Dayforce, Inc. (DAY) Earnings Call Transcript & Summary

Okay. Good afternoon, everybody. It's Keith Bachman here again from BMO. This is our last event of the day, at least for me, I'm not sure about my colleagues on the tech conference, but we're happy to have Ceridian here. I will just, as usual, launch into questions. [Operator Instructions] And maybe, David, I'll go ahead and start it from my end. Thank you very much at the outset for joining us today. We're happy to have Ceridian present to BMO. And hopefully, you've had a good set of meetings during the day. Unfortunately, I haven't been able to join those meetings because I've been back-to-back fireside, so to speak. But maybe you can talk about -- this is the question I've been starting out with many of the software companies today is, if you think about Ceridian's opportunity within the broader HCM landscape, what are you most excited about? What do you think is most intriguing from a growth perspective in terms of driving incremental dollars of growth if you look out over the next 12 to 18 months?

Sure. Well, thanks, Keith. Look, we have a strong record of being a solid grower for a very, very long period of time. I know if you look at our last quarter results, we came in at default recurring growth of about 30% year-over-year. Remember that we didn't really suffer as much as other companies did last year, and we still have robust growth even in 2020. When we look at our guidance for the remainder of the year, as you know, we increased our guidance to 31% to 32% in Q3 and 32% to 33% in Q4. And we obviously go in with a high degree of visibility into those numbers. We have been able to do this by having 5 different growth levers for the actual business. The first is we acquire new customers and in the last quarter, we onboarded 125 new customers. We also spoke about some of the traction we've been having on the sales side and the strength of the actual pipeline. So we expect that to continue. Second area of growth is that we continually expand the platform. And we then go back to the base and we sell them the new modules. We now do about -- 25% of our quarterly sales are add-ons to the actual base. And remember, our net retention rates are about 106%. So very, very strong. The third, we started about 2 years ago, was moving to the larger enterprise space. And you see that reflected in both the logos that we spoke about bringing onboard this quarter. But also, if you look at the numbers, the average size of our customer is up by about 11% year-over-year. And that follows very robust growth the prior year. The fourth area is that we grow globally. And half of our addressable market is outside of the U.S. and Canada. So it's very, very important that we do that. If I look at global deals this year, they're up 5x over last year. And the last area for growth for us, what we call adjacent markets, which is how do we drive additional revenue from the employees of our customers. And you see the Dayforce Wallet becoming very -- getting great traction in market. I'm going to speak about that a bit later on. But obviously, a very kind of robust platform for future growth as well.

Sorry, could I just -- is that -- I'm getting a little bit of static. Is that the BMO folks in the background? If you could just make sure you mute your stuff if you're a BMO moderator in some capacity on the tech side. Sorry, David.

No, no, I appreciate that, Keith. So from a future growth perspective, I think we're quite confident we can continue to grow the business at robust growth rates and reflect the income, the guidance that we gave to The Street.

Okay. Great. We're going to peel off and hit a couple of those. And let's talk about new logo growth perhaps as the starting point or acquiring new customers. What's been a commonality amongst the new logos, right? There's -- traditionally folks think about -- investors think about Ceridian primarily capturing the hourly workforce. Has that been a continuous -- has that been consistent across the new logo growth? Or any kind of common points associated with the new logo wins that you've been having?

So, Keith, we've had very robust growth across the industry for quite some time. If you look at some of the customers, we announced like Cooper. Cooper Software, I think a lot of you know them. One of the leading kind of cloud providers in market. We also spoke about from the leading global provider for fitness platforms. Most of us have their bikes and their treadmills and I have 2 of them. Again, not exactly a lead kind of workforce. As everyone knows, we deal with great organizations like BlackRock, American Express, UBS, a tremendous footprint in the health care organization. So our solutions really are full of human capital management for all types of employees. And by the way, even if I look at the adoption of the Dayforce Wallet, it's not predominantly hourly people that are using the Wallet. We are seeing many salaried individuals, use the Wallet as well.

Interesting. Okay. Interesting.

And Keith, a couple of data points. If I look at our market share in North America, I would estimate we're only about 4%, 5% and globally, even less than that. So just future growth prospects with the differentiation we have in product is obviously very, very strong.

And you broke up a little bit. I think you said 4% to 5% market share, David?

Yes, 4% to 5%. There's tons and tons of white space for us in the U.S. and Canadian marketplace. And globally, it's even less, it's probably less than 1%.

Right. But if you think about that market share, I agree that, that -- agree with your market share assessment. But a lot of the customers, HCM or Cloud HCM has had quite wide adoption. So while you may have low market share, there are many platforms deployed. So are you dislodging folks when you're winning new customers?

Yes. We -- obviously, we do that. Remember, many of these platforms are quite old. Many of them are still mainframe driven. Many of the platforms out there are combinations of a multitude of different systems, each of different UXs, user experiences, databases and such. So when we actually go to market, we don't really have that many competitors. We might have 2. And across both of those competitors, we have a very strong differentiation and are always on payroll engine, which is quite differentiated. The fact that we have a single database across 4 HCM, the amount of features we have around data, around prediction, around AI and what we're doing on the talent intelligence side. And then obviously, what we're doing in terms of revolutionizing the way that people are paid through the Dayforce Wallet really does differentiate us quite significantly.

Okay. Well, I wanted to come to the continuous pay calculation. I mean that's been one -- in my mind, one of your secret sauce in terms of competitive advantage. Are you seeing any more emerging competition around that particular piece of technology, so to speak, from any of your competitors on the continuous...

Yes, let's back up. What actually is that? So when I looked at the industry back in probably about 2011, the fundamental problem that I saw was that payroll people didn't have access to their data. They couldn't get it on a timely basis. They had to wait until the end of the pay period before they could start the actual processing. And the solution -- the reason for that was that -- the old separation between a time system and a pay system. A time system is where you clock in, clock out, it calculates what's called your gross pay. And then the payroll system does the deductions and taxes and creates the net pay. And for whatever reason, they were separated and as such, you have to wait for the data to come out of the time system before you could process. So with Dayforce, we set out to solve that by building 1 rule engine that would handle the complete calculation continually, instantly, always beyond. And that allowed us to capture tremendous market share. We have over 5,000 customers that we've taken live on the product since we actually launched the product in 2013. So tremendous, tremendous growth on that. We're unique in the market. There isn't, as far as I know, another player that is even building a continuous pay engine across time and pay. And remember, it's not just time and pay, we handle if you change a core HR record, if there are implications around benefit eligibility and deductions that follow around benefits, all of that included in that always on pay engine. We're now extending that to the employee experience. So when I look at it from an employee perspective, I'm puzzled as to why there is a construct of a pay cycle. I don't -- do you know why do people get paid every 2 weeks, in some cases, every month when every other aspect of our life is in real time? And we have that capability where we can calculate instantly, show the person what they've earned and give them the choice if they would like to get paid at any time their earned wages, not an approximation. And we're finding that's also a very strong differentiator. While delivering tremendous value to the employee, it provides really substantial benefits as well to the organization, and that's leading to about an 80% attachment rate on new sales of the Dayforce Wallet.

Yes. Yes. Okay. Well, I definitely want to come back to Wallet, but we're going to stay away from that. But you said the average size of the customer is also growing, I think you said 10% to 11%. Maybe you could flush that out a little bit, what's driving that?

Well, it's a move up market that -- there are a number of pieces. Obviously, as we go for larger customers, we get more employees. And what's the other part that's driving it as well is, as I mentioned, the extension of the platform going back to the actual base and driving additional revenue from those customers.

Right. Okay.

And by the way, just another stat, 35% of our customers today are buying a full HCM suite front. And that's up considerably even if I look at from time of IPO. And that's obviously one of the reasons that you're seeing that number go up as well.

Okay. Okay. Terrific. I wanted to come to payroll for a second is how important is offering native payroll -- how important is that to rolling out success, particularly obviously in the international markets? Is that a key driver you think of future international expansion and having native payroll capabilities?

Well, the native payroll capabilities also helps us with domestic growth as well. So when we start going and selling to these companies that have more than, say, 500 employees or 1,000 employees, it's very likely that they have a global organization. Now if you're trying to deal with a global workplace, it's very difficult to manage and make budgeting decisions, employee decisions if you don't have all the information together. So if you look at an organization like mine where I've got R&D split across Canada, the U.S., U.K., ANZ, APJ, India and the Mauritius and the like, it's better for us that we can actually budget on the -- in constant currency across the globe so that I can decide, if I hire a person in San Francisco, will -- that budget will give me 2 people in Toronto, 5 people in Mauritius type of thing. So the second part is if you're growing globally, compliance is exceptionally challenging. The way that people are paid in different countries is very, very different. And you have to do a compliance correctly in order to just exist as an organization. So when we go to market with our global platform, we're very differentiated again because we handle multiple countries in the same system with the same rule engine, with the same experience. And we have a platform that allows us to move very quickly. So if you look at it at the moment, we obviously do payroll on the U.S. We do it in Canada. We do it in the U.K. We're doing Ireland. We're doing Australia. We're doing New Zealand. We're doing Mauritius. We'll be online with Germany in early 2022. We also are about to bring read the shareholder letter. We're about to go live with several countries across APJ including the Philippines, Indonesia, Malaysia, Hong Kong, Thailand, Taiwan and South Korea. And that completely differentiates us in market because all the other players in market are either using a third-party system where you have to worry about integrating the data back in or they're using local in-country systems that are completely different to what they have in North America. Now from an organizational perspective, we're going through a pivot of changing from being a North American company operating globally, which in that particular case, is selling predominantly to U.S. companies that have operations outside and we're transitioning to really a global operating model, where we have very strong regional presence and obviously, a matrix kind of reporting environment into back office and product and technology and such. That allows us to also win customers that are domestically headquartered in the countries where we offer native payroll. And that's one of the reasons that we talk about a 5x increase in the global business. And if you bring it all back together, half of our addressable market is global. So it's very, very important. But as well, as I mentioned, it does increase our probability of winning on the U.S. or Canadian headquartered companies or U.K. headquartered companies as well.

Right. Let's talk about Germany for a second. It's something -- originally, it was targeted for '21, I think, if you go back to some of the conversations around in the previous year, I think perhaps COVID maybe pushed that out, the launch of that. When -- if you're launching in '22 with Germany, with native payroll, when do you see incremental revenues really being driven by that offering? When can Germany's really come online, so to speak, to contribute to the revenue growth of the parent company, Ceridian?

So Keith, our largest customers are actually all German. So if I look at the largest customers that we have on Dayforce, it would be big groups like Kaufland, which just went live recently with workforce management. Siemens globally, Henkel, so we've been selling very successfully into the German market for quite some time. The complexity in many countries is workforce management, not payroll. So we've got a very strong base there. We have product people. We have implementation people and salespeople locally in Germany. So I'm quite confident that once we have the payroll side, we'll see the payroll product do quite well. And obviously, the intent is to extend into other DAC countries very quickly once we have Germany up and running.

So you'll -- want to just tease that out for a second. So in having payroll in Germany, just as an example, that, A, gives you a module to sell, right? So it adds another source of PEPM growth to your existing customers, I would think. But B, is that -- how does that make you more competitive within the German market for clients that you don't have because it is a tighter integration with some of the other capabilities that you offer. So maybe...

Or again, it would follow what we do with North America. So there are 2 ways that we grow globally. If you look at Dayforce and Ceridian, that's 1 example where we take the Dayforce tech and we take the customers and the know-how of a company that we could acquire and we migrate their customers over to the Dayforce product once we've extended. And we've used that model in Australia, and we're now using that in APJ. So we go off, we acquire a company not particularly for the technology, but we're acquiring for the people who know the local jurisdictional rules. They know what we have to do in order to actually move the money. They have relationships in market and they have customers. And we very quickly add that capability to the Dayforce product and then we start to convert to customers across. If we look at the APJ market, the first company we acquired was a company called RITEQ. We did that about 2 years ago. Today, we've sold more Dayforce product to RITEQ customers than the RITEQ revenue that existed at the time of acquisition. So it talks about the ability to really upsell very, very quickly. That allows us to enter a market very, very quickly, capture market share and you grow with many, many customers very quickly. The second way to do it is what we did originally with Dayforce, which is we built Dayforce for workforce management and then we natively built out the payroll side. And over time, we got traction in our market. Germany, we've effectively done that because we started building workforce management for Germany, probably in the 2013, 2014 time frame. So we've got very strong workforce management capabilities for the German market. And now we're layering on top of that the payroll capability to do that. And we know that much like with the U.S. and Canada or U.K. and Ireland, there's strong similarities between Germany and the countries that surround the other DAC countries.

So should we anticipate payroll in France and Spain and other areas as well?

Well, eventually, yes, but our focus would be on the DAC countries. So you think about countries like Switzerland that are closer to Germany first. France is kind of a different type of beast altogether in terms of the way that the pay constructs work and the way the data hosting happens. But yes, we will move into France in time as well.

Okay. Let's transition to geography. You brought up Asia Pac a couple of times. So let's go there. Ascender, some of the acquisitions that you've done there. Beyond having an existing customer base to convert to Dayforce, which is one of the drivers, how do you use those platforms to drive incremental growth through APJ?

Well, right off the bat, we're seeing a lot of success. If I look at Ascender's results in Q2, they came in actually quite strong. There are some significant sales. In terms of the government business over there, we've done actually very well with the government of Singapore, both [nonearnings and Excelity] taking that actual population live. And so you've got very strong products. If I look at Germany, the work cloud product, not Germany, sorry, Japan, the work cloud product we have in Japan is an exceptionally strong product as well. Now we have a road map that stretches all the way to about 2026 as to when we complete the gap between what the local product can do and what Dayforce can do. And we know that obviously quite well because we have both of the actual products. And we also have to build -- require our Activate technology, which is a technology that we use in North America and EMEA to take customers live where we can do a lot of it through automation and data analysis as opposed to bums and cigs. So we built the product, we built the Activate technology. And once we have that result and migration over to Dayforce. And as we do that, we know we get a substantial lift in revenue because we go from having a payroll-only customer to a full HCM customer and workforce management customer as well. And again, it all ties back to what I mentioned at the very beginning, 5 different growth levers that allow us to have a plan for sustainable, aggressive growth in the long term.

Right, right, right. Okay. Okay. Want to jump around a little bit. But what do you see is the growth in the health care vertical? Can you talk a little bit about the opportunity there?

Well, we've seen a lot of success in health care, very cool. We get groups like The MENTOR Network, which have probably about 40,000, 50,000 employees on their actual product. Basically -- they're actually really -- not Wallet quite successfully as well. We've had a tremendous amount of business that goes into what I call extended care. So these will be group homes, retirement homes, types of facilities. We have quite a robust hospital business as well. And so it's been a strong area of growth for us for quite some time. We have a number of verticals that we focus on, health care being one, retail, manufacturing, government, et cetera.

Okay. Okay. David, what do you think the durable growth of PEPM is? What do you think the expansion rate is over the next couple of years?

Well, we don't talk about really giving guidance beyond the current year. And what I can talk for the remainder of the year, looks pretty robust. So if you want you 32% for Q3 and 32% to 33% in Q4. And if you look at our history over time, I think we have had a great track record of robust growth since we launched Dayforce in 2013.

Okay. Okay. Okay. Within PEPM, how do you think about learning management systems as a potential vector of growth. You guys have had a recent offering there. Do you think that's a meaningful contributor to your growth over the next couple of years as an add-on or potential sell to your existing base?

As you know, our learning management is included in the actual Dayforce product. We've had quite a lot of success in going back to the base. It's reflected in the 25% of our sales that is back to the existing base, and we see a higher attachment rate of it. It's not just learning management. The entire talent area, right, is a very strong area of growth for us in the future. And kind of if I think about what we do, we do global, payroll and compliance. So that's the first area. We do core HR also on a global basis. We do benefits. So everything about benefit eligibility, benefit decision support, benefit intelligence. We then do talent acquisition, which you can think about recruiting and you saw the Ideal acquisition that falls into that and what we're doing out there, we're going from really list management to really using AI to do more of the recommendation type of approach, making sure that the TIs property kind of looked at throughout the entire process. And then finally, we talk around talent management. And talent management has everything in there from performance management, compensation, learning management, documentation management, the Dayforce Hub product and the like. And all of those are a part of that platform, is that second growth avenue that I spoke about, which is we continue to innovate bring new products to market. In many cases, we leapfrog the other competitors. We leverage that single database, a single experience and event-driven model that gives us an advantage. And people ask me, like, why Dayforce? Why would you buy the product? It comes down to that we take our customers live predictively. We take them so if they go live and we give them a very live date 6 months from kickoff, they will go live 6 months from kickoff. Second thing is we measure NPS scores very, very tightly. And we know that they will go live with a very good experience as measured by the NPS scores, which I think is very important. And the last piece is we know that happy customers will come back and buy more products. And we're seeing that. So the NPS scores are high. And because the NPS scores are high, we're seeing, again, 25% of our sales is back to our base. And as you know, unhappy customers don't buy additional products.

Right, right, right. Okay. Let's talk about in your journey to capture more enterprise, what do you need to do on your go-to-market side to enable that?

Say that again, sorry?

To capture more enterprise, large enterprise customers, how do you need to change your go-to-market strategy in order to?

Keith, that's a great question. You've seen in the last 2 years. We've been investing heavily in our SI channel system integrators. We now have 23 system integrators that have been onboarded on to Dayforce, which means that they have resources the ability to prime and do their implementations. When you go into the large enterprise space, you find that the system integrators have significant influence over which vendor gets selected. And we're now in the what I call the validation stage. So we've completed the training stage where we've trained the resources. We're now beginning to have the SIs do the majority of our implementation. So, you see that somewhat reflected in there -- if I look at professional services and other. So while professional services and other -- professional services revenue, which is a profitable part of the implementation line has been going up. You see implementation, our revenue not going up because the partners are now in the implementation. But that allows us to get access to more opportunities that we typically would not have been exposed to by ourselves. And the second, in a tight labor market, it allows us to leverage the people at the SI partners to do the actual implementation, which allows us to continue to grow even in a tight labor market.

Yes. Yes. It would seem that growing the SI community is going to be one of the key success factors for getting more enterprise deals.

And we've done very, very nicely on that. And we're actually -- we've spoken about some of the deals of the SIs that brought to us as well.

Okay. Okay. Let's do talk about Wallet. We've written actually a couple of white papers on this over the last, I don't know, 12 months. But maybe kind of frame where you are with wallet and how you think it adds value over the next 12 to 18 months for Ceridian?

Sure. Now why did we launched wallet in about April, May of last year. And this for us was a big initiative. From a technology perspective, we had to obviously build the Wallet applications for iOS and Android. We had to build a gateway technology that would speak between the Dayforce application and the Wallet applications as well as the program managers. We had to establish relationships with program managers in both the U.S. and Canada. These are the organizations that handle the issuance of the plastic cards. They do basically the connectivity to the payment rails and the like. And we had to find our banking partners that would offer both FDIC insurance in the U.S. and CDIC insurance in Canada. It's quite a big initiative. And once we have that, we have to make sure that the thing would actually work, that the money will pass through very, very nicely, that we could onboard employees, we could actually move from more of a B2B to a B2C type of organization. And it's gone really nicely. We have over 200 customers live on the Wallet, over 600 customers have signed up for the Wallet. And the exciting pieces are that we're seeing in the top quartile, registration rates of about 40%, slightly above 40%. We've got some examples of companies going from 0 to over 40% in that 70-day time frame, which is very quick. We're seeing very active use of the card. So the active cardholders load the Wallet about 6, 7 times per month. $120 per time. And probably the kind of the most exciting number is that we're seeing the cardholders use the cards over 24 times per month. The importance of that number is that this is really a game to become the top card in Wallet. And if you're at the top card in Wallet, typically, you see more than 6x spend relative to the next card that you have in your Wallet. And so when we look at the actual Wallet, we're disrupting a number of industries. The first, obviously, is the payday loan industry. Now the second part is we're seeing behavior changes, which are impacting the credit card business, right, that we're seeing people with the Dayforce cards, use the Dayforce card over their credit card because it gives a much better financial control of their spend. You no longer open up an envelope once a month to find out how much you owe and then maybe not having the means to pay that full amount. And then as you know, you got a 22% interest rate that gets charged. We're disrupting that quite a bit. As we move into the future, there's a big play of what we can do around staffing agencies in allowing people to effectively use the Dayforce Wallet to go to any organization, any workplace, work a set of hours, a gig assignment, a contract to sign for several weeks, get paid immediately as you do that. And as we move into that type of space, I think we can actually disrupt the staffing agency, which is another massive area as well.

And so as we think about it, David, in '22 and '23, your calendar year '22 and '23, as you think about wallet as a contributor to revenues and/or wallet as a contributor to customer acquisitions because it makes the whole Ceridian portfolio more attractive? It's 1 more quiver in the arrow, so to speak.

So on the latter, we've already seen, right? We're very KPI-driven. Before we build a product, we identify the KPI that we believe we can impact that the customer and has to be measurable and convertible to dollar savings. When we built Wallet, we said from a customer's perspective, it should allow customers to hold on to their employees much better. So voluntary attrition rates should go down. Of -- the first 150 customers went live. We went back to those customers. We measured voluntary attrition across people who have registered for the wallet versus those that hadn't. And we saw the voluntary attrition rate went down by 42% across the Wallet holders. And the savings for that is massive. I mean it's huge, $5,000, $10,000 per person, if you've got 1,000 employee organization with an attrition rate of 110%, 100 people per year, we can take that down to 40%. So you're saving 60 people, and you're saving $10,000 per person, that's a hell of a lot of money. Right off the actual bat. Now from the contribution of the Wallet, where we make money is when people spend on the Wallet, we net about 80 basis points. And that's the beginning. With the new programs like things like cashback programs and et cetera, we believe we can increase the take rate over time. If we look at our entire market, obviously, it's a very big number. We move around $350 billion of payroll funds, about half of it reaches the actual employee. If we can make 80 basis points or more of that particular spend, that's a lot of money. Currently, we have 2 ways that you can earn money to the Wallet. One is on-demand pay, which is I look at the Wallet, how much have I earned. I want to add $50. When you add the $50, we do a same-day pay for you. The second way you can do it at the moment is through direct deposit, which is at the end of the pay period, just transfer the money over to my Wallet versus going to my checking account in a couple of months, the benefit of doing direct deposit through us will be that you get your money 2 days early. So you get access to spend. The third area that we're moving into next is what we call the [Streaming of Pay.] We'll be showing that at the Ceridian World Tour that we'll start in Vegas, which is like click the check box and if I check it, as I work, the money gets moved over to the Wallet immediately. So if I look at it like live, I'll see the Wallet balance moved throughout the day based on how much have actually earned and then I can go over and spend the money immediately. And as we do that, obviously, more and more money begins to flow through the Wallet. If I look at the actual numbers, if an employee loads the card 6 times a month or 7 times a month, $120 per time. It's about $800 they're adding on to their actual card. A typical person in America makes on average about $20 per hour, $20 times 40 hours a week, $800, 8 times 4, $3,200, take $25 off or for taxes. You probably got a base over there of about 1/3 of their income is actually flowing through the Wallet already. And so with direct deposit and [Streaming of Pay,] that goes up. So there's a very strong potential of what we can actually make through the Wallet, but it's going to take a long time. So in terms of 2021, there's a little bit of money we're already seeing coming through. That number begins to grow in 2022. Probably the second half of the year, we may start to disclose that to the market. And then obviously, much more impact into 2023 and 2024.

Got it. I mean, it's an intriguing opportunity because it's such a different angle.

Yes. And look, Keith, it comes down 5 avenues of growth for the actual company and importance over here is I need to be able to layer on different growth curves that come into revenue at different times. Because as you know, at a certain stage, the growth curve is going to flatten out. At that point, I need another growth curve to come in. So I've got North America, I've got global, I've got enterprise. Now I start going to the adjacent markets with the Wallet, which is later on. But that gives me the ability to have what I call sustainable long-term growth.

Right, right. No, it's an intriguing idea. And are you sensing any incremental competitive pressures? I mean, other folks trying to get into the market as -- I mean, payday loans are completely different. So I'm not really interested in that. But any incremental?

Well, we are seeing the stand-alone players. You see like the DailyPays, the Payactivs, the Evens inside the market, different type of pricing model, they charge a membership fee, so the employee has to pay to use the card. Typically, they charge just to load the card as well. And when you do that, it's really an approximation of wages. So it's really a form of a payday loan. It's very difficult for the payroll administrator to settle the reconciliation at the end of the pay period, which isn't easy. And so it makes the payroll process more complicated and it's difficult to use these bolt-on types of systems. For us, we solve it very, very differently. It's only earned wages. So you can only take out what you made net of taxes and deductions. Each time the money moves onto the Dayforce Wallet, we do a true payroll, complete with legally compliant earnings with it. Regardless of what state or what province you're in, and we do the necessary remittances in that state. So it's a true, true payroll that actually gets done. In order to do that, you have to have the continuous calculation engine that we spoke about, which no other vendor has. So I think we have quite a significant competitive moat around this solution.

Yes. No, I would agree with you. I would agree with you. Only 2 more questions, David, and then we'll be out of time, but one we got from the audience, so to speak, and I'll rephrase it a little bit. But as you think about -- employment levels have been -- unemployment levels have been bumping up and down. We seem to be on a path to recovery. Delta throws a little bit of uncertainty into that path to recovery. But how should investors be thinking about a recovery in global employment levels, which Australia and New Zealand, very different perhaps from where -- what we might be doing or Canada might be doing. But how should investors think about a recovery in employment levels and the impact to your revenues?

So if I look at Q2, we had a $6 million headwind on Dayforce and a $1.5 million headwind on Powerpay. In Q3, we think Dayforce will improve by about $3 million. It will be a $3 million headwind versus a $6 million headwind, and we believe that will further improve in Q4 to about $1.5 million. Now we have quite a lot of visibility because we typically bill the 15th of the month for the next month. And so we've seen employment levels go up quite robustly over the last 90 days. On the Powerpay side, as I mentioned, we had a $1.5 million headwind in Q2. That improves to $1 million in Q3 and $0.5 million in Q4. And again, we've seen quite robust employment growth on the Powerpay side, which is our small business Canadian product that's going. So we believe that will continue. If you ask me personally, I think that the economy has adjusted to a COVID type of world. And we've seen some companies, some new enterprises actually come up that didn't exist beforehand that basically aren't as impacted by the various strains of the virus.

Right. Okay. Okay. Well, this is my last question. I unfortunately had a series of financial questions that we're going to have to skip all of them because I got a little perhaps too excited about Wallet. But the question is this, your free cash flow generation has been subpar for a few quarters or below, I think, expectations. How do you -- how should investors think about improving free cash flow over the next year for Ceridian? What are the key drivers of improving that free cash flow?

Sure. I'll give that to Noemie.

I'll take that one. So the thing to remember on the free cash flow, what's happening Q4 last year, we made a significant contribution to our U.S. pension plan. We fully fund it on a GAAP basis, which leads us to a significantly derisked plan. And so that was part of the significant cash outflow that you saw in Q4. That's not going to be recurring going forward. Going forward, you also have to remember that we've had, as David mentioned, employment headwinds in Q3 and Q4 -- and Q1 and Q2, sorry, about $6 million of Dayforce. And as those start to come back, that will have a direct effect on the bottom line and in our cash flow. So our goal is to continue to improve adjusted EBITDA going forward and improve our free cash flow situation. But the actual employment level and slightly -- slight headwinds on the float side as well have had an effect on cash flow, which we expect will recover over time.

So is EBITDA improvement, the key driver of free cash flow or the working capital?

That's the primary driver we're focused on. But remember, we're also are balancing that out with the investments that we have to make in order to continue to expand globally. David referred to the native payroll capabilities that we're building to get increased market share with our global customers. We're also investing significantly in sales and marketing to train our partner ecosystem, to bring people with the capabilities to sell with -- alongside the SIs. And the goal here is to really grab the market share, not only in North America but also internationally. So we have to balance the 2 things out. But yes, ultimately, the goal is to really continue to improve our adjusted EBITDA margin and drive improvement in free cash flow.

Okay. Terrific. Well, we are a bit over time. So I thank everybody from Ceridian very much for participating today. Again, thanks again for joining in BMO's tech conference. We will end it there and wish you all the best of luck and look forward to engaging soon.

Thanks, everyone. I appreciate the time today.