CDK Global, Inc. (Nasdaq:CDK) today announced its first quarter fiscal 2016 financial results and confirmed its outlook for fiscal 2016. Highlights are below:
First Quarter Fiscal 2016 Results As Reported
Revenues: flat to $514.6 million
Earnings before income taxes: up 49 percent to $95.8 million
Net earnings attributable to CDK: up 51 percent to $59.0 million
Diluted net earnings attributable to CDK per share: up 54 percent to $0.37 per share
EBITDA margin: not meaningful
First Quarter Fiscal 2016 Results As Adjusted
Revenues: up 2 percent to $514.6 million
Earnings before income taxes: up 23 percent to $99.4 million
Net earnings attributable to CDK: up 14 percent to $61.4 million
Diluted net earnings attributable to CDK per share: up 15 percent to $0.38 per share
EBITDA margin: up 310 bps to 25.0 percent
"I am pleased with CDK's solid results for the first quarter. CDK achieved these results while executing our business transformation plan aimed at balanced organic revenue growth and significantly increased earnings, which we believe is the optimal business model for delivering long-term value to both our shareholders and clients," said Steve Anenen, President and Chief Executive Officer, CDK.
"We are confirming our full year forecasts, although we anticipate challenges in the second quarter due to continued pressure from unfavorable foreign exchange rates and year-over-year comparisons," said Al Nietzel, Chief Financial Officer, CDK.
Growth in revenues and earnings before income taxes for the quarter were negatively impacted 3 and 4 percentage points, respectively, from unfavorable foreign exchange rates in the "As Adjusted" results above. The adjusted effective tax rate in the first quarter of fiscal 2016 was 36.0 percent compared to 31.1 percent in last year's first quarter due to a fiscal 2015 nonrecurring income tax benefit primarily related to foreign operations. Fiscal 2016 results have been adjusted to exclude costs related to the business transformation plan. Fiscal 2015 results have been adjusted for certain non-GAAP items for comparability to fiscal 2016. Please refer to the tables at the end of this release for a reconciliation of the "As Reported" results to the "As Adjusted" results. All comparisons throughout the remainder of this release are on an "As Adjusted" basis.
Automotive Retail North America
Automotive Retail North America revenues grew 6 percent for the first quarter, 4 percent organically, and 7 percent on a constant currency basis compared to last year's first quarter. Pretax earnings increased 12 percent, or 14 percent on a constant currency basis. Pretax margin expanded 170 basis points driven by scale from increased revenues, operating efficiencies from lower headcount and a more favorable geographic labor mix, partially offset by increased hosting costs. The pretax margin also benefited from severance charges in last year's first quarter that did not recur, as well as the release of a vendor-related obligation.
Automotive Retail International
Automotive Retail International revenues declined 9 percent entirely due to unfavorable foreign exchange rates compared to last year's first quarter. On a constant currency basis, revenues grew 4 percent. Pretax earnings increased 13 percent, or 25 percent on a constant currency basis. Pretax margin expanded 350 basis points balanced between scale from increased revenues and nonrecurring items.
Digital Marketing revenues grew 1 percent for the first quarter compared to last year's first quarter. Pretax earnings grew 30 percent and pretax margin expanded 230 basis points primarily from increased operating efficiencies from lower headcount and labor-related costs.
Fiscal 2016 Forecast
The fiscal 2016 growth forecasts that follow are based on fiscal 2015 results adjusted for certain non-GAAP items for comparability to fiscal 2016 as shown in our fiscal 2015 year-end earnings press release and presented at the end of this release. On this adjusted basis, the forecast that follows is unchanged:
Adjusted revenues – we anticipate 4 percent to 5 percent growth from $2,017.3 million in fiscal 2015
Adjusted earnings before income taxes – we anticipate at least 25 percent growth from the adjusted $333.3 million in fiscal 2015
Adjusted pretax margin – we anticipate at least 300 basis points of expansion from the adjusted 16.5 percent in fiscal 2015
Adjusted EBITDA margin – we anticipate at least 300 basis points of expansion from the adjusted 22.9 percent in fiscal 2015
Adjusted net earnings attributable to CDK – we anticipate over 25 percent growth from the adjusted $210.5 million in fiscal 2015
Adjusted diluted net earnings attributable to CDK per share – we anticipate over 25 percent growth from the adjusted $1.30 in fiscal 2015
Fluctuations in foreign exchange rates are anticipated to negatively impact growth in revenues and earnings before taxes about 2 percentage points and 2 to 3 percentage points, respectively, for the second quarter. For the fiscal year, this impact is anticipated to be 1 to 2 percentage points on revenues and about 2 percentage points on earnings before income taxes. This forecast includes approximately $45 million of additional EBITDA from execution on our business transformation plan, and as a result, earnings growth and margin expansion is heavily weighted to the second half of the fiscal year. As a result, we continue to anticipate growth for the second quarter will be below the growth forecasted for the full year.
Effective Tax Rate
There is no change to CDK's anticipated adjusted effective tax rate for fiscal 2016 of 35.5 percent to 36.0 percent compared with 34.5 percent in fiscal 2015. The fiscal 2015 adjusted effective tax rate excludes the impact of separation costs which were primarily non-deductible and the $4.6 million increase to income tax expense related to the tax law change for bonus depreciation.
Separation from ADP
CDK Global, Inc. began operating as a public company on October 1, 2014 following its spin-off from ADP on September 30, 2014.