Q1 2022 Ceridian HCM Holding Inc Earnings Call
Just wondering what how is it trending compared to your expectation.
So far and also what sort of feedback you're getting on the new products like cash back and zero to introduce and what should we expect.
And the remaining remainder of 2022.
Since John to your question is tracking well against our expectations.
Also of note is that 89% of our new U S customers are attaching wallets.
Which is obviously an increase that we've seen year over year.
We've seen good reception from the Cashback partnership that we have with NAS.
Also within the quarter, we added support for minor employees.
Which allows us obviously to deliver the solution to hospitality and retail.
Okay, and then quick follow up to EBITDA margin seems to be pretty good. This quarter is there any kind of a one time thing.
So we think over the remainder of the quarter given some.
Some of the you're realigning workforces.
That's.
I'll start by just saying look we've raised guidance for the year, we've raised the low end and the top end by $10 million.
And it's often having to add a bit more covenants at US yes, sure. So for Q1 city we had.
A couple of things we've increased our cloud recurring gross margin that actually exceeded our expectation.
Last quarter as you remember we discussed that we took some actions to rebalance some of our workforce into our shared service et cetera, and a P. J.
We've executed that very well we've gained efficiencies in our cloud recurring gross margin and that will continue throughout the year.
Very important because thats also helps us scale in the long term.
We had also.
<unk> taken a little bit of an upside on Bureau, we have.
Had a better volume than expected and our tax and payroll in North America. So that flu also directly to the bottom line and we had a little bit of upside as well. So those are the main things that happened in Q1 of note. We also continued to make some investments in our product and technology as well in Q1, and we'll continue to do so in the second half of the year in Q2 as well.
Thank you.
Sure.
Next we have Jared Levine from Cowen.
Thank you can you discuss how what acute bookings performance came in versus your internal expectations, including contributions by employer size segment and geography as well.
You want to take that one.
Sure I mean, here's what I'll say.
Q1 was an excellent bookings quarter.
But really solid result, and a really robust customer demand.
Solid growth in the North American mid market.
On an excellent quarter in EMEA and a really good out of the gate performance in AP J D.
David said more than 35% of our sales in the first quarter were full suite.
And we.
We are seeing continued innovation on the platform and therefore ability to go back into the base.
And continue to sell.
And we're seeing that our retention rates and net promoter scores remain very very high which makes for a very warm base to be able to sell back in queue.
Pipeline for the full year rolling two quarter in rolling four quarter is very strong and our win rates have gone up.
Pretty demonstrably year over year as a result of a number of things one of which is our consistently building si ecosystem and the referred pipeline that we're seeing from that ecosystem.
<unk> is well known by the size and therefore drive greater win rates, so a really solid bookings quarter overall.
Okay, Great and then in terms of sales force productivity is that trending higher so is it basically improving sales force productivity as well as a healthy demand environment. It sounds like I don't know impacts from any macro concerns, whether that'd be Russia, Ukraine or inflation, but just be great to hear your color there.
None at all.
Sales force executed well across the year and across the segments.
Thank you.
Next up we have Matthew Pfau from William Blair.
Great Nice results guys and thanks for taking my question I wanted to ask on the full suite attach that youre seeing how does that 35% compare to what you've seen historically and are there any major differences in attached by client size.
We've seen the attach rates go up quarter over quarter for quite some time now is significantly higher than where it was say a year ago two years ago, and we will continue to see that to do well.
We are doing particularly well in our major market, which goes up to about 3500 employees and I would say I would not look at us competitively now on the talent side.
We are very strong relative to both the ERP and most of the pure play players.
Players.
Got it and so.
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 youre seeing there and is that.
A big differentiation point relative to some of your competition.
Again as you know, we differentiate by having a single database single application one user experience.
Within the ecosystem.
And so when we actually compete we all differentiation I think from all in terms of our end to end capability across core HR talent and payroll.
Great. Thanks.
Thanks, guys I appreciate it.
Next up we have Kevin Mcveigh from credit Suisse.
Kevin It sounds like you are muted.
Sorry about that.
Thank you. Thank you so much and congratulations on the results.
Can you give us a sense of where you beat expectations in the cloud recurring gross margin in the first quarter and really a nice leverage coming through the model for the full year, but just relative to expectations in the first quarter.
We performed very well with refining is that the robustness of the technology.
It's reflected in the very high rate of customer retention rates as well as our net promoter scores has led to a decrease in inbound call volumes and lower costs.
So we're seeing more efficiencies across implementation and obviously the parts of hosting and customer support.
The thing I would add is we've spent the last eight year building customer communities.
Where customers can.
Self solve issues that may come in May have previously come into our support center and so as a result, we have like a really sustainable way of solving customer needs. That's been built by a really good team.
Great and then just a quick follow up 1100 customers that you signed on the day Force 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 a lot.
It's.
Merial.
Magic to the sequencing of the actual customers.
SG&A, we typically try to take our payroll customers live in a quarter and in the U S and the income there it will be more months would be more monthly in EMEA and AP Jade when it comes to water to beauty comes down to how quickly the customers want to move on.
And those customer install I hope its a smaller group of employees, which they test it out roll it out and once they get comfortable and then extended to the full population.
Thank you so much.
Excellent.
Mccrone from Baird.
Hey, congratulations on the quarter and thanks for taking my call.
I wanted to delve more deeply in terms of the bookings that you highlighted in the shareholder letter I was particularly impressed.
By the government of Canada. It looks like that is progressing well I'm wondering if you can give some color there as well as with regards to the magnitude of the international wins that youre getting it looks like Youre, making really nice progress from that perspective, I'm wondering if you can comment about what the competitive environment is like there.
Who are the takeaways are from.
And what the scope of the services are that the with the international clients are taking on it and then I've got a follow up.
Thought Directionally I'm sure Lee will add a lot more kind of the government of Canada.
Project appears to be progressing very well the contra.
Contract value plus.
Increased by 18 1 billion.
Again.
For the quarter.
So I think that's a good reflection of the progress that we're making over there.
On the global side, I think I'd be remiss, if I didn't talk about the.
The expansion, we've tag across native payroll.
Within the quarter, we started releasing Singapore major payroll.
Which is now in a pilot with a few charter customers.
And as well with project unify.
Which is the uncertainty and the ascend there day in June we announced importing countries in Indonesia, The Philippines, Thailand, Malaysia, South Korea, Taiwan, and Hong Kong.
We've made tremendous progress on the global Si.
Two data points on that.
On the political side, one our products are very competitive.
The players inside those geographies.
We are not only selling two north American companies have populations in the <unk>.
P J.
Brazil Caribbean marketplaces that we actually compete head on with the local players and because of the investments we have made employ HR and talent and workforce management.
<unk>, obviously is very very competitive inside the market.
In terms of percentage of ACB global is now becoming quite considerable.
I believe.
The ACD.
The sales number within the quarter about 20% of vehicles outside of North America.
Now lead you want to add any color to other global with two New Jersey.
I think the only thing I would add is the way that we think about global is as we expand if there is an opportunity to do two things Marc we can sell locally so kit cut.
Customers that only have an employee base and the locale that we're servicing or we can sell to global multinationals with lots of different geographies. So our global expansion allows us to unlock tan in both of those indices simultaneously and you can see that in our <unk>.
Our holder letter so what I would say is in the shareholder letter we call out.
The longest standing retailer based in EMEA with 10000 employees. They bought the full suite, there or EMEA based largely and they're going to roll it out to their entire population.
Our global online gaming company in the UK with operations across the country.
7000 employees can also be serviced by us.
When you shift to some of the larger references that we noticed that we noted excuse me in the shareholder letter the second largest global consultancy in the world shows Ceridian.
To deploy to their north American population of 52000, but with opportunity to expand globally and then if these assets under our customer session. The world's largest largest leading global business information company chose us to service their North American population first which went live in less than a.
A year and they are now rolling us out to 16 countries over the course of the next 14 months. So we have an opportunity to do those two things as we grow globally, which is a really important marker to our success.
That's fantastic.
Another question for me can.
Can you talk a little bit about the impact in terms of rising rates, what did you already baked into the guidance.
And what.
Could potentially be a further addition, as we think about the fed's discussions this afternoon.
Terms of rolling out short term rate hikes.
We've raised our guidance as you saw in cloud revenue and total revenue to account for the near term rate environment. We've accounted for the recent heights that we saw including today.
And we also have things like a ladder portfolio. So remember there is that we have half of our portfolio that is invested in liquidity and the other half was invested in longer term instrument, so theres not been a little bit more.
Jaime.
Interest rates benefit.
At this time.
Yeah.
Great. Thank you so much.
Yes.
Next up we'll go to Robert Symons from da Davidson.
Hey, guys. Thanks for taking my question first I was wondering what impact are you seeing from higher inflation rates are you able to pass some of the price increases to customers.
Presumably that renewals.
Yes.
The majority of our contracts we have CPI.
Arises.
Immediate benefits over time increase the pace.
This.
The Suncor is a little off I think maybe that something wrong with your microphone or speak or something like that.
I'm kind of hearing you at times, but.
Second question.
The severance charges in the quarter were pretty high I guess can you talk about kind of what kind of changes you're making do you think you've got things pretty much set at this point.
So let me take that and maybe you can add some color. So first of all as we've discussed before now we expected we have rebalanced, our workforce, especially in the support and operations into our shared services center and today P. J, we've expanded our support center and vanilla, we've done that quite successfully we had a very good hiring trends over there.
That has helped us be more efficient and gain scale in the cloud recurring gross margin as we've mentioned.
We've also done typically what we do at the beginning of the beginning of the year. We've also performance managed and look at our existing sales.
Salesforce as well as resources into product LNG group and looked at.
Performance management.
You would expect us to do.
Every beginning of the year. So that's the other part of it.
Got it great. Thank you very much.
That said, we have a pendulum bora from JP Morgan.
Oh, Great Hey, everyone. Congrats on the quarter and thanks for taking my question 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 it.
It was a pretty brand vision with expect to.
The same force identity, where employees will be able to carry them carry the walnut across different organizations help us understand where are you in that journey.
And maybe just the unit economy that you're realizing on one of them at this point.
So we're very happy with the traction, we're getting with wallets and the Warner capabilities.
I also would say that the water is a very robust system in other words, we moved a lot of money very reliably over the last about 18 months to two years.
In terms of the full vision, we are actively now ability nuts and I would expect it to come to market late next year.
Later this year and we would expect more revenues late next year sorry.
Next year Okay.
Got it.
The second question about.
Sales hiring to help us understand.
Where are you with respect to sales capacity for this year, given the tight labor market.
I would say the sales organization is near capacity now. So we spent a huge amount of time in Q1 doing whatever your organization does in Q1, which is setting their go to market, making the changes that we believe are required in order to unlock the year.
And we went on not only at the midpoint.
This point, we performance manage the sales team appropriately, which one should do every year and 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.
Good to hear thank you.
Next up we have Boston Shah Deutsche Bank.
Bhavan.
Yeah.
Okay.
We will circle back.
We have Dan Jester from BMO.
Yeah.
Okay.
Yes.
Just conceptually how should we be thinking about in a higher interest rate environment and how you fund, it's a wallet and any sort of puts and takes we should thinking about from that perspective.
In terms of the actual wallets as interest rates go up the the basis points do go up as well, but if you take it as a 25 basis points that amounts to probably about seven basis points. The amount of time, that's outstanding say, if it goes up by 1% or <unk> 28 basis points type of thing.
Okay.
And then with regards to the international commentary.
It sounds very positive I didn't catch how much of that was net new versus conversions from some of the acquisition over the years can you just dive into that please. Thank you they were net new.
Did you hear that I don't know for a little choppy understand David said they were all net new.
Okay great.
Okay. So next up we have Josh Reilly from Needham.
Okay.
Hey, guys. Thanks for taking my questions.
Maybe one on the macro here.
If when you're looking at the business outside the United States, we know that the.
In the U S has been pretty resilient here since the Ukraine War started.
Have you seen any divergence in customer confidence outside the U S. Since the war has started specifically.
We have very little exposure to Russia and Ukraine.
In London, probably about four weeks ago, and I didn't see any impact.
From the wall.
A strange or that might be so we continue to do very well in EMEA and in the UK and Ireland.
Got it that's helpful. And then you mentioned in the shareholder letter that Dave Horse card continues to be used an average of 23 times per month by customers with relevant 25 times.
25, Okay, sorry at this point.
Curious is this is the mix.
<unk> size of these transactions changing now that the economy reopening.
I haven't looked at that in particular, it still seems to be the same largely grocery fast food restaurants gas and convenience followed by ATM withdrawals.
Average day withdraw typically is about $30.
Got it thanks guys.
Next up we have raimo <unk> from Barclays.
Thank you.
I'm wondering if the black tissues as well.
Yes.
David I wanted to ask about the wallet.
Terms of.
At offering a differentiation factor for you in sales pitch just like how is that playing out.
What do you also expect from the industries there.
In terms of trying to come up with copycat products to kind of I'll say, all we have that as well can you speak to that please.
Raimo, it's very strong as I mentioned in the U S. We're seeing an 89% attachment rate for water 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 losses, bringing on a bolted on solutions into the marketplace.
The major differences with US is no reconciliation that's required and there is no loan made to the employee.
And all of the other solutions the Cogs vendor effectively gives a low into the employee for the number of days outstanding. We don't do that we do a true payroll, where we do the remittances at the federal and the state level very next day.
It truly compliant type of solution.
The other differences, we do not charge any direct fees to the employees of our customers. We don't believe in doing that we think that would be morally wrong, whereas the other solutions do require membership fees or fees to use the actual water.
Okay, and then if I may one follow up.
<unk> you.
Start winning more.
Yes.
Mark do you have bigger accounts.
Do you see in terms of customer.
Interest customer appetite to kind of revisit their HR systems going back to that whole theme of <unk>.
Back office and realizing.
All my my friend of our systems look really good our backlog is at various stages.
We have more success up market now what did you see in terms of customer conversations here. Thank you.
And congrats from me as well.
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 for well over 100000 people.
In the major markets for US base, we have a very very healthy attachment, Greg and upsell rate to the customers, where we do the core HR as well as the talent modules.
In EMEA, we typically start off with <unk> and talent.
Because as you know those are more demanding than probably payroll.
Particular market and probably the same across AAP Jay.
We now are getting traction in our Gartner positioning.
Means that we are being compensated for the back office pieces as you would say the core HR.
Well some of the talent components.
Thank you.
At this point, we'd like to poll the audience to check if there are any remaining questions. If you have one please raise your hand.
There are no further questions. Thank you all for joining us on the call and we look forward to speaking with you in the future.
Thank you. Thank you. Thank you. Thank you.