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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

(Mark One)
        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 001-36486

CDK Global, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware46-5743146
State or Other Jurisdiction of Incorporation or OrganizationI.R.S. Employer Identification No.

1950 Hassell Road,Hoffman Estates,IL60169
Address of Principal Executive OfficesZip Code
(847) 397-1700
Registrant’s Telephone Number, Including Area Code

__________________________________________
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes ☒ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
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.     ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No 
The number of shares outstanding of the registrant’s common stock as of April 30, 2021 was 121,773,779.




Table of Contents

  Page
PART I – FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 6.

1


Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CDK Global, Inc.
Consolidated Statements of Operations
(In millions, except per share amounts)
(Unaudited)

Three Months EndedNine Months Ended
March 31,March 31,
2021202020212020
Revenue$433.1 $426.4 $1,253.1 $1,262.3 
Expenses:  
Cost of revenue221.3 198.8 653.7 598.9 
Selling, general and administrative expenses90.2 81.6 263.8 259.1 
Litigation provision  12.0  
Total expenses311.5 280.4 929.5 858.0 
Operating earnings121.6 146.0 323.6 404.3 
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 (loss), net3.6 (1.7)32.3 2.7 
Earnings before income taxes71.2 109.1 227.7 297.9 
Provision for income taxes(24.1)(31.7)(73.8)(95.5)
Net earnings from continuing operations47.1 77.4 153.9 202.4 
Net earnings (loss) from discontinued operations815.8 (17.9)837.1 (34.7)
Net earnings862.9 59.5 991.0 167.7 
Less: net earnings attributable to noncontrolling interest2.0 1.9 6.1 5.8 
Net earnings attributable to CDK$860.9 $57.6 $984.9 $161.9 
Net earnings (loss) attributable to CDK per share - basic:
Continuing operations$0.37 $0.62 $1.21 $1.62 
Discontinued operations6.69 (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 (loss) attributable to CDK per share - diluted:
Continuing operations$0.36 $0.62 $1.21 $1.61 
Discontinued operations6.64 (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:
Basic122.0 121.6 121.9 121.5 
Diluted122.9 122.2 122.5 122.1 

See notes to the consolidated financial statements.
2


CDK Global, Inc.
Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
Three Months EndedNine Months Ended
March 31,March 31,
2021202020212020
Net earnings$862.9 $59.5 $991.0 $167.7 
Total other comprehensive income (loss)
Currency translation adjustments37.6 (39.7)98.0 (27.6)
Total other comprehensive income (loss)37.6 (39.7)98.0 (27.6)
Comprehensive income900.5 19.8 1,089.0 140.1 
Less: comprehensive income attributable to noncontrolling interest2.0 1.9 6.1 5.8 
Comprehensive income attributable to CDK$898.5 $17.9 $1,082.9 $134.3 

See notes to the consolidated financial statements.

3


CDK Global, Inc.
Consolidated Balance Sheets
(In millions, except par values)
(Unaudited)
March 31,June 30,
20212020
Assets
Current assets:  
Cash and cash equivalents$1,131.8 $80.8 
Accounts receivable, net248.7 242.0 
Other current assets182.0 148.4 
Current assets held for sale 214.4 
Total current assets1,562.5 685.6 
Property, plant and equipment, net of accumulated depreciation of $242.7 and $221.7, respectively
79.4 96.7 
Other assets413.4 418.3 
Goodwill1,013.6 999.5 
Intangible assets, net252.9 229.5 
Long-term assets held for sale 424.5 
Total assets$3,321.8 $2,854.1 
Liabilities and Stockholders' Equity (Deficit)  
Current liabilities:  
Current maturities of long-term debt and finance lease liabilities$500.3 $20.7 
Accounts payable29.2 34.3 
Accrued expenses and other current liabilities207.3 173.5 
Income taxes payable165.0 14.8 
Litigation liability34.0 57.0 
Accrued payroll and payroll-related expenses66.1 52.5 
Short-term deferred revenue39.6 44.6 
Current liabilities held for sale 129.4 
Total current liabilities 1,041.5 526.8 
Long-term debt and finance lease liabilities1,589.4 2,655.1 
Long-term deferred revenue41.7 39.4 
Deferred income taxes80.0 76.4 
Other liabilities103.5 96.5 
Long-term liabilities held for sale 40.6 
Total liabilities2,856.1 3,434.8 
Commitments and Contingencies (Note 12)
Stockholders' Equity (Deficit):  
Preferred stock, $0.01 par value: 50.0 shares authorized; none issued and outstanding
  
Common stock, $0.01 par value: 650.0 shares authorized; 160.3 and 160.3 shares issued, respectively; 121.8 and 121.5 shares outstanding, respectively
1.6 1.6 
Additional paid-in-capital705.0 687.9 
Retained earnings1,966.6 1,045.5 
Treasury stock, at cost: 38.6 and 38.8 shares, respectively
(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 interest15.3 15.4 
Total stockholders' equity (deficit)465.7 (580.7)
Total liabilities and stockholders' equity (deficit)$3,321.8 $2,854.1 
See notes to the consolidated financial statements.
4


CDK Global, Inc.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Nine Months Ended
March 31,
20212020
Cash Flows from Operating Activities
Net earnings$991.0 $167.7 
Less: net earnings (loss) from discontinued operations837.1 (34.7)
Net earnings from continuing operations153.9 202.4 
Adjustments to reconcile net earnings from continuing operations to cash flows provided by operating activities, continuing operations:
Depreciation and amortization71.1 66.7 
Loss from equity method investment24.8  
Deferred income taxes0.7 14.9 
Stock-based compensation expense31.7 13.1 
Other9.2 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 liabilities16.2 (8.1)
Net cash flows provided by operating activities, continuing operations253.9 240.8 
Net cash flows provided by operating activities, discontinued operations6.9 70.9 
Net cash flows provided by operating activities260.8 311.7 
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 operations1,380.9 (12.3)
Net cash flows provided by (used in) investing activities1,296.6 (88.7)
Cash Flows from Financing Activities
Net proceeds (repayments) of revolving credit facilities(15.0)100.0 
Repayments of long-term debt and lease liabilities(578.0)(265.8)
Dividends paid to stockholders(54.8)(54.7)
Proceeds from exercises of stock options2.1 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 sale21.1 (15.6)
Net change in cash and cash equivalents, and restricted cash, including cash classified in current assets held for sale922.1 (25.7)
Net change in cash classified in current assets held for sale134.9 58.0 
Net change in cash, cash equivalents, and restricted cash1,057.0 32.3 
Cash, cash equivalents, and restricted cash, beginning of period97.3 144.2 
Cash, cash equivalents, and restricted cash, end of period$1,154.3 $176.5 
5



See notes to the consolidated financial statements.

CDK Global, Inc.
Consolidated Statements of Cash Flows (continued)
(In millions)
(Unaudited)
Nine Months Ended
March 31,
20212020
Reconciliation of cash, cash equivalents, and restricted cash to the Consolidated Balance Sheets
Cash and cash equivalents$1,131.8 $165.6 
Restricted cash in funds held for clients included in other current assets22.5 10.9 
Total cash, cash equivalents, and restricted cash$1,154.3 $176.5 
Supplemental Disclosures
Cash paid for:
Income taxes and foreign withholding taxes, net of refunds, continuing operations$62.7 $33.9 
Interest, continuing operations81.7 88.1 
Non-cash investing and financing activities, continuing operations:
Capitalized property and equipment obtained under lease12.7 14.5 
Lease liabilities incurred (12.7)(14.5)
Capital expenditures and capitalized software, accrued not paid0.3 0.9 


See notes to the consolidated financial statements.
6


CDK Global, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
(In millions)
(Unaudited)

Three Months Ended March 31, 2021

Common StockAdditional Paid-in-CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive Income (Loss)Total CDK Stockholders' Equity (Deficit)Non-controlling InterestTotal Stockholders' Equity (Deficit)
Shares IssuedAmount
Balance as of December 31, 2020160.3 $1.6 $696.3 $1,124.4 $(2,295.3)$34.5 $(438.5)$13.3 $(425.2)
Net earnings— — — 860.9 — — 860.9 2.0 862.9 
Foreign currency translation adjustments— — — — — 37.6 37.6 — 37.6 
Stock-based compensation expense and related dividend equivalents— — 9.3 (0.4)— — 8.9 — 8.9 
Common stock issued for the exercise and vesting of stock-based compensation awards, net— — (0.6)— 0.4 — (0.2)— (0.2)
Dividends paid to stockholders ($0.15 per share)
— — — (18.3)— — (18.3)— (18.3)
Balance as of March 31, 2021160.3 $1.6 $705.0 $1,966.6 $(2,294.9)$72.1 $450.4 $15.3 $465.7 


Three Months Ended March 31, 2020

Common StockAdditional Paid-in-CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive Income (Loss)Total CDK Stockholders' Equity (Deficit)Non-controlling InterestTotal Stockholders' Equity (Deficit)
Shares IssuedAmount
Balance as of December 31, 2019160.3 $1.6 $683.0 $979.1 $(2,308.5)$5.4 $(639.4)$12.4 $(627.0)
Net earnings— — — 57.6 — — 57.6 1.9 59.5 
Foreign currency translation adjustments— — — — — (39.7)(39.7)— (39.7)
Stock-based compensation expense and related dividend equivalents— — 3.2 (0.2)— — 3.0 — 3.0 
Common stock issued for the exercise and vesting of stock-based compensation awards, net— — (0.8)— 2.0 — 1.2 — 1.2 
Dividends paid to stockholders ($0.15 per share)
— — — (18.2)— — (18.2)— (18.2)
Balance as of March 31, 2020160.3 $1.6 $685.4 $1,018.3 $(2,306.5)$(34.3)$(635.5)$14.3 $(621.2)

See notes to the consolidated financial statements.






7


CDK Global, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
(In millions)
(Unaudited)

Nine Months Ended March 31, 2021

Common StockAdditional Paid-in-CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive Income (Loss)Total CDK Stockholders' Equity (Deficit)Non-controlling InterestTotal Stockholders' Equity (Deficit)
Shares IssuedAmount
Balance as of June 30, 2020160.3 $1.6 $687.9 $1,045.5 $(2,305.2)$(25.9)$(596.1)$15.4 $(580.7)
Cumulative impact of ASC 326 - current expected credit losses, net of tax— — — (8.2)— — (8.2)— (8.2)
Net earnings— — — 984.9 — — 984.9 6.1 991.0 
Foreign currency translation adjustments— — — — — 98.0 98.0 — 98.0 
Stock-based compensation expense and related dividend equivalents— — 29.8 (0.8)— — 29.0 — 29.0 
Common stock issued for the exercise and vesting of stock-based compensation awards, net— — (12.7)— 10.3 — (2.4)— (2.4)
Dividends paid to stockholders ($0.45 per share)
— — — (54.8)— — (54.8)— (54.8)
Dividend payments to noncontrolling owners— — — — — — — (6.2)(6.2)
Balance as of March 31, 2021160.3 $1.6 $705.0 $1,966.6 $(2,294.9)$72.1 $450.4 $15.3 $465.7 


Nine Months Ended March 31, 2020

Common StockAdditional Paid-in-CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive Income (Loss)Total CDK Stockholders' Equity (Deficit)Non-controlling InterestTotal Stockholders' Equity (Deficit)
Shares IssuedAmount
Balance as of June 30, 2019160.3 $1.6 $688.5 $911.6 $(2,324.6)$(6.7)$(729.6)$15.1 $(714.5)
Net earnings— — — 161.9 — — 161.9 5.8 167.7 
Foreign currency translation adjustments— — — — — (27.6)(27.6)— (27.6)
Stock-based compensation expense and related dividend equivalents— — 14.6 (0.5)— — 14.1 — 14.1 
Common stock issued for the exercise and vesting of stock-based compensation awards, net— — (17.7)— 18.1 — 0.4 — 0.4 
Dividends paid to stockholders ($0.45 per share)
— — — (54.7)— — (54.7)— (54.7)
Dividend payments to noncontrolling owners— — — — — — — (6.6)(6.6)
Balance as of March 31, 2020160.3 $1.6 $685.4 $1,018.3 $(2,306.5)$(34.3)$(635.5)$14.3 $(621.2)

See notes to the consolidated financial statements.
8


CDK Global, Inc.
Notes to the Consolidated Financial Statements
(Tabular amounts in millions, except per share amounts)
(Unaudited)
Note 1. Basis of Presentation
Description of Business. CDK Global, Inc. (the "Company" or "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, the Company provides solutions to dealers and original equipment manufacturers ("OEMs"), serving nearly 15,000 retail locations in North America. The Company'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.
Basis of Preparation. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect assets, liabilities, revenue, and expenses that are reported in the accompanying financial statements and footnotes thereto. Actual results may differ from those estimates and assumptions.
The accompanying consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods. Interim financial results are not necessarily indicative of financial results for a full year. The financial statements in this Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2020 (the "Annual Report").
On March 1, 2021, the Company completed the sale of the CDK International business (the “International Business”) to Francisco Partners. Following the sale of International Business, the Company is organized as a single operating segment. The assets and liabilities of the International Business were classified as held for sale on the Consolidated Balance Sheet as of June 30, 2020. The financial results are presented in net earnings (loss) from discontinued operations in the Consolidated Statements of Operations for all periods presented. Certain prior year amounts have been reclassified to conform to the current year presentation. Unless otherwise noted, discussion in these Notes to the Consolidated Financial Statements refers to our continuing operations. For additional information, refer to Note 4 - Discontinued Operations.
Effective July 1, 2020, the Company adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (“ASU 2016-13”). The comparative information has not been restated and continues to be reported under the accounting standards in effect for the periods presented. For additional information, refer to Note 8 - Allowance for Credit Losses.
Note 2. Summary of Significant Accounting Policies
The Company's significant accounting policies are described in the Annual Report. Included below are certain updates to those policies.
Funds Receivable and Funds Held for Clients and Client Fund Obligations. Funds receivable and funds held for clients represent amounts received or expected to be received from clients in advance of performing titling and registration services on behalf of those clients. These amounts are classified in other current assets on the Consolidated Balance Sheets. The total amount due to remit for titling and registration obligations with the department of motor vehicles is recorded to client fund obligations which is classified as accrued expenses and other current liabilities on the Consolidated Balance Sheets. Funds receivable was $41.1 million and $40.7 million, and funds held for clients was $22.5 million and $16.5 million as of March 31, 2021 and June 30, 2020, respectively. Client fund obligations were $63.6 million and $57.2 million as of March 31, 2021 and June 30, 2020, respectively.
9


Internal Use Software and Computer Software to be Sold, Leased, or Otherwise Marketed. Pursuant to its software policies, the Company incurred expenses to research, develop, and deploy new and enhanced solutions of $19.4 million and $8.7 million for the three months ended March 31, 2021 and 2020, respectively, and $55.7 million and $34.5 million for the nine months ended March 31, 2021 and 2020, respectively. These expenses were classified in cost of revenue on the Consolidated Statements of Operations. Additionally, the Company had cash flows used for qualifying capitalized software development costs of $51.0 million and $42.5 million for the nine months ended March 31, 2021 and 2020, respectively.
Fair Value of Financial Instruments. Cash and cash equivalents, accounts receivable, other current assets, accounts payable, and other current liabilities are reflected on the Consolidated Balance Sheets at cost, which approximates fair value due to the short-term nature of these instruments. The carrying value of the Company's revolving credit facility (as described in Note 10 - Debt), including accrued interest, approximates fair value based on the Company's current estimated incremental borrowing rate for similar types of arrangements. The approximate aggregate fair value of the Company's senior notes as of March 31, 2021 was $2,221.5 million, based on quoted market prices for the same or similar instruments, compared to a carrying value of $2,100.0 million. The term loan facilities and senior notes are considered Level 2 fair value measurements in the fair value hierarchy.
Investments. The carrying amount of equity investments, included in other assets on the Consolidated Balance Sheets, was $52.9 million and $76.1 million as of March 31, 2021 and June 30, 2020, respectively. These amounts include a $20.0 million equity investment that is accounted for under the cost method as it does not have a readily determinable fair value. The remaining investments, which are accounted for under the equity method, totaled $32.9 million and $56.1 million as of March 31, 2021 and June 30, 2020, respectively. During the three months ended March 31, 2021, the Company recorded a $14.5 million impairment charge related to one of its equity investments.
Note 3. New Accounting Pronouncements
Recently Adopted Accounting Pronouncements. The Company adopted ASU 2016-13 on July 1, 2020. Refer to Note 8 - Allowance for Credit Losses, for the required disclosures related to the adoption of this standard.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting” ("ASU 2020-04"). This ASU provides optional guidance for a limited period of time to ease the burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. In January 2021, the FASB issued ASU No. 2021-01, "Reference Rate Reform (Topic 848), Scope" ("ASU 2021-01"), which expands the scope of Topic 848 to include derivative instruments impacted by discounting transition. These ASUs would apply to companies meeting certain criteria that have contracts, derivatives, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of the reference rate reform. These standards are effective upon issuance and may be applied retrospectively as of any date from the beginning interim period that includes March 12, 2020 or prospectively. The Company adopted ASU 2020-04 and ASU 2021-01 with no material impact on the consolidated financial statements.
Recently Issued Accounting Pronouncements. In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," which simplifies the accounting for income taxes in various areas. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company has evaluated the impact of adoption on its consolidated financial statements, including accounting policies, processes and systems, and does not expect a material impact on the consolidated financial statements.
Note 4. Discontinued Operations
International Business. On March 1, 2021, the Company completed its sale of the International Business to Francisco Partners for $1.45 billion in cash after meeting customary closing conditions and obtaining regulatory approvals. The Company recorded a pre-tax gain on sale of $965.6 million, subject to post-closing adjustments. The pre-tax gain on sale includes a $37.9 million reclassification of net currency losses from accumulated other comprehensive income.The pre-tax gain on sale excludes transaction costs of $32.4 million, which are recorded as selling, general and administrative expenses in the table below. The assets and liabilities of the International Business were classified as held for sale on the Consolidated Balance Sheet as of June 30, 2020. The financial results are presented in net earnings (loss) from discontinued operations in the Consolidated Statements of Operations for all periods presented. The Company expects to provide limited services to Francisco Partners to assist in the integration of the International Business through early fiscal 2022.
10


Digital Marketing Business. On April 21, 2020, the Company completed its sale of the Digital Marketing Business to Sincro LLC, a newly formed company owned by Ansira Partners, Inc., which is a subsidiary of Advent International.
The following table summarizes the comparative financial results of discontinued operations which are presented in net earnings (loss) from discontinued operations in the Consolidated Statements of Operations:
Three Months EndedNine Months Ended
March 31,March 31,
2021202020212020
Revenue$62.9 $89.9 $223.5 $248.2 
Cost of revenue25.4 43.7 100.8 126.8 
Selling, general and administrative expenses37.3 24.2 83.6 70.2 
Restructuring expenses  11.2  
Operating earnings0.2 22.0 27.9 51.2 
Interest expense (0.1)(0.1)(0.3)
Other income, net2.2 1.4 2.5 0.6 
Earnings before income taxes2.4 23.3 30.3 51.5 
Gain on sale of the International Business965.6  965.6  
Provision for income taxes(157.2)(6.3)(164.6)(11.3)
Net earnings from discontinued operations - International Business$810.8 $17.0 $831.3 $40.2 
Net earnings (loss) from discontinued operations - Digital Marketing Business$5.0 $(34.9)$5.8 $(74.9)
Net earnings (loss) from discontinued operations$815.8 $(17.9)$837.1 $(34.7)
The total assets and liabilities held for sale related to discontinued operations for the International Business as of June 30, 2020 are stated separately on the Consolidated Balance Sheets and comprised the following items:
11


June 30,
2020
Assets
Cash and cash equivalents$134.9 
Accounts Receivable58.0 
Prepaid and other current assets21.5 
Total current assets214.4 
Property, plant and equipment, net12.4 
Other assets57.4 
Goodwill349.0 
Intangible assets, net5.7 
Total assets held for sale$638.9 
Liabilities:
Accounts payable$5.1 
Deferred revenue63.3 
Accrued expenses and other current liabilities35.5 
Accrued payroll and payroll-related expenses25.5 
Total current liabilities129.4 
Long-term deferred revenues13.4 
Deferred income taxes2.0 
Other liabilities25.2 
Total liabilities held for sale$170.0 

Note 5. Acquisition
Square Root. On February 1, 2021, the Company acquired Square Root, Inc. ("Square Root"), an Austin-based developer of data curation software for original equipment manufacturers ("OEMs"). The Company acquired all of the outstanding equity of Square Root for an initial purchase price of $20.0 million in cash. The acquisition includes a contingent purchase price payment of up to $5.0 million, which becomes payable if certain performance conditions are met by Square Root over a two-year period after the closing.
Note 6. Revenue
Contract Balances. The Company receives payments from customers based upon contractual billing schedules. Payment terms can vary by contract but the period between invoicing and when payments are due is not significant. The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in unbilled receivables, contract assets, or contract liabilities, on the Consolidated Balance Sheets. Unbilled receivables are recorded when the right to consideration becomes unconditional based only on the passage of time. Contract assets include amounts related to the Company's contractual right to consideration for completed performance when the right to consideration is conditional on something other than the passage of time. The Company records contract liabilities when cash payments are received or due in advance of performance. Contract assets and contract liabilities are recognized at the contract level.
The following table provides information about accounts receivable, contract assets, and contract liabilities from contracts with customers:
12


March 31, 2021June 30, 2020
Accounts receivable (including unbilled receivables)$248.7 $242.0 
Short-term contract assets (included in other current assets)63.2 42.6 
Long-term contract assets (included in other assets)23.6 34.6 
Short-term contract liabilities (included in short-term deferred revenue)(39.6)(44.6)
Long-term contract liabilities (included in long-term deferred revenue)(41.7)(39.4)

During the nine months ended March 31, 2021 and 2020, the Company recognized $75.0 million and $97.5 million, respectively, of revenue upon satisfaction of performance obligations. These amounts were included in contract liabilities at the beginning of their respective fiscal periods. During the nine months ended March 31, 2021 and 2020, the Company invoiced and reclassified to accounts receivable $31.3 million and $17.7 million, respectively. These amounts were included in contract assets at the beginning of their respective fiscal periods. The Company had no asset impairment charges related to contract assets in the periods presented.
The Company may occasionally recognize an adjustment in revenue in the current period for performance obligations partially or fully satisfied in the previous periods resulting from changes in estimates for the transaction price, including any changes to the Company's assessment of whether an estimate of variable consideration is constrained. For the nine months ended March 31, 2021, the impact on revenue recognized in the current period, from performance obligations partially or fully satisfied in the previous period, was not significant.
Remaining Performance Obligations. As of March 31, 2021, the Company had $2.5 billion of remaining performance obligations which represent contracted revenue that has not yet been recognized, including contracted revenue where the contract's original expected duration is one year or less. The Company expects to recognize approximately $290 million of the remaining performance obligations as revenue during the remainder of the fiscal year ending June 30, 2021 ("fiscal 2021"), $830 million for the fiscal year ended June 30, 2022, $620 million for the fiscal year ended June 30, 2023, $410 million for the fiscal year ended June 30, 2024, $230 million for the fiscal year ended June 30, 2025, and $110 million thereafter. The remaining performance obligations exclude future transaction revenue where revenue is recognized as the services are rendered and in the amount to which the Company has the right to invoice.
Costs to Obtain and Fulfill a Contract. The Company capitalizes certain contract acquisition costs consisting primarily of commissions incurred when contracts are signed. The Company does not capitalize commissions related to contracts with a duration of less than one year; such commissions are expensed in selling, general and administrative expenses when incurred. Costs to fulfill contracts are capitalized when such costs are direct and related to transition or installation activities for hosted software solutions. Capitalized costs to fulfill primarily include travel and employee compensation and benefit related costs for the Company's implementation and training teams. Capitalized costs to obtain a contract and most costs to fulfill a contract are amortized over a period of five years which represents the expected period of benefit of these costs. In instances where the contract term is significantly less than five years, costs to fulfill are amortized over the contract term which the Company believes best reflects the period of benefit of these costs.
As of March 31, 2021 and June 30, 2020, the Company had capitalized contract acquisition and fulfillment costs of $188.4 million and $178.7 million, respectively. The Company expects that incremental commission fees incurred as a result of obtaining contracts and fulfillment costs are recoverable. During the nine months ended March 31, 2021 and 2020, the Company recognized cost amortization of $54.9 million and $54.4 million, respectively, and there were no significant impairment losses.

Revenue Disaggregation. The following table presents revenue by category for the three and nine months ended March 31, 2021 and 2020:

13


Three Months EndedNine Months
Ended
March 31,March 31,
2021202020212020
Subscription$332.1 $331.7 $984.3 $1,000.9 
On-site license and installation1.4 2.4 4.6 7.5 
Transaction43.3 38.1 126.3 120.6 
Other56.3 54.2 137.9 133.3 
Total$433.1 $426.4 $1,253.1 $1,262.3 

Note 7. Earnings per Share
The numerator for basic and diluted earnings per share is net earnings attributable to CDK. The denominator for basic and diluted earnings per share is based on the weighted-average number of shares of the Company's common stock outstanding during the applicable reporting periods. Diluted earnings per share also reflects the dilutive effect of unexercised in-the-money stock options and unvested restricted stock.
The following table summarizes the components of earnings per share:
Three Months EndedNine Months Ended
March 31,March 31,
2021202020212020
Net earnings from continuing operations attributable to CDK$45.1 $75.5 $147.8 $196.6 
Net earnings (loss) from discontinued operations815.8 (17.9)837.1 (34.7)
Net earnings attributable to CDK$860.9 $57.6 $984.9 $161.9 
Weighted-average shares outstanding:
Basic122.0 121.6 121.9 121.5 
Effect of dilutive securities(1)
0.9 0.6 0.6 0.6 
Diluted122.9 122.2 122.5 122.1 
Net earnings (loss) attributable to CDK per share - basic:
Continuing operations$0.37 $0.62 $1.21 $1.62 
Discontinued operations6.69 (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 (loss) attributable to CDK per share - diluted:
Continuing operations$0.36 $0.62 $1.21 $1.61 
Discontinued operations6.64 (0.15)6.83 (0.28)
Total net earnings attributable to CDK per share - diluted$7.00 $0.47 $8.04 $1.33 
(1) The dilutive effect of outstanding stock options, restricted stock units, restricted stock, and performance share units is reflected in the diluted weighted-average shares outstanding using the treasury stock method.
The weighted-average number of shares outstanding used in the calculation of diluted earnings per share does not include the effect of anti-dilutive securities. The potential common shares excluded were 0.7 million and 0.9 million for the three months ended March 31, 2021 and 2020, respectively, and 1.0 million and 0.8 million for the nine months ended March 31, 2021 and 2020, respectively.
14


Note 8. Allowance for Credit Losses
In June 2016, the FASB issued ASU 2016-13, which requires the application of a current expected credit loss (“CECL”) impairment model to financial assets measured at amortized cost (including trade accounts receivable), net investments in leases, and certain off-balance-sheet credit exposures. Under the CECL model, lifetime expected credit losses on such financial assets are measured and recognized at each reporting date based on historical, current, and forecasted information. Furthermore, the CECL model requires financial assets with similar risk characteristics to be analyzed on a collective basis.
On July 1, 2020, the Company adopted the CECL model using a modified retrospective approach. The noncash cumulative effect of adopting the CECL model resulted in a decrease of $8.2 million, net of tax impacts, to retained earnings, with corresponding increases to the allowance for expected credit losses impacting accounts receivable, net, other current assets and other assets on the Consolidated Balance Sheets. The cumulative-effect adjustment in retained earnings includes amounts related to the International Business, which represented an impact upon adoption of $1.2 million, net of tax. At adoption, there was no impact on the Company’s Consolidated Statements of Operations and Cash Flows. The impacts related to prior comparative periods have not been restated and continue to be reported under the accounting standards in effect for the prior period.
The Company is exposed to credit losses primarily through the sales of its products and services. The majority of the Company’s receivables are trade receivables due in less than one year. Financial assets also include the short and long-term portions of contract assets, lease receivables and other accrued and unbilled receivables. Refer to Note 6 - Revenue for more information about contract assets.
The Company has identified the following risk characteristics of its customers and the related receivables and financial assets: geographic region, major line of business (e.g. Automotive, OEM, etc.), size or a combination of these characteristics. Receivables with similar risk characteristics have been grouped into pools. For each pool, the Company considers the historical credit loss experience, current economic conditions, adjusted for external data and macroeconomic factors such as unemployment rates in certain operating regions or automobile sales. Due to the short-term nature of trade receivables, the estimated amount of accounts receivable that may not be collected is based on the aging of the receivable balances, the financial condition of customers and the Company’s historical loss rates. For certain other financial assets, the expected credit losses are also evaluated based on the credit rating of the counterparty, or reasonable and supportable forecasts of future economic conditions. While developments related to the COVID-19 pandemic continue to evolve, management has elected to make judgmental adjustments to the historical loss rates based on expected impacts. Additionally, specific reserves are established for certain financial assets on an individual basis when they no longer meet the criteria to be classified in a particular pool. Should a particular asset’s risk characteristics change, the Company will assess whether the asset should be moved to another pool. This analysis and the review of credit quality indicators are performed at each quarter-end, or more often as deemed necessary based on specific facts and circumstances.
The Company also carries financial assets that are attributable to the sale of the Digital Marketing Business and the International Business. These assets primarily consist of a 10-year note receivable, receivables related to transition services agreements in connection with the sale of the businesses, and the fair value of contingent consideration. Specific reserves are established for these assets on an individual basis if it is determined that there is a higher probability of default, which considers the aging of the receivable balances and the financial condition of the counterparties.
The Company’s monitoring activities include timely account reconciliation, reviews of credit and collection performance, consideration of customers' financial conditions and macroeconomic conditions. For trade receivables and unbilled accounts receivable, credit quality indicators relate to collection history and the delinquency status of amounts due, which is determined based on the aging of such receivables. For certain other financial assets including contract assets, lease receivables, other accrued and unbilled receivables, and financial assets attributable to the sale of the Digital Marketing Business, credit quality indicators are generally based on rating agency data, publicly available information and information provided by customers which may affect their ability to pay. Financial assets are written off when they are determined to be uncollectible.
Credit loss expense is included in selling, general and administrative expenses in the Consolidated Statements of Operations. The following table provides a rollforward of the allowance for credit losses that is deducted from the amortized cost basis to present the net amount expected to be collected as of March 31, 2021.



Accounts receivable, netOther current assetsOther assetsTotal
Balance as of June 30, 2020$10.6 $ $ $10.6 
Cumulative-effect adjustment upon adoption(1)
0.7