Form 8-K
0001609702 False 0001609702 2020-05-05 2020-05-05 iso4217:USD xbrli:shares iso4217:USD xbrli:shares
 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 8-K

_________________

CURRENT REPORT

Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  May 5, 2020

_______________________________

CDK Global, Inc.

(Exact name of registrant as specified in its charter)

_______________________________

Delaware1-3648646-5743146
(State or Other Jurisdiction of Incorporation)(Commission File Number)(I.R.S. Employer Identification No.)

1950 Hassell Road

Hoffman Estates, Illinois 60169

(Address of Principal Executive Offices) (Zip Code)

(847) 397-1700

(Registrant's telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

_______________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 Par ValueCDKNASDAQ Global Select Market
 
 
Item 2.02. Results of Operations and Financial Condition.

On May 5, 2020, CDK Global, Inc. (the "Company"), issued a press release announcing its financial results for the third quarter ended March 31, 2020. A copy of the press release is furnished as Exhibit 99.1 hereto.

The information contained in this Item 2.02 of this Current Report on Form 8-K, as well as Exhibit 99.1, shall not be deemed "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise be subject to the liabilities of that section. It may only be incorporated by reference in another filing under the Exchange Act or Securities Act of 1933, as amended, if it is expressly incorporated by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Exhibit Number Description of Exhibit
99.1 Press Release issued by CDK Global, Inc. on May 5, 2020
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
 
 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 CDK Global, Inc.
   
  
Date: May 5, 2020By: /s/ JENNIFER A. WILLIAMS        
  Jennifer A. Williams
  Vice President, Corporate Controller and Chief
Accounting Officer
  

 

EdgarFiling

EXHIBIT 99.1

CDK Global, Inc. Reports Third Quarter Fiscal 2020 Results

North America Revenues up 4 Percent; Supports Customers during Crisis

HOFFMAN ESTATES, Ill., May 05, 2020 (GLOBE NEWSWIRE) -- CDK Global, Inc. (NASDAQ:CDK) today announced financial results for its fiscal 2020 third quarter ended March 31, 2020.

“CDK remains focused on helping our customers adapt to the current challenges of the COVID-19 pandemic, while we continue to enable them to complete their mission-critical operations," said Brian Krzanich, CDK chief executive officer. "We’ve stepped up during this crisis and taken actions to support our dealers, many of whom are small to medium-sized businesses, with discounts and free offers on our products and solutions. Our Saas-based business model provides us the resilience to be there for them while we continue to strategically invest for the future. Virtually all of our employees are successfully working from home and we are proud of what the CDK team has accomplished to move the business forward. We continue to perform at a high level on virtual installations, sales and software improvements, as well as future developments of our Saas offerings, which will allow us to emerge technically and operationally stronger from this crisis.”

“Our recurring revenue stream, strong free cash flow and liquidity position remain stabilizing elements in this unprecedented business environment,” said Joe Tautges, CDK chief financial officer. “Based on industry trends and our stress test scenarios, the leadership team has taken appropriate actions to ensure that the strength and consistency of our business continues into the future.”

Third Quarter Fiscal 2020 Results

       
 CDK Global, Inc. Q3 2020 Change from Q3 2019 
 ($ million except per share)   
       
 GAAP Revenues 516.3  +3% 
 GAAP Earnings before income taxes 132.4  +10% 
 Non-GAAP Adjusted earnings before income taxes 146.6  -1% 
 GAAP Diluted earnings attributable to CDK per share 0.47  -41% 
 Non-GAAP Adjusted diluted earnings attributable to CDK per share 0.92  +6% 
 GAAP Net earnings attributable to CDK 57.6  -42% 
   GAAP Net earnings attributable to CDK margin  11.2% -870 bps 
 Non-GAAP Adjusted EBITDA 202.1  % 
   Non-GAAP Adjusted EBITDA margin 39.1% -130 bps 
       

The non-GAAP (adjusted) 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.

COVID-19 Pandemic Response

Impacts to the Third Quarter Fiscal 2020:

CDK Segment Information - North America

       
 CDK North America Q3 2020 Change from Q3 2019 
 ($ million)   
       
 Revenues 426.4  +4% 
 GAAP Earnings before income taxes 161.4  -3% 
   GAAP Earnings before income taxes margin 37.9% -290 bps 
 Non-GAAP Adjusted earnings before income taxes 174.0  -2% 
   Non-GAAP Adjusted earnings before income taxes margin 40.8% -270 bps 
       

CDK Segment Information - International

       
 CDK International Q3 2020 Change from Q3 2019 
 ($ million)   
       
 Revenues 89.9  -1% 
 Constant currency revenues 92.3  +1% 
 GAAP Earnings before income taxes 24.1  -13% 
   GAAP Earnings before income taxes margin 26.8% -370 bps 
 Non-GAAP Adjusted earnings before income taxes 24.4  -13% 
   Non-GAAP Adjusted earnings before income taxes margin 27.1% -360 bps 
       

Fiscal 2020 Annual Guidance

The fiscal 2020 guidance is provided on both a GAAP and a Non-GAAP (adjusted) basis. We are reducing our annual guidance principally due to anticipated impacts from the COVID-19 pandemic.

      
 CDK Global, Inc. - GAAP BASIS PREVIOUS FY 2020 GAAP GUIDANCECURRENT FY 2020 GAAP GUIDANCE 
 ($ million except per share)  
      
 Revenues $2,000 - 2,050$1,915 - $1,965 
 GAAP Diluted earnings attributable to CDK per share $2.35 - $2.55$1.35 - $1.70 
 GAAP Net earnings attributable to CDK $290 - $310$165 - $205 
 GAAP Effective tax rate 27.5 - 28.5%29.0% - 30.0% 
 Shareholder Returns (including dividends and share repurchases) $75 - $150$70 - $75 
      


      
 CDK Global, Inc. - Non-GAAP BASIS PREVIOUS FY 2020 ADJ. GUIDANCECURRENT FY 2020 ADJ. GUIDANCE 
 ($ million except per share)  
      
 Revenues $2,000 - 2,050$1,915 - $1,965 
 Non-GAAP Adjusted diluted earnings attributable to CDK per share $3.30 - $3.50$2.85 - $3.20 
 Non-GAAP Adjusted EBITDA $780 - $800$705 - $745 
 Non-GAAP Adjusted effective tax rate 24 - 25%24.0% - 25.0% 
 Shareholder Returns (including dividends and share repurchases) $75 - $150$70 - $75 
      

Fourth Quarter Events

On April 21, 2020, we completed the sale of our Digital Marketing business to Ansira Partners, Inc. We believe that the new combined company is positioned to prosper and we look forward to its continued success. Our fiscal 2020 guidance reflects the financial impacts of this transaction. Further details related to the transaction will be available in our SEC filings.

In an effort to improve the operating efficiency and profitability of our International business, a restructuring plan was recently approved. We expect this to successfully reduce costs and improve margins within our CDKI segment beginning in fiscal year 2021. Restructuring expenses related to this program will be included as an adjustment to our non-GAAP financial measures and have been considered in our fiscal 2020 guidance.

Website Schedules

Other financial information, including financial statements and supplementary schedules presented on a GAAP and adjusted basis, and the schedule of quarterly revenues and pretax earnings by reportable segment have been updated for the third quarter ended March 31, 2020 and will be posted to the CDK Investor Relations website, https://investors.cdkglobal.com, in the “Financial Information” section.

Webcast and Conference Call

An analyst conference call will be held today, Tuesday, May 5, 2020 at 4:00 p.m. CT. A live webcast of the call will be available on a listen-only basis. To listen to the webcast, go to the CDK Investor Relations website, https://investors.cdkglobal.com, and click on the webcast icon. An 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

With $2 billion in revenues, CDK Global (NASDAQ:CDK) is a leading global provider of integrated information technology solutions to the automotive retail and adjacent industries. Focused on enabling end-to-end automotive commerce, CDK Global provides solutions to dealers in more than 100 countries around the world, serving approximately 30,000 retail locations and most automotive manufacturers. CDK solutions automate and integrate all parts of the dealership and buying process, including the acquisition, sale, financing, insuring, parts supply, repair and maintenance of vehicles. Visit cdkglobal.com.


CDK Global, Inc.
Consolidated Statements of Operations
(In millions, except per share amounts)
(Unaudited)

 Three Months Ended Nine Months Ended
 March 31, March 31,
 2020 2019 2020 2019
Revenues$516.3   $501.2   $1,510.5   $1,426.2  
        
Expenses:       
  Cost of revenues242.5   229.3   725.7   663.2  
  Selling, general and administrative expenses105.8   116.3   329.3   322.5  
  Restructuring expenses   0.6      20.1  
Total expenses348.3   346.2   1,055.0   1,005.8  
        
Operating earnings168.0   155.0   455.5   420.4  
        
  Interest expense(35.1)  (35.4)  (109.2)  (101.9) 
  Other income, net(0.5)  1.1   3.1   5.3  
        
Earnings before income taxes132.4   120.7   349.4   323.8  
        
  Provision for income taxes(38.0)  (31.4)  (106.8)  (85.4) 
        
Net earnings from continuing operations94.4   89.3   242.6   238.4  
Net earnings(loss) from discontinued operations(34.9)  12.4   (74.9)  46.5  
Net earnings59.5   101.7   167.7   284.9  
  Less: net earnings attributable to noncontrolling interest1.9   1.9   5.8   5.8  
Net earnings attributable to CDK$57.6   $99.8   $161.9   $279.1  
        
Net earnings(loss) attributable to CDK per share - basic:       
Continuing operations$0.76   $0.70   $1.95   $1.83  
Discontinued operations(0.29)  0.10   (0.62)  0.37  
Total net earnings attributable to CDK per share - basic$0.47   $0.80   $1.33   $2.20  
        
Net earnings(loss) attributable to CDK per share - diluted:       
Continuing operations$0.76   $0.70   $1.94   $1.83  
Discontinued operations(0.29)  0.10   (0.61)  0.36  
Total net earnings attributable to CDK per share - diluted$0.47   $0.80   $1.33   $2.19  
        
Weighted-average common shares outstanding:       
Basic121.6   124.0   121.5   126.8  
Diluted122.2   124.8   122.1   127.7  

The Digital Marketing Business is presented as discontinued operations and prior year amounts associated with the Digital Marketing Business have been reclassified as such. Refer to Form 10-Q, Item 1 of Part I, "Notes to the Consolidated Financial Statements, Note 4 - Discontinued Operations" for more information.


CDK Global, Inc.
Consolidated Balance Sheets
(In millions)
(Unaudited)

 March 31, June 30,
 2020 2019
Assets   
Current assets:   
  Cash and cash equivalents$284.5   $311.4  
  Accounts receivable, net of allowances339.6   290.4  
  Other current assets165.5   164.8  
  Current assets held for sale80.2   220.5  
  Total current assets869.8   987.1  
Property, plant and equipment, net116.9   144.8  
Other assets396.3   284.9  
Goodwill1,345.5   1,356.3  
Intangible assets, net236.3   225.9  
  Total assets$2,964.8   $2,999.0  
    
Liabilities and Stockholders' Deficit   
Current liabilities:   
  Current maturities of long-term debt and finance lease liabilities$20.9   $270.8  
  Accounts payable45.3   38.0  
  Accrued expenses and other current liabilities201.6   178.5  
  Litigation liability57.0   90.0  
  Accrued payroll and payroll-related expenses74.9   89.2  
  Short-term deferred revenues119.0   124.8  
  Current liabilities held for sale35.9   48.9  
  Total current liabilities554.6   840.2  
Long-term debt and finance lease liabilities2,747.3   2,659.4  
Long-term deferred revenues63.6   68.4  
Deferred income taxes96.7   80.5  
Other liabilities123.8   65.0  
  Total liabilities3,586.0   3,713.5  
    
Stockholders' Deficit:   
  Preferred stock     
  Common stock1.6   1.6  
  Additional paid-in capital685.4   688.5  
  Retained earnings1,018.3   911.6  
  Treasury stock, at cost(2,306.5)  (2,324.6) 
  Accumulated other comprehensive loss(34.3)  (6.7) 
  Total CDK stockholders' deficit(635.5)  (729.6) 
Noncontrolling interest14.3   15.1  
  Total stockholders' deficit(621.2)  (714.5) 
  Total liabilities and stockholders' deficit$2,964.8   $2,999.0  

Effective July 1, 2019, the Company adopted ASC 842, Leases, using the modified retrospective transition method. In accordance with this transition method, comparative information has not been restated and continues to be reported under the accounting standards in effect for the period presented.

The Digital Marketing Business is presented as discontinued operations and prior year amounts associated with the Digital Marketing Business have been reclassified as such. Refer to Form 10-Q, Item 1 of Part I, "Notes to the Consolidated Financial Statements, Note 4 - Discontinued Operations" for more information.


CDK Global, Inc.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)

 Nine Months Ended
 March 31,
 2020 2019
Cash Flows from Operating Activities:   
Net earnings$167.7   $284.9  
Less: net earnings(loss) from discontinued operations(74.9)  46.5  
Net earnings from continuing operations242.6   238.4  
Adjustments to reconcile net earnings from continuing operations to cash flows provided by operating activities:   
Depreciation and amortization72.6   65.1  
Asset impairment   18.2  
Deferred income taxes14.9   20.5  
Stock-based compensation expense12.8   14.0  
Other16.0   7.2  
Changes in assets and liabilities, net of effect from acquisitions of businesses:   
Change in accounts receivable(57.7)  (30.4) 
Change in other assets(18.5)  (26.8) 
Change in accounts payable7.4   (8.9) 
Change in accrued expenses and other liabilities(15.5)  16.8  
Net cash flows provided by operating activities, continuing operations274.6   314.1  
Net cash flows provided by operating activities, discontinued operations37.1   25.1  
Net cash flows provided by operating activities311.7   339.2  
    
Cash Flows from Investing Activities:   
Capital expenditures(19.4)  (39.2) 
Capitalized software(43.3)  (26.1) 
Proceeds from sale of property, plant and equipment   7.4  
Acquisitions of businesses, net of cash acquired   (513.0) 
Investment in certificates of deposit(12.0)    
Proceeds from maturities of certificates of deposit12.0     
Purchases of investments(20.0)  (10.0) 
Proceeds from investments   0.4  
Net cash flows used in investing activities, continuing operations(82.7)  (580.5) 
Net cash flows used in investing activities, discontinued operations(6.0)  (6.6) 
Net cash flows used in investing activities(88.7)  (587.1) 
    
Cash Flows from Financing Activities:   
Proceeds from long-term debt100.0   1,090.0  
Repayments of long-term debt and finance lease liabilities(265.8)  (801.7) 
Dividends paid to stockholders(54.7)  (56.6) 
Repurchases of common stock   (444.3) 
Proceeds from exercises of stock options6.1   3.0  
Withholding tax payments for stock-based compensation awards(5.7)  (15.8) 
Dividend payments to noncontrolling owners(6.6)  (8.2) 
Payments of deferred financing costs   (4.4) 
Acquisition-related payments(5.3)  (6.9) 
Net cash flows used in financing activities, continuing operations(232.0)  (244.9) 
Net cash flows used in financing activities, discontinued operations(1.1)    
Net cash flows used in financing activities(233.1)  (244.9) 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(15.6)  (7.3) 
Net change in cash, cash equivalents and restricted cash(25.7)  (500.1) 
Cash, cash equivalents, and restricted cash, beginning of period321.1   817.1  
Cash, cash equivalents, and restricted cash, end of period$295.4   $317.0  

The Digital Marketing Business is presented as discontinued operations and prior year amounts associated with the Digital Marketing Business have been reclassified as such. Refer to Form 10-Q, Item 1 of Part I, "Notes to the Consolidated Financial Statements, Note 4 - Discontinued Operations" for more information.


CDK Global, Inc.

Consolidated Adjusted Financial Information
(In millions, except per share amounts)
(Unaudited)

As described below under the Non-GAAP Financial Measures section of this press release, we incorporated the following additional adjustments within 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 current period presentation.

Fiscal 2020 Modifications to Our Adjustments:

The Digital Marketing Business is presented as discontinued operations and prior year amounts associated with the Digital Marketing Business have been reclassified as such. Refer to Form 10-Q, Item 1 of Part I, "Notes to the Consolidated Financial Statements, Note 4 - Discontinued Operations" for more information.

  Three Months Ended     Nine Months Ended    
  March 31, Change March 31, Change
  2020 2019 $ % 2020 2019 $ %
Revenues (a) $516.3  $501.2  $15.1   3 % $1,510.5  $1,426.2  $84.3   6 %
Impact of exchange rates 2.6        7.2       
Constant currency revenues (a) (b) $518.9  $501.2  $17.7   4 % $1,517.7  $1,426.2  $91.5   6 %
                 
Earnings before income taxes (a) $132.4  $120.7  $11.7   10 % $349.4  $323.8  $25.6   8 %
Margin 25.6% 24.1% 150 bps 23.1% 22.7% 40 bps
Total stock-based compensation 1.3  7.8      12.8  14.0     
Amortization of acquired intangible assets 4.1  4.4      12.0  11.2     
Transaction and integration-related expenses   2.0      8.5  5.7     
Legal and other expenses related to regulatory and competition matters 4.4  5.1      16.6  14.4     
Business process modernization program 4.4        12.0       
Restructuring expenses   0.6        20.1     
Other business transformation expenses   6.2        14.8     
Impairment of intangible assets           14.9     
Officer transition expense   1.2        6.4     
Adjusted earnings before income taxes (a) (b) $146.6  $148.0  (1.4)  (1)% $411.3  $425.3  $(14.0)  (3)%
Adjusted margin 28.4% 29.5% -110 bps 27.2% 29.8% -260 bps
Impact of exchange rates 0.9        1.8       
Constant currency adjusted earnings before income taxes (a) (b) $147.5  $148.0  $(0.5)   % $413.1  $425.3  $(12.2)  (3)%



 Three Months Ended     Nine Months Ended    
 March 31, Change March 31, Change
 2020 2019 $ % 2020 2019 $ %
Provision for income taxes (a)$38.0   $31.4  $6.6   21 % $106.8   $85.4   $21.4   25 %
Effective tax rate28.7 % 26.0%     30.6 % 26.4 %    
Income tax effect of pre-tax adjustments3.3   6.0      14.6   24.3      
Income tax effect for foreign earnings previously deemed indefinitely reinvested(8.7)        (8.7)        
Increase in valuation allowance         (14.8)        
Impact of U.S tax reform   0.6      1.2   (2.8)     
Adjusted provision for income taxes (a) (b)$32.6   $38.0  $(5.4)  (14)% $99.1   $106.9   $(7.8)  (7)%
Adjusted effective tax rate22.2 % 25.7%     24.1 % 25.1 %    



 Three Months Ended     Nine Months Ended    
 March 31, Change March 31, Change
 2020 2019 $ % 2020 2019 $ %
Net earnings$59.5  $101.7  $(42.2) (41)% $167.7  $284.9  $(117.2) (41)%
Less: net earnings attributable to noncontrolling interest1.9  1.9      5.8  5.8     
Net earnings attributable to CDK$57.6  $99.8  $(42.2) (42)% $161.9  $279.1  $(117.2) (42)%
Net loss (earnings) from discontinued operations34.9  (12.4)     74.9  (46.5)    
Total stock-based compensation1.3  7.8      12.8  14.0     
Amortization of acquired intangible assets (c)4.0  4.4      11.7  11.0     
Transaction and integration-related expenses  2.0      8.5  5.7     
Legal and other expenses related to regulatory and competition matters (c)4.4  5.1      16.6  14.3     
Business process modernization program4.4        12.0       
Restructuring expenses (c)  0.6        20.0     
Other business transformation expenses  6.2        14.8     
Impairment of intangible assets          14.9     
Officer transition expense  1.2        6.4     
Income tax effect on pre-tax adjustments(3.3) (6.0)     (14.6) (24.3)    
Income tax effect for foreign earnings previously deemed indefinitely reinvested8.7        8.7       
Increase in valuation allowance        14.8       
Impact of U.S tax reform  (0.6)     (1.2) 2.8     
Adjusted net earnings attributable to CDK (a) (b) (c)$112.0  $108.1  $3.9  4 % $306.1  $312.2  $(6.1) (2)%



 Three Months Ended     Nine Months Ended    
 March 31, Change March 31, Change
 2020 2019 $ % 2020 2019 $ %
Diluted earnings attributable to CDK per share$0.47  $0.80  $(0.33) (41)% $1.33  $2.19  $(0.86) (39)%
Net loss (earnings) from discontinued operations0.29  (0.10)     0.61  (0.36)    
Total stock-based compensation0.01  0.06      0.10  0.10     
Amortization of acquired intangible assets (c)0.03  0.04      0.10  0.09     
Transaction and integration-related expenses  0.02      0.07  0.04     
Legal and other expenses related to regulatory and competition matters (c)0.04  0.04      0.14  0.11     
Business process modernization program0.04        0.10       
Restructuring expenses (c)          0.15     
Other business transformation expenses  0.05        0.12     
Impairment of intangible assets          0.12     
Officer transition expense  0.01        0.05     
Income tax effect on pre-tax adjustments(0.03) (0.05)     (0.12) (0.19)    
Income tax effect for foreign earnings previously deemed indefinitely reinvested0.07        0.07       
Increase in valuation allowance        0.12       
Impact of U.S tax reform        (0.01) 0.02     
Adjusted diluted earnings attributable to CDK per share (a) (b) (c)$0.92  $0.87  $0.05  6 % $2.51  $2.44  $0.07  3 %
                
Weighted-average common shares outstanding:               
Diluted122.2  124.8      122.1  127.7     



 Three Months Ended   Nine Months Ended    
 March 31, Change March 31, Change
 2020 2019 $ % 2020 2019 $ %
Net earnings attributable to CDK$57.6  $99.8   $(42.2) (42)% $161.9  $279.1   $(117.2) (42)%
Margin11.2% 19.9 % -870 bps 10.7% 19.6  % -890 bps
Net earnings attributable to noncontrolling interest1.9  1.9       5.8  5.8      
Net loss (earnings) from discontinued operations34.9  (12.4)      74.9  (46.5)     
Provision for income taxes38.0  31.4       106.8  85.4      
Interest expense35.1  35.4       109.2  101.9      
Depreciation and amortization24.5  23.6       72.6  65.1      
Total stock-based compensation1.3  7.8       12.8  14.0      
Transaction and integration-related expenses  2.0       8.5  5.7      
Legal and other expenses related to regulatory and competition matters4.4  5.1       16.6  14.4      
Business process modernization program4.4         12.0        
Restructuring expenses  0.6         20.1      
Other business transformation expenses  6.2         14.8      
Impairment of intangible assets           14.9      
Officer transition expense  1.2         6.4      
Adjusted EBITDA (a) (b)$202.1  $202.6   $(0.5) —  % $581.1  $581.1   $—   —  %
Adjusted margin39.1% 40.4 % -130 bps 38.5% 40.7 % -220 bps



 Nine Months Ended
 March 31,
 2020 2019
Net cash flows provided by operating activities$311.7  $339.2 
Net cash flows provided by operating activities - discontinued operations(37.1) (25.1)
Capital expenditures(19.4) (39.2)
Capitalized software(43.3) (26.1)
Change in restricted cash(1.2) 2.5 
Free cash flow from continuing operations (a) (b)$210.7  $251.3 

(a) Excludes amounts attributable to discontinued operations.

(b) Refer to the Non-GAAP Financial Measures section of this press release for additional information on our non-GAAP adjustments.

(c) The portion of expense related to noncontrolling interest has been removed from amortization of acquired intangible assets for the three and nine months ended March 31, 2020, and from restructuring expenses, amortization of acquired intangible assets, and legal and other expenses related to regulatory and competition matters for the three and nine months ended March 31, 2019.


CDK Global, Inc.
Segment Adjusted Financial Data
(In millions)
(Unaudited)

As described below under the Non-GAAP Financial Measures section of this press release, we incorporated additional adjustments within 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 current period presentation.

Fiscal 2020 Modifications to Our Adjustments:

The Digital Marketing Business is presented as discontinued operations and prior year amounts associated with the Digital Marketing Business have been reclassified as such. Refer to Form 10-Q, Item 1 of Part I, "Notes to the Consolidated Financial Statements, Note 4, Discontinued Operations" for more information.

 Segment Revenues
 Three Months Ended     Nine Months Ended    
 March 31, Change March 31, Change
 2020 2019 $ % 2020 2019 $ %
CDK North America (a)$426.4 $410.1 $16.3  4 % $1,262.3 $1,184.5 $77.8 7%
CDK International (b)89.9 91.1 (1.2) (1)% 248.2 241.7 6.5 3%
Total$516.3 $501.2 $15.1  3 % $1,510.5 $1,426.2 $84.3 6%



 Segment Adjusted Earnings before Income Taxes
 Three Months Ended     Nine Months Ended    
 March 31, Change March 31, Change
 2020 2019 $ % 2020 2019 $ %
CDK North America (a)$174.0   $178.3   $(4.3) (2)% $505.3   $516.9   $(11.6) (2)%
Margin40.8 % 43.5 % -270 bps 40.0 % 43.6 % -360 bps
CDK International (b)24.4   28.0   (3.6) (13)% 55.8   56.6   (0.8) (1)%
Margin27.1 % 30.7 % -360 bps 22.5 % 23.4 % -90 bps
Other (c)(51.8)  (58.3)  6.5  (11)% (149.8)  (148.2)  (1.6) 1 %
Total$146.6   $148.0   $(1.4) (1)% $411.3   $425.3   $(14.0) (3)%
Margin28.4 % 29.5 % -110 bps 27.2 % 29.8 % -260 bps

(a) The table below presents a reconciliation of: (i) revenues to constant currency revenues; and (ii) earnings before income taxes to constant currency adjusted earnings before income taxes for the CDK North America segment.


CDK North AmericaThree Months Ended     Nine Months Ended    
 March 31, Change March 31, Change
 2020 2019 $ % 2020 2019 $ %
Revenues$426.4  $410.1  $16.3  4 % $1,262.3  $1,184.5  $77.8  7 %
Impact of exchange rates0.2        0.4       
Constant currency revenues (d)$426.6  $410.1  $16.5  4 % $1,262.7  $1,184.5  $78.2  7 %
                
Earnings before income taxes$161.4  $167.2  $(5.8) (3)% $457.4  $473.1  $(15.7) (3)%
Margin %37.9% 40.8% -290 bps 36.2% 39.9% -370 bps
Amortization of acquired intangible assets3.8  4.2      11.4  10.7     
Transaction and integration-related expenses  1.8      7.9  3.8     
Legal and other expenses related to regulatory and competition matters4.4  5.1      16.6  14.4     
Business process modernization program4.4        12.0       
Impairment of intangible assets          14.9     
Adjusted earnings before income taxes (d)$174.0  $178.3  $(4.3) (2)% $505.3  $516.9  $(11.6) (2)%
Adjusted Margin %40.8% 43.5% -270 bps 40.0% 43.6% -360 bps
Impact of exchange rates0.2        0.3       
Constant currency adjusted earnings before income taxes (d)$174.2  $178.3  $(4.1) (2)% $505.6  $516.9  $(11.3) (2)%

(b) The table below presents a reconciliation of: (i) revenues to constant currency revenues; and (ii) earnings before income taxes to constant currency adjusted earnings before income taxes, for the CDK International segment.


CDK InternationalThree Months Ended     Nine Months Ended    
 March 31, Change March 31, Change
 2020 2019 $ % 2020 2019 $ %
Revenues$89.9  $91.1  $(1.2) (1)% $248.2  $241.7  $6.5  3 %
Impact of exchange rates2.4        6.8       
Constant currency revenues (d)$92.3  $91.1  $1.2  1 % $255.0  $241.7  $13.3  6 %
                
Earnings before income taxes$24.1  $27.8  $(3.7) (13)% $55.2  $56.1  $(0.9) (2)%
Margin %26.8% 30.5% -370 bps 22.2% 23.2% -100 bps
Amortization of acquired intangible assets0.3  0.2      0.6  0.5     
Adjusted earnings before income taxes (d)$24.4  $28.0  $(3.6) (13)% $55.8  $56.6  $(0.8) (1)%
Adjusted Margin %27.1% 30.7% -360 bps 22.5% 23.4% -90 bps
Impact of exchange rates0.7        1.5       
Constant currency adjusted earnings before income taxes (d)$25.1  $28.0  $(2.9) (10)% $57.3  $56.6  $0.7  1 %

(c) The table below presents a reconciliation of loss before income taxes to adjusted loss before income taxes for the Other segment. The adoption of ASC 606 had no impact on the Other segment.


OtherThree Months Ended     Nine Months Ended    
 March 31, Change March 31, Change
 2020 2019 $ % 2020 2019 $ %
Loss before income taxes$(53.1) $(74.3) $21.2 (29)% $(163.2) $(205.4) $42.2  (21)%
Total stock-based compensation1.3  7.8      12.8  14.0     
Transaction and integration-related expenses  0.2      0.6  1.9     
Restructuring expenses  0.6        20.1     
Other business transformation expenses  6.2        14.8     
Officer transition expense  1.2        6.4     
Adjusted loss before income taxes (d)$(51.8) $(58.3) $6.5 (11)% $(149.8) $(148.2) $(1.6) 1 %
Impact of exchange rates               
Constant currency adjusted loss before income taxes (d)$(51.8) $(58.3) $6.5 (11)% $(149.8) $(148.2) $(1.6) 1 %

(d) Refer to the Non-GAAP Financial Measures section of this earnings release for additional information on our non-GAAP adjustments.


CDK Global, Inc.
Revenue Disaggregation
(In millions)
(Unaudited)

The following table presents segment revenues by revenue category for the three and nine months ended March 31, 2020 and 2019:

 Three Months Ended Nine Months Ended
 March 31, Change March 31, Change
 2020 2019 $ % 2020 2019 $ %
CDK North America               
Subscription$331.7 $324.0 $7.7  2 % $1,000.9 $954.9 $46.0  5 %
On-site license and installation2.4 1.9 0.5  26 % 7.5 6.1 1.4  23 %
Transaction38.1 39.2 (1.1) (3)% 120.6 118.5 2.1  2 %
Other54.2 45.0 9.2  20 % 133.3 105.0 28.3  27 %
Total CDK North America$426.4 $410.1 $16.3  4 % $1,262.3 $1,184.5 $77.8  7 %
CDK International               
Subscription$69.8 $64.3 $5.5  9 % $205.7 $192.1 $13.6  7 %
On-site license and installation11.6 21.7 (10.1) (47)% 24.9 37.2 (12.3) (33)%
Other8.5 5.1 3.4  67 % 17.6 12.4 5.2  42 %
Total CDK International$89.9 $91.1 $(1.2) (1)% $248.2 $241.7 $6.5  3 %
                
Total$516.3 $501.2 $15.1  3 % $1,510.5 $1,426.2 $84.3  6 %


CDK Global, Inc.
Consolidated Fiscal 2020 Guidance
(In millions, except per share amounts)
(Unaudited)

As described below under the Non-GAAP Financial Measures section of this press release, during the fourth quarter of fiscal 2019, we began incorporating loss from discontinued operations within our calculations of adjusted net earnings attributable to CDK, and adjusted diluted net earnings attributable to CDK per share. The table below includes these adjustments for fiscal 2020 guidance.

 Fiscal 2020
 Point Estimate (a) Guidance
Revenues (b)$1,941   $1,915 - $1,965
    
Earnings before income taxes (b)$384    
Total stock-based compensation22    
Amortization of acquired intangible assets15    
Transaction and integration-related expenses10    
Legal and other expenses related to regulatory and competition matters25    
Restructuring30    
Business process modernization program15    
Adjusted earnings before income taxes (b) (c)$501    



 Fiscal 2020
 Point Estimate (a) Guidance
    
Provision for income taxes (b)$113    
Effective tax rate29.4 % 29.0% - 30.0%
Income tax effect of pre-tax adjustments30    
Increase in valuation allowance(15)   
Income tax effect for foreign earnings previously deemed indefinitely reinvested(8)   
Impact of U.S tax reform1    
Adjusted provision for income taxes (b) (c)$121    
 Adjusted effective tax rate24.2 % 24.0% - 25.0%



 Fiscal 2020
 Point Estimate (a) Guidance
Net earnings$191    
Less: net earnings attributable to noncontrolling interest7    
Net earnings attributable to CDK$184     
Net loss from discontinued operations80    
Total stock-based compensation22    
Amortization of acquired intangible assets15    
Transaction and integration-related expenses10    
Legal and other expenses related to regulatory and competition matters25    
Restructuring30    
Business process modernization program15    
Income tax effect of pre-tax adjustments(30)   
Increase in valuation allowance15    
Income tax effect for foreign earnings previously deemed indefinitely reinvested8    
Impact of U.S tax reform(1)   
Adjusted net earnings attributable to CDK (b) (c)$373    



 Fiscal 2020
 Point Estimate (a) Guidance
Diluted net earnings attributable to CDK per share$1.50   $1.35 - $1.70
Net loss from discontinued operations0.65    
Total stock-based compensation0.19    
Amortization of acquired intangible assets0.12    
Transaction and integration-related expenses0.09    
Legal and other expenses related to regulatory and competition matters0.20    
Restructuring0.25    
Business process modernization program0.12    
Income tax effect of pre-tax adjustments(0.25)   
Increase in valuation allowance0.12    
Income tax effect for foreign earnings previously deemed indefinitely reinvested0.07    
Impact of U.S tax reform(0.01)   
Adjusted diluted net earnings attributable to CDK per share (b) (c)$3.05   $2.85 - $3.20



 Fiscal 2020
 Point Estimate (a) Guidance
Revenues$1,941  $1,915 - $1,965
    
Net earnings attributable to CDK$184  $165 - $205
Margin9.5%  
Net earnings attributable to noncontrolling interest7   
Net loss from discontinued operations80   
Provision for income taxes113   
Interest expense145   
Depreciation and amortization99   
Total stock-based compensation22   
Transaction and integration-related expenses10   
Legal and other expenses related to regulatory and competition matters25   
Restructuring30   
Business process modernization program15   
Adjusted EBITDA (b) (c)$730  $705 - $745
Adjusted margin37.6%  

(a) The point estimates are arbitrary amounts within 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.


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 recurring subscription revenues. The following table summarizes these measures for recurring subscription revenues in our segments.

Average revenue per site for all periods presented in the table below.

          
 September 30,
2018 (a)
 December 31,
2018 (a)
 March 31,
2019 (a)
 June 30,
2019 (a)
 September 30,
2019
 December 31,
2019
 March 31,
2020
CDK North America             
Automotive             
DMS Customer Sites (b)8,920  8,888  8,936  8,946  8,957  8,974  8,948 
Avg Revenue Per Site (c)$8,271  $8,835  $8,684  $8,750  $8,723  $8,858  $9,009 
              
Adjacencies             
DMS Customer Sites (b)5,613  5,665  5,713  5,735  5,775  5,802  5,793 
Avg Revenue Per Site (c)$1,650  $1,705  $1,722  $1,720  $1,733  $1,764  $1,784 
              
Total CDK North America             
DMS Customer Sites (b)14,533  14,553  14,649  14,681  14,732  14,776  14,741 
Avg Revenue Per Site (c)$5,714  $6,067  $5,972  $6,003  $5,984  $6,076  $6,171 
              
CDK International             
DMS Customer Sites (b)13,187  13,167  12,988  13,098  12,973  12,858  12,847 
Avg Revenue Per Site (c)$1,378  $1,399  $1,454  $1,487  $1,519  $1,554  $1,575 

(a) Average revenue per Dealer Management System (DMS) customer site has been updated for fiscal 2019 to reflect budgeted foreign exchange rates for fiscal 2020.

(b) DMS Customer Sites - 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 each applicable month 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, marine, and recreational vehicle industries, and heavy equipment dealerships in the agriculture and construction equipment industries.

(c) Average Revenue Per DMS Customer Site - Average revenue per DMS customer site is an indicator of the scope of adoption of our solutions by DMS customers, and 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 revenue generated from our solutions, in an applicable quarterly period by the average number of DMS customer sites in the same period. The metric excludes subscription revenue generated by customers not included in our DMS customer site count as well as subscription revenue related to certain installation and training activities that is deferred then recognized as revenue over the life of the contract. Revenue underlying this metric is based on budgeted foreign exchange rates. When we discuss growth in average revenue per DMS customer site, revenue for the comparable prior period has been adjusted to reflect budgeted foreign exchange rates for the current period.


Non-GAAP Financial Measures

We disclose certain financial measures for our consolidated and operating segment results on both a GAAP and a non-GAAP (adjusted) 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 MeasureComparable GAAP Financial Measure
Adjusted earnings before income taxesEarnings before income taxes
Adjusted provision for income taxesProvision for income taxes
Adjusted net earnings attributable to CDKNet earnings attributable to CDK
Adjusted diluted earnings attributable to CDK per shareDiluted earnings attributable to CDK per share
Adjusted EBITDANet earnings attributable to CDK
Adjusted EBITDA marginNet earnings attributable to CDK margin
Constant currency revenuesRevenues
Constant currency adjusted earnings before income taxesEarnings before income taxes
Free cash flow from continuing operationsNet 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 segment and overall operating performance on a consistent period-to-period basis and relative to our competitors, (iv) target leverage calculations, (v) debt covenant calculations, and (vi) 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 within 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 2020 Modifications to Our Adjustments:

Adjusted Earnings before Income Taxes

Management has excluded the following items from adjusted earnings before income taxes for the periods presented:

Adjusted Provision for Income taxes

Management has excluded the following items from adjusted provision for income taxes for the periods presented:

Adjusted Net Earnings Attributable to CDK and Adjusted Diluted Net Earnings Attributable to CDK per Share

For each respective presentation, management has excluded earnings from discontinued operations, net of taxes associated with the Company's divestiture of its Digital Marketing Business, 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 of $0.1 million has been removed from amortization of acquired intangible assets during the three months ended December 31, 2019. The portion of expense related to noncontrolling interest of $0.2 million has been removed from amortization of acquired intangible assets during the six months ended December 31, 2019. The portion of expense related to noncontrolling interest of $0.1 million and $0.1 million has been removed from amortization of acquired intangible assets and legal and regulatory expenses related to competition matters, respectively, during the three months ended March 31, 2019. The portion of expense related to noncontrolling interest of $0.1 million, $0.2 million, and $0.1 million has been removed from restructuring expenses, amortization of acquired intangible assets, and legal and regulatory expenses related to competition matters, respectively, during the nine months ended March 31, 2019.

Adjusted EBITDA

Management has excluded the following items from net earnings attributable to CDK in order to calculate adjusted EBITDA for the periods presented:

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. Funds receivable was $17.5 million and $32.3 million as of March 31, 2020 and June 30, 2019, respectively.

Constant Currency

We use constant currency revenues and constant currency adjusted earnings before income taxes to review revenues and adjusted earnings before income taxes for our consolidated and operating segment results on a constant currency basis to understand underlying business trends. To present these results on a constant currency basis, current period results for entities reporting in currencies other than the U.S. dollar were translated into U.S. dollar using the average monthly exchange rates for the comparable prior period. As a result, constant currency results neutralize the effects of foreign currency.

Safe Harbor for Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including: the Company’s business outlook, including the Company’s GAAP and adjusted fiscal 2020 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.

Investor Relations Contact:Media Contact:
 Julie Schlueter
847.485.4643
julie.schlueter@cdk.com
 Roxanne Pipitone
847.485.4423
roxanne.pipitone@cdk.com