Dayforce Inc (DAY) Q1 2024 Earnings Call Transcript Highlights: Robust Growth and Strategic Advances

• Dayforce Recurring Revenue: $337 million, up 24% year-over-year.

• Total Revenue: $431.5 million, increased by 16%.

• GAAP Gross Profit: $205 million, up 28% from last year.

• Cloud Recurring Gross Margin: 79%, up 170 basis points versus last year.

• Adjusted Cloud Recurring Gross Margin: 80%, up 130 basis points versus last year.

• Adjusted EBITDA: $130 million, up 23%, with a margin of 30.1%.

• Operating Cash Flows: $9.1 million in Q1, slightly lower due to timing of receivables.

• Full Year Dayforce Recurring Revenue Forecast: $1.163 billion to $1.168 billion.

• Full Year Total Revenue Forecast: $1.73 billion to $1.74 billion.

• Full Year Adjusted EBITDA Forecast: $484 million to $499 million.

• Q2 Dayforce Recurring Revenue Forecast: $276 million to $279 million.

• Q2 Total Revenue Forecast: $414 million to $419 million.

• Q2 Adjusted EBITDA Forecast: $108 million to $113 million.

• Warning! GuruFocus has detected 5 Warning Signs with DAY.

Release Date: May 01, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Dayforce Inc reported strong revenue and profit growth, with Dayforce recurring revenue up 24% and total revenue increasing by 16%.

• The company exceeded guidance across all key revenue and profitability metrics, demonstrating robust financial performance.

• Adjusted EBITDA increased by 23%, with a margin expansion of 170 basis points, reflecting improved profitability.

• Dayforce Inc is well-positioned in the growing HCM market, estimated at $50 billion to $60 billion, expanding over 10% annually.

• Product innovation, particularly with AI capabilities through Dayforce Co-Pilot, is enhancing productivity and offering competitive advantages to customers.

Negative Points

• The company noted risks and uncertainties that could cause results to differ materially from expectations, highlighting potential volatility.

• Operating cash flows were lower by $2 million compared to last year, primarily due to higher trade receivables caused by timing issues related to a brand name change.

• While the company is transitioning to an SI-led ecosystem, this shift requires careful management to ensure continued service quality and revenue growth.

• There are challenges in maintaining growth in the Powerpay segment, as employment levels in Canada were not as strong as expected.

• The company faces intense competition in both mid-market and enterprise segments, necessitating continuous innovation and customer acquisition efforts.

Q & A Highlights

Q: What are the next milestones for the Government of Canada's payroll modernization project, and what should we monitor given the budget increase? A: (Stephen H. Holdridge, President of Customer & Revenue Operations) The budget increase is a positive sign of continued commitment and investment in the payroll modernization project. It's a long-term program expected to start showing significant progress by early 2025, focusing initially on implementation and services work.

Q: Can you provide details on the pricing and early customer feedback for Dayforce Co-Pilot? A: (Joseph B. Korngiebel, Executive VP and Chief Product & Technology Officer) Dayforce Co-Pilot is priced as a simple add-on to any HCM product suite, designed to enhance productivity by providing instant answers and reducing workload for HR staff. Early feedback has been positive, indicating strong interest and potential for significant impact on efficiency.

Q: How is the transition from professional services to SI-led sales progressing, and what is the future strategy for this transition? A: (Stephen H. Holdridge, President of Customer & Revenue Operations) The transition to an SI-led ecosystem is progressing well, with SI-led sales growing 35% year-over-year. The strategy includes expanding partnerships with global and regional SIs and focusing Dayforce services on supporting new and emerging products.

Q: What are the implications of the unexpected float revenue, and how will it be managed? A: (Jeremy Johnson, Executive VP & CFO) The additional float revenue provides an opportunity to balance investment in growth and product development with achieving margin targets and free cash flow goals. The approach will be balanced, considering the significant growth opportunities available.

Q: How does Dayforce Inc. view the current labor market conditions, and what impact do they have on the business? A: (David D. Ossip, Chairman & CEO) Employment levels are slightly ahead of expectations, and the focus on automation and efficiency continues to resonate with customers. The robust pipeline and healthy employment rates contribute to a durable growth profile for Dayforce.

Q: Can you discuss the growth dynamics between the mid-market and enterprise segments? A: (Stephen H. Holdridge, President of Customer & Revenue Operations) Both segments are experiencing growth, with mid-market seeing improved win rates due to increased sales coverage and go-to-market focus. The enterprise segment continues to expand, driven by the comprehensive capabilities of the Dayforce suite.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.