Q1 2020 Earnings Call

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[laughter].

Greetings and welcome to the Ceridian first quarter 2020, <unk> earnings Conference call.

As a reminder gets called easy reporting.

I'd now like to turn the conference over to your hosts Jimmy Johnson, Vice President Finance and Investor Relations at <unk>. Thank you Sir please begin.

Thank you and good evening on.

On the call today, Mr. Bridion CEO, David Johnson CFO Arthur gets [laughter] today, we're going to modify the format of our call previously done.

As you likely saw [laughter] bullish I colder wetter, along with our press release and 10-Q.

Colder wetter has all the key highlights we would have previously provided in our prepared remarks on a quarterly earnings call.

Well not read the stock or letter on this call instead after some brief remarks or data to explain to me directly to QNX.

Before we begin however allow me to provide a disclaimer regarding forward looking statements.

This call May include forward looking statements about our current and future outlook guidance plans expectations intentions results levels of activity performance goals are achievements or 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 statements subject to risks and uncertainties that could cause actual results could differ materially from those set forth in such statements.

We refer you our previous filings with the FTC for information regarding the significant assumptions underlying forward looking statements and certain risks and other factors that could affect our 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 that that may be required by law.

The first quarter stockholder letter earnings release, some quarterly report on form 10-Q had been furnished are filed with the FCC and will be available on the actually see that your database in the U.S. and the theater databases, Canada as well as on the Ceridian Investor Relations Web site at investors, that's really into account.

With that I'll turn over the call David.

Thanks, Jeremy Good evening, everyone and thank you for joining Arnie cool.

Hi, everyone is staying healthy and safe during this time of uncertainty.

Before we go to Q and they don't want to spend a few minutes on some important point from a stockholder letter.

There, we had a strong quarter.

April revenue, excluding float and on a constant currency basis grew by 1.9% as compared to 25.3% in the same period last year.

[noise] out recurring services gross margin increased by 2.5% to 72.6% and cloud professional services and other gross margin improved by 10.8% to negative 3.4%.

Adjusted EBITDA margin increased by 40 basis points year over year to 24.8.

Second.

Airport continues to see strong demand.

We have moved to virtual assortment and more digital marketing activity and pipeline has grown.

Hey, so what we've seen I'll bet, you will not be methods have expanded our ability to reach potential customers.

Uh huh.

We all continuing to sell day for.

Economic environment.

You know stockholder letter, we highlighted a number of wouldn't during the third quarter as well as I mentioned, we continue to see in April.

In the third full month of 2020, we had sales across the globe, including in North America, UK, Australia, Germany and more ratios.

Well.

Isn't long for Paypal wallet meeting our expectations.

We know Staples Warner Dot Com and the long comes at a time when we believe work as needed.

We have a broad spectrum of customer the industry.

Good day from Lazard.

Okay what.

Brett is in that time.

On April nine we activated off the customer none.

We will provide updates on day for.

Borgwarner usage into future quarters, and we continue to expect to have more than 100 organizations lives by the end of the.

Finally, we announced an agreement to acquire activity.

That's great and New Zealand well he believed that this acquisition, which is expected to close in the second quarter.

Oh positions iridium as a leading HTM provider in the Asia Pacific region.

Except when she works is more than 300 Cline.

More than 1.2 million Payslips and operated major payroll platform in 13 countries.

Food in India, China, Singapore, Hong Kong, Japan, Indonesia, South Korea, Malaysia within a theme Taiwan.

I live in Australia, and New Zealand.

This acquisition provides an opportunity to Latin in expanding the Asia Pacific region acceleration market presence and paved the way to extend the day for native payroll platform to the Asia Pacific region.

In addition to they took the acquisition we began development of major payroll engine will Germany, Mexican Mauritian, which are expected to be competed in the next 18 months.

I would now like to handle after the operator.

So what question [noise].

As a reminder, if you will like to ask a question Press Star then it number one that is star one for question.

You allow one question and one follow up well pause for just a moment so compiled acuity roster.

The first question comes from the line of Daniel Jester with Citi.

Great. Thanks, Good afternoon, everyone hope everyone is safe and healthy takes to take on Dayforce. Specifically can you just comment a little bit more about sort of pipeline building efforts I know in your shareholder letter you you talked a little bit about what you're seeing in April, but maybe can you dive in a little bit more and a and talk about what your Georgia.

Customers are talking about and how that pipeline building is going.

So I think well thanks for the dental thanks for all the question looking in Q1, we saw obviously very strong bayport revenue growth as mentioned a day pull through carrying.

You know grew by 30.4% on constant currency ex load basis. So Dave will total revenue grew by 31.9%.

Exactly and on a constant currency basis.

In the third quarter, we continue to see sale towards the end of March and as mentioned and then as outlined in the stockholder letter will continue to see sales in the month of April.

We're seeing sales really across industry, obviously, a little bit more impacted in the hospitality and retail area, but other than a match. It appears that there is still strong demand for human capital management solution.

Great. Thank you and then on the acquisition that you announced today.

Yeah, those are a lot of countries.

Dion sort of the.

The few country that you talked about building native payroll for you know how do you see this transition it's happening it you've got both you know you're at the acquisition made last year. This new acquisition can you just frame how we should be thinking about how this could the moving pieces over the next year or two for all these different countries you're moving into [noise]. Thank you [laughter] shut down.

Well I'll be credits you no longer adopt it seemed that Oh I'll go it to be in more than 20 countries with nature of payroll engines within the next few years.

And so this acquisition, obviously is very consistent with that.

Activities that positions us as a leading provider in the A.P.J. region.

Almost immediately.

It is also consistent and walk you spoken about from an M&A strategy, which is effectively to seek out.

Players in particular particular region.

To acquire effectively around the two three times multiple revenue.

And over a period of time leverage they know holler and name market.

I present.

To accelerate their own Trump native day for into those particular region.

On a federal and get a basic fuel he'd extensional today for our into those regions, obviously with before it's we have a good capacity.

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

Hi, good afternoon, and congratulations hope everyone safe Thanks for taking from my questions with regards to.

Obviously early in April, but can you talk a little bit about what you're seeing in your client base to existing client space just in terms of.

The number of employees, but there you know laying off or her loading and how you know from a temporary perspective, we should think about the impact of that both in terms of like is there a difference between furlough versus a lay off and how we should think about.

Based subscriptions to use versus.

A direct P. P M relationship.

And that Kroloff knock them, so I'm going to break it up you today of course energy power pay separately, just as a reminder, pay account for a little bit less than 10% prepared on revenue.

On the day pool right, we get paid for both active and in active employees.

Everybody employees counters in active employees and so we still do received a recurring revenue on fellow employees.

In the stockholder letter, we provided quite a lot of detail.

We explained that up to April the 15th.

The employees Arden day pool system had increased 17% year or the yeah.

I'm, sorry, what 5% less.

And the amount that we had expected at the beginning offs here.

And I look at the employee counts and be monarch to these obviously on a daily basis.

It appears that.

Beyond the day foresight and how much how pay side it looks like the the they did the laid all over the headline over employees has already flattened out and we've seen a little bit of increases over the last week on both of the actual products.

Hi front on the day foresight were impacted any when employees determination not when they get family.

Omni how paid site slightly different we get paid on a term patric basis.

About 40% of the power pay revenue.

He is retiring the other 60% is really monthly fee that he is not dependent on head count.

Up until April 15th we've seen a 13% decline in terms of headcount so remote impacted on our pay but again topic accounts for less than 10%. So the revenue.

Great. Thank you and then with regards to just the the wallet. It sounds like that's going really well can you elaborate a little bit more in terms of they'll do the latest thoughts in terms of how the business models going to work from a revenue recognition perspectives and and looked at tick ups gonna be like within the CLI.

That's what you've seen internally with your own a workforce.

So again very early days given that we just took like.

The parents crops in their dinner and on April nine.

I will each center to actually read the third quarter.

Getting ready for launch launch and that's not only the product at all of the marketing assets and.

Implementation athletes as well.

We have a backlog of clients that always seen now if you go to lie with wallet.

The weighted really until the character of April because of some support her and processors. We wanted to get through and then it was a slight delay in getting the App published on the Google apps stool and on the at the Apple App store, but that the application can now be down or your new units on various alternatives.

The reaction from Oney employees, who can use in assisting is very very positive. It's a very clean exterran key terms of activating the water.

Very from that the other day for.

When you Dot Gov today April with water, it's almost like a.

You have Facebook Angelotti Instagram and shares the same type of indication method in such there's really very easy to use.

Hi, Dave we do personalization of actual plastic which comes through and looks really ready shop and then we also have the touches capability a truly either the.

And I Hope you have Apple watch in such the reaction for being very very often.

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

Hey, Thanks for taking my question and each time and hope you have us they taste.

Can you just the one thing.

Our debt that was just focus for you guys in recent quarters worth to kind of highlight the strength you have with continuous people are around integration, all like time and attendance and payroll and there you had some very interested in.

In the UK for example, you know coffee change.

They were all industries across all the workers and so now that couple of office schemes like Steve Hoppe like what's your what's your foot threatens their interest in light of the current customers does that kind of say to a speaker in Texas and you're correct you over at each our players or it's just like a soap opportunity I mean.

The customer, but you guys have there's much more broad based maybe just give us any color around that because that would help us lot [noise].

I'm, sorry are great and what are you asking what percentage of.

Of employees were having a certain industry old Oh, what do you actually they are yes.

Yeah, I'm just before if you look at it yeah wherever your installed base and if you look at the pipeline like you know was that kind of because you talked a lot about it but it doesn't mean that did they all have to be enough space to give a little bit more color there.

I I am still are not following so.

What exactly is the question.

Yes, the breakdown of the customer base.

As far as you can give it drops in the installed base, but also in that type like.

So they did the pipeline obviously has shifted so it's not going to be reflected of historical sales.

We obviously are spending much more ethic now in developing pipelining, what we term surge industry.

And there were still seeing growth in many of those industries.

When it come to the actual historical Jeremy can correct me, if I believe I, probably about 40% is that correct Jeremy out of the employee base would be in kind of I'll call. It retail hospitality that will be impacted by cobot.

We do have a larger footprint in retail, but those would be groceries and socks.

I'm fast foods that havent ready being impacted.

Even across the retail group, we haven't seen massive layoffs seen salaried employees and that as you know we do get paid Goldberg satellite employees.

Okay. That's really helpful. Okay. That's really helpful and then huh.

Maybe a cost like no. One study if you think like obviously due to the fact that came down a kick your mind, though how youre investments on the flow side, it's structured at the moment and how that might change with the current kind of waste parks.

Yeah, well on the way we do the flow did we effectively break it up between a cool portfolio in liquidity portfolio.

And then liquidity portfolio, we basically keep that money in overnight sand in the <unk>.

Cobalt fairly we obviously use the laddering strategy. So you typically have a year now average like with about two and a half to three years.

The I just the <unk> the impact of the change in the high grade 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 a headwind for us.

We aren't obviously, we can't do much changes between how we do the investments.

Of the I trust funds or Triple a rated at the point system that we have to investment advisor.

That's a ticket read from him from what the central governments on what types of copes, where a lot to investing.

The next question comes from to line up Alex Zukin with RBC.

Hi, This is Robert Simmons on for Alex Thanks for taking the questions can you give us some color around how your bookings trended from mid March through now either compared to trend or on a year VR vicious.

And say Hey, Robert we actually don't provide details actually two quarterly sales or two pipeline sales.

Obviously, there has been some impact but as I mentioned, we continue to see momentum.

Got it and then can you talk about what you're seeing in the competitors landscape are you seeing anything unusual to call out from competitors he'll be mortgage actually them trace are changing how they didn't reflect cartridge congrats.

We haven't seen any changes.

Great. Thank you.

The next question comes from the line of some odd some nano with Jefferies.

Hi, good afternoon, and thanks for taking my questions I Hope everybody is doing well David maybe first question just in a into shareholder letter I saw the comment about rolling into more minimums and to the contracts could you maybe remind us what the what the current minimum threshold is on average for the customer base.

Yes, and and how that currently works and then I have one follow up.

Sure one in.

Foreign contracts, even at a minimum we charge on the number of active and in active employees typically on the 15 of the mountain we charge one month in advance.

So we are making some changes to contracting going forward.

Provide a minimum which is obviously it sounds each all day employees a time all contracting.

Great very helpful. And then maybe just on the Bureau business I know there are plans to maybe accelerate some of the at the end of life thing, obviously payroll departments are dealing with lot of challenges right now I'm curious if you're seeing customers accelerate the shipped off of Bureau, and maybe increasingly going today force or what are your plans on the Bureau side.

And how does that benefiting are impacting dayforce <unk> again the strategy on Bureau has been changed as you know we aggressively on on trying to end of life. The Bureau products with the exception help the tax.

Saks is probably about a 50 million dollar business all the remaining Bureau.

Every quarter, we move around at about $5 million from a beer or two day for and then is probably an equal amount that just goes away as we don't really as a home for it.

In the in that April type of world. They haven't been any change ready to the pace of approaching customers, but the pace of us end of life in but as we mentioned prior.

By the end of the Oh, we really expect the aggregate business to be here and Jeremy on to provide updates, but probably under 100 million.

That's helpful. Thanks that.

That's exactly right then a $5.8 million was the Bureau impact this month, which is right in line with that kind of five to.

$6 million, we've been talking about every quarter.

Okay, great. Thanks, and we appreciate that you guidance and how resilient the businesses have a great day.

Very much appreciate it.

Your next question comes from the line of sight Berg with Needham.

Hi, This is Josh on for Scott.

Thanks for taking my questions.

Do you anticipate any impact to your partner strategy upmarket from covert 19.

Given that was just getting launch for new business in 2021 or I do these relationships remain on track.

If anything area, there's an opportunity to lean and strengthen.

The these types of relationships.

So I know one way to allows us to basic the in professional services are relying much more on track scene.

Through the use of the larger asked size as opposed to hiring a direct the professional services people.

Okay, Great and then not just a follow up do you expect any delayed impact the business trends in Canada, given that they implemented social distancing after the United States, which has implications for their curve of infection rate.

You know I honestly don't see much of a difference between the U.S. and Canada.

I'm not sure who actually did social doesn't seem to first I can't remember it.

As an organization, we probably did a few weeks ahead of but the U.S. and Canada Uh-huh, what our point in time again is that our business is largely non touch that from a sales perspective from a marketing perspective implementation customer support all of that even.

In times of non Cologuard is usually done them or non touch basis.

So it doesn't really make much of a difference.

As I mentioned before hand, we monitor the employee headcount at all about customers and when I look at but calendar and the U.S., we've seen a slight increase in employee that customers over the last week, so nothing really to get.

Overly excited about but they seem to be it are evident.

So the impact of cobot or has kind of bottomed out.

Great. Thanks, guys.

Oh, Hi, Bryan Bergin with Cowen.

Good afternoon. Thank you have your old Manuel.

I wanted to ask on implementations going 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 of clients that have already started and limitations as far as pauses or whether most are still moving.

It makes a if I look at the impact of implementations in Q1, and remember credit, but it really during the period that we typically would take lie.

All of the customers from Q1.

The overall impractical probing Q1 was probably about $1 million to $2 million in terms of the amount of recurring.

In that particular quarter.

They will they was.

Impact.

But it definitely wasn't a a material amount.

We did also see some of the take hopes of new projects get pushed a little bit.

I turned them, we're confident that they'll get restarted Riyadh relative pretty soon is there haven't been restarted already in terms of the impact from industry. Obviously is probably in line what you would expect.

It was a specialty retail.

Acted.

And save it wasn't extended care living facility.

Okay, and then as far as the them in an environment can you comment on just buying behavior you might be seeing between you know for dayforce between major markets and enterprise customers and any modules are functionalities with them.

From the existing base centers that are seeing increasing uptake as a result, yes, you mentioned before 88% all dayforce employees or a covenant is about five.

The vast majority all day force account really would be in major markets or in enterprise.

Haven't.

Real difference between behavior is between major market.

It because we have moved up market are quite significantly over the last year and you see it having some of the numbers we spoke about in the stockholder that's it.

For instance, the incremental revenue per day fourth account.

See 3% to 230196 from 130 to help them.

98 or will it get before the most about.

Obviously, the easy larger proportion of our customers would be towards the upper end of major markets Oh, the enterprise side.

Okay anything on the functionality difference.

No not really at all.

As far as I can see.

Okay. Thank you be well.

Thank you.

Your next question comes from the line of Mark Murphy with JP Morgan.

Hi, this is not costs on behalf of murky. Thanks for taking my question [laughter]. David You said this furloughing employees seem to stabilize it sounds like you come back.

What is your sense or how many furloughed employees might have actually come back for TV [noise].

Ah, yes terminated.

Rich or two full time positions based on conversations customers.

Hey, Mark or not to have them you I don't have the opposite to that in terms of furloughed employees again, we get paid for furloughed employees, a what I can say is when I look at or layered employees. This is active employees that our customer base. The percentage of furloughed employees seems to be getting down to there seems to be a movement.

Customer base.

In activation enacted employees in terms of employees that they have let go I don't know what if they will come back to the levels that had previously.

Better in I think we will probably get a bit more clarity over the next six on Sosa.

Okay. Thank you and you also mentioned the sales cycle extended in some cases.

In our those cases, mostly in Ah that believe acting industry.

And if the sales cycle are extending or they just sort of.

Youre or somebody just off the table or are they just any come later or what is your sense for how many will ultimately return to year.

Sure. So there's a few questions in there.

First we've seen very few projects Oh I get council.

The patent seems to be that there's a push into laser courses.

In terms of industry.

Again that was the primary reason for pushers.

I I believe that in the end of March it was effectively everyone getting ready to work from home.

And I'm more stations like us.

HM had the to either policies to make it very easy others didn't and say the same people that would have make decisions on systems like out we're quite busy in helping.

Our employees get productive and get up to do you see speed from working from home.

At the moment I think there's kind of are tend to work.

Effort, that's going on or.

Lot of the trial and that also create a liberal distraction.

I think we're actually a in a feeling positive.

Well go back to usual sales cycle and I'm very encouraged.

By the current their volume and the momentum of sale that we sold it running late this month of this quarter.

Thank you David.

The next question comes from the line Oh, Stephanie price with T.I.D.C.

Good afternoon.

It's just wondering whether customers have been requesting any new functionality or solution sets in the current environments and whether you're seeing any interest can add on sales and customer needs change.

Hey, 70, not being up here and great question. So we were.

Quite proactive in this very early on in Kobe's, we made some enhancements to the day pools product.

The first was we added a cobra tracks, which effectively allows employees to.

Register, which offices they being too and then if there is that suspected case of Kobe go positive case OCO bridge our system can generate the list of people who may have come into contact with the person and we also enhanced the message in engine to make it easy to do broader cost Swire SMS will.

Yes, no email.

So that people could get noted they make it notify you know very efficient none of.

The second thing we did is that we loaded into learning management.

How do you manage employee how did he say say how do you watch your hand and other pieces.

And we added that.

This is where the people had the learning management system or not.

And we also launched away activated a public version of de Paul learning.

That's available for any organization to use that you just simply go on register lowered their employees and such and that provide all the cobot pieces.

In the near term, you'll see a launch a lot of a a kind of features than communications about return to work that's about helping companies prepare.

You get people back into the office isn't such high intent Bob add on sales as you know add on sales is always being 20% of what we sell obviously there is they are a strong demand for learning management.

There is obviously.

The other pieces of the application due upon quite nicely in this environment.

And then just one more for me on the M&A outlook. The congrats Nicoletti acquisition, just wondering if its team what you're saying the M&A market right now if you see.

Many impact evaluations or or the number prospects that are out there.

You know we.

This would be tried do these things.

We had Scott.

The work on utility in 2019.

And.

Yeah Cobot all this he did have some impact to timing.

I can't say that I've actually seen any real change.

In M&A activity.

And then obviously.

Great. Thank you very much.

The next question comes from the line of Brad Zelnick.

With credit Suisse.

Hi, Good afternoon. This is Joe Chew on for Brad Zelnick. Thanks for taking my question I Hope everyone is staying safe.

Just wanted to dive a bit more on took a go to market strategy and sort of a two part question within this.

I'm glad you I'm thinking that you managed to adopt to the virtual go to market motion with the seminars and summit.

It's always a lot of steps to obtain the top of funnel between website traffic in qualified leads and finally limitation is here to everyone involved here I guess can you point out where the bottlenecks or if there are any major wants to call out and how receptive customers onto this approach and all that does this change any longer term views on traditional go to mark.

Given the new resources, and ROI or effectiveness and you maybe seeing here. Thank you.

Yeah, I look as you can probably be I gather or from the stockholder level even from today's tool.

We've chosen to Lee <unk>.

All right into the currency environment to strengthen our organization.

And in terms of market chain, we moved very quickly to more of their digital marketing focus.

We started off without the virtual summit, which effectively had about two three times. The attendance that we typically would see hi, and honor on physical and the reactions. We got from it was very positive.

No problem that we obviously extended that who did a one in Australia, we didn't want in the UK. We did it another way North America last week I believe we have one coming up in the UK, Ireland and you know a couple of weeks and we.

Seems to be unable to.

Kind of come up with a format, that's very engaging with on both customer because now we get a third demonstration all the actual product beyond the questions like are we still do now that's a one on one with respect to customers and such I.

I think I'd very nicely.

The second part about the digital marketing is that because we really are ecstatic when it comes to payroll and packs and as you know with the various government programs in the U.S. in Canada.

In a lot of complexity that the customer.

Great for much of Webinars.

Leveraging outside speaking now an ex that and I think that Pat I'll Ceridian now the was reinforcing how important is you'd be experts and be able to do compliance calculations correctly and have the internal compliance being different again, how customers I dropped as they need.

Thank you to remain compliant and to help their employees.

Lastly, I think that today for as long as loans from Grady at a great time, we've now living in a world where people really I would like to do tuxedos transaction.

They really do need to be able to get their own wages as quickly as possible and having a mechanism that allows organizations are rarely get money into the hands of the employees when they need them. There's obviously a great feature.

Again, if you were like landscape question, but still has been in number one as a reminder, please limit to one question and one follow up. The next question comes from the line of Keith that <unk> with BMO.

Hi, Thank you I had two questions. The first is.

When you mentioned the competitive landscape I wanted to ask about pricing and really in two dimensions are you seeing any changes in and price discovery. When there is new work to be done and or and new bids out there on that and or are you seeing any customers.

Coming back in asking for price for lease, particularly in.

The most affected industries, so you've seen any broad parameters or any kind of changes in pricing.

Sure I I didn't think we've seen any changes in pricing and as we've mentioned Oh, we're making some changes to future contracts intends, all adding minimum to the actual contracts on a go forward basis.

In reality effectively get paid for furloughed employees really has provided us with a a a lot of installation from co badge.

We are quite show fortunate in that regard.

In terms of the customer than impacted.

I I industries, we've seen quite proactive we look at all customers are very long term partnerships and we want to be able to support them.

In any way that we obviously you can.

So he said he industries they did do a reach out.

To help them more from a financing perspective.

During this particular Terry.

They're not really on or a rate reduction basis.

Okay. So maybe you can see no. Okay. The second is on wallets [noise].

You did previously comment, but you had a backlog skill.

I'm in the very short period of time I was just wondering if you could revisit on [noise].

What you think the match might be for.

Ensuring a wallet when we might see some revenues previous talked about net next fiscal year, you were going to see you kind of the first wallet revenues, but could you just revisit on when investors might see some of the potential of wallet in could do indeed be some revenues as we get towards the end this fiscal year. Thank you.

Oh, well begin to roll off I'll discuss stuff in there now and as most of it doesn't it's always going to getting back. They didnt second half of the I think there'll be a fair statement are there any you'll see a material impact from revenue and twentytwenty.

As we get more experience with the product as you mentioned inside the stockholder that's.

We all share that with every once people can start to model and we'll start to talk more about the business that's useful information about it.

Ladies and gentlemen, there no further questions at this time. This concludes today's conference call. You may now disconnect. Thank you Ken Thank you everyone.

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