Ceridian HCM Holding Inc. (NYSE:CDAY) Q3 2023 Earnings Call Transcript

Ceridian HCM Holding Inc. (NYSE:CDAY) Q3 2023 Earnings Call Transcript November 1, 2023

Ceridian HCM Holding Inc. beats earnings expectations. Reported EPS is $0.37, expectations were $0.29.

Matt Wells: Good morning and thank you for joining. Welcome to Ceridian’s Third Quarter 2023 Earnings Conference Call. I am Matt Wells, Head of Investor Relations. And on the call today, we have our Co-CEO, David Ossip; our CFO, Noemie Heuland; our Chief Product and Technology Officer, Joe Korngiebel; and our President of Customer and Revenue Operations, Steve Holdridge. [Operator Instructions] Now before I hand the call over to David, I want to remind everyone that our commentary may include forward-looking statements. These statements are subject to risks and uncertainties that could cause Ceridian’s results to differ materially from historical experience or present expectations. A description of some of these risks and uncertainties can be found in the reports we filed with the Securities and Exchange Commission such as the cautionary statements in our filings.

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Additionally, over the course of this call, we’ll reference non-GAAP measures to describe our performance. Please review our earnings press release and filings with the SEC for our rationale behind the use of these non-GAAP measures and for a full reconciliation of these GAAP to non-GAAP metrics. These documents, in addition or a replay of this call will be available on the Ceridian Investor Relations website. And with that, David, I’d like to turn the call over to you.

David Ossip: Thank you and thank you all for joining us today. Today, I will discuss our strong third quarter results highlight our commitment to continually innovate on the Dayforce platform and provide an update on our raised full year outlook. Steve will provide more information on sales wins and successful customer implementations. Joe will highlight key announcements out of INSIGHTS, especially our gender of AI co-pilots autonomous payroll service desk delivery and other items that we discussed at our INSIGHTS conference. And Noemie will add detail to our quarterly performance and updated full year outlook. In the third quarter, I am pleased to report that we again exceeded guidance across all revenue and profitability metrics.

Dayforce recurring revenue grew by 35% year-over-year at constant currency and we are pushing the full beat and incrementally raising our revenue and profitability guidance for Q4 and for the full year. Before I go into the financial details, it’s with mixed emotions that I shared the news that Leagh will be leaving Ceridian on 10 November to become CEO of Cooper Software. If you recall, 5 years ago, I brought Leagh on board to bring structure and to build processes to scale and deliver durable growth. During our time together, we have delivered and the results speak for themselves. Our revenues have doubled and will surpass $1.5 billion by the end of this year. Our customer base has grown as well to over 6,300 live customers, including some of the biggest organizations in the world and adjusted cloud gross margins have expanded meaningfully from 67% to over 78% today.

And in terms of scale and structure, we now have an exceptional leadership team, including Steve and Joe, whom you will hear from today. I and this best-in-class team are committed to the continued success of our people, customers and business. Therefore, I’d like to express my gratitude to Leagh personally, although bitter sweet, I am delighted and proud of her development as a highly regarded leader in the cloud domain. She now has the chance to take the reins at Cooper and her appointment is truly well deserved. They are fortunate to have her at the helm. So, from all of us, Leagh, congratulations and thank you. Now, let’s turn to our financial results. In the third quarter, on a constant currency basis, Dayforce recurring revenue grew 35% and Dayforce recurring revenue ex-float grew 29% year-over-year at constant currency.

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Q&A Session

Adjusted cloud recurring gross margins of 78.3% expanded by approximately 350 basis points year-over-year. Adjusted EBITDA was $107.2 million or 28.4% of revenue and expanded 827 basis points year-over-year. This margin expansion reflects revenue upside, a greater share of recurring revenue in the business and continued scale across the Dayforce platform. And as I mentioned earlier based on our Q3 performance and increased visibility, we are raising and narrowing the range of our growth and profitability outlook for 2023. This reflects the full flow-through of the beach in Q3 and an incremental raise into Q4 and the full year. Noemie will dig into the guidance details shortly. Other highlights of the quarter included another record break in INSIGHTS, where we had a record number of attendees, including customers, prospects and partners.

And we showcased meaningful product innovation across the Dayforce platform, which Joe will discuss in a few minutes. Notably, we announced that Ceridian is becoming Dayforce. This decision reflects who we are today, an enterprise-grade full suite human capital management company. This will unify our industry-leading platform with our brand and further advance our shared ambition of making work life better. And just last week, Gartner named Dayforce for the fourth straight year, a leader in their Gartner Magic Quadrant for cloud HCM suites for 1,000 plus employee enterprises. This recognition validates Dayforce as a continued leader in cloud HCM and shines a light on the positive experience millions of Dayforce users engage in daily. I am so proud of this achievement.

As the results show, we have momentum. We are well positioned to execute in the current macro environment and deliver durable and profitable growth. And with that, let me ask Steve to speak to the customer and market highlights. Steve, over to you.

Steve Holdridge: Thank you, David. First of all, I continue to be impressed by the momentum of our sales team, now led by Sam Alkharrat as our Chief Revenue Officer. Sam has fully settled into the role and is driving best-in-class demand and sales execution across the go-to-market organization. We now have the largest and most qualified pipeline in our history, a byproduct of this focus across sales, marketing, partners and our highly referenceable customers. Year-to-date, we brought live 353 net new Dayforce customers. This number reflects a cohort of large deals going live in Q3 and is consistent with our strategy of shifting up market. For context, net go lives of Dayforce customers in our enterprise segment are up 75% year-to-date and notably, gross revenue retention remains in line with historical trends in the range of 97%, where over 30% of annual contract values from add-on sales consistent with our focus for some time now to sell value back to the expanding base.

And year-to-date, we have attached the full suite to nearly 50% of new sales. This is validation of both our sales and products strategy. We are seeing continued adoption of our talent solution while the Dayforce Hub experience also resonates with customers. This means 40% of our customer base is now full suite showing we continue to help customers understand and adopt the full value that Dayforce can bring as organizations transform to the new world of work. Dayforce Wallet also continues to see healthy adoption across our new and existing customer base. We are attaching the solution to approximately 80% of new sales. We now have 1,765 customers sold and over 1,065 customers live on wallet. And notably, we crossed $2 billion in total customer loads in Q3 with customer year-to-date loads on the card, well over $1 billion.

Moving now to a sample of key wins and go-lives from around the globe. In Q3, new customer wins included one of the largest supermarket chains in Canada selected Dayforce to support 125,000 employees across 1,500 retail locations. A global European bank with 83,000 employees upgraded its payroll technology by extending its use of Dayforce to India, which will bring in an additional 20,000 employees onto the platform. A Lithuanian group of supermarket retail chains with 38,000 employees across 5 countries chose Dayforce for core HR and workforce management in Lithuania and Latvia. And some of the organizations that went live on Dayforce in Q3, a leading global customer service organization with 82,000 employees in 45 countries expanded its current Ceridian partnership by adding employees in Kenya on the Dayforce for core HR, time and attendance, recruiting, onboarding and self-service.

A global analytics professional services company with 35,000 employees in 40 countries recently, we have live with Dayforce HR and payroll for 17,000 employees in the U.S. A chemical and ingredients distribution company with 17,500 employees across 72 countries launched Dayforce in the U.S. and Canada, allowing it to streamline 26 different pay cycles across 12 separate systems into a single platform for this region. And when we talk about wins and go-lives, we must also spotlight the role of our partners this quarter. Who, as you know, are an important part of our growth strategy. We continue to see our partner network expanding and thriving, including 250% plus year-over-year growth in SI partner-led RINs across all regions and segments and look no further than the enhanced presence of our partners at our INSIGHTS conference to showcase how we continue to leverage and expand the breadth and depth of our ecosystem for the betterment of our community.

This quarter demonstrated Ceridian’s ability to ride the macros well and delivered value to customers. As a company, we are leaning into our ability to serve customers as the go-to partner for HR transformations around the world growing durably, profitably and sustainably. And we are seeing our focus on quantifiable value with Dayforce as the global people platform, translate into results across all areas of our business. And I know it’s the same on the product front, where we’ll now hear from our Chief Product and Technology Officer, Joe Korngiebel. Joe, over to you.