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

Side. So that's the actual play. And the benefit we're giving to the person is that as they're earning, they're just doing tremendously well there. They can go off and spend. And we'll get into, I guess, some of the metrics maybe in relation to the webinar, but we're seeing the typical user use the wallet over 30 times per month, right? So this is their top card in wallet. They -- effectively, they're pulling out about 1/3 of their earnings before the pay period. And then just a few months ago, we launched 2 day early direct deposit, which means, hey, change your direct deposit from your checking account to your Dayforce Wallet card, we don't have to go through the ACH system so we can fund the actual card immediately. The employee gets their money 2 days early, and we get more spend going through the actual cards as well. And next year, we're moving to streaming of pay, which means if I check the box, instead of having to say how much have I earned? I want to add $50 to my card every day or at the end of every shift or every event, the money just streams automatically over into my card. And then I have access to it without actually having to do anything. So we really are talking about the instant nature of when you earn to what you're able to spend. And I see actually the webinar has begun. So, would you like us to rewind or can we just continue -- So where we're going with this is also quite exciting. So the day full strategy was calculate continuously, payment rails to pay immediately, but why don't we allow the person to earn instantly as well. So I've downloaded the wallet. We know through the KYC who the person is. We know that they have the right to work, I-9. We know that they've done a background green as well that they're a safe person. We have their competencies as well. Why do we use the Dayforce Tech to allow that person to just take their wallet to any workplace, and use it as a possible so they can basically clock in, clock out. And as they clock out, they get paid instantly, [indiscernible] accessing employer or record for the person. So we issued the W-2s, we handled the W-4s and all the rest of that. And the organization gives access to this dynamic workforce, a flexible workforce and anyone can effectively go anywhere. And so we're getting to actually formulate how to actually take that to market, which I think kind of makes the same part that you can spend with is the same card that you can earn with. And you did this very, very naturally from a consumer perspective. I look at my app and it shows me around me any workplaces that have vacancies that I qualify for. I can say I'd like to go work over there. There's a short period of time that the organization can reject the actual person, they don't project the present shows up. They work, they get paid. And we think they will have a very big impact in kind of the workforce.

Okay. Certainly, changing behavior as it comes to the user a key differentiator in the market and certainly early on this trend. So the benefit of those on the webcast, David was gracious enough to fill some time here to tell the story of Ceridian. My name is Bryan Bergin, senior analyst at Cowen. Pleased to have David Chairman and CEO of Ceridian and Noemie, CFO. Ceridian, as you know, is a global HCM provider. They have their leading Dayforce platform and an aggressive growth targeting larger enterprises, a more holistic and broader global offering and innovating in key areas like on-demand pay through the Dayforce Wallet through talent acquisition and a host about the development. So thank you both for being here. I would say it's great to be out at a live event. And it's already you have been out at [indiscernible] for several months. We saw you here in Vegas, in New York and London. So we're going to want to dig into what you're hearing in climate conversations. You also had a busy week here. You announced an acquisition on Monday of Adam HCM, Latin America-based provider. So we're going to want to dig into that. But since we're live here, let's talk about the live events. You just came from London, talk about the conversations you've been having with clients, the demand trends under those conversations, particularly with prospects and then bring it back to Dayforce, what are the top 1 or 2 reasons that clients are selecting you versus competitors?

Great, great question. So just for everyone, we've started doing in-person events. We have what we call the Ceridian World Tour CWT. We started in Vegas probably about 6 weeks ago, unbelievable event. To give you kind of dynamics, we chose a location that would have capacity of about 500 people -- We took registrations up to 600 expecting the usual drop off of over events. I think 2 people didn't show up. So it's just the sign that people want to get out and they want to engage. What we do at these events, and we've now done Vegas, we did in New York, we did London. Next year, we're going to do Sydney, Melbourne and Singapore, to keep the trend actually going, is that we bring in prospective customers, we bring in customers and we bring in partners. And we're very confident about our customer experience. So we try encourage the prospects to interact with the customers who are happy and have conversations about what it's like to work with us. In all of the events, we have a customer open. And the customer really speaks about why they selected us, what their experience has been with the product and what their return is, on it. I typically do an end-to-end demo and we focus a bit on innovation. We have a customer panel and the like. The trends that we're actually seeing is that people are coming back into market looking for solutions that, first of all, are going to be compliant. Many companies are still struggling with really what are core the basics, which is aim people correctly, submitting their taxes correctly, making sure that people are covered correctly for their benefits. And from an HR perspective that they're on site from things like ESG and DEI and the like. And as you know, we're very, very strong in that. The second piece is people are very concerned about how to retain and how to attract people just given the tightness of the labor market. So we're seeing strong demand for everything in our platform. Whether it be the hub, whether it be engagement surveys, whether it be the talent acquisition, the talent intelligent pieces that we're now bringing to market and the like, very strong. And the third aspect is global. There has been a massive dynamic change in how people are working and where organizations are sourcing their employees from. We're quite unique in market that we have 1 system that our customers use across the actual globe. So we have native pay engines now in the U.S., in Canada, the U.K., Ireland, Australia, New Zealand, Mauritius. We're bringing in 9 new countries on board next year across APJ as well as Germany. As you mentioned, we announced ADAM HCM yesterday, which takes us into Mexico, Brazil and Latin America as well as the Caribbeans. And in all of these cases, it's really the same player. We effectively use our technology, we call Project Titanium. That converts these acquisitions into headless pay engines that get embedded directly into the Dayforce platform so that we have that real-time capability that we have elsewhere across the platform, and it allows us really to provide our customers global system. And so that's another trend that we're seeing.

Okay. So ADAM HCM very similar playbook to what Excelity and Ascender were in the APJ region. Just talk about ADAM HCM what would you read to that target, talk a bit about the business mix, customer profile, what was the attraction there?

Yes. So the basic play is very similar to what Dayforce did with Ceridian back in 2012, '13. Effectively, you find an incumbent in market that has payroll capability, customers and partner ecosystem. And you basically take that and then you move from just payroll-only to the full HCM platform. So what do I mean by that? If we're doing payroll-only in, say, the United States, maybe we're going to get $6, $7, $8 of PEPM per employee. If I can sell the full HCM suite, I can get up to $40. So I can get a massive uptick by selling more products to the same customer base. When we did Ascender and Excelity effectively has 1,500 customers that we have that capability that are only using payroll. So we can go back and do workforce management, core HR and all the talent components. ADAM HCM very stong -- So 300 customers, about 300,000 employees in total, using effectively payroll. So there's a tremendous upsell capability that we have over there. The dynamic of their customer base is very similar to the space that we play in. As you know, we effectively play in what I'd call the major market and into the enterprise, large enterprise list. Their average customer -- employee for customer counts about 1,000, which is very similar to what we have with inside Ceridian. It's a very good match. We had white space in terms of our global strategy in terms of Mexico, Latin America and Brazil. And this obviously gives us that capability, about 100 employees in total, all very talented, all very knowledgeable about those particular jurisdictions. So we're obviously excited about it.

Any overlap in those clients? And what's -- are there any immediate implications from a cross-sell into those existing clients and also from a margin standpoint too?

There is a tremendous cross-sell capability. And much like we do with all of the others, the first thing that we actually do is we go through the client list to work where there are opportunities in our core markets already, whether it be in the U.S. and Canada, whether it be across EMEA or across APJ. And we're finding that it strengthens, really, really does strengthen.

The ability to displace that aggregator model, they may be using other?

And look, we've seen success of I look at our first acquisition in APJ, which was RITEQ, we've now sold more Dayforce product to the RITEQ customers than the RITEQ revenue that existed at that particular point time. So the model works very, very nicely.

Okay. You also get the benefit here of local operations in a lower-cost region near shore. Can you talk about that, how may that fit into the future picture for the company?

So that's -- so that's always been part of our actual thesis. And we've got a lot of opportunity for that across the APJ region. So we've got service centers in India, in the Philippines and such. And obviously, there are some opportunities within the organization with us to take advantage of that. I think we're going to focus first on the APJ opportunities from an integration synergy perspective before we actually start looking at ADAM. Normally, we try to settle the business for a period of time before we do that.

Okay. Now going beyond 2022, you've got some large population center that you're aiming to add. So you have Mexico, India on the schedule there, China. As you add larger and these bigger countries? Are there different entry and go-to-market considerations?

The first part is we need the tech. And the tech, I think we actually have now, it's really well proven. It's very robust. We probably have over 5,200 customers live on the Dayforce platform, some tremendously big names active on a global basis. Just to put it in perspective, at this point in time, we have -- we're implementing in over 105 countries at this point in time. So from a global perspective, I would say we are the leader when it comes to kind of HCM and when it comes to payroll on compliance. The go-to-market is slightly different in each of the jurisdictions based on the market opportunity. The first part of the market opportunity is that you target your customers in the U.S. and Canada and the U.K. and Australia and et cetera, that might have operations elsewhere. We've been pivoting over the last 2 years from that type of model, which is a North American company operating globally into really a global operating model which is -- where we have very strong regional teams where you have in-region sales, product and services and a matrix kind of organization to other parts of the kind of G&A function and product and technology team. And so that has its own go-to-market strategy, which is doing lead generation, pipeline development with inside those markets becoming headquartered there.

And now international, it was roughly 5%, I believe, of revenue back in 2020. How should we be thinking about the international mix of business over the medium-term? Where do you see that going?

Well, obviously, it goes up and normalize. We know from, as I mentioned earlier before, ever costs. The market opportunity is about $40 billion, $20 billion in the U.S. and Canada, another $20 billion globally. So on a long-term point of view, it has to normalize. We have to move to more than equal balance. But that's going to take a very long time because our North American business, as you pointed out, is majority of what we're doing today, and that's still growing very aggressively. If I look at the last quarter, we released, our Dayforce recurring grew at about 33%. And so that's a very strong business, and it's a very broad base. Now our market share, by the way, in the U.S. and Canada is probably about 4%. So it's just a ton of white space that still exists in this market. And when I look at it on a global basis, our market share is tiny. It's like less than 1%. So it's just a massive opportunity. And that's always been the internal discussion for us is that how much can we afford to spend on our go-to-market sales and market chain versus trying to increase the profitability of the business or maintaining the profitability of the business as we continue growing the business.

And that's why when you bring these system integrators and the partner ecosystem and that also helps building capabilities in regions where we don't have capabilities today as opposed to building those sales force from scratch. So you have a network of partners that you can leverage as well.

And Noemie brings up a really good point. Over the last about 1.5 years, 2 years, we've investing very heavily in system integrator. System integrator is a third party that is trained and capable of implementing the software. And the reason we did that is we looked on a long-term basis, and we said it's not viable for us to grow our services teams and sales teams in every country. We're active in 160 countries at the moment. However, there are global SIs out there that have reached that have customers. And if we can build out Dayforce centers of excellence with inside the system integrator well that we get the global capability. And we're beginning to see that. So if I look at EMEA, for instance, a large percentage of our pipeline is sourced already by the system integrator. And probably the majority of our implementations are now being done and primed by the system integrators as well. And we know that it takes a period of time. It will take several years to build up that particular machine. But if we can do that where we as a technology company focus on that fundamental tech that is very differentiated in market, operates on a basis global, aligns with the reach of their system integrators that allows us to shift up on the actual growth curve.

How does that impact the financial model as you fit more into that?

And From a margin perspective, I was going to say in the long-term, it's going to take some time, as David mentioned, because right now, we're still doing a lot of framing implementation for our customers in North America, even though we start leveraging smaller players as well in the mid-tier partner ecosystem in the U.S. What we're going to be left with in term is the value-added services, the white glove treatment for those large customers who have gone through an implementation with a third party with our support, and those services typically yield a higher margin.

When we bring it back up here to overall demand trends. Do you think about pre-COVID versus current COVID worlds, are there lasting impacts that you've noticed the HCM buying behavior? As it relates to the pace at which they're willing to sign or the contracting or the module priorities. Anything you can share there?

So it's an interesting type of question because we continued to grow during COVID, as you know and I think we had solid growth numbers throughout the actual period. Now with us is a bit of a timing lag between sale and between revenue recognition has changed slightly because we've started doing PEPM on provisioning, which means we charge upfront opposed to on go-live. And every, I think every quarter last year, we grew -- we had more sales than we had in the previous year. So we had growth, but we didn't have the same level of growth that we had prior to COVID, prior to COVID high [ 30s ] sales growth every time. If I look at this particular quarter, and if I look at October and if I look at November, the sales numbers are very, very strong. Substantial growth over last year. But last year was the kind of in the midst of COVID. But even if I look at the growth numbers relative to 2019, they're very, very strong. And if I look at the remaining pipeline and the sales forecast that we have for December at the moment, it looks very, very strong as well. But as you know, a lot of that comes out in the last probably week or so of December between Christmas and New Year's. So the pipeline and the buying behavior at the moment is very strong. Now there are a few other trends as well. Today, 36% of our customers buy the full suite. So when they're buying, they're buying so much more than they bought pre-COVID because the number probably is about 25% on a pre-COVID basis, so we're getting a looked up from that. Second 1 is we've gone up market quite nicely. So if I look at the average number of employees that we're selling now versus what we did prior to COVID, we're now selling bigger customers with more modules. So if you look at it from a rectangle perspective, we've moved this way and we've moved that out area is much bigger. And that's obviously helping is helping us, too. And then there also are a bunch of stored projects that just have come back online. Now the headwind that you have on the other side is the customers are saying, "Geez, we have to find people." And that's our top priority or we have to get through our supply chain challenges, and that's another priority. So that's a headwind That we're hitting a little bit well. but I think the first 2 and the overall demand trends seem to be very strong in this quarter.

Okay. So maybe good demand trends, but maybe some considerations on the pace of which you convert that to revenue as you add larger and larger clients?

Yes. So to be clear, I think we'll have a strong sales quarter. And I think the numbers for the sales are going to be very robust relative to last year. And so the headwinds we're seeing are going to be somewhat muted by the fact that it's a very active season. But we could have done even better if they weren't supply chain challenges going on.

Fair. As you just think about overall KPIs, if you could pick 1 ratio, growth per x profitability per y to increase over time, that's going to drive the most sustainable and grace impact to Ceridian, what would that be?

They are 3. I can't do one. The first is going to be what's my average PEPM. So I need -- as you know, we have 5 growth levers: We acquire new customers; two, we build out additional modules, we go back to the base and we sell them; three, we go upmarket into the enterprise space; four, we move on a global basis with our customers. So the first is I need to keep adding modules, increase my PEPM. As I said, I've gone from probably originally about 15. Then we moved up the time of IPO, maybe in the 20s, now we're in the 40s, almost 50, but I can keep expanding that. That's great. Every quarter, 25% of our sales are add-on module to the base. So I need to keep that up. I think that's kind of a very important. The second number is I want to see my attachment rate of wallet, continue to be very strong. I want to see my metrics on my wallet that are also going to kind of continue or growing very, very, very well. And then the third metric probably would be the number of employees per customer. If I can see that continue growing, which means we're going into the larger customers all the time, which is part and parcel with the global reach of our product. That gives me sustainable growth.

You've had obviously a very active growth strategy here. As you've done that, you've added senior management. So you've invested materially in increasing the management bench. Talk about some of the senior hires you've made over the last 2 years to help drive all of this activity?

Look, I run the team like a sports team. And whenever I have budget to bring in a new player that's going to allow us to continue to grow the business, it has experience at that level of scale, I'm going to do that. There are 2 types of ways you could do it. You can try grow people into new sizes of business. My belief is that certain people would sell certain scale of business. And it excites them. So I brought Leagh into the organization in 2018. Leagh's our mandate was to bring process and the organization so that we could continue to scale in without heroics. And Leagh has been fantastic at that, and she's been an absolute talent magnet. On the services side, we brought in Steve Holdridge, experienced at Oracle and Info and Microstrategy. And Steve has just done a great job on the services side. Our NPS scores are world class at the moment, really world-class. I am on the services call every week. And Steve's go-live forecast is always in like the 99% range. And so he's done a fantastic job. On the product and technology side, we brought in Joe. Joe previously was the CTO of Workday. The reason for that is when I looked at the actual product and I looked at our Gartner positioning, we were #1 for payroll and time and attendance and for our compliance. But there was definitely a lift that we could do on the user experience, on the talent modules and on the data side. And that's what Joe did at Workday. So Joe joined and with him came a design team and a product team and a data team, and that's allowed us to lift up what we do on the talent component, the user experience side, interoperability, so how we interface with types of systems? How we leverage AI and ML within the platform? And that's all very, very important as we go up market and is also very central to our second growth strategy, which is we have to increase the modules -- not do what basic modules, we have to do very deep functional modules that can leapfrog the others inside the market, and that's what Joe has brought to the organization. On the sales side, we had a lot of work to do because the Ceridian sales team really was a major market sales team selling payroll, really from a service bureau perspective. And to grow the business, we need a software business, new how to sell software, so PEPM provisioning, work with the actual SI partners, work on a global basis and sell multiple products. And so we had to do a lot of work over that to lift up the sales organization. So we recently brought in Rocky. Rocky ran the largest region for SAP. He ran Central region business so a $2 billion $3 billion business. So he joined. We brought in some very strong people alongside Rocky for North America. We've brought great leadership in APJ and in the U.K. as well. Corporate communications side. We brought in a guy named Eric Glass, Eric ran communications for our Workday prior to that. And part of it is we have to tell our story. One of the challenges we've always had is a headwind of Ceridian name. Because I say Ceridian, a lot of people say, "Oh, ADP." But it's not really -- that's not really the case. We've got great tax capabilities, yes, but we really are a software company at the core. So how to tell the story but by still leveraging the heritage of Ceridian.

And tell it internally as well.

No, sorry. And then Noemie joined us as well, another great hire, right? Sorry, Noemie.

No, I was going to tell the story internally in terms of communication because we're telling it externally, and we also need to build the understanding of the vision internally and that's very important for our people.

I think we have by far the best team. And look, the much like in sports, the best team wins. You have a good strategy, a fundamental strategy, a big market. Our tech is so differentiated. And if I can bring in the right people, it just becomes an execution play.

Okay. Well, I've got to talk about wallet. So 800-plus clients are sold roughly what, 300 live, 80% plus attach on new sales. really good registration rate. What's most exciting for -- I mean, obviously, very strong traction quickly, but what's most exciting as you look through those metrics?

Yes. So if I look at it, we launched the wallet about a year ago. Over 800 customers sold as of Q3, over 300 of them were already live on the wallet. Overall, registration rates are above 30%. That includes all the new customers. When I look at customers that have been using the wallet the longest, the registration rates are well above 50%. We're seeing some of the customers go from activating the wallet to above 50% registration rates in about 120 days. Typical wallet holder loads a wallet 7 times per month at about $30 a time. sorry, $110 a time about, and they use the wallet over 30 times a month. typically $30 coming out. Typical transactions are fast food, grocery, restaurants, convenience and ATM withdrawals. It amounts to basically 1/3 of their salary that they're taking out via the wallet during the ActivePay period. We recently launched direct deposits so the other 2/3 come out 2 days early as well. We're currently piloting cash back. So cash back effectively, the person looks at their actual wallet, they can see the merchants around them. They'd offer 4%, 5% cash back. They get the 4%, 5% cash back. The network actually gets another 2% of which we get 45%. So we get 90 basis points of the spend that go through the cash back program as well. So I think that's going to drive more usage of the wallet plus take up our take rate as well. We're also probably early next year, we're going to do referrals to basically just drive the [ wireability ] of the platform. And I think that will go well with you saving goals so people can actually set target what they want to do in celebration when they actually hit it. So the -- it's going very nicely. And if I go back to CWT, every single conversation that I've had with a client starts about wallet. And so when I think about wallet, when I mentioned it that we were going to do it back in 2019, you could have dropped a pin in the room and heard. Just like a gas, everybody went silent. And this whole concept of real-time pay. Today, I think it's actually becoming the norm very, very quickly. And we're the only provider that can do continuous calculations. We have this always on a platform. And all of the other players in market have bolt-on solutions, which effectively is a form of a payroll loan to the employee, very difficult reconciliation at the end for the payroll team to actually do it. And then they are some jurisdictional compliance issues because the jurisdictions are going to argue, hey, it's actually a payroll. So you should be doing your remittances on a daily basis. And so we're the only ones to actually do it promptly. And so I think it is increasing our win rate on the selling of the Dayforce HCM platform.

Yes. And at CWT, we also had a lot of customers bringing their experience about the wallet and how the effect it had on their people and their culture and their ability to retain their employees, which I think is critical in this environment of talent war and issues with attrition. You have customers saying, and then that's what we observed as well, about 40% less attrition in populations using the wallet, than population not using the wallet our customers and I think that's a very compelling case for customers as well.

By the way, just 1 thing that Noemie points out, every time we build a module, we identify that KPI that we're going to impact at the client. KPI has to be measurable and convertible into a dollar saving. So when we built out the wallet, we said primary KPI is going to be voluntary attrition. Secondary KPIs are going to be time to hire and probability of hire. After the first 150 customers went live, we went back to the base. We measured attrition rate between the wallet holders versus the non-wallet holders, 42% reduction. We then looked at it on the first 90 days of hire. We found a 21% reduction. We then looked at probability of hire, 1.9x more likely to close an open job break if you have the wallet. And then we looked at time to hire reduction of 15%. So very, very strong. And by the way, we can -- we have those KPIs for every single module that we do. And that's effectively how we sell and that ties into CWT event because what we find actually resonates exceptionally well is this whole concept of delivering true value to our clients that is measurable and demonstratable, creates case studies and going in the direction I'm talking about it.

Okay. Great. Great to hear. You shared with us around prospects on the wallets, no longer nice to have. We are out of time here. So David, Noemie me, I want to thank you, and Thank you all for listening. Appreciate it.

Thank you.

Thank you.