Q2 2023 Ceridian HCM Holding Inc Earnings Call
We're joining welcome to Ceridian second quarter 2023 earnings Conference call I'm, Matt Wells head of Investor Relations.
And on the call today, we have our co Ceos, David offset and Lee Turner, and our CFO No Amy Hulond.
As a reminder, all participants are in a listen only mode and a question and answer session will follow our opening remarks.
Now before I hand, the call over to David I want to remind everyone.
Terry May include forward looking statements.
These statements are subject to risks and uncertainties that could cause <unk> results to differ materially from historical experience or present expectations.
A description of some of these risks and uncertainties can be found in the reports we file with the Securities and Exchange Commission such as the cautionary statements in our filings. Additionally.
Additionally over the course of this call we will reference non-GAAP measures to describe our performance.
Please review our earnings press release and filings with the SEC for a rationale behind the use of non-GAAP measures and for a full reconciliation of these GAAP to non-GAAP metrics. These documents. In addition, a replay of this call will be available on the Ceridian Investor Relations website, and with that I'd like to turn the <unk>.
All over to David.
Thank you, Matt and thank you all for joining us today on our second quarter earnings call.
Today, I'll discuss our strong second quarter results.
<unk> continued commitment to innovation in the HCM space and provide an update on our raised full year outlook.
Lee will provide more information on sales wins successful customer implementations and continued scale across our organization.
And now Amy will add detail to our quarterly performance and updated full year outlook.
Before I dig into upon naturals I'd like to congratulate the team our global workforce, our customer base and our partner network. There is momentum across the organization and our HCM ecosystem and these results are evidence of that.
Now turning to our financial results I am pleased to report that we exceeded guidance across all revenue and profitability metrics in the second quarter.
And we are pushing the full beat across all revenue and profitability metrics into our full year guidance range.
On a constant currency basis de false recurring revenue grew 39%.
And Dave will for carrying revenue ex float grew 28% year over year at constant currency.
Turning to the bottom line metrics and cash flow.
Adjusted cloud recurring gross margins of 78, 1% continued to expand by 177 basis points year over year.
Adjusted EBITDA was $98 4 million or 27% of revenue and expanded meaningfully year over year by 640 basis points.
This is a result of the revenue upside in the quarter and our continued focus on operational efficiencies.
Adjusted operating income was $83 million or 23% of revenue and also benefited from these same trends.
And we had record operating cash flows of $82 million in the quarter.
Cash flow has been an area of focus for the organization and so I'm happy to announce continued progress along this metric.
As I mentioned based on our first half performance, we are raising both our growth and profitability outlook for 2023.
As a result should.
We have and are well positioned to execute in the current macro environment and are confident that our focus on durable and profitable growth.
Lead to continued success and value creation.
Our results are also the outcome of our commitment and our ability to continually innovate and deliver real quantifiable value to our customers.
This has allowed us to win new customers, while at the same time increase product density across both new and existing customers.
As Lee will speak to year to date, we've attached the full suite to 50% of new sales.
This is validation of both our sales and product strategy.
We're seeing healthy adoption of our talent solution.
And the New day falls hub experience continues to resonate with customers.
Therefore wallet continues to see healthy adoption across our new and existing customer base.
We are attaching the solution to 80% of new sales.
And we now have 1640 customers sold in over 1000 customers live on the wallet.
And we expect to cross $2 billion of Loews within a few weeks.
And last quarter, Joe spoke to our AI roadmap I am pleased to announce continued progress on that front.
We are advancing our usage of generative AI internally as well within our products.
And our customer support organization, our generative AI support tool is now answering over 85% of direct your questions.
Which is up over 10% from last quarter.
This is on pace to provide a 10% gain in overall productivity in the customer support organization.
All of this is a byproduct of training the model against implementation guides knowledge bases and other internal documentation that is refined against customer questions and responses.
Across the <unk> platform, we see countless opportunities to add generative AI to up level analytics and augment our already intelligence solutions for customers.
Joe and his team are thoughtful in their approach here.
And are excited to showcase what's next at our insight conference later this year.
And finally, I'd like to discuss global and enterprise.
The <unk> platform was built to address the global market from day one.
And part of our competitive advantage is offering nature Coy Char talent workforce management and payroll solutions to almost every major geography.
On this front, we are well ahead of our competitors.
In the quarter we.
We developed an extendable formula based global payroll engine that allows for rapid adoption of new nature of <unk> global payroll for most countries across the middle East and Africa.
And we continue to progress with our customers on our major payroll expansion into Germany.
Our charter customers are now running payroll in country and we are progressing with the German <unk> certification Board, we expect German payroll to be generally available in Q1 of next year.
And on the Enterprise front, we brought live 279 net staples customers in the first half of this year.
Within that cohort of customers. Our go lives within the segment of customers of over 6000 employees more than doubled year over year.
And at the same time year to date average deal size has increased by 17%.
Another incremental data point validating our ability to sell a broader solution set expand globally and to shift up market.
In summary, ceridian remains positioned as an innovator in share taken the global HCM market.
And before I turn the call over to Lee I would like to welcome customers prospects and partners to our flagship insights conference taking place October the second to the fifth in Las Vegas, We are looking forward to another record breaking year.
One last item to discuss.
I'd like to share that know Amy has decided to pursue outside opportunities.
He will be with us up until the end of the year and will help us onboard her successor.
Like you say, thank you to her for the last three years with that I'd like to turn the call over to Lee.
Thank you David.
Going to your comments I'd like to underscore the strong momentum youre seeing throughout the entire business and the reason we're leaning into innovation across the <unk> platform.
Pelling both growth and innovation is this once in a generation drift.
Driven by three intersecting opportunities that we are uniquely prime to take advantage of and which customers are reaching to us to help them through.
The first is a complex macro environment, we help customers identify opportunities for productivity and efficiency, which they can then use to create real returns and real value.
Second every organization in the World is navigating the mandate for a more connected workforce given the new social contract between employee and employer in this boundless world of work and day for US is a single global full suite people platform.
Which supports both the employee and the employer in this new world of work.
Third.
In this era of AI jobs will be transformed and work will get done differently.
This is a historic moment it really is and we are being trusted to help our customers drive workforce transformation not renovation in the era of AI.
And if we continue to ride the wave of these three intersecting trends, which we have to date.
We can be that people platform.
This generation.
You can see absolute toughest issue that companies face today is that the work is agile and flexible and efficiencies drive growth.
And other HR technologies are not known for their scale and flexibility.
Moving to the quarter.
As of Q2, we have nearly 6300 customers Sunday day force platform with more and more customers adopting our full suite.
In fact globally, 50% of new sales our full suite in 2023 <unk>.
That brings our full suite total customer base to 40%.
We are a full suite company.
Building on this motion.
Our add on sales back to the base continued to trend ahead of expectations and represent approximately 30%.
Total sales year to date as David touched on earlier, this validates our ability to land and expand and to deliver maximum value to our customers.
Driving this momentum has been the realignment of our revenue and customer experience organizations under Steve Holdridge, which we announced in Q1 and we continue to see both results and efficiencies from that decision.
In this quarter, we announced the appointment of Sam <unk> as Chief revenue officer reporting to Steve.
While we were not planning to hire for this role so quickly sandwich the talent that we could not pass up given his 30 years of experience.
As a global enterprise SaaS leader he is a true operator, who understands scale and durable growth.
Especially through the build out of the incremental revenue streams and sustainable ecosystems here.
His joining is a yet another indicator of our ability to attract truly differentiated talent globally and it's a testament to the fact that we are doing something very very special here.
Given the impact he's had already we are so bullish about his future in this company and the benefit will be felt by our people and our customers.
Now, let me get into a few notable wins and go lives in Q2, new customer wins included a European Aviation services company with 55000 global employees, which selected <unk> to support its people operations in 35 countries.
A leading professional services company with 33000 employees in nine countries chose to read in.
Its trusted partner FERC global managed payroll.
I U S consumer goods manufacturer with 35000 employees globally added Europe , the middle East and Africa to its partnership with Ceridian after choosing Ceridian Fritz Latin America, and Asia Pacific operations in Q4 of 2022.
And a leading global jewelry company with 30500 employees selected day for us to provide a single workforce management solution across 39 countries.
Also notable organizations that we took live over the last quarter include.
A multinational Dax 30, chemical and consumer goods company with 60000 employees globally is continuing at very successful implementation with ceridian expanding its safest deployment to 20 countries and approximately 27000 employees to date.
Leading global Pet care conglomerate with 30000 employees launch day for us to its U S and Canadian Workforces to help standardize operations and reduce reduce turnover.
And our luxury automotive manufacturer of piloted day for HR and workforce management to a large group of their in place in Germany with plans to expand to its full German workforce of 10000 as we move out of charter in early 2024.
Also fueling the value our customers get from Implanting day for US is the progress we are seeing in the partner ecosystem. It's really been phenomenal in Q2, we announced the evolution of the Ceridian partner network to better align with our customers' journey by matching partners with customers.
A critical moment to drive continuous value.
Within a C. P N. We saw Deloitte, Australia, Pwc U K and RF and accelerate the growth of their day force offerings and we also joined the Ernst and Young's Global Alliance partner program, bringing the transformational benefits of day for us together with E wise extensive or.
[noise] of surfaces and industry insight.
Now turning to product Q2 saw meaningful advances across four critical innovation areas for our customers experiences openness compliance and intelligence on the experience front, we made our differentiated experience hub available.
Globally and enhanced our people search capabilities.
<unk> compliance we continue to earn our placement as the absolute market leader with customer driven features such as flex time pay and shift bidding.
An openness, we're accelerating customers' ability to leverage our ecosystem and create more connected systems with innovations like day forced integration studio, which now has interoperability across our entire partner network.
And last but far from least we continued to deliver on empowering our customers with better intelligence powered by AI with the launch of predictive tools like day force career explorer and the burnout dashboard available in de force people analytics.
On the topic of AI and as David noted, we're quite pleased with the progress, we're making to integrate AI across our business because we're getting this right really matters and we are seizing the opportunity to make radical breakthroughs in delivering trustworthy innovation with great care.
Of course this includes our product roadmap with the use of tooling in areas like talent management and career pathing as Joe spoke to last quarter.
But also ensuring that our entire company is finding ways to lean into AI to drive efficiency and value.
We fully believe that AI innovation begins with our people we have set up a lab function focused solely on the iterative work required to drive workplace use cases enabled by AI. In addition to creating plans to roll out AI training internally, ensuring that all of our <unk>.
Employees no matter their function our AI literate.
It is this continued investment in our people that we believe is the foundation for.
For our market differentiation.
As underscored by accolades in Q2, including being named one of Newsweek's top 100, most loved workplaces.
Our employees' passion for our customer success is also super inspiring as is their focus on furthering our commitment to ESG and to the communities in which we work in Q2, we held our first ever global volunteer month, which are people rally behind us only certain people.
Ken and we were honored to be awarded as one of USA today's Americas climate leaders in 2023.
We also have earned a double a ESG rating and placement in the leader category from MSCI for the second year in a row.
In closing this quarter showcases that we continue to fire on all cylinders, we lean into every single part of the business to ensure that we are progressing and primed to be the go to partner for HR HR organizations in this absolutely critical moment of opportunity.
And one of the many many conversations I had with customers this quarter one of them.
At best buy noting.
You are the closest thing to the Holy Grail of modern HR technology that has ever existed.
You are set up for generational growth.
You are everything that we thought you were.
I think there is no better moment, then insights this October to connect and to communicate and to celebrate with a de force community on all the goodness that we have in store for their people and organizations. It truly is a brand new day for us now.
Now before I hand, it over to know Amy to close out I'd also like to offer my very deep gratitude for her leadership and counsel these past years.
She has been a wonderful colleague and and even more dear friend and she has helped US drive ceridian through a tremendous stage of growth and she will leave us more than readied for our next stage.
You know Amy I wish you absolutely all the best and I'm going to turn it over to you to bring us home.
Lee Thank you.
Our second quarter results are another proof point of the strengths of our business.
I'm happy to report that all key two metrics exceeded guidance.
Giving us confidence to raise our outlook for the remainder of the year.
They force recurring revenue grew 39% at constant currency.
Underpinned by day force recurring revenue ex slow growth of 28% at constant currency.
Gross here reflect strong go lives of larger customers and sustained employment volumes.
Adjusted club declining gross margins of 78, 1%.
Expanded 177 basis points year over year.
Reflecting continued scale in the day of course business.
The combination of healthy revenue growth and expanding cloud gross margins helped drive adjusted EBITDA of $98 4 million or 27% of revenue.
Operating cash flows of 82 million is a record quarterly number for the company.
This reflects continued disciplined regarding expense management and working capital needs.
As previously communicated we continue to expect at least 50% adjusted EBITDA conversion into operating cash flows in fiscal year 2023.
Looking ahead towards key green and the remainder of the year.
Are they force revenue guidance reflects sustained employment volumes. In addition to a strong quarter of go lives.
Notably we continue to expect and remain on track to bring some of our largest customers live in Q4.
In the third quarter.
We expect the force recurring revenue explode to grow in the range of 26% to 27% at constant currency.
And for fiscal year 'twenty three.
On the back of a strong first half of the year.
We're raising our outlook for D force recurring revenue ex float and now expect growth in the range of 27% to 28% at constant currency.
Our float revenue guidance of 38 million for Q3 and $160 million for the year.
Reflects typical seasonality in the second half balances and relatively stable rates.
With respect to total revenue.
We expect between 17 and 18% growth at constant currency in Q3.
21% to 22% for the full year.
The full year raised outlook accounts for Q2 strong performance of the force Powerplay and float.
While we manage the shift of our professional services revenue, especially implementation to our system integrators and partners.
Turning to profitability, we expect Q3 adjusted EBITDA in the range of $89 million to $91 million.
And now expects fiscal year 'twenty, three adjusted EBITDA to be in the range of $384 million to $392 million or a $15 5 million raise at the midpoint.
Profitability in the second half of the year account for some level of investments into the business.
Especially in sales and marketing.
As we prepare for insight in Q4, which is typically our largest quarter. Both in terms of new cell then go lives.
Lap.
So reason has undergone tremendous growth and scale since I joined in 2020.
And our results continue to demonstrate the resilience of our business and steady progress towards our mid term financial goals.
So after three amazing years, working with the leadership team I've decided to pursue other opportunities, but will ensure an orderly CFO transition in the upcoming weeks and months.
It's been an honor to work with our colleagues around the world who are so deeply committed to our brand promise to make life better.
I'm very confident in the path ahead for Ceridian, and our incredible community of customers.
With that Matt I'll turn the call over to you.
Yeah.
Yeah.
So we will take our first question from Kevin Mcveigh of Credit Suisse.
Great. Thanks, so much and Naomi congratulations and thanks for your contribution of Ceridian.
Hey, I Wonder if we could go back to the guidance just a really really nice outcome boosting the revenue and really the outsized EBITDA.
Is that EBITDA does it reflect David I think you'd mentioned, a 10% increase in productivity as a result of AI.
Or is that something that would be incremental as we think about it in the back half of the year end.
Again, very very strong results does it factor in any macro change at the margin or just you know any thoughts around that again, a really really nice outcome.
Kevin. Thank you for that let me just unpack that question.
First we have flowed through the school.
Both all day force recurring ex loads and to the EBITDA.
And kind of get clarity on that we are raising.
Any forward recurring revenue ex <unk> by $10 million.
Which is a combination of both the Q2 beat.
And the Q1 did.
So not only are we play with the Q2 beat through we flowed the full <unk> one fees throughout the year.
In terms of adjusted EBITDA.
We are raising by 15.5 at the mid.
Which is a combination of the Q2 adjusted each of about eight.
And as well we have increased our floor.
Those expectations for the second half of the year by six.
And you add the two together we are raised it by more than the combination.
So just to have clarity in terms of where we are getting increased productivity. As you know we have been very focused on the efficiencies of the actual business.
As I mentioned, Andrew you mentioned, leveraging AI and generative AI is part of our strategy and would be included in some of the efficiencies that we would expect for the remainder of the year, but thank you very much for the question.
Thank you.
And our next question comes from Mark Mark Hone with Baird.
Hey, good afternoon, and thanks for taking my questions and Nuomi.
It's been a pleasure working with you congratulations and best wishes for the next stages in your career.
With regards to the to.
The guide for recurring de force revenue.
Ex float it looks like.
There's going to be some acceleration in the fourth quarter relative to the third quarter.
At the midpoint of the guide is that just because of the really high level of confidence that you have with regards to some of the bigger wins that you announced.
You know a few quarters ago that are just ready to go live in.
Anything else that might be contributing to that and how do you factor in the.
The macro environment as it relates to those elements.
On the macro side remains positive and we remain optimistic regarding Q3 into Q4. There is typically some seasonality between the two quarters and that would be indicative of that.
Great and then David.
You guys are obviously investing globally across the board and yet the margins are.
Expanding nicely.
Can you talk a little bit about what the how that reflects on the scalability and the profitability of the business with existing clients because I would imagine that that really suggest.
Suggest that.
What youre doing with your current clients that had been in place for a while.
The profitability is really increasing substantially.
Thanks, Mark if I look at the gross margin on vehicles recurring which is 78, 1%, it's up 174 basis points.
Year over year in terms of global as you know <unk> was designed from day one to be global.
I would say we have about a 10 year lead on any competitor from a global perspective, and I think the results reflect that we are operating at scale globally with a full global operational model I think that he could add a bit more details of that as well.
Only thing I would add just anecdotally is that when.
When we look at Q2 the results across the portfolio, we're very very even in that every region performed exceptionally well and you would also have noted mark from our salesmen commentary both in the prepared remarks and in the press release.
That we're now selling very large transactions in every region in which we operate boastful suite and land and expand and so we will continue to do that it's the reason that our add on sales back to the base continue to be in the 30% range and.
If things are working really well as it relates to our entire global footprint.
Perfect. Thank you.
And our next question comes from city upon a gras E from Mizuho.
Thanks for taking my question and Nuomi. My Best uses is really going to Miss working with you.
So my question is about large deals momentum.
Good to see now that 30000, plus kind of deal back in Q2.
Versus Q1, so wondering how's the pipeline look like right now for the large deals.
At this point and I saw that you didnt expand it therefore platform denominated listing.
Africa countries. So.
Help us understand the momentum in the pipeline and launch Simpson I have a follow up.
So great questions you know the best metric I think we have in terms of the momentum upmarket.
If we look at the number of deals that went live in the segments above 6000 employees. It is up 125% year over year.
So we're seeing significant momentum upmarket and many of those are global accounts in.
In terms of global payroll.
We have developed a extendable payroll engine.
That is deployable across most of Africa and across.
Across the middle East.
We already do hub.
<unk> customers in countries, like Kenya, and Mauritius and South Africa.
Okay, that's great and then David.
Large deals you signed last year.
The go live tracking so far.
It's tracking very well you will you see that again, if we look at the metric that I just spoke about the number of deals the number of customers that went live.
<unk> and above segments, which is the largest segment that we actually track and disclose is up 125% year over year.
And I would say that sales performance in the quarter and large enterprise and enterprise were both strong.
You would add about momentum in.
Large enterprise our enterprise I mean, I'd, just echo to the 17% year to date deal size is up 17% which is exceptional.
And perhaps I'll say rolling four quarter pipeline is very strong we're set up for a very strong back half.
And we're really pleased at Sam has decided to join US. He's an excellent addition, he's an exceptional technician and he's done a really good job of getting its feet in really understanding the business well.
We will make a few tiny tweaks to the go to market in order to get things to work, even better and I would expect that we can continue to accelerate with his addition.
That's great color. Thank you both.
Our next question comes from Michael <unk> of Wells Fargo.
Hey, great. Thanks appreciate you taking the question.
Given the commentary on the macro as they continue to point to resilience, that's maybe not the norm I'd just love to hear if you can compare and contrast, any differences you're seeing across regions or market segments is the resilience you're seeing you think at all a factor of your move up market and some of the larger customers that you are.
Addressing <unk>.
I know you've gotten a few questions on it but any details you could share around the visibility into the Q4 deals and some of the work you've put in place to enable that to remain on track to them are now August .
It sounds like a pretty healthy built between known out of Europe .
Microsd pointed out we believe that will have a strong second half on top of a strong first half.
We full employment levels come in above our expectations.
In the quarter and in the first quarter of the yeah.
<unk>, what we've been saying about the macro is positive and optimistic and thats been consistent over the last number of quarters.
Just maybe a little bit more from Lee on the go to market side. The appointment of Sam sounded like something we couldn't pass up is kind of some partner relationships that are referenced that are broadening out can you just speak to the signals that you're seeing some of the go to market.
Since youre prioritizing them to put some more context around the moves you're making thanks.
Yeah for sure I mean, a little bit of digging would tell you that some of us have some past experience with Sam.
And.
He's just as I am.
As you said and I said, he's an exceptional addition, and we just couldn't couldn't pass them up.
As you know not only does he have great let's call it sales and go to market and customer experience, but he is also excellent at analyzing and assessing how to grow our sales ecosystem.
And we cited in the first quarter that we had a 76% increase in the number of consultants that had been trained on day for us and.
But we're now in the ecosystem and you can see that really starting to pay some serious dividends.
The ecosystem continues to mature we are ahead on have them sold with a size kick off with a size go lives with our size and us and Sam has joined he has some smart ideas about how we might accelerate that even further.
Not only with <unk>, but with influenced partners third party revenue partners.
And additional relationships that we could use to generate incremental revenue streams.
I can just say to your original question that David responded to the macro as we said last quarter continues to be exceptionally favorable to us.
Customers during a tricky macro look for efficiency they have no other way to drive growth and we deliver efficiency.
Secondly, everybody is still trying to figure out.
States through the future of work do people, how do people work how do they collaborate how did they stay aligned and nature of technology serves all of that and then lastly, as it relates to AI everybody's wrestling through this what will work be how it will work be displaced and made different.
And the reality is we're able to council our customers through that change and we will even more so as the trend continues to emerge. So we see really good tailwind for a very long protracted period of time.
That's really helpful color. Thanks, very much yeah. Thank you Michael.
And our next question comes from Dan Jester of BMO.
Great. Thanks for taking my question.
David can you just remind me about how you're thinking about the conversion of some of your past acquisitions to date for us and how we should be thinking about that trajectory going into next year.
Yeah. It's.
If I look at the <unk> side of the actual businesses inside the quarter.
<unk> had about $21 $8 million of revenue.
We now have effectively classified the accounts.
Green yellow and red in terms of ease of movement towards staples alongside that as well as you know we look at upselling them onto the talent in the workforce management component out of that particular journey.
We are beginning to stock the migrations will position of the migrations right now and will continue for a number of years.
Anything that you would add no I think you've covered it.
Great. Thank you and then with regards to implementation and sort of the push to more partners. There is great to see that.
You had partnership with our with our integrator to take our customer lives, maybe just an update as to kind of how you think that that is going to progress.
Again over over the next year at what stage do you think partners do.
A greater chunk of the implementations, especially as you move increasingly up market. Thank you.
I'll grab that by saying first of all great question. Thank you for it as I said, our partner ecosystem, which started at like you know a standing start three years ago has now progressed very significantly I would say when we look at our sales wins.
No two thirds of them have been influenced by our partner in some regard and that spans virtually every single segment in which we operate.
And what you will continue to see is that the pipeline will increase as a result of that network effect, we imagine that more and more customers over time will be kicked off and brought live with partners and as that happens our partners build value added services around de force, which become very.
Rich practices that they can continue to build their business upon overtime, which is excellent for us and becomes in effect irreversible. So I would say we're still in relatively early innings, it's working really well better than perhaps we could've ever.
Specced it.
Probably as a result of the fact that our technology is strong and the demand is so high.
But as we continue to grow I would imagine you'll only see that increase in and one thing I would note is that we're now seeing what we would call like Mega deals happening with partners in the large enterprise space brought to us directly by them happening much more consistently than being brought live with.
Ease and proficiency one thing I would add to that is if you actually looked at the number of projects that were kicked off by S size in the quarter. It rose to 75% on a global basis, which is up obviously significantly year over year. You'll also see that reflected if you do the breakdown of all.
Of our total revenue line, you'll see that we're shifting the professional services now are more towards the actual size and as you go forward you would expect less and less of our revenue total revenues from professional services as our hope would be that we focus on becoming a scalable software company leveraging our <unk>.
Si partners to do the majority of implementation.
Great. Thank you very much.
And our next question comes from Raimo <unk> of Barclays.
Hey, Thank you.
If you look the.
The highlight for me this quarter, where like the wins with customers of its kind of thousands of employees, which is kind of really confirmation for the direction Youre going there. What are you seeing in terms of the early stage pipeline already the willingness of people to engage with you know likes you don't reference customer buys you should.
Like look more what you see in terms of like considering the cycle and everyone is worried about what's going on in the economy versus kind of the success, you're having there like what is what's the nature of the conversation there. Thank you.
Raimo. Thank you, but we're very focused effectively on delivering quantifiable value to the customers and in today's environment that does come into focus.
Many of the organizations that looks to us are looking for HR digital transformation simplification of movement towards our shared services and globalization.
Secondly, improving decision, making through the use of AI generative AI and just general very powerful analytics.
And obviously, we're looking at the overall experience as we move to a more simpler.
A system that runs obviously at scale and runs globally and that has lead pointed out has led to very robust pipeline and I think very good execution was in the first half of the actual yeah.
And what would you add to that the only thing I guess I'd add its just thank you raimo.
Now you would know.
Couple of years ago, We said that we were going to meaningfully push up into the enterprise and large enterprise space and as you noted every single customer that we listed either in prepared remarks or in the press release, our many many thousands of employees. It's a real testament to our setting our mind to do something thing we would do it in delivering.
Yeah and then.
One for you.
Obviously.
Having tiny tweaks with like Sam joining it takes.
There's always something that makes people a little bit nervous.
As it happens like more in the middle of the year.
Can you think of it.
Just like kind of a little bit more moving more enterprise getting more strategic or how.
How should we think about that thank you and congrats from me as well.
Thank you.
I mean, I would say the following I think that you prepare a thorough go to market and you launch it at the beginning of every year together with sales bags and quotas and any changes you might make the segmentation or territories.
And it is very normal in the enterprise SaaS space to make minor modifications at the midyear point, which is all we're considering doing I'll give you. An example, you know we're seeing real movement in our full suite sales and lots of interest in our talent products, maybe we can add.
Overlay resources in order to continue to lean into that thrust. So that we can move faster to being a full suite company and we can ensure that those customers in our current customer base, who haven't yet taken advantage of that technology do so that would be an example of.
Change, we might consider making no sharp turns no major moves just a few tweaks, perhaps to drive greater increment in the back half of year and set us up for a great 2024.
Sure. Thank you congrats.
Our next question comes from Steve <unk> of Citi.
Okay, great. Thanks for thanks for taking my question here.
I didn't want to ask on the comment about deal sizes being up 17% versus personnel last year I mean, good growth there I guess, how should we be thinking about the components of that growth is it primarily being driven by these larger saying some moving more up market or how much of the expanded our Sweden and more modules helping support the.
Helping support that growth there.
It is very balanced.
If I look at the average number of modules across the customer base.
It's up about four X.
You know relative to about 2021.
So we've obviously seen more product to be used higher module density across our client base.
It is well if we look at the number of go lives in that upper market segment.
It's up 125% yeah.
<unk> for us is very much about having a durable growth strategy.
That.
It runs for a very long period of time.
Okay got you that's helpful and then on the on the guide I think last quarter talked about seeing upside from employee levels and in that not necessarily being being rolled forward. I guess was there any change in how you're thinking about.
Those components to the current outlook and kind of what you saw this quarter on that front.
Yeah. So in substance what we've done is we've removed the hedge that we had in Q1 you may recall, we talked about.
The approach around employment levels, and and now we feel very confident with what we've seen in Q1 in the second quarter.
So we flew to the entire beat up the first half to the second half.
Okay Alright.
Our next question comes from Matthew Pfau with William Blair.
Okay great.
One question for me.
Global payroll efforts that David you mentioned that you're well ahead of competitors here and I think clearly some of your competitors have shown more interest in this space recently, maybe you can discuss some of the challenges that you believe your competitors will face when trying to replicate what you have built in and how do you think your offering differs.
What some of your competitors are doing thanks.
That's a very good question, there's a lot of complexity in terms of going global.
Starts with the global.
HR model that you need to have in place.
I don't believe it is possible to take a U S product and retrofitted to be global and certain data elements that has to be attracting not tracked on a global basis.
There are elements when it comes to the actual cloud environment that you are deploying and where the data resides there.
There are processes that have to be in place as well as to who is allowed to actually touch the data outside of country and how you operate on a global basis from that particular perspective.
From a workforce management perspective, the way that time and attendance calculations work, whether it would be over time, whether it be scheduling whether it be premium it's gonna be penalty pay.
Not based on North American or U S. A paradigm.
Of continent, if you go to Europe , and you get into areas like working Council working directive that have no meaning yeah, if you're going to Joe's like New Zealand are quite different from even what you would find in Australia. When it comes to the way that they actually process the holidays.
You get into certain countries like Australia into kind of a construct school like multi year awards with a pay policy policy actual job classification, rather than the actual employee.
On the payroll side very very different in terms of how taxes will work how do you actually have to calculate pension in many cases from a benefit perspective, the U S benefit paradigm doesn't carry outside of the U S. It doesn't even carry into Canada and certain countries. For example, Canada. There are national language axe, where you actually have to operate.
Equally in both of the National languages and that is to extend throughout your system documentation training website materials.
And alike in terms of record of employment and reporting out HR events, the various types of governments across the world countries.
Countries are very specific as to what Brightcove employment information they want from the employees are when they want to know what actual format.
When you get into the actual money movement system are very different from the U S going to Canada going to the U K going into the EU going to Australia, a P. J I'm very very very different.
We have built the company to be global from the onset we started with global customers in fact, our largest live customers are global.
So I think we understand it very well the work that Joe has been doing inside the actual platform to lift it up very important in terms of language localization as well I believe we are now deploying in about 165 countries.
And that takes a bit of work and again organizationally, we pivoted from being a U S company operating globally to a true global operating model several years ago with over half of our employees in all continents, and we run the organization as a global end.
Surprise, so again I think we've got quite a long way to go.
Not want to be a new entrant into the global market.
Market, starting today and competing against the likes of us.
Very helpful. Thank you.
Our next question comes from Alex Zukin of Wolfe.
Yeah.
Hi, This is Patrick on for Alex Thanks for taking my question.
So during the quarter.
With our checks we've heard about the Phoenix payroll system project in Canada started Graham I'm wondering if you could give us an update on the project what inning are we in that initial $67 million pilot.
While we still few years out from decisions being made on the broader project that.
Yeah.
Thank you for the question Patrick I think there's three things I can tell you about the work that we've been doing with the Canadian government, which we which we call nexgen, which they call next gen.
The first thing I would tell you is that the testing results have continued to be exceptional.
And we have.
Concluded the testing.
The second thing I would tell you is that the government is now preparing something that they call and initial findings report.
Which will summarize those testing results.
And they will present that to cabinets for consideration in the next few months.
The third thing that I can tell you, which we view as a positive sign of momentum is that Alex been eight who was originally with the government left to go to industry has since come back.
Has been named a deputy minister responsible for PE.
And that includes understanding the current Phoenix system, and its limitations and thoroughly understanding the results that have emerged from nexgen and helping to support the path forward.
So great.
Great progress.
Yeah.
Our next question comes from Robert Simmons from D. A Davidson.
Hey, thanks for taking the call.
So we've seen some consolidation in the partner ecosystem with a harder or buying some kind of regional.
Can you talk to what Youre seeing there would be more of that to happen in kind of the puts and takes of that dynamic.
So it's very encouraging.
As you know useful pwc.
Such as our people force in the U K P.
People Force was a day false consulting organization and I would expect that Pwc purchase people falls to handle the demand that they're seeing or off.
Product Likewise in Australia, you saw I think it was to delight patches enforce consulting also enforce the specific need staples implementations and a P. J and again I would take it as a sign of very strong demand and the big <expletive> size building out.
Their practices.
Got it that makes sense.
And then can you update us on the ideal talent marketplace are you still on track to launch that this year and then any kind of wondering if you've learned so far number of what you've done to date.
We remain on track.
We'll be sharing more of it and insights.
We would expect to go live with the first charter customers this year.
Yeah.
Our next question comes from Bob <unk> Shah from Deutsche Bank.
Yeah.
Hi, everyone. It's Nick on for Bob. This evening, Thanks for taking my questions and Nuomi, Congratulations and best wishes on your future endeavors, just looking at the back to the base sales are trending ahead of expectations can you dive a bit and what modules have been helping to drive such strength and how should we think about the sustainability of that growth going forward.
I think part of it is what we actually spoke about was the changing go to market segmentation of the actual sales force.
Also having a dedicated M&A team going back to the base.
Quite meticulous about this we met up the white space across all of actual customers. We determine the right time that we can actually approached them as we look towards the long term and durable growth strategy. We do believe that sales back to the base has to be a big part of our success as it has been on the other scaled software company Lee anything you would add.
I guess, the only thing I would add is that our retention rates continue to hold which means that our customers are very happy.
With the level of service that they receive from us and the value that they receive and as a result happy customers buy more software.
Okay.
Our next question comes from Jackson Ader from Moffett Nathanson.
Yeah.
Oh, great. Thanks.
Thanks for that.
My questions guys I was just.
Yes, I'm curious when you look at some of these large deals heading through the pipeline or I should say large go lives coming at the end of the year can.
Can you give us a sense of what markers you either can or can't already see that say, yes, we feel really good about the use or we might be able to tell in a few months' time. This isn't really a good sign what are some of the things that you tend to look for as you head into those go lives that being that they are indeed going to hit in the fourth quarter.
This is not a business run on Lucky charms.
We have a weekly meeting of service forecast call, where we go through every account that is currently under implementation for each head count we assign their risk of them actually pushing.
Any account that has a risk of pushing up more than 30%, we're going to actual detail. When we actually look at the actual forecast, which we do on a quarter over quarter basis, we have a forecast of the amount that we hold the sales group accounted for either the services group accountable for and has run very well I mean, we have Steve here as well so anything that you would add.
From a color perspective.
All I would add is we actually have very good visibility we have a very good understanding of what we expect to happen and we have the ability and we've shown the ability to accurately predict that too in terms of our view for the second half of the year.
Based on a pretty solid foundation and experience so we feel confident.
Okay, all right, Great and then Lee on the.
On the full suite penetration so it's half of the kind of new wins in this year, our full suite customer base like 40% or so.
What sort of timeline do you try and build toward after maybe an initial deal. It doesn't go full suite that you end up.
Kind of building toward a roadmap to getting them full suite customers. Thank.
Thank you great question.
What I would say is done right and we try and do this more and more consistently.
Reposition a full suite right upfront.
So we assess the full end to end white space in our customer and therefore.
The maximum value that we could contribute and if a customer decides to begin with a SKU or two they do it knowing what the total available white space in total available value is which means that we have an opportunity to go back almost right away to begin talking.
About expanding the values, particularly so as we take this module flies we prove that we're doing it on time and on value you can imagine that customers are quite receptive to expanding their relationship.
That's great that makes a ton of sense. Thank you.
Welcome.
That concludes our conference call for the night. Thank you everybody for joining us will catch up with you over the quarter.
Yeah.
Okay.