Q2 2022 Ceridian HCM Holding Inc Earnings Call

And then <unk> will go into the numbers before we open up the call for questions.

Turning to performance.

We had a very strong quarter and in constant currency, we exceeded the high of our guide on all of our metrics Dave.

<unk> recurring revenue ex float grew by 30% and 31% including flowed <unk>.

Adjusted EBITDA came in at $61 8 million or 25% of revenue versus a year ago. When the business was operating at 15, 9%. This is a significant improvement in profitability and in scale.

A large part of our EBITDA beat came from the 230 basis point year over year increase in adjusted gross profit on cloud recurring.

76, 4%.

On the macro side.

We have not seen any slowdown in sales or any slowdown in decision making.

Year to date sales are up significantly year over year and growth appears to be accelerating.

We have seen continued momentum across all segments.

<unk> above 1 million are up 50% year over year.

Mid market sales are above plan add on sales to the base continues to be a healthy 30%.

The number of customers, who have both a suite is up to 36%.

And global traction continues with EMEA and AP J sales, both up year over year by more than 50%.

In other words, we are firing on all cylinders and are quite confident on the outlook for the second half of the year.

And turning to technology.

We continue to build great tech continually expands our addressable market.

By extending our platform with new modules.

Adding capabilities at scale for large enterprises.

And adding global HR payroll and time features that service the needs of global organizations and those headquartered outside of North America.

All of which deliver more value to our customers and drive recurring revenue growth and profitability.

And as you know we differentiate in the markets throughout <unk> technology in a number of ways.

First we have a single solution with a single database that spans across HCM.

This drives efficiencies and cost savings for our customers.

Second our continuous calculation engine also drive significant inefficiencies and much better compliance for our customers in.

In fact, we have seen payroll processing times dropped from over 20 hours to less than two hours at our customers.

And we are broadly recognized as a worldwide leader for payroll workforce management and compliance.

It is this continuous calculation engine that has allowed us to bring <unk> to market.

<unk> wallet allows employees to get paid when they want improving their financial wellness by avoiding costly alternatives, while significantly reducing employee turnover and cost for our customers.

Today more than 200 customers have signed <unk> wallets over 650 are alive average registrations are above 40% of eligible users and the typical warrants user uses the wall is about 25 times per month.

These trends illustrate what our customers are telling us which is that Dave <unk> wallet is a modern extension of our payroll process and as the base expectation of todays employee.

Another advantage, we have relative to the ERP is out payment and tax services capabilities. In fact, I would argue that semi payroll with our tax money movement, we'd like selling a parcel without wheels and an engine.

And on the global front, our global capabilities for HR payroll time and talent allows customers to have a single system for their global operations, which is a significant competitive differentiator for ceridian.

And finally, our focus on driving returns for our customers has led to our success.

Each time, we build a module, we determine which kpis, we can impact with that module.

That measurement needs to be quantified and convertible into a money saving.

This focus on ROI has led to powerful customer case studies and reinforces our value messaging, which resonates so well in today's macro environment.

And our results standards proof.

I will now turn to leave to go into more details on sales productivity and how we are driving efficiencies across our business. Thank you David.

As David noted this is an organization that is firing on all cylinders and in many respects is buoyed by a macro environment, where customers and prospects value productivity and profitability more than they have in some time.

Our technology delivers hard dollar returns at a market, leading tcl and our sales reflect that.

After two years, a significant transformation in our sales and go to market organization. We are clearly seeing the fruits of our labor.

Sales productivity has returned to an all time high after significant investments and getting the right people in the right roles and in the right geographies with a market leading value proposition.

The result is that we are winning at an accelerated rate in our key markets.

And then North American EMEA and AP.

P J mid markets as detailed in our shareholder letter we are seeing tremendous momentum in full full suite sales now more than 36% of customers buying the date for suite.

Momentum in selling back to our base now more than 30% of our sales are back to our current customer base.

And a real speed to value realized by our own implementation organization and that of our now more than 30 as Si partners worldwide.

The time, we took to build a fully native full suite offering easily deployable in record time and high quality by a global network of partners tuned to service the mid market is paying off in both accelerated growth.

And in profitability.

In the global enterprise and large enterprise space, a market, where we have been investing for several years. We are again seeing the fruits of our labor.

Our shareholder letter tells the story.

In the second quarter alone customers in the 10 to 12000 employee range buying the full day for suite are becoming commonplace.

We have always said, we are not limited by our technology our platform scales and we are now selling and taking live customers with hundreds.

Of employees.

One of the largest e-commerce logistics companies in the world chose to extend their relationship with de force to support their more than 100000 employees in the U K.

One of the largest grocers in the world with 350000 employees will leverage day for us to support their profitable growth.

And in the first weeks of the second half, we cemented our relationship with a global customer who will move more than 700000 of their global employees today for us and a phased rollout.

In each one of these wins, we are replacing antiquated technology.

Disparate systems that are glued together with people and undo cost and in so doing we are driving real ROI at market, leading tcl for our customers in a market, where that's more valued than it has ever been.

Finally, a word about scale.

We have been relentlessly focused on driving scale for the last many years again the results stand as proof. We are now operating at 74, 6% adjusted cloud recurring gross margin and a clear path to greater efficiencies ahead, as we continue to leverage our global.

Mobile footprint.

All of this while improving the core metrics, which our customers have come to expect from us as.

As an example, our retention rates remain best in class, while we globalized, our support organization and simultaneously reduce ticket volumes by 15% year on year.

This is an example of hundreds of initiatives we have in place to support our continued accelerated growth and profitability and I would be completely remiss if I didn't stop to think our own people.

And our customers who put their trust in us when we told them that we could do.

We are now in fact doing.

And with that I'll turn it over to Amy to take you through the numbers in more detail and to discuss guidance no. Amy. Thank you Lee.

I'd like to provide additional color on our second quarter performance and the guidance, which is detailed in the stockholder letter.

In reviewing our second quarter performance I want to reiterate that growth across the force recurring revenue cloud revenue and total revenue.

FX headwinds driven by a stronger U S dollar compared to what we expected.

These headwinds amounted to approximately 200 basis points of growth in the quarter.

On a constant currency basis <unk> recurring revenue, excluding float grew 30% cloud revenue grew 28% and total revenue grew 23%.

Adjusted EBITDA margin of 25% exceeded our guidance range driven by revenue upside in the quarter as well as operational efficiencies.

<unk> adjusted cloud recurring gross margin of $76, four and expansion of 230 basis points.

Turning to third quarter and fiscal year 2020 to guidance I want to note that in the second half of the year, we face FX headwinds of approximately 150 basis points to revenue growth.

These FX headwinds are incremental to our previous assumptions and are detailed in our stockholder letter.

Despite the FX headwinds, we are raising and narrowing the range for our fiscal year 2022 gross expectations.

Both reported and constant currency across cloud revenue until the revenue on a healthy Q2 performance and increased float revenue.

For the full year of 2022.

We're adjusting our guidance for the gross recurring revenue ex float to reflect second half FX headwinds.

Growth is now expected to be in the range of 25% to 27%.

However, we maintain our prior constant currency guidance range of 26% to 28% growth.

When attributing float revenue to date for US expected growth is in the range of 27% to 29% in constant currency growth is in the range of 28% to 30% for the full year.

Sure.

In addition, we are raising adjusted EBITDA to reflect our float revenue guidance and flow through of half of our profitability upside for the second quarter.

Our 2022 adjusted EBITDA guidance.

Implies margins moderation in the second half of the year as we continue to invest across our growth initiatives.

That said at the midpoint.

We now expect to achieve adjusted EBITDA margins of approximately 18%, which is an increase of about 200 basis points versus our prior guidance midpoint of 16%.

As we continue to manage through a <unk> macro environment.

We remained committed to investing for future growth, while continuing to drive scale and efficiency across the organization.

Now I'd like to turn the call back over to Matt to open for Q&A.

Thank you Amy.

Thank you everyone for joining us I believe our first question is going to come from Willow Miller of William Blair.

Yeah.

Hey, guys. Thanks for taking my questions and congrats on the quarter. So my first question is what are you seeing in terms of employment within your customer base happier customers pull back on head count growth.

I'll take that thanks for the question, we haven't seen growth slow down at all customers. If I look at my head Count reports they continued to be about.

4% up.

The last 90 days, which would be in line with our expectations.

Okay, Great and then just a quick follow up how does your pipeline look like now versus 90 days ago.

As I said before sales have done tremendously well year to date.

As Lee mentioned, we've had a very strong start to July .

The pipeline looks very healthy and we believe we have adequate coverage to have a good sales here.

Great. Thanks.

Next up we have mark Macfarlane from Baird.

Hey, everybody, it's Mark Mark on my cousin manual.

On the bottom line.

With regards to.

With regards to the strong quarter can you talk a little bit more about.

Some of the big wins.

Wins that you mentioned Lee and.

In particular.

The large grocer, who is being replaced there and then you mentioned.

The large employer Thats got 700000 employees that you signed in the first couple of weeks when when would that start going live and what were some of the key reasons. Why you were selected for some of those really big impressive wins.

Yes, so first of all I'll just take them head on.

The large grocer headquartered actually in EMEA.

With 11500 stores is going to leverage us for WSI them event scheduling too.

Spanned the profitability of their operations and they are going to operate in over 20 languages leveraging day for us.

The global E Commerce, and web services company that I referenced is going to use us for payroll and their UK operations for over 100000 employees had actually built on which we're most proud of a preexisting relationship there double doubling down in their relationship with Ceridian.

The opportunity frankly to continue to scale that relationship globally.

We replaced a major competitor in major payroll competitor.

And then with respect to the win in the first part of July which you are not at can imagine dramatically affected our linearity for the second half.

They intend we intend to provision their system within the next couple of weeks and we're going to began loading data into that system. This quarter with the intention to begin a phased rollout in here and we replaced an existing competitor. We competed with the masses in order.

To win and in fact did.

And as I said, when we're completed there we will have rolled out to 700000 in place with the opportunity for expansion from payroll into full HCM over time. So those are some patterns that we're seeing in the market. Our pipeline is full of opportunities like that.

And what we're finding is that we're accelerating our ability to win them.

Congratulations that's terrific and then.

No me or David.

Question with.

The gross margin improvement in the EBITDA margin improvement was really impressive nice to see that.

Can you talk a little bit about some of the key drivers behind the improvement.

And how should we think about.

You know those.

They force recurring gross margins on a go forward basis as we start looking to next year and the year beyond.

So all sorts of ethanol and then some more color to the compensation.

On the gross.

On recurring a lot of it is driven by the efficiencies, we're having across our support organization.

Earlier in the year, we moved to a model that allows users to support one another and that has led to a reduction in support tickets.

For the year and has obviously increased the profitability of the recurring revenue.

The second piece is as we've mentioned as we extend the platform when we sold the add on modules.

And 76% of clients today have a suite of modules that are using we get additional revenue, but we don't really change the cost associated with the postal support so that drives up the profitability of it as well.

And then over orders from a process perspective.

Nation, less bums and seats type of approach to the actual business.

Let students on a longer term basis were consistent with what we've said beforehand, we expect that our.

Gross profit number on recurring to go up to about 80% or so over the next about three years.

Terrific. Thank you.

Our next question comes from Jared Levine from Cowen.

Thank you in terms of the sales head count can you update us on those.

Nothing levels, including those additional hirings that youre expecting within the enterprise segment.

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

Okay, Great and then looking at your de force recurring ex flow constant currency guide for the year can you help us in terms of the attribution across new logos upsells pricing increases in employment growth within the base.

About 30% of it is sales to the base.

And largely the remainder of that would be new sales.

<unk>, new sales, 30% back to the base.

And our next question comes from city <unk> from Mizuho.

Hey, Thanks for taking my question, David I want to ask you your favorite topic. There first of all it is.

Very impressive to see now 40% now are ready to say some risks.

It looks like your employee the retro program work day, so its been about two years.

How far you can go on incomes of employee registration within the base and how do you feel about the adoption of this bar and also if you see any slowdown in a macro slowdown how do you see that.

While it yourself.

So on the macro side again, we haven't seen any impact to the business.

If I look at the number of users of the wallet. So if I look at the amount that people are spending per transaction that hasnt changed.

Over the course of the year has been largely constant.

In terms of registration rates it seems to be going up by a few percentage points every quarter and I think that trend will continue.

We've seen number of registrations per day go up quite significantly over the last three months.

So I'm confident that we will see more people being alive and more of their registered users.

The player, but there is still largely is making is working with the customers. If you like.

To include to increase the number of employees that are eligible for the warrant.

Okay.

And then.

Up to <unk>.

One comment if you said, how you differentiate payroll tax.

We go three had an impact.

Great.

Yes, good vendors what's there.

Like how.

How are you seeing the success in terms of competition in the enterprise segment more setting at CN.

In the enterprise segment.

I'm not sure if I heard the question correctly, but as I mentioned.

The number of deals over $1 million is up 50% year over year. So we have a much more success in the large enterprise space.

And in Lee highlighting some of the wins of the very large customers.

ERP vendors would have been at the table and all of those lease any.

Any other parts that you could answer.

I'm, just going to try and get to the root of your question Citi. If I understood you correctly basically what Youre asking is talk to me about your tax money movement offering in like this that really help you. When you are selling full suite HCM and the answer is yes, and the reason that it helps is that in a down market.

Everybody is driving for consolidation so lowest possible total cost of ownership.

You can eliminate integration points or alternative providers are duplicative team's internal to your business. That's a win which is why anything that we do that complements our full suite and allows us to be one single provider to our customer as part of the reason that we're winning full suite deals.

Payroll deals in <unk>.

Market I would argue more than people, who don't offer what we offer.

Great.

Thank you.

And our next question comes from Dan Jester of BMO.

Great. Good afternoon, everyone. Thanks for taking my question, maybe another one on the wallet. So if I heard correctly, you've got 1200 signed customers now on the wallet. If I look at my math it looks like it's about 100, new customers sequentially and that's the lowest pace in the year. So I guess I'm just wondering in terms of <unk>.

Clients signing with de force how are you seeing the momentum there and should we expect the pace of signings to pick up as we go into the back half of the year.

Daniel as I said before the focus at the moment is working with the customers that have signed the 202 thirds go live 650, our lives of this 550 more to take live and then it goes on.

Our lives increase the populations that are eligible when we just look at the number of employees that we've signed across the 200, it's a considerable amount and say, we're focusing more on activation to get the usages you heard earlier there was a reference to the referral program, we launched that last quarter, which effectively.

<unk> is an off.

First Todd if you could give you a referral code to a body. The first time they use it and they get a bit of money you get a bit of money and we've seen an impact in terms of the registrations coming from that as well. So I'll focus at the moment really is driving the eligible population mostly.

There is still runway to go in terms of the number of customers, who sign up and we still are seeing above 80% attachment rate of wallets to payroll.

And I know that Lee would argue that you know what.

The wallet has now become table stakes from a modern payroll system.

Employee out there today does expect to have the ability to get paid when they want to and we're seeing that reflected in the RFID rfps. When people are asking about the features that they do expect to have in a modern payroll system.

Okay, great. Thank you and then maybe for no Amy on the EBITDA margin guidance.

I caught what you said correctly is that you didn't necessarily flow through all of the upside.

And to the back half of the year are there specific investments that that you'd call out that are keeping that from flowing through or are you just being conservative given kind of the world that could look a little bit more uncertain in the next three to six months I'd love just a little bit more color on the margin outlook. Thanks Kirk so.

You saw we raised the low end and the high end by $20 million. So that essentially all the float upside that we saw were flowing through the second half of the year.

Full year guidance, and then we end up flowing through half of the adjusted EBITDA beat.

From Q2, which is substantial we continue to make investments in sales and marketing we have a big event in November insights in Vegas, where we have.

On our prospects and customers attending.

And we continue to invest in marketing and then a component.

As you saw.

So those on the Mi.

Yes.

Yes.

Got you. Thank you very much everyone.

Our next question comes from Robert Simmons of da Davidson.

Hey, guys. Thanks for taking the question I was wondering on your international revenue.

How much of it.

Things like a thunder, but how much of it whether it's in multinationals, who are going to start off with you in the U S or their own domestic market and then took your international other other divisions.

Versus how many there are many of those countries.

Thank you.

Sales Dahlia alone, that's where then.

So we're actually seeing success on both fronts I mentioned this in my piece upfront.

When we look at EMEA and AP Jay.

And that's where we sell to companies that are headquartered in either EMEA or headquartered in AEP. Jay we've seen the sales figures go up 50% year over year. So we are being successful at selling in the local markets against the local competitors.

As well we are seeing additional rollouts.

Our global employees from companies that are already live on day falls, which obviously would be companies that are headquartered in North America.

The one logistics company that you mentioned has been a customer in North America for our key <unk>.

Our extended their relationship to the UK population. So that's a perfect example.

Anything you would add to that.

I don't think so I think you covered it.

Awesome, Great and then can.

Can you talk about what impact you're seeing from prior in place your answer I should say I know that you pass alone for instance, which is generally at renewal.

New deals look and then also what are you seeing on the cost side of your question.

So on the price increase as you know we have.

Our contract terms that allow us to increase upon renewal, where obviously applying those and at the same time being mindful of the customer specific situations and.

We've also increased our price list to reflect the effect of inflation, but again, we're mindful and we're looking at competitive.

Positioning of our offering.

Especially in the large enterprise sector.

So I think we're mindful of applying price increases as well as looking at what others are doing.

Efficiently, especially in the northeast.

One thing I would add is we're taking advantage of our global workforce.

The actual labor costs for us as well.

Our next question comes from Kevin Mcveigh of Credit Suisse.

Great. Thank you so much and congratulations on the results.

Hey is there any way to think about what the revenue opportunity is.

If.

The remaining clients.

The full day for suite I think the number is.

It's 36% today, but if that flows across the entire enterprise how much revenue would be associated with that.

That's actually a good question. So just a few parts of breaking that down.

Even though across the 36% that kind of a suite is still a significant sale capabilities across them.

So at the moment today I think we have 18 different modules that are available 24 modules that are available sorry excuse me.

So there's a lot and every year.

On average about two to three new modules, which drive additional pattern.

So there's still a significant and I think there always will be a significant opportunity in terms of going back to the base.

I don't have the math seems to account for 30% compounded I'll give it to not only to try answer that one no I think David covered if there is significant upsell opportunity to.

To the customers, who already have the full suite by virtue of adding additional modules.

And then if you look at the large enterprise wins that we're having today and that we talked about pretty much lending was payroll and time and workforce management for the most part.

And the idea here is obviously once we once we land those customers. They go live on payroll, we expand with additional module. So the opportunity is humongous.

And the only thing I would add is that we're starting to see some of that so youll see in our shareholder letter that there is a long term healthcare provider with 11000 employees that bought the full suite from US. It is an example of consolidation and driving down Tcl.

Amalgamated a bunch of point solutions and went with that day for us and there's a global veterinary services companies 40000 employees, but the full suite.

Ah.

Yes.

To manage complex scheduling requirements.

And to rollout frankly, Jay first wallet in order to be able to drive up employee retention.

And both of those 11040 thousand employees would have been unheard of a couple of years ago that they would have bought more than pay on time from us, but now they are buying a larger footprint and there are really good example of what we just said which is we expect the customers that are in the hunt.

<unk> thousand 350000, and 700000 range will buy more from US overtime, if we land with pay and time and service them well.

Very helpful. And then just how long is the conversion on that 700000 employee win.

And what would that have taken three years ago, because obviously you've had an amazing amount of.

Efficiencies from an implementation perspective is there any way to just think about the time factor on the conversion of a client of that size relative to maybe three years ago.

What do you mean by conversion and what's your question specifically.

When you are cutting over the actual.

Cam process from the legacy provider to Ceridian.

So your question is how long will it take for us to get to that 100000 employees live on our platform.

Yes.

Look it depends on the actual write up a client we've seen big clients last year, we had a health care organization was 60000 go live in 675 months.

In terms of the UK logistics company with about 100000, I would expect that to be about a year rollout to get them live.

In terms of the other logistic company that we signed earlier this quarter.

There's a bit of seasonality to that base as well so it will probably take up their base employee base, which I think is about 500000 relatively quickly it will peak out plus oppose over the Christmas period to get to 700 800000 level, but.

But I would expect that to be a one two year project.

Yes, the only thing I would Greg.

Argument that is that in the shareholder letter. This is an example of a holiday company based in the Kingdom with 10000 employees going live with Wm and a few other things.

All within a six month period, they need to do it for business reasons, and we can accommodate that whereas again a couple of years ago that would not have been possible. Just so just as an example of what David said, we've gotten much much faster is getting customers live on time and on value and the 700000 person customer.

We'll do it at their own pace and what serves their own business, but we can accommodate their needs.

Congratulations again.

And our next question comes from Mark Murphy of Jpmorgan.

Yes. Thank you very much I'll add my congrats.

So you mentioned a customer with 350000 employees you mentioned, one with 100001 with 40000.

And now the one in July is it safe to assume that your win rates are improving.

When we look at the upper market segment, where they have these more complex international deployments.

Do you think that that win rate is improving because you can you can handle some of that payroll natively and then I.

I guess with the expansion of the partner ecosystem to handle some of the deployments and I'm just trying to understand if it's a win rate or for some reason there is just more of a cluster of these coming to market at once so mark a few major themes in this in 2018, we spoke about enterprise we already meant.

Above 10000 employees.

Nowadays when we speak about large enterprise, we are speaking about hundreds of thousands of employees.

What's allowed us to do that is really two things.

First is that Joe with the product and technology team has significantly improved the scale ability of this solution.

From a payroll engine perspective, they've added the capability to horizontally scale into different containers that allow us to do these calculations very very quickly a lot of that we actually had to do is to support the <unk> wallet, which as you can imagine at any incidence of the day, we're running a payroll for someone.

One just based on consumer demand. So we've created tremendous more scalability.

Also on their product and technology side, we added some features that are <unk>.

Acquired for the larger organizations to do payroll.

So things like the global system of record.

The ability to do a more complicated tax calculations.

Our example of that.

And then on the sales and marketing side as you know we rebuilt the sales organization about 18 months ago, when Rocky joined the organization.

And we went to market and we brought in a lot of exceptional sellers, who are familiar selling to the large enterprise market and remember to sell to the large enterprise market you have to sell value have diesel software you have to get perm on provisioning, because you're a software provider <unk>.

Service provider you have to know how to position value to the C suite and you have to be able to run through more complex sales process and I would argue that rocky has done a tremendous job.

The change in the way, we actually go to market that has allowed us to win those accounts. So yes, I think we should be very proud of what we've accomplished in the large enterprise market and I expect that momentum to continue and I think we are beyond the tipping point of becoming the recognized leader for compliance with a very large enterprise.

Only thing I would add is there just yet.

Hit your point on the head there or more of these deals in our pipeline than there has ever been our win rates are increasing and we believe that the competitive landscape is going to allow us to win at an increasing rate and we have the most global solution on the market.

Okay. Thank you that's extremely helpful and just as a quick follow up.

The shareholder letter mentioned significant traction in the month of July .

I think we understand now it includes the Mega deal.

Is it fair to assume it's also a healthy volume of business in your your normal or traditional customer segments as well as the month July .

Yes, I'm just going to say our mid market business in all markets not just North America is on budget for the year and that includes July .

And in fact, we are actually even add to that if I look at the small business performance year to date as well for the half year is also above plan.

So.

Again, I think we're doing very well on our sales momentum basis, okay excellent. Thank you.

Your next question comes from Alex you've kind of Wolfe.

Hey, guys. Thanks for taking the question so I guess clearly.

I think you've talked about.

Increasing momentum, which is obvious given the very large customer logos here you are announcing.

Which I think is more then yes at.

At least I can remember you guys talking about it on a single earnings call. So what I'm trying to reconcile is given Lee.

Lee you talked about accelerating momentum.

David Youre talking about both businesses above plan, just help us understand and bridge if I look at the sequential dollar increase in <unk> recurring revenue constant currency ex float on a dollar basis, it's actually going up less than this time last year.

In the contract. So I'm wondering is there a linearity component here, where some of these deals because they're larger they're bigger logos, maybe the more complex. There is a longer time lag between the booking and the revenue recognition, but just help me understand that and then maybe couple that with why keeping the guide unchanged. It makes those largely.

The cobot sales basically move in through the income statement.

And we spoke about that all the way down I think in Q3 and Q4 of last year.

Is it just basically you see the sales impact of curve and make their way through.

The income statement, we're going to see most of the impact in the middle to late part of this year and then Thats, what youre, saying, but we now have seen a reacceleration of sales.

Okay, and I guess, maybe just.

If I look at the is it a similar.

Question around the go lives.

The net adds I think it was less in Q2.

Then it was in the last two years in Q2 is that again, it's just larger customers. So so less but.

<unk> deal values.

It's up and down by quarter as you know.

You have to look at it more on a half year basis.

More than anything else.

Yeah.

175 loss in Q1 $1 19 in Q2, two seven in Q4, but 63 in Q3 of last year. So it fluctuates quite a bit and it always has fluctuated quite a bit I would say if I look at it just on an absolute basis 190.

Two $1 25 to 123, so the last two years is largely constant.

Yes, we have gone up market. The average size of the deal is up about 10% year over year.

Got it thanks guys.

And our next question comes from <unk> Shah Deutsche Bank.

Great. Thanks for taking my question just following back up on up market.

<unk> talked about how important the asset partnerships more base for this segment of the market held these relationships evolve relative to your expectations and where are they in terms of adding to new deal with as we think about this quarter and even going forward.

They're critically important as I said it at the top we now have more than 30 psi relationships globally.

By relationships, what I mean is we have contracted with ESI DSI has trained their staff. They have people on the bench being utilized in deployments globally and that is critically important to our ability to grow exponentially.

Rather than incrementally both in the mid market and in the large enterprise space globally.

And it is also key to our ability to perform like a software company with gross margins.

In excess of 80%, which is what we're tracking toward.

Super helpful. Just a quick follow up on the float revenue I just want to clarify your commentary in the shareholder letter talked about the assumptions here taking into account the current rate environment should we take that to imply that assumes already increases thus far and I forget anything additional at September or beyond that could drive additional upside.

Yes, the $13 million increase in our full year guidance reflects the most recent rate hikes.

Remember, we also have our portfolio of investments that is mattered. So you have half of the portfolio.

Where that repricing immediately apply and half of the portfolio, where youll see that flow through a little bit later in time.

But yes, essentially there is there are some additional rate hikes, you may still have a bit of upside there Greg.

Dynamic and that is helpful. Thanks again for taking my questions.

Our next question comes from David <unk> of Wells Fargo.

Thanks, a lot for squeezing me in guys.

It's great to hear the positive commentary on international sales.

Anything you can think in terms of changes in pricing dynamics.

With those enterprise customers.

Okay.

I mean.

I'll start and I'll ask David our Nuomi to chime in I guess.

Obvious and I said it earlier.

When you're servicing 100000 employers 700000 employee customer for pay in time, you can imagine what our approach it which is we see the customer and we go back and expand the pepam overtime.

That's our approach with these large customers and it will continue to be as we continue to grow David would you add anything I wouldn't be I think that's that's good.

Okay, great. Thanks.

Great to see.

Poultry fell 36% and holding steady.

Internal targets, you could share with us over the intermediate term. Thank you.

With respect to full suite sale is that your question.

I mean, I'll give you a general answer and I'll ask knowing me and David if they want to sharpen. It I guess my general answer would be our goal is to sell a full suite to the mid market to go back and make sure that every single one of those customers.

The complete 24, Skus that we have to offer to then plant seeds in the large enterprise, which is what we're doing and expand just as we will have in the mid market. There over time, that's our goal.

David would you add anything.

So I would say we've always.

Leveraged our leadership in compliance, which is payroll and time.

We know that we can do that better than anyone else and we know that if we win that and we get system of record is very likely that we will get the talent components as well.

Again in 2018 that would've been true at the major in the mid market. We now also quite successful up to the enterprise space, which is about the 10000 employee level and on a longer term basis, we would like to get system of record as well for the large enterprise, which we do believe will allow us to also win the talent components.

By the way we have seen success, even in large enterprise suite sales.

Okay Alright.

As I noted before our 40000 employee company Global Veterinary services company, but our full suite just in this last quarter. So it's a really good example of what David just said and the only other thing I would add to that is.

The macro.

The macro environment every customer is looking to rationalize total cost of ownership. So he who provides a suite wins.

Okay.

Thanks very much.

Okay.

And our next question comes from Samad Samana from Jefferies.

Hi, great. Thanks for taking my question, maybe first one for Amy.

As I think about EBITDA. The company has done really well in getting that the gross margins up and kind of keeping an eye on opex as well. So we're seeing that I'm. Just curious how should we think about adjusted EBITDA translating into a very cash flow just how does that conversion in the past it hasn't been already.

Just should we start to see free cash flow inflect as well or how should we thinking about adjusted EBITDA converting into free cash flow.

Yeah, absolutely. So I just look at Q2, if you look at the operating cash flow, we grew by $5 million in Q2. So most of it is.

<unk>.

We had a bit of working capital movements in Q2 that you would expect to normalize over time.

Yes.

Profitability extend our cloud recurring gross margins.

More efficient on our G&A ratio.

Do you expect that to close.

Well, yes.

With that as this quarter.

Reduced quarter, because our receivables as well as a result of our workforce accidents.

The leverage.

R J a.

Zimmer.

Also normalize over time.

Great and then.

David I know that the commentary in the pipeline it sounded great I guess I just wanted to maybe ask a follow up is there in terms of the newer geographies that you guys are still ramping in and where you are where you have made apparel are you seeing any changes in any particular geography or an improved.

Any particular geography shining.

You can call out.

There are three things in EMEA.

I believe the team is doing a very good job over there and they've got a very good partnership network, which I spoke about last time.

Or how can influence the actual deals on the win rates.

In a P. J, we did a lot of restructuring of the go to market over the course of the last year and we are beginning to see great benefits from that as I mentioned a P. J sales as these in EMEA by the way are both up 50% year over year. So I would say that's working very nicely.

We're also about to launch in Germany on the payroll side and already we've seen significant traction in terms of taking orders again see German payroll solution. So we're quite optimistic.

And the 350000 gross at least spoke about is actually a.

Is actually based out of Germany.

Got you thanks for taking my questions I appreciate it.

And our next question comes from Raimo <unk> of Barclays.

Yeah.

Yes.

Thank you. Thanks for squeezing me in David can I stay on that subject. If you think about that those kind of launch customers are really a game changer and it.

It doesn't happen very often.

Someone who is breaking it into the world of <unk>.

Pes Oracle workday, Sir can.

Can you speak to who.

Who you are replacing there.

What's the situation in terms of setup was it.

And Nathan software Guy or was that a combination of someone's in payroll taxes somewhere else and then some software and you basically are coming in with one solution. One speed as you said and able to kind of consolidate distribution Nic can you speak to that a little bit. Thank you and congrats from me as well.

Right.

<unk> mentioned the growth there is actually a workforce management client.

Reallocated with areas they were an existing client with a much smaller footprint and they have now extended it globally.

And I think they've actually still an upside over there of a few hundred thousand more employees that we expect to win over time as well. So it's just based on early performance of the <unk> platform and the capabilities that we've built.

Enabling them to run their business when we look at the other global deals typically there is a.

Domestic provider, sometimes it's the big ERP that were coming in and actually Youre, replacing.

Large enterprise is still largely a best of breed. So if we get all.

Jamie if you like with the compliance modules and then we expect over time to get the system of record followed by the talent. We have had some success with customers like Costa, which is part of Coke where.

Where we are the system of record we wrote off so.

Our talent capabilities to them and Thats, obviously resonating very nicely in markets.

Yes, okay perfect congratulations.

And we have I believe our final question of the evening from Scott Berg with Needham.

Okay.

Hi, everyone congrats on the.

They're really good bookings and thanks for taking my questions I guess I have two quick ones.

Follow up on the gross margin impact from from someone's earlier question and the response for the improvement in the quarter I didn't hear about the impact of the improved flow of revenues.

First flow revenues were up $3 million sequentially from Q1, So I assume that also drove some of the benefit in the.

In the subscription gross margins or the recurring gross margins.

I guess, Ed correct me, if I'm wrong, and then B you talked to that impact absolutely, but excellent. We're also seeing a pretty significant bump in our cloud recurring gross margins as well, but yes.

Scott you had another question are you still there.

Okay, everyone. Thank you for joining our second quarter conference call, we look forward to connecting with you over the following weeks.

Okay.

Okay.