Q4 2024 Dayforce Inc Earnings Call
Music
Speaker Change: Greetings and welcome to Day Force's fourth quarter and full year 2024 earnings call.
Speaker Change: At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Niederman, VP of Investor Relations. Thank you.
Speaker Change: Thank you for joining, and welcome to the Dayforce 4th Quarter 2024 Earnings Call. I'm David Niederman, Vice President, Investor Relations. 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. We also have Chief Strategy, Product, and Technology Officer Joe Korngiebel and our President and COO 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.
Speaker Change: Additionally, over the course of this call, we'll reference non-GAP measures to describe our performance.
Speaker Change: 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.
Speaker Change: These documents, in addition to a replay of this call and also a transcript, will be available on the Day Force Investor Relations website. And with that, I'd like to turn the call over to David.
Thanks, David. And thank you all for joining us.
Speaker Change: I'll begin with some high-level commentary on our results and I'll look before handing the call over to Jeremy who will provide more detail on our financials and guidance.
We had a strong year.
with Q4 sales exceeding expectations and coming in above plan.
Speaker Change: Sales cycles return to historical level and January proved to be a strong start to 2025.
Speaker Change: Looking ahead, we expect sales growth to outpace revenue growth throughout the year. Our pipeline coverage gives us confidence, starting the year with approximately four times coverage of pipeline compared to our sales target.
Speaker Change: We had excellent performance in 2024. Total revenue was $1.76 billion, growing 17% on a constant currency basis.
Speaker Change: Dayfall's recurring revenue, excluding float, grew 21% on a constant currency basis.
Speaker Change: Adjusted EBITDA margin was 28.5% expanding 140 basis points and free cash flow was 172 million or 9.7% of revenue expanding 280 basis points
Speaker Change: As guided during our investor day, we expect total revenue growth in 2025 of 14 to 15%, excluding flows and on a constant currency basis.
Speaker Change: Our guidance reflects our decision to focus on higher margin areas of our business while phasing out legacy segments.
Speaker Change: Day 4 recurring revenue, excluding float, is expected to grow 15% to 17% on a constant currency basis during 2025.
Speaker Change: In 2025, we anticipate this increasing by another 230 basis points to 12% and for this upward trend to continue over the midterm.
Speaker Change: Beyond 2025, over the midterm, we expect adjusted EBITDA to expand by 100 to 150 basis points per year.
Speaker Change: In the coming years, we anticipate that the total revenue growth will remain close to 15%, while profitability improvements, both free cash flow and adjusted EBITDA, will continue to outpace revenue growth.
Speaker Change: From a sales perspective, our CRO, Sam, has executed exceptionally well.
Speaker Change: In the last quarter, we secured several key new business ones, including a 60,000-employee grocery chain, an 18,000-employee space exploration company,
and a 66,000-employee member-owned retail cooperative.
Speaker Change: as well as success in expanding deals including a 60,000-employee global manufacturing distributor of paints and coatings and a global air service provider with 48,000 employees across 35 countries.
Speaker Change: Many of these deals close within weeks of customers attending our Dayforce Discover event, a testament to the impact of the event and its role in accelerating Q4 sales.
Speaker Change: On the product side, we continue to lead in innovation and delivery. Our product roadmap is built around compliance, IT simplification, data, and experience.
Speaker Change: We delivered more than 900 compliance updates and were once again recognized by Gartner as the compliance leader for firms with more than 1,000 employees and for firms with more than 2,500 employees.
Speaker Change: Key compliance enhancements included a new workforce insight experience, machine learning driven labor forecasting, and direct-to-bank capabilities for Dayforce Wallet.
Speaker Change: Speaking of Wallet, it had a tremendous 2024, with revenue increasing from $12 million to over $30 million. We expect Wallet to continue gaining momentum in 2025.
Speaker Change: Our IT simplification efforts align with our 12 to 1 strategy which consolidates multiple HR systems into a single day force platform.
This approach reduces integrations, manual workarounds, and operational complexity.
Speaker Change: while improving efficiency and decision-making. Our leadership in this area was reinforced by our recognition as a leader for the fifth consecutive year in Gartner's magic quadrant for cloud HCM solutions for enterprises who
with more than 1,000 employees.
Strengthening our 12-to-1 value proposition.
Speaker Change: We launched a new talent acquisition experience and re-platformed Illumi in TodayForce, creating a best-in-class learning experience with strong analytics, content creation tools, and a content store featuring over 90,000 training modules.
Speaker Change: We expect learning, management and content to drive significant client-based sales in 2025.
Speaker Change: On the data and experience side, we are already seeing strong adoption of our Dayforce Integration Studio and Copilot products.
Speaker Change: both of which we demonstrated at Discover. Since launching in November we have sold more than 60 co-pilot units. Co-pilot integrates with our Experian hub.
Speaker Change: allowing CHROs and their teams to create engaging and immersive experience for frontline workers, managers, and executives.
Speaker Change: Content within the hub is indexed using AI, enabling users to ask questions and receive contextual responses with relevant reference links. Additionally, CodePilot facilitates workflow automation, such as requesting time off.
Speaker Change: Innovation in this area will continue in 2025 with planned releases of AI agents and other new capabilities.
Speaker Change: At the core of Dayforce is our commitment to product innovation. This is what differentiates us in the market and drives our strong win rates, high customer retention, significant add-on sales, and industry recognition.
Speaker Change: Turning to customers and go-lives. Q4 was impressive. We saw 146 net new customers go live.
Speaker Change: including a global aviation service provider with over 55,000 employees across 36 countries.
Speaker Change: a 23,000 employee American entertainment company rolling out full suite talent a 10,500 employee UK contract catering and support service provider
Speaker Change: We now have 6,876 live customers and 7.6 million live active users on tables.
Speaker Change: Both up approximately 10% year-over-year. Additionally, day-four recurring revenue per customer increased by 11% and our gross retention rate improved from an already strong 97.1% to 98%.
Speaker Change: From a probability standpoint, our improvement in adjusted EBITDA and pre-cash flow was largely driven by improvements in recurring gross margin.
Speaker Change: Adjusted cloud recurring gross margins were 79.8%, expanding 150 basis points.
Speaker Change: resulting from efficiency gains in our support and managed services organizations, greater automation, AI-driven optimizations, and a higher proportion of add-on sales.
Speaker Change: In 2025, we will continue optimizing our cost basis by improving sales productivity, streamlining our organizational structure, and leveraging lower-cost jurisdictions, automation, and AI.
Speaker Change: Professional services and other revenue, historically a negative margin business, is expected to break even in 2025. This milestone reflects the investments we have made in automation and partnerships with system integrators.
Speaker Change: Before handing the call over to Jeremy I want to emphasize four key themes. First, our strength lies in our ability to innovate and deliver exceptional products.
Speaker Change: Second, we saw robust sales performance in Q4 and are confident this momentum will continue into Q1 and throughout 2025.
Third
Speaker Change: We have made meaningful improvements across all profitability metrics and we expect these trends to continue in the coming years.
Speaker Change: Finally, we are positioning Dayforce for sustained revenue growth at levels similar to 2025 while driving towards a 20% plus free cash flow margin.
Speaker Change: I'll now pass the call to Jeremy to discuss our financial results.
In more detail, Jeremy, over to you.
Thanks, David.
We are pleased with the fourth quarter results.
Speaker Change: Top-line revenue growth remained strong, while we scaled the business and continued to expand cash flow margins.
Speaker Change: In the fourth quarter, total revenue was $465.2 million, up 16.4% on a gap basis and 17% on a constant currency basis.
Speaker Change: Excluding float, total revenue increased 17% on a gap basis and 17.6% on a constant currency basis.
Speaker Change: And Dayforce's recurring revenue excluding flow was $307.6 million, up 20% on a gap basis, and 20.4% on a constant currency basis, underpinned by StrongGo Lives.
Speaker Change: Our pay recurring revenue excluding float was $23.1 million, flat on a gap basis, but up 2.6% on a constant currency basis.
Speaker Change: And professional services and other revenue was $71.5 million, up 18% on a gap basis and 18.8% on a constant currency basis.
Speaker Change: Gross profit was $218.6 million, up 28.7%. Operating profit was $28.5 million. While recurring gross margin was 80%, expanding 300 basis points.
and on a non-GAAP basis.
Adjusted cloud recurring gross margin was 80.4%.
expanding 230 basis points and adjusted EBITDA was $129.2 million.
up 30.2% or a 27.8% margin, expanding 300 basis points.
Speaker Change: According to our full year results, total revenue was $1.76 billion, up 16.3% on a gap basis and 16.7% on a constant currency basis.
Speaker Change: Excluding float, total revenue increased 16% on a gap basis and 16.3% on a constant currency basis.
Speaker Change: Day Force recurring revenue excluding float was $1.16 billion, up 20.4% on a gap basis and 20.7% on a constant currency basis.
Speaker Change: Power pay recurring revenue excluding float was $83.7 million, up 2.2% on a gap basis and 3.8% on a constant currency basis.
Speaker Change: and professional services and other revenue was $242.7 million, up 12.2% on a gap basis and 12.5% on a constant currency basis.
Gross profit was $812 million, up 25.6%.
Speaker Change: Operating profit was $104.1 million, including $84 million of amortization expense related to the retired Ceridian trade name.
Found recurring gross margin was 78.9%, expanding 190 basis points.
Speaker Change: And on a non-GAP basis, adjusted cloud recurring gross margin was 79.8%, expanding 150 basis points.
Speaker Change: Adjusted EBITDA was $501.5 million, up 22.3% or a 28.5% margin, expanding 140 basis points and reflecting our continued improvement in gross profit margins and scale in adjusted G&A.
Speaker Change: From a cash flow perspective, full year operating cash flow was $281.1 million, up 28.1%, and free cash flow was $171.5 million, up 63.2%.
Speaker Change: Free cash flow is a percent of revenue with 9.7% expanding 280 basis points.
We had a solid year from a financial perspective.
Speaker Change: with strong revenue growth, expanding profitability, and increasing cash flow metrics.
Speaker Change: If I look back at our original 2024 guidance issued in February 2024, we met or surpassed these targets with healthy performance throughout the year.
Speaker Change: If you recall, our initial guidance for 2024 was for total revenue to grow between 13 and 14 percent constant currency, and we grew 16.7 percent.
Speaker Change: Day force recurring revenue X float to grow between 20 and 21 percent constant currency and we grew 20.7 percent and adjusted EBITDA margin between 27.9 percent and 28.6 percent and our margin was 28.5 percent.
Speaker Change: We also introduced free cash flow guidance for the first time this year, saying that we expected free cash flow margin between 9.5% and 10% of revenue, with conversion from adjusted EBITDA to operating cash to be in the mid to upper 50% range.
Speaker Change: while CapEx remained relatively flat year over year, and we ended at 9.7% of revenue with 56% conversion from adjusted EBITDA to operating cash flow.
Speaker Change: We're pleased with our overall performance and financial results this year.
Speaker Change: During the fourth quarter, Dayforce recurring revenue excluding float grew at 20% on a gap basis or 20.4% constant currency. Included in these results was a $2 million FX headwind versus our guidance rates.
Speaker Change: And while GoLives were solid, employee volumes, tax filing fees, and print fees missed our expectations, and we had impacts from customer contract amendments.
Speaker Change: The contract amendments were isolated to a few customers and represented changes to terms that caused a reallocation of contract consideration, increasing PS&O revenue, and reducing recurring revenue.
Speaker Change: Specifically, the impact from employee volumes was approximately a million, the contract amendments were approximately a million, and the tax filing fees and print fees were each about $500,000.
Speaker Change: Excluding these items, our day force recurring revenue growth would have been in the middle of our guidance range.
Speaker Change: We have not changed our previously issued Revenue Guidance for 2025, which I'll dive into more next.
Speaker Change: A few other call-outs about 2024 before I move on to our guidance.
Speaker Change: During 2024, Illumi Revenue added approximately 190 basis points of growth to our Dayforce Recurring Revenue xFLOAT and 110 basis points of growth to our total revenue.
Speaker Change: We executed $36 million of our $500 million share repurchase plan and are pleased that we have the profitability and flexibility to return capital to our shareholders and manage dilution from share-based compensation while maintaining investment in the business.
Speaker Change: Now turning to guidance, for the full year we expect total revenue excluding float to grow at a constant currency rate of 14-15%.
Speaker Change: DayForce recurring revenue excluding float to grow between 15 and 17 percent constant currency. At current FX spot rates we estimate this to be 1.315 to 1.340 billion or about 13.4 percent to 15.5 percent on a gap basis.
Speaker Change: Float revenue of $180 million, representing an effective yield of 3.6% and balanced growth in the mid to low single digits.
adjusted EBITDA margin of 32% of revenue
Free cash flow margin of 12% of revenue.
Speaker Change: And in 2025, we now expect PF and other revenue to grow slightly faster.
and Dave Horse for recurring revenue, excluding float.
Speaker Change: during 2025 as we continue to implement projects from the strong demand we saw in 2024.
Speaker Change: and as we continue to work on some larger projects including the Government of Canada.
Speaker Change: For the first quarter, we expect total revenue excluding float to grow 15% to 17% on a constant currency basis. At current FX spot rates, we estimate this to be $421 million to $427 million, with growth of approximately 13.5% to 15%.
Speaker Change: Float revenue of $53 million, representing an effective yield of 3.7% and balanced growth of mid-single digits.
and adjusted EBITDA margin of 31% to 32% of revenue.
Speaker Change: 21% Canadian dollar-based, 4-5% Australian dollar-based, and 3-4% British pound-based, with the rest spread across multiple currencies.
Speaker Change: With the U.S. dollar strengthening against each of these currencies and with the proportion of our U.K. and Australia-based revenue increasing, we will begin providing FX rates assumed in guidance for each of these currencies compared to the dollar. For our current guidance, the U.S. dollar to the Canadian,
Speaker Change: foreign exchange rate used is 1.44. The U.S. dollar to British pound foreign exchange rate is 0.81 and the U.S. dollar to Australian dollar foreign exchange rate is 1.61.
Speaker Change: Specifically, current foreign exchange rates are driving about 200 basis points of headwind to our full year 2025 revenue growth ranges.
Speaker Change: A few other things to call out before we close out the call.
Speaker Change: On share repurchases, we still anticipate continuing to purchase shares in 2025 with the goal of minimizing dilution to our shares outstanding from stock-based compensation. Our current estimate is that we plan to repurchase more than a million shares during 2025.
Speaker Change: Later today we are launching a repricing deal for our existing $650 million term loan B with the goal of reducing the interest rate from our current levels of SOFR plus 250 to something lower.
Speaker Change: And with regard to our $575 million convertible debt, which matures in March of 2026, we're currently planning to retire this at maturity in 2026 with cash and liquidity on hand.
Speaker Change: And with that, we can begin the Q&A portion of our call.
Speaker Change: Thank you. Ladies and gentlemen, the floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time.
Speaker Change: A confirmation tone will indicate that your line is in the question queue.
Speaker Change: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset. We do ask that you please limit yourself to one question and one follow-up. Again, that is star 1 to register a question at this time.
Speaker Change: Today's first question is coming from Siti Padukrahi of Suzuho Securities. Please go ahead.
Thank you.
Siti Padukrahi: Good morning and thanks for taking my question. Jeremy, for Q4, Day 4 Securing Explode, could you elaborate the points that impacted MISS and is it something of a surprise and also is it one time or should we expect that in this year too?
Siti Padukrahi: Hey Eric City, nice to speak with you. Let me start before I hand it over to Jeremy. I'd like to make four points that I think are quite key.
Speaker Change: First of all, Q4 sales and January sales were both up considerably.
Speaker Change: on a year-over-year basis. Both were record, growing at over two times the revenue growth of the company. So we're quite optimistic on sales performance and sales momentum.
Speaker Change: As you know, generally when we have a very strong Q4, we see a bit of a headwind going into Q1, and we do not expect that this year. Sales is strong.
Speaker Change: Second, we're holding the revenue guidance for the company, that's the guidance that we gave at Investiday, and at the same time, we're increasing the EBITDA guide for the company by 100 basis points.
Speaker Change: We're seeing meaningful profit strengthening across all aspects, so adjusted EBITDA.
Speaker Change: gross margins and as well as free cash flow. In fact, if you look at it on an adjusted EBITDA basis, you can see that on an XFLOW basis, we're expecting adjusted EBITDA to go up by 560 basis points inside the year.
And finally, we are positioning Day 4.
Speaker Change: for sustained growth around the current levels, moving towards a 20% free cash flow basis. In regards to dayfalls recurring in Q4, there were three aspects that Jeremy can go into detail on those. All of them I would say are
Speaker Change: one-time items that do not impact the future of the company. Some of them have to do with amendments to contracts.
There were some effects inside there as well.
Speaker Change: And as people, obviously, are moving to more digitalization, there has been some impact on the printing and the shipping types of these. Jeremy, do you want to give some details of that? Definitely. Yeah. So David mentioned the FX, which, you know, we can put aside and talk constant currency. Ultimately, there's three drivers to the slightly lower numbers, roughly all equal weighted. At first, I'd say it's lower employee volumes than expected.
Speaker Change: Second, it's print fees and tax filing fees, and third, these contract amendments that shifted revenue into professional services and other and away from recurring. All of them are small on a dollar basis. Unemployed volumes, as you probably know, we historically see
Speaker Change: A seasonal spike in Q4 employee volumes around the holidays, and that seasonality was slightly muted this year compared to the past.
Speaker Change: And on the contract amendments, it's honestly a typical customer motion that we see frequently as customers grow with us and grow their HCM needs with us.
Speaker Change: It's a type of flexibility and partially what drives our strong gross retention of 98%.
Speaker Change: We're constantly working with our customers to ensure they're satisfied and, you know, with large customers, when they add services or products, we're required to reallocate that contract consideration.
Speaker Change: between PS&Other and recurring, and this quarter we saw some more services added, which is a good thing for the business and the tailwinds in PS&Other and the headwind in recurring revenue.
Thank you.
Speaker Change: Thanks for that caller and David that's impressive and I think your fourth point on the key themes driving sustainable revenue growth at this level 25 that's definitely impressive when you compare to your peers who are more in the low double-digit but help us understand what are the factors assumed in that level of you know confidence to drive this this level of growth
We are seeing a strong sales momentum.
Speaker Change: Again, if I look towards December, it was a record month.
Speaker Change: And then we saw the strength continue into January, and as you know, I typically give a bit of a color as to how the current quarter is going.
Speaker Change: The other number I'll point to, if you look at the cloud ARR growth in 2024,
Speaker Change: It was up 17.9%. And remember, our business is very predictable.
Speaker Change: If I look at the Air Force recurring across the 2024, we were within 30 basis points of the guide that we gave at the start of the very year, which I think is quite remarkable for a business of this scale.
Thank you.
Thank you.
Speaker Change: Thank you. The next question is coming from Mark Murphy of JPMorgan Chase. Please go ahead.
Speaker Change: Do you attribute that to the timing of the holidays where both Christmas and New Year's were falling mid-week on a Wednesday, in other words, a temporary blip, or do you see some other type of effect that might linger a bit as you queue on?
No, I didn't see, at that level of detail, anything.
Speaker Change: You know, that slightly muted, but then also, you know, we did have some some extreme weather events in the southeast and this year.
Speaker Change: during Q4. And look, it's a tough thing for us to forecast and to guide. And historically, we've been pretty accurate. And I think we still were very accurate. It just, you know, was slightly below our expectations, unfortunately.
Okay, understood. And then, David...
Speaker Change: Thinking back to the fall, you had mentioned some willingness to consider more transformative M&A.
Speaker Change: And since then, we've seen paychecks announcing its intent to acquire PayCorp. Is it safe to assume that Ceridian would have seen too much overlap with PayCorp or isn't as interested in going down market? And therefore,
Speaker Change: perhaps you didn't spend much time considering it and could you shed any light on just whether that acquisition might affect the landscape or open up any opportunities for you as they try to merge the two organizations?
Speaker Change: We don't compete against paychecks and we don't compete against pay core. It is down market from us. I would expect in the down market side that there should be consolidation because I don't think there's much differentiation in product.
Speaker Change: Mark, what differentiates Staples is our ability to innovate and deliver product.
Speaker Change: And you see that across the gains that we're having in terms of competitive wins in market, the strength of the Q4 and the January sales of it. So to answer your question, no, I don't think there'll be any impact to Davos.
Thank you.
Speaker Change: Thank you. The next question is coming from Ray Muldenshall of Barclays. Please go ahead.
Ray Muldenshall: Hey, thank you and congrats for me as well on a great sales quarter and how do you think about the sales kind of feeding into revenue next year?
Speaker Change: Obviously, you know, like Strong Quarter, if I look at the guidance for day 4s, they were slightly below consensus, maybe might have been mismodeled by us, but like the contract that you signed, were they kind of a contract with longer goal lives, etc.? Is that kind of an impact we should consider? Thank you.
Hey Remo, we had strong performance across segments.
Speaker Change: So we saw large enterprise, which for us is above 12,000 employees, perform well. We saw the major market have considerable strength.
Speaker Change: as well, and we even saw our emerging business, which goes up to about 1,000 employees, also do very, very nicely. The Australian APJ also performed very well. So there wasn't really a concentration in any one segment.
Speaker Change: Given our scale, we typically have, I'd say, well over 1,000 ongoing customer implementations. And as you know, when we plan out or model out our revenue,
Speaker Change: We look at it from an individual go-live milestone of each of those specific projects.
Speaker Change: By the way, the Go Live number as well in the quarter was very, very strong. The number was, I think, what was it, Jeremy? A hundred and...
We added 146 net new customers during the quarter.
Speaker Change: You know, really with a strong day force recurring, I mentioned a bit earlier, the annual recurring revenue of cloud went up by 17.9%, so it just flows throughout the system.
Speaker Change: Okay, perfect. And then, Jeremy, one for you. I saw the EBITDA raise, so well done on that one, but you didn't raise the cash flow number, which is kind of where, you know, a lot of investors were focused on. Can you talk a little bit about, you know, the puts and takes getting EBITDA higher but not the cash flow? You know, talk to that maybe a little bit. Thank you.
Speaker Change: It's a great call out, Raimo. We're raising the adjusted EBITDA guidance by 100 basis points from our previous guide, 31 to 32.
Speaker Change: That represents 350 basis points of expansion, but if you actually exclude the float headwind, it's 560 basis points of expansion year over year. We're doing that through cost control and efficiency. If you think about last year, we invested heavily in sales and marketing, and we're reaping the benefits of the productivity from those investments in 2025.
Speaker Change: We're leaning into greater automation, we're leaning into AI-driven optimizations across the organization, and we're optimizing our cost base by streamlining
are organizational structure and leveraging lower cost jurisdictions.
Speaker Change: You know, this is our first year that we're, you know, kind of really providing a full free cash flow guidance at the beginning of the year here. And I have optimism in this number, but I wanted to, you know, just kind of hold it at where we're at for now.
Okay, perfect. Thank you.
Speaker Change: Thank you. The next question is coming from Mark Marcon of Baird. Please go ahead.
Hey, good morning and thanks for taking my questions.
David, at the very beginning you mentioned
historic levels. I assume you mean that they aren't lengthening.
Speaker Change: How unusual is it to have a really strong January? Typically a lot of sales come in towards the end of the quarter, so I'm wondering what that bodes and how much of that was basically an after effect of the really successful meetings that you had in Vegas.
Speaker Change: That's actually quite good insight over there Mark. We saw an acceleration of sales following our Discover event.
Speaker Change: There just are numerous examples of where we had organizations come to the actual event and within, I would say, four to eight weeks following the event, we were able to complete the actual contracts.
Speaker Change: I think the way that the organization showed and the product showed at DISCOVER this year was just spectacular.
So we're very pleased with it.
Speaker Change: So, to see strong sales performance in January following an exceptional December, it is something that I did want to call out. It gives us a lot of confidence on the sales momentum side.
With regards to the sales cycles being shortened...
Speaker Change: Do you think that's specific to you? Or is that just a general tonal change that's occurred now that we have some clarity with regards to interest rates as well as the election?
Speaker Change: I do think there is an impact of the new administration, I think there is generally a heightened sense of optimism.
Speaker Change: across businesses, but again, I'm not an economist. What I can talk about is what we're seeing in our business, and in our business, we are seeing buyers making purchasing decisions quicker than they did last year.
Speaker Change: Great, and then can you talk a little bit just on the on the line of elections. We're not the only country that's having elections
Speaker Change: that's coming through either from the elections or from any sort of change with regards to procurement processes.
Speaker Change: in Canada, and do you have any early thoughts just with regards to, you know, given that you've got operations in Canada as well as the U.S. and joint headquarters, how do you think about, you know, any sort of potential tariff impact?
Speaker Change: Hey Mark, this is Steve Holdridge. Let me take the first part of that and then David may want to talk about the broader Canada environment. In terms of the Government of Canada,
David: No, the short answer is we don't expect any impact. We're continuing to work towards our deadlines with the most recent order and contract targeting April 2025. We're on track to achieve those milestones. We don't expect anything from the announced changes at the prime minister level. We continue to have support. I mean, frankly, we've been at this for four years.
David: and leaders at all levels of government want to make sure people are paid properly and the payroll choice does not get politicized. So we continue to be confident in business as usual.
David: Regarding the impact of potential tariffs between the U.S. and Canada,
David: It's difficult to project that. I suppose the biggest impact would be on the FX rate.
David: between the U.S. and between Canada. About 21% of our revenue is in Canada, so we do have a... there would be a revenue impact in terms of U.S. dollars reported.
David: We are hedged probably about 70% on the cost side against that, so from an adjusted EBITDA percentage, I don't think there would be any impact.
Speaker Change: Great and then this one last one, a number of really nice wins here. Can you talk a little bit about who you ended up capturing these folks from?
Thank you.
Speaker Change: Yes, as I mentioned last time, and for those of you who attended Discover, we typically nowadays compete mostly against the ERPs.
Speaker Change: And we seem to be taking away shares from the competitor that we would have competed against most historically.
Speaker Change: I would say that if I look at Q4, the majority of the wins were takeaways from them always competing against one of the EURPs.
Congratulations on a terrific sales quarter. Thank you.
Thank you. Bye-bye.
Speaker Change: Thank you. The next question is coming from Samad Samana of Jeffries. Please go ahead.
Samad Samana: Hey, good morning. Thanks for taking my questions. I appreciate it as always. Maybe first just...
Speaker Change: On the first quarter, I didn't, Jeremy, I didn't see a 1Q Dave Forster recurring ex-float guide.
Samad Samana: I may have just missed it, I apologize if I did, but is this a change in guidance philosophy, should we only expect...
Samad Samana: an annual outlook going forward, and I guess any comments on the cadence of Day Force recurring exploit growth as we think about the year.
Thank you. Thank you. Thank you.
Speaker Change: Hey Samad, good to speak with you. Look, we're giving State Force recurring revenue and flow guidance for the full year, along with the addition of that pre-cash flow guidance for the full year. As we've grown larger over the years and also established a very strong focus on
Samad Samana: free cash flow generation. It made sense internally to focus on total top line.
Samad Samana: adjusted EBITDA, and free cash flow margin and dollars, and it's really how we're running the business internally and how we measure our own success. So we felt it appropriate to reflect this in our communications with investors. I will obviously still report on those numbers and
Samad Samana: and the like, but ultimately, we think this is how we're managing the business and makes a lot of sense to go forward here.
Speaker Change: Understood. That makes a lot of sense. And then, David, you know, you gave some commentary on the midterm growth expectations beyond 2025, and obviously this is coming up.
Speaker Change: off of the heels of the Analyst's Day, where you gave specific long-term targets. I guess maybe just as we think about...
Speaker Change: how day force recurring exploit is expected for 25. Any comments maybe on what you're thinking there for the midterm targets or what you've assumed? I just, I wanted to make sure I have clarity on what we should expect to remain at these levels going forward and how the view on day force recurring is.
Yeah, as I mentioned before, we expect them to hold.
Speaker Change: On Day 4's recurring, remember that the business today is almost all a cloud. If I look at the total other recurring business, you really are looking at about $43 million.
Speaker Change: for the full year, so as we kind of end of life those types of platforms and do the migrations to day four, you'll see that line just decline by about 40% year-over-year in constant currency.
Speaker Change: We're quite confident that we can do that and that allows us really to keep that focus on driving profitability as we reach this level of scale.
Speaker Change: Great, and then maybe just one last one for me. I know the sales organization is doing well. Clearly you gave us some comments around
Speaker Change: sales activity both in the fourth quarter and the first month of the year. How should we think about how the coverage, that four to one that you mentioned?
Speaker Change: How does that compare to this time entering 2024, so this time last year, and should we think about that holding fairly constant at current levels?
early sales types of activities.
and their summits and etc.
Speaker Change: If your number is too high, your sales cost would go up, and again, as we're trying to improve the actual profitability.
Speaker Change: One of the constraining factors is the sales and marketing expense.
Speaker Change: and that really drives the size of your pipeline and the expected conversion. The sales productivity numbers that we're seeing now, I would say, are very close to best in class for enterprise software, so we're very happy from the productivity of the actual sales force.
Great. Thank you, everybody.
Scott Berg: Thank you. The next question is coming from Scott Berg of Niederman Company. Please go ahead.
Scott Berg: Hi everyone, congrats for me on the Strong Steel's quarter as well. I guess two things
Scott Berg: David, wanted to start with your newly announced Digforce AI agent strategy that you talked about at the conference. Just wanted to see how customers responded to that. I know it's early, probably just enabling the Salesforce and everything with that effectively, but agents are kind of the craze in our software space this year. Just wanted to see how you guys might be benefiting from that. Thanks.
Scott Berg: So, Scott, we've, as I think mentioned in my core script,
We saw about 60 unit sales of our co-pilot.
Scott Berg: After we announced it at Discover, so basically November-December, so we're seeing a nice uptake of our AI products.
Scott Berg: in market, and I do believe it does differentiate her relative to the others, because we're not talking about future capability. We're talking about already generally available functionality that's inside the actual product.
Scott Berg: It's becoming front and central in the way that we actually position the product. In terms of agents, we've had some agents in market for that time, typically around initiation of workflows like time away from work and the others.
Speaker Change: So I think you'll see that continue. Joe, I'm not sure if you're on the call, but if you'd like to add a bit more color about some of the enhancements we're doing around the agents.
Speaker Change: Thank you for the question and I appreciate the insight. For us, really the next work is how we can help customers realize value with Dayforce.
Speaker Change: is with the promise of AI, but we're realizing that promise. Like David said, the 60 new sales just came in a month and a half.
Speaker Change: and customers are seeing that value of the differentiation of delivered AI innovation.
Speaker Change: The agents that we deliver in the year ahead will go across our entire suite from HR through our talent modules.
Speaker Change: even down to analytics, where a report writer will automatically build you the reports you need in an instant, just saving your company time and energy. So look for more innovation as we move ahead. It's a big, big differentiator for us as we hit 2025 at speed.
Speaker Change: As we think about your PS margins going forward, I know obviously some of that's getting pushed out to partners. That break-even viewpoint, is that like for the full year in terms of your guidance or do you just break, you know, over that, you know, kind of get to that break-even line at one point, one quarter during the year? Thanks.
Speaker Change: First of all, thanks for noticing that, yes, the improvement in the professional services and others, which we expect to be about break-even this year, is largely the result.
Speaker Change: of the investments we've made with the system integrators and the success that we're seeing in them actually priming the implementation. So we're very excited about it. It's the metric that we look at internally.
to determine if we're seeing success across the SI channels.
Speaker Change: Obviously, with that, you would expect that to be partially behind what we're seeing in terms of pipeline development, conversion of actual sales, as they help influence the actual deals. It's going quite nicely.
Speaker Change: Thank you. We'll move on to the next question. The next question is coming from Steve Enders of Citi. Please go ahead.
and many more. Thank you. Thank you.
Okay, great. Thanks for taking the questions this morning.
Speaker Change: you know, 25 from a high macro level in terms of like employment cadence and maybe some rate cut assumptions and kind of what's being accounted for in there. And I guess secondarily, if there's maybe, you know, any incremental conservatism being accounted for based on, you know, some of those factors you called out that impacted the 4Q Dave Warsh performance.
Speaker Change: Yeah, thanks Steve, it's good to speak with you. Yeah, we can go into a couple of assumptions, I think specifically on the rate cuts.
You know, we're, we're, uh...
Speaker Change: We're assuming bank consensus to kind of inform our forecast there. So Canada just cut rates by 25 basis points at the end of January, and the U.S. held flat. So with those cuts kind of built in, you would expect, or we would expect, about one rate cut in the U.S. in the middle of the year at about 25 basis points. And we'd also expect Canada rate cuts to continue at about 25 basis points each meeting until October.
So, about five more cuts this year.
Speaker Change: With all of that, we think we'll kind of net out to a yield of about 3.6% on average balances growing in the low to mid-single digits this year on the float side of things. As far as the other assumptions on employment levels...
Speaker Change: We'd expect that to kind of be in the, you know, very low single digits from a growth rate perspective and certainly are using what we learned in Q4 to inform our forecast and guidance in 2025.
Okay, perfect. No, appreciate the, um...
Appreciate the commentary there.
Speaker Change: And then I just want to ask on the pro-services performance and that outpacing the growth for the DaveForce recurring growth this year, can you just maybe help us think through some of the factors impacting that, like is that a reflection of some of the managed services capabilities that were highlighted at the NLSA, that kind of pulling through more, kind of like what factors should we be thinking about in there and kind of what continues moving forward?
Speaker Change: Yeah, I think first and foremost is we had a really strong, you know, sales Q4 to cap off a really strong sales year in 2024.
and, you know, we haven't.
Speaker Change: I think with that, you see strong sales comes with implementation and services work. And that's kind of the tip of the sphere there, if you will. We've also got some of the larger, you know, projects that we're working through and large customers that we'll continue to do work for. And then if you think about the productivity, I think it's really a few primary drivers. It's, as David mentioned, the systems integrated relationships that we've matured.
Speaker Change: We're doing also a greater proportion of value-added services alongside those systems integrators.
Speaker Change: And we're driving efficiency into our implementation process. We talked about this at the November End Rester Day, but, you know, a few years ago, we began building out these SI relationships, and we're really pleased with how these have come together and how we're driving that efficiency across that implementation process.
Okay, great. Thanks for taking the questions.
Speaker Change: Thank you. The next question is coming from Kevin McVeigh of UBS. Please go ahead.
Kevin Mcveigh: Great, thank you. Hey, um, I think you talked about the wallet 39, 24, up from 12 and 23
Kevin Mcveigh: Yeah, in 2024 we released AFT and IFT capabilities to the wallet and we saw quite a good adoption of those types of movements of money.
In 2025, we just launched Direct2Bank.
Kevin Mcveigh: So what Direct2Bank is, if you do an on-demand pay, the employee can now select to pass that money to one of their existing debit cards attached to an existing check-in or savings account.
Kevin Mcveigh: We're seeing that actually take off quite nicely as well. We also obviously, as you would expect, continue to see increased adoption.
Kevin Mcveigh: in terms of more organizations and more employees use the Apple Wallet as well. So we would expect the momentum on the Wallet to continue this year.
It should be. There's still something that...
have probably started.
and 25. �
Kevin Mcveigh: Yes, we are. As I think I answered, I think it was Scott who asked the question. We're seeing a nice traction with the system integrators, obviously strengthened year over year, and you can see that reflected in the professional services and other margins, which as we move the implementations more to the SIs.
Kevin Mcveigh: We've also seen increased amplification of the brand and increased pipeline with not only the SIs but with our community advisory partners and our technology partners.
Thank you.
Speaker Change: Thank you. The next question is coming from Alex Zuckin of Wolf Research. Please go ahead.
Speaker Change: Hey guys, thanks for taking the question. Maybe just the Canadian government deal, can you guys remind us how that's going to play into the fiscal 25?
Speaker Change: guide given kind of a slightly longer ramp time and Jeremy maybe just I know we're not guiding today for us recurring but maybe help just from a modeling standpoint how we should think about that flowing through the year maybe relative to to last year
Speaker Change: Alex, good to speak with you. Look, on the Canadian government deal, I think Steve kind of spoke to a little bit, is
Speaker Change: We're continuing to work towards those deadlines that we talked about in the most recent.
timelines, which is targeting April 2025.
Speaker Change: We're on track to achieve those milestones and that's more on the kind of recurring side of things.
Speaker Change: On the professional services, we have been seeing work, and we've been doing work, and we continue to do work.
Speaker Change: with the Government of Canada. On the recurring side of things, I think you'll see, you know, kind of a continuous cadence, or a consistent cadence with how things have looked in the past.
Speaker Change: and you know stopping short and giving you know kind of full guidance. I think that 15 to 17 percent constant currency number for the full year is a is a good guide and we should kind of remain in those bounds for for the quarterly basis as well.
Speaker Change: David, maybe I'll re-ask one of the earlier questions, but I think when you had spoken last time on the Earnings Call, you kind of talked about...
something changed in that.
Speaker Change: in that visibility given the December and January. So I'm just curious, is it the demand environment? Is it, you know, something you've figured out on the execution? Is it tailwinds from AI? Like, what changed in...
Speaker Change: and from your perspective from 90 days ago to now with respect to that visibility.
I think that the impact of DISCOVER, our client conference,
Speaker Change: I did have an impact in terms of purchasing cycles, so I think the work that the product and technology team has done in really differentiating very clearly Dave Hall's relative to the others had impact.
Speaker Change: As Steve mentioned, I think the branding work that we invested in last year is also getting us more mindshare and is making it easier for us to get the final approvals.
in the very large types of deals.
Third, I do think that the sales team
Speaker Change: really is performing very well, and I'm very proud of the way that they go to market and the way that they tell the story and the way that they show the product.
Speaker Change: As well, I think that as an organization, Dayforce and our Daymakers, the way that we interact and partner.
Speaker Change: with our customers is reflected. You can see that as well in the retention rate that is now 98% on day falls, which has got to be best.
Speaker Change: in market. And then lastly, as I mentioned, I do think on the macro side that there's much more optimism across business leaders about the economy and that is helping with purchasing cycles as well.
Speaker Change: Thank you. Our final question today is coming from Brad Reback of Stiefel. Please go ahead. Great. Thanks very much. Maybe two quick ones. Did you all mention what the percent of new sales back to the base was?
Speaker Change: We haven't yet, but it was above 40%, 42% was the number this past year. And we're really pleased with that. And we also sold the same number actually, 42% of all suite deals as well. That's right.
Great. And then Jeremy, given some of the...
Speaker Change: unusual puts and takes in 4Q, things that snuck up on you a bit. Have you taken a different guidance philosophy, maybe increased conservatism at all as it relates to your 1Q in all of 25? Thanks.
Thank you.
on the webinar today.
That's great. Thank you very much.
Speaker Change: Thank you. This brings us to the end of the question and answer session. I would like to turn the floor back over to Mr. Ossip for closing comments.
Great, thanks everyone for joining us.
Mr. Ossip: Sorry for those of you that we didn't get to the actual questions today, but we'll have the one-on-one following. Just a few pieces, I'd like to end with one again, reiterating the sales momentum we saw in Q4 that continued into January and our confidence in sales for Q1 and for the year.
Mr. Ossip: The second is I want to reiterate that we're holding the revenue guide for the year while increasing the adjusted EBITDA by 100 basis points and that we are seeing that meaningful improvement in profitability across all aspects.
Mr. Ossip: And lastly, we are positioning Dayforce in the midterm for sustained growth around the current levels while moving towards their 20% plus free cash flow. Again, thank you everyone for joining us today.
Speaker Change: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.