Q4 2019 Earnings Call
And welcome to the Ceridian fourth quarter in full year 2019 earnings conference call.
At this time, all participants are in listen only mode.
A question and answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
I'd now like to turn the conference over to your host Jeremy Johnson, Vice President Finance and Investor Relations at Ceridian.
Thank you Sir please begin.
Thank you and good evening.
On the call today, we have ceridian CEO David.
For the time.
Before we begin allow me to provide a disclaimer regarding forward looking statements.
This call, including acuity portion may include forward looking statements about our current and future outlook guidance plans expectations and intentions results levels of activities performance goals are achievements for any other future events or developments.
These statements are based on management's reasonable assumptions and beliefs in light of information currently available to us.
Listeners are cautioned not to place undue reliance on such statements.
Each forward looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those set forth in such statements.
We refer you to our previous filings with the FCC for information regarding the significant assumptions underlying forward looking statements and certain risks and other factors that could affect or future performance and ability to deliver on these statements.
We undertake no obligation to update or to revise any forward looking statements made on this call except as maybe required by law.
Our current report on form 8-K contains our fourth quarter and full year earnings release.
Form 8-K will be available in the Fccs Edgar database in the U.S. and the Cedar database in Canada as well as on Saturday in Investor Relations website investors, that's ready in Dot com.
As a reminder, all figures discussed on this conference call or and U.S. dollars, unless otherwise noted and with that I will turn the call over to David.
Thanks, Jeremy Good evening, everyone and thank you put joining arnie cool.
We're very pleased with the results from the fourth quarter 2019.
In the border.
We set new records for the body old news sales and for the value of custom uptake in line.
They hold turtle revenue grew 35% 259 million.
76% on a constant currency basis.
And it clearly you plug revenue.
Hey, Paul title revenue grew even faster.
38% on both a GAAP basis and on a constant currency basis.
On the gables recurring revenue side, we saw increases all 30% on both the GAAP basis and on a constant currency basis.
I think city block revenue Staples recurring revenue increased by 32% on a GAAP basis, and 33% on a constant currency basis.
We ended the quarter with.
2363 day pools customers' lives.
Global active users were up 26% to 3.9 million.
Baroni do we have more dayforce customers lie.
So were 12% increase in the average revenue per day pools customer she more than $131000 per customer.
This increase was driven by success in our enterprise major markets and global segments.
And add on sale to already lifetime.
The average deal size of a new say on 2019 grew by 24% driven by enterprise, where the average deal size grew by 100% any global sales, primarily UK and Australia, we sold growth of more than 150% compared to 2018.
In addition.
Approximately 23% lost sales you're in 2019 were sales of additional functionality to it the same Kelly.
Successful product launches include all benefit decision support module.
Any management.
And that's a decision support has been soldier over 180 customers.
Good day Bolzoni management help me sold two or 330 customers.
From a profitability standpoint, we're very pleased to cloud recurring services gross margin expanded 280 basis points here are the yet you 68.8%.
And professional services another gross margin was positive.
Improving from a negative 10.6% in the fourth quarter of 2018.
There are 5.9%.
In the fourth quarter.
Adjusted EBITDA was 44.4 million.
An increase of 6.2% compared to last year.
Moving onto product development.
Oh, that's me product development during the fourth quarter, including research and development expense and capitalized software development.
18.6 million.
Going forward the central revenue.
Increased 33% compared to the fourth quarter off 2018.
As previously discussed we've generated staples growth investments throughout 2019, and we'll continue to do so in Twentytwenty.
The original reinvestment included.
Hey, both wanted.
Which will begin initial customer implementation shortly and we expect you have several hundred customers live by year end.
Another area of investment is the expanding Brett Papadopoulos offering.
With me modules, such as employee engagement and old surveys.
But intelligent and Dave will Uh huh.
We already have several customers like with engagement survey and expect strong traction across to find this.
And the final everyone investment is building additional nantero engines for global markets.
We currently have nature, they're all in six countries, including the U.S.
The UK, Ireland, Australia, and New Zealand.
We are now building native payroll for Germany, Mexico Admirations.
But you have made apparel play the 20 countries in a few years.
In addition, we haven't now well off seven global apparel partner, who provide us with coverage in 157 countries.
Moving onto sales and marketing.
Sales and marketing expenses during the fourth quarter were 44.4 million well, 20% So bremner <unk>.
8.6 million an increase of 24%.
This represents a continuation on investments to grow.
And it commissions from record sales in the fourth quarter.
In the fourth quarter, we constantly broke sales cycle.
No child left we signed the largest revenue deal in Dayforce history for approximately 63000, U.S. and Canadian employees other premium tier one consulting company that is maybe from a legacy on premise division today both.
In December we set another new record well the largest revenue deal in Dave will history. When we want a popular quick service restaurants with over 2400 location and about 140000 employees.
The company was using legacy and ground systems, and why didn't you enhances flexibility capabilities and efficiencies.
<unk> HR.
And payroll and talent with a single cloud platform for the entire HCM suite.
Hey, oppose will bring the company's T.H. him components into a single platform, while providing the flexibility to integrate with their other strategic system.
Additionally day portable consummate consolidate.
<unk> functionality will always restaurant locations, along the company to increase efficiency and improve engagement throughout its workforce by helping to maintain compliance and mitigate risk.
In addition to these two record wins.
We also have many other successes such as two large amusement park operations one in the U.S. with more than 50000 seasonal employees.
Other into you pay with more than 5500 employees.
A large manufacturer of integrated plastics with more than 7000 employees I health care management company with nearly 5000 employees and specialty food business with more than 5000 employees.
Before turning the corner, but you're also.
I wanted to start some personnel changes, we're making as we continue to optimize organizational structure to support the aggressive growth targets, we have dropped out of organization.
We promote to Chris on strong to lead our global customer office as Chief customer officer reporting job President and COO Leach are now.
In this capacity first we'll take on additional her responsibilities, including implementation professional services customer support office operations and customer relationships.
I'll now turn it over to augment to discuss our financial results and guidance with you in greater detail.
Thank you David and good evening everyone.
The next to take a few minutes to talk about fourth quarter 2019 financial results, but I'm going to provide some highlights one or couldn't do your 2009, chief financial results and finally I'll provide guidance for the first quarter 2020, and the full year.
Starting your fourth quarter 2019 financial results revenue for more flagship cloud HCM platform Dayforce increased by 41.5 million were 35.4% to 158.7 billion.
On a constant currency basis, Dayforce revenue increased 35.7%.
Revenue from power pay or plan to HR and payroll solution for the Canadian small business market.
Declined by eight tenths of 1% 25.5 million.
On a constant currency basis parallel pay revenue declined 1.5%.
Do you and your get Corey is primarily due to higher wood pellet pay revenue in the fourth quarter 2018, as we speak about last year food <unk> 2018, how would pay revenue benefited from the fact that December 31, 2018 was a Monday and a number of customers process.
The first 2019 payroll in 2018.
Club revenue, which includes they gave force in Palo pay increased by 41.3 million were 28.9% to 484.2 billion.
On a constant currency basis club revenue also increased 28.9%.
In total revenue, which includes revenue from base, a cloud and duration insurance increased by 27 million with 15.9% to 221.8 million and on a constant currency basis total revenue increased 15.8%.
Our guidance for 2019 assumed a U.S. dollar to Canadian dollar exchange rate of $1.30.
Canadian dollar weakened against the U.S. dollar duty vehicle and the average exchange rates for the core group Mr. Dollarsthirty two.
Even with the weaker Canadian dollar, which had the effect of reducing cloud revenue by 1.1 million.
Cloud revenue exceeded the high end about a 180 to one that was 83 million guidance range by 1.3 million.
And on a constant currency basis cloud revenue exceeded the high end aboard guidance range by two points field.
Total revenue exceeded the high end at or 260 to 219 million guidance range by 3.2 million and by 4.2 million on a constant currency basis, and adjusted EBITDA of 34.4 million came in right in the middle about 42.
47 million guidance range.
Club revenue in the fourth quarter was driven by 23.2% increased in cloud, we're calling services revenue and a 50.7% increase in cloud professional services and other revenue.
The 41.3 million increase in treating cloud revenue.
5.3 million with 13% was attributable to Buick customers migrating to dayforce, excluding the impact of migrations to date force revenue to Bureau solutions declined by 9 million were 17.3%, which was one of our expectations.
Cloud revenue accounted for 83%, although total revenue in the fourth quarter 2019.
So just 73% in the fourth quarter 2018.
Yes, the variance for customer trust funds during the fourth quarter, which approximately 3.14 billion compared to 3.08 billion in the fourth quarter last year.
The average yield general fleet balance was 2.18% during the fourth quarter 2019, a declined eight basis points compared to the average yield in the fourth quarter 2018.
As a result income from invested customer trust funds was 17.3 million in the fourth quarter of 2019 compared to 17.4 million in that fourth quarter 2018.
The balance sheet value of customer trust funds as of December 31, 2019 was 3.2 billion compared to 2.6 billion absent the should we can be one 2018.
We continue to expand gross margin story, the food court.
Cloud recurring services revenue grew 26.2 million were 23.2% or cost of club recurring services to support this group increased by only 5 million with 15% and on gross margin on cloud recurring services income.
Reached 66% in the fourth quarter last year, 68.8%.
Lifting an increase in the proportion dayforce customers likes to more than two years from 63% in the fourth quarter last year, 69% and also more ability to continue to realize economies of scale and customer support and hosting costs.
Our gross margin on professional services and other revenue improved negative 10.6% in the fourth quarter last year to a positive 5.9% due to productivity improvements in implementing new customers, reflecting the increased experience about it.
Cementation consultants and the continued use of automation.
Penetration process.
Activations increased to 26.4 billion or 59% cloud professional services and other costs in the fourth quarter compared to 15.7 million, 53% of cloud professional services and other costs in the fourth quarter last year and put.
Good Lord professional services costs increased to 10.5 million compared to 8.1 billion in the fourth quarter last year.
We continue to invest in research and development and sales and marketing to support long term growth can Dave.
Product development and management expenses increased by 3.1 million or 19.7% to 18.8 million.
In addition, capitalized software development costs increased by 3.2 million.
<unk> point 9 million in the fourth quarter last year to 9.1 billion.
Sales and marketing expenses increased eight point sixmillion, 24% to 44.4 million in sales and marketing expenses as a percent of revenue increased from 18.4% to 20%.
Gionee expenses increased 3.8 million to 33.7 million, primarily attributable to increased share based compensation of 3.3 million.
Adjusted EBITDA increased by two point Sixmillion were 6.2% to 44.4 million and adjusted EBITDA margin percentage declined approximately 150 basis points to 21.5% to 20% primarily due to declining.
Revenue growth and investments in sales and marketing.
Turning now to a full year 2019 financial results.
Revenue from more flagship cloud HCM platform gave tours increased by 32.2 million was 30.2% to 569.7 million.
On a constant currency basis gay force revenue increased 30.9%.
Well, you can power pay or cloud HR and payroll solution to the Canadian small business market declined by 1.1% to 90.3 million.
On a constant currency basis, probably pay revenue increased 1.1%.
Club revenue, which includes they gave for some count would pay increased 531.2 million or 24.8% to 660 million and on a constant currency basis cloud revenue increased 25.7%.
And total revenue, which includes revenue from both our cloud and Bureau solutions increased by 83.4 million or 11.3% to 824.1 million and on a constant currency basis total revenue increased 12.1%.
Cloud annualized recurring revenue.
Our or which includes the team you impact of customers, who went live during 2019.
This 582 million at the end of 2018.
105.8 million were 22.2% for an annualized recurring revenue in 2018.
And your cloud revenue retention was 96.3% in 2019 compared to 96.0% in 2018.
We continue to expand margins through 2019 gross margin on cloud recurring services increased from 66.1% in 2018% to 69.6% and or gross margin on professional services and other improve negative 40.
<unk>, 0.3% in 2018 to negative 4.0% in 2000 Nike.
Adjusted EBITDA increased by 24 million, 15% to 484 point Sixmillion and adjusted EBITDA margin expanded 70 basis points to 22.4% in 2019.
Adjusted diluted net income per share a 46 cents to 2019 increased 76.9% year over year.
Moving to the balance sheet.
As of December 31, 2019, we had cash cash equivalents, a 281.3 million an increase of 63.5 million compared to December 31 2018.
Total debt was 677.1 million as of December 31, 2019, an increase of 6.8 million, primarily due to financing lease obligations of 12.4 million in 2019.
Our net leverage ratio was 2.1 times as of December 31, 2019, compared to 2.8 times as of December 31 2018.
Our capital expenditures in 2019 were 55.2 million compared to 40.2 million in 2018.
Included in that 55.2 million in capital expenditures were 16.3 million per property and equipment and 38.9 billion for software and technology of which 32.6 million was capitalized software development an increase of 7.3.
Ian compared to 2018.
Putting out to our outlook for the first quarter entropy. Your 2020 I want to highlight two assumptions underlying guidance. So our guidance assumes no changes in the U.S. federal funds rate with bank of Canada rates to 2020, so any fed funds or bank a candidate changes.
Do you win petco guidance to western space stand cool ingestion practices, a 100 basis point change in marketing investment rates would affect revenue by approximately 18 million over the 12 months following the weight change.
Second to simplify reporting as we expand globally.
Beginning with the first quarter 220, 20, we're changing the way we report the impact of foreign exchange fluctuations on our revenue results instead of recalculating revenue on a constant currency basis, using your fixed foreign exchange rate for all periods presented which was $1.20.
You can be Canadian in 2018, we calculate constant currency growth wage using the average exchange rates in effect during the applicable comparable prior period.
Please note that this change does not impact disclosures for 2019 in 2019 disclosures on a constant currency basis reflect one U.S. dollar to one can be koenig.
As it relates to guidance will be issuing guidance based on the average gold exchange rates during the most recent history quarterly report.
Subsequent periods, we'll update our guidance based on the average foreign exchange rates. During the most recent just quarterly reported and we'll disclose the impact of any changing guidance related to foreign exchange fluctuations.
Sure food, you and first quarter 2020 guidance reflects fully reflects foreign currency exchange rates in effect during the fourth quarter of 2019, which was when you have stalled two adult was 32 Canadian.
Now moving to the full year 2020 guidance.
We expect Dayforce revenue of 708 to several hundred 13 billion, an increase of approximately 24% to 25% on both the GAAP basis and the constant currency basis.
Excluding Flynn revenue Dayforce revenues expected to grow approximately 27% to 28% on both the GAAP basis, and the constant currency basis.
We expect club revenue of 800 to 805 million or an increase of approximately 21% to 22% on based the GAAP basis, and a constant currency basis, excluding fleet revenue cloud revenues expected to grow approximately 24% on a GAAP base.
Yes, and approximately 24% to 25% on a constant currency basis.
We expect total revenue of 900 in three to 908 million or an increase of approximately 10% on both the GAAP basis, and the constant currency basis, excluding Flint revenue total revenues expected to grow approximately 12% to 15% on both the GAAP basis and.
Constant currency basis.
We expect total revenue of 70 million in 20, Twond, which was <unk> percent decline of 10.2 million compared to 2018 revenue.
Oh, the totaled 70 million in 2020, Flint revenue approximately 50 million will be reflected in Dave to wish revenue and a totaled 62 million will be reflected in cloud revenue.
Reflecting investments to drive future work, including the Dayforce wallet acceleration in the enterprise segment and expansion globally.
Adjusted EBITDA is expected to be 185 to 190 million or increasing zero to 3%.
Excluding flint revenue adjusted EBITDA is expected to grow approximately 10% to 15%.
For those of you modeling well into two share we expect net interest expense of approximately 30 million for the year were approximately seven to 8 million per quarter.
Total depreciation and amortization of approximately 50 million should be.
On the effective tax rate of 40% to 45%, which will fluctuate U.S. statutory federal and state rate of approximately 27% plus the estimated impact of the new base erosion NT abuse tax and diluted weighted average shares outstanding of approximately a hub.
53 million for the full year and 150 million for the first quarter.
So the first quarter 2020, we expect Dayforce revenue.
66 to 868 million or an increase of approximately 25% to 27% on both the GAAP basis, and a constant currency basis.
Excluding flu revenue Dayforce revenues expected to grow approximately 29% to 30% on both the GAAP basis and the constant currency basis, we expect cloud revenue about 88 to 190 million or an increase of approximately 20% to 23% on both.
The GAAP basis, and the constant currency basis, excluding Flint revenue cloud revenues expected to grow approximately 25% to 26% on a GAAP basis, and approximately 25% to 27% on a constant currency basis.
We expect total revenue up to 21 223 million or an increase in approximately 8% to 9% on a GAAP basis, and 9% to 10% on a constant currency basis, excluding fleet revenue total revenues expected to grow approximately 11% to 15%.
On a GAAP basis, and 12% to 15% on a constant currency basis.
We expect Q1 total revenue of 21 million of huge 15 million will be reflected in dayforce revenue and 18 million would be reflected within cloud revenue.
And we expect adjusted EBITDA of 47 to 49 million a decline of approximately 2% to 6% excluding fleet revenue adjusted EBITDA is expected to grow between two and 10%.
At this time I'm going to hand, the call back to David for some concluding remarks.
That's all there I'd like to speak about a few things before we open it up two questions.
As I mentioned earlier, we accelerated the investment throughout 2019, and we'll continue to do same twentytwenty.
While we benefited from fed rate increases in the first three quarters of 2019, we anticipate a 2020 float income headwind of approximately $10 million.
That's right clarity around performance of the business, we issued an 8-K in December 2019, showing our revenue results, excluding the impact offload.
And as all the just Khalid, we're providing 2020 guidance with and without the income.
Because the third revenue rose almost directly to the bottom line adjusted EBITDA guidance includes the impact upload headwind does well.
Excluding <unk>, we expect to grow adjusted EBITDA by 10% to 15% year over year, which at the top end or guidance is an acceleration compared to 2019.
On the beer aside.
We are moving to an aggressive end of life strategy and this is reflected in our 103 million dollar guidance.
Finally, we are continuing investments in product development sales and services to support the massive amount of opportunity, we see enough focus area.
Oh growth strategy includes.
Yes, winning more new customers in our existing markets.
Second increasing our carried revenue per client I functionality to the Dayforce platform.
Moving up market into more enterprise verticals, including your retail hospitality manufacturing healthcare financial services government and professional services.
Fourth expanding globally by building major core HR workforce management and payroll capability more countries.
And finally.
Dan into adjacent markets, such as Staples want it.
Consistent with our messaging since IPO.
We are confident they will exceed $1 billion up revenue in 2021, I mean, the longer term exceed adjusted EBITDA margins of 30%.
With that I'll ask the operator to open up the line two questions. Thank you.
[noise]. Thank you at this time, if he would like to ask a question.
Please press Star then the number one on your telephone keypad.
If he would like to withdraw your question press the pound key we ask that you. Please limit your questions to one and one follow up. Thank you we will pause for just a moment took an Paul the Cuban a roster.
Your first question comes from the line of Nandan Amladi with Guggenheim Partners. Your line is open.
Hi, Thank you good luck on for Oh, Thanks for taking my question.
So.
The guidance for the Bureau for one or three implies a pretty sharp drop off we saw that into fourth quarter. David you just mentioned that your moving towards the end of life, how many of those customers.
Are you able to migrate successfully has the cadence of that changed at all as you have moved to this more aggressive.
End of life.
Well as you can see if you look at the amount that we migrated from need.
To the cloud has been rather constant on a dollar basis over the last couple quarters and you'll see that continued into 2020.
If we look at the one a a they've got into given your about 100 203 million within sight that remember half of that as a standalone salad business, there's a small business payroll product.
Which is in their full between say 10 and $20 million and then there or are there are many different business, which accounts for the did the delta. So the reality is that they isn't that much left in the payroll dairy business and from a compliance perspective and from a.
Maintenance perspective, it does make sense to have the aggressive end of life strategy.
Okay, and then a follow up on the international markets, a little different topic, how different does the selling motion and international Mark that you're entering both in terms of the size of customer you're going after sale cycle and so on.
So the average size over the global accounts, it's 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 need a credit for that business grew by 150% Geraghty. Yeah in terms of sales cycles is quite consistent to what we've seen.
North America.
Thank you.
Your next question comes from the line of some odd somebody <unk> with Jefferies. Your line is open.
Hi, good evening, Thanks for taking my questions. So David you know one thing that.
Based on last quarter I think we're expecting further acceleration gave question recurring revenue loading the fourth quarter Im just curious maybe what drove that slowdown if there's any customer.
Timing delays, yes revenue had quite a jump in the fourth quarter as well and how do we reconcile maybe just.
Right.
Investments are accelerating.
Did that you've got 2020 deep what's occurring.
I know the long question, but.
Oh.
Color on it.
Sure.
Let's just look at the overall day falls business.
On an ex flow business Staples total revenue accelerated she said he 7.5% in.
In the quarter, obviously up quite dramatically from the 23.2% Dnbi full.
If we look at today falls for carrying on the Exelate basis, a year ago. We were 31.1% then in Q4 of 19, we came in at 32.4% certain acceleration year over year.
On a quarter over quarter basis. They also gives and takes that get a little bit complicated from the six if I just takes a six basis.
Some of that you can see in fact in effectively in the movement between the tables professional services and as well between need dayforce repairing but overall I would say, we're very happy with the day, both recurring revenue and the day for total revenue a with all without float.
Great. That's helpful. Then maybe just yet.
Yes, a little bit mentioning.
Hundreds of customers on the on demand side.
Quite excited about that I should we think about that that eventually impacting the revenue results and.
Have you already embedded into your guidance. Thank you gotten taking my question.
Yes, Sir as we've mentioned previously in terms of 2020, it's largely any investment year when it comes the day false wallet.
Looking at your the yeah. The investments in the day for flawless are going to be up almost $9 million and nothing in it reflected in the EBITDA guidance that we've given.
I would expect you see the benefit from that investment dollars really come into more the 2021 front timeframe, all said and the 2020 in terms of progress on the day false wallet.
As I've mentioned, we've started implementation for the first group there will be going live just after the end of Q1 demand pull the day force wallet is exceptionally high and I would expect us to end the year was several hundred customers live on the Dayforce wallet.
Your next question comes from the line of Daniel Jester with Citi. Your line is open.
Great. Thank you for taking my question, maybe just a.
Couple quick ones for me first with regards to 2020 guidance would you be able to share kind of whats your expectations are for revenues from the Canadian government contract in how we should be thinking about the cadence there kind of any updates on the fall and then secondly.
Sticking to Canada, it looks like the power play the quick math that I did looks like you don't have a lot of growth baked in for 2020. There. So I'm just wondering if you can kind of update for how we should be thinking about that thank you.
Sure on the Canadian government, it's still too early to tell.
As a process perspective, the team is in auto where this week during the final oral presentations and would expect that the government government will make a decision on the first half disappointment shortly.
That I believe will be followed by several other topic the timing that the government will put out to bid a two d. three qualified vendors which includes off.
And the terms of power pay remember that last year in Q4.
We had about a million dollars of of processing revenue that usually would've fallen in Q1.
If we look at it from a year over year perspective, we had slight growth in the power paid business condom consistent with what we saw in the other quarters in the actual yeah.
In terms of next year, yes, it'll be a low single digit a a growth.
Thank you.
Your next question comes from the line of Citi Penny Groggy with Mizuho. Your line is open.
Thanks for taking my question I, just wanted to dig into more into the enterprise segment could you see there or the performance. This this quarter and as you think about 2020, a different levers sell side as you know has gone up so what's your expectation from that segment.
So overall you can see that the average size of the customer has increased quite.
Quite significantly.
He 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 portion that we had some significant wins.
Onto reflected yet in the revenue numbers.
We signed a tier one consulting company with other 60000 employees, we signed a well known and quick service restaurant.
With over 2400 locations in about a 140000 employees.
We signed a a number of players in the amusement park industry one of them with about 50000 employees in total so we've obviously done tremendously a a well.
In terms of moving up into the market. When you look at the average deal size you can see that's it's gone up if I look at the average staples revenue per customer.
Up 12% year over year.
And if you look at the incremental revenue that's being added to your that yeah. We're up last year in Q4, the actual average incremental revenue was $156000, but like.
Any this year, we've increased the $209000 per client the client.
Going into next year, I would expect that trend to continue.
That's helpful. Thank you.
Your next question comes from the line of Mark Marcon with Baird. Your line is open.
Hi, good afternoon, and thanks for taking my question.
You mentioned are reiterated the billion dollar revenue target for 2021, how should we think about the margin trajectory as we had there obviously the priorities on growth and there's lots of different areas twin fast, but when we're we're setting expectations. How should we think about that given you know all of the opportune.
Yeah.
So as I mentioned earlier, Dayforce wallet, which obviously will come into the they do gross revenue number in 2021.
Twentytwenty is largely the investment Jerre I mentioned that we are investing about an additional $9 million versus last year in a day fourth wallet without really.
And the benefits from the day fourth quarter King Twentytwenty.
That begins to reversing 2021, so you should see the EBITDA margins improving once again as we go into future years.
We remain a mock we remain quite consistent with the long term guidance, we've given them all cage as you pointed out exceeding $1 billion of revenue 2021, and as we mentioned throughout our 29 chain, we would expect that the long term EBITDA margins to exceed 30%.
Just a little bit slacked off with the 1 billion.
Great and then with regards to you know the timeline on on the end of life strategy for Bureau can you give just give us a little bit more color there.
Well if you look at the numbers backwards again, you take the one or two one or three for the yeah. You subtract out say 54 tax another about 15 also for the small business product and given that we're migrating somewhere around what did the Jeremy about $5 million a quarter or quarter had a at the end of the year, there's not that much better.
Left in Jay end of life.
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 the composition of where you're going up against as you look towards future opportunities.
When we go into these larger deals there's probably more although the legacy types of components that are.
Our or use at those particular trying to.
Dave I point to the consulting company I believe that they were moving from a legacy.
A payroll solution.
The quick service restaurant I believe they had tried to implement another cloud solution that wasn't successful and a that we are replacing in that case, Jeremy you know who it was I don't know yeah, I think it SAIC kind of a legacy solution that they had before hand.
Great. Thanks for the color.
Your next question comes from the line of drew Koopman with Cantor Fitzgerald. Your line is open.
Hi, Thanks for taking my question I was curious just going back to the wallet longer term you know if we look three five years you know how big you think it could be the kind of penetration just anything around that.
Well, if we look at it from after the total potential as you know we moved around $300 billion apparel funds a year about a half of that say 150 billion is paid out in net earnings to be employees. As we've discussed previously we expect you make about 0.8% on all spend on the wall.
[music].
So at 100% penetration, you're looking at expectations day about $1.2 billion off really topline and bottom line.
Obviously, it will take a a lot of time to increase the penetration and we weren't reach 100% back for every 10% penetration, we guess, it's worth about $100 million or of revenue.
As we get more database from the usage of the waters once people start using it will start to disclose that.
Perfect and then just looking at the professional services gross margin I know those positive 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.
So on the professional services, obviously, you saw tremendous job in terms of professional services and other revenue.
We look at as year over year Q4 of last year to 29.4 million in Q4 of 19, it jumped up by 51% to 44.4 million.
That's really is reflected in need a amount of recurring revenue that we took live in Q4, which was a new record for us as well.
In terms of the profitability on that group a again also tremendous progress over that we went from.
I I M B professional services and other gross margin.
Being effectively negative 10.6% last year to negative sorry to positive 5.9%.
This year, so really up ready ready nicely.
On a go forward basis in terms of 2020, I would expect it to be around breakeven.
Thank you.
Your next question comes from the line of Scott Berg with meet him. Your line is open.
Hi, everyone. Congrats on a strong sales quarter and thanks for taking my questions.
David I was just hoping that you could dig into your comments on.
The sales the record valued new sales of the order a little bit.
It was that driven by you selling larger customers with or seats, where 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 two or three years.
So it's a combination of sorry, if I look at the quick service restaurants, you're ready all look in after adoption of a lot of our features that we now have inside the platform in the case for all of the consulting organization, it's largely a payroll deal that we sold over that however, if you look at the number of employees.
You can see that as the year progressing at 29 chain, we had bigger and bigger ones when it came to employee populations.
Last year for example, we would have say they 50000 employee amusement park would have been a record number but when I look at the quick service restaurant, you're almost three times that in terms of the employee head count.
So the answer is I suppose.
Got it helpful. And then I know, there's several questions on on wallets, but one and see if you can help us understand where the initial interest in the project is coming from do you have any commonalities across the customers that are shown in interested it today, maybe its size or type of industry or something unique about those employees.
You know anything there what else.
Yes.
Right across the gammage were seen.
Relatively large organizations to the smaller organizations, saying a lot of interest and we're also seeing a uptick across the.
Ali salaried talk time market as well I I've spoken about this before had better an older studies I've seen publicly in the studies that we've done internally.
Is that.
It is up about 80%.
Our old people.
Really I struggle to bridge, they find ounces paycheck to paycheck and it doesn't really a come from being 100 individual hourly old part time, and it's generally a common pain point across all enjoys.
Super helpful I'll jump back in the queue. Thank you.
Your next question comes on the line of Raimo Lenschow with Barclays. Your line is open.
Hi, Thank you.
Hi, good Christian on the.
You had a couple of very large wins in the in international markets Lucky you key like to be coffee chain et cetera, how are the implementations going there and.
And the go lives going there and what does it mean for a company customers because I'm sure a lot of people will look for what's going on there and then the the one question I got from a lot of people on the call wars around like nor a number of cost from adds in Q4 in a way can I see that kind of see what would you just answered that you have like be couldn't be got customers.
Pinch PCB also that there would be slow work still a customer there since then in the past. Thank you.
Great in terms of across the coffee, which obviously we've discussed previously it implementations going very well I would expect them to go live in the first half of Oh. This year. So just in a a few months they should be life I think they're very happy with the progress of the all the implementation.
In terms of the move up market, yes, see if I look at the customer account.
We added a Jeremy <unk> hundred and 94 customers in Q4 of this yard content compared to 253.
However, if you look at the number of active users we have on the system now were up 800000 users in 2019 versus the 600000 employees that we took lived in 2018.
We've increased the.
Add on employees by 20 actually is more than that or 33% year over year on a smaller number of customers taken live right 645 to 717, and that's obviously reflected.
Most in need incremental revenue per day, both customer again.
That is up 34% to $209000. It's also reflected in the.
Our trailing 12 month staples revenue per customer, which is up 12%.
Overall.
Congratulations.
Thanks.
Your next question comes on the line of Mark Murphy with JP Morgan Your line is open.
Hi, Good afternoon. This is Matt costs on behalf of Mark Murphy. Thanks for taking my question as you build out need a payroll for Germany in Mexico, and Marisha side do you expect us to require a similar length of time and dollar investment compared to prior native payroll build outs or is there some savings are learning a Z.
Can leverage.
Build out for these countries.
So that's actually a group of great question. So if I look at the EBITDA guidance for 2020, which as I said, if any investment yeah.
There isn't an additional about $12 million of investment in global as compared to 2019 and that he's ready reflected not only in the incremental spending R&D to build out those countries, but also in the sales an operation expenditures just stoppage in.
Those are two neutral to new countries just marisha.
Pluses, while continuing to grow and invest in the our fall.
Other countries outside of the U.S. encountered that we're very active in.
Okay. That's helpful and on the professional services side, you know again producers on the growth and that pro services.
Gross margin.
Is there sort of a ceiling that we can expect or steady state for pro services gross margin going forward.
Roughly.
I I wouldn't model, which on a breakeven basis going forward.
Thank you.
Your next question comes on the line of Matt FFO with William Blair. Your line is open.
Hey, guys. Thanks for taking my question I, just wanted to ask on the Australia business and how is the right Q acquisition is progressing.
Is your thesis with that business playing out and what are your thoughts on continuing to use that acquisition strategy due to gain a foothold in additional countries.
We're pleased with the progress other I checked a acquisition remember there I checked acquisition.
Had a large component of acquiring very talented people.
Who were expert on workforce management, and we required that expertise do.
Already I continue growing our Australia, New Zealand business or with the Dayforce footprint.
In going forward. The typical global acquisition that we would look for typically would have a payroll compared and they're not earning your workforce management component say somewhat differently, there I check a acquisition.
Great. So I had guys. Thanks a lot.
Your next question comes on the line of Brad Zelnick with Credit Suisse. Your line is open.
Awesome. Thank you so much for fitting me in and congrats on all the success David just on International Kronos recently mentioned about 35% <unk> 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.
In an offering may differ from yours in international and why your acquisition, let strategy is differentiated and and who you're displacing.
Sure I remember Kronos on a global basis really is workforce management their time and attendance and scheduling of which we've had as well for quite some time, where active I would staples workforce management in dozens of countries globally I do not the leaves our Kronos has any a a native payroll.
Capabilities are a global basis, whereas we had oh nowadays engine at the moment.
His.
Active in six countries at the moment and when we look at a partnership through the connected pay we have seven global partners that gives us coverage and another 157.
Countries, which accounts for the majority of the working population of the world. So I think look quite differentiated in terms of an acquisition strategy. Our acquisition strategy effectively would be to acquire companies that have a global presence that have legacy technology and over time migrate their customer.
There's a near salespeople onto the nature of day falls, our system, which is that all single solution that cuts run across human capital management, including payroll and tax capabilities.
Yes in fact, we noticed how quickly you got right check up and running are all 325 of their pre existing customers now migrated over to the integrated new platform that youve localized.
No. It will take some time to do that you remember with the right check custom as their customers, our workforce management and if it isn't up sell capability to move them onto the day falls platform.
We also are leveraging their I check people not only for implementation capacity in Australia, New Zealand, but also they R&D resources have been integrated into the day falls R&D team.
Thanks, and if I could just sneak in one one quick follow up here if I look at the 2020 adjusted EBITDA Guide X float revenue of 10% to 15%. It's a fairly wide range, you know ranging anywhere from.
Again ex float margin compression to margin expansion I appreciate the investment priorities and your comments at this is an investment here, but can you give us a sense of of again considering the range.
What would be the greatest factors that would swing it one way versus the other and perhaps a good time to just even remind us of the investment philosophy that you have and the timeline that you consider when looking to see a payback. Thanks.
Sure. So in the EBITDA guidance, there's probably an additional $25 million that we're investing this yeah.
Above what we regularly woody investing the business and if I want you break it out which I've done on the coal on the full today, it's almost about $9 million of additional expense in a day false wallet.
If I look at the government vertical a there's a little bit over an additional $8 million of R&D effort and a investment that we've put into that.
The global side as I mentioned, it's above $12 million of additional spend which is a spread between operations R&D sales and marketing given that we have a six act the country's biffle four countries outside of U.S and Canada. We're building another three this year as well.
And then is a a another about $3 million a outside that they were also investing in the enterprise side of the business, which is building out certain enterprise specific features for the industries that we currently playing building out the sales and marketing team she got a bit wider and deeper in those particular verticals.
The strategy for this year again, it's an investment yeah. We the intent is to hold EBITDA effectively flat outside of the headwinds that we have in float.
We might see as you mentioned a slight increase in margins of about 10 to 15 basis points and then as we go beyond 2021 will continue without trajectory to about 30% longtime EBITDA margin.
Thanks, So much in appreciate you taking the questions.
Your next question comes from the line of Chris Merwin with Goldman Sachs. Your line is open.
Thank you asking for squeezing the on here since it just a couple of questions I guess, we come back to services for a bit yep.
It is obviously covered that really healthy growth that you've seen there that you called out statistics as a driver, but as you bring our larger customers is it fair to say, they're paying significantly more for services and as you continue to bring on this large customers in 2020.
Should we see pretty strong growth for that segment continuing.
In the year thing.
So when we look at services or remember inside there there are a number of lines I you have a professional services, which is.
With GE services to customers that are already like.
You also have activations, which effectively are taking customers live and then you have clocks, which is the clock hardware that we sell if we look at the breakdown of Q4 of 19, you'll see that professional services went down in the quarter from 27% to 23.
Perfect and we had kind of a a an increase on activation from 53% to 59% with inside the quarter Huh.
Talks as effectively the same and went from 20% or 18%.
As we go forward I would expect to continue to see growth on the professional services to customers that are already live content you. If that's all the see more customers are alive more using the product. So it is.
And also changing a need to sell services to those customers will continue to see increases in activations as we go forward for from a dollar basis, you'll contingency and increasing not and from a clock bases equity comes down to the mix of business and I would expect it to continue.
Ah kind of around that 20% range E future Q4's idea.
Great. Thank you and then just one more in sales efficiency as you continue to to go. After these large logos are you seeing the same efficiency in that segment segment as you have with mid market and as it enterprise grows as a percentage of the of the next could actually be a tailored to sales efficiency.
Well I'm a sales a a 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 for true and a it reflects the commissions that we paid out.
For those particular deals I expect it will continue to be efficient on l. sales and marketing going forward.
Thank you.
Ladies and gentlemen, there are no further questions. At this time. This concludes today's conference call. You may now disconnect. Thank you.
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