Michael Turrin: Hey, great. Thanks for taking the question. Appreciate it. Employee growth on the platform is still strong this year at 17%. You mentioned the environment you’re seeing still looks healthy. Can you walk through some of the assumptions you’re making on the employment environment in the fiscal 2023 guide? And then secondarily, there’s a tax migration impact mentioned in the press release as part of the Dayforce revenue guide. Noemie maybe you can just give us some details on what’s driving that? Is that something you’re expecting as the user base matures, or maybe what’s driving that now? Thank you.
Noemie Heuland: Sure. So in terms of employment assumptions David referred to it earlier, we’re expecting the employment trends to normalize. Remember in last year Q1, we still had little bit of pickup from the employment level recovery from the COVID period. So that’s completely normalized now. We’re expecting a slight decline in Q1 in employment levels seasonal trends and then picking back up again. So that’s for the €“ that’s what’s embedded in our PEPM guidance for 2023. And on the tax migration, we’ve talked about the effect and we €“ David can talk about this too, but we’ve modernized our existing infrastructure. This is no different than what we’ve done in the past for our Bureau customers, where we migrate them from an on-premise types of delivery into cloud and that really enabled us to generate a lot more profitable margin with the tax customers as well.
And we classify the revenue as cloud and Dayforce recurring. That contributes to about 460 basis points of growth in 2023. And we have an aggressive marketing plan as well as branding activities to really grow that market and that business because there’s really big demand for it. That’s a competitive differentiator for us and customers actually appreciate the services offering. David, do you want to add something on that?
David Ossip: Yeah. I think you did it well. It’s no different than what we did with all of the legacy payroll business. So over the last number of years, we’ve actually been rewriting the tax component into the Dayforce platform, such that, it becomes a true cloud system, but also that it allows us to get a foothold in the actual customer’s that gives us future growth, and hence the branding exercises and the marketing exercise that Noemie is talking about. A few things though on the gross profit, we were able as we did the actual movement into the Dayforce kind of tech stack to improve the gross profit the gross margins on the recurring tax business up quite significantly as well. And so the gross margins on the tax recurring are now within a few basis points of what we see on the entire Dayforce platform.
We also did make some changes to some of the services. For example things like printing. We no longer do that directly. So kind of the low-margin types of services, we worked out other ways to deliver that to customers outside of Ceridian.
Michael Turrin: That’s very helpful. Thank you.
Operator: Thanks, Michael. Our next comes from Jackson Ader of MoffettNathanson.
Jackson Ader: Great. Thanks for taking our questions, guys. The first one is on the deal size increase that’s up I think 22% a year-over-year. I’m curious, whether you can parse how much of that was attributable to the customers being larger like customers having more employees versus maybe holding employees steady but actually uptake of more product.
David Ossip: Look, we’ve got five growth vectors for the business. The first one is that we acquire new customers. The second is that we increase the actual platform. We go back to the base and we upsell them. As Leagh pointed out 25% I think of the sales that we did with inside fiscal 2022 were back to the base. And then the third growth vector is that we go into the enterprise and the large enterprise space. And as you can see from the list of customers and such, we’ve obviously done that very effectively. So it’s really kind of looking at the growth as a rectangle. And we’re looking at effectively growing the area all the time by selling more modules and at the same time sell into large organizations.
Jackson Ader: Okay. All right. And then just a quick follow-up on the wallet. Any expected impact or quantifiable impact on margins that you can talk about for the wallet either in 2022 or on the expectation for that $140 million in revenue in 2023.
David Ossip: Not $140 million, again, $14 million, 1-4. Obviously you have to stop mumbling when I speak.
Jackson Ader: Sorry about that. Yes. Got it now.
David Ossip: Yes. In terms of the margins, the margins obviously go up as the scale of the business actually goes up as well. I think if we look at it as an overall probability, it’s kind of in line with the rest of the Dayforce application. But I would expect the profitability of that business to obviously improve. But again, it’s a small business today, growing well over 100% year-over-year. And I think that growth trend will continue for some time.
Jackson Ader: Okay. Got it. Thank you.
Operator: Our next question comes from Alex Zukin of Wolfe Research.
Alex Zukin: Hey guys. Can you hear me okay?
David Ossip: Hey, Alex. Nice to speak with you.
Alex Zukin: Likewise. So, excluding the $200 million in the Dayforce Wallet — no, I’m just kidding. I guess, on — if you think about the guide for Dayforce recurring revenue, if you do actually exclude the $14 million wallet and the 450 basis points of tax migration, it does appear a little bit more conservative than your historical guidance methodology for Dayforce recurring revenue. Is that just deliver it, taking account of the more volatile macro, is it something else? And just David also help us understand, is this a one for one what we were charging for the tax piece on-prem now moving it into the cloud? Are you getting a cloud migration dollar boost from that as well for that service? And how much is left in that Bureau business to migrate or convert over to Dayforce?
David Ossip: Yes. First of all Alex, remember as a tech company we make investments in engineering and we do that in order to get the Dayforce recurring revenue in both the case of Dayforce Wallet and in the tax. We put significant resources into the kind of the development if you like of the Dayforce components for that. It’s no different and us going off and building a different module and trying to get recurring revenue against it. So, I don’t think what you’re saying hold, because obviously we invested in the P&T line, product and technology in order to get the growth on the Dayforce recurring from those two specific modules as I would frame that. In terms of the pricing, yes, you’re correct, we were able to increase the prices that we have been getting for tax over the last year.
And that’s when I mentioned that the margins had improved to be in line with those of Dayforce. Obviously, there’s a cost savings on the infrastructure side, but there’s also a revenue look that we get from that too.
Alex Zukin: And then in terms of just the latent opportunity that still exists in that Bureau base to convert over to Dayforce or over the course of the next few years either in tax for Bureau?
David Ossip: No, we did it in a way that we’re able to do it kind of all-in. So, if you actually look at the growth for Q1, it’s about 550 basis points lift from that particular migration. And so if I look towards the Bureau kind of run for the year, the makeup effectively is the remaining North American payroll and fiscal 2023 is like $1.5 million to $2 million. Tax all moves across over to Dayforce this year. We’ve got that small business Freedom product that still holds probably around the $9 million level. We have no more HRO business inside that. There’s still a little bit of allocation of float that goes towards the Bureau business in the neighborhood of $1 million to $2 million. And then we have the APJ products that we will be migrating over the next number of years. And that if I look at it for the year in total it’s probably about $84-or-so million.
Alex Zukin: That’s super helpful. Maybe just sneaking one last one in David. How the thought process around inorganic contribution as you look at — the market seems to be getting a little bit better for private valuations as you think about just generally for — by adding incremental functionality into the business.
David Ossip: We’re not looking at doing any significant scale M&A within 2023. We’re focused quite honestly on hitting the $2 billion of revenue the 80% gross margin on recurring and a 30% adjusted EBITDA organically.
Alex Zukin: Perfect. Thank you guys so much. Congrats.
Operator: And we’ll take our last question of the night from Raimo Lenschow with Barclays.
Raimo Lenschow: Hey thank you. Can you hear me okay?
David Ossip: Hey Raimo, good to speak with you.
