Q2 2024 Dayforce Inc Earnings Call
You have joined the meeting as an attendee and will be muted throughout the meeting. Thank you for joining.
Welcome to the Dayforce second quarter 2024 earnings call. I'm David Niederman, Vice President, Investor Relations.
Speaker Change: As a reminder, all participants are in a listen-only mode, and a question-and-answer session will follow our opening remarks.
Speaker Change: Joining me on the call today are CEO David Ossip and CFO Jeremy Johnson.
Unknown Executive: We also have Chief Product and Technology Officer Joe Korngiebel and our President, Steve Holdridge, available for Q and A. Before I hand the call over to David, I want to remind everyone that our commentary may include forward-looking statements. These statements are subject to risks and uncertainties that could cause David Forse's results to differ materially from historical experience or present expectations.
Speaker Change: We also have Chief Product and Technology Officer Joe Korngiebel and our President Steve Holdridge available for Q&A.
Speaker Change: Before I hand the call over to David, I want to remind everyone that our commentary may include forward-looking statements. These statements are subject to risks and uncertainties that could cause Day Force's results to differ materially from historical experience or present expectations.
Speaker Change: 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.
Unknown Executive: Additionally, over the course of this call, we'll reference non-GAAP measures to describe our performance. Please review our earnings press release and filings with the SEC for our rationale behind the use of non-GAAP measures and for a full reconciliation of these GAAP to non-GAAP metrics. Thanks, David, and thank you all for joining us.
Speaker Change: Additionally, over the course of this call, we'll reference non- GAAP measures to describe our performance.
David: Please review our earnings press release and filings with the SEC for our rationale behind the use of non-GAAP measures and for a full reconciliation of these GAAP to non-GAAP metrics.
David: These documents, in addition to a replay of this call, will be available on the Dayforce Investor Relations website. And with that, I'd like to turn the call over to David.
Speaker Change: Thanks, David, and thank you all for joining us.
David: I will provide some high-level comments on our second quarter and then turn the call to Jeremy to provide more details of our financials and an updated full-year outlook.
David: In the second quarter, we delivered strong results. Revenue growth was healthy as Dave Hall's continuous exhibit, Strong Appeal, with customers to power best-in-class HCM experiences for their employees.
Jeremy Johnson: Their forth recurring revenue of $322 million was up 20% including float and 21% excluding float on a constant currency basis.
Unknown Executive: And total revenue of $423 million increased 16%. Cloud recurring gross margin was 77.7%, up 100 basis points. Our business momentum remains strong in the second quarter, with significant progress achieved across our product and operations. While the macro backdrop remains fluid.
Jeremy Johnson: And total revenue of $423 million increased 16%.
Jeremy Johnson: Cloud recurring gross margin was 77.7%, up 100 basis points.
Jeremy Johnson: Adjusted EBITDA was $116 million up 18%, representing an adjusted EBITDA margin of 27.5% up 60 basis points, and free cash flow was $72.7 million in Q2 up 36%.
Speaker Change: Our business momentum remains strong in the second quarter, with significant progress achieved across our product and operations, and deal momentum continues at an encouraging pace.
Unknown Executive: We have been able to pivot to industries where Davos enjoys good traction, including manufacturing, retail, and hospitality, among others. Looking at the second half of the year, we are encouraged by our achievements to date in 2024. The core value proposition of the Dayforce platform of creating simplicity at scale, reducing complexity, driving financial ROI, and improving employee engagement resonates very well with customers. The HVM market is very large and is expanding.
Speaker Change: While the macro backdrop remained fluid.
Speaker Change: We have been able to pivot to industries where Daples enjoys good traction, including manufacturing, retail, and hospitality, among others.
Speaker Change: Looking after the second half of the year, we are encouraged by our achievements to date in 2024.
Speaker Change: The core value proposition of the Dayforce platform of creating simplicity at scale, reducing complexity, driving financial ROI, and improving employee engagement resonates very well with customers.
Speaker Change: The HCM market is very large and is expanding.
Speaker Change: This continues to be a resilient and durable market of growth.
Speaker Change: And our pipeline strength continued through the second quarter. We are optimistic that momentum will persist through the second half as conversations with prospective customers for the full suite platform are progressing well in all segments and regions.
Unknown Executive: Journey to Customers and Market Highlights. We now have 6,657 customers live on the Dayfuls platform. Customers continue to see the power and capability of the Dayforce platform, with full suite attach rates coming in at over 50% of new sales bookings. And sales to our customer base contributed positively to growth, with add-on sales compromising more than 50% of total bookings, including add-on sales to the Canadian government. Our differentiation is evidenced by our strong win rates, best-in-class revenue retention, and healthy sales growth. Germany Today falls short.
Speaker Change: Turning to customers and market highlights, in Q2, we delivered balanced and consistent growth across customer acquisition, activation, expansion, and retention.
Raimo Lenschow: I'll momentum.
Speaker Change: Sustain for Sales, Kickoff and Go Live.
Speaker Change: We ended the quarter with day force recurring revenue per customer up 18%.
Speaker Change: We now have 6,657 customers live on the Dayforce platform.
Speaker Change: From a sales perspective, we saw strong demand for Dayforce globally and sustained strength in both enterprise and major markets on a year-over-year basis.
Speaker Change: Year-to-date SI-led momentum continued, with healthy year-over-year growth underscoring our success in expanding our partner ecosystem.
Speaker Change: Customers continue to see the power and capability of the Dayforce platform, with full suite attach rates coming in at over 50% of new sales bookings.
Speaker Change: And sales to our customer base contributed positively to growth, with add-on sales compromising more than 50% of total bookings, including add-on sales to the Canadian government.
Speaker Change: And follow Grove in our Talent Intelligence Suite.
Speaker Change: Dave also remains differentiated from our peer group as the all-in-one global people platform that delivers simplicity at scale with a full HCM suite, a single application on a single database powered by AI.
Speaker Change: Our differentiation is evidenced by our strong win rates, best-in-class revenue retention, and healthy sales growth.
Speaker Change: Turning today, 4th Wallet.
Speaker Change: We were pleased to hit the milestone in early July of $4 billion loaded cumulatively. We had nearly 1,300 customers live as of June 30, and registration rates and user transactions per month remained constant.
Speaker Change: Wildlife revenue is expected to more than double this year and is the fastest growing product available.
Speaker Change: The Payroll Modernization Project for the Government of Canada is progressing well. As you may have seen, the Canadian government provided an update earlier this month with information about their targets, timelines, and planned investments.
Unknown Executive: Davos is proud to play a part in this project to help the Government of Canada not only pay its workers accurately and on time, but Jeremy will provide some color as to the impact of this project on our financial forecast and some key Q2 customer go-live included. A multinational government consulting firm.
Speaker Change: Dayforce is proud to play a part in this project to help the Government of Canada not only pay its workers accurately and on time, but to provide a modern employee engagement and talent platform as well.
Speaker Change: Jeremy will provide some colour as to the impact from this project to our financial forecast.
Speaker Change: In addition to the Government of Canada, some other notable saleswomen from across the globe in Q2 included.
Speaker Change: A global agribusiness and food company with more than 20,000 employees selected Dayforce Managed Payroll and Benefits Workforce Management Wallet and Dayforce Industry Solutions for its 5,000 U.S. and Canadian employees.
Speaker Change: A family of independent hospitality brands based in the UK with more than 20,000 employees selected the full day-4 suite to be used across its employee population in the UK and Ireland.
Speaker Change: A multinational entertainment company selected Day, Force, Pay, and Time for its 9,000 U.S. and Canadian employers.
Speaker Change: And some key Q2 customer go-lives included...
Unknown Executive: That is now live on Dave Walls payroll, HR, and time for all 39,000 employees in the US, UK, Canada, Netherlands, Germany, Singapore, and Saudi Arabia. A global e-commerce company with over 7,000 employees has gone live on day for parent workforce management for its US population. And a US regional airline that flies into more than 100 cities across North America implemented the full day for three, four, and 5,000 employees.
Speaker Change: A multinational government consulting firm.
Speaker Change: That is now live on Dave Waltz payroll, HR, and time for all 39,000 employees in the US, UK, Canada, Netherlands, Germany, Singapore, and Saudi Arabia.
Speaker Change: A global e-commerce company with over 7,000 employees has gone live on Dave Wall's pair on workforce management for its U.S. population.
Speaker Change: A UK seller of new and used cars went live with the full vehicles platform to 6,000 employees.
Speaker Change: And the U.S. Regional Airline that flies into more than 100 cities across North America implemented the full day for 3,000, 4,000, 5,000 employees.
Speaker Change: You can read about more notable sales wins and customer go-likes in our earnings press release.
Unknown Executive: Turning now to some updates on our platform and technology. As always, our goal is to deliver simplicity at scale and allow our customers to eliminate the complexity that often results from combining multiple legacy HCM solutions. We launched A4SkillsEngine, which uses AI to help identify skills gaps and then source and upskill talent within customer workforces. Additionally, we launched on-the-job learning checklists on the DataForce platform, which will allow managers to document training and observe the impact on performance. We launched Dayforce Payroll in Singapore, enabling customers operating in the region and across Asia to access Dayforce's industry-leading payroll capabilities.
Speaker Change: Turning now to some updates on our platform and technology.
Speaker Change: As always, our goal is to deliver simplicity at scale and allow our customers to eliminate the complexity that often results from combining multiple legacy HCM solutions.
Speaker Change: This principle guides our innovation, even as we introduce new capabilities to help our customers navigate the ever-evolving landscape of work and technology.
Speaker Change: In the second quarter, we introduced several exciting innovations.
Speaker Change: We launched Dayforce Flashwork, an on-demand marketplace that helps organizations augment their workforce by posting shifts and selecting from a pool of get-retired, seasonal, and alumni workers.
Speaker Change: FlexWork manages background checks, onboarding, and payroll, helping to give employers peace of mind while giving frontline workers a more flexible working experience.
Speaker Change: We launched A4 Skills Engine, which uses AI to help identify skills gaps, then source and upskill talent within customer workforces.
Speaker Change: We launched on-the-job learning checklists on the DataForce platform which will allow managers to document training and observe the impact on performance.
Speaker Change: We launched Dayforce Peril in Singapore, enabling customers operating in the region and across Asia to access Dayforce industry-leading peril capabilities.
Unknown Executive: We recently introduced the Daples Partner Exchange, which is a marketplace where customers can connect with fully vetted Daples partners and discover software and services that extend the platform with access to over 120 software and SI partners. We were pleased with our second quarter results. DayForce recurring revenue was $321.6 million, up 19.9%, and DayForce recurring revenue excluding float was $277.7 million, up 20.1%, or up 20.5% on a constant currency basis. Power pay recurring revenue was $24.6 million, growing 2.1% on a gap basis and 3.7% on a constant currency basis. On a gap basis, gross profit was $186.8 million, up 19.8%.
Speaker Change: We recently introduced the Dayforce Partner Exchange, which is a marketplace where customers can connect with fully vetted Dayforce partners and discover software and services that extend the platform with access to over 120 software and SI partners.
Speaker Change: And we remain committed to helping our customers adhere to their compliance requirements with more than 200 compliance updates released in the first half of 2024.
Speaker Change: This pace of innovation is truly impressive and we have an extensive roadmap for future enhancements and products that we are excited to provide our customers.
Speaker Change: Finally, due to our continued strong results, profitability improvements and cash flow generation, we announce that our Board of Directors has approved a $500 million share repurchase program.
Speaker Change: And we announce our first ever Investor Day on November the 12th in Las Vegas, alongside our Daples Discover Conference, where we plan to present a comprehensive view of our vision,
Speaker Change: Strategy and Multi-Year Financial Model. We look forward to seeing many of you in person then. In summary, we continued our momentum in the second quarter and are confident in the growth opportunity in the second half of the year.
Speaker Change: I'd like to thank everyone in our Dayforce community, including our customers, partners, and our team of passionate daymakers. I'll now pass the call to Jeremy to discuss our financial results in more detail. Jeremy, over to you.
Jeremy Johnson: Thanks, David.
Jeremy Johnson: We were pleased with our second quarter results. Top-line growth continued to perform, and we experienced enhancement to margins, allowing us to drive strong, adjusted EBITDA and generate cash flow improvement.
Jeremy Johnson: Dayforce recurring revenue was $321.6 million, up 19.9%, and Dayforce recurring revenue excluding float was $277.7 million, up 20.1%, or up 20.5% on a constant currency basis.
Jeremy Johnson: Underpinned by strong go lives and healthy underlying customer trends.
Jeremy Johnson: Total revenue was $423.3 million, up 15.7% on a gap basis and 16.3% on a constant currency basis.
Jeremy Johnson: Power pay recurring revenue was $24.6 million, growing 2.1% on a gap basis and 3.7% on a constant currency basis.
Jeremy Johnson: On a gap basis, gross profit was $186.8 million, up 19.8%.
Jeremy Johnson: And operating profit was $14.1 million, including $20.9 million of amortization expense related to the retired Ceridian trade name, which was not in the Q2 2023 comparison financials.
Unknown Executive: Cloud recurring growth margin was 77.7%, up 100 basis points. Excluding float, our cloud recurring growth margin also continued to expand nicely, improving by 120 basis points. I'd like to formally introduce a new financial metric that we'll begin to speak about more frequently, and that's free cash flow. In our SEC filings, we have included a very simple reconciliation from operating cash flow to free cash flow. Simply reducing operating cash by capital expenditure.
Speaker Change: Cloud recurring growth margin was 77.7%, up 100 basis points, and excluding float, our cloud recurring gross margin also continued to expand nicely, improving by 120 basis points.
Jeremy Johnson: On a non-GAAP basis, adjusted cloud recurring gross margin was 78.8%, up 70 basis points.
Jeremy Johnson: Adjusted EBITDA was $116.3 million, up 18%, or a 27.5% margin, expanding 60 basis points and reflecting our continued improvement in gross profit margins and scale in adjusted GNA.
Jeremy Johnson: From a cash flow perspective, operating cash flows were $99.2 million, up 21%, and free cash flow was $72.7 million, up 36%.
Jeremy Johnson: I'd like to formally introduce a new financial metric that we'll begin to speak about more frequently, and that's free cash flow. In our SEC filings, we've included a very simple reconciliation from operating cash flow to free cash flow, simply reducing operating cash by capital expenditures.
Unknown Executive: We view free cash flow as a metric that displays cash profitability on a consistent basis when viewed over time, of the upper 50% conversion from adjusted EBITDA to operating cash flow, and expect capital expenditures to remain steady on a dollar basis versus last year. This reduction was planned when we entered the year and was primarily a result of optimizations and spans of control and layers of employment levels inside each of our functions.
Jeremy Johnson: We view free cash flow as a metric that displays cash profitability on a consistent basis when viewed over time.
Jeremy Johnson: Expanding free cash flow margin is a target for us in the long term, enabled by our continued growth and focus on increasing profitability and improvements in cash conversion from EBITDA.
Jeremy Johnson: Year-to-date, free cash flow was $53.9 million, up 48%. We remain confident in our full-year cash flow targets, upper 50% conversion from adjusted EBITDA to operating cash flow, and expect capital expenditures to remain steady on a dollar basis versus last year.
Speaker Change: As expected, Illumi Revenue added approximately 200 basis points of growth to our Day Force Recurring Revenue XFLOAT in the quarter, while last year's movement of the tax business represented a headwind of approximately 100 basis points to second quarter Day Force Recurring Revenue XFLOAT.
Speaker Change: A few other call outs before I move on to our guidance. First, at the end of June , we performed an approximately 1% reduction in workforce, which is included in the $10.5 million in restructuring expense adjusted out of EBITDA.
Speaker Change: This reduction was planned when we entered the year and was primarily a result of optimizations in spans of control and layers of employment levels inside each of our functions. We believe these changes will set Dayforce up on a more solid foundation to continue to build our global operating model and drive efficiencies in our business.
Unknown Executive: Second, we added disclosure to our 10-Q and earnings release to provide additional color on accounts receivable. This incremental detail includes a historical breakout by quarter of accounts receivable components, including trade AR, receivables from wallet amounts outstanding, and amounts due from float income and other bank interest paid in arrears. This was previously disclosed only annually, but we believe it is helpful to provide investors with quarterly updates. And finally, I want to provide more clarity on the financial details of the payroll modernization project with the Government of Canada. If you recall, in April.
Speaker Change: Second, we added disclosure to our 10-Q and earnings release to provide additional color on accounts receivable.
Speaker Change: This incremental detail includes historical breakout by quarter of accounts receivable components, including trade AR, receivables from wallet amounts outstanding, and amounts due from float income and other bank interests paid in arrears.
Speaker Change: This was previously disclosed only annually, but we believe it is helpful to provide investors quarterly.
Speaker Change: And finally, I want to provide more clarity around the financial details of the payroll modernization project with the Government of Canada.
Speaker Change: If you recall, in April , the government announced that they had allocated $135 million Canadian in their 2024-25 budget to explore a new HR and pay solution.
Speaker Change: Included in that allocation is now formally a contract for $85 million Canadian or approximately $62 million USD to amend the contract with Dayforce to include additional talent capabilities, provide incremental licenses, and to continue to expand testing and design Dayforce to its specific needs.
Speaker Change: This contract included about a quarter of the funds for software, which we expect to begin realizing in the second quarter of 2025.
Speaker Change: And the remainder of the funds for services to be delivered by both Dave Force and our services partners, which we expect to deliver throughout 2024 and 2025.
Speaker Change: These services bookings are more of a continuation of the work we've been doing on this project and are already contemplated as part of guidance.
Speaker Change: Now, turning to our guidance for the full year, we expect AFORCE recurring revenue X float of $1.163 to $1.168 billion, for growth of 21% as reported, and 21 to 21.5% on a constant currency basis.
Unknown Executive: Total revenue of $1.736 to $1.746 billion. Adjusted EBITDA of $490 to $505 million, or 28.2% to 28.9% margin. Call 321-425-4433 or call 1-334-3695 at 448-9999.
Speaker Change: Total revenue of $1.736 to $1.746 billion or growth of 15% as reported or 15 to 16% on constant currency basis.
Justin Iventa: Justin Iventa, $490 to $505 million or 28.2% to 28.9% margin.
Speaker Change: Total revenue is now expected to be $187 million for the full year.
Speaker Change: And for the third quarter, we expect a force recurring revenue of close to $189.294 million for growth in marine rain 15-20% as reported and on a non-concurrent basis.
Speaker Change: [inaudible]
Speaker Change: It's been suggested even though we have $115 million to $155 million, we're at 27.1% to a 29.1% margin.
Unknown Executive: Float revenue is expected to be $40 million for the third quarter. Our guidance implies fourth quarter day forced recurring revenue excluding flow growing at approximately 23% on a constant currency basis, with fluctuating growth rates between our quarters, driven primarily by the timing of Go Lives and various other revenue drivers differing between this year and last. The USD to Canadian foreign exchange rate.
Speaker Change: And float revenue is expected to be $40 million for the third quarter.
Speaker Change: Our guidance implies fourth quarter day forced recurring revenue excluding flow growing at approximately 23% on a constant currency basis, with fluctuating growth rates between our quarters driven primarily by the timing of go lives and various other revenue drivers differing between this year and last year.
Unknown Executive: Assumed in our guidance are 1.38 for Q3 and Q4 or an average of 1.37 for the full year. Now, we can begin the Q&A portion of our call. Hey, Jeremy, thank you for that.
Speaker Change: U.S.D. to Canadian foreign exchange rates.
Speaker Change: Assumed in our guidance are 1.38 for Q3 and Q4, or an average of 1.37 for the full year. To be clear, the weakening Canadian dollar continues to be a headwind for us, which we are accounting for in our maintained or raised guidance ranges for the full year.
Speaker Change: I'd like to thank you for your interest in Dayforce. We are excited to continue executing against our opportunity in the third quarter and the remainder of 2024.
David Niederman: Before I ask Dave to moderate the Q&A, one item possibly, since you ended off on FX, could you provide some impact as to the headwinds of FX this year and how we've incorporated that into our guidance? Yeah, thanks, David. It's a good point.
Speaker Change: With that…
Speaker Change: We can begin the Q&A portion of our call.
Speaker Change: Hey Jeremy, thank you for that. Before I ask Dave to moderate the Q&A, one item possibly, since you ended off on FX, could you provide
Speaker Change: Some impact as to the headwinds of FX this year and how we've incorporated that into our guidance.
Unknown Executive: For total revenue, we started the year with total revenue guidance of $1.72 to $1.73 billion, and we've raised our guidance since then by $16 million to our current guidance ranges. And we've also raised the rest of the year by another 7 million dollars to get to that total 16. But our original guidance contemplated 1.33 USD to Canadian FX rates, while the Canadian dollar has actually weakened to about 1.38 at a spot rate today.
Speaker Change: Yeah, thanks, David. It's a good point. For total revenue, we started the year with total revenue guidance of $1.72 to $1.73 billion, and we raised our guidance since then by $16 million to our current guidance ranges.
Speaker Change: Now, to get here, we beat our guidance in the first quarter by $4.5 million and our guidance in the second quarter by $4.3 million for a total of about $9 million.
Speaker Change: And we've also raised the rest of the year by another $7 million to get to that total 16.
Speaker Change: But our original guidance contemplated 1.33 USD to Canadian FX rates, while the Canadian dollar has actually weakened to about 1.38 as a spot rate today. And because of that, we've also absorbed
Unknown Executive: And because of that, we've also absorbed almost 13 million dollars of FX headwinds versus our original guidance assumption for total revenue. So, in essence, we've increased our revenue guidance by 29 million dollars from our original guidance in February, but we have had to absorb 13 million dollars of FX headwinds. And to get here, we beat our 1st quarter by 4, our 2nd quarter by 3, and we grew the rest of the year by $3 million.
Speaker Change: Almost $13 million of FX headwinds versus our original guidance assumption to total revenue. So, in essence, we've increased our revenue guidance by $29 million from our original guide in February , but have had to absorb $13 million in FX headwinds.
Speaker Change: Now, this happens in Day Force Recurring Revenue Explode as well. We started the year with guidance of $1.16 billion to $1.165 billion, and we raised our guidance by $3 million, and we beat first quarter by $3.
Speaker Change: As well.
Speaker Change: But due to the weakening Canadian dollar...
Speaker Change: We've had to absorb almost $7 million of FX headwinds. So, in essence, we've increased our day force recurring revenue of X-flow guidance by about $10 million, but have had to absorb that $7 million FX headwind.
Speaker Change: And with regard to adjusted EBITDA, we started the year with guidance of $480 to $495 million, and we raised our guidance by $10 million to get to our current guidance ranges.
Speaker Change: And to get here, we beat our first quarter by four, our second quarter by three, and we raise the rest of the year by $3 million.
David Niederman: And now FX has had an impact on adjusted EBITDA, although it's somewhat muted due to our offsetting expenses in Canada, but there has been a headwind of approximately $4 million versus our original guidance ranges. So, in essence, we've increased our adjusted EBITDA by $14 million, but with a $4 million FX headwind. So, the weakening Canadian dollar since the beginning of the year is having an outsized impact on our results, but we continue to execute well with these headwinds.
Speaker Change: And now FX has had an impact on adjusted EBITDA, although it's somewhat muted due to our offsetting expenses in Canada, but there has been a headwind of approximately $4 million versus our original guidance ranges.
Speaker Change: So, in essence, we've increased our adjusted EBITDA by $14 million.
Speaker Change: But with a $4 million FX headwind. So the weakening Canadian dollar since the beginning of the year is having an outsized impact on our results, but we continue to execute well with these headwinds.
David Niederman: David Niederman, do you want to go ahead and open up to the first question? Yeah, great. So thanks everyone for joining us. Our first question is going to come from Mark Marcon from Baird. Mark, please unmute yourself and go ahead.
David Niederman: Maybe David Niederman, do you want to go ahead and open up to the 1st question? Yeah, great. So thanks everyone for joining. Our 1st question is going to come from Mark Marcon from Barrett. Mark, please unmute yourself and go ahead.
Unknown Executive: Hey, good morning, and thanks for taking the questions and congratulations on the solid results, particularly encouraging to see the free cash flow as well as the progress of the Canadian government. What should we think about the profitability of international opportunities relative to North American opportunities? Jeremy, you highlighted that, you know, by the time we get to the second quarter of 25, we might see some software revenue come through to a greater extent.
Mark Steven Marcon: Hey, good morning and thanks for taking the questions and congratulations on the solid results, particularly encouraging to see the free cash flow as well as the progress on the Canadian government.
Mark Steven Marcon: A couple of observations and a question. Your margins are increasing nicely. And then when we take a look at the business highlights and the sales highlights,
Speaker Change: You know, a lot of the wins are global companies or international companies. I'm wondering if you can just talk a little bit about, from a longer-term perspective,
Speaker Change: How we should think about the profitability of the international opportunities relative to North American opportunities.
Speaker Change: Mark, thanks very much for that question and also thank you for highlighting the fact that we've been quite successful on a global basis.
Speaker Change: As you know, this is part of our Durable Growth Strategy, and it's allowed us to be successful this year by quite honestly pivoting to markets where we've still seen robust purchasing.
Speaker Change: In terms of overall probability, our probability, as you know, is driven by density of features.
Speaker Change: that our customers are buying. We pointed out that about 50% of the new sales are full suite products, and we've also had very successful sales back to the base, if you see the NRRs included. When we go back to the base,
Speaker Change: We add obviously additional revenue without really changing the cost basis from support or from a hosting perspective. So a lot of it flows directly down to the bottom line. The same is true on a global basis.
Speaker Change: In terms of comparison between global customers and North American customers, we would expect to see the same margins on a global basis.
Speaker Change: Obviously, our sales and marketing costs and some of our P&T costs as we enter new years will be slightly higher, but as those products reach maturity, you will see those normalize as well.
Speaker Change: That's great. And then...
Speaker Change: Thanks for the additional color with regards to the Canadian government project. Obviously, things are going well there.
Speaker Change: Jeremy, you highlighted that, you know, by the time we get to the second quarter of 2025, we might see some software revenue come through to a greater extent.
Unknown Executive: Is there anything else that you can tell us with regard to the magnitude of the size and how we should think about layering that in as we think about 25 and going into 26? Our next question will come from Samad Samana from Jaffray, and the week gets weaker.
Speaker Change: Is there anything else that you can tell us with regards to the magnitude of the size and how we should think about layering that in as we think about 25 and going into 26?
Speaker Change: Yeah, look, I think first and foremost, we're excited about continuing to build that partnership with the Government of Canada and help them modernize their payroll.
Speaker Change: As I said on the call, specifically, we signed a contract for about $60 million USD with the Government of Canada.
Speaker Change: To expand testing and design to their specific needs, about a quarter of that was for software subscription, beginning what we expect to be, assuming we can execute, which we have confidence in, in April of 2025.
Speaker Change: So, the remainder of that would be for professional services.
Speaker Change: That's more ongoing type work that we have been continuing to do with the government across both us and our partners, already largely contemplated in our guidance, but will continue throughout that term as well.
Speaker Change: Great, thank you very much and congrats.
Speaker Change: Our next question will come from Samad Samana from Jefferies.
Samad Saleem Samana: Hi, good morning, and thanks for taking my questions. I'll echo Mark's comments. It's a great quarter. Maybe first, Jeremy, for you, just as I think about the guidance,
Samad Saleem Samana: For 3Q and 4Q, the implied ramp in the fourth quarter.
Speaker Change: It's really impressive, right? It implies growth accelerating against the tougher comp.
Speaker Change: It would be one of the bigger kind of dollar ads that you've had in the fourth quarter and in several years. So just can you help us understand what's underpinning the confidence in that ramp and how much visibility you have into that? And is it any particular large deals that are supposed to go live or is it just the natural cadence of the business?
Speaker Change: Yeah, thanks, Samad. It's good to hear from you. Look, I'll go back to the point that I make frequently.
Speaker Change: And it's around the level of visibility we have into our numbers.
Speaker Change: So, we've got confidence in our guidance ranges and we perform consistently against them.
Speaker Change: Since our IPO and
Speaker Change: Quarterly differences between last year and this year can cause growth rates to bounce around a little bit. Factors can include timing of go-live, the amount of year-end services fees in Q1, we've got wallet revenue, and obviously we have to do all the revenue accounting that we're required to do, among many other things, but
Speaker Change: We're performing well, our results are strong, and we have a great amount of confidence into that visibility that we have in both Q3 and Q4, and expect to be able to achieve the guidance that we've set out.
David: Great, and then maybe a follow-up for you, David, just as I look across the landscape.
Speaker Change: One of your competitors did a really large reduction in force, and I'm just curious just
Speaker Change: As you think about that, and what maybe some of the other companies in this space are doing, you guys...
Speaker Change: I'm just curious, what do you think is leading to that inflection right now, and are you seeing a change in where your wins are coming from as far as the incumbents that you're taking share from?
Speaker Change: Thanks so much.
Speaker Change: Look, I think in difficult times, it's where you see differentiation in terms of performance across organizations, and as you pointed out, the strong get stronger.
Unknown Executive: We've seen our win rates go up quite considerably year over year, as we find that our messaging, which is largely a 12 to one simplification. From a technology perspective, we are differentiated with our single database and our single application. It's a very clean design for a product, and our product capabilities, whether it be the compliance modules or the talent modules, are very competitive, even against the best of breeds in their respective areas.
Speaker Change: And the week get weaker. We've seen our win rates go up quite considerably year over year as we find that our messaging, which is largely a 12 to 1 simplification.
Speaker Change: is being heard very well in the market. What the 12 to 1 refers to again is that we approach organizations and we clearly map out.
Speaker Change: The different applications that make up their overall HR stack.
Speaker Change: We then work with the prospect to quantify how much they're paying in terms of subscription or licensing fees for each of those 12 different systems.
Speaker Change: We also quantify how many FTEs they have supporting each of those systems. We do the same for their integration platform, the cost of integration, the cost of aggregation and data reporting.
Speaker Change: And then we show a move to Dave Forse, which eliminates integration, increases automation, reduces the number of FTEs required to support the system quite dramatically, and also reduces the
Speaker Change: Subscription fees that they have to pay for day falls versus the 12 different other systems.
Speaker Change: That message, in this particular macro, is very well-received.
Speaker Change: From a technology perspective, we are differentiated with our single database.
Speaker Change: And our single application. It's a very clean design for a product, and our product capabilities, whether it be the compliance modules or the talent modules, are very competitive, even against the best of breeds in their respective areas.
Speaker Change: That allows us to show very well and at the same time deliver a cash IRR to the actual customers. And that differentiates us in marketing and I think that's led to our success.
Speaker Change: Thank you again. Have a great day.
Speaker Change: Our next question comes from Scott Berg from Needham.
Scott Randolph Berg: Hi, everyone. Next quarter, thanks for taking my questions.
Scott Randolph Berg: I guess got two. I don't know if this is better suited for David or maybe Joe. David, you spoke about solid bookings coming from the talent intelligence functionality that you all have brought to the market last year or two now.
Speaker Change: Is the current AI, you know, tailwind that rhetoric, helping that business, knowing that that platform certainly has underpinnings within these technologies?
Unknown Executive: So Scott, already customers can benefit from AI inside of that form. The design of the data within DaveForce is well-formed and suited to AI. As well, the overall experience of our customers is through our HubExperience. And remember, the HubExperience is essentially a content management system designed for the CHR and their team to create really beautiful experiences that render both on the web and across mobile, allow us to index the content for the respective audience of each of the documents that are uploaded into the hub, and make that available through the copilot in a chat-based GBT type of format.
David: So, Scott, already the customers can benefit from AI inside of that form.
David: The design of the data within DaveForce is well formed and suited for AI.
Speaker Change: As well, the overall experience of our customers is through our hub experience.
Speaker Change: And remember, the Hub Experience is essentially a content management system designed for the CHR and their team to create really beautiful experiences that render both on the web and across mobile.
Speaker Change: Because the system is a content management system, we've been able to develop a model that
Speaker Change: Allow us to index the content.
Speaker Change: For the respective audience of each of the documents that are uploaded into the hub and to make that available through the co-pilot in a chat GBT type of format.
Unknown Executive: And as well, when we respond to the actual question by the person, we're able to reference the underlying source document where we actually got the questions from. That's available inside the actual platform, and is very powerful, and actually displays very, very nicely.
Speaker Change: And as well, when we respond to the actual question by the person, we're able to reference the underlying source document where we actually got the questions from. That's available inside the actual platform and is very powerful and actually shows very, very nicely.
Jeremy Johnson: At Discovery this year, you'll see Joe highlight where we're going from an AI perspective, and it is very exciting. When we compare it to the competitors, whether they be the ERPs or whether they are some of the best of breeds, I do believe that we have a strong advantage from an AI perspective that is already reflected in the UX that we provide our customers and allows them to get benefits. Excellent, very helpful.
Speaker Change: At Discovery this year, you'll see Joe highlight where we're going from an AI perspective, and it is very exciting.
Speaker Change: When we compare it to the competitors, whether they be the ERPs or whether it be some of the best of breeds, I do believe that we have a strong advantage from an AI perspective that already is reflected in the UX that we provide our customers and allows them to get benefit.
Jeremy Johnson: And then my follow-up, Jeremy, wanted to touch on your free cash flow comments, kind of expectations, and how you think about adjusted even at a free cash flow. You and I recently had a conversation about this a couple months ago.
Jeremy Johnson: How do you, how do you move that conversion metric without changing your level of debt, or is that concept potentially contemplated in that strategy to move that conversion up? Yeah, thanks, Scott. Look, first and foremost, I think I want to acknowledge the fact that we have made some really significant strides in free cash flow improvement over the last few years, and we still have room to go. You know, if you go back to 2 years ago, I think our free cash flow margin was only a couple of percentage points.
Speaker Change: First and foremost, I think I want to acknowledge the fact that we have made some really significant strides in free cash flow improvement over the last few years, and we still have room to go.
Speaker Change: You know, if you go back to.
Jeremy Johnson: And now we're actually heading towards something around 10%, if you kind of do the math that we're laying out, which is, you know, going from our adjusted EBITDA margin at around, you know, 55% plus a kind of upper 50% conversion rate into operating cash flow with capital expenditures remaining relatively constant on a dollar basis year over year. And that'll get you to our expectations anyway on free cash flow. So it's a pretty significant improvement in margin.
Speaker Change: Two years ago, I think our free cash flow margin was only a couple percentage points. And now we're actually heading towards something around 10%, if you kind of do the math that we're laying out, which is.
Speaker Change: You know, going from our adjusted EBITDA margin.
Speaker Change: At around, you know, 55% plus, kind of upper 50% conversion rate into operating cash flow with capital expenditures remaining relatively constant on a dollar basis year-over-year, and that'll get you to kind of our expectations anyways on free cash flow.
Jeremy Johnson: Now, a lot of that has been driven by our overall improvements in profitability, and the rest of it is, and that will continue, I should say, Scott, but we do think we can improve that conversion from, you know, kind of adjusted EBITDA into free cash flow with some balance sheet optimization. And you're going to see us continue to push on things like DSO, you know, to really focus on cash as an operating metric and operate as if we're, you know, truly running this business on a cash basis, which is something that I think is a muscle we're building out here at Dave Forse. And I'm excited to lead the charge there.
Speaker Change: So it's a pretty significant improvement in margin. Now, a lot of that has been driven by our overall improvements in profitability.
Speaker Change: And the rest of it is, and that will continue, I should say, Scott.
Scott Randolph Berg: But we do think we can improve that conversion from, you know, kind of adjusted EBITDA into
Scott Randolph Berg: Truly running this business on a cash basis, which is...
David D. Ossip: Something that I think is a muscle we're building out here at DaveForce, and I'm excited that we lead the charge there.
Unknown Executive: So, I think we've got some really nice things happening. Q2 was a really nice quarter from an operating cash flow and a free cash flow perspective. And you can see that reflected in our SEC filings that it's going to be an area of focus for us in the future, and free cash flow, and that's not going to change. Our next question comes from Siti Panigrahi from Vizuvo.
David D. Ossip: So, I think we've got some really nice things happening. Q2 was a really nice quarter from an operating cash flow and a free cash flow perspective, and you can see that reflected in our SEC filings, that it's going to be an area of focus for us in the future on free cash flow, and that's not going to change.
David D. Ossip: Our next question comes from Siti Panigrahi from Mizzou.
Jeremy Johnson: Thanks for taking my question. Congratulations on a good quarter and good to see this free cash flow focus. But I want to ask questions as a follow-up to Samad's question about your Q3 and Q4 guidance. So just want to clarify, do you rely on any bookings in the second half to achieve your numbers? And second thing, you talked about Go Live's visibility, but in this kind of environment, is there a risk for customers to delay their Go Live, or will they expedite it? Is there any cost saving, any kind of incentive for them?
Sitikantha Panigrahi: So I just want to clarify, do you rely on any bookings in the second half to achieve your number? And second thing...
Speaker Change: If you talked about the Go Live's feasibility, but in this kind of environment, is there a risk for customers to delay their Go Live or they will expedite? Is there any cost-saving, any kind of incentive for them? Also, Jeremy, could you talk about any assumptions on macro for the rest of the year?
Unknown Executive: Also, Jeremy, could you talk about any assumptions on macro for the rest of the year? Terms of Employment. Hey, it's really nice to speak with you.
Unknown Executive: The forecast for Q3 and Q4 is largely built up by the working process of the accounts that are currently going through implementation. In the first half of the year, we actually came in ahead of our forecast. And so we've got a high degree of confidence that the go-lives will go as planned, and we remain quite in tune with the overall macro. Because the requirements for our particular market are largely driven by jurisdictions, not by particular organizations or even particular industries, it allows us to pivot as needed to where the market is still quite strong.
Jeremy Johnson: In terms of employment or anything.
Jeremy Johnson: Hey Sidney, nice to speak with you. The forecast for Q3 and Q4 is largely built up by the working process of the accounts that are currently going through implementation.
Speaker Change: You know, really, it's a fluid picture right now with some pockets of strength.
Speaker Change: In industries and segments that we, you know, have success in.
Speaker Change: We also have some pockets of weakness, but it's ultimately resulting in an overall picture that is kind of in line with our expectations, which is, you know, flat employment levels year over year.
Speaker Change: And we remain quite in tune with the overall macro. Because the requirements for our particular market is largely driven by the jurisdictions,
Speaker Change: Not by particular organisations or even particular industries.
Speaker Change: It allows us to pivot as needed.
Unknown Executive: Year to date, we've had a lot of success in industries like hospitality, which I would say is doing very, very well. Obviously, we've also invested quite a lot in the public sector over the last number of years, and we're seeing that yield a lot of benefit, as you see with the Government of Canada types of deals. And, as asked earlier, we also have the ability to pivot on a global basis.
Speaker Change: to where the market still is quite strong.
Speaker Change: Year-to-date, we've had a lot of success in industries like hospitality.
Speaker Change: which I would say is doing very, very well.
Speaker Change: Obviously, we've also invested quite a lot in public sector over the last number of years, and we're seeing that yield a lot of benefit, as you see with the Government of Canada types of deals. And as asked earlier, we also have the ability to pivot on a macro, on a global basis.
Speaker Change: challenges, if you like, at times, in the overall economy, whether it be COVID, come back from COVID, etc., where we've been able to navigate and continue growing the company quite robustly over that period of time.
Unknown Executive: Our next question comes from Steve Enders from Citi. So it's very much purposeful, which will allow us to kind of hit our longer-term growth and our longer-term profitability and cashflow targets. I guess maybe just, I guess, with regard to the deal environment and kind of the net new opportunities coming in the door, like, how are you, I guess, how did that kind of shake out in the quarter, and how are you kind of feeling about where the pipeline is today and the ability to close on net new opportunities coming through the door? Our pipeline remains very strong.
Speaker Change: Great. Thanks for the caller.
Speaker Change: Our next question comes from Steve Enders from Citi.
Speaker Change: and many more.
Steven Lester Enders: Okay, great. Thanks for taking the questions here. I guess maybe to start, I think you called out in the prepared remarks that
Steven Lester Enders: You know, over half of the new bookings had come from add-on sales this quarter, and I guess we'd just like to get a little bit better understanding for maybe kind of what drove the strength there this quarter, if there's, you know, anything.
Speaker Change: To call out on that side, or maybe something's slowing down on kind of the net new coming in, just be ready to get a little bit more detail on what's supporting that right now.
Speaker Change: Now, Steve, if you recall last quarter, we spoke about the fact that we felt that we could lift up.
Steven Lester Enders: Details back to the base. We had an analysis by a consulting group at the end of last year, where, as you know, our gross retention rate on clients at 97.1% is by far best in class.
Speaker Change: However, they did point out from an NRR perspective that we could lift up.
Speaker Change: We made some purposeful moves at the end of last year. We brought in a very strong leader for the client-based sales. We built up that team quite substantially.
Speaker Change: We put in motion programs to basically go back to the actual base to make sure that they're aware of what the capabilities of the actual product are.
Speaker Change: We've taken the 12-to-1 simplification message back to the base, and that's been quite well, too, and we're beginning to see that take traction.
Speaker Change: It's important for us, as we look towards a much longer target, so we look towards 2031 or so, we do believe that we have to get to a 50-50 blend between net news sales and between sales back to the base.
Speaker Change: When we go back to the base as well, the probability profile is quite different.
Speaker Change: And what you see with net news sales, obviously the cost of sales is lower, so higher sales productivity.
Speaker Change: which I think is very important. Second, because the customers are really live and we already have the cloud environment and we have the support teams around the client, typically you get a higher gross margin on recurring on the add-on sales than you do get on net.
Speaker Change: Second, from a client acquisition cost basis, from an LTV basis, the profile of add-on sales is obviously very, very good. And even if I look at our net new sale client acquisition costs or LTV numbers, they're fantastic.
Speaker Change: Okay, no, that's helpful context there.
Speaker Change: I guess maybe just, I guess, with regards to the deal environment and kind of the net new opportunities coming in the door, like, how are you
Speaker Change: I guess, how did that kind of shake out in the quarter and how are you kind of feeling about where the pipeline is today and, you know, the ability to close on net new coming through the door?
Unknown Executive: If I look at the next four quarters, we're operating at about four times coverage, which is very helpful and very healthy and typically above historical targets. When I look at the number of open opportunities that are closeable, say, in the next 120 days, I'll say that they're at record levels. We are seeing a robust market for us in general. That 12 to 1 simplification message really does help. We've also had some other tailwinds as well.
Speaker Change: which is very helpful, and they're very healthy and typically above historical targets. When I look at the number of open opportunities that are closable, say, in the next 120 days, I'll say that they're at record levels.
Speaker Change: So, we are seeing still a robust market.
Speaker Change: That 12 to 1 simplification message really does help. We've also had some other tailwinds as well. The branding exercise that we've done and some of the investments we've made on the marketing side are beginning to take hold.
Unknown Executive: The branding exercise that we've done and some of the investments we've made on the marketing side are beginning to take hold. I think that our reputation in the industry, and if you do your field research, you'll find that the product is very differentiated. If you look at, again, our client retention rates, if you look at our NPS scores, they're by far the best in class in the industry.
Speaker Change: I think that our reputation in industry, if you do your field research, you'll find the product is very differentiated. If you look at, again, our client retention rates, if you look at our NPS,
Unknown Executive: If you look at the service experience that our customers are having, we're very proud of that as well. I think we're continuing to do quite well in the actual marketplace. I think you'll see us continue. Super helpful.
Speaker Change: They're by far best in class and industry. If you look at our services experience that our customers are having, we're very proud of that as well.
Speaker Change: So, I think we'll continue to execute quite well in the actual marketplace, and I think you'll see us continue to do well as we go into the future.
Speaker Change: Our next question comes from Bhavin Shah from Deutsche Bank.
Bhavin S. Shah: Great, thanks for taking my question. David, can you just maybe give us an update on the SI relationships and partnerships? Where are they in terms of the ramp to be able to sell in prime deals themselves? How much of your new bookings is led by the channel today, and where do you think it goes over the next year or two?
Speaker Change: Yeah, Bhavin, as I mentioned in my script, we saw a nice growth year over year in terms of SI prime deals and obviously the involvement of the SIs in the actual deal. We have Steve here with us as well, so let's see, maybe provide a bit more color.
Steven Lester Enders: Yeah, I mean, I think it's steady as she goes. What we've been talking about the past three years, we continue to execute. I was actually just in our Toronto office yesterday. We had 50 of our leading partners in for a number of days.
Steven Lester Enders: So we're focused on really three things. We're focused on helping them sell and create demand on their own in the marketplace.
Steven Lester Enders: We're focused on enabling them, and we'll continue to see strong acceleration and growth. Our target is the same as we talked about. We want 75% of the deals out there to be S.I. led across all markets. We're beginning to specialize around industries and regions with both global S.I.s as well as regional S.I.s. So it's been successful in the scenario we continue to invest on and see return in both demand creation and giving the customers choice.
Jeremy Johnson: Just one quick follow-up, maybe for Jeremy. It's just great to see the buyback and focus on free cash flow. Does that change your philosophy at all on M&A or even the types of deals you might look at? The increasing free cash flow that we're seeing is behind a lot of this. I think when you think about how we plan to, you know, deploy our capital in the future, it will still remain kind of an opportunistic M&A pipeline where we see deals that make sense for our business.
Speaker Change: Super helpful. Just one quick follow-up, maybe for Jeremy. Just great to see the buyback and focus on free cash flow. Does that change your philosophy at all on M&A or even the types of deals you might look at?
Speaker Change: Bye.
Jeremy Johnson: Thanks, Bob. And look, it's the first time we've talked about this here, so I do want to highlight the fact that we did announce this $500 million share repurchase program. I think there's a couple of goals to this. One is, obviously, reducing the impact
Speaker Change: of future share dilution from employee stock issuances, and the second is to capitalize on what we believe are currently undervalued shares.
Speaker Change: And you'll see us be opportunistic in the market on that front. We plan to execute those share repurchases through overmarket transactions, and ultimately, this
Speaker Change: Increasing free cash flow that we're seeing is behind a lot of this.
Speaker Change: I think when you when you think about how we plan to, you know, deploy our capital in the future, it still will remain to be kind of a
Speaker Change: Opportunistic M&A pipeline where we see deals that make sense to our business.
Jeremy Johnson: And that's either to kind of expand our platform, like we've done in the past, or to kind of expand our TAM and go more global or into more adjacent markets. The other option, obviously, is to return capital to shareholders.
Speaker Change: And that's either to kind of expand our platform, like we've done in the past, or kind of to expand our TAM and go more global or in more adjacent markets.
Unknown Executive: And I think this is a really nice way to start doing that. And you'll see us kind of balance all of those in our capital allocation. Great, thanks for taking my question. Our next question comes from Brad Reback from Stiebel.
Speaker Change: The other option, obviously, is to return capital to shareholders, and I think this is a really nice way to start doing that, and you'll see us kind of balance all of those in our capital allocation.
Speaker Change: Great. Thanks for taking my questions.
Unknown Executive: David, can you remind us that the new customer account continues to moderate? Is that a shift in go-to-market, or are there other dynamics going on underneath the covers there? Thanks.
Speaker Change: Our next question comes from Brad Reback from Stiebel.
Brad Robert Reback: Great, thanks very much. David, can you...
Speaker Change: Remind us, the new customer account continues to moderate. Is that a shift in go-to-market or are there other dynamics going on underneath the covers there? Thanks. It's a move-up market. If you look at the average revenue from clients up about 18% year-over-year.
Unknown Executive: It's a moving-up market. If you look at the average revenue from clients, up about 18% year-over-year, I think that is actually quite important. It also shows that we are now looking towards a long-term blend between sales back to the base and net new sales. Remember, we've spent a tremendous amount on P&T over the last number of years, building out very robust and very deep talent modules, and so we do see a lot of white space in our existing client base.
Speaker Change: It also reflects that we are now looking towards a long-term blend between sales back to the base and net new sales.
Speaker Change: Remember, we've spent a tremendous amount on P&T over the last number of years, building out very robust and very deep talent modules.
Speaker Change: And so we do see a lot of white space.
Unknown Executive: What I would point out is that if we look at our overall market share relative to the TAM, we're still very low. Our overall market share is probably just under 3%, so we still have tons of white space in the market to acquire new customers. It kind of converges as we get higher depth of module density across our client base.
Speaker Change: In our existing client base.
Speaker Change: What I would point out is that if we look at our overall market share relative to the TAM, we're still very low. Our overall market share is probably just under 3%. So we have still tons of white space in the market to acquire new customers.
Unknown Executive: Our reputation does go up as well, and word does spread. I think we're operating now with a very good brand in the market that we're quite proud of. I'm sorry, what are you referring to in terms of the 350?
Speaker Change: And it kind of converges as we get higher depth of a module density across our client base, our reputation does go up as well and word does spread. And I think we're operating now with a very good brand in market that we're quite proud of.
Speaker Change: That's great, and so just one quick follow-up on that. Should we expect it to stabilize at sort of this 350 level, or could it moderate a little bit more from here before it finds its bottom?
Unknown Executive: The sequential ads in customers. You know, we don't run the company from that perspective. And remember, you know, if we add a very large organization with hundreds of thousands of employees, it counts as one.
Speaker Change: I'm sorry, what are you referring to in terms of the 350? The sequential ads in customers.
Speaker Change: You know, we don't run the company from that perspective. And remember, you know, if we add a very large organization with hundreds of thousands of employees, it counts as one.
Unknown Executive: If we add a major market account with 1000 employees, it counts as one. So I wouldn't look at that number, quite honestly, for any purpose. It's not a number that we look at internally.
Speaker Change: If we add a major market account of 1,000 employees, it counts as one. So I wouldn't look at that number, quite honestly, from any purpose. It's not a number that we look at internally.
Unknown Executive: Great, thank you very much. Our next question comes from Daniel Jester from BMO. Great. Thanks for taking my question. So maybe to take the conversation a little bit different, David, about a year ago, you talked about some of the efforts that you're doing internally to deploy generative AI to boost efficiency inside the organization around customer support and the like. Maybe there's any update in terms of what you're seeing from those efforts now that they've been in the field for a while? Yeah, it's been great so far.
Speaker Change: Great, thank you very much.
Speaker Change: Our next question comes from Daniel Jester from BMO.
Unknown Executive: We've seen efficiency gains of about 14, 15% in our customer support organization. I have spoken about this on previous calls, and we learned a lot through that, and that allowed us to build out the Gen-I capabilities and the co-pilot capabilities in the Dayforce product. The area that we focused on from a customer delivery perspective is in line with what we saw in terms of the efficiency of our support department, which is allowing the HR departments to load documents into the hub experience, index those documents, and then allow the co-pilot to be used to query those particular documents.
Daniel William Jester: Great, thanks for taking my question. So, maybe to take the conversation a little bit different direction, about a year ago, David,
David: You had talked about some of the efforts that you're doing internally to deploy generative AI to boost...
Speaker Change: efficiency inside the organization around customer support and the like. Maybe is there any update in terms of what you're seeing from those efforts now that they've been in the field for a while?
Speaker Change: Yeah, it's been great. We've seen efficiency gains of about 14-15% in our customer support organization. I had spoken about this on previous calls that we learned a lot through that and that allowed us
Speaker Change: To build out the Gen-I capabilities and the co-pilot capabilities in the Day Force product.
Speaker Change: The area that we focused on from a customer delivery perspective is in line with what we saw in terms of the efficiency of our support department.
Speaker Change: which is allow the HR departments to load documents into the hub experience, index those documents, and then allow the copilot to be used to query those particular documents.
Unknown Executive: So if you're a client, you could load up a job-sharing policy, a maternity policy, and an employee could then ask questions such as, "hey, I'm having a baby. When can I take off? How do I get paid? How do I come back?"
Speaker Change: So, if you're a client, you could load up a job-sharing policy, a maternity policy, and an employee could then ask questions, such as, hey, I'm having a baby. When can I take off? How do I get paid? How do I come back?
Speaker Change: And the product answers actually very nicely with the reference links.
Unknown Executive: Typical thing. And the product answers actually very nicely with the reference links. Our expectation is that our customers should see a similar efficiency gain across their HR business partners in terms of handling queries from actual employees, while at the same time, really drastically improving the overall experience for the frontline workers, the frontline managers, and for the executives. So it was actually a very, very good experience to integrate that same AI tool into the overall product. So if you're an admin user, those implementation guides and support guides are part of the document that you're in the audience for.
Speaker Change: Our expectation is that our customers should see a similar efficiency gain across their HR business partners in terms of handling queries from the actual employees while at the same time
Speaker Change: Really drastically improving the overall experience for the frontline workers, the frontline managers, and for the executives. So, it was actually a very, very good experience. By the way,
H.A.D.: for H.A.D.
H.A.D.: That same AI tool.
Speaker Change: Or into the overall product. So if you're an admin user, those implementation guides and support guides are part of the document that you're in the audience for.
Unknown Executive: So you have the ability to ask questions about configuration to the actual co-pilot as well. And that, we also believe, will further help our support organization in that the AI will handle a lot of those questions. Great, thank you very much. And then, as a follow-up, you know, recently the U.S. Consumer Financial Protection Bureau announced some rules around earned wage access. I guess as you think about what's going on there in the wallet, are there any implications? Thank you. So, Daniel, first of all, we've had a very good year from a wallet perspective. We believe that wallet revenue this year will go up by more than 100%.
Speaker Change: So you have the ability to ask questions about configuration to the actual co-pilot as well. And so that we also believe will further help our support organization in that the AI will handle a lot of those questions.
Speaker Change: Great. Thank you very much. And then as a follow-up, you know, recently the U.S. Consumer Financial Protection Bureau announced some rules around earned wage access. I guess as you think about what's going on there in the wallet, are there any implications? Thank you.
Speaker Change: So, Daniel, first of all, we've had a very good year from a wallet perspective. We believe that wallet revenue this year will go up by more than 100 percent.
Unknown Executive: In terms of the EWA kind of legislation, remember that we do not do a payday loan. We're quite unique in the industry because any time you add money to your wallet, we do an off-cycle payroll. We generate a payslip, and we do the remittances within 24 hours at the federal and the state level.
Daniel William Jester: In terms of the EWA kind of legislation, remember that we do not do a payday loan. We're quite unique in industry that any time you add money to the wallet, we do an off-cycle payroll.
H.A.D.: We generate a payslip and we do the remittances within 24 hours at the federal and the state levels, and that is very different than the other players in the market that typically use the bolt-on technology, where it is a payday loan type of construct.
Unknown Executive: And that is very different than the other players in the market that typically use bolt-on technology, where it is a payday loan type of concept. We've spoken about this for quite several years, and we were very particular in the way that we constructed the Day Force Wallet so that it would be a true paycheck to the employee. When you look at the actual funding mechanism, where we effectively lend money to the employer so the employer can pay the employee when they do an on-demand payroll, it is very unique.
H.A.D.: We've spoken about this for quite several years, that we were very particular in the way that we constructed the Day Force wallet.
H.A.D.: So that it would be a true payroll to the employee. When you look at the actual funding mechanism, where we effectively lend money to the employer, so the employer can pay the employee when they do an on-demand payroll is very unique.
Unknown Executive: And the fact that we do the remittances within 24 hours, again, is very unique as well. And lastly, from an employee perspective, it's never alone. At the beginning of the period, you can add nothing to your wallet. If I work eight hours, at the end of that shift, provided that I've covered all the necessary limits and taxes and garnishments, only then am I able to take out my net earnings.
Speaker Change: Beginning of the period you can add nothing to your wallet. If I work eight hours at the end of that shift, provided that I've covered all the necessary limits and taxes and garnishments, only then am I able to take out my net earnings.
Unknown Executive: And all of this is actually predicated on that continuous pay engine that we have, whereby any time there's a change in the employer record, a benefit record, a time record, we calculate net earnings. Again, we're the only one in the industry that does that, and that's why we can do it in a compliant and non-payday loan mechanism. Very clear. Thank you very much.
Speaker Change: And all of this is actually predicated on that continuous pay agent that we have.
Speaker Change: Whereby, any time there's a change in the employer record, a benefit record, a time record, we calculate net earnings. Again, we're the only one in the industry that does that, and that's why we can do it in a compliant and non-payday loan mechanism.
Unknown Executive: Our next question comes from Raimo Lenschow from Barclays. Hey, thank you. Thanks for squeezing me in, and congratulations on my behalf. If I look at the industry, David and Jeremy, the one problem that everyone seems to be struggling with, you know, not you, but everyone else is that their customers are not expanding, you know, their employees, so there's not a lot more new payroll guys coming in. And the guys that charge by the paycheck obviously see it immediately.
Speaker Change: Very clear. Thank you very much.
Speaker Change: Our next question comes from Raimo Lenschow from Barclays.
Raimo Lenschow: Hey, thank you. Thanks for squeezing me in, and congrats from me as well.
Speaker Change: If I look at the industry, David and Jeremy,
Raimo Lenschow: The one problem that everyone seems to be struggling, not you, but everyone else, is that their customers are not expanding their employees, so there's not a lot more new payroll guys coming in. And the guys that charge per paycheck obviously see it immediately. But even guys that are playing more upmarket kind of started talking about it in terms of true ups not coming through. How's that situation for you? Are you just kind of on a different cycle? The expansion that you guys are seeing from...
Unknown Executive: But even guys that are playing more upmarket have kind of started talking about it in terms of true ups not coming through. How's that situation for you? Are you just kind of on a different cycle? The expansion that you guys are seeing from, you know, moving up market is helping you to offset it, or are you seeing it as well?
Raimo Lenschow: So, you know, moving up market is helping you to offset it, but are you seeing it as well? Like, can you help us how you're doing so much better than the other guys? Thank you. You know, the two reasons for that, Raimo, nice to speak with you. First, as you know, we're the leader in terms of global compliance.
Unknown Executive: Like, can you help us understand why you're doing so much better than the other guys? Thank you. Yeah, there are two reasons for that. Raimo, nice to speak with you.
Unknown Executive: First, as you know, we're the leader in terms of global compliance. And in our target market, which again, remember, is in the mid to the large enterprise space, almost all of our customers are global in nature. So when we talk about sales back in the day, a lot of that actually was expansion into new geographies, and that's quite different than most of the other players in the market. The second thing is, remember, Joe joined the organization probably about three plus years ago with the focus on really lifting up our talent capability. Yeah, thanks, Raimo.
Speaker Change: And in our target market, which again, remember, is in the mid to the large enterprise space, almost all of our customers are global in nature.
Raimo Lenschow: So when we talk about sales back to the days, a lot of that actually is expansion into new geos, and that's quite different than most of the other players in the market.
Raimo Lenschow: The second is, remember, Joe joined the organization probably about three plus years ago, with the focus on really lifting up our talent capability.
Joe: And we're now seeing that our talent capability is the best in class. Again, we're in the Gartner Magic Quadrant for organizations that have more than 1,000 employees for HCM, so for the talent components.
Joe: We have a lot of white space in our 6700 or so customers that are live, and again, bringing in a very strong leader to go back to the actual client base and having really a product marketing and branding strategy around that has allowed us to start
Joe: Selling back to the base. And that's a new motion for us. So in that regard, we are on an early cycle.
Speaker Change #102: Now when I talk about the actual ERPs, what I think is happening in market is I think the ERPs have sold a lot of shelf work. And so when they are hitting the renewals, they may be seeing lower renewal rates. I don't think it is lowering employee counts because we are not seeing that.
Jeremy Johnson: Okay, perfect. Thank you for the clarification. And then one for Jeremy, congrats on the shared buyback announcement. That's really helpful. Do you have any indication, a little bit of like how you think about deploying that? Is that, are you kind of doing it
Jeremy Johnson: opportunistic? Is there like a level per quarter you're thinking about? Is there a valuation that you have in your mind that you kind of having each quarter like what's the what's the cadence there? Thank you.
Unknown Executive: Today, we think the shares are undervalued, and we'll continue to monitor that and be opportunistic with how we buy back. Maybe make a point about us being comfortable with debt as well, right? We obviously have debt obligations.
Jeremy Johnson: Thanks, Raimo. Today, we think the shares are undervalued, and we'll continue to monitor that and be opportunistic with how we buy back.
Speaker Change: You know, being comfortable with debt as well, right? And we obviously have debt obligations. We have been a levered company. We've maintained our ability to manage against, you know, gross and net leverage targets.
Unknown Executive: We have been a levered company. We've maintained our ability to manage against gross and net leverage targets, and you'll continue to see us use that financing in general in this business to fund both M&A and any kind of organic and inorganic opportunities that we see. So, you're going to see us look at share buybacks, kind of M&A, organic growth, and utilize, continue to utilize that financing in our overall capital allocation. And I think we're going to take a nice balanced approach but be opportunistic when we believe our shares are undervalued, which we think they are today.
Speaker Change: And you'll continue to see us use that financing in general in this business to fund both M&A and any kind of organic and inorganic opportunities that we see.
Speaker Change: So, you're going to see us.
Speaker Change: Look at share buybacks, you know, kind of M&A, organic growth, and utilize, continue to utilize that financing in our overall capital allocation. And I think we're going to take a nice balanced approach, but be opportunistic when we believe our shares are undervalued, which we think they are today. Thank you. Congrats.
Unknown Executive: Our next question comes from Jared Levine from TD Calendars. Thank you. Based on the year-to-date settings, what does that inform you regarding January 2025 going live, and how does that compare to this past January?
Speaker Change: Our next question comes from Jared Levine from TD Calendar. Thank you. Based on a year-to-date setting, so what does that inform you regarding January 2025 go lives and how does that compare to this past January ?
Unknown Executive: Can you repeat that question? We lost you a little bit. Yeah, so in terms of year-to-date signings, what does that inform you regarding January of 2025 going live? And how does that compare to this past January? I'm sorry, Jared, I'm missing the reference to January 25. Yeah, based on year-to-date signing, what does it inform you about this upcoming January Go Live? It's early for January, right, for 25.
Speaker Change: I'm sorry, Jared, can you repeat that question? We lost you a little bit. Yeah, so in terms of year-to-date signings, what does that inform you regarding January of 2025 go-live and how does that compare to this past January ?
Speaker Change: I'm sorry Jared, I'm missing the reference to January 25.
Jared: Yeah, based on year-to-date signing, what does it inform you about this upcoming January Go Live?
Unknown Executive: Yeah, but maybe I'd say, look, we're year-to-date, and we're having, I think, really good success in our go-lives and great visibility into, you know, what we expect to do for the rest of the year. You know, I think as we look out, our guidance would contemplate, you know, strengthened go-lives this year heading into next year. And, you know, I think our bookings are, you know, solid, and we're comfortable with those throughout the year, and we see nice strength as we head into the rest of the year.
Speaker Change: Thank you guys.
Speaker Change #101: It's early for January , right? For 25. Yeah, but maybe I'd say, look, we're year to date, we're having, I think, really good success in our go lives and great visibility into, you know, what we expect to do for the rest of the year. You know, I think, as we look out, our guidance would contemplate, you know.
Speaker Change: Strength and Go Lives this year heading into next year.
Speaker Change: And, you know, I think our bookings are...
Speaker Change: and the rest of the year. So I think if that answers your question, we're feeling pretty confident about our ability to continue to execute on growth and go labs.
Unknown Executive: So, I think if that answers your question, we're feeling pretty confident about our ability to continue to execute on growth and go-lives. Yeah, Jared, I would say if you look at the guide for the second half of the year, you see strength in the remainder of the half, especially in Q4, and that's the setup for, obviously, Q1. Okay, perfect. And then, in terms of sales headcount, can you provide an update on your fiscal year sales headcount targets and how those are trending year to date? So, we don't actually provide numbers as to the actual number of sellers, but what I can say is we're obviously very happy with the build-out of the sales team.
Speaker Change #104: You see strengths in the remainder of the half, especially in Q4, and that's the setup for obviously Q1.
Speaker Change #100: Okay, perfect. And then in terms of sales headcount, can you provide an update on your fiscal year sales headcount targets and how those are trending year-to-date?
Speaker Change #103: So, we don't actually provide.
Speaker Change #105: Numbers as to the actual number of sellers.
Speaker Change #107: But what I can say is we're obviously very happy with the build-out of the sales team. We continue to strengthen the leadership inside that sales team. We're quite happy with the sales productivity as well. Obviously, the results speak for themselves as well.
Unknown Executive: We continue to strengthen the leadership inside that sales team. We're quite happy with the sales productivity as well. Obviously, the results speak for themselves as well. Sales have been good year-to-date. As I often comment during the earnings call, the first month of Q3 is also coming along quite well too. Perfect. Thank you. So we're at time, so we're going to conclude the call at this point.
Speaker Change: Sales have been good year-to-date. As I often comment during the earnings call, the first month of Q3 is also coming quite well too.
Speaker Change #106: All right, perfect. Thank you.