David Ossip:

Thanks, David, and thank you all for joining us. I will provide some high-level comments on our second quarter and then turn the call to Jeremy to provide more details of our financials and an updated full year outlook. In the second quarter, we delivered strong results. Revenue growth was healthy as Dayforce continues to exhibit strong appeal with customers to power best-in-class HCM experiences for their employees. Dayforce recurring revenue of $322 million was up 20% including float, and 21% excluding float on a constant currency basis. And total revenue of $423 million increased 16%. Cloud recurring gross margin was 77.7%, up 100 basis points, adjusted EBITDA was $116 million up 18%, representing an adjusted EBITDA margin of 27.5%, up 60 basis points. And free cash flow was $72.7 million in Q2, up 36%. Our business momentum remained strong in the second quarter with significant progress achieved across our product and operations and deal momentum continuing at an encouraging pace. While the macro backdrop remains fluid, we have been able to pivot to industries where Dayforce enjoys their traction including manufacturing, retail and hospitality among others. Looking out to the second half of the year. We are encouraged by our achievements to date in 2024. The core value proposition of the Dayforce platform of creating simplicity at scale, reducing complexity, driving financial ROI and improving employee engagement resonates very well with customers. The HCM market is very large and is expanding. This continues to be a resilient and durable market of growth and our pipeline strength continued through the second quarter. We are optimistic this momentum will persist through the second half as conversations with prospective customers for the full suite platform are progressing well in all segments and regions. Turning to customers and market highlights. In Q2, we delivered balanced and consistent growth across customer acquisition, activation, expansion and retention. Our momentum sustained for sales, kickoffs and go live. We ended the quarter with Dayforce recurring revenue per customer up 18%. We now have 6,657 customers live on the Dayforce platform. From a sales perspective, we saw strong demand for Dayforce globally and sustained strength in both enterprise and major markets on a year-over-year basis. Year-to-date SI-led momentum continued with healthy year-over-year growth underscoring our success in expanding our partner ecosystem. Customers continue to see the power and capability of the Dayforce platform with full suite attach rates coming in at over 50% of new sales bookings and sales to our customer base contributed positively to growth with add-on sales compromising more than 50% of total bookings including add-on sales to the Canadian government and solid growth in our talent intelligence suite. Dayforce remains differentiated from our peer group as the all-in-one global people platform that delivers simplicity at scale with a full HCM suite, a single application on a single database powered by AI. Our differentiation is evidenced by our strong win rates best-in-class revenue retention and healthy sales growth. Turning to Dayforce Wallet. We were pleased to hit the milestone in early July of $4 billion loaded cumulatively. We had nearly 1,300 customers live as of June 30 and registration rates and use of transactions per month, remain constant. Wallet revenue is expected to more than double this year and is the fastest-growing product at Dayforce. The payroll modernization project for the government of Canada is progressing well. As you may have seen, the Canadian government provided an update earlier this month with information about their targets, time lines and planned investments. Dayforce is proud to play a part in this project to help the government of Canada not only pay its workers accurately and on time, but to provide a modern employee engagement and talent platform as well. Jeremy will provide some color as to the impact from this project to our financial forecast. In addition to the Government of Canada, some other notable sales wins from across the globe in Q2 included a global agri business and food company with more than 20,000 employees selected Dayforce managed payroll and benefits Workforce Management Wallet and Dayforce industry solutions for its 5,000 US and Canadian employees. A family of independent hospitality brands based in the UK with more than 20,000 employees selected the full Dayforce suite to be used across its employee population in the UK and Ireland. A multinational entertainment company selected Dayforce pay on time for its 9,000 US and Canadian employees. And some key Q2 customer go-lives included a multinational government consulting firm that is now live on Dayforce Payroll HR and time for all 39,000 employees in the US, UK, Canada, Netherlands, Germany, Singapore and Saudi Arabia. A global e-commerce company with over 7,000 employees has gone live on Dayforce Payroll and Workforce Management for its US population. A UK seller of new and used cars went live with the full Dayforce platform to 6,000 employees and a US regional airline that flies into more than 100 cities across North America, implemented the full Dayforce suite for its 5,000 employees. You can read about more notable sales wins and customer go lives in our earnings press release. Turning now to some updates on our platform and technology. As always our goal is to deliver simplicity at scale and allow our customers to eliminate the complexity that often results from combining multiple legacy HCM solutions. This principle guides our innovation even as we introduce new capabilities to help our customers navigate the ever-evolving landscape of work and technology. In the second quarter, we introduced several exciting innovations. We launched Dayforce Flex Work, an on-demand marketplace that helps organizations augment their workforce by posting ships and selecting from a core of gig-retired seasonal and alumni workers. Flex Work manages background checks, onboarding and payroll, helping to give employers peace of mind, while giving frontline workers a more flexible working experience. We launched Dayforce Skills Engine, which uses AI to help identify skills, gaps, then source and upscale talent with end customer workforces. We launched on-the-job learning checklist on the Dayforce platform, which will allow managers to document trading and observe the impact on performance. We launched Dayforce Payroll in Singapore, enabling customers operating in the region across Asia to access Dayforce industry-leading payroll capabilities. We recently introduced the Dayforce Partner Exchange, which is a marketplace where customers can connect with fully vetted Dayforce partners and discover software and services that extend the platform with access to over 120 software and SI partners. And we remain committed to helping our customers adhere to their compliance requirements with more than 200 compliance updates released in the first half of 2024. This pace of innovation is truly impressive and we have an extensive road map for future enhancements and products that we are excited to provide our customers. Finally, due to our continued strong results, profitability improvements, and cash flow generation, we announced that our Board of Directors has approved a $500 million share repurchase program and we announced our first ever Investor Day on November 12th in Las Vegas, alongside our Dayforce Discover Conference, where we plan to present a comprehensive view of our vision, strategy, and multiyear financial model. We look forward to seeing many of you in person there. In summary, we continued our momentum in the second quarter and are confident in the growth opportunity in the second half of the year. I'd like to thank everyone in our Dayforce community, including our customers, partners, and our team of passionate daymakers. I'll now pass the call to Jeremy to discuss our financial results in more detail. Jeremy, over to you.

David Ossip :

Hey, Jeremy, thank you for that. Before I ask Dave to moderate the Q&A, one item possibly since you ended off on FX, could you provide some impact as to the headwinds of FX this year and how we rate that into our guidance?

A - David Niederman:

Yes. Great. So thanks everyone for joining. Our first question is going to come from Mark Marcon from Baird. Mark, please unmute yourself and go ahead.

David Ossip:

Mark, thanks very much for that question. And also thank you for highlighting the fact that we've been quite successful on a global basis. As you know this is part of our durable growth strategy. And it's allowed us to be successful this year by quite honestly pivotal into markets where we've still seen robust to purchase it. In terms of overall profitability, our probability as you know is driven by density of features that our customers are buying. We pointed out that about 50% of the new sales are full suite products and we've also had very successful sales back to the base. If you see the NRRs included. When we go back to the base we add obviously additional revenue without really changing the cost basis from support or from a hosting perspective. So a lot of it flows directly down to the bottom-line. The same is true on a global basis. In terms of comparison between global customers and North American customers we would expect to see the same margins on a global basis. Obviously, our sales and marketing costs and some of our P&T costs as we enter new geos would be slightly higher. But as those products reach maturity you will see those normalize as well.

Jeremy Johnson:

Yes. Look, I think first and foremost we're excited about continuing to build that partnership with the Government of Canada and help them modernize their payroll. As I said on the call, specifically, we signed a contract for about US$60 million with the government of Canada to expand testing and design to their specific needs about a-quarter of that was for software subscription beginning what we expect to be assuming we can execute which we have confidence in April of 2025. So the remainder of that would be for professional services work. That's more ongoing type work that we have been continuing to do with the government across both us and our partners already largely contemplated in our guidance, but we'll continue throughout that term as well.

Operator:

Our next question will come from Samad Samana from Jefferies.

Jeremy Johnson:

Yeah. Thanks Samad. It's good to hear from you. Look I'll go back to the point that, I made frequently. And it's around the level of visibility we have into our numbers. We've got confidence in our guidance ranges and we performed consistently against them since our IPO. And quarterly differences between last year and this year can cause growth rates to bounce around a little bit. Factors can include timing of go lives the amount of year-end services fees in Q1. We've got wallet revenue. And obviously, we have to do all the revenue accounting that we're required to do among many other things. But we're performing well. Our results are strong and we have a great amount of confidence into that visibility that we have in both Q3 and Q4 and expect to be able to achieve the guidance that we've set out.

David Ossip:

Thanks Samad. Look I think in difficult times it's where you see differentiation in terms of performance across organizations. And as you pointed out the strong gets stronger and the weak get weaker. We've seen our win rates go up quite considerably year-over-year as we find that our messaging which is largely a 12:1 simplification is being heard very well in the market. What the 12:1 refers to again is that we approach organizations and we clearly map out the different applications that make up their overall HR stack. We then work with the prospect to quantify how much they're paying in terms of subscription or licensing fees for each of those 12 different systems. We also quantify how many FTEs they have supporting each of those systems. We do the same for their integration platform the cost of integration the cost of aggregation and data reporting. And then, we show a move to Dayforce, which eliminates integration increases automation, reduces the number of FTEs required to support the system quite dramatically and also reduces the subscription fees that they have to pay for Dayforce versus the 12 different other systems. That message in this particular macro is very well received. From a technology perspective, we are differentiated with our single database and our single application. It's a very clean design for a product and our product capabilities whether it be the compliance modules or the talent modules are very competitive even against the best of breeds in irrespective areas. That allows us to show very well and at the same time, deliver a cash IRR to the actual customers. And that differentiates us in market and I think has led to our success.

Operator:

Our next question comes from Scott Berg from Needham.

David Ossip:

So Scott, already the customers can benefit from AI inside our platform. The design of the data within Dayforce is well formed and suited for AI, as well the overall ore experience of our customers is through our hub experience and remember, hub experience is essentially a content management system, designed for the CHR and their team to create really beautiful experiences that render both on the web and across mobile. Because the system is a content management system, we've been able to develop models that allow us to index the content for their respective audience of each of the documents that are uploaded into the hub and to make that available through the copilot in a ChatGPT type of format. And as well when we respond to the actual question by the person we're able to reference, the underlying source document where we actually got the questions from, that's available inside the actual platform and is very powerful and actually shows very, very nicely. At Discovery, this year you'll see Joe highlight where we're going from an AI perspective and it is very exciting. When we compare it to the competitors whether they be the ERPs or whether it be some of the best of breeds, I do believe that we have a strong advantage from an AI perspective that already is reflected in the US that we provide our customers, and allows them to get benefit.

Jeremy Johnson:

Yes. Thanks, Scott. Look, first and foremost, I think I want to acknowledge the fact that we have made some really significant strides in free cash flow improvement over the last few years and we still have room to go. If you go back to two years ago I think our free cash flow margin was only a couple of percentage points and now we're actually heading towards something around 10% if you kind of do the math that we're laying out, which is going from our adjusted EBITDA margin at around 55% plus kind of upper 50% conversion rate into operating cash flow with capital expenditures remaining relatively constant on a dollar basis year-over-year. And then I will get you to kind of our expectations anyways on free cash flow. So it's pretty significant improvement in margin. Now a lot of that has been driven by our overall improvements in profitability. And the rest of it is and that will continue I should say, Scott. But we do think we can improve that conversion from kind of adjusted EBITDA into free cash flow with some balance sheet optimization and you're going to see us continue to push on things like DSO to really focus on cash as an operating metric and operate as if we're truly running this business on a cash basis, which is something that I think is a muscle we're building out here at Dayforce and I'm excited to lead the charge there. So I think we've got some really nice things happening. Q2 was a really nice quarter from an operating cash flow and a free cash flow perspective. And you can see that reflected in our SEC filings that it's going to be an area of focus for us in the future and free cash flow and that's not going to change.

Operator:

Our next question comes from Siti Panigrahi from Mizuho.

David Ossip:

Hey, Siti, nice to speak with you. The forecast for Q3 and Q4 is largely built up by the work in process of the accounts that are currently going through implementation. In the first half of the year we actually came in ahead of our forecast. And so we've got a high degree of confidence that the go-live will go as planned. Typically we hit the go-live forecast and usually actually exceed it. So we aren't concerned about the macro from a perspective of any delays in terms of go-live. In fact we remain very confident on that.

David Ossip:

Siti, what I would add is that we've built the company on a very durable growth profile and we remain quite in tune with the overall macro because of the requirements for our particular market is largely driven by the jurisdictions, not by particular organizations or even particular industries. It allows us to pivot as needed to where the market still is quite strong. Year-to-date, we've had a lot of success in industries like hospitality, which I would say is doing very, very well. Obviously, we've also invested quite a lot in public sector over the last number of years, and we're seeing that yield a lot of benefit as you see with the Government of Canada types of deals. And as asked earlier, we also have the ability to pivot on a macro on a global basis to go to where economies are strong and are growing. And I think that's been quite consistent over the last number I suppose six years where there's been quite a lot of challenges if you like at times in the overall economy whether it be COVID come back from COVID et cetera where we've been able to navigate and continue growing the company quite robustly over that period of time.

Operator:

Our next question comes from Steve Enders from Citi.

David Ossip:

Yeah, Steve. If you recall last quarter, we spoke about the fact that we felt that we could lift up the sales back to the base. We had an analysis by a consulting group at the end of last year, where as you know, our gross retention rates on clients at 97.1% is by far best in class. However, they did point out from an NRR perspective that we could lift up. So we made some purposeful moves at the end of last year, we brought in a very strong leader for the client base sales. We've built up that team quite substantially. We put in motion programs to basically go back to the actual base to make sure that they're aware of what the capabilities of the actual product are. We've taken the 12:1 simplification message back to the base and that's been quite well too. And we're beginning to see that take traction. It's important for us as we look towards a much longer targets. If we look towards 2021 also, we do believe that we have to get to a 50-50 blend between net new sales and between sales back to the base. When we sell back to the base, as well the profitability profile is quite different than what you see with net new sales. Obviously, the cost of sales is lower so higher sales productivity which I think is very important. Second, because the customer is already live and we already have the cloud environment and we have the support teams around the client. Typically, you get a higher gross margin on recurring on the add-on sales than you do get on net. Second from a client acquisition cost basis from an LTV basis, the profile of add-on sales is obviously very, very good. And even if I look at our net new sales client acquisition costs or LTV numbers where they're fantastic. So it's very much purposeful, which will allow us to hit our longer-term growth and our longer-term profitability and cash flow targets.

David Ossip:

Our pipeline remains very strong. If I look at the next four quarters, we're operating at about a 4x coverage, which is very helpful and very healthy and typically above historical targets. When I look at the number of open opportunities that are closed we'll say in the next 120 days, I'll say they're at record levels. So we are seeing still a robust market for us in general. That 12:1 simplification message really does help. We've also had some other tailwinds as well. The branding exercise that we've done and some of the investments we've made on the marketing side begin to take hold. I think that our reputation in industry and you do your field research you'll find the product is very differentiated. If you look at again our client retention rates, if you look at our NPS schools they're by far best-in-class in the industry. If you look at our services, experience that our customers are having we're very proud of that as well. So I think we'll continue to execute quite well in the actual marketplace. And I think you will see us continue to do well as we go into the future.

Operator:

Our next question comes from Bhavin Shah from Deutsche Bank.

David Ossip:

Yeah, Bhavin, as I mentioned in my script, we saw a nice growth year-over-year in terms of SI prime deals and obviously the involvement of the SIs in the actual deal. We have Steve here with us as well. So let's Steve maybe provide a bit more color.

Bhavin Shah:

Super helpful. Just one quick follow-up maybe for Jeremy. Just great to see the buyback and focus on free cash flow. Does that change your philosophy at all on M&A or even the types of deals you aren’t looking at?

Bhavin Shah:

Okay. Thanks for taking my questions.

Brad Reback:

Great. Thanks very much. Great. David, can you remind us the new customer account continues to moderate. Is that a shift in go-to-market? Or are there other dynamics going on underneath the covers there?

Brad Reback:

That's great. And so just one quick follow-up on that, should we expect it to stabilize at sort of this 350 level? Or could it moderate a little bit more from here before it finds its bottom?

Brad Reback:

The sequential adds in customers?

Brad Reback:

Great. Thank you very much.

Daniel Jester:

Great. Thanks for taking my question. So maybe to take the conversation a little bit different direction, about a year ago David, you had talked about some of the efforts that you're doing internally to deploy Generative AI to boost efficiency inside the organization around customer support and the like. Maybe is there any update in terms of what you're seeing from those efforts now that they've been in the field for a while?

Daniel Jester:

Great. Thank you very much. And then as a follow-up. Recently, the U.S. Consumer Financial Protection Bureau announced some rules around earned wage access. I guess, as you think about what's going on there in the Wallet, are there any implications? Thank you.

Daniel Jester:

Very clear. Thank you very much.

Raimo Lenschow:

Hey. Thank you. Thanks for squeezing me in and congrats from me as well. If I look at the industry David and Jeremy, the one problem that everyone seems to be struggling, not you but everyone else is that, that their customers are not expanding their employees. So, there's not a lot more new payroll guys coming in, and the guys that charge per paycheck obviously see it immediately, but even guys that are playing more upmarket kind of started talking about it in terms of true-ups not coming through. How is that the case for you? Are you just kind of on a different cycle the expansion that you guys are seeing from moving upmarket is helping you to offset that? Or are you seeing that as well? Like, can you help us how you're doing so much better than the other guys? Thank you.

Raimo Lenschow:

Okay. Perfect. Thank you for the clarification. And then one for Jeremy. Congrats on the share buyback announcement, that's really helpful. Do you have any indication a little bit of like how you think about deploying that? Is that -- are you kind of doing it opportunistic? Is there like a level per quarter you're thinking about, is there a valuation that you have in your mind that you're kind of having each quarter? Like, what's the cadence there? Thank you.

Raimo Lenschow:

Perfect. Thank you. Congrats.

Jared Levine:

Thank you. Based on year-to-date signings, what does that inform you regarding January 2025 go live and how does that compare to this past January?

Jared Levine:

Yes. So, in terms of year-to-date signings, what does that inform you regarding January of 2025 go lives? And how does that compare to this past January?

Jared Levine:

Yes, based on year-to-date signings, what does it inform you about this upcoming January go live?

Steve Holdridge:

Yes. And maybe I'd say look, we're -- year-to-date, we're having I think really good success in our go lives and great visibility into what we expect to do for the rest of the year. I think as we look out our guidance would contemplate strength in go-lives this year heading into next year. And I think our bookings are solid and we're comfortable with those throughout the year and we see nice strength as we head into the rest of the year. So, I think if that answers your question is, we're feeling pretty confident about our ability to continue to execute on growth and go lives.

Jared Levine:

Okay. Perfect. And then in terms of sales headcount, can you provide an update on your fiscal year sales side count targets and how those are trending year-to-date?

Jared Levine:

That’s perfect. Thank you.

David Ossip:

Just thank you everyone for joining us today. I look forward to speaking with the rest -- with many of you over the next few hours. Thanks again.

David Ossip:

Thanks, Jeremy, and thank you all for joining us. Next to me, I have Steve who will review customer and market highlights. Joe, who will highlight platform innovation and then we'll hand the call back to Jeremy to provide details to our first quarter performance and updated full year outlook.

Stephen Holdridge:

Thanks, David. In Q1, we delivered balanced and consistent growth across customer acquisition, activation, expansion and retention. We had strong results for sales, kickoffs and go-lives. We ended the quarter with Dayforce recurring revenue per customer up 19% year-over-year. And we now have 6,575 customers live on the Dayforce platform.

Joseph Korngiebel:

Thank you, Steve. We had a fast and exciting start to 2024 in terms of product innovation. As you heard from David, with the launch of Dayforce Co-Pilot to our charter customers at the beginning of the year, our new generative AI teammate for the balanced workforce is empowering our customers, their employees and also our own employees here at Dayforce with new levels of productivity and efficiency.

Jeremy Johnson:

Thanks, Joe. We started 2024 strong, underpinned by healthy top line growth and continued profitability improvements. As David said, we exceeded guidance across all key revenue and profitability metrics. We delivered Dayforce recurring revenue of $337.2 million, growing 24% and excluding float, Dayforce recurring revenue grew 23% underpinned by strong go-lives and healthy underlying customer trends.

Mark Marcon:

I've got 2 questions. One, The government of Canada in their 2024 budget, they basically ended up committing $135 million Canadian to improve public service, human resources and pay systems. That's up materially relative to the CAD 52 million that they had allocated during the prior year. And so what I'm wondering is, first of all, it sounds like things are really progressing well. You had mentioned on the call that you don't anticipate seeing a major step up until 2025. I know that there's some sensitivities in terms of what you can disclose, but it sounds like things are going really well. And I'm wondering if you can give us any additional perspective in terms of what the next milestones are, what we should be monitoring? Because this is obviously a huge deal.

Joseph Korngiebel:

Mark, good to hear your voice, and thank you for the question. Yes, Co-Pilot is a foundational really transformation in how people use a people platform to be able to get answers and make more efficient and productive decisions for their employees.

Mark Marcon:

Can I sneak 1 more in? Jeremy, did you build anything in, in terms of recurring for this?

Matthew Wells:

Our next question comes from Kevin McVeigh from UBS. Kevin?

Stephen Holdridge:

Yes. And I think we've been consistent in that. Over the past few years, we've seen steady growth in that. We've also been very public that our strategy is to move to primarily an SI-led ecosystem, even broader than SIs, right, advisory partners, partners with PE. We continue to see strength on that, both with the large global systems integrators where we continue to see expansion as well as a number of regional mid-market.

Kevin McVeigh:

It's very helpful. And then just with the uptick in flow, any change philosophically as to how we should think about just whether that gets redeployed or kind of just any impact because obviously, that seems like somewhat unexpected given where rates are, but just remind us of how we're thinking about that incremental float benefit?

Matthew Wells:

Our next question comes from Raimo Lenschow from Barclays. Raimo?

David Ossip:

Sure. Raimo, good to speak with you. Raimo, just check your math on your early report as well in terms of the guide. We actually pushed the full amount to the full year. Not half of it, so just a correction in your note. In terms of your question, if we look at the actual pipeline, the pipeline levels remain very healthy and robust. What we're seeing in the industry is that there is a focus on increased automation, and the way that typically translates is that we would come in and we often see a simplification of 12 systems to about 1.

Raimo Lenschow:

Good. Perfect. And then Jeremy, you talked a little bit about that extra float revenue coming in there. Can you talk a little bit about some of the priorities that if you think about balancing it out, some of the priorities in terms of kind of maybe giving us more versus kind of investing more, like where would that be? And congrats from me as well, and I'll look into that, David.

Matthew Wells:

Our next question comes from Siti Panigrahi from Mizuho.

David Ossip:

Yes. Thanks, Siti. The first thing that I'll point out is that if you look at the actual quarter, add-ons, which is adding the employer of record and the talent component was 14% of our sales. And if we look at full suite sales in the quarter, it was 50%. So when you look at Dayforce, we aren't a payroll company, we are an HCM company, which gives us a much more durable growth profile than others in the market that are more focused on the actual pay.

David Ossip:

Well, Siti, as we've discussed before, the larger accounts give us more the durable growth profile as the implementations do stretch typically across different years. If we look at the large logistic company, as you know, a nice proportion of their population went live previously, and we are expecting additional waves to go live shortly. But again, it allows us to plan out the business very, very carefully, and you see that reflected in the very tight revenue and EBITDA guide we give to the market. It's a highly plannable business.

Steven Enders:

Okay. Great. I guess maybe just to start, I think you called out mid-market win rates improving in the quarter? Just I guess it would be helpful to get a little bit more clarity on what you view as driving that? And then maybe just a little bit more detail on what you're seeing in terms of overall demand dynamics between mid-market and enterprise today?

Jeremy Johnson:

No, I think ultimately, we've beat in Q1. We had a really solid quarter from a profitability side of things. I think 2Q always tends to come down a little bit from a profitability side. But ultimately, we remain confident in the full year and we flowed through that beat into our updated guidance.

Matthew Wells:

Our next question comes from Dan Jester with BMO.

Jeremy Johnson:

Nice to speak with you, Dan. I think ultimately, employment levels remain kind of in line with our expectations, which was essentially flat with normal seasonality. I think if you look at any seasonal impacts, we always see that typical Q1 to Q2 drop off with some of the year-end and print revenue in Q1 that doesn't happen in Q2.

Daniel Jester:

Great. And then maybe going back to the Co-Pilot and the comments about simple pricing. Maybe we could just expand on that a little bit more. I think one of the things many people are thinking about is about how do you manage sort of compute costs and margins and usage for some of these tools? And so maybe can you just help us think about how you're thinking about this for your customers and what does simple really mean?

Matthew Wells:

Our next question comes from Alex Zukin with Wolfe.

David Ossip:

April was a good month, come in slightly ahead of our plan.

David Ossip:

We're in early stages. If you look at the average PEPM across our client base, you can still see there's quite a delta between the average PEPM price and between, I would say, our target price. If you look at the results with inside the quarter, both in terms of add-on sales back to the base and a number of full suite sales, you can see the numbers are very strong.

Matthew Wells:

Our next question comes from Bhavin Shah with Deutsche Bank.

Stephen Holdridge:

So a couple of things. Yes. So one, I'll point out double down on what David said, is one of the things we did differently this year is that, that is a dedicated customer base motion versus an overlay motion. So we've invested in terms of the number of account executives and the focus on that. In terms of who we're displacing, it's all the usual players up and down the market, right? In the low end of the market, we're displacing the pays in UKG in the mid and upper end of the market, we're displacing the ERPs.

Bhavin Shah:

Super helpful. Just as a follow-up, David, to another question that Raimo asked on the macro. I know there's been some conversations with some potential digestion period for back-office software, just kind of post elevated spend as we exited COVID. When you speak to customers, do you see this at all? How would you kind of describe customer scrutiny and if it's changed at all in the past few months?

Matthew Wells:

Our next question comes from Jared Levine with TD Cowen.

Stephen Holdridge:

Yes, yes. And we think of that really in kind of 2 broad categories

Jared Levine:

Got it. And then Powerpay recurring ex float and Bureau recurring ex float both came in below your expectations for 1Q. Can you discuss what drove those lower-than-expected results? Is it more so of push out of revenue later in the year?

Jeremy Johnson:

I don't believe we've disclosed that specifically.

Jeremy Johnson:

Yes.

Mark Murphy:

David, I'm wondering if you could give us your perspective on the labor market. When we look at non-farm payroll growth in the U.S. has slid from 5% a few years ago to about 1.8%, 1.9% range. Recently, I'm wondering because obviously, you're performing pretty well. How does that trend look comparatively within your installed base, do you think that might continue to grow at the low single digits for the time being? And then I have a quick follow-up.

Mark Murphy:

Okay. Understood. I wanted to ask as well, because we saw the comments on full suite bookings and add-on bookings, I think you said those trends were positive in April as well. I'm just curious, did you see a total bookings bounce back relative to some of the softness you've seen around the holiday selling season or is it still a bit of a measured buying environment out there as we've kind of seen across the broader industry?

Matthew Wells:

Great. It looks like our final question will come from Kevin Kumar with Goldman Sachs.

David Ossip:

In the mid-market, which we call major markets and as well in our enterprise space, which goes up to 12,000, what we are seeing is the simplicity at scale, again, that on average, 12 different systems to 1 day 4 system seems to be the kind of the theme in the market what we're hearing from both prospects and customers, they ask about more automation, less integration, less manual work, less FTEs, more efficiencies seems to be quite topical at the moment.

Jeremy Johnson:

Thanks, Joe. It feels good to be back. I'm proud of the way our team closed out the year. In Q4, we delivered Dayforce recurring revenue ex float growth of 29% on a constant currency basis underpinned by strong Q4 enterprise go-lives and healthy underlying customer trends. Tax modernization contributed about 440 basis points of growth as we completed the transition at the end of the year.

David Ossip:

Thanks, Scott, and nice to speak with you. First of all, it has no impact on our fiscal '24 guide. What we did see was a slightly more decision gains in Q4 coupled with probably fewer days with inside the actual month. Christmas vacation, as you know, started a bit early this year relative to the past. When we look at the start of the year, as you pointed out, we had a good January, it came in above our internal expectations for that particular month. And we also entered the year with almost 2x the coverage that we had at the beginning of last year. I don't believe that there is any change in the macro quarter-over-quarter. And we are obviously going into this year quite optimistic about the forecast for sales.

Jeremy Johnson:

Yes. Thanks, Scott. It's good to talk to you again. And as I said, it's good to be back. It does kind of feel like coming home here, especially with an executive team that I'm largely familiar with, the finance team that I know the key players very well, all the Board and investors that I also know really well. So look, I think there's a number of levers that we have to continue to grow this business. I think since I've been gone, I've been very impressed with some of the big rocks that the company has moved. We've dramatically moved up into the enterprise space, and we called out some of the metrics there where we've increased our go-lives and enterprise customers 64% year-over-year. We've talked about partnerships and some of the progress we've made with global SIs there. And I'm also thinking about global expansion, and we've done some amazing things in the APJ and EMEA region.

Matthew Wells:

Our next question comes from Siti Panigrahi with Mizuho.

David Ossip:

Thanks, again. Great to speak with you. It's a very valid question. So when I look at the overall company, what I can say is that our client retention rate is probably several percentage points higher than anyone else in industry, including the ERPs. It's 97.1%. When we, though, look at our sales back to the base, as a percentage, we were quite low relative to industry. So this year, we brought on a very senior leader to head up the customer-based sales team, and we're expecting to take the sales back to the base, up by about 5%, relative to last year.

Sitikantha Panigrahi:

And just a follow-up. If I look at Q4 [indiscernible], that's kind of this organic Dayforce recurring revenue growth came in line with expectations. Is there anything you want to point to -- is that the employment level or any go live? Also, if you could touch upon your so many large deals was scheduled to go live. Any update on that?

Jeremy Johnson:

I think you said it nicely. The only thing I'll add is you saw us increase guidance across throughout the year in Q2, Q3. So I think we feel really good about the quarter that we had. And coming in line with guidance, I think, is on a tight metric like that speaks to the visibility that we have into the business and the accuracy of the model.

Daniel Jester:

Maybe a couple for Steve. First, can you maybe double-click on any of the go-to-market or partner changes that you're really excited about for 2024 and then secondly, I appreciate the update on the government of Canada process. Can you give us an update in terms of the road map for next steps as they assess Dayforce more broadly?

Jeremy Johnson:

Yes. Good to speak with you again, Dan. The comment in my scripted remarks was specifically around employment levels and employment levels moderating in the back half of the year. Visibility there is probably where we have, obviously, the least. And so we're being a little bit more conservative on expecting any upside there. As you know, I talked about this before, but we have a lot of visibility into our numbers as we head into the year, and we feel confident in our guidance.

Mark Marcon:

Jeremy, great to work again with you. Looking forward to that. I'm wondering if you can talk a little bit more about one of the newer modules. The HR service delivery. Sounds like it could be really promising. Can you elaborate a little bit there in terms of which point solutions you could be going after? How big you think that TAM is? And what characteristics does the Dayforce HR delivery model have that is superior to some of the incumbents that are out there that have been doing relatively well.

David Ossip:

Marco, one thing in terms of advantage, other relative to the others. The central part of our experience to employees and managers is the Dayforce Hub experience, which in itself is a content management system, which means that as organizations build their hub experiences by loading up documents, say, for example, opportunity policy to the actual platform, we can index it immediately and make it available through what we call intelligent search. And through the intelligent search, if someone were to say, "hey, can I take this amount of time if the search doesn't respond with the sufficient amount of information," we can create that service ticket for the individual. And so I do think from an integration perspective or experience perspective, the fact that we are one with the employee model, one with the actual experience gives us a leg up relative to the competitors.

Mark Marcon:

That's terrific. And then with regards to a couple of things that you mentioned earlier. With regards to the government of Canada, I think at one point, you mentioned rollout over the next 2 years. So are we to take -- are we to take that comment that essentially, not only are you technically viable, but there is in fact, a plan to roll you out over the next 2 years? And would you get the entire government. And then is there anything that you can tell us about the big logistics company that you've signed up and that you've started up in the U.S., any big learnings there that will position you to continue to gain some of those really large enterprises.

Raimo Lenschow:

I have 2 quick questions and congrats from me as well. First one is on the customer addition this quarter. Obviously, you're moving up market a little bit. So there's going to be like a -- there's going to be fewer customers that you're kind of dealing with compared to the past. But then you also talked a little bit about like longer deal cycles. Can you just put it -- frame it in terms of how much of that number was kind of driven by a change in strategy versus like the market? And then I have one follow-up, please.

David Ossip:

No. Look, I think we have a very strong opportunity in APJ in Asia Pacific and Japan, and actually I was there last week. And when I look at our footprint in market, it is quite remarkable. And in total, we have about 1,500 customers in region of which we pay almost 2 million people in terms of regular pay slips. By the way, those 1,500 would not be included in the Dayforce counts that we have. And the customers that we have there are the best of the best. The breakfasts and the lunches and the customer meetings I had really speak about the potential that I do think we have inside that region.

Jeremy Johnson:

Yes, I would just add one thing to that is, our growth levers remain the same, and we have the advantage of a balanced portfolio approach to how we drive our sales, right? Significant push in growth in terms of global. We are #1 in terms of that and customers recognize it. You've seen the growth in enterprise, but we still have a very healthy mid-market business and the differentiation around full suite across that. We still -- you talked about the fact that the customer base motion. You heard the stats in wallet and other things around adjacent innovation.

Matthew Wells:

Our next question comes from Brad Reback with Stifel.

Jeremy Johnson:

Brad, good to speak with you again. The answer to the question is really no changes. The guidance philosophy I have is generally going to be consistent with the way we've guided in the past under previous CFOs.

Jared Levine:

In terms of the demand environment in 4Q and so far into 1Q, have you seen any differences based on employer size, geography, vertical or even payroll versus workforce management?

Jeremy Johnson:

Yes. We see growth across all of them. David talked about APJ. I'm with our team in Europe and we have a number of significant brands over the past couple of years that we sold that are helping us there. But no, I think just go back, we have the advantage of a balanced portfolio and the ability to grow from multiple levers and to any time adjust up or down in those levers based on what's happened in a particular economy.

Jeremy Johnson:

I think there's really 3 key focus areas for upsell with our existing base. One, customers that we have a footprint in a particular region and moving them to global. We're finding even small mid-market companies are pulling up shared services centers. #2, customers that have time and pay with us to full suite with all the investments we've done in terms of talent, HR service delivery, there is a significant push in that. And then secondly, different divisions and distributions where we have one division in the company and cross-selling to another division as part of a larger global multinational.

Steven Enders:

Okay. Great. Maybe just to start, it seems like as we think about the model moving forward and the pace of net new go-lives that maybe we should expect that level to be a little bit lower just given some of the dynamics. I guess I just want to clarify that and how you're thinking about what the pipeline looks like for go-lives going through calendar '24.

Jeremy Johnson:

And if I can just add 3 things that I think have really strong metrics for us that we've talked about already, but I'll highlight them again. We had record go-lives this past year in Q4, that's on a dollar basis metric. We have maintained our world-class retention rates of 97.1%. And we had net adds for our enterprise customers up 64% year-over-year. So larger customers record go-lives and strong dollar-based retention, I think are the 3 metrics that I want to highlight here.

David Ossip:

One, I'm very proud of the work that our brand new team did. I'm seeing tremendous excitement both in [indiscernible] and from the simplification of the actual name change interest has been very, very positive.

David Ossip:

So the tax migration, as you know, there was a platform change onto the Dayforce and so largely driven by accounting reasons. In terms of the APJ migration, we are now beginning to target what -- there's a product in market called Preceda particularly in the Australian marketplace. And we are actively speaking with the Preceda customer base about their journey towards Dayforce. I had a lunch with many of them just last week. We have several that have completed the journey and are highly referenceable.

Mark Murphy:

Okay. Understood. And then as a follow-up, perhaps for Jeremy, it is great to have you back, of course, Arithmetically, is it correct that the float income guidance steps up slightly for 2024? And if so, mechanically, could you just remind us how that works? And are you factoring in an expectation of for some pay cuts in the spring or summer?

Mark Murphy:

Okay. So something like a 6- to 9-month lag because of the laddering.

David Ossip:

So Mark, if you look at it last year, our yield was effectively 3.74%. And this year, we're assuming about 3.75%. So it takes a bit of time to have the rate increases go through the system. We're still climbing the yield curve when it comes to the core portfolio, that's part of the portfolio that we lever out. in Q1, the proportion between the short term and the core portfolio shifts more towards the short term. So we should see some benefit from a higher rate environment in Q1 relative to last year.

Bhavin Shah:

Just first on Dayforce Co-Pilot. I think you talked about in your prepared remarks about the strong productivity improvements from some of the early adopters. Can you just talk about how you're thinking about monetization of the SKU? How much is based on productivity and kind of how that pipeline is faring for this offering?

Jeremy Johnson:

We always look at the float as a really nice piece of our business, and we'll take it when it's here. But as it goes away, it's something that we will continue to invest in the business. We'll also focus on expanding our adjusted EBITDA margins and the conversion of that into cash flow. I think maybe what I'll highlight there is we saw significant improvement in our operating cash flow and conversion from adjusted EBITDA into operating cash flow. So we ended the year at $219.5 million in operating cash flow which is a 54% conversion from our adjusted EBITDA. So we're really pleased with that, you'll continue to see us focus on profitability regardless of the rate environment.

Matthew Wells:

Thanks, everyone, for dialing in today. This concludes our call.

David Ossip:

Thank you, and thank you to you all for joining us today. Today, I'll discuss our strong third quarter results highlight our commitment to continually innovate on the Dayforce platform and provide an update on Ceridian's full year outlook. Steve will provide more information on sales wins and successful customer implementations. Joe will highlight key announcements out of insight, especially our [ gender of ] AI copilots autonomous payroll service desk, delivery and other items that we discussed at our Insight conference. And Noemie will add detail to our quarterly performance and updated full year outlook.

Stephen Holdridge:

Thank you, David. First of all, I continue to be impressed by the momentum of our sales team, now led by Sam [indiscernible] 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.

Matthew Wells:

Thanks, Noemie. Our first question will come from Mark Marcon from Baird.

Sitikantha Panigrahi:

Congratulations on a good quarter and also guidance. David, I want to ask you in terms of demand environment, what are you seeing at this point? And how is the pipeline looking for mostly your enterprise deals? It was very impressive last two quarters. So any color on that and also the go live of those large deals?

Sitikantha Panigrahi:

Anything on the go live?

Sitikantha Panigrahi:

And one follow-up, David. Lately, we have started getting questions from investors about the growth opportunity for payroll sector. So how do you see about -- I know you don't guide for next year, but when you look next year in [ fear ], what are the different growth drivers you're thinking in midterm? And is this the typical question is it a 20% grower. So any comment on that would be helpful.

Scott Berg:

Hi, everyone. Nice results during the third quarter. I want to start on the company's involvement in its partner ecosystem. I think one of the things that's come up really positively in my recent round of checks is outside of just bringing them more implementations, your engagement with them is, I guess, increased nicely over the last year, and I think they are more helpful in some of your deal opportunities. Can you help talk about kind of maybe what's really gone right in your engagement with partners or what's improved over the last couple of years, in particular? And how should we think about those opportunities as you go forward?

Scott Berg:

Understood. Very helpful. And then from a follow-up perspective, the largest survey in the HCM space recently had kind of talked about some slowing spend around additional module adoption just in the space as a whole. And it's really more reflective of normalizing the pre-pandemic levels after seeing maybe a bolus last couple of years. You're getting 50% of your new customers to attach the full suite today which is obviously an impressive number. But how do we think about kind of in the pipelines going forward, what you're seeing maybe in the next couple, 3, 4 quarters? Do you expect attach rates or cross-sell opportunity to be kind of in line with recent trends? Or are you seeing also a change that might be representative of what the survey highlighted.

Stephen Holdridge:

Yes, I would agree. And in fact, in our go-to market next year with our sales plan, we are doubling down on attachment. We are putting specific motions around our talent suite. We are putting specific motions around other areas. And in fact, we think that there's white space for us to have increased the percentage of add-on sales to the customers.

Steven Enders:

Okay. Great. I guess, so I was wondering if we could maybe get an update on the Canadian government opportunity? And if there is a -- I guess, any changes there from the last earnings call update.

Stephen Holdridge:

Yes. No, we continue to be very engaged with them. We're in the planning of what a rollout would look like, and we continue to be very bullish on the opportunity. Obviously, we're dealing with government and decision cycles that move at a certain pace, but everything continues to be positive.

David Ossip:

So I'll start, and I'll hand it off to Joe. There's just a tremendous amount of excitement. What I can say about insights and the products that we showed is that they're real and that we are doing delivery of generative AI with INSIGHT the product and it's really pervasive across the entire platform. So in terms of leading, I think we're way ahead of anyone else in the actual industry. Joe?

Samad Samana:

We congrats on the new opportunity. It sounds incredible. David, no one knows the HR payroll industry as well as your [indiscernible] . One, another company in the ecosystem last night noted that increased automation and improving the payroll rides is creating a significant revenue headwind for them as they improve the payroll process. I think one of the big questions we've got from investors for Ceridian and every other company, frankly, in the industry is, is there a significant amount of fee revenue or subscription revenue that's generated by having to either rerun payrolls or fixed payroll errors or whether it's filing in their own categories? And does Ceridian have a revenue stream that's associated with that? And maybe just how should we think about automation and the impact on a revenue stream like that. I think it would be very helpful for everybody listening with somebody like you that's payroll industry [stalwart] to illuminate us on that.

David Ossip:

Yes. The one is on track, will hit the ARR number that we spoke about previously. If I look at registration rates are now above 55%. We've also seen the percentage of eligible people kind of go up quite nicely as well. We're about to release some new capability on the Wallet and around instant transfer and peer-to-peer transfers that will come out probably in Q1 of next year. If you look at the App Store, you'll see the rating on the round the Wallet is exceptionally high. Steve spoke a bit about the actual amount of money that's moving through the wallet, which is very helpful. We've also got the ability now to do direct deposit for customers that our employees that are not eligible for on-demand pay. So again, a very good program executing as planned.

Matthew Wells:

Our next question comes from Bhavin Shah with Deutsche Bank.

David Ossip:

So one, I think, will increase our win rate as we actually go forward. There may be a possibility for us to actually increase the platform fees. So we're going through the sensitivity analysis of that right now. We do believe that we will have a lead in the industry when it comes to generative AI and the copilots that Joe showed. Joe, anything that you want to add?

Bhavin Shah:

Very helpful. Just clarifying, will Autonomous Payroll be a separate SKU? Will that be included for all kind of Dayforce customers? And my second question is just in terms of just Dayforce recurring customer. Saw a pretty nice uptick this quarter with accelerating growth from the last few quarters. Can you just talk about the drivers of that?

Joseph Korngiebel:

Yes. I think an important point on the previous question that was asked as well is we're delivering and really transforming payroll. We're delivering modern payroll. And both autonomous payroll and what we're doing with wallet are a key component of that. And while we're finalizing the package you can see our offering very different than what the competitive landscape is where people are still clinging to printed checks and things. We have a new revenue driver and wallet is a great example. We have a new really revenue driver in global payroll growth and being able to be a global payroll provider to pay your people no matter where they are in the world in this new boundless workforce. And so we really take autonomous payroll. What we're doing with Wallet and what we're doing with core global growth is what companies need for modern payroll, and we're leading the charge with really and disrupting ourselves in many ways by providing this next generation of payroll to really help companies and the changing workforce and the changing nature of business.

Matthew Wells:

Okay. Great. Mark Murphy with JPMorgan.

David Ossip:

Yes. Thanks, Mark. I'm going to ask Joe to speak about the hyperscale payroll project that we've been doing over the last probably about 18 months. But at a high level, it's going very well. Joe, do you want to just talk a little bit about hyperscale containers versus servers?

David Ossip:

Mark, we've always taken the approach of a very strong return on investment to our customers. And today, when you're talking about a 5% Fed rate and money is no longer free, the time to return is very important. We've always led the industry in terms of how quickly we can deliver a return to our customers. It's making us much more competitive against the ERPs were not any are we very strong on the ROI side, but the customers, by the time they go live, which as you know is quite quick with us, are fully proficient with the actual system right away, which allows them to get a stronger return.

Matthew Wells:

Our next question comes from Dan Jester of BMO.

David Ossip:

Yes. So look, as Steve had mentioned, we're doubling down in terms of add-on sales next year in terms of the actual sales force. So we do believe that there is a great opportunity for us to widen the use of the actual product with our customers. Part of our pricing strategy is actually focusing on the right modules for the customer at the time of an initial purchase so that they can get that very strong ROI and the quickness of ROI, which allows us to go back to them after the fact with the next set of, if you like, products. Again, it allows us to price optimize quite nicely from that regard.

Matthew Wells:

Our next question comes from Kevin Kumar with Goldman Sachs.

Noemie Heuland:

Yes. And we've talked about the drivers for enhanced profitability, which I think is one of the primary driver going forward. You'll see us also continuing to shift the revenue from lower margin into recurring and within recurring into cloud recurring. So as we migrate the customers over from legacy platforms into Dayforce, you'll see corresponding expansion of profitability that will translate into cash flow generation as well. Specifically for Q3, we had a little bit of favorability in AR, which is driven by billings, very much back-end loaded in the second half of September, we've collected those billings, but that's primarily the difference between the 50% that we've guided on average and the number that you see for Q3, but we remain committed for the conversions we've outlined for the remainder of the year.

David Ossip:

Sure. So international markets, I'm assuming that you view Canada as part of North America, so I'll talk about the U.K. The U.K., we have a slightly different model. It's a cabin model because there isn't the interchange in the U.K. market. We've seen good adoption across the customers in terms of the wallet there are no the real surprises or, I'd say, differentiating patterns with North America.

Aleksandr Zukin:

Congrats on another solid quarter. I guess I wanted to ask to my first one is around how well it seems like you've been executing and performing actually in the mid-market. Our checks suggested that you're seeing some pretty interesting tick-ups in win rates. So maybe just any changes to the competitive landscape there? Any plays that you're doing that are working? Or anything that's changed there head-to-head versus the competitors?

David Ossip:

So remember, we have five growth factors

Unknown Executive:

And one other thing I'd add to your point is on some of those large logos that we expanded, you are correct. That's a multiyear rollout for them. And that's another reason that gives us confidence in our long-term view because we have very clear line of sight not only to current year but 2- and 3-year revenue streams as those phases come live, and we've shown our ability to execute against that.

Matthew Wells:

Our next question comes from Raimo Lenschow with Barclays. Raimo, we'll circle back. Our next question comes from Matt Pfau with William Blair.

David Ossip:

So in terms of global, it is a very strong differentiator that we have in the marketplace. It's one of the reasons that we're getting more of the wins in what we call the major markets and the Enterprise segment, it's not just a large enterprises that have global footprint. I think the work that Joe has been doing in terms of the net payroll engines, the global payroll interfaces really does differentiate us quite significantly from the people in the marketplace.

Robert Simmons:

I was wondering first, could you update us on the Ideal [timeline] . So it's a pretty differentiated idea really you have to go in there, but so I'm wondering kind of how the progress is coming along.

Robert Simmons:

Got it. Great. And then any updates you can give us on the CFO search. How close are you to you find somebody? And what would be your ideal [ candidate ]?

Matthew Wells:

Thank you, Robert, and thank you, everyone, for joining us today. This concludes our third quarter earnings call.

Leagh Turner:

Thank you, David. Echoing your comments, I'd like to underscore the strong momentum we are seeing throughout the entire business and the reason we're leaning into innovation across the Dayforce platform. Propelling both growth and innovation is this once-in-a-generation moment, driven by 3 intersecting opportunities that we are uniquely primed to take advantage of and which customers are reaching to us to help them through.

Kevin McVeigh:

Great. And Noemie, congratulations, and thanks for your contribution at Ceridian. I wonder if we could go back to the guidance, just a really, really nice outcome, boosting the revenue and really the outsized EBITDA. Is that EBITDA -- does it reflect, David, I think you mentioned a 10% increase in productivity as a result of AI. Or is that something that would be incremental as we think about it in the back half of the year? And again, very, very strong results. Does it factor in any macro change at the margin? Or just any thoughts around that, again, a really, really nice outcome.

Mark Marcon:

Noemie, it's been a pleasure working with you. Congratulations and best wishes for the next stages in your career.

David Ossip:

On -- the macro side remains positive, and we remain optimistic. Regarding Q3 to Q4, there's typically some seasonality between the 2 quarters, and that would be indicative of that.

David Ossip:

Thanks, Mark. If I look at the gross margin on Dayforce recurring, which is 78.1%. It's up 174 basis points year-over-year. In terms of global, as you know, Dayforce was designed from day 1 to be global. I would say we have about a 10-year lead on any competitor from a global perspective. And I think the results reflect that we are operating at scale globally with a full global operational model. I think Leagh could add a bit more detail to that as well.

Matthew Wells:

And our next question comes from Siti Panigrahi from Mizuho.

Sitikantha Panigrahi:

Okay. That's great. And then David, those large deals you signed last year, how is the go-live tracking so far?

Matthew Wells:

Our next question comes from Michael Turrin of Wells Fargo.

Michael Turrin:

Just -- I mean, maybe a little bit more from Leagh on the go-to-market side. The appointment of Sam sounded like something you couldn't pass up. You've got some partner relationships that are referenced that are broadening out. Can you just speak to the signals that you're seeing some of the go-to-market investments you're prioritizing and just put some more context around the moves you're making.

Daniel Jester:

Great. David, can you just remind me about how you're thinking about the conversion of some of your past acquisitions to Dayforce and how we should be thinking about that trajectory going into next year?

Daniel Jester:

Great. And then with regards to implementation and sort of the push to more partners there, it was great to see that you had a partnership with an integrator to take a customer live. Maybe just an update as to kind of how you think that, that is going to progress again over the next year. At what stage do you think partners do a big -- greater chunk of the implementations, especially as you move increasingly upmarket.

David Ossip:

One thing I would add to that is if you actually look at the number of projects that were kicked off by SIs in the quarter, it grows to 35% on a global basis, which is up obviously significantly year-over-year. You'll also see that reflected if you do the breakdown of our total revenue line, you'll see that we're shifting the professional services now more towards the actual SIs. And as you go forward, you would expect less and less of our revenue -- total revenues, fee from professional services as our hope would be that we focus on becoming a scalable software company, leveraging our SI partners to do the majority of the implementation.

Raimo Lenschow:

If you look -- the highlight for me this quarter were like the wins with customers with kind of thousands of employees, which is kind of really a confirmation for the direction you are going there. What are you seeing in terms of the early-stage pipeline or the willingness of people to engage with you now like reference customer wise, you should have like a lot more. What do you see in terms of like considering the cycle and everyone is worried about what's going on in the economy versus kind of the success you're having there? Like what's the nature of the conversation there?

Raimo Lenschow:

Yes. And then, Leagh, one for you, like, obviously, having tiny tweaks with like Sam joining, like tweaks is always something that makes kind of people a little bit nervous as it happens like more in the middle of the year. Can you think -- is this like kind of a little bit more moving more enterprise, getting more strategic? Or how should we think about that?

Steven Enders:

Okay. Great. I didn't want to ask on the comment about deal sizes being up 17% versus last year. I mean, good growth there. I guess how should we be thinking about the components of that growth? Is it primarily being driven by these larger seats and moving more upmarket? Or how much is the expanded suite and more modules helping support that growth there?

Steven Enders:

Okay. Got you. That's helpful. And then on the guide, I think last quarter, you talked about seeing upside from employee levels and that not necessarily being rolled forward, I guess, was there any change in how you're thinking about those components to the current outlook and kind of what you saw this quarter on that front?

Matthew Wells:

Our next question comes from Matthew Pfau of William Blair.

David Ossip:

That's a very good question. There's a lot of complexity in terms of going global. It starts with the global HR model that you need to have in place. I don't believe it is possible to take a U.S. product and retrofit it to be global. There are certain data elements that have to be tracked and not tracked on a global basis. There are elements when it comes to the actual cloud environment that you're deploying and where the data actually resides.

Unknown Analyst:

This is Patrick on for Alex. So during the quarter, with our checks, we've heard the Phoenix payroll system project in Canada starting to ramp. Wondering if you could give us an update on the project, what inning are we in for that initial $16.7 million pilot. And then are we still a few years out from decisions being made on the broader project there?

Matthew Wells:

Our next question comes from Robert Simmons from D.A. Davidson.

David Ossip:

Yes. So it's very encouraging. As you know, you saw PwC purchase People Force in the U.K. People Force was a Dayforce consulting organization. And I would expect that PwC purchased People Force to handle the demand that they're seeing for our product. Likewise, in Australia, you saw -- I think it was the Deloitte purchase Enforce Consulting also Enforce is specifically Dayforce implementations in APJ and again, I would take it as a sign of very strong demand and the big SIs building out their practices.

David Ossip:

We remain on track. We will be showing more of it at INSIGHTS. We would expect to go live with the first charter customers this year.

Unknown Analyst:

It's Nick on for Bhavin this evening. And Noemie congratulations and best wishes on your future endeavors.

David Ossip:

I think part of it is what Leagh actually spoke about, was the change in go-to-market and segmentation of the actual sales force, having a dedicated overlay team going back to the base. We're quite meticulous about this. We map out the white space across all of our actual customers. We determine the right time that we can actually approach them. As we look towards a long-term and durable growth strategy, we do believe that sales back to the base has to be a big part of our success as it has been with other scaled software companies. Leagh, anything you would add?

Matthew Wells:

Our next question comes from Jackson Ader from MoffettNathanson.

David Ossip:

This is not a business run on luck and chance. We have a weekly meeting, a service forecast call where we go through every account that is currently under implementation. For each account, we assign a risk of them actually pushing, any account that has a risk of pushing of more than 30%, we go into actual detail. When we actually look at the actual forecast, which we do on a quarter-over-quarter basis, we have a forecasted amount that we hold the sales group account -- sorry, the services group accountable for and has run very well. I mean we have Steve here as well. Steve anything that you would add from a color perspective?

Jackson Ader:

Okay. All right. Great. And then, Leagh, on the full suite penetration, so if half of the kind of new wins in this year are full suite customer base, like 40% or so. What kind of timeline do you try and build toward after maybe an initial deal that doesn't go full suite that you end up kind of building toward a road map to getting them to full suite customers.

Matthew Wells:

That concludes our conference call for the night. Thank you, everybody, for joining us. We'll catch up with you over the quarter.

David Ossip:

Thank you, Matt, and thank you all for joining us today for our first quarter earnings call. Today, I'll discuss our strong first quarter results and talk to our continued technology leadership in HCM. Leagh will give more information on recent sales wins, successful customer implementations and continued efficiencies in our organization. Joe is also in the call and will discuss our investments in innovation, including new products and Generative AI. And Noemie will then provide insights on our quarterly performance and 2023 full year guidance. I will begin with our financial results.

Sitikantha Panigrahi:

Great. David, it's a really impressive Q1 a bit across all metrics. And even if I look at Dayforce recurring revenue ex float and ex tax migration, that's almost $7 million, $8 million bid. But my question about the Q2 guidance, just wondering, are you seeing any changes in terms of customer go-live or employment level or even our pipeline? Or is it mostly a factor of conservative guidance, which is kind of a slight change in your strategy? So any color would be helpful.

David Ossip:

Yes, we were very pleased, by the way, with the go-lives in Q1, slightly ahead of what our forecast was. We're very confident in the go-live forecast for the remainder of the year. If you look at the implied acceleration rate on Dayforce recurring for the second half of the year, you'll see that the numbers are there, again, consistent with what we reported with our Q4 earnings call.

Mark Marcon:

Congratulations to the team on the big increase in terms of profitability. One thing I was really impressed by was you ended up having a 53% increase in terms of gross profit on a year-over-year basis across the consolidated operations, and yet SG&A was essentially flat to down a little bit leading to this rapid increase in terms of operating profit on a GAAP basis.

David Ossip:

Thanks for that, Mark. Appreciate it. As you know, we've been quite focused on the bottom line and driving efficiencies across the business. First of all, I'd point out that if you look at the most important metric, which is the cloud recurring gross margin, that was up 320 basis points year-over-year to 78.7%. One of our targets that we've communicated to the market is getting that number to above 80%. And you can see that we have obviously a direct line of sight to that.

Mark Marcon:

That's great, really great to see. And then the other thing that was really impressive is just the number of international and multinational wins. Can you talk a little bit more about your ability to really differentiate yourself and where that market opportunity is? What inning we're in with regards to seeing these multinationals take on a modern HCM platform? And how should we think also about the time to go live for those multinational operations? How should we think about that as it flows through to revenue for the balance of this year and going into next year and the following year?

David Ossip:

The one piece I probably would add is on the SI front because that is driving the success on the global. The -- our SI program and the adoption by the larger size and the local SIs in the different countries is really much more advanced than it was a year ago, and it's continuing to advance as we go forward. In fact, a few weeks ago, I was in Dallas attending one of the large global SI conferences, where they had their global partners come to Dallas to discuss ways that we can actually build out the partnership. And that's driving a lot of the lead gen that we have, and they are doing most of the deployments on a global basis.

Bhavin Shah:

Just one for now. Just looking at Dayforce recurring revenue per customer, it looks like it accelerated on a year-over-year growth basis this quarter. Can you just maybe help dive into the sustainability of that kind of acceleration? And what are some of the key drivers behind this? How should we think about the continued benefit of attaching more modules versus kind of continuously seeing traction upmarket?

Bhavin Shah:

Got it. And then maybe just on the float balance side of things. I mean that only -- that kind of decelerated in growth. Any way to think about how we should be thinking about that float balance throughout the rest of the year?

Matthew Wells:

Our next question is from Mark Murphy of JPMorgan.

David Ossip:

So it's part of the move to the Dayforce type technology, right? So with the tax, we went from old bureau tech to move it around to the Dayforce platform. There are some other components still in what we're now calling other revenue as opposed to bureau revenue. You've got the pieces that are tied to the Ascender and the Excelity acquisitions, which I think you know there's about $85 million in the APJ kind of revenue stream for fiscal 2023 that over time as well will be moved over to the Dayforce side. In the nearer term, as well, we're looking at modernizing some of the underlying tech on the Powerpay. And so at some point in time, that also will become part of Dayforce.

David Ossip:

I think you still have a couple of years left, yes.

David Ossip:

So let me let Joe answer that.

Jordan Boretz:

This is Jordan Boretz on for Samad. Congrats on the strong results. So David and Leagh, not to beat a dead horse, but you spoke to the really strong 1Q Dayforce go-lives. Obviously, really, really impressive. I'm trying to understand what specifically drove that significant increase year-over-year. Were there any notable changes to call out around your partners' ability to onboard clients? Were there any initiatives that you maybe started with them? Or is it more so just greater productivity on that end?

Leagh Turner:

Yes. If I could just add, sales, kickoffs and go-lives by partners continued to increase quarter-over-quarter and exponentially so year-over-year. And we imagine this 3 or 4 years ago. We started to build the infrastructure to make this possible, and we expect that we will be able to continue to ride this wave in perpetuity. So you should expect that this is a trend that will persist in our business.

Noemie Heuland:

No, it's really more like seasonality of spend. We're obviously carrying and flowing through some of the performance from the first quarter as we continue to focus on profitability and scale. But we're also continuing to invest in our product organization. You heard Joe talk about all the innovations around Generative AI as well as global expansion as well as the wallet. So those are areas of investments for us.

Matthew Wells:

Our next question comes from Matthew Pfau, William Blair.

Joseph Korngiebel:

I'll take that. So I appreciate the question. And yes, we're going through a renaissance right now in all aspects of technology, but especially in the people applications that we really serve for our customers. The first and foremost is automation and efficiency. I think what we're able to do with the tech is to start to drive more efficiencies and automation in a time of need. We can take what tasks would take a long time to do. We look at what we're doing with some of the things to really recruit candidates and find candidates into a very labor intensive to go through resumes very labor intensive to have interview after interview to answer their questions.

Matthew Pfau:

Great. Very helpful detail on that. And then one on the full suite uptake you're seeing and good to see the over 50% of new deals in the quarter taking the full suite. Is there any trend in terms of customer size that's adopting the full suite?

Leagh Turner:

The only other thing I would add, if I could, is just we said this last quarter, and we would underscore it again because it's showing up both on the sales side and the go-live side is that during a tough macro, platform players win. That's just all there is to it, and we're really seeing that in our pipeline.

Jared Levine:

In terms of the demand environment, were there any notable differences in terms of by employer size, geography or vertical here? And then in terms of the qualified pipeline, any noticeable change relative to the beginning of the year as well?

Jared Levine:

Okay. Perfect. And then in terms of sales force, can you discuss how the number of sales reps compared to the start of the year and how you expect sales headcount to land for the full year?

Matthew Wells:

And we'll take our next question from Raimo Lenschow from Barclays.

David Ossip:

Thanks a lot. Well, first, Raimo, I would argue it's not a long implementation. We've had very successful implementations at the large enterprise side of -- in that 5- to 9-month time frame. So the move from one payroll system to Dayforce is very streamlined, very effective, and typically, it solves a lot of compliance and inefficiencies for the organization right off the actual bat.

Leagh Turner:

If I could just add 2 things, Raimo, I'll say -- to echo David's last point, market-leading companies with strong balance sheets are focusing on the fundamentals and they're investing. That's just the basics. And we're seeing that at the top of our funnel.

Matthew Wells:

And our next question comes from Robert Simmons of D.A. Davidson.

David Ossip:

Yes. The progress is going quite nicely. We're in the phase where we now are signing up customers. We expect to launch it towards the end of the year.

David Ossip:

I don't think there's any real change. The only difference is that you typically have to run a couple of extra processes with the clients. If you do [Technical Difficulty] with the European clients, it's going to be a GPA process around data residency. There's obviously now a cyber piece that typically you have to go with as well. So as long as you basically go through the processes in parallel, you're not really seeing elongated sales cycles.

Michael Turrin:

I just wanted to spend some time around what's assumed with the outlook for the rest of the year. I think the Q1 results are clean and you fielded a number of questions on those. But just any commentary you can provide on what you're expecting from employment trends? It seems like those are holding in steady. So is it fair to assume that, that is also what's assumed in the guide for the rest of the year? And then any color on just how you're thinking about the mix of growth from new customers' expansion or any additional drivers you'd flag for us just in thinking through the rest of the year?

Matthew Wells:

And we'll take our last question from Dan Jester of BMO.

David Ossip:

So what I would say about compliance is that it gets us to the finish line very quickly that many of the other players in market really don't have the same capabilities that we do around compliance. And as people go deep into the actual product, they can understand what is truly meant about compliance.

Leagh Turner:

Yes. I mean I think the only other thing I would say is, first of all, Gartner rates us #1 in compliance, so just to attest to David's point. Second, you can imagine, right, we sell to a variety of different personas, CFOs, CHROs, heads of operations in every jurisdiction, frankly, in which we operate. And each of them have different needs. And as I mentioned before, in this macro, buyers are looking to consolidate point solutions and platform players with lots of different inroads to capture value and release value for our customers are winning, and it's a zero-sum budget game. So they're all taking a look at the opportunities that we bring to bear.

David Ossip:

We're focused mostly on penetration or increase in the eligibility of the wallets across the actual base. But if I look at actual loads, they're up 3x relative to last year. So we loaded, I think, about $350 million inside the quarter. So we've now passed $1.5 billion in terms of our loads onto the actual wallet.

David Ossip:

Thank you, Matt, and thank you all for joining us today for our Q4 earnings call. Today, I'll discuss our exceptional results for the quarter and fiscal year and talk to our continued strength in technology that positions us for 2023 and beyond. Leagh will give more information on our successful customer implementations and recent organizational changes that will help drive efficiency and continue to grow. Noemie will then provide insights on our Q4 performance, 2023 full year guidance and reaffirm our medium-term goal becoming a $2 billion revenue company with industry-leading cloud recurring gross margins of 80% and adjusted EBITDA up 30% by 2025. I'll begin with our financial results. I'm happy to report that we closed Q4 and fiscal year 2022 with strong momentum and financial performance.

Leagh Turner:

Thank you, David. Like you, I am so pleased that Ceridian continues to perform beyond expectations and even in this complex operating environment. Last year, we adjusted our business to a more balanced growth and profitability plan. We shifted our operating model to leverage our APJ resources, and this allowed us to continue investing in and growing the business. And in 2022, Ceridian operated above the Rule of 40, with total revenue growing by 24% in constant currency and adjusted EBITDA being 20.1%.

Matthew Wells:

Our first question comes from Mark Marcon from Baird.

David Ossip:

Thanks, Mark, and great to speak with you. What I would say about this is that most organizations are now looking at how they can transform their companies to take advantage and be relevant in today's world. On that line, one of the initiatives that most organizations are looking at is how they can move to shared services on a global operating model basis.

Leagh Turner:

First of all, Mark, it's nice to hear from you. Thank you. And I would echo what David said, and I would just refer you to our press release where we talk about global customers that are sort of beginning 1 country at a time. I think that that's something we're seeing as well. You're right to say, David, that companies are globalizing in order to achieve efficiency, but what we're seeing in our pipeline is that many very, very large global multinationals, we refer to a global auto parts manufacturer with 40,000 employees in North America. They actually have 350,000 employees globally. We refer to a global professional services firm with 55,000 employees in the U.S. and Canada that we brought live. They have 276,000 employees globally. So this land and expand strategy is a huge part of our go-to-market, and you should expect to see more of that over time.

David Ossip:

Mark, if you look on LinkedIn or social media, you'll see that we did the big launch of the Dayforce Wallet for the U.K. populations, and it was a tremendously well-attended event with tremendous excitement in market. In the U.K. and inside Europe, typically, the payroll periods are monthly as opposed to biweekly or weekly as they are in North America. So there is a big demand for it inside the market. We obviously are doing it in a pragmatic way because of the partnerships we have to have along the movement of money. And so we are very encouraged what we're seeing currently with the U.K. kind of adoption of the system.

Matthew Wells:

And our next question comes from Mark Murphy of JPMorgan.

David Ossip:

Yes. So Mark, honors, it's still early days for the actual wallet. I'm not sure if we got the number correct, it's $14 million, not $40 million in the 2023 time frame. It's growing well beyond 100% year-over-year. If I look at the actual volumes of loads, we've crossed over $1 billion a few months ago. And if I look at the daily loads or the number of times the application is used now, we're probably around 30,000 to 40,000 loads per day. So it's growing very, very quickly. But from a revenue percentage contribution, it comes in now, I don't know, what is it about less -- about 1%, I guess, of the overall size of the company.

David Ossip:

I didn't really talk about the seasonality of those particular segments. And you remember that in December, you typically have the highest level of employment in hospitality and retail. Typically, you'll see a drop-off of that as you go through Q1 and then begins to build up again starting with Q2. So I didn't see -- I wasn't surprised by the numbers. And remember, we have pretty live data when it comes to employment numbers by segment, by geo as well. So it's what we had expected.

Bryan Bergin:

I guess I want to start with demand. Just are you seeing any KPIs that would suggest recessionary behavior or imminent slowdown? Anything like that? Can you comment on maybe new business momentum through January, please?

David Ossip:

Yes. So I'll start with the latter. If you look at kind of the month of December, Noemie, I think it was about a $3 million benefit.

David Ossip:

Benefit inside that. So I assume we could just extrapolate for the year. In terms of the gross margin on recurring. As you mentioned, we ended the year on an adjusted basis at 76.2%, which was up about 250 basis points. If we look towards Q1, we would expect that it would go up probably between 1% to 2% relative to Q1 of last year. And for the entire year, I would expect us to probably make progress towards the rule -- to the 80% target that we're hitting by 2025. And so you'll probably see it go up by about another percentage also over the course of the year.

David Ossip:

Just Mark, one thing that I would do on the long-term range plan is that I do believe the 30% adjusted EBITDA target with the sales commission changes moves to -- by the end of 2025 as opposed to 2026. So it moves the -- it brings it in by about a year.

Bhavin Shah:

Congrats on a strong quarter. Just following up on some of the exact changes that you made just on the promotion of Steve, can you just maybe elaborate a little bit more on why you think it's best to consolidate the role of CRO under him versus maybe replacing Rocky? And then how are you thinking about or handicapping maybe the potential for any disruption, if at all?

Noemie Heuland:

So on Q1, you got to -- there's a bit of seasonality going on, higher volumes in Q1 with the end of the year processing and the tax volume as well. And then we've reflected the most recent interest rate environment. But as we -- as I said on my prepared remarks, I think the upward variability for 2023 is going to be a little bit of less magnitude than it was in 2022, simply because the interest rate environment starts to normalize, and we factored that into our guidance for '23.

Robert Simmons:

I was wondering what countries of [indiscernible] you to add native payroll to that you might in the relative near term?

Leagh Turner:

What countries will we add native payroll to in the relative near term, I think.

Leagh Turner:

You know that we play in a variety of different segments, right? So I would say it's not changed demonstrably. But we're playing -- in the emerging -- we had great growth in the emerging market, very traditional competitors there. In the mid-market, which is very clouded space, I would say we continue to see relatively the same competitive landscape. But when we get up into the top end now, I would say, typically, we see the 3 large ERPs who we are now in the Gartner Magic Quadrant leadership quadrant alone with. And many of our wins that were noted in the press release, the global auto parts manufacturer, as an example, was a win against UKG, Workday, SAP and ADP.

Operator:

Our next question comes from Siti Panigrahi from Mizuho.

David Ossip:

So thanks very much for that. So look, the metric that I would point to, which Leagh spoke to is that the average deal size went up by 22% last year. There are a few things that are running kind of in parallel would be here. First of all, we have a kind of in-seat large enterprise and enterprise sales team. And so the pipeline that has been generated by that team and the business development organization over the last year means that we go into 2023 with an enterprise pipeline that is several times larger than the one that we went into at the beginning of 2022.

David Ossip:

Yes, that is correct. I don't think it's -- I think 3% you're talking about is inside the actual quarter. But if you look at it for a fiscal basis, it was actually up by 14% year-over-year. But yes, we are trying to move more and more of the implementations to the system integrators. And the number of projects that the system integrators are now -- primarily, I think, is 15% of the overall amount.

David Ossip:

14%. And so we would expect that to grow quite significantly again in 2023.

Matthew Pfau:

I wanted to ask a few on the ideal talent marketplace. So how are you thinking about this opportunity in terms of its size. When would you expect this to start contributing to revenue meaningfully? And then how do you go about sourcing labor for this product in a tight labor environment?

Michael Turrin:

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 '23 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?

Unknown Analyst:

The first one is on the deal size increase up, I think, 22% year over year. I'm curious whether you can parse out 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:

Not $140 million, again, $14 million, 1-4. Obviously, you have to stop mumbling when I speak.

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 at an overall probability, it is 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.

Aleksandr Zukin:

Guys, can you hear me okay?

Aleksandr 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 delivered, taking account of the more volatile macro? Is it something else? .

David Ossip:

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.

Aleksandr 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:

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.

Raimo Lenschow:

Can you talk a little bit the enterprise wins of [indiscernible] impressive, like where -- what are you seeing there? Are there any patterns in terms of where these customers are coming from in terms of like having tried it out other cloud vendors where the [ people ] offering is not very strong, some of the old legacy stuff is getting dated and people are moving. Are there any things that you can see that kind of creates a trend here?

Raimo Lenschow:

Yes. Okay. And then 1 quick follow-up, more for the future around like your revenue recognition usually started when you get the customer live. Other vendors are starting actually from almost Day 1 because the client is using system integrators in the client [indiscernible]. How are you thinking about that as you evolve and as more system integrators coming on stream? Have you changed it? Are you thinking about changing that? Any help there as well.

Noemie Heuland:

No, you covered it, Leagh. We've actually started doing that a couple of years ago and some opportunities and customers have [indiscernible] that starts right upon signing the contract. We're moving in that direction. Obviously, when you sell the full suite and you have a SaaS offering that includes more ACM and additional modules on that payroll, it's obviously a bit easier to do, but the -- we're also making big strides in that model with a payroll and time and attendance customers as well.

Leagh Turner:

Thank you, David. As David noted, we're continuing to execute on our growth levers, while at the same time demonstrating our ability to drive scale. In Q3, we saw continued momentum across all segments of our business from emerging to large enterprise and in every region in which we operate.

Noemie Heuland:

Thank you, Leagh. I'd like to provide additional color on our third quarter performance and full year guidance, which is detailed in the press release published on our Investor Relations website. As David highlighted, our third quarter performance exceeded guidance across all revenue and profitability metrics despite approximately 200 basis points of FX headwinds to growth. Notably, at constant currency, Dayforce recurring revenue, excluding float, grew 27%. Cloud revenue grew 28%, and total revenue grew 25%.

Matthew Wells:

Our first question will come from Bryan Bergin of Cowen.

David Ossip:

Alex, we haven't seen any impact as Leagh pointed out.-- Brian, we haven't seen any impact at all. And as Leagh pointed out, in Q3, we had very, very strong sales. Year-to-date, our sales are up significantly, the Q4 pipeline looks quite robust. Leagh, anything you would add?

Bryan Bergin:

Okay. That's great. And then a follow-up, just on the sales force. You talked a little bit about that. Can you dig in a little bit more on productivity levels, how you're feeling about sales force staffing here and just overall retention in the sales force?

Matthew Wells:

Our next question comes from Mark Marcon from Baird.

David Ossip:

Sure. On the Bureau side, if I look at the Ceridian payroll business, Bureau payroll business, which in Q3 was about $3 million, it drops down to about $2 million in Q4 that's largely just an end of life of one of our [ respected ] platforms. There was an accounting true-up on the Excelity side of about $1 million that benefited Q3. And so obviously, there's a drop going down into Q4.

Noemie Heuland:

Maybe a couple of other things on the Q4 guidance for revenue specifically. We have -- now we're not expecting to grow 18% to 19% at constant currency. As you noted, there's a bit of FX headwinds on a GAAP basis of about $5.7 million versus our previous guidance. On Dayforce recurring ex float, we maintained our 23% to 24% guidance range at constant currency. So that hasn't really changed from last time we issued guidance. Remember, in the second half of 2021, we had some employment level recovery from COVID, which gave us a little bit of a boost. So the good compare on the second half is a difficult one, but we're maintaining our growth rates for Dayforce recurring at slow. We're expecting a bit of float upside as a result of the continued sustained interest rate environment, which we've reflected in our top line guidance. .

Mark Marcon:

Great. And just to be clear, with regards to Ascender and Excelity in terms of new sales and client retention, those continue to go well, correct?

Matthew Wells:

Our next question comes from Siti Panigrahi from Mizuho.

David Ossip:

Well, again, Siti, thanks for that. Remember, this has been a journey over the last 3, 4 years, starting with the restructuring of the sales force, building out quite an extensive part in network and obviously, proving to the market through successful deployments that the technology can scale to very large organizations. Our global footprint has also helped differentiate us relative to the other players inside the actual market. So I'd say the combination of those 4 things are coming together, and we're seeing continued traction quarter-over-quarter into the very large enterprise.

David Ossip:

Sure. Well, we have a -- the large accounting firm that actually will go live in quarter, I believe, which is actually quite successful. So a very quick deployment of probably it must be about 7 or 8 months or well over 50,000 people. And as you know, we've had quite a few of those going line about the same time period for that. We do expect a strong go-live quarter inside Q4. And from a sales perspective, it's also our largest quarter, and we're expecting another successful sales quarter as well.

David Ossip:

Sure. We're quite focused as you've heard us speak about this over the last number of quarters. Firstly, we're committed to taking the cloud recurring gross margin from the 74.8% where it is currently to 80% by 2026. The areas that it's coming from as Leagh pointed out, we've seen efficiencies on the customer support and on the operational side coming from having more robust software and better processes in place. She actually mentioned that the number of support calls coming in is actually at a record low. Even though we've had many more customers live, which is one example. We've obviously used a lot of automation and technology to get to that particular type of point. .

Daniel Jester:

Maybe just to expand on that margin comment, David. Can you just -- it feels like a lot of that is organic, the natural evolution of the business. If we do see a slowdown next year? Are there levers you could pull to sort of accelerate that? Or is that sort of a linear progression as we get to 2026 on the margin opportunity?

David Ossip:

I think it's a constant stream. If I compare it, we've effectively got about 500, 600 accounts in backlog for go live. And so it's just a matter of activating those particular accounts. And then once we do that, there's a bit of a time when we go from taking them live until we get the registrations and the active card users for each of the different clients. When I look at it, we do probably around 700 to 800 registrations on an employee basis per day, and that has been somewhat constant over the last little while.

Mark Murphy:

So David, in your script, you mentioned this focus on quantifiable value. And I'm interested in whether you think the value proposition of the Wallet it's actually going to resonate stronger if we do get into an economic slowdown, perhaps you'd have the typical business with more employees feeling a little strain and maybe wanting to access their pay sooner, maybe there'd be a little extra catalyst to keep moving that registration percentage higher?

David Ossip:

From the onset of the Dayforce, the goal always has been to make every employees think like a CFO. So very much a strong, strong focus on return on investment to our customers. In an economy where people may be nervous or more focused on cost and efficiency. Our messaging really resonate nicely. Because as you know, we ranked #1 for payroll, #1 for client compliance by Gartner. We have I believe the fastest return on investment in market, which our customers have spoken about, I think Forrester and others have done case studies on that as well.

Matthew Wells:

Our next question comes from Robert Simmons of D.A. Davidson.

David Ossip:

First, we're very excited with the Insights Conference. When we look at a number of prospective customers that are attending, the levels are very, very high. I would think that there's probably close to $100 million of recurring revenue in terms of opportunities across the prospective customers that are attending. And in addition, we expect very healthy attendance from our customers. The agenda looks fantastic. The customer speakers, I think, are wonderful as well. And as you know, we've always seen a high conversion rate of prospective customers to live customers. So it should be a very good conference. And hopefully, we'll see you there. Leagh, anything you want to add on that?

Robert Simmons:

Got it. That makes sense. And then I guess just kind of the competitive landscape, are you seeing anything you call out from the [ company ] that's different in terms of pricing, marketing, sales approach, product. Anything about that?

Matthew Wells:

And our next question comes from Kevin McVeigh of Credit Suisse.

Noemie Heuland:

As you know, we're having -- we just talked about our Insights Conference that we're hosting next week. So that's definitely part of the investments we're making in Q4. We're also increasing, obviously, our travel capabilities for our sellers and implementation teams because we want them in the field talking to customers in the fourth quarter, which is our historically largest quarter.

Kevin McVeigh:

Great. And then just a quick follow-up on that would be, what type of rate assumptions are assumed in the Q4?

David Ossip:

[indiscernible] answer the question, we ended off Q3 with the float balance of -- sorry, of a rate of 2.19%, and we would expect it to be about 2.7% in the fourth quarter.

Matthew Wells:

Yes, we can hear you.

Matthew Wells:

And we'll take our next question from Samad Samana from Jefferies.

Leagh Turner:

Sure. I mean maybe what I'll say, just to pick up the point that you put down is that it is true that a number of million dollar deals are up 50% this year. I would just underscore that those are deals in the upmarket, so let's call it, enterprise and large enterprise. But we're also seeing a significant number of $1 million-plus PEPM deals in the mid-market as customers buy a full suite. So I just put a finer point on that. With respect to momentum, I would say, we are categorically seeing it everywhere. We're seeing it in our emerging market. We're seeing it in our mid-market, that's in North America, EMEA and APJ.

Jordan Boretz:

Great. That's helpful color there. David, I want to ask you a quick question on M&A. So the last acquisition that you guys closed was out of HCM in December last year. And broadly tech valuations have come in quite a bit since then. So has there been any change in how you're thinking about M&A? And maybe for future M&A, are there any specific regions you're targeting more so than others globally?

Jordan Boretz:

Congrats on the strong quarter.

Steven Enders:

I want to ask some more on the channel initiative. I think you called out some good opportunities that you were brought in from channel partners. I guess how much is the channel at this point bringing you into opportunities versus more in a fulfillment engine for you?

Steven Enders:

Okay. Got you. That's helpful. And then maybe just another quick question on the guide here. Just in terms of EBITDA and how you're thinking about float income kind of flowing in there. I think you mentioned in the past that we're kind of thinking about 50% of float up side, going to the bottom line. Is there any change in and how you're thinking about utilizing the float upside here? And then how you're kind of thinking about kind of further investments kind of beyond 4Q there as well.

Raimo Lenschow:

David, I wanted to go back to one of the earlier questions when people were questioning demand and why demand for HR. What are you seeing post pandemic? You mentioned compliance already, et cetera. But like talking to people in the market, other vendors as well. It does seem like HR got elevated as a pain point post the pandemic and hence, it feels like it's more strategic again. I don't know if you could see that as well as you comment on that one.

Raimo Lenschow:

Congratulations.

David Ossip:

Hello, everyone, and thank you for joining our Q2 earnings call. Today, I'll speak briefly about our strong performance in the quarter, what we are seeing in the macro environment, and I'll highlight our technology differentiation. Leagh will then give more color on our sales momentum and outlook for the second half of the year, and she'll go into details on how we are driving efficiencies across the organization. And then Noemie will go into the numbers before we open up the call for questions.

Leagh Turner:

Thank you, David. As David noted, this is an organization that is firing on all cylinders and in many respects, is buoyed by a macro environment where our customers and prospects value productivity and profitability more than they have in some time. Our technology delivers hard dollar returns at a market-leading TCO and our sales reflect that. After 2 years of significant transformation in our sales and go-to-market organization, we are clearly seeing the fruits of our labor.

Willow Miller:

Congrats on the quarter. So my first question is, what are you seeing in terms of employment within your customer base? Have your customers pulled back on headcount growth?

Willow Miller:

Great. And then just a quick follow-up. How does your pipeline look like now versus 90 days ago?

Matthew Wells:

Next up, we have Mark Marcon from Baird.

Leagh Turner:

Yes. So first of all, I'll just take them head on. The large grocer headquartered actually in EMEA with 11,500 stores is going to leverage us for WFM event scheduling to expand the profitability of their operations, and they're going to operate in over 20 languages leveraging Dayforce. The global e-commerce and web services company that I referenced is going to use us for payroll in their U.K. operation for over 100,000 employees that actually builds on, which we're most proud of, a preexisting relationship. They're doubling down their relationship with Ceridian with opportunity, frankly, to continue to scale that relationship globally. And we replaced a major competitor -- a major payroll competitor.

David Ossip:

Yes. So I'll start that, and I'll let Noemie add some more color to the conversation. On the gross profit on recurring. A lot of it is driven by the efficiencies we're having across our support organization.

Matthew Wells:

Our next question comes from Jared Levine from Cowen.

Leagh Turner:

We're fully staffed in our sales organization at the moment, including the large enterprise segment.

David Ossip:

About 30% of it is sales to the base and largely the remainder of that would be new sales. So 70% new sales, 30% back to the base.

Sitikantha Panigrahi:

David, I want to ask you your favorite topic, Dayforce Wallet. It's very impressive to see now 40% now registration rate. It looks like your employee -- the referral program working. So it's been now 2 years, how far you can go in terms of employee registration within the base? And how do you feel about the adoption at this point? And also, if you see any slowdown -- macro slowdown, how do you see the -- how the wallet with that?

David Ossip:

So I'm not sure if I heard the question correctly. But as I mentioned, the number of deals over $1 million is up 50% year-over-year. So we're having much more success in the large enterprise space. And in Leagh highlighting some of the wins of the very large customers, ERP vendors would have been at the table in all of those. Leagh, any other parts that you could answer?

Matthew Wells:

And your next question comes from Dan Jester of BMO.

David Ossip:

Daniel, as I said before, the focus at the moment is working with the customers that have signed the 1,200 to first go live, 650 are live. So there is 550 more to take live, and then to work with those that are live to increase the populations that are eligible.

Noemie Heuland:

Of course. So as you saw, we raised both the low end and the high end by $20 million. So that's essentially all the float upside that we saw. We're flowing through the second half of the year, the full year guidance. And then we're flowing through half of the adjusted EBITDA beat from Q2, which is substantial. We continue to make investments in sales and marketing. We have our big event in November in sites in Vegas, where we have a lot of prospects and customers attending, and we continue invest in marketing and then in product innovation as we saw in the stockholder letter. So those are the main puts and takes of adjusted EBITDA for the remainder of the year.

Robert Simmons:

I was wondering on your international revenue. How much of it -- excluding things like Ascender, but how much is related to multinational is to kind of start off the view in the U.S. or their own Western market and then to international to other divisions versus companies that are native to those countries, taking you like in, say, Australia alone that sort of thing.

Leagh Turner:

No, I don't think so. I think you covered it.

Noemie Heuland:

Yes. On the price increase, as you know, we have a contract terms that allow us to increase upon renewal. We're obviously applying those and at the same time being mindful of the customer-specific situations. And we've also increased our price list to reflect the effect of inflation. But again, we're mindful and we're looking at competitive positioning of our offering in some deals, especially in the large enterprise sector. So I think we're mindful of applying price increases as well as looking at what others are doing and compete efficiently, especially in the large enterprise space.

Matthew Wells:

Our next question comes from Kevin McVeigh of Credit Suisse.

David Ossip:

That's actually a good question. So just a few parts of breaking that down. Even across the 36% that have a suite, there's still significant upsell capabilities across them. So at the moment today, I think we have 18 different modules that are available -- 24 modules that are available, sorry, excuse me. So there's a lot and every year, Joe adds on average about 2 to 3 new modules, which drive additional PEPM. So there's still a significant -- and I think there always will be a significant opportunity in terms of going back to the base. I don't have the math to work out the 30% compounded. I'll give it to Noemie to try to answer that one.

Leagh Turner:

And the only thing I would add is that we're starting to see some of that. So you'll see in our shareholder letter that there's a long-term health care provider with 11,000 employees that bought the full suite from us. It's an example of consolidation and driving down TCO. They amalgamated a bunch of point solutions and went with our Dayforce. There's a global veterinary services company, 40,000 employees bought the full suite from us to manage complex scheduling requirements and to roll out frankly, Dayforce Wallet in order to be able to drive up employee retention.

Kevin McVeigh:

Very helpful. And then just how long is the conversion on that 700,000 employee win? And what would that have taken 3 years ago? Because obviously, you've had an amazing amount of efficiencies from an implementation perspective. Is there any way to just think about the time factor on the conversion of a client of that size relative to maybe 3 years ago?

Kevin McVeigh:

When you're cutting over the actual HCM process from the legacy provider to Ceridian.

Kevin McVeigh:

Yes.

Leagh Turner:

The only thing I would like to augment that is that in the shareholder letter, this is an example of a holiday company based in United Kingdom, with 10,000 employees going live with WFM and a few other things, all within a 6-month period. They need to do it for business reasons, and we can accommodate that, whereas, again, a couple of years ago, that would not have been possible.

Matthew Wells:

And our next question comes from Mark Murphy of JPMorgan.

David Ossip:

So Mark, a few major themes in this. In 2018, when we spoke about enterprise, we already meant above 10,000 employees. Nowadays, when we speak about large enterprise, we're speaking about hundreds of thousands of employees. What's allowed us to do that is really 2 things. The first is that Joe with the product and technology team has significantly improved the scalability of the solution. From a payroll agent perspective, they've added the capability to horizontally scale into different containers that allow us to do these calculations very, very quickly.

Mark Murphy:

Okay. That's extremely helpful. And just as a quick follow-up, you -- the shareholder letter mentioned significant traction in the month of July. And I think we understand now it includes a mega deal. Is it fair to assume it's also a healthy volume of business in your normal or traditional customer segments as well in the month of July?

David Ossip:

In fact, I would actually even add to that. If I look at the small business performance year-to-date as well for the half year, it's also above plan. So again, I think we're doing very well on a sales momentum basis.

Aleksandr Zukin:

So I guess, clearly, I think you've talked about increasing momentum, which is obvious given the very large customer logos you're announcing which I think is more than -- at least I can remember you guys talking about on a single earnings call. So what I'm trying to reconcile is, given Leagh, you talked about accelerating momentum; David, you're talking about both businesses above plan. Just help us understand and bridge. If I look at the sequential dollar increase in Dayforce recurring revenue constant currency ex float, on a dollar basis, it's actually going up less than this time last year.

David Ossip:

Alex, it's largely the COVID sales basically moving through the income statement. And we spoke about that all the way down, I think, in Q3 and Q4 of last year that we had to just basically see the sales impact of COVID make the way through the income statement. We're going to see most of the impact in the middle to late part of this year. And then that's what you are seeing. But we now have seen a reacceleration of sales.

David Ossip:

It is up and down by quarter, as you know. You have to look at it more on the half year basis more than anything else. If you look at it, it was 175 last -- in Q1; 119 in Q2; 207 in Q4; about 63 in Q3 of last year. So it fluctuates quite a bit, and it always has fluctuated quite a bit. I would say if I look at it just on an absolute basis, 119 to 125 or 123 for the last 2 years, it's largely constant. And yes, we have gone up market. The average size of the deal is up about 10% year-over-year.

Bhavin Shah:

Just following back up on upmarket. I know in the past you've talked about how important the asset partnerships will be for this segment of the market. How these relationships evolve relative to your expectations? And where are they in terms of adding to new deal wins as we think about this quarter and even going forward?

Bhavin Shah:

Super helpful. Just a quick follow-up on float revenue. I just want to clarify your commentary in your shareholder letter talking about the assumptions here. Taking into account the current rate environment, should we take that to imply that it assumes all rate increases thus far? And if we get anything additional in September or beyond, that could drive additional upside?

Bhavin Shah:

Great. I fully understand the dynamic, and that's helpful.

David Unger:

So it's great to hear the positive commentary on international sales and EMEA and APJ. Anything you can mention in terms of changes in pricing dynamics with those enterprise customers?

David Ossip:

No, I wouldn't be. I think that's good.

Leagh Turner:

With respect to full suite sales, is that your question?

Leagh Turner:

I mean I'll give you a general answer, and I'll ask Noemie and David, if they want to sharpen it. I guess my general answer would be, our goal is to sell full suite to the mid-market to go back and make sure that every single 1 of those customers owns the complete 24 SKUs that we have to offer to then plant seeds in the large enterprise, which is what we're doing and expand just as we will have in the mid-market there over time. That's our goal. David, would you add anything?

Matthew Wells:

And our next question comes from Samad Samana from Jefferies.

Noemie Heuland:

Yes, absolutely. So if you just look at Q2, if you look at the operating cash flow, we grew by $5 million in Q2. So most of it is [indiscernible] ability. We had a bit of working capital movements in Q2 that we would expect to normalize over time. So the answer is, yes, as we expand on profitability, expand our plan recurring gross margin, getting more efficient on our G&A ratios and the like, you expect that to flow through the free cash flow as well. The other thing I would add is this quarter, similar to the previous quarter, we had severance payments as well as a result of our workforce action to move and leverage our APJ services center, and that will also normalize over time.

David Ossip:

There are three things. In EMEA, I believe the team has done a very good job over there, and they've got a very good partnership network, which I spoke about last time that are helping influence the actual deals and the win rates.

Raimo Lenschow:

David, can I stay on that subject? If you think about that, those kind of large customers are really a game changer and it doesn't happen very often that someone is breaking into the world of the SAP's, Oracle's Workplace there. Can you speak to who are you replacing there? And what's the situation in terms of setup? Was it a native software guy? Or was that a combination of someone doing payroll taxes somewhere else and then some software and you basically are coming in with 1 solution, 1 suite, as you said, and are able to kind of consolidate the solution there. Can you speak to that a little bit? And congrats from me as well.

Scott Berg:

Congrats on the really good bookings. I guess I have 2 quick ones. Follow-up on the gross margin impact from someone's earlier question. In the response for the improvement in the quarter, I didn't hear about the impact of the improved float revenues. Dayforce float revenues were up $3 million sequentially from Q1. So I assume that also drove some of the benefit in the subscription gross margins or the recurring gross margins. But I guess, A, correct me if I'm wrong. And then B, can you talk to that impact.

Matthew Wells:

Sorry, Scott, you had another question. Are you still there? Okay. Everyone, thank you for joining our second quarter conference call. We look forward to connecting with you over the following weeks.

David Ossip:

Thanks, Matt, and good evening, everyone. Thank you for joining in the call today. Before we go into Q&A, I want to spend a few minutes highlighting the quarter. We had a strong start to the year, executing well across sales, implementation, customer support and product, and technology. Dayforce recurring revenue, excluding float, grew by 31% year-over-year, exceeding the high end of our guidance range. Total revenue grew by 25.1%, and adjusted gross margin on recurring increased by 220 basis points to 75.5%. Adjusted EBITDA margin exceeded the high end of our guide by 347 basis points.

David Ossip:

Siti, to answer your question, it's tracking well against our expectations. Also of note is that 89% of our new U.S. customers are attaching Wallet, which is obviously an increase that we've seen year-over-year. We've seen good reception from the cash back partnership that we have with DOSH. Also within the quarter, we added support for minor employees, which allows us, obviously, to deliver the solution better to hospitality and retail.

David Ossip:

No. Siti, I'll start by just saying that we've raised guidance for the year. We've raised both the low end and the top end by $10 million. I'll ask Noemie to add a bit more color to that.

Matthew Wells:

Next up, we have Jared Levine from Cowen.

David Ossip:

Leagh, do you want to take that one?

David Ossip:

None at all. The sales force executed well across geo and across the segment.

Matthew Pfau:

Great. Nice results, guys. I wanted to ask on the full suite attach that you're seeing. How does that 35% compare to what you've seen historically? And are there any major differences in attach by client size?

Matthew Pfau:

Got it. And so a follow-up on the talent intelligence suite and some of the functionality you released, is that a major discussion point in some of the full service wins that you're seeing there? And is that a big differentiation point relative to some of your competition?

Matthew Wells:

Next up, we have Kevin McVeigh from Credit Suisse.

David Ossip:

Yes. Look, we performed very well. What we're finding is that the robustness of the technology, which is reflected in the very high customer retention rate as well as our Net Promoter Scores, has led to a decrease in inbound core volumes and so lower costs. We're also seeing more efficiencies across implementation and obviously, the parts of hosting and customer support.

Kevin McVeigh:

Great. And then just a quick follow-up. Of the 1,100 customers that are signed on the Dayforce Wallet, I think in the shareholder letter, you said 530 were live. The incremental 570, how should we think about the sequencing of that in terms of them going live?

Matthew Wells:

Next up, we have Mark Marcon from Baird.

David Ossip:

I'll start directionally, and I'm sure Leagh will add a lot more color. The government of Canada is a project appears to be progressing very well. The contract value was increased by CAD 21 million inside the quarter. So I think that's a good reflection of the progress that we're making over there.

Mark Marcon:

That's fantastic. And I had a question for Noemie. Can you talk a little bit about the impact in terms of rising rates? What did you already bake into the guidance? And what could potentially be a further addition as we think about the Fed's discussions this afternoon in terms of rolling out short-term rate hikes?

Matthew Wells:

Next up, we Robert Simmons from D.A. Davidson.

David Ossip:

Yes. Majority of our contracts, we have CPI arises inside. So we benefit over time from an increased inflation.

Pinjalim Bora:

Congrats on the quarter, I'm just sitting in for Mark here. David, I have a question on Wallet. How far along are you with respect to the original vision of the product? Because I remember it was a pretty grand vision with respect to the Dayforce identity where employees will be able to carry the Wallet across different organizations. Help us understand where are you in that journey?

David Ossip:

Yes. So we're very happy with the traction we're getting with Wallet and the Wallet capabilities. I also would say that the Wallet is a very robust system. In other words, we've moved a lot of money very reliably over the last about 18 months to 2 years. In terms of the full vision, we are actively now building that. And I would expect it to come to market late next year.

Leagh Turner:

Late next year, sorry.

Leagh Turner:

I would say the sales organization is near capacity now. So we spent a huge amount of time in Q1 doing what every organization does in Q1, which is setting their go-to-market, making the changes that we believe were required in order to unlock the year. And we went on, not only -- to Noemie's point, we performance managed the sales team appropriately, which one should do every year in a healthy sales organization, and we hired the backfill appropriately and of higher quality, in our belief. And so as a result, have a really great go-to-market setup for the full year.

David Ossip:

In terms of the actual Wallet, as the interest rates go up, the basis points do go up as well. But if you take it at a 25 basis points, that amounts to probably about, I don't know, 7 basis points, the amount of time that's outstanding. So if it goes up by 1% it would be 28 basis points type of thing.

David Ossip:

They were net new.

Daniel Jester:

Okay. Great.

Joshua Reilly:

Maybe one on the macro here. When you're looking at the business outside the United States, we know that the U.S. has been pretty resilient here since the Ukraine war started. But have you seen any divergence in customer confidence outside the U.S. since the war has started specifically?

Joshua Reilly:

Got it. That's helpful. And then you mentioned in the shareholder letter that the Dayforce card continues to be used in average of 23x per month by customers were relevant...

Joshua Reilly:

Oh, is it 25? Okay. Sorry, I thought that was 23. Curious, is the mix and/or size of these transactions changing now that the economy is reopening?

Matthew Wells:

Next up, we have Raimo Lenschow from Barclays.

David Ossip:

Yes. Look, Raimo, it's very strong. As I mentioned, in the U.S., we're seeing an 89% attachment rate for Wallet to new sales, which talks about, obviously, the perceived strength of the product and the value that it brings to the employees of our customers. We have seen the other players in markets bringing kind of bolted-on solutions into the marketplace.

David Ossip:

Raimo, I would start off by saying with the government of Canada, what we are piloting and testing is core HR, talent, payroll and workforce management. And as you know, if that goes forward, that's for well over 100,000 people.

David Ossip:

Thank you, everyone.

Matthew Wells:

Thank you.

Erik Zimmer:

Thanks, David. [Operator Instructions]

Aleksandr Zukin:

And congrats Ceridian team on a solid quarter. I guess I wanted to start out, David, by asking the question of around the narrowing of the guidance range and particularly in the shareholder letter, you called out seeing some employment headwinds in your customer base of them not being able to hire at the pace or rehire at the pace that they wanted to. And it impacted the quarter. I'm assuming it impacted the guide somewhat. I wanted to ask a broader question, which is, how long do you anticipate this to be a headwind for the business? And are we -- if we step back and from a big picture perspective, look at the business, you're seeing clearly tailwinds around the war for talent and necessitating, a modernization initiative of many HR organizations and tools, but at the same time, you get paid per employee per month. And if you can't hire, then you can't pay Ceridian more. So work -- talk to us about those 2 dynamics, are they balancing out because new bookings are well ahead of where you thought you were going to be, and we can't see those numbers, we can only see the PEPM stuff, but that would be very helpful, I think?

Aleksandr Zukin:

Got it. And I guess, is this -- should we start thinking as we model -- as we adjust our models for next year, should we start moderating our assumptions for an employee tailwind in general based on these early indications? And then maybe for Noemie, also walk us through some of the adjustments around the adjusted EBITDA guide? It implies that you are spending a little bit more, I'm assuming on marketing and sales, either hiring or activities. And then also, I apologize for the multiple questions, but we do track job postings and it did look like Ceridian's job postings declined quite a bit over the past couple of weeks, that could be great because you hit all of your hiring targets, but I just wanted to double check that?

Noemie Heuland:

Yes. Sure. So our adjusted EBITDA for Q3, as you saw, was $39.4 million or 15% -- 15.3% of total revenue. For the full year, we continue to expect our adjusted EBITDA margin in the range of 15.4% to 15.9% of total revenue. This is pretty consistent with what we've said before. We're continuing to invest in our product and technology. We saw we made some exciting product announcements recently. And your comment about hiring, we're actually very successful in attracting top talents in a tight labor market, which shows our brand is strong and our reputation is strong as well.

Jared Levine:

In terms of Dayforce sales force productivity, where do we stand versus pre-pandemic if below when do you expect a full recovery? And if we're above, what kind of -- what's driven that improvement?

Jared Levine:

Yes.

Noemie Heuland:

No, I think you covered it all. We've invested also in the sales support organization with value advisers, solution advisers and people who can sell alongside system integrators and upmarket with a large customer. So that -- but you covered most of the points, David.

David Ossip:

Q4 is always the bigger quarter. Q3 is normally a lighter quarter. So yes, we are expecting many more accounts to go live in Q4 over the Q3, which is typical for the actual period. In terms of the number of accounts, it's largely being driven by the size of the accounts that are going live. So if we take live, for example, a 50,000 employee account, if I compare that to historical trends, where we're taking live, say, 1,000 employee counts, the 50,000 would count for effectively 50. So we look at it more on an LTM basis now, which gives us more of an average type of trend for the actual business.

Sitikantha Panigrahi:

Congratulation, a solid quarter. I wanted to David dig into the international market. That used to be 1 of your growth drivers in genital expense and you talked about a couple of years back. Now are you expanding your payroll -- native payroll, and also, you talked about some of these global wins as well. Tell us like what you're seeing and when do you think it will be a material contributor to your revenue from international market?

David Ossip:

I think we'll probably start late next year on the revenue contribution. As you know, it's still a new business for us. What I can say, if I look at the business on a quarter-over-quarter basis, it's effectively doubling every quarter. So we're still going through the kind of the early stages of what I call hyper growth of it. Some of the metrics that I'll point you to, I believe, last quarter, we spoke about the average registration across all eligible employees to be about 25%. It's now over 29%. And when we look at customers that have been live over a year, we're seeing registration rates in the top quarter, well above 50% with the very strong usage metrics that we discussed. Those 25 transactions that people are doing everyday living. It's fast-food, grocery, convenience, gas, ATM withdrawals and the like. So that excites us quite nicely.

Erik Zimmer:

Next up is Mark Marcon with Baird.

David Ossip:

Mark, the first thing I would say is we're seeing more and more customers, larger customers buy the full HCM suite. I believe the number is 36% of clients today buy a full HCM suite. And so the takeaway from that is that we are now being seen not only as a compliance player, compliance being payroll benefits, time and workforce management, but also a leader in talent intelligence, core HR, data analytics and all of the other pieces that comprise a very rich and robust and engaging system for employees. As we've gone upmarket, we obviously are seeing more add backs against the ERPs and I'm quite proud of our success over there. We do also compete, as you know, against the more traditional human capital management and payroll customers. And obviously, our win rates over there are quite nicely.

Mark Marcon:

That's great. And then you've got a lot of different growth opportunities, government, international, digital wallet. How is that going to impact your investment perspective for next year? How should we think about EBITDA margins in the short term relative to all of the investment opportunities that you have?

Mark Marcon:

Should we just assume -- go ahead.

Mark Marcon:

So investors should probably deemphasize looking at EBITDA margin from the short-term perspective over the next year, just given all the investment opportunities and really focus on the recurring cloud gross margin in terms of [indiscernible]?

Erik Zimmer:

Next up is Matthew Pfau from William Blair.

David Ossip:

Thanks, Matt here. I've spoken about this for quite some time. I always spoke about the technology, having 3 sequential steps of delivery. The first step was to build out the continuous engine that would allow us to calculate net earnings as someone worked. And that's obviously quite a difficult thing to do, and we believe we have quite a competitive merger around us in that we can do that and the others can't.

Matthew Pfau:

Got it. Got it. And then just a follow-up on some of the other features that you discussed at the World Tour specifically around some of the AI and self-service features. How do you think about those from an ROI perspective when you're selling to prospective customers? And is that an important point of the conversation?

Samad Samana:

So maybe, David, first for you, just as I think about the international side, the company has done M&A around that. And clearly, the commentary this quarter was positive around traction. How should we think about maybe international bookings or like new book dollars in this quarter versus prior quarters? And maybe how should international as a percentage of new booked dollars going forward?

Samad Samana:

Great and then on the Canadian federal government deal, it was great to see that that's been brought back now as the world reopens. Is that included in the guidance for the fourth quarter? Is there any revenue contribution from that? And then just how should we think about the impact of that on maybe the near-term EBITDA outlook maybe even into 2022? Or just how should we think about the margins -- the margin impact from that?

Samad Samana:

Great. And then maybe just if I could squeeze in a third one, which is just I know I heard the question about the employment recovery. I wanted to ask a different way, given just how many companies you're exposed to, so regularly as the CEO of a large HR payroll company is? When you think about the hiring within the base, is it a safe assumption to assume everybody will get back to the same levels where they were all else equal before the pandemic? I mean I guess I'm just curious how much if there's automation or if there's hiring plans have shifted where they're more efficient and don't need to get back to those levels? Is that something we should think about as well as far as same-store sales growth goes within the installed base?

Erik Zimmer:

Up next, we've got Arvind Ramnani with Piper Sandler.

David Ossip:

Look, the first is obviously our run rate goes up because what we are allowing companies to do is to move to paying people immediately without them having to change the way that they fund their payroll and without any cost to them in terms of subscription fees or fees to their employees. So it's a tremendous benefit to both the organization and to their employees. In fact, an organization could go from a weekly or biweekly payroll to a monthly payroll and get a onetime lift of working capital as well. They wanted additional benefit. So I think that's becoming very important. The second is what I would say is that the desire to get paid immediately is becoming a requirement in business today. It's no longer optional. So the economy is moving there, and we have better tech than I think anyone else in the market in that every time we move the money, we do a true payroll that is fully compliant at a federal on the state or provincial basis in Canada. And I think that's very, very strong as well. When we're going to some deals, we actually are seeing them very focused on the Dayforce Wallet. There have been in some cases where that has allowed us to maintain or actually increase pricing just based on the advantage that we have inside the market. And the last piece as well is that I do believe it does help our brand with the employees of our customers. And so I would expect over time that we become the preferred choice of HCM solution, not only for the organizations, but for the worker as well.

David Ossip:

So first of all, currently, we don't see many transfers of the actual cards. What we're actually seeing is the 80-day spending from the cards. And as we mentioned, there's about 25 transactions per month, they average probably about $30 per transaction, usually on day-to-day living. When someone does an ACH transfer which, again, we don't see much of that, there isn't any fee to the actual employee. Next year, we will move into what they call OCT transfers or instant transfers. And over there, there is an ability to charge for that. Usually, it is 50 basis points up to a small cap that discharge for that particular type of transfer. What we are seeing in terms of the usage of the wallet is becoming quite disruptive to the credit card industry. So instead of using the credit card, we're seeing a lot of the employees are now using the Dayforce card instead. In that way, there obviously are more on top of their finances and they don't get into a situation where they are paying the 22% on the balance of the actual statement at the end of the month. There's a big benefit from them. In terms of additional revenue opportunities, as we move into next year, we start moving into things like rewards and we'll probably move into the areas like buy now, pay later. And all of those types of opportunities address the ability to increase our take rate. For example, on the rewards, we would expect to get about 90 basis points on the actual spend for that particular type of item that was covered by the reward on buy now, pay later basis, there would obviously be a revenue share with the partner over there.

Michael Turrin:

I know there was 1 here earlier already and appreciate the seasonal dynamics in the model. But the net go-live number does look a little lighter than what we were expecting. And I'm wondering if that's at all tied to labor constraints, either on services or the partner side or if it is truly reflective of a move up market and towards partners? And if so, if that suggests that maybe you're likely to see even more of a Q4 seasonal weighting in the model either this year or just on a go-forward basis?

Michael Turrin:

If you want to give us the PEPM go-live metric, David, we'll take that, too. But maybe you can talk...

Michael Turrin:

Maybe you could talk about just the incremental Dayforce metric that's now above $200,000. So I'm just wondering if there is a ceiling at all there or if you think that continues to trend higher, given you are just hitting new thresholds and milestones there as well?

Erik Zimmer:

Next up, we've got Brad Clark from BMO.

David Ossip:

Yes. So Brad, a great question. Currently, we're actually focused, I would say, on 3 regions. The first region would be North America. And obviously, you'll probably see us move into Mexico in the short term as well to cover and complete the North America rollout. That obviously will have impact on manufacturing customers with inside North America. The second area we're quite focused is in on EMEA. We've got a very good presence, as you know, in U.K. and Ireland. I've seen really tremendous traction in Germany, and we're launching the native payroll solution for Germany next year as well, and we're seeing quite a lot of interest in that. Once we have Germany, we, obviously, are going to expand into the other [indiscernible] countries surrounding Germany to get a road of footprint across EMEA.

Erik Zimmer:

Next up is Robert Simmons from D.A. Davidson.

David Ossip:

It's the Same model, Robert. It is -- streaming pay comes on board next year. It's effectively the same as on demand pace. So the current experience at the moment is I look at my mobile device, it tells me how much net earnings I have earned. So that is what is my growth, that all of my taxes and deductions, and then I can elect say, I'd like $50 added to my Dayforce Wallet or card. When I do that, I wait for about 5 to 10 seconds, and then 5 to 10 seconds, we doing our calculation going back about a year, we're actually creating an earnings slip and we're actually funding the card immediately, but just about a 10-second wait and the reason is to look at their balance before they spend. Where streaming pay, I elect to stream my pay. And as I earn the money flows on to my wallet at the end of every day. I don't have to do the on-demand transaction when it goes on to the card, we still get exactly the same interchange when they go often spend or through the other types of transactions on the card.

David Ossip:

Yes, it goes onto the Dayforce Wallet.

David Ossip:

With the investor track, we actually wanted you to do is provide an opportunity for the investors to meet the executive team. So in the executive track, we'll have it moderated by Leagh Turner. Leagh will also have Joe Korngiebel, our Chief Products and Technology Officer, we'll have Chris Armstrong, our Chief Customer Officer. Well, obviously, we'll have Noemie, we'll have Erik, we'll have Seth Ross, your heads up our Consumer Group. Erik, Noemie, who else am I missing in the group? So I think we wanted to have quite a -- allow people to have a dialogue with a broader set of the executive team.

David Ossip:

Yes. So actually, a great question on that. Obviously, we're seeing the number of opportunities brought to us by the SIs go up sizable, a large margin. Obviously, we started off at a base of 0. So you can expect to see very rapid increases on a percentage basis, but we're very happy with these growth of the pipeline that has been influenced by the SIs. So that's the first piece we're seeing. Second piece is we have got more SIs priming Dayforce implementations, which allows us to continue growing, especially on a global basis. Without having to necessarily continue to build out our own services group internally, it allows us to focus on really doing what we do great, which is build great software and deliver grade software and obviously service to create software. In terms of the partner network, we are well above 20 SI partners who have resources who are trained at CWT in Vegas, we have a very good chain by them, and I believe we'll see quite a few of them at the New York event as well.

David Ossip:

Yes. The 2 types of comes, those have put guardrails so they're limited to 50% and others that give full access. When I look at the overall population, it appears about 30% of individuals who use their wallet move their wages on to the wallet before the end of the pay period. If they use it for direct deposit, and we've seen the direct deposit business actually go up quite nicely. They get access to those funds 2 days earlier than they normally would as well. So to answer your question, I don't think it actually has been driven by the organization, just given that your natural amount movement onto the water seems to be about 30% of the actual wages. Once we start doing a 3-minute of pay, I would expect that to go higher. And we're also starting to emphasize now the direct deposit side. And so if you get the direct deposit, you effectively get all of it at the end of the actual period as well.

Erik Zimmer:

Yes. Thanks, David. And with that question, that concludes our call for tonight. So on behalf of Noemie, David and the rest of the Ceridian executive team, we thank you very much for your time this evening, and we look forward to continuing the conversation throughout the quarter.

Noemie Heuland:

Bye.

We also have reopened our offices in the U.S. And I've been thrilled to see the level of engagement from our employees whom I have met in various town halls across the country. I have also been busy visiting our customers at their offices throughout the U.S. And some consistent themes have emerged:

first, their desire to improve the well-being and productivity of their workforce; second, their challenges to maintain and unify the company culture in an environment where employees expect and do work from anywhere in a hybrid fashion; and finally, their difficulties attracting and retaining talent in a very competitive talent market. I left each of these in-person conversations with the conviction that we are uniquely positioned to address these challenges and help our customers be more competitive.

Jeremy Johnson:

Thanks, David. [Operator Instructions]

Sitikantha Panigrahi:

It's really nice to see this 30% recurring revenue growth. You're back to the 30%, even guiding 30%-plus in the second half. So I want to dig a little bit into your confidence level, mainly what's your expectation in terms of employment going into the second half, Q3, Q4. And also, specifically on the enterprise segment traction, what are you seeing there, mainly how are SIs helping you? And how does that change your activation or revenue recognition in the enterprise deals?

Sitikantha Panigrahi:

Okay. And then quick follow-up on the Dayforce Wallet side. It's good to see the traction there, now 200 customer live. So what could you do further to drive registration? Like, you talked about 40% in some instances, so what else -- what have we learned in last 1 year to drive further penetration? Do you have to rely on the HR of your customer, the HR department of your customer? Or can you do something else?

Jeremy Johnson:

Our next question comes from the line of Jared Levine, who's in place for Bryan Bergin, of Cowen.

David Ossip:

Not really, Jared. I would say that it's been largely consistent since we've actually IPO-ed. As you know, we have 2 prime competitors in major markets. When we go upmarket into the enterprise and large enterprise segment, it shifts a bit more to the ERP side.

David Ossip:

That's about right. Jeremy, have we provided the actual ARPU per account? I don't think so, right?

David Ossip:

But generally, it's in line that we can effectively see a doubling of the recurring revenue per active user.

Daniel Jester:

Yes. Thanks, Jeremy. I noticed that wallet was launched in Canada earlier this month. Can you just help us think about the market in Canada versus the U.S.? I think there's clearly other competitors that are trying to do on-demand pay in the U.S. But help us think about what the opportunity in Canada could look like, please?

Daniel Jester:

Great. And then in the shareholder letter, there's a metric that incremental Dayforce recurring revenue per customer was up 8% year-over-year. If I go back a few quarters, I think that was like 13% or higher. So maybe just help me think about sort of what's driving the deceleration here because client growth, sort of live Dayforce customers, has been pretty steady. But that metric seems to have come down. Sort of what's driving that, please?

Daniel Jester:

I'll follow up off-line.

Jeremy Johnson:

Next question comes from Mark Marcon of Baird.

David Ossip:

First, the growth on the global side is tremendous year-over-year, both in the number of deals that we're doing, the number of deals we're doing with the actual SIs and the revenue side has gone up quite significantly year-over-year. In terms of the particular types of wins, obviously, we had Coupa, which is just a tremendous software company, I think everyone knows about that, operating on a global basis. What I love about that one is that it's great evidence that we are very competitive in the software industry as well. We had a great fitness company that I think everyone knows, everyone uses. Everyone probably has a subscription to them on a global basis. I know that my wife and family have been supporting them for quite a long time.

Mark Marcon:

Who do you win Coupa from? Can you say?

Mark Marcon:

Okay. Great. And then just in terms of the guidance, can you talk a little bit about some of the drivers with regards to the EBITDA guidance? You're obviously investing, there's obviously all sorts of different opportunities, where is the incremental investment coming?

Noemie Heuland:

I think you've covered it well. In Q2, we had obviously a beat in our adjusted EBITDA versus what we had guided, which is primarily as a result of the revenue beat that we saw. But we've continued to invest consistently, as we said before, in the areas that David just covered. Product and technology is a significant area of spend for us, as David mentioned, for the wallet as well as for the global expansion and native payroll capabilities. So you would expect that to continue throughout the year as well as investments in sales and marketing to support the effort to the upmarket.

Matthew Coss:

David, in the shareholder letter, you mentioned core delivery metrics remained strong, and continued improvement with customer satisfaction scores was something that you saw. I assume things like no starts are probably smaller or perhaps nonexistent to begin with. But to the extent that they do exist, can you talk about any headway you've made there and then perhaps, along with that, the trajectory of things like NPS scores, overall customer sets, growth in the number of customers willing to do references?

Matthew Coss:

Yes, no starts. Just -- like I mentioned -- I assume you probably don't have any customers who sign and then just never end up going live. But I just wanted to see if that had been...

Noemie Heuland:

Can I add something on the services? I think we've seen the PS and other line coming back in growth territory this quarter after a couple of quarters of decline. So that's a pretty good evidence of them getting also more efficient in taking customer live. We have seen some increase in the professional services margin as well. And we had a higher share now of value-added services, which is customers purchasing our services post go-live, where we also have significant value added to help those customers taking the best ROI of the development and the implementation of the solution.

David Ossip:

Matt, as I actually mentioned, when I look at the average employee count across our customer base, it's actually higher now than it was pre-COVID levels, both in Canada and in the U.S. So I would actually argue that the jobs have actually come back into the actual market. And when I look at the growth in employment levels, over the last 90 days alone, we're seeing tremendous growth, 4%, 5% employment growth across inactive and active employees at our customers.

Michael Turrin:

Appreciate the time as always. On the international side, I want to just spend some time on Ascender. Was that, the $23 million you reported, just for level-setting in line with what you're expecting? And then I think you've said the migration is expected to kick off here in the second half of the year. Can you just talk about the expectations? I know it's a multiyear journey but how we should think about the start there and the trajectory as you kick off those efforts.

Noemie Heuland:

No, I think that's -- you covered it well.

David Ossip:

Yes. So the engagement numbers are great. As I mentioned, in the top quartile, about 40% registration rates across the clients which, I would argue, is a bit ahead of what we had expected. The second part is the loads that we're seeing have gone up slightly, but they're effectively 6x per month and at over $120 per load. And then on the spend time, we're seeing the cards be used almost daily. The average usage of the card is in excess of 24 times per month. The typical types of transactions is what you would expect. They are grocery purchases, convenience stores, gas, ATM withdrawals, which is the majority of the transactions.

Michael Turrin:

No, that's great. I appreciate the color.

Bradley Clark:

I wanted to follow up on the international trends. And specifically, could you talk more broadly about the size of the opportunity that exist now in the ANZ, greater APAC area with Ascender beyond the installed base? And then broader than that, is there any differences in demand appetite for HCM deployment between the international market, including Europe versus U.S. and Canada? Any comment you could make on sort of more global trends that you're seeing.

Jeremy Johnson:

Our next question comes from Matthew Pfau of William Blair.

David Ossip:

So Matthew, to answer your first question, I think there are 3 stages that I've discussed beforehand. The first is you have to train the SIs, so they have resources available. The second is you have to allow them to prime the actual implementation so that they can take the customers live and get references. And once you do that, I think you do get the lift in pipeline. So the majority of pipeline lift, I think we're still probably a quarter or 2 away as we need to complete the implementations -- or the SIs have to complete the implementations. We are seeing some benefit already in terms of deals where we are seeing a positive impact of the SI influence coming through.

Jeremy Johnson:

All right. The next question comes from Samad Samana of Jefferies.

David Ossip:

Yes, so we still are about to launch the actual partnership. But generally, the way it works is that the employee gets a cash-back of about 4%, 5%. The network gets about 4%. We get about 40% to 50% of that revenue share. And so that's where that 90 basis points come from.

David Ossip:

Sure, I'll give that one to Noemie.

Samad Samana:

Great. And then maybe zooming out a little bit, David, it sounds like the bookings in 2Q were nicely up over the prior 2 years' second quarters. I'm curious, when you think about the new customers that you've been adding, how many of those were in the pipeline prior to COVID? And I guess as I think about the current pipeline, how many are just new to sort of from a pipeline perspective where they're just completely new leads? And how is the new pipeline generation looking?

Noemie Heuland:

Yes. We've seen a significant attach rate on what we call PEPM at provisioning for our new sales. It's actually in line with what we had expected and modeled ahead of the year, which is great because it was a new business model for us. And I think we're pleased with what we're seeing in terms of execution and customer appetite to go and sign those contracts with PEPM at provisioning. We expect that number to be significantly higher next year. So it's still ramping up as any new program.

Samad Samana:

Great. As always, great to see you all and nice to see the strong numbers.

Aleksandr Zukin:

So David, first, maybe for you, if you think about the bookings mix, you just talked about bookings growth being pretty solid in Q2. I want to ask the question around if you think -- if you take the demand environment that you're seeing in the market right now and you look at the proportion of bookings first half versus second half and compare that to kind of traditional pre-COVID-19 periods, is there any more or less concentration of bookings? Like, is it a more back-end loaded year this year than usual kind of coming out from the pandemic, seeing some of these normalizations take time? I want to start there.

Aleksandr Zukin:

Got it. And then for Noemie, if I think about the numbers themselves, if I look at Dayforce recurring, ex float, constant currency, ex Ascender, ex employee tailwinds, what's the right way to think about that growth, both not in just the second half guide that you're putting up but the durability given the bookings strength, the durability? Like, what's the right way for us to think about that net new normal now that the base has roughly started to normalize?

David Ossip:

We don't really see a lot of Paycom inside the market. And I think we rarely, if ever, see the guys at Paycom. So I don't think we've seen any particular change. Obviously, as we have gone upmarket, we do see the ERPs more than we have beforehand. They're probably up the most. In terms of competitive win rates, they are still very healthy. They haven't changed. And I think when you look at the actual product, we're quite differentiated in so many different ways that the value prop that we can offer the market causes the win rates.

Arvind Ramnani:

I had a broader-level question. With the expected stimulus sort of looking to expire in September, it feels like hiring is going to ramp up quite aggressively because I see a lot more kind of openings for jobs as opposed to kind of people willing to get back to work. Do you expect like revenue to really kind of accelerate as you exit this year and into next year, assuming the stimulus basically expires?

Arvind Ramnani:

Terrific. And then if I look at the float balance last year, are you able to share, at least kind of ballpark, like how much of it was down? I mean you're up 27% this year versus last year. But last year versus the year before was...

Jeremy Johnson:

Next question comes from Stephanie Price at CIBC.

David Ossip:

So Stephanie, I've started actually traveling quite a bit. We did a client event in New York a few weeks ago. And to kind of give you an idea, normally, when you do these client dinners, they go from like 6:00 to 8:39. This went from 6:00 to 12:30 a.m. So I would say there's just a huge pent-up demand for people to get out and to interact again. I did 2 town halls. I did 1 in Tampa, and I did 1 in Minneapolis. And the energy inside the town halls was just wonderful to see, just people smiling and happy to be together. Next week, I'm in Chicago, doing another kind of departmental town hall, and then I'm going off to visit 2 clients as well in kind of the Midwest West area. And I'm obviously very eager for that. And then a week or so after that, I'm in the West Coast, going to San Fran and LA. In L.A., we have a nice client event.

Stephanie Price:

That's helpful color. And then maybe a bit about the international strategy in EMEA and how we should think about the build-out there and how that should translate into larger global wins.

Jeremy Johnson:

Great. The next question comes from Raimo Lenschow of Barclays.

David Ossip:

Look, Raimo, it's not by chance. We put in place a strategy to go upmarket starting in 2018. We made changes to the way that we actually sell. As you know, we verticalized. We brought in value advisory people who are able to kind of communicate the ROI and get ahead of the RFI/RFP process. We have invested and continue to invest very heavily in the SI channels who do influence those particular types of deals. And we brought in great people into the organization, particularly in sales leadership, that know how to communicate with the SIs and know how to communicate as well with the large enterprises.

Raimo Lenschow:

Yes. And do you see -- the second question is, do you see an increased priority now post-pandemic that people realized, okay, the front office was probably kind of already a lot more cloud native, more modernized where the back office are still sitting in kind of old processes, old payroll. Do you think that now post pandemic, we will see an extra push of people starting to modernize a little bit more?

David Ossip:

Thank you.

Scott Berg:

I have 2 here. I guess, first of all, David, I'd like to follow up with the question -- or follow up on the question, Raimo, just asked about your upmarket activities and success. Our industry work over the last quarter has pretty consistently talked about, how the down market activity is really robust in line with pre-pandemic levels. But kind of that mid-market customers with, I don't know, a couple of thousand employees and larger to the enterprise, is a little bit more sluggish than that downmarket opportunity. I guess help us understand maybe what you're seeing there. Is your increased deal flow maybe as a result of you just getting involved with more deals with some of the partners and other areas, like you just mentioned on Raimo's question? Or do you think the actual volume of deals is truly higher today than maybe it was a year ago?

Scott Berg:

Got it. That's helpful. And then kind of a housekeeping question for Noemie. Your guidance has Ascender revenues of $4.5 million, as you mentioned, in Q3 and Q4 in the Dayforce line item. Maybe help us understand why you're guiding those revenues to be a little bit lower than what you actually realized in Q2? I know it's only $0.5 million, obviously, which isn't a big, material number. just trying to understand the dynamic by that. And then I guess the Bureau revenues are also guided a little bit less than what you saw in the quarter.

David Ossip:

Scott, one thing I would add is that Ascender also had a good sales quarter. So they came in really, really nicely with the Ascender products that we're still selling in market.

David Ossip:

Great. Well, thanks, everyone, really, really appreciate it. It's with mixed emotion that I'm sharing with you that, after nearly 10 years, Jeremy is leaving Ceridian. He's taken a CFO role at a very fast-growing company that's IPO-bound. From my perspective, a bit mixed. But what I would say, it's a great opportunity for a really, really great guy. And I really want to thank Jeremy because I, as you know, have really enjoyed working with Jeremy over the last number of years.

David Ossip:

I appreciate it, Erik. And Jeremy, just a huge thanks and, obviously, wishing you a tremendous success, which I'm sure you'll be very, very successful. And as you know, any organization is really lucky to get you. So just handing it back to Jeremy, any final words before we move on to the analyst calls later.

David Ossip:

Thanks, everyone.

Jared Levine:

So in terms of Dayforce bookings, did signings accelerate over 1Q? And then if you exclude those handful of large deals that slipped into early January, would those 1Q signings still have been higher than the 2019 and 2020 levels?

Jared Levine:

Okay. Great. And then has there been any employment recovery thus far in 2Q? And then how is kind of Canada's employment recovery compared to the U.S. thus far in fiscal year '21 or even start -- period into the beginning of the pandemic?

Sitikantha Panigrahi:

It's -- looking at your $1 billion-plus revenue for 2021, that's pretty impressive. Even if I exclude Ascender, assuming $6.7 million kind of month -- per month run rate, that's almost like $90 million, $95 million above what consensus are expecting. So where do you see mostly in terms of upside? Is it -- are you seeing more on the enterprise segment? Or what's driving your confidence and -- to drive such a kind of top line growth?

David Ossip:

That's a great question. So let me benchmark it to last quarter. Last quarter, we were seeing registration rates of about 16% to 18% across customers that were using the Wallet. We have now seen the registration rates go above 20%. And in customers that have been using the product the longest, we are seeing it almost at 30%, if not higher in some cases.

Noemie Heuland:

The other thing I would add, David, is we've recently launched the Wallet in Canada as well. We already have over 40 customers signed up for it.

Sitikantha Panigrahi:

Just one quick clarification on my first question. So M&A contribution, Noemie, what have you baked into your guidance?

Sitikantha Panigrahi:

No, no, M&A, acquisitions. Acquisition revenue.

Jeremy Johnson:

The next question comes from Dan Jester of Citi.

David Ossip:

Dan, let me answer the last part of your question first. We do sell, in North America and EMEA, payroll, payroll and workforce management, without the HCM components. We've done that at many of the very large customers. And in that case, often, the ERP is a system of record, and they're bringing best of breeds for some of the talent components. So I believe the same pattern will be in APJ as well.

David Ossip:

Great. Thanks, Dan. We're very, very pleased with how it's going with the build-out of the system integrators. First, from a sales execution, our sales team has now begun to work very well with the SIs. And we have examples now, successful examples of where we have signed new contracts with SIs priming the Dayforce implementation.

Mark Marcon:

David, you -- in the shareholder letter, you mentioned a number of really impressive wins, including Fortune 100 companies in the health care space, global players. Wondering if you can just give a little bit more color with regards to the wins that you were most proud of and who you ended up winning from, and why they ended up really choosing you in terms of the decisive elements.

David Ossip:

Sure. So on the pipeline side, as we've mentioned, the pipeline is very strong. It's definitely higher than we had pre, let's say, Q2 of 2020. I also think, when I look at the quality of the pipeline, it's a better quality of pipeline as well.

David Ossip:

So Mark, this has got to be one of the easiest things to implement at a client. You literally check a few check boxes. And the employees download the app off the Google Play or the iOS store. It does the [ initial ] customer piece by pulling the information directly from the Dayforce application. So there's a fewer okays that you have to do. And then you get your plastic in the mail just a few days later.

Noemie Heuland:

Yes. I think -- so on the margin, as we've mentioned before, we are clearly in an investment year. As you know, we're making significant investments in our product and technology group, especially around the Wallet, around the build of global capabilities in Germany and in other places. So that's why you're going to see translating into higher product and technology spend as a percentage of revenue as well as a higher cash spend on R&D, which is something we're doing consciously in order to gain some market share.

Jeremy Johnson:

Next question comes from Matt Coss, who's in for Mark Murphy at JPMorgan.

David Ossip:

It remains very strong. It's above 105%, maybe 106%, which hasn't really changed, I would say, over the years. What's remarkable is that it remained at that level even with lower employment numbers at our customers.

David Ossip:

Yes. So Matt, look, I think there's been a benefit to demand across the pandemic. And it's gone in phases. In the first phase, I think a lot of the companies who are still relying on paper forms, paper manual processes or had on-prem systems were in a mad rush to get into the cloud and to digitize all of the interactions with their employees. And that has continued to drive demand.

Samad Samana:

So maybe first one, David, the pace of M&A seems to be picking up for the company. It seems to be more concentrated in the APAC region. Just maybe how should we think about -- is there a structural change in maybe how M&A is thought of as a lever for growth? And then again, on a regional level, should we think about it just happens to be in APAC right now? Or should we see it be more balanced maybe going forward? And then I have a couple of follow-ups.

Samad Samana:

Great. And then maybe, Noemie, a follow-up for you on just the revenue categorization. Saw where the dollar buckets are put in, in the shareholder letter, but just maybe most of the acquisitions in the past have been fully allocated to Bureau. Just trying to understand maybe why some of Ascender went into the Dayforce bucket at the outset since, usually, it's the acquire and convert mechanism. So maybe just -- I think it would be helpful to understand that.

Samad Samana:

Great. And just one last one for you, David. With the new hiring -- with the hire of the new Chief Revenue Officer, bringing Rocky on, should we expect any changes to the sales organization or go-to-market model underneath that, that -- any major changes that we should anticipate with the change in leadership there?

Christopher Merwin:

Great. I wanted to ask one about the Wallet. I was just curious if there's any other features you're thinking about adding to that core product where you could further monetize the funds running through the Wallet. Or alternatively, are there other partners you could add, Cash App or Venmo, to give users more flexibility about where those funds may ultimately sit? Just curious, anything you can share about the product road map or thoughts about where that product could evolve to in time?

Jeremy Johnson:

Next question comes from Scott Berg at Needham.

David Ossip:

So Scott, it will take us a bit of time to get going. So we're in the early days of the integration. But in terms of opportunity, we know that the APJ market is growing quicker than the rest of the world. So I would expect a growth opportunity over there to be at least equal to the rest of Ceridian on a go-forward basis.

David Ossip:

We've seen the attach rate go up. If I look at the add-ons in Q1, I believe we're at -- Jeremy, Noemie, I think it's 28% number that it came in at, and pre-pandemic, we probably were at the 20% level.

David Ossip:

So look, we talk about the future. What I can say is we've seen it go up quarter-over-quarter, and we are seeing customers above that 30%. If -- the only real market study out there would be the one at Walmart where I believe their registration rate has doubled year-over-year, and I believe they are close to the 50% range. So I would think that would be a reasonable range once we get the -- kind of all the Wallet features put into the actual system. And now with us, it might be higher because we don't have a charge. We don't charge the [ Wallet users ] a fee for usage, whereas, I believe, in the case of Walmart, they might.

Aleksandr Zukin:

Congratulations on the quarter. So if we zoom out, David, and we look at this year, kind of ex COVID, you're going in with a great pipeline. You're kind of -- you've successfully switched for new customers to [ peppen up ] provisioning. You've got really exciting partners that are signed up. And you have differentiated technology on a global payroll perspective, where at least our checks indicate you're winning deals against other HCM vendors as a result of that functionality.

David Ossip:

Alex, as you know, we've been quite consistent with our growth levers since we IPOed. One, we acquired new customers, around 500 to 600 per year. Two, we build out additional capability. We go back to the base. We sell them additional modules. I spoke about the 28% add-ons that we're now seeing. Third, we move up into the enterprise space. And you've seen that. If you read through the shareholder letter, you'll see some great examples of some very large organizations.

Aleksandr Zukin:

Perfect. And then if I think about kind of hiring trends and hiring trajectory, not so much employment levels but your own direct sales organization, I don't know -- apologies if you've commented on this or this has been asked, but what should we be thinking about in terms of just go-to-market team hiring for this year and getting ready for next year as it compares to either -- pre-pandemic levels?

Jeremy Johnson:

Next question comes from Arvind Ramnani from Piper Sandler.

David Ossip:

Great. So there are 2 great questions over there. Without a doubt, having the Wallet has helped our win rate, and there probably are 2 reasons for that. The first is we always speak about that we're differentiated in market in that we have a continuous calc engine, which means that when you change a timesheet, an HR record, a benefit record, we immediately calculate the net earnings. The Wallet leverages that capability. And so when we talk about being able to offer the Wallet, it also clearly explains to the customer the advantage of having a continuous calc engine which the others don't have. And so I do think it has helped us tremendously.

Jeremy Johnson:

Next question comes from Brad Clark with BMO.

David Ossip:

So Brad, we're already very happy with the traction that we're having in EMEA. We launched in UKI several years ago, and we're seeing great wins inside the market, and not only wins in terms of sales but in go-lives and referenceability. We've also had tremendous success inside Germany with our workforce management product. Great customers like Siemens globally, Henkel, Kessler, Lidl, Coghlan, all of them are leading organizations in Germany and across EMEA as well.

Jeremy Johnson:

Our next question comes from David Robinson at William Blair.

David Ossip:

So David, I think you're right. So there are a few things with us. There's a lot of focus now on employee communications. We launched the Dayforce Hub recently, and what that is, it's effectively a homepage that a customer can tailor based on jurisdiction, type of employee, I think put their branding on it, they can make it look and feel a really meet their own personality.

David Ossip:

Great. Thank you, everyone. See you guys later this evening. Bye-bye.

David Ossip:

Thanks, Jeremy. Good evening, everyone, and thank you for joining our earnings call. I hope everyone is healthy and staying safe.

Mark Marcon:

Wondering if you can talk a little bit more about the impact with regards to the sales in this quarter and what spilled over into January. And should we anticipate that the first quarter sales numbers are going to end up being elevated because of what was -- what fell into this quarter? How should we think about that?

David Ossip:

So it's an interesting question to ask. Remember that we've been moving up into the large enterprise space over the last 18 months. So it's hard to differentiate if there are more opportunities out there or it's just us being more relevant in the large enterprise space.

David Ossip:

Mark, it's hard to really again differentiate. Obviously, we are seeing more opportunities. I don't know what it is, as you said, more large enterprises looking at digitizing their HR processes or was just that we are a proper contender. And there are a lot of data points in there. Obviously, we had many more large deals last year. We were included in the Gartner leadership quadrant, which obviously makes us much more relevant for that particular enterprise space as well. Our global offering has strengthened as well year-over-year, and most of those large opportunities do have a global component. So we are seeing more large enterprise deals, but I can't tell you if it is from more opportunities in market or just us being included in more opportunities.

Sitikantha Panigrahi:

Yes. Yes. Just in terms of your guidance, I know you didn't give the full guidance for Dayforce recurring revenue, 22%, Q2, and second half, 25%. So David, what's your adjunction in terms of unemployment rate in 2021? And in that guidance, how much of conservatism is baked into new sales versus unemployment level within your install base?

David Ossip:

So Siti, as we move up market in the enterprise space, we obviously see many more global opportunities. The acquisition that we did of Excelity last year had a very positive impact in helping us with global opportunities. So we did see a lift, if you like, in win rates, especially with organizations that have populations in APJ.

Jeremy Johnson:

Next question comes from Samad Samana, Jefferies.

David Ossip:

So Samad, I don't want to put a number out outside of guidance, but what I will say is we've given a guidance number that we feel quite comfortable with. There's still a bit of uncertainty around the impacts of COVID.

Samad Samana:

Great. And then as my follow-up, I'd like to maybe add on to Siti's question around the international side, clearly, with the 3 acquisitions over the last couple of years. I'm curious if you could give us any data or at least anecdotal data points on how the uplift has looked for customers that were using Excelity that have added on Dayforce products or RITEQ? And just so we can start to think about what that -- the long-term opportunity looks like. So if they were spending x dollars before, what's that revenue uplift or sales uplift look like when you've sold in your Dayforce products into their base?

Michael Turrin:

Going back to just the questions on the shape of Dayforce. I think we're all just recalibrating and can appreciate the moving pieces there. Last quarter, you were guiding for what looks like a slight acceleration into Q1. It looks like Q4 actually came in a touch ahead of maybe where we were modeling, but the Q1 outlook now implies maybe a slight step down before you move back up towards that 25% target in the second half. So I know David mentioned some of the enterprise impacts, and there are some good details in the letter. But can you just help with level setting if there's anything else driving that change in trajectory and maybe just touch on also how much visibility you have into that second half target level?

Michael Turrin:

That's helpful color. If I can squeeze in just a quick follow-up on wallet. The numbers keep moving up. It's now 100 customers using it, and 375 signed up. That's a pretty big sequential step-up from the 200 last quarter. Are those -- some of those stats that you laid out, are those at all helping with adoption and traction? It would seem that some of those metrics around things like retention and turnover in this environment could certainly help with adoption on something like wallet.

Daniel Jester:

Great. So sticking with wallet, we've seen a couple of stories about state and local authorities looking to potentially put some additional regulations around earned wage access and limit some of the fees. Is that something that you're hearing? And does that have any impact on how you think about rolling out wallet from here?

David Ossip:

So from a margin perspective, the metric we look at most is our gross profit on recurring revenue on Cloud. As you know, that went up by 200 basis points or 380 basis points ex-float in Q4. We would expect to see that metric continue to grow into 2021.

David Ossip:

And from a float perspective, I think we actually go in at least, from a Q1 perspective, of about a $9 million total of float headwind. If you divide it out between Dayforce and Powerpay, it's about 6 and 3, respectively.

Noemie Heuland:

Yes. And maybe if I can add to the color on margins and some of the investments we're making. I think we're looking beyond 2021. As David mentioned earlier, there's a lot of opportunities with customers globally as well as customers in the market, and we're definitely investing in our product capabilities to support those customers. And we're also investing in sales and marketing to go after that massive TAM that we haven't yet tackled. So I think that's really important. We're making conscious decisions to invest to fuel the growth of Dayforce recurring in the future because that's really where we're betting, but I think we're also managing on the G&A side very cautiously to get scale.

Jeremy Johnson:

Next question is going to come from Bryan Bergin at Cowen.

David Ossip:

Let me start with why Ascender. So if I look at the Ascender 1,200 customer base and employee base, the majority actually is in Australia. In Australia, they actually have 2 products. One of the product is in education and in government, which are new verticals for us in market. They have an exceptionally strong team when it comes to domain knowledge around payroll, which will help us significantly in the A&D space because, as you know, one of our constraints always for growth is just having great people around who can help implement and support our products.

Bryan Bergin:

Okay. And then a follow-up here around the Bureau. Can you comment on what the Bureau migration benefit to Dayforce was in fiscal '20 and what's left in the Bureau that you expect to be potentially convertible here in the future? At what point is it based out at?

Mark Murphy:

Going back to the comment about the impact from the second wave of COVID is certainly understandable. Can you help us understand maybe how many transactions in total you were looking at or the dollar value bookings that closed in January? And I think, more importantly, just is your suspicion -- are you trying to convey that you are past the period where there would be those kinds of disruptions sounds outweigh based on your commentary, but just with vaccines rolling out and kind of the infections trending a little lower, do you think that, that might have been a bit of a one-off?

Mark Murphy:

Okay. If I can sneak in a quick follow-up. I think that the growth in the Dayforce revenue per customer that you've listed here, 8.5% during 2020, it's quite impressive, that has to be well above your peer group. Is it possible to just unpack that in terms of how much is larger customers you brought on that are lifting that average up versus how much of that is the existing base kind of absorbing more of your technologies?

Jeremy Johnson:

Next question comes from the line of Arvind Ramnani from Piper Sandler.

David Ossip:

So it definitely is having an impact on our win rate on Dayforce. As I mentioned, we've seen about an 80% attachment rate of wallet to new customers. The metrics that we now also have, if I look at -- remember, when we build a module, we've used the same methodology from a very onset, which is what are the KPIs we can impact at the customer through use of the actual module and how does an improvement in that KPI translates into dollar or money benefit for the customer. And so when I look at the actual wallet metrics that we're now able to look at, and we get that by looking at wallet users versus the general population of our customers, and we obviously have almost 5,000 customers now. So we have a big group we did a test in.

Arvind Ramnani:

Yes. Yes. Absolutely. That's an incredible success, and I appreciate providing the detailed metrics. Given the high ROI, philosophically, will wallet always be essentially a free product? Or at some point, when there's broad enough usage, there may be some fees? Or are you just going to look at like changing [indiscernible]?

Joshua Reilly:

So I was curious, what are you guys seeing with usage trends on the platform during the pandemic now that you have several quarters of data points here? Are there any modules that might be surging in activity or upselling better than the pre-pandemic period? And then are you using any of that data in the sales process to cross-sell complementary modules?

Joshua Reilly:

Okay. Great. And then just one follow-up. International outside of Canada obviously has been growing as an opportunity here given the M&A activity and investments in native payroll. How should we think about what regions you're going to be targeting for sales and marketing investments here in 2021? Obviously, we focused on APJ, but is there anything else that we should be aware of where there's a pretty meaningful opportunity here?

Jeremy Johnson:

Next question comes from the line of Yao Chew at Crédit Suisse.

David Ossip:

I think a lot of it comes down to what we can actually offer the employees or those particular customers. I think if you look at us compared to where they typically would land up with the companies, for a lot more attractive options.

Yaoxian Chew:

That's great. And if I may, just have one quick follow-up on the pricing environment. Can you speak at a high level just how pricing has trended more broadly and the competitive dynamic? Are you seeing rationalizing the marketplace? Do you expect pricing to recover from what you might call depressed second half COVID levels? How you just conceptually approach pricing and competition here?

Jeremy Johnson:

Next question comes from Kevin Kumar who's in for Chris Merwin at Goldman Sachs.

David Ossip:

I think that Powerpay is going to be under more pressure than Dayforce because it largely is -- what only is a small business in Canada. And if we look at Canada, the largest markets that we have, which would be Toronto and Montreal, are both under lockdown. So we are seeing more revenue pressure on Powerpay than we are seen on Dayforce.

Noemie Heuland:

Yes. That's correct.

Bradley Clark:

Just wanted to revisit Cloud revenue retention rate tick down a little bit compared to 2020. Just want to understand how much was employment impacting that metric versus other factors in the market.

Jeremy Johnson:

Next question comes from Matt Pfau at William Blair.

David Ossip:

Yes. So actually, in reality, they're not that different. So if I look at UKI, we built out native payroll for first the U.K. and then we extended into Ireland. And we've been very successful there, but we started with a little bit more momentum given the history that we had inside the country beforehand.

Matthew Pfau:

Got it. And then in terms of the partner strategy, any difference between the different regions?

Jeremy Johnson:

Our next question comes from the line of Chris Silvestre from Veritas.

Chris Silvestre:

Yes. Sorry about that. So the second question is, I guess, I know you need some like critical mass for some of the peer-to-peer stuff. And I'm just wondering, why not accelerate the rollout of wallet? I mean, what prevents you from reaching out to all the customers and just turning it on right away for anyone who wants to use it? Is it just -- what's the limiting factor there?

Jeremy Johnson:

And our last question comes from the line of Stephanie Price at CIBC.

David Ossip:

Stephanie, I think Noemie actually mentioned that earlier as well. We actually saw an acceleration of implementations in Q4. What I will say is, I think, again, we're differentiated in markets in that we have a robust technology. There are almost 5,000 customers using Dayforce today. When a customer signs up, we have a very high confidence that we can take the customer live, on time and on budget and with a very good customer experience. And if I look at our Net Promoter Scores on implementation, year-over-year, they were up significantly.

Stephanie Price:

Right. And maybe just one follow-up. Just curious with the composition of bookings in Q4 versus Q3. And any sense of where you think kind of the strongest demand across the client size?

Jeremy Johnson:

That concludes the earnings call for today. I want to thank you for joining and for the excellent questions and wish everyone have a happy -- have a good evening. Thank you very much.

Noemie Heuland:

Thank you, everyone.

Jeremy Johnson:

Thanks, Nikki. Greetings.

Aleksandr Zukin:

David, can you talk about just the selling environment as it has evolved both through the quarter that the third quarter and as you look into the fourth quarter? You even gave guidance for Q1. What have you seen in kind of the sales cycles? What have you seen in the pipelines? What have you seen in win rates? And then also what you're seeing in kind of retention now that we're so far through the pandemic and you had customers that had layoffs and furloughs. What you're seeing there would be great.

David Ossip:

Sure. So as we mentioned in the stockholder letter, the hires all have global experience and experience at scale. And so what you'll see from the group that we brought on are 2 things

Matthew Coss:

It's Matt Coss on behalf of Mark Murphy. David, digging a little deeper into the 11 large global enterprise deals

Matthew Coss:

Okay, very good. And then just a little bit of follow-up maybe on Alex's question. So I guess maybe it's obvious that you should return to pre-COVID levels of sales given the improvements in the economy, but I think there are some industries that are still really hurting. And although unemployment is better than it was, it's so much higher than pre-COVID levels. So just sort of how do you see Ceridian sort of...

Jeremy Johnson:

The next question is going to come from the line of Siti Panigrahi from Mizuho.

David Ossip:

So we are continuing to see strong new sales from new customers. Obviously, we were very happy with the sales that were brought in, in Q3. The trend of customers buying add-on modules, I don't believe, has changed materially. We've still seen about a 20% of our sales being add-ons to the existing base. As to what modules, I don't think that's changed either. It's obviously the LMS side, performance, compensation. More recently, we have engagement surveys. Dayforce Wallet, although we don't charge a subscription fee, we are seeing an 80%, 8-0 percent, attachment rate to new sales.

David Ossip:

We were very happy with the go-to-lives in Q3. And so as we go into Q4, we expect that the go-lives will come in on budget. Obviously, if we compare it year-over-year, there is some impact from the first 2 quarters of the year in terms of sales because, Q1, Q2, we typically would take live, as you know, in the December time frame. We haven't seen any impact in terms of what I would call go-live productivity issues in terms of working from home and working remotely. 2 examples I'll give you

David Ossip:

That was a takeaway from 1 of the -- 1 of our 2 top competitors, so that was very encouraging. The other one will be a large home health care organization with about 30,000 employees, and they went live in about a 9-month period. And obviously just given where we are now, almost the entire implementation was done remotely, and that's across 5,000 different locations. So what I would say is that we and our customers have worked out how to use technologies like Zoom that we're using tonight to remain very productive.

Noemie Heuland:

Thank you.

Daniel Jester:

Great. I guess, first, on sort of the wallet, you had a big hire today. And David, you've talked about sort of the road map here, new clients, new -- higher attach rate, but can you just help us think about what the wallet could look like a year from now, maybe at high level in terms of the ability to add new features to it? I mean, what's the road map look like at a high level from here?

David Ossip:

Yes. So first, as employment levels come back, that adds not only to revenue, but it's almost a complete flow down to the bottom line. So for example, if a customer has 1,000 employees versus, say, 1,100 employees, there's no cost difference to us between 1,100 or the 1,000. So as employment levels come back, we should see a slight lift as well on the actual profitability side. We'll see continued improvements from scale, as you mentioned, which effectively come down to lower per-employee hosting costs and lower per-employee support costs with inside the application as well. In terms of EBITDA, we are going to continue making investments next year. So we'll continue investing in global, in enterprise, in the wallet and the extension of the wallet that we'll be discussing at INSIGHTS as well. One point that we should probably call out is that on the EBITDA side, whereas in the second quarter we did not accrue for bonuses just based on COVID impact, in Q3, based on the performance of the company, we did do a accrual for bonus payout for our staff. So the results were actually very strong.

Michael Turrin:

I'm assuming you can hear and maybe even see me okay. I want to just focus in on both kind of the upmarket and the small business trends you're seeing. I mean obviously the upmarket metrics look strong. We continue to note in the shareholder letter it's just the size of customers that you're talking about continuing to increase as well. There's also some commentary around some of the smaller businesses that you've seen and some customer losses or churn on that side. It looks like, net-net, we would expect upmarket to weigh heavier and no change to your Cloud retention expectations but just want to kind of speak to the push-pull of those 2 sides.

Michael Turrin:

Helpful. Maybe just a quick follow-on, if I may, Noemie, congrats on the new role, since we have you here almost live and in person and David might want to break for a second. Just any initial observations, key priorities or areas of focus for yourself as you're coming onboard and ramping into the new role?

Jeremy Johnson:

Our next question comes from the line of Samad Samana from Jefferies.

David Ossip:

Yes. So on the Canadian government, no update over there, obviously much slower with COVID. However, we are seeing a lot of traction at the municipal level of government where we've had some nice wins and some nice go-lives, and I expect that will continue.

David Ossip:

Sure. So it's not so much regional, but as you know, we are continually investing in our own organization as we transition from this founder-led type of culture to one that has more scale and more predictability and more equality with inside the workforce. And so the changes we made over there were to -- effectively to uplift the sales organization, as we do believe that we can see more -- we can see potential for much more productivity out of the sales organization. Remember we're saying that even with a very, very high-performing sales organization that executed at pre-COVID levels in the last quarter.

Noemie Heuland:

Thank you. Looking forward to it.

Bryan Bergin:

I wanted to ask. Given the international success that you've had, can you give us an update on the expansion strategy there? And any considerations of accelerating any particular regions?

Bryan Bergin:

Okay. And then just on the wallet. On the back end, as that scales, what are you considering around the financing of that?

Jeremy Johnson:

Next question comes from the line of Mark Marcon with Baird.

David Ossip:

Sure. So Mark, I think what you're asking is what is the revenue buildup into next year.

David Ossip:

And so [indiscernible] because, as you know, we do start recognizing recurring revenue when a customer goes live. Q1, we had impact in terms of sales at the very end, in kind of late March. Q2, I think we saw the majority of the impact from COVID, but as we did mention in our Q2 call, Q2 sales still came in above our Q2 sales levels in 2019. And Q3, obviously, we're back to the levels that we had expected at the beginning of the year. You have to obviously roll that forward, and typically you can look at a 6- to 9-month implementation time line for most customers. So in terms of revenue, the trough really was Q3 that we've just coming out. You'll see a slight acceleration but still an impact from the Q2 sales into Q4. As we go into Q1, you'll start to see a little bit more acceleration. And by the second half of next year, we should be back to the previous growth rates that we saw.

David Ossip:

So let me just start with the bank. The way that we differentiate from the other pay -- on-demand pay vendors in the base is that there is no reconciliation for the payroll staff. So the payroll close is the same with the wallet as it is without the wallet. And as you know, we don't change the way that the customers have to fund their payroll either. We act as a commercial lender to the customer. So no change in actual process. Second, we're seeing very good responses. If you just do a quick search, if you do a Google search for Dayforce Wallet, Facebook; and then put in the word care, you will see how many of our customers are now leading their job postings by discussing the Dayforce Wallet. And if you come to INSIGHTS or if you attend INSIGHTS, well, we have a number of videos of people who are using the wallet talking about their experience. And we also have the HR people and the payroll people also talking about their testimonies. So we're very, very pleased with the experience that people are having from the wallet; and that was one of the reasons that we built the wallet. We saw a obvious way to improve the employee experience when it came to payments. And from our perspective, we question the construct of a pay period. To us, it seems like an antiquated construct from 1940s technology on that.

Mark Marcon:

Great. And then one last one, if I may. Are you seeing any sort of change in terms of competitive dynamics with regards to obviously on the workforce management Kronos is going through a lot. If we think about your key competitors ADP and Ultimate, as it relates to HCM, they're both going through multiple steps, obviously UKG having consolidated. Any sort of change in terms of those competitive dynamics in terms of impacting your win rates?

Jeremy Johnson:

Next question comes from the line of Raimo Lenschow at Barclays.

David Ossip:

A lot of our global growth at the moment is really coming out of the countries where we have native payroll. And so in terms of the U.K., we're still seeing a very robust pipeline and a lot of sales activity. And we were very pleased with the traction that we got in Q3 and Q2 in the U.K. The same is true across ANZ, where we have a Dayforce native product. And as I mentioned, we're seeing a positive impact from the APJ. We've, I believe, completed the Dayforce Connected Pay integration with the Excelity components, so I think we're okay from that perspective. Germany, we've been successful, but remember we're not going to launch native payroll for Germany until next year. So I think we're somewhat fine from that perspective.

David Ossip:

Yes. Look, the product is truly differentiated in market. And it is a very big market. And remember the whole design of the application was can we identify batch-based workflows that shouldn't exist in -- with today's technology. And can we solve them elegantly? And if you do that, it doesn't matter if you're a 500-employee company or a 50,000-employee company. You're going to get tremendous efficiency improvements. And those efficiency improvements, by the way, if you're a user of the system, means you're taking frustration out of the user experience of having to wait for batch-based processes or duplicate data entry or, as I mentioned with the other on-demand pay [ products ], unnecessary reconciliation. For example, if you use one of our competitors' time products with a different pay product, you have what they call reconciliation Fridays. We don't have any of that. So yes, there's very strong kind of demand for a system like ours regardless of segment. For us, it really comes down to where do we get an ROI and what the unit economics are given that we still are trying to improve EBITDA as we go forward.

Matthew Pfau:

Just a quick one in terms of the competitive environment now that one of your competitors has merged. Just wondering if you've seen any change there. Any change competitively, product-wise or perhaps in terms of sales turnover that has impacted you guys at all?

Jeremy Johnson:

Next question comes from the line of Yao Chew at Crédit Suisse.

David Ossip:

That's actually a great question, and thank you for asking. It's something that we debate internally all the time, that we know that we have about a 3%, 4% market share in major markets and much less than that in terms of enterprise and global. And so just staying true to our current growth strategies, which again are acquiring new customers, going back to the custom base and selling them additional modules, moving into the enterprise space, extending into global where we have native payroll and we have the Excelity APJ pieces and then going into adjunct markets like the Dayforce Wallet. Just by focusing on those 5 avenues, we can still drive tremendous growth. Sometimes, we do come across opportunities like Excelity or like RITEQ that allow us to accelerate our entrance into an emerging market, but for each of those, we have to look at it as to what else we have to give up because we don't have unlimited budget to build everything that we would like to do, increase sales and marketing expenses where we can get proper returns and do the necessary integration fees. And that's the discussions that we have internally over time.

David Ossip:

Yes. So let me just give a true kind of a -- put a proper box around this. This is in relation to Canadian Powerpay payroll customers who use Dayforce Workforce Management. So they are predominantly a Powerpay customer, typically with very few employees. And because they need time and attendance capabilities, which isn't in the Powerpay product, they use the Dayforce Workforce Management. It's those customers that we're talking about. These are the customers that were impacted most by COVID. So you're talking about the mom-and-pop shops, the very small kind of hospitality, retail outlets that simply did not survive COVID.

Scott Fletcher:

Sorry. I was on mute for a second. I actually -- being close to the end of the list here, I think I've had all my questions covered off, so I'm okay. Thank you.

Jeremy Johnson:

We have no other questions in the queue, and that concludes the call for today. Thank you, everyone, for joining our third quarter 2020 earnings call. We look forward to talking to you soon.

David Ossip:

Thanks, Jeremy. Good evening, everyone, and thank you for joining our earnings call. I hope everyone is staying healthy and safe during this time of uncertainty.

Michael Berg:

This is Michael Berg on for Siti. Congrats on a great quarter. I wanted to ask real quick. I saw you had some nice new additions this quarter, actually increased from Q1. And you mentioned that Q3 is -- correct me if I'm wrong, is on pace for a record new bookings quarter. So how can we expect in terms of net new additions trending from here on for the rest of the year? Is it going to be close to the pre-COVID levels of 150 to 200 new adds? And what are the size of those new customers? Are they larger or increased revenues? Looking at your 13% increase in Dayforce revenue per customer in trailing 12 months, I'm wondering if that applies to your new customers as well.

David Ossip:

As I pointed out, our shift to digital marketing has worked very well for us. We've seen attendance at our virtual summits go up 2x year-over-year. As I mentioned, we're very confident on Q3, and we expect Q3 sales to be in line with our targets that we set at the beginning of the year before COVID began. So there's obviously been an acceleration of sales pipeline and momentum with inside the business. I would say that we're doing quite well competitively.

Bryan Bergin:

I wanted to ask about implementation pace. So can you give us a sense how the pace of the pipeline and the signings is converting to implementation in live clients? Curious if you're seeing any material deferrals by some signed clients. And really just how the behavior has changed from, let's say, April, May to kind of July?

Bryan Bergin:

Okay. And then as far as retention, can you just give us some color there? Are you seeing any notable changes in enterprises that are going away? Or has it been still relatively sticky there?

Operator:

[Operator Instructions] And there are no questions in queue. And thank you for joining today's presentation. You may now disconnect.

Jeremy Johnson:

Thank you, and good evening. On the call today, we have Ceridian's CEO, David Ossip; and CFO, Arthur Gitajn.

David Ossip:

Thanks, Jeremy. Good evening, everyone, and thank you for joining our earnings call. I hope everyone is staying healthy and safe during this time of uncertainty.

Operator:

[Operator Instructions] The first question comes from the line of Daniel Jester with Citi.

David Ossip:

So thanks for the -- Daniel, thanks for the question. Look, in Q1, we saw, obviously, very strong Dayforce revenue growth. As mentioned, Dayforce recurring grew by 30.4% on a constant currency ex-float basis. The Dayforce total revenue grew by 31.9%, ex-float and on a constant currency basis.

Daniel Jester:

Great. And then on the acquisition that you announced today, those are a lot of countries. Beyond sort of the few countries that you talked about building native payroll for, how do you see this transition happening? And then you've got both the acquisition you made last year and this new acquisition. Can you just frame how we should be thinking about how this could -- the moving pieces over the next year or 2 for all these different countries you're moving into?

Operator:

The next question comes from the line of Mark Marcon with Robert Baird.

David Ossip:

Thanks a lot, Mark. So I'm going to break it up into Dayforce and into Powerpay separately. Just as a reminder, Powerpay accounts for a little bit less than 10% of total revenue.

David Ossip:

So again, very early days, given that we just took live the first customer, Danone, on April 9. We spent effectively the first quarter getting ready for launch, and that's not only the product with all of the marketing, assets and implementation assets as well. We have a backlog of clients that are waiting now to go live with wallet. We waited really until the 1st of April because of some of the quarter end processes we wanted to get through. And then there was a slight delay in getting the apps published on the Google App Store and on the Apple App Store, but the application can now be downloaded in the U.S. on both of those.

Operator:

The next question comes from the line of Raimo Lenschow with Barclays.

David Ossip:

I'm sorry, Raimo. Are you asking what percentage of employees we have in a certain industry? Or...what exactly are you asking?

David Ossip:

I'm still -- I'm not following. So what exactly is the question?

David Ossip:

So mostly, the pipeline obviously has shifted. So it's not going to be reflective of historical sales. We obviously are spending much more effort now in developing pipeline in what we term surge industries. And we're still seeing growth in many of those industries. When it comes to the actual historical, Jeremy can correct me, but I believe probably about 14%. Is that correct, Jeremy, of the employee base would be in kind of I'll call it, retail or hospitality that would be impacted by COVID. We do have a larger footprint in retail, but those would be in groceries and such, some fast food that haven't already been impacted. Even across the retail group, we haven't seen massive layoffs. We've seen furloughed employees. And as you know, we do get paid for those furloughed employees.

David Ossip:

Sure. The way we do the float is we effectively break it up between a core portfolio and a liquidity portfolio. In the liquidity portfolio, we basically keep the money in overnight. And in the core portfolio, we obviously use a laddering strategy. So you're typically, an average life of about 2.5 to 3 years. The -- just the impact of the change in the Fed rate, as you know, has gone down by about 150 basis points, about 25 basis points. On a full year basis, that's an $18 million headwind for us. We aren't -- obviously, we can't do much changes between how we do the investments as the trust funds are AAA-rated. That's the point system that we have to use investment side. So that effectively determines what percent of your government and what types of corps we're allowed to invest in.

Robert Simmons:

This is Robert Simmons on for Alex. Can you give us some color around how your bookings trended from mid-March through now either compared to planned or on a year-over-year basis?

Robert Simmons:

Got it. And then can you talk about what you're seeing in the competitive landscape? Are you seeing anything unusual to call out from competitors, you being more aggressive on price, considering how they do the market , like that?

Operator:

The next question comes from the line of Samad Samana with Jefferies.

David Ossip:

Sure. One -- in current contracts, there is no minimum. We charge on the number of active and inactive employees, typically on the 15th of the month. And we charge 1 month in advance. So we are making some changes to contracting going forward, to provide a minimum, which is obviously a percentage of the employees at time of contracting.

David Ossip:

Again, the strategy on Bureau hasn't changed. As you know, we aggressively are now trying to end of life the Bureau products with the exception of the tax. Tax is probably about a $50 million business of the remaining Bureau. Every quarter, we move around about $5 million from Bureau to Dayforce, and then there's probably an equal amount that just goes away as we don't really have a home for it in the Dayforce type of world. There hasn't been any change to each of the pace of approaching customers or the pace of us end of lifing. But as we mentioned prior, by the end of the year, we already expect the aggregate business to be -- and Jeremy can kind of provide updates, but probably under $100 million.

Samad Samana:

Okay, great. And we appreciate the 2Q guidance and how resilient the business is.

Joshua Reilly:

This is Josh on for Scott. Do you anticipate any impact to your partner strategy upmarket from COVID-19 given that was just getting launched for new business in 2021? Or do these relationships remain on track?

Joshua Reilly:

Okay, great. And then just a follow-up. Do you expect any delayed impact to business trends in Canada, given that they implemented social distancing after the United States, which has implications for their curve of infection rate?

Bryan Bergin:

Hope you're all doing well. I wanted to ask on implementations. Can you give us a sense of the mix of customers that might be delaying implementations here? And then any difference in the behavior of the clients that have already started implementations as far as pauses or whether most are still moving forward?

David Ossip:

Yes, yes. So let me just add another step that I actually mentioned before. 88% of Dayforce employees are at customers above 500 employees. The vast majority of Dayforce accounts really would be in major markets or in enterprise. I haven't really seen a material difference between behaviors between major markets and enterprise. Now that may be because we have moved upmarket quite significantly over the last year. And you see that in some of the numbers we spoke about in the stockholder letter. For instance, the incremental revenue per Dayforce account increased 63% to $213,196 from $130,998 a year before. So most of our -- obviously, a larger proportion of our customers will be towards the upper end of major markets in the enterprise side.

David Ossip:

No, not really at all as far as I can see.

Matthew Coss:

This is Matt Coss on behalf of Mark Murphy. David, you said that furloughing of employees seems to have stabilized, and some have even come back. What is your sense for how many furloughed employees might eventually come back -- or excuse me, terminated employees might eventually return to a full-time position based on conversations with your customers?

Matthew Coss:

Okay. And you also mentioned the sales cycle had extended in some cases. And are those cases mostly in the heavily impacted industry? And if the sales cycle are extending, are they sort of -- are some of these deals off the table? Or are they just going to come later? What is your sense for how many will ultimately return to you?

Operator:

The next question comes from the line of Stephanie Price with CIBC.

David Ossip:

Great question. So we were quite proactive in this. So very early on in COVID, we made some enhancements to the Dayforce product. The first was we added a COVID tracker, which effectively allows employees to register which offices they've been to. And then if there is a suspected case of COVID or positive case of COVID, our system can generate a list of people who may have come into contact with the person. And we also enhanced the messaging engine to make it easy to be broadcast via SMS or personal e-mail, so that people could get notified in a very efficient manner.

David Ossip:

We're quite laser-focused when we try to do these things. We have started to work on Excelity in 2019. And yes, COVID obviously did have some impact to timing, but I can't say that I've actually seen any real change in M&A activity in the marketplace.

Yaoxian Chew:

This is Yao Chew on for Brad Zelnick. I hope everyone is staying safe. Just wanted to dive a bit more into the go-to-market strategy and sort of a 2-part question within this. I was glad that you -- seeing how you managed to adapt to the virtual go-to-market motion with the seminars and summit, but there's always a lot of steps between the top of funnel, between website traffic and qualified leads and final implementation. It's new to everyone involved here. I guess, can you point out where the bottlenecks are, if there are any major ones to call out, and how receptive customers are to this approach? And on that, does this change any longer-term views on traditional go-to-market given the new resources and ROI or effectiveness that you may be seeing here?

Keith Bachman:

I had 2 questions. The first is, when you mentioned the competitive landscape, I wanted to ask about pricing in really, in 2 dimensions. Are you seeing any changes in price discovery when there's new work to be done and/or new bids out there, I meant, and/or are you seeing any customers coming back and asking for price relief, particularly in the most affected industries? So are you seeing any broad primers or any kind of changes in pricing?

David Ossip:

Well, we're doing the rollout obviously of stuff now. And as much of this stuff is obviously, are going to be activated in the second half of the year, I think that will be a fair statement. I don't think that we'll see a material impact from revenue in 2020. As we get more experience with the product, as we mentioned inside the stockholder letter, we will share that with everyone, so people can start to model. And we'll start to talk more about the business as we have for information about it.

David Ossip:

Thank you, everyone.

David Ossip:

Thanks, Jeremy. Good evening, everyone, and thank you for joining our earnings call. We are very pleased with the results from the fourth quarter of 2019.

Arthur Gitajn:

Thank you, David, and good evening, everyone. I'm going to take a few minutes to talk about our fourth quarter 2019 financial results then I'm going to provide some highlights on our full year 2019 financial results. And finally, I'll provide guidance for the first quarter of 2020 and the full year.

Operator:

[Operator Instructions] Your first question comes from the line of Nandan Amladi with Guggenheim Partners.

David Ossip:

Well, as you can see, if you look at the amount that we've migrated from the Bureau to the Cloud has been rather constant on a dollar basis over the last 4 quarters and you'll see that continue into 2020, all right. If we look at the -- the guidance we've given for Bureau about $102 million, $103 million, with the insight that, remember, half of that is a stand-alone Cloud business, there's a small business payroll product, which is in there for between, say, $10 million and $20 million and then there are the remaining Bureau business, which accounts for the delta. So the reality is that there isn't that much left in the payroll Bureau business. And from a compliance perspective and from a maintenance perspective, it does make sense to have the aggressive end-of-life strategy.

David Ossip:

So the average size of the global accounts is probably a little bit larger than on average than what we see in North America. If we look at the global business, we're obviously very happy. We've seen the growth of that business grow by 150% year-over-year.

Operator:

Your next question comes from the line of Samad Samana with Jefferies.

David Ossip:

Sure. So let's just look at the overall Dayforce business. On an ex float business, Dayforce total revenue accelerated to 37.5%. In the quarter, obviously, up quite dramatically from the 23.2% the year before. If we look at the Dayforce recurring on the ex float basis, a year ago, we were 31.1% and in Q4 of '19, we came in at 32.4%. So an acceleration year-over-year.

Samad Samana:

Great. That's helpful. And then maybe just switching gears a little bit, mentioning -- expanding hundreds of customers on the on-demand pay side, it sounds like the company is quite excited about that. How should we think about that eventually impacting the revenue results? And what expectations have you already embedded into your guidance?

Daniel Jester:

Great. Maybe just a couple of quick ones for me. First, with regards to 2020 guidance, would you be able to share kind of what your expectations are for revenues from the Canadian government contract? And how we should be thinking about the cadence there, kind of any updates from the fall?

David Ossip:

Sure. On the Canadian government, it's still too early to tell. As a process perspective, the team is in Ottawa this week doing the final oral presentations, and we'd expect that the government will make a decision on the first half assignment shortly. That, I believe, will be followed by several other task requirements that the government will put out to bid to the 3 qualified vendors, which includes us.

Operator:

Your next question comes from the line of Siti Panigrahi with Mizuho.

David Ossip:

So overall, you can see that the average size of the customer has increased quite significantly year-over-year. If I look at the enterprise segment, specifically, the average deal size went up by about 100% year-over-year. In the quarter, we had some significant wins that aren't reflected yet in the revenue numbers. We signed a Tier 1 consulting company with over 60,000 employees. We signed a well-known quick-service restaurant with over 2,400 locations and about 140,000 employees. We signed a number of players in the amusement park industry. One of them with about 50,000 employees in total. So we've obviously done tremendously well in terms of moving up into the market.

Operator:

Your next question comes from the line of Mark Marcon with Baird.

David Ossip:

So as I mentioned earlier, Dayforce Wallet, which obviously will come into the growth revenue number in 2021. 2020 is largely the investment year. I mentioned that we are investing about an additional $9 million versus last year in the Dayforce Wallet without really seeing the benefits from the Dayforce Wallet in 2020. That begins to reverse in 2021. So you should see the EBITDA margins improving once again as we go into future years.

Mark Marcon:

Great. And then with regards to the time line on the end-of-life strategy for Bureau, can you just give us a little bit more color there?

Jeremy Johnson:

A quarter.

Mark Marcon:

Got it. And then you mentioned a number of really impressive wins. Can you talk about who those wins came from? And is there any change in terms of the composition of who you're going up against as you look towards future opportunities?

Jeremy Johnson:

I don't know. No, no.

Operator:

Your next question comes from the line of Drew Kootman with Cantor Fitzgerald.

David Ossip:

Well, if we look at it from the total potential, as you know, we move around $300 billion of payroll funds a year, about half of that, say, $150 billion is paid out in net earnings to the employees. As we've discussed previously, we expect to make about 0.8% on all spend on the wallet. So at 100% penetration, you're looking at potentially about $1.2 billion of really top line and bottom line. And obviously, it will take a lot of time to increase the penetration, and we won't reach 100%. But for every 10% penetration, we guess, it's worth about $100 million of revenue.

Drew Kootman:

Perfect. And then just looking at the professional services gross margin. I know that was positive and you guys talked about that. But I know you guys were looking for it to be flattish moving forward. But just curious what your thoughts are around that moving forward now?

Scott Berg:

Congrats on a strong sales quarter. David, I was just hoping that you could dig into your comments on the sales, the record value of new sales in the quarter a little bit. Was that driven by you selling to larger customers with more seats? Or do you think it's driven more by adoption of incremental modules now that you've released a lot -- several of them over the last 2 or 3 years?

David Ossip:

It's right across the gamut. We're seeing a relatively large organizations, the small organizations showing a lot of interest. And we're also seeing a uptick across the hourly salary, part-time market as well. I have spoken about this beforehand but in all the studies I've seen publicly in the studies that we've done internally shows that there is -- about 80% of all people really have struggled to bridge their finances, paycheck-to-paycheck and it doesn't really come from being a salaried individual hourly or part timer, it's generally a common pain point across all employees.

Raimo Lenschow:

A question on the -- you had a couple of very large wins in the international markets like the U.K., like the big coffee chain, et cetera. How are the implementations going there and the go-lives going there? And what does it mean for kind of the next customers? Because I'm sure a lot of people will look for what's going on there. And then the one question I got from a lot of people on the call was around, like, lower number of customer adds in Q4. In a way, can I see that -- can I say what you just answered that you have like big and bigger customers, basically also that there will be slower customer additions than in the past?

Matthew Coss:

This is Matt Coss on behalf of Mark Murphy. As you build out native payroll for Germany and Mexico and Mauritius, do you expect this to require a similar length of time and dollar investment compared to prior native payroll build-outs? Or is there some savings or learnings that you can leverage as you build out for these countries?

Matthew Coss:

Okay. That's helpful. And on the professional services side, again, kudos on the growth in the pro services gross margins. Is there sort of a ceiling that we can expect or a steady state for pro services gross margin going forward, roughly?

Operator:

Your next question comes from the line of Matt Pfau with William Blair.

David Ossip:

We're pleased with the progress of the RITEQ acquisition. Remember, the RITEQ acquisition had a large component of acquiring very talented people who were expert on workforce management. And we required that expertise to really continue growing our Australia and New Zealand business, with the Dayforce footprint. In -- going forward, the typical global acquisition that we would look for typically would have a payroll component, not only a workforce management component. So it's somewhat different to the RITEQ acquisition.

Brad Zelnick:

Congrats on all the success. David, just on international. Kronos recently mentioned about 35% international growth. They seem to be the only other HCM pure-play competitor of size that's pursuing the international strategy. Can you help us understand how their footprint and offering may differ from yours in international? And why your acquisition-led strategy is differentiated and who you're displacing?

David Ossip:

No, it will take some time to do that. And remember, with the RITEQ customers, their customers are workforce management only. So there's an upsell capability to move them onto the Dayforce platform. But we also are leveraging the RITEQ people, not only for implementation capacity in Australia and New Zealand, but also the R&D resources have been integrated into the Dayforce R&D team.

David Ossip:

Sure. So in the EBITDA guidance, there's probably an additional $25 million that we're investing this year above what we regularly would invest in the business. And if I were to break it out, which I've done on the call today is almost about $9 million of additional expense in the Dayforce Wallet. If I look at the government vertical, there's a little bit over an additional $1 million of R&D effort and investment that we've put into that.

Christopher Merwin:

So just a couple of questions. I guess, we come back to services for a bit. It was obviously, kind of the really healthy growth that you've seen there. I know you called out 606 as a driver. But as you bring on larger customers, is it fair to say they're paying significantly more for services? And as you continue to bring on those large customers in 2020, should we see pretty strong growth for that segment continuing in the year?

David Ossip:

Well, on the sales efficiency, sales and marketing is about 20%. In Q4, it's up about 160 basis points relative to Q4 of '18. That largely was because we had a record sales quarter, and it reflects the commissions that we paid out for those particular deals. I expect that we'll continue to be efficient on our sales and marketing going forward.

David Ossip:

Thanks, Jeremy. Good evening, everyone. And thank you for joining our earnings call. We are very pleased with the results from the third quarter of 2019. Dayforce momentum remains strong, with Dayforce recurring revenue growing by 33% both on a GAAP basis and on a constant currency basis. Total Dayforce revenue, including professional services and other, increased by 30% year-over-year on a GAAP basis and 31% on a constant currency basis. As we had expected, the revenue growth for both Dayforce recurring and Dayforce total revenue reaccelerated. Dayforce total revenue growth exceeded 30% for the first time since the third quarter of 2018. Including Powerpay, Cloud revenue grew by 26%, both on a GAAP basis and on a constant currency basis.

I would like to spend a few minutes recapping our successful customer conference INSIGHTS held in Las Vegas the week of October 21. The event was great, with over 2,900 attendees and over 60 customer presentations and over 150 sessions. We spoke about the importance of intelligent HCM and announced 3 new products, including Dayforce Intelligence, which combines data with predictive technologies to identify and measure key metrics for each HCM process:

Dayforce Hub, which allows customers to tailor the Dayforce experience with their branding and content through configurable wages and style; and the Dayforce Wallet, which leverages our continuous calculation differentiation and processes the same-day payroll each time a worker request their pay, and allowing employees to access their earned wages before their normal payroll debt.

Samad Samana:

Great. So I guess, first, David, if I could. On the Canada contract, I know on the heels of that, the company announced a new public sector team. I was wondering if you could give us an update on how that vertical is doing and maybe if you're drawing more interest from the public sector, given that you're involved in this Canada contract.

Samad Samana:

Great. And then maybe if I could just ask a follow-up question. In terms of the acceleration, it seems like the company is executing on that. I know it's too early to start thinking about 2020, but you announced a number of large logos this quarter that you won, and we're seeing larger and larger customers go live. How should we think about that acceleration in 4Q and then into 2020?

Operator:

And your next question comes from the line of Mark Marcon with Baird.

David Ossip:

Sure. So first of all, the number was 163, not 167, and that is the accounts that we activated in the quarter, not the accounts that we sold in the quarter. The composition of those accounts would be quite typical for what we usually would expect across different verticals. In terms of the competitors or the systems that we're replacing, it hasn't changed. About half the time, it would be a direct competitor. And the other half of the time, it will be more legacy systems, whether they'd be homegrown or more antiquated types of technology that may not be in service.

Mark Marcon:

Great. And then at your conference, you talked more about the Wallet and on-demand pay capabilities. Wondering if you can talk a little bit about what the feedback was to you from some of the bigger clients in terms of their interest there.

Mark Marcon:

Really, that's great. And then can you talk just a little bit about the isolated incident? It's detailed in the queue, but just what was the underlying nature? And do you expect to recoup the funds?

Arthur Gitajn:

Yes. So we had an isolated incident on Thursday, September 26. It resulted in duplicate payments for a portion of our U.S. payroll customers. We identified the issue. We corrected the underlying problem. The incident didn't create any financial exposure for any of our customers. With respect to the charge, rather than speculate about how much more we may recover, we booked a loss for the -- in the full amount of the remaining $12.6 million, but we do expect additional recoveries in Q4. And again, we'll adjust those from adjusted EBITDA. And to the extent they're material, we'll identify them and their impact on operating results.

Arthur Gitajn:

Isolated incidents and fully remediated.

Arthur Gitajn:

Thank you.

Daniel Jester:

So just on the international expansion, you talked about this, the aspiration to get to 20 countries over the next couple of years. Can you talk about some of the characteristics of the market that you would be looking at? I mean, obviously, you're in some today. But how should we think about layering that in over the next couple of years?

Daniel Jester:

Great. That's really helpful context. And then on the announcements that you made, the enhancements for -- in Canada for the Powerpay application. I think you've said in the past that you were hoping to -- or at least aspiring to reaccelerate growth in that particular business up towards maybe the high single digits over time. Are these enhancements enough to get you there? Or should we be expecting more in the future there?

Operator:

[Operator Instructions] Our next question comes from Mark Murphy with JPMorgan.

David Ossip:

So a few things on this. Very similar to global, when we designed the Dayforce platform, we built it in a way that we could scale to very large workforces. So highly scalable raw engine, very efficient data structures the differentiation that we see in what we call the enterprise segment, this would be with accounts that are greater than 10,000 employees, is the continuous calculation engine where every time a time sheet, HR record changes, we are able to recalculate the net earnings. The larger the customer, the more valuable that is because it gives them much more time to verify that the payroll data is correct.

Matthew Coss:

Helpful. And then maybe one for Arthur. Can you share your latest thoughts about the steady state of revenue from the Bureau business? I mean that's been declining roughly in the high teens and low 20s on a consistent basis. Any change to that decline?

Matthew Coss:

Okay. But no drastic changes expected in that and how it's been contributing...

Operator:

And our next question comes from the line of Nandan Amladi with Guggenheim Partners.

Arthur Gitajn:

Well, again, we're not forecasting 2020 right now. But I mean part of the effort to engage third parties is to have a more profitable professional services and implementation function.

David Ossip:

I think you'll see a combination. Remember, even when we do an acquisition, we're not acquiring for technology. So the playbook over there is very similar to what we did with Ceridian. We would do a stop sell almost immediately. We would stop any new development on their products, put it into more of a maintenance mode. Over a 3- to 5-year period, we would look at migrating the customer base onto Dayforce. And we would use their knowledge, their people to help build out the user stories and have the Dayforce developers, obviously, build out the rule engine to handle those user stories very quickly and then to enter the market with proper momentum using -- leveraging the distribution network and such.

Matthew Pfau:

I wanted to ask on the U.K. and Australia markets. And now that you've been in them for several quarters, just wondering, how would you characterize the competitiveness of those markets for payroll relative to the U.S.? And then what are you seeing in terms of win rates in those markets versus the U.S.?

Matthew Pfau:

Got it. And is there any sort of investments or I guess time that it takes to maybe gain some brand awareness in those markets since you're -- with the Ceridian brand name, you're probably better known in North America than in some of these newer markets?

Operator:

And your next question comes from Scott Berg with Needham

David Ossip:

If I look at our market penetration in the U.S., I would think that we probably have less than a 5% market share today. I think our technology has -- most, I think, of the investors and the banks have verified is quite differentiated, both in the end-to-end feature set as well as the continuous calculation. I would argue that we probably are 5 to 10 years ahead of the 2 other competitors in this space, and we've now proven out that we have a very robust and scalable solution with over 4,000 customers live on the actual product. The number of customers that we're taking live has obviously accelerated slightly in the size of the customers, as you can see, with some of the health care and retail wins that we discussed have obviously gone up.

Scott Berg:

Quite helpful there. And then from a follow-up perspective, Arthur, how should we think about Dayforce gross margins kind of trending or tracking from an intermediate term perspective, multiyear trend? You've had obviously a nice jump year-over-year, but Dayforce revenues already make up a substantial portion of total revenues? Just trying to understand maybe what that trajectory can actually look like from the current high level.

Operator:

[Operator Instructions] And our next question comes from Siti Panigrahi with Mizuho.

David Ossip:

Sure. We don't report on international revenue as a percentage of overall revenue. But what I have said and we believe it to be true is that in 2019, most of the growth would come from our further penetration in major markets. In 2020, you'll see the impact in the -- our success in the enterprise market, and we believe that you'll see an impact from the global expansion in 2021 and beyond.

David Ossip:

Sure. So the way that we differentiate with the Dayforce Wallet and the Dayforce card is that each time an employee loads the Dayforce card, we do a same-day payroll for that employee, which means we did the submissions of all the necessary remittances immediately. And so we have a fully compliant solution. From a go-to-market perspective, we've been able to take it out in a way that we don't have to charge the customer an additional PEPM to offer it to their employees, and we don't change the way that they do their funding. They still fund at the end of the actual payroll cycle. And from an employee perspective, in the U.S., we don't have any direct fees for the employee either. So we believe with that, we should see very quick adoption of the product.

Operator:

And our next question comes from Raimo Lenschow with Barclays.

David Ossip:

Look, Raimo, I think it makes tremendous sense. We know that almost 80% of all people out there live paycheck to paycheck. We also know that when we do surveying of people, especially the younger generations, over 50% of them want to get paid much more frequently than they currently are. And the reason for that is it helps them on financial flexibility. I would -- I believe that within a period of time, I don't know if it's 5 years or 10 years, that this will obviously become the norm and the expectation of all people who work for companies. From our perspective, when you've completed a day of work, you've earned that money, it's yours. The continuous calculation allows us to calculate the net earnings for the employee, and our back office has the sophistication that we can do the same-day remittances and the money movement. So there's no technical reason why you can't offer this benefit to workers today.

David Ossip:

Well, there's continuous and then there's doing it properly. In order to do continuous calculations, you have to have a very robust time and attendance engine, and that means that you can do sophisticated calculations like retroactive adjustments. So if you make a change backwards in time during the calculation and determining the amount of money that you have to top the employer, if you change a time code from paid to unpaid or unpaid to paid, you have to recalculate that. You have to have the benefit side and the HR side working as well because it's not just time records that can lead to a change in the current period. And to do that requires a design from the very beginning that you're going to do that type of calculation. So for the others to do that, I think they would have to first build very robust time and attendance, which, as you know, there aren't many vendors out there that offer the same type of functionality that we do on the workforce management side. They would have to do the proper benefit, benefit eligibility, types of calculations that you'd have to do as well, build out the full HR module and then also build out their payroll engine. And even if they do that, they then have to develop the back end to do the tax calculations and the various remittances for the tens of thousands jurisdictions that are out there. So I think it's quite complicated to do, and I think it would take a long time for people to do it as well.