CDK Global, Inc. Reports Third Quarter Fiscal 2021 Results
05/06/2021 - 04:01 PM
Largest Site Increase Since 2016; Announces Repurchase Program
HOFFMAN ESTATES, Ill., May 06, 2021 (GLOBE NEWSWIRE) -- CDK Global, Inc. (NASDAQ: CDK) today announced financial results for its fiscal 2021 third quarter ended March 31, 2021.
"CDK delivered the strongest increase in Auto DMS sites since 2016, representing our ninth straight quarter of year-over-year growth," said Brian Krzanich, CDK chief executive officer. "Our strong customer-focused approach has resonated with dealers and OEMs, and coupled with enhancements to our software and integrations, has resulted in new customer growth and increased penetration within our base. We are excited about the significant progress we've made during the quarter and look forward to future investment opportunities as we continue our on strategic growth journey."
"We achieved the highest total company site count and revenue per site in our history," said Eric Guerin, CDK chief financial officer. "Revenue was up two percent on solid underlying fundamentals within our DMS and core applications business. During the quarter, we closed the sale of our International business, reduced outstanding debt and are now announcing our intention to resume share repurchases. Guidance for the fiscal year has been revised to narrow the ranges as we head into our fourth quarter."
Third Quarter Fiscal 2021 Results
CDK Global, Inc. Q3 2021 Change from ($ million except per share) Revenue $ 433.1 +2 % GAAP Earnings before income taxes 71.2 -35 % Non-GAAP Adjusted earnings before income taxes 112.3 -9 % GAAP Diluted earnings attributable to CDK per share 7.00 n/m Non-GAAP Adjusted diluted earnings attributable to CDK per share 0.69 -9 % GAAP effective tax rate 33.8 % 470 bps Non-GAAP effective tax rate 22.7 % -30 bps GAAP Net earnings attributable to CDK 860.9 n/m GAAP Net earnings attributable to CDK margin 198.8 % n/m Non-GAAP Adjusted EBITDA 166.3 -6 % Non-GAAP Adjusted EBITDA margin 38.4 % -330 bps
The non-GAAP results and guidance presented in this press release represent non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are provided in the tables at the end of this press release.
Fiscal 2021 Annual Guidance
CDK Global, Inc. - GAAP BASIS PREVIOUS FY 2021 CURRENT FY 2021 ($ million except per share) GAAP GUIDANCE GAAP GUIDANCE Revenue $1,660 - $1,710 $1,660 - $1,700 GAAP Diluted earnings attributable to CDK per share $8.10 - $8.40 $8.30 - $8.45 GAAP Net earnings attributable to CDK $990 - $1,030 $1,020 - $1,040 GAAP Effective tax rate 29% - 30% 31% - 32%
CDK Global, Inc. - Non-GAAP BASIS PREVIOUS FY 2021 CURRENT FY 2021 ($ million except per share) ADJ. GUIDANCE ADJ. GUIDANCE Revenue $1,660 - $1,710 $1,660 - $1,700 Non-GAAP Adjusted diluted earnings attributable to CDK per share $2.45 - $2.75 $2.50 - $2.65 Non-GAAP Adjusted EBITDA $640 - $680 $640 - $660 Non-GAAP Adjusted effective tax rate 26% - 27% 26% - 27%
Website Schedules https://investors.cdkglobal.com , in the “Financial Information” section.
Webcast and Conference Call https://investors.cdkglobal.com , and click on the webcast icon. A supplemental slide presentation will be available to download and print about 30 minutes before the webcast at the CDK Investor Relations website at https://investors.cdkglobal.com . CDK financial news releases, current financial information, SEC filings and Investor Relations presentations are accessible at the same website.
About CDK Global
CDK Global (NASDAQ: CDK) is a leading provider of integrated data and technology solutions to the automotive, heavy truck, recreation and heavy equipment industries. Focused on enabling end-to-end, omnichannel retail commerce through open, agnostic technology, CDK Global provides solutions to dealers and original equipment manufacturers, serving nearly 15,000 retail locations in North America. CDK's solutions connect people with technology by automating and integrating all parts of the dealership and buying process, including the acquisition, sale, financing, insuring, parts supply, repair and maintenance of vehicles. Visit cdkglobal.com.
Safe Harbor for Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of the Private Security Litigation Reform Act of 1995. All statements regarding the Company’s business outlook, including the Company’s GAAP and adjusted fiscal 2021 guidance; other plans; objectives; forecasts; goals; beliefs; business strategies; future events; business conditions; results of operations; financial position and business outlook and trends; and other information, may be forward-looking statements. Words such as "might," "will," "may," "could," "should," "estimates," "expects," "continues," "contemplates," "anticipates," "projects," "plans," "potential," "predicts," "intends," "believes," "forecasts," "future," "assumes," and variations of such words or similar expressions are intended to identify forward-looking statements. These statements are based on management's expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed, or implied by, these forward-looking statements.
Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include: the Company’s expectations regarding the potential impacts on the Company’s business of the outbreak of the COVID-19 pandemic; the Company’s success in obtaining, retaining and selling additional services to customers; the pricing of the Company’s products and services; overall market and economic conditions, including interest rate and foreign currency trends, and technology trends; adverse global economic conditions and credit markets and volatility in the countries in which we do business; auto sales and related industry changes; competitive conditions; changes in regulation; changes in technology, security breaches, interruptions, failures and other errors involving the Company’s systems; availability of skilled technical employees/labor/personnel; the impact of new acquisitions and divestitures; employment and wage levels; availability of capital for the payment of debt service obligations or dividends or the repurchase of shares; any changes to the Company’s credit ratings and the impact of such changes on financing costs, rates, terms, debt service obligations, access to capital market and working capital needs; the impact of the Company’s indebtedness, access to cash and financing, and ability to secure financing, or financing at attractive rates; the onset of or developments in litigation involving contract, intellectual property, competition, shareholder, and other matters, and governmental investigations; and the ability of the Company’s significant stockholders and their affiliates to significantly influence the Company’s decisions or cause it to incur significant costs.
There may be other factors that may cause the Company’s actual results, performance or achievements to differ materially from those expressed in, or implied by, the forward-looking statements. The Company gives no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on its results of operations and financial condition. You should carefully read the factors described in the Company’s reports filed with the Securities and Exchange Commission ("SEC"), including those discussed under "Part I, Item 1A. Risk Factors" in its most recent Annual Report on Form 10-K and its most recent Quarterly Report on Form 10-Q for a description of certain risks that could, among other things, cause the Company’s actual results to differ from any forward-looking statements contained herein. These filings can be found on the Company’s website at https://investors.cdkglobal.com and the SEC's website at www.sec.gov .
All forward-looking statements speak only as of the date of this press release even if subsequently made available by the Company on its website or otherwise. The Company disclaims any obligation to update or revise any forward-looking statements that may be made to reflect new information or future events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events, other than as required by law.
CDK Global, Inc. Consolidated Statements of Operations
Three Months Ended Nine Months Ended March 31, March 31, 2021 2020 2021 2020 Revenue $ 433.1 $ 426.4 $ 1,253.1 $ 1,262.3 Expenses: Cost of revenue 221.3 198.8 653.7 598.9 Selling, general and administrative expenses 90.2 81.6 263.8 259.1 Litigation provision — — 12.0 — Total expenses 311.5 280.4 929.5 858.0 Operating earnings 121.6 146.0 323.6 404.3 Interest expense (32.2 ) (35.2 ) (101.2 ) (109.1 ) Loss on extinguishment of debt (2.2 ) — (2.2 ) — Loss from equity method investment (19.6 ) — (24.8 ) — Other income, net 3.6 (1.7 ) 32.3 2.7 Earnings before income taxes 71.2 109.1 227.7 297.9 Provision for income taxes (24.1 ) (31.7 ) (73.8 ) (95.5 ) Net earnings from continuing operations 47.1 77.4 153.9 202.4 Net earnings (loss) from discontinued operations 815.8 (17.9 ) 837.1 (34.7 ) Net earnings 862.9 59.5 991.0 167.7 Less: net earnings attributable to noncontrolling interest 2.0 1.9 6.1 5.8 Net earnings attributable to CDK $ 860.9 $ 57.6 $ 984.9 $ 161.9 Net earnings attributable to CDK per share - basic: Continuing operations $ 0.37 $ 0.62 $ 1.21 $ 1.62 Discontinued operations 6.69 (0.15 ) 6.87 (0.29 ) Total net earnings attributable to CDK per share - basic $ 7.06 $ 0.47 $ 8.08 $ 1.33 Net earnings attributable to CDK per share - diluted: Continuing operations $ 0.36 $ 0.62 $ 1.21 $ 1.61 Discontinued operations 6.64 (0.15 ) 6.83 (0.28 ) Total net earnings attributable to CDK per share - diluted $ 7.00 $ 0.47 $ 8.04 $ 1.33 Weighted-average common shares outstanding: Basic 122.0 121.6 121.9 121.5 Diluted 122.9 122.2 122.5 122.1
The International Business is presented as discontinued operations and prior year amounts associated with the International Business have been reclassified as such. For additional information refer to Form 10-Q, Item 1 of Part I, "Notes to the Consolidated Financial Statements," Note 1 - Basis of Presentation and Note 4 - Discontinued Operations.
CDK Global, Inc. Consolidated Balance Sheets
March 31, June 30, 2021 2020 Assets Cash and cash equivalents $ 1,131.8 $ 80.8 Accounts receivable, net of allowances 248.7 242.0 Other current assets 182.0 148.4 Current assets held for sale — 214.4 Total current assets 1,562.5 685.6 Property, plant and equipment, net 79.4 96.7 Other assets 413.4 418.3 Goodwill 1,013.6 999.5 Intangible assets, net 252.9 229.5 Long-term assets held for sale — 424.5 Total assets $ 3,321.8 $ 2,854.1 Liabilities and Stockholders' Equity (Deficit) Current maturities of long-term debt and finance lease liabilities $ 500.3 $ 20.7 Accounts payable 29.2 34.3 Accrued expenses and other current liabilities 207.3 173.5 Income taxes payable 165.0 14.8 Litigation liability 34.0 57.0 Accrued payroll and payroll-related expenses 66.1 52.5 Short-term deferred revenue 39.6 44.6 Current liabilities held for sale — 129.4 Total current liabilities 1,041.5 526.8 Long-term debt and finance lease liabilities 1,589.4 2,655.1 Long-term deferred revenue 41.7 39.4 Deferred income taxes 80.0 76.4 Other liabilities 103.5 96.5 Long-term liabilities held for sale — 40.6 Total liabilities 2,856.1 3,434.8 Stockholders' Equity (Deficit): Preferred stock — — Common stock 1.6 1.6 Additional paid-in capital 705.0 687.9 Retained earnings 1,966.6 1,045.5 Treasury stock, at cost (2,294.9 ) (2,305.2 ) Accumulated other comprehensive income (loss) 72.1 (25.9 ) Total CDK stockholders' equity (deficit) 450.4 (596.1 ) Noncontrolling interest 15.3 15.4 Total stockholders' equity (deficit) 465.7 (580.7 ) Total liabilities and stockholders' equity (deficit) $ 3,321.8 $ 2,854.1
The International Business is presented as discontinued operations and prior year amounts associated with the International Business have been reclassified as such. For additional information refer to Form 10-Q, Item 1 of Part I, "Notes to the Consolidated Financial Statements," Note 1 - Basis of Presentation and Note 4 - Discontinued Operations.
CDK Global, Inc. Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2021 2020 Cash Flows from Operating Activities: Net earnings $ 991.0 $ 167.7 Less: net earnings (loss) from discontinued operations 837.1 (34.7 ) Net earnings from continuing operations 153.9 202.4 Adjustments to reconcile net earnings from continuing operations to cash flows provided by operating activities: Depreciation and amortization 71.1 66.7 Loss from equity method investment 24.8 — Deferred income taxes 0.7 14.9 Stock-based compensation expense 31.7 13.1 Other 9.2 13.2 Changes in assets and liabilities, net of effect from acquisitions of businesses: Change in accounts receivable (5.1 ) (44.3 ) Change in other assets (43.8 ) (26.6 ) Change in accounts payable (4.8 ) 9.5 Change in accrued expenses and other liabilities 16.2 (8.1 ) Net cash flows provided by operating activities, continuing operations 253.9 240.8 Net cash flows provided by operating activities, discontinued operations 6.9 70.9 Net cash flows provided by operating activities 260.8 311.7 Cash Flows from Investing Activities: Capital expenditures (15.2 ) (13.9 ) Capitalized software (51.0 ) (42.5 ) Acquisitions of businesses, net of cash acquired (18.1 ) — Investment in certificates of deposit — (12.0 ) Proceeds from maturities of certificates of deposit — 12.0 Purchases of investments — (20.0 ) Net cash flows used in investing activities, continuing operations (84.3 ) (76.4 ) Net cash flows provided by (used in) investing activities, discontinued operations 1,380.9 (12.3 ) Net cash flows provided by (used in) investing activities 1,296.6 (88.7 ) Cash Flows from Financing Activities: Net proceeds (repayments) from revolving credit facility (15.0 ) 100.0 Repayments of long-term debt and finance lease liabilities (578.0 ) (265.8 ) Dividends paid to stockholders (54.8 ) (54.7 ) Proceeds from exercises of stock options 2.1 6.1 Withholding tax payments for stock-based compensation awards (4.5 ) (5.7 ) Dividend payments to noncontrolling owners (6.2 ) (6.6 ) Acquisition-related payments — (5.3 ) Net cash flows used in financing activities, continuing operations (656.4 ) (232.0 ) Net cash flows used in financing activities, discontinued operations — (1.1 ) Net cash flows used in financing activities (656.4 ) (233.1 ) Effect of exchange rate changes on cash, cash equivalents, and restricted cash, including cash classified in current assets held for sale 21.1 (15.6 ) Net change in cash, cash equivalents, and restricted cash, including cash classified in current assets held for sale 922.1 (25.7 ) Net change in cash classified in current assets held for sale 134.9 58.0 Net change in cash, cash equivalents and restricted cash 1,057.0 32.3 Cash, cash equivalents, and restricted cash, beginning of period 97.3 144.2 Cash, cash equivalents, and restricted cash, end of period $ 1,154.3 $ 176.5
The International Business is presented as discontinued operations and prior year amounts associated with the International Business have been reclassified as such. For additional information refer to Form 10-Q, Item 1 of Part I, "Notes to the Consolidated Financial Statements," Note 1 - Basis of Presentation and Note 4 - Discontinued Operations.
CDK Global, Inc. Consolidated Adjusted Financial Information
As described below under the Non-GAAP Financial Measures section of this press release, we incorporated the following additional adjustments in our calculations of non-GAAP financial measures where management has deemed it appropriate to better reflect our underlying operations. These adjustments are inconsistent in amount and frequency and do not directly reflect our underlying operations. Therefore, management believes that excluding such information provides us with a better understanding of our ongoing operating performance across periods.
Three Months Ended Nine Months Ended March 31, Change March 31, Change 2021 2020 $ % 2021 2020 $ % Revenue (a) $ 433.1 $ 426.4 $ 6.7 2 % $ 1,253.1 $ 1,262.3 $ (9.2 ) (1 )% Earnings before income taxes (a) $ 71.2 $ 109.1 $ (37.9 ) (35 )% $ 227.7 $ 297.9 $ (70.2 ) (24 )% Margin 16.4 % 25.6 % -920 bps 18.2 % 23.6 % -540 bps Stock-based compensation expense 10.4 2.2 31.7 13.2 Amortization of acquired intangible assets 4.2 3.8 12.4 11.4 Transaction and integration-related costs 2.4 — 3.6 8.5 Legal and other expenses related to regulatory and competition matters 0.9 4.4 15.6 16.6 Business process modernization program 3.9 4.4 9.4 12.0 Officer transition expense — — 1.1 — Net adjustments related to loss from equity method investment 17.1 — 21.6 — Loss on extinguishment of debt 2.2 — 2.2 — Adjusted earnings before income taxes (a) (b) $ 112.3 $ 123.9 $ (11.6 ) (9 )% $ 325.3 $ 359.6 $ (34.3 ) (10 )% Adjusted margin 25.9 % 29.1 % -320 bps 26.0 % 28.5 % -250 bps
Three Months Ended Nine Months Ended March 31, Change March 31, Change 2021 2020 $ % 2021 2020 $ % Provision for income taxes (a) $ 24.1 $ 31.7 $ (7.6 ) (24 )% $ 73.8 $ 95.5 $ (21.7 ) (23 )% Effective tax rate 33.8 % 29.1 % 32.4 % 32.1 % Income tax effect of pre-tax adjustments 8.4 3.8 18.3 14.9 Income tax effect for foreign earnings previously deemed indefinitely reinvested — (7.0 ) — (7.0 ) Change in deferred tax valuation allowance (7.0 ) — (7.0 ) (14.8 ) Impact of U.S tax reform — — — 0.3 Adjusted provision for income taxes (a) (b) $ 25.5 $ 28.5 $ (3.0 ) (11 )% $ 85.1 $ 88.9 $ (3.8 ) (4 )% Adjusted effective tax rate 22.7 % 23.0 % 26.2 % 24.7 %
Three Months Ended Nine Months Ended March 31, Change March 31, Change 2021 2020 $ % 2021 2020 $ % Net earnings $ 862.9 $ 59.5 $ 803.4 n/m $ 991.0 $ 167.7 $ 823.3 n/m Less: net earnings attributable to noncontrolling interest 2.0 1.9 6.1 5.8 Net earnings attributable to CDK $ 860.9 $ 57.6 $ 803.3 n/m $ 984.9 $ 161.9 $ 823.0 n/m Net (earnings) loss from discontinued operations (815.8 ) 17.9 (837.1 ) 34.7 Stock-based compensation expense 10.4 2.2 31.7 13.2 Amortization of acquired intangible assets (c) 4.1 3.7 12.1 11.1 Transaction and integration-related costs 2.4 — 3.6 8.5 Legal and other expenses related to regulatory and competition matters 0.9 4.4 15.6 16.6 Business process modernization program 3.9 4.4 9.4 12.0 Officer transition expense — — 1.1 — Net adjustments related to loss from equity method investment 17.1 — 21.6 — Loss on extinguishment of debt 2.2 — 2.2 — Income tax effect on pre-tax adjustments (8.4 ) (3.8 ) (18.3 ) (14.9 ) Income tax effect for foreign earnings previously deemed indefinitely reinvested — 7.0 — 7.0 Change in deferred tax valuation allowance 7.0 — 7.0 14.8 Impact of U.S tax reform — — — (0.3 ) Adjusted net earnings attributable to CDK (a) (b) (c) $ 84.7 $ 93.4 $ (8.7 ) (9 )% $ 233.8 $ 264.6 $ (30.8 ) (12 )%
Three Months Ended Nine Months Ended March 31, Change March 31, Change 2021 2020 $ % 2021 2020 $ % Diluted earnings attributable to CDK per share $ 7.00 $ 0.47 $ 6.53 n/m $ 8.04 $ 1.33 $ 6.71 n/m Net (earnings) loss from discontinued operations (6.64 ) 0.15 (6.83 ) 0.28 Stock-based compensation expense 0.08 0.02 0.26 0.11 Amortization of acquired intangible assets (c) 0.03 0.03 0.10 0.09 Transaction and integration-related costs 0.02 — 0.03 0.07 Legal and other expenses related to regulatory and competition matters 0.02 0.03 0.12 0.13 Business process modernization program 0.03 0.03 0.07 0.10 Officer transition expense — — 0.01 — Net adjustments related to loss from equity method investment 0.14 — 0.18 — Loss on extinguishment of debt 0.02 — 0.02 — Income tax effect on pre-tax adjustments (0.07 ) (0.03 ) (0.15 ) (0.12 ) Income tax effect for foreign earnings previously deemed indefinitely reinvested — 0.06 — 0.06 Change in deferred tax valuation allowance 0.06 — 0.06 0.12 Adjusted diluted earnings attributable to CDK per share (a) (b) (c) $ 0.69 $ 0.76 $ (0.07 ) (9 )% $ 1.91 $ 2.17 $ (0.26 ) (12 )% Weighted-average common shares outstanding: Diluted 122.9 122.2 122.5 122.1
Three Months Ended Nine Months Ended March 31, Change March 31, Change 2021 2020 $ % 2021 2020 $ % Net earnings attributable to CDK $ 860.9 $ 57.6 $ 803.3 n/m $ 984.9 $ 161.9 $ 823.0 n/m Margin 198.8 % 13.5 % n/m 78.6 % 12.8 % n/m Net earnings attributable to noncontrolling interest 2.0 1.9 6.1 5.8 Net (earnings) loss from discontinued operations (815.8 ) 17.9 (837.1 ) 34.7 Provision for income taxes 24.1 31.7 73.8 95.5 Interest expense 32.2 35.2 101.2 109.1 Depreciation and amortization 24.6 22.3 71.1 66.7 Stock-based compensation expense 10.4 2.2 31.7 13.2 Transaction and integration-related costs 2.4 — 3.6 8.5 Legal and other expenses related to regulatory and competition matters 0.9 4.4 15.6 16.6 Business process modernization program 3.9 4.4 9.4 12.0 Restructuring expenses — — — — Other business transformation expenses — — — — Impairment of intangible assets — — Officer transition expense — — 1.1 — Net adjustments related to loss from equity method investment 18.5 — 25.7 — Loss on extinguishment of debt 2.2 — 2.2 — Adjusted EBITDA (a) (b) $ 166.3 $ 177.6 $ (11.3 ) (6 )% $ 489.3 $ 524.0 $ (34.7 ) (7 )% Adjusted margin 38.4 % 41.7 % -330 bps 39.0 % 41.5 % -250 bps
Nine Months Ended March 31, 2021 2020 Net cash flows provided by operating activities $ 260.8 $ 311.7 Net cash flows used in operating activities - discontinued operations (6.9 ) (70.9 ) Capital expenditures (15.2 ) (13.9 ) Capitalized software (51.0 ) (42.5 ) Change in restricted cash (6.0 ) (1.2 ) Free cash flow from continuing operations (a) (b) $ 181.7 $ 183.2
(a) Excludes amounts attributable to discontinued operations.
CDK Global, Inc. Revenue Disaggregation
The following table presents revenue by category for the three and nine months ended March 31, 2021 and 2020:
Three Months Ended Nine Months Ended March 31, Change March 31, Change 2021 2020 $ % 2021 2020 $ % Subscription $ 332.1 $ 331.7 $ 0.4 — % $ 984.3 $ 1,000.9 $ (16.6 ) (2 )% On-site license and installation 1.4 2.4 (1.0 ) (42 )% 4.6 7.5 (2.9 ) (39 )% Transaction 43.3 38.1 5.2 14 % 126.3 120.6 5.7 5 % Other 56.3 54.2 2.1 4 % 137.9 133.3 4.6 3 % Total Revenue $ 433.1 $ 426.4 $ 6.7 2 % $ 1,253.1 $ 1,262.3 $ (9.2 ) (1 )%
CDK Global, Inc. Consolidated Fiscal 2021 Guidance
As described below under the Non-GAAP Financial Measures section of this press release, the fiscal 2021 guidance is provided on both a GAAP and a Non-GAAP basis. The table below includes these adjustments for fiscal 2021 guidance.
Fiscal 2021 Point Estimate (a) Guidance Revenue (b) $ 1,680 $1,660 - $1,700 Earnings before income taxes (b) 290 Stock-based compensation expense 45 Amortization of acquired intangible assets 15 Transaction and integration-related costs 5 Legal and other expenses related to regulatory and competition matters 20 Business process modernization program 15 Loss on extinguishment of debt 25 Officer transition expense 1 Net adjustments related to loss from equity method investment 24 Adjusted earnings before income taxes (b)(c) $ 440 Fiscal 2021 Point Estimate (a) Guidance Provision for income taxes (b) $ 92 Effective tax rate 31.7 % 31% - 32% Income tax effect of pre-tax adjustments 17 Change in deferred tax valuation allowance 7 Adjusted provision for income taxes (b)(c) $ 116 Adjusted effective tax rate 26.4 % 26% - 27% Fiscal 2021 Point Estimate (a) Guidance Net earnings (d) $ 1,035 Less: net earnings attributable to noncontrolling interest 8 Net earnings attributable to CDK $ 1,027 Net earnings loss from discontinued operations (837 ) Stock-based compensation expense 45 Amortization of acquired intangible assets 15 Transaction and integration-related expenses 5 Legal and regulatory expenses related to competition matters 20 Business process modernization program 15 Loss on extinguishment of debt 25 Officer transition expense 1 Net adjustments related to loss from equity method investment 24 Income tax effect of pre-tax adjustments (17 ) Change in deferred tax valuation allowance (7 ) Adjusted net earnings attributable to CDK (b)(c) $ 316 Fiscal 2021 Point Estimate (a) Guidance Diluted net earnings attributable to CDK per share (d) $ 8.40 $8.30 - $8.45 Net earnings from discontinued operations (6.84 ) Stock-based compensation expense 0.36 Amortization of acquired intangible assets 0.13 Transaction and integration-related expenses 0.04 Legal and regulatory expenses related to competition matters 0.17 Business process modernization program 0.12 Loss on extinguishment of debt 0.20 Officer transition expense 0.01 Net adjustments related to loss from equity method investment 0.19 Income tax effect of pre-tax adjustments (0.14 ) Change in deferred tax valuation allowance (0.06 ) Adjusted diluted net earnings attributable to CDK per share (b)(c) $ 2.58 $2.50 - $2.65
Fiscal 2021 Point Estimate (a) Guidance Revenue (b) $ 1,680 $1,660 - $1,700 Net earnings attributable to CDK (d) $ 1,027 $1,020 - $1,040 Margin 61.1 % Net earnings attributable to noncontrolling interest 8 Net earnings from discontinued operations (837 ) Provision for income taxes 92 Interest expense 124 Depreciation and amortization 95 Stock-based compensation expense 45 Transaction and integration-related costs 5 Legal and other expenses related to regulatory and competition matters 20 Business process modernization program 15 Loss on extinguishment of debt 25 Officer transition expense 1 Net adjustments related to loss from equity method investment 30 Adjusted EBITDA (b)(c) $ 650 $640 - $660 Adjusted margin 38.7 %
(a) The point estimates are arbitrary amounts in the guidance ranges provided and are not meant to represent CDK's forecast of actual results. They are used solely to provide a means to reconcile each non-GAAP guidance range to the most directly comparable GAAP measure in dollars and percentages, where applicable.
(b) Excludes amounts attributable to discontinued operations.
(c) Refer to the Non-GAAP Financial Measures section of this press release for additional information on our non-GAAP adjustments.
(d) GAAP net earnings attributable to CDK includes the International Business results and the gain on sale reported in discontinued operations.
CDK Global, Inc. Performance Metrics (Unaudited)
CDK management regularly reviews the following key performance measures to evaluate business results and make operating and strategic decisions. These measures are intended to provide directional information regarding trends in our subscription revenue. The following table summarizes these measures for certain subscription revenue.
For the three months ended March 31, 2020 (a) June 30, 2020 (a) September 30, 2020 December 31, 2020 March 31, 2021 Automotive DMS Customer Sites (b) 8,948 8,951 8,966 8,997 9,042 Avg Revenue Per Site (c) $ 9,009 $ 8,034 $ 8,902 $ 9,005 $ 9,153 Adjacencies DMS Customer Sites (b) 5,793 5,768 5,804 5,854 5,930 Avg Revenue Per Site (c) $ 1,784 $ 1,661 $ 1,799 $ 1,822 $ 1,849 Total CDK DMS Customer Sites (b) 14,741 14,719 14,770 14,851 14,972 Avg Revenue Per Site (c) $ 6,171 $ 5,533 $ 6,114 $ 6,179 $ 6,268
(a) Average revenue per Dealer Management System (DMS) customer site has been updated for fiscal 2020 to reflect budgeted foreign exchange rates for fiscal 2021.
(b) DMS Customer Sites (end of period) - We track the number of retail customer sites with an active DMS that sell vehicles in the automotive and adjacent markets as an indicator of our opportunity set for generating subscription revenue. We consider a DMS to be active if we have billed a subscription fee for that solution during the last billing cycle in the period presented in the table. Adjacent markets include heavy truck dealerships that provide vehicles to the over-the-road trucking industry, recreation dealerships in the motorcycle, powersports, marine, and recreational vehicle industries, and heavy equipment dealerships in the agriculture and construction equipment industries.
(c) Average Revenue Per DMS Customer Site (monthly average for period) - Average revenue per DMS customer site is an indicator of the scope of adoption of our solutions by DMS customers. We monitor changes in this metric to measure the effectiveness of our strategy to deepen our relationships with our current customer base through upgrading and expanding solutions. We calculate average revenue per DMS customer site by dividing subscription revenue generated from our solutions, in an applicable quarterly period by the monthly average number of DMS customer sites in the same period, divided by three. The metric includes monthly billing directly associated with the reported DMS sites inclusive of DMS monthly fees, layered applications and data integration fees and excludes (i) subscription revenue generated from customers not included in our DMS customer site count and (ii) subscription revenue related to certain installation and training activities that is deferred then recognized as revenue over the life of the contract.
Non-GAAP Financial Measures
We disclose certain financial measures for our consolidated results on both a GAAP and a non-GAAP basis. The non-GAAP financial measures disclosed should be viewed in addition to, and not as an alternative to, results prepared in accordance with GAAP. Our use of each of the following non-GAAP financial measures may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures, or reconcile them to the comparable GAAP financial measures, in the same way.
Non-GAAP Financial Measure Comparable GAAP Financial Measure Adjusted earnings before income taxes Earnings before income taxes Adjusted provision for income taxes Provision for income taxes Adjusted net earnings attributable to CDK Net earnings attributable to CDK Adjusted diluted earnings attributable to CDK per share Diluted earnings attributable to CDK per share Adjusted EBITDA Net earnings attributable to CDK Adjusted EBITDA margin Net earnings attributable to CDK margin Free cash flow from continuing operations Net cash flows provided by operating activities
We use adjusted earnings before income taxes, adjusted provision for income taxes, adjusted net earnings attributable to CDK, adjusted diluted earnings attributable to CDK per share, adjusted EBITDA and adjusted EBITDA margin internally to evaluate our performance on a consistent basis, because those measures adjust for the impact of certain items that we believe do not directly reflect our underlying operations. By adjusting for these items, we believe we have more precise inputs for use as factors in (i) our budgeting process, (ii) making financial and operational decisions, (iii) evaluating ongoing overall operating performance on a consistent period-to-period basis and relative to our competitors, (iv) target leverage calculations, and (v) determining incentive-based compensation.
We believe our non-GAAP financial measures are helpful to users of the financial statements because they (i) provide investors with meaningful supplemental information regarding financial performance by excluding certain items, (ii) permit investors to view performance using the same tools that management uses, and (iii) otherwise provide supplemental information that may be useful to investors in evaluating our ongoing operating results on a consistent basis. We believe that the presentation of these non-GAAP financial measures, when considered in addition to the corresponding GAAP financial measures and the reconciliations to those measures disclosed below, provides investors with a better understanding of the factors and trends affecting our business than could be obtained absent these disclosures.
We incorporated additional adjustments in our calculations of non-GAAP financial measures where management has deemed it appropriate to better reflect our underlying operations. These adjustments are inconsistent in amount and frequency and do not directly reflect our underlying operations. Therefore, management believes that excluding such information provides us with a better understanding of our ongoing operating performance across periods. Prior period information has been revised to conform to the new presentation.
Fiscal 2021 Modifications to Our Adjustments:
We modified our presentation of adjusted earnings before income taxes, adjusted net earnings attributable to CDK, adjusted diluted earnings attributable to CDK per share, and adjusted EBITDA to include a loss from the extinguishment of debt.
Adjusted Earnings before Income Taxes
Management has excluded the following items from adjusted earnings before income taxes for the periods presented:
Stock-based compensation expense included in cost of revenue and selling, general and administrative expenses. Amortization of acquired intangible assets consists of non-cash amortization of intangible assets such as customer lists, purchased software, and trademarks acquired in connection with business combinations. We exclude the impact of amortization of acquired intangible assets because these non-cash amounts are significantly impacted by the timing and size of individual acquisitions and do not factor into our budgeting process, financial and operational decision making, target leverage calculations, and determination of incentive based pay. Furthermore, management believes that this adjustment enables better comparison of our overall operating results as amortization of acquired intangibles will not recur in future periods once such intangible assets have been fully amortized. Although we exclude amortization of acquired intangible assets from our presentation of adjusted earnings before income taxes, adjusted provision for income taxes, adjusted net earnings attributable to CDK, and adjusted diluted net earnings attributable to CDK per share, we believe that it is important for the users of the financial statements to understand that the associated intangible assets were recorded as part of purchase accounting and contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Any future acquisitions may result in the amortization of additional intangible assets. Transaction and integration-related costs include: (i) legal, accounting, outside service fees, and other costs incurred in connection with assessment and integration of acquisitions and other strategic business opportunities; and (ii) post-close adjustments to acquisition-related contingent consideration, included in cost of revenue and selling, general and administrative expenses. Legal and other expenses, related to regulatory and competition matters included in selling, general and administrative expenses, and litigation provision. Business process modernization program designed to improve the way we do business for our customers through best-in-class product offerings, processes, governance and systems. The business process modernization program will include a comprehensive redesign in the way we go to market, including the quoting, contracting, fulfilling, and invoicing processes, and the systems and tools we use. The investment to implement this holistic business reform, including the design and implementation of a new ERP system, which began in the first quarter of fiscal 2020, will be completed over a three-year time horizon. The expense is included in cost of revenue and selling, general and administrative expenses. Officer transition expense includes severance expense in connection with officer departures included in cost of revenue and selling, general and administrative expenses. Net adjustments related to loss from equity method investment includes certain portions of earnings attributable to an equity interest owned by CDK and a $14.5 million impairment of an equity method investment included in loss from equity method investment. Loss on extinguishment of debt related to the write-off of unamortized debt financing cost as a result of the repayment of indebtedness under the three-year and five-year term loan facilities on March 1, 2021. Adjusted Provision for Income taxes
Management has excluded the following items from adjusted provision for income taxes for the periods presented:
Income tax effect of pre-tax adjustments calculated at applicable statutory rates net of applicable permanent differences. True-up of income tax expense for cumulative withholding tax associated with historical foreign earnings that are no longer considered indefinitely reinvested as of March 31, 2020. The change in assertion was made in response to the uncertainty related to the COVID 19 pandemic and its potential impact on CDK’s liquidity needs. A valuation allowance on a deferred tax asset for the future capital loss on an equity method investment that is not expected to be realized recorded in the third quarter of fiscal 2021 and an increase in valuation allowance associated with a deferred tax asset for a capital loss carryforward which the Company does not expect to utilize recorded in the second quarter of fiscal 2020. In fiscal 2020, a one-time tax benefit for an adjustment of an accrual for foreign withholding taxes related to undistributed earnings as a result of the Tax Reform Act. Adjusted Net Earnings Attributable to CDK and Adjusted Diluted Net Earnings Attributable to CDK per Share
For each respective presentation, management has excluded earnings (loss) from discontinued operations, net of taxes associated with the Company's divestiture of the Digital Marketing Business which closed on April 21, 2020 and the sale of the International Business which closed on March 1, 2021, in addition to the items described above for adjusted earnings before income taxes and adjusted provision for income taxes from adjusted net earnings attributable to CDK and adjusted diluted net earnings attributable to CDK per share.
The portion of expense related to noncontrolling interest has been removed from amortization of acquired intangible assets and legal and other expenses related to regulatory and competition matters for the applicable periods.
Adjusted EBITDA
Management has excluded the following items from net earnings attributable to CDK in order to calculate adjusted EBITDA for the periods presented:
Net earnings attributable to noncontrolling interest included in the financial statements. Net earnings from discontinued operations, net of taxes associated with the Company's divestiture of the Digital Marketing Business which closed on April 21, 2020 and the sale of the International Business which closed on March 1, 2021, included in the financial statements. Provision for income taxes included in the financial statements. Interest expense included in the financial statements. Depreciation and amortization expense included in the financial statements. Stock-based compensation expense included in cost of revenue and selling, general and administrative expenses. Transaction and integration-related costs include: (i) legal, accounting, outside service fees, and other costs incurred in connection with assessment and integration of acquisitions and other strategic business opportunities and (ii) post-close adjustments to acquisition related contingent consideration, reported in cost of revenue and selling, general and administrative expenses. Legal and other expenses, related to regulatory and competition matters included in selling, general and administrative expenses and litigation provision. Business process modernization program designed to improve the way we do business for our customers through best-in-class product offerings, processes, governance and systems. The business process modernization program will include a comprehensive redesign in the way we go to market, including the quoting, contracting, fulfilling, and invoicing processes, and the systems and tools we use. The investment to implement this holistic business reform, including the design and implementation of a new ERP system, which began in the first quarter of fiscal 2020, will be completed over a three-year time horizon. The expense is included in cost of revenue and selling, general and administrative expenses. Officer transition expense includes severance expense in connection with officer departures included in cost of revenue and selling, general and administrative expenses. Net adjustments related to loss from equity method investment includes certain portions of earnings, including depreciation and amortization, attributable to an equity interest owned by CDK and a $14.5 million impairment of an equity method investment included in loss from equity method investment. Loss on extinguishment of debt related to the write-off of unamortized debt financing cost as a result of the repayment of indebtedness under the three year and five year term loan facilities on March 1, 2021. Free Cash Flow
We also review free cash flow from continuing operations as a measure of our ability to generate additional cash from our business operations. Free cash flow from continuing operations is defined as cash flow from operating activities less net cash flows used in operating activities attributable to discontinued operations, amounts paid for capital expenditures and capitalized software and change in restricted cash. Free cash flow from continuing operations should be considered in addition to, rather than as a substitute for consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity. The change in restricted cash is funds held for clients before remittance to agencies for titling and registration services on behalf of those clients.
