of credit and $100.0 million may, at our option, be made available for swingline loans (denominated in Canadian Dollars and/or U.S. Dollars).

The Term Debt and Revolving Credit Facility will mature on April 30, 2025 and January 29, 2025, respectively. 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. On August 1, 2023, we completed the third amendment to our Senior Secured Credit Facility, which replaced LIBOR with Secured Overnight Financing Rate ("SOFR"). As of December 31, 2023, our floating rate on the Term Debt interest was SOFR plus 2.5% and the applicable Term SOFR Adjustment ranged from approximately 0.1% to 0.4%, depending on term. The Revolving Credit Facility does not require amortization payments.

Convertible Senior Notes

In March 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 Part II, Item 8, 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 Part II, Item 8, Note 9, "Debt,"to our consolidated financial statements, and the "Our Indebtedness"section above.

As of December 31, 2023, 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 recognized lease abandonment charges within general and administrative on our consolidated statements of operations; however, we are still required to make future payments under the existing lease terms. Refer to Part II, Item 8, Note 6, "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. As of December 31, 2023, our defined benefit pension plans had a projected benefit obligation that exceeded the fair value of the plans' assets by $21.5 million and our postretirement benefit plan had a projected benefit obligation that exceeded the fair value of the plans' assets by $8.5 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 Part II, Item 8, 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 December 31, 2023 was not material.

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