Q2 2025 Dayforce Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the day Force, second quarter, 2025 earnings call.
Our host for today's call is David Namin, Vice President of Investor Relations.
At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I would like to now turn the call over to your host, Mr. Nederman, you may begin.
Thank you for joining.
And welcome to the day Force, second quarter, 2025 earnings call. I'm David nederman, 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.
Joining me on the call today are CEO, David OIP, and CFO Jeremy Johnson. We also have Chief strategy product and Technology officer, Joe Korn Gable and our president and CEO Steve Aldrich available for Q&A.
Forward-looking statements, these misstatements are subject to risks, and uncertainties, that could cause day forces results to differ materially from historical experience or present expectations.
A description of some of these risks and uncertainties can be found in the reports we file with the Securities and Exchange Commission, such as the cautionary statements in our filings.
Additionally over the course of this call Will reference non-gaap measures to describe our performance.
Please review, our earnings press release release and filings with the SEC for our rationale behind the use of these non-gaap measures. And for a full reconciliation of these gaps and non-gaap metrics, 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.
I'll begin with some high-level commentary on our results and outlook before handing the call over to Jeremy who provide more detail on our financials and guidance.
We had a great second quarter and came in about the high end of guidance cross. All metrics, most noticeably day for recurring Revenue excluding flirting on a constant currency basis grew 14% adjusted. Ibido Marchin was up, 420 basis points to 31.7% and free cash flow in the quarter was 87.1 million or 18.7% of Revenue.
Year to date. Free cash flow was up, 500 basis points to 106.6 million.
We continue to balance profitability and growth.
We are targeting to grow dayforce, recurring Revenue above 15% and we expect free cash flow margins to grow faster than we laid out at our investor day last 4.
This year, we have increased our free cash flow. Margins guidance from 12% to between 13.5 to 14%.
Representing an expansion of approximately 400 basis points year-over-year.
And we believe, we can achieve 1 billion dollars of free cash flow by 2031.
Jeremy will expand on the levers. We can pull to achievers.
Our momentum towards this goal. Is rooted in our deep cross-organizational, focus on driving efficiencies and simplicity that yield value both in our business. And with our customers,
This begins with our sales cycle, on a value proposition of consolidating an average of 12 systems to 1.
Which continues to resonate strongly with prospects?
It also extends to how we push ourselves to move quickly to provide value for customers in our deployments as evidenced by our industry-leading, retention rate and an absolutely applies to how we innovate. Our products delivering greater productivity as we further our placement as the AI people platform.
I've seen this fly well around Simplicity, productivity and value come to life over the past year at a highly successful day for Summit Series.
Where we host gatherings of prospective customers, partners, and existing DeForce customers.
The energy of the community and the excitement around the product is pal.
With an impressive conversion and close rate that gives us great confidence in the year. As we move closer to our annual customer conference day Force discover in Las Vegas in October.
We invite the investment Community to attend and look forward to seeing many of you there.
Now more specifically on the sales front.
Sam has created an operational machine. That is firing across all segments, with remarkable sales momentum for the third consecutive quarter.
On a year-to-date basis.
Tokens have grown over 40%.
New client, bookings across all segments, perform well in the second quarter.
System integrator lead sales. Growth outpaced overall sales growth and we are pleased with attraction. Our partners are gaining.
Additionally, our back to the base sales strategy continues to succeed with sales, existing customers, growing over. 50%, in the second quarter and representing 40% of total bookings.
There is a significant opportunity in back to base sales.
We have almost 7,000 customers live on dayforce but still have a relatively low pain rate, penetration of modules in relation to our offerings.
You can see this.
In that our average PM is still only about $13 across the base.
However, today we have a full set of HCM offerings.
Taro and time is about ten dollars per employee per month.
The talent offerings, add another $10, the manage, another ten dollars, and our data capabilities, including the AI assistant experience Hub studio and analytics, add another ten dollars.
We are seeing strong evidence of this in both new and add-on sales.
For new customers. This year, 93% of our Enterprise segment and 90% of major market segments, new sales were full Suite.
And manage has been added to 17% of new business deals this year with. Bookings up over 100% versus last year.
Over time we expect to achieve much deeper penetration and see an increase in the average pattern across our base.
This is important from 2 aspects, first.
We have much higher sales productivity in back to base sales and second their product profitability of these sales is much higher.
So as we execute this strategy, we expect to see Higher ibida and Higher free cash flow conversions.
Turning to our key business wins in the second quarter, we added several new large customers that we are excited to welcome to the dayforce family. Including
A global leader in apparel expanded. Its relationship with their Force, adopt in a full Suite to support his Global Workforce of 37,000 employees.
For this customer, we are displacing at least 8 different software vendors in a terrific validation of our value proposition.
We'll be helping them streamline. Their HR operations inhance, their Workforce, agility, reduce operational risk and Elevate their employee experience.
A leading user base provider of essential infrastructure, services selected Dayforce, Inc. for force management.
Payroll. Workforce management HR and Talent Solutions to support is 10,000 employees across 45 States.
This customer worked with over 300 different unions, and the Dayforce platform will allow them to accommodate the complex reporting and tracking required by their employee organizations.
A large multinational industrial company selected the full suite of Dayforce, including managing payroll for a diversity consisting of 3,100 employees.
This customer selected Air Force for our integrated system and to have the ability to access real-time data.
And Energy Service Company with operations in the United States and Canada selected de force to provide a wide range of HCM functions for its largely field-based Workforce. This company needed a solution with an intuitive yet functional mobile user interface based on a single system. Additionally this new customer is a great example of our Summit strategy at work as they attended both our New York and Dallas summits.
The government of Canada formally announced their selected days for the Force for HR and pay transformation for its employees.
We are very pleased with our work with the Government of Canada to date.
And look forward to providing their people with a modern and effective HCM solution that will allow them to do their best work.
We also have a strong quarter of go lives.
We took live our largest customer today with over 300,000 employees.
And we expect this to be over 500,000 by the end of the year.
I want to give kudos to our product technology team as well as our services team for their dedication and skills in making this possible.
We continue to bring new customers live on today, forced out of predictable and sustained pace.
On the innovation front, we continue to deliver on our AI roadmap and further cement Dayforce as the AI people platform.
This consists of three core areas.
First, integrating Ai and intelligent functionality across the suite and delivering smarter functionality in every model.
this quarter, we delivered features, including
AI skills-based learning to deliver personalized, efficient people development experiences.
Enhanced skills requirements for shifts in workforce management to optimize scheduling and workforce productivity.
Heightened letter management with Advanced analytics and custom reports for streamline HR Communications.
Patient management to simplify pay transparency and strengthen retention efforts.
New dayforce experience Hub on mobile to provide seamless intuitive experiences for Frontline workers.
And we added over 230 compliance updates to reduce manual effort and support regulatory alignment.
Next is our Dayforce AI assistant, which continues to gain significant traction with our customers.
On both the second quarter and year to date basis over half of new business wins. Also purchased dayforce AI assistant.
This early success is encouraging and we are just getting started with our AI efforts.
In addition, Almost 100% of new business wins. Included our AI people platform,
More than 80% of new business weren't included, our AI analytics and nearly 60% of new business weren't included. Our AI learning products.
And third is our Dayforce AI agents.
Joe has a road map of over 30 Asians that we are delivering on.
Starting with our latest feature release available this month, this will include the availability of our pay. Discovery AI agent and our contextual writer agent offering generative AI writing assistance across our platform, including performance goals job, descriptions self-assessments employee feedback, help tickets and writing support across our 8.
HTM platform.
We are focused on delivering.
On our commitments here, and I'm pushing forward as an AI leader. As we continue to see interest in these offerings. Increase
I look forward to sharing more about what's to come at day forth. Discover
Getting back to our strong sales performance this year.
We are seeing success because we purposely built Day falls with a single data model with Comprehensive capabilities from pre-hire to postretirement.
This allows customers to replace a a multitude of disparate HDM Technologies with a single day, Force solution.
And this in turn provides our customers with a strong cash, internal rate of return alongside a much better experience and decision-making.
You can see this reflected in our industry-leading, gross retention rate of 98%.
Growth of add-ons, modules, and percentage of full suite deals.
From an AI perspective. This is immensely important too.
As to leverage foundational language, and machine learning modules.
You need and require well-formed comprehensive data.
De force is unique in Market inlets. We have a single database across all aspects of HCM.
This has allowed us to move very quickly to embed AI across our entire platform.
It is also the reason why our competitive win rate has improved significantly. Driving tremendous sales momentum.
Simply customers understand that, in today's age of AI, a single application, with a single single data, module is fundamentally required and de force is unique in this regard.
In closing, I'd like to leave you with 5 Points. That highlight our confidence in our future.
We have a best-in-class Enterprise grade platform that has expanded from Peril and compliance offerings to a comprehensive full featured HCM Suite.
Along with a roadmap for future development, we expect to extend our competitive advantage even further.
We are a clear leader in the large and growing HDM market and continue to widen this lead.
We have a blue chip, customer base with thousands.
Of the highest quality companies across virtually every sector.
Currently, we are a serving approximately 25% of the Fortune 500.
With these advantages, we see the opportunity to build a generational HCM AI-powered software company and are keenly focused on making this a reality.
and finally, our people
Dayforce employs some of the most talented, seasoned, and passionate people out there, focusing on being the best HCM company in the world and creating a generational software company.
Over to you.
Thanks David.
We are pleased with our second quarter results.
Topline Revenue growth remains strong, while we scaled the business and continued to expand cash flow margins.
Total revenue was 465 million up 10%.
Excluding float. Total revenue, increase 12%.
De Force, recurring revenue excluding float was $315.5 million, up 14%.
Professional Services Revenue was 71.6 Million up 23%.
Operating profit was 42.3 Million compared to 14.1 Million last year.
Adjusted, Evita was 147.2 Million up 27%, or a 31.7% margin expanding 420 basis points.
Year to date, net cash provided by operating activities. Was 162.3 Million compared to 1 0 8. 3 8.
And year-to-date free cash flow was 106.6. Million versus 53.9 Million last year or an 11.3% margin this year versus a 6.3% margin last year expanding 500 basis points.
We repurchased 20.8 million of common stock during the second quarter, bringing the year to date, total to 51.2 million or nearly 900,000 shares. Repurchased this year.
Turning to the macro environment.
We believe the best indicator of the macro is the demand environment.
as David mentioned, the demand environment at dayforce remains strong,
With your today, bookings growth over 40%, a trend that has continued now. For 3 quarters,
We also have great line of sight into the employment levels of our customers.
And we have seen a consistent trend of moderate growth in employment levels.
We had estimated just under 1% growth and that is what we have observed.
Foreign exchange rates versus the US dollar across Canada UK and Australia. Improved during the quarter which we have updated and reflected in our guidance.
Now, turning to our guidance, for the full year, 2025 we expect total revenue of 1.935 billion to 1.955 billion.
Total revenue, excluding float of 1.749 billion, to 1.769, billion and increase of 12.1% to 13.4%, and a gap basis or approximately 13 to 14% on a constant currency basis. Reflecting the ongoing shift in Professional Services Revenue to our systems, integrator partners.
De force recurring Revenue, excluding float of 1.324 billion to 1.344 billion, an increase of 14.2% to 15.9% on a gap basis or approximately 15 to 17% on a constant currency basis.
Float revenue of 186 million.
Adjusted EBIT de margin of 32%.
Free cash flow margin of 13.5% to 14% reflecting an increase from the previously issued guidance of 12%.
This increased reflects the impact of the 1, big beautiful, bill act enacted by the US Congress in July of 2025.
The legislative changes are expected to impact our future cash tax remittances resulting from changes to tax, deductibility rules for domestic research and development costs.
And for the third quarter, we expect total revenue of 476 million to 486 million.
Total revenue excluding float of 434, million to 444 million and increase the 10.1% to 12.6% and a gap basis or approximately 11 to 13% on a constant currency basis.
Dayforce, recurring Revenue, excluding float of 329, million to 339 million.
An increase of 12.7% to 16.1% on a gap basis or approximately 13 to 17% on a constant currency basis.
Float revenue of 42 million.
Adjusted. Eva de margin of 30 to 30.5%.
We have great visibility into the back half of the year.
We are expecting day 4 for recurring Revenue. Excluding float growth rate in the fourth quarter of between 16 to 19%.
Solid growth rate in the fourth quarter is driven. Primarily by beginning to see Revenue related to go lives from our strong bookings, over the past 3 quarters, as well as beginning to see, more revenue from the large deals, we sold over the past few years.
Sold but not yet live.
Is the largest it's ever been and customers continue to go live. Predictably
Looking forward, we feel confident in our ability to achieve Dayforce recurring revenue, excluding flow, growth rates above 15%.
As we progress toward the long-term, long-range plan targets that we set last year,
As David mentioned, we are seeing a faster path to free cash flow expansion than we set forth at our investor day. And I'd like to expand on that.
First, we are executing against our plan very well today.
Year-to-date, our total revenue of $946.5 million is up $92 million.
And our free cash flow of 106.6 million is up 53 million.
That means incremental free cash flow margin. On our incremental revenue is an impressive 57%.
Our ability to convert incremental Revenue into free cash flow is what ultimately gives us confidence in our ability to continue to drive, free cash flow margin expansion, well into the future.
Second, we are confident in our ability to scale the business. As we drive technology automation, AI adoption and the use of cost-effective jurisdictions.
And third, as I mentioned previously, we will get a benefit from the 1, big beautiful, bill act changing the tax deductibility rules for domestic R&D costs.
Which provides us with about a 40 to 50 million benefit to cash taxes this year and about a 20 million benefit to cash taxes in 2026 and Beyond.
Ultimately, we are confident in our path to achieving $1 billion in free cash flow by 2031.
Finally we are in the final stage is of terminating our Frozen defined benefit pension plan and be pension plan. As I previously had announced last year. If you recall, these are Legacy pension plans that day Force inherited from Syrian and its predecessors.
We expect these termination processes to conclude in the third and the fourth quarter of 2025 respectively.
as a result of the terminations, we expect to have the following Financial impacts which are included in our cash flow guidance and our raised free cash flow guidance from 12% to between 13 and a half to 14%
in the third quarter.
The cash charge in the range of approximately $30 million to fully fund the plan and terminate the defied been benefit pension plan.
A non-cash expense of approximately 205 million as a result of the recognition of previously, deferred losses, related to the defined benefit Pension Plan Investments.
And in the fourth quarter, a cash charge of approximately dollars to fully funded terminate the BEP pension plan.
And a non-cash benefit of approximately million dollars as a result of the recognition of previously, deferred, gains related to BEP Pension Plan Investments.
Cash charges will flow through the cash flow from operations.
And are included in our free cash flow guidance.
The non-cash charges will flow through the other income/expense line on our P&L. They will have no effect on EBITDA and have no impact on ongoing business performance or long-term cash flow generation.
With that, we can begin the Q&A portion of our call.
At this time, we will conduct the question and answer session.
If you would like to ask a question, please press star. Then the number 1 on your telephone keypad now and you'll be placed in the queue in the order received.
We ask that you please limit yourself to 1 question before returning back to the queue.
Once again to ask a question, press star, then the number 1 on your telephone keypad now.
We are ready to begin.
Your first question comes from Scott Berg with nem, your line is open.
Hi everyone. Nice quarter. And thanks for, uh, taking my questions. Uh, David wanted to follow up on your um, statement on, uh, sales growth outpacing. Um,
um, I guess coming from your si Partners outpacing, uh, the rest of the business there. I guess, what are you seeing in? In terms of, I don't know. Deal sizes, customer segments, you know, modules that are that are, that are being bought by, you know, customers coming in through those channels versus, maybe what you're selling directly, just see it. If it's a, you know, something different in the rest of the business or if I guess if it's, uh, if it's similar, thanks.
Hi Scott. Uh, thanks for the question. Uh, let me start off with uh, the actual numbers as I. Let's sales were up
80%.
Forget for the first half of the year.
Uh, which is obviously the exceptionally positive. Uh, if you're a core, what we're finding is that the single data model that we have is giving us 2, strong advantages in Marketplace.
Uh, first, it allows the 12 to 1 simplification across the different modules. And as we've spoken about previously, very strong cache irr for our customers, as they get better, efficiencies improve the experience for the decision making.
The second part of that is because we built dayforce with a single single data model.
That gives us a very strong Advantage from an AI perspective because to do anything well with AI. You need very well-formed data and we have that
From Network, we're actually finding is that we're getting very strong full Suite attachment rates, whether it be direct, uh, implementations or deals that are sold, alongside the si uh again the numbers over there are very strong overall, full suite deals on of move.
Business was up. Well, well, sorry it was the 90% on average in the quarter. When we look at the Enterprise segment, again, that's about 3500 employees for customer and had an attachment rate of 93% in Majors that had 90%
Sis were finding our active on all segments of the business. And so you would expect that what they're implementing is a full HDM product from pre-hire to post retirement.
Your next question comes from City of Pine with Meizuo. Your line is open.
Great. Uh, nice quarter with, uh, balanced growth and also good, uh, free cash flow, uh, David, uh, good to see this strong booking scroll, you know, 40% plus in last 3 quarters. So, how should we think about this bookings translating to revenue? Mainly, what kind of initiatives you're taking to handle smooth? Go lives. Are you partnering with any SI? Or are you? Uh, do you have any other plan there? And also, when you think about the strong back to best bookings versus new, should we see the go live of those back to base faster than uh, you know, uh, new bookings.
Thank you. Um, your city. Thanks for the question. As you know, on average, it takes about 12 months to onboard a new client, and you are correct that the add-ons happen quicker than when we do a net new client.
From an SI perspective. As I mentioned, SI late sales were up 80%, and in the second quarter, 45% of new sales are SI lead, which is up from 35% of last year.
So we're finding that to be uh, very successful. Um, when we actually look at what's driving, the 40%, plus ACV, growth, sales growth year-over-year, and there are a number of aspects. Again, First full Suite sales,
Are now about 90% attachment rates.
We're finding AI the attachment rate. Now is about 50% on new sales.
Client base sales. So these are the add-on modules.
Is now at 40%, which is up 50% year-over-year.
Is now 17% of new business, which is up 100% year-over-year.
And so very strong sales, momentum from a number of different converging reasons. Again tied, We Believe to the single data and single application solution. We have, which gives us a really differentiated solution in Market. Both from a 12 to 1 simulation and from an AI perspective.
Our next question comes from Marc Maron with beard. Your line is open.
Needed to go back to the base and reintroduce, um, you know, your your current clients and then. Lastly. If I could squeeze 1 in, um, I I missed it if you talked about it, but any updates on on the US Federal contract. Thank you.
Great. Uh, thank you. Uh, on the US Federal contract, we haven't provided an update that the project is is going. Well, we did though provide an update on the government of Canada contract and their announcement that they have selected day for
Uh, as I go forward for the next gen, uh, HR and payroll solution and obviously very, very proud of that. And we also spoke about the
Uh, very large account that we took live in the quarter. Uh, I believe it is now up to 300,000 employees on a single, uh, de force instance. It grows above 500,000 by end of year. Uh, I believe that's probably the largest cloud-based payroll solution, uh, that operates, really truly at scale and something that we're very proud of from a product and Technology, as well as from our service perspective. And for all of those day, makers, listening, thanks a ton for that.
Um, on the AI side. Yes, there is a tremendous potential to go. Back to the actual base. Uh, we are launching a wide range of AI agents about 30 also that Joe will be showing And discussing and discover, which is our client Conference in October, uh, already we have ai embedded in a number of our products. Uh, for example, The Learning Management product is, as you know, AI powered. We have the AI agent there, which is able to create a course course content.
Uh, in in a scorm compliant manner. Uh, we have the AI a textual, uh, assistant which is across the application, which helps with everything from performance, reviews to job, descriptions Etc. Uh, we have the, uh, AI assistance with inside the uh, uh, uh, Talent acquisition side.
Which allows us to do the grading of employees. Oh, sorry of candidates, the job matching. Uh, things towards that nature. Uh, we have ai, uh, improvements embedded, in our forecast, in engine. We have it in the analytics, we do predictive, uh, uh, uh, forecasting of the various types of measures. When I look at the overall pattern of the day Force clients, which is really probably the most important.
Average peppermint cloth. The 7,000 customers is around $13 per employee per month.
we have though, a full Suite HDM system, which if I look at just a talent module, that has the potential of another ten dollars the base,
Manage, which is great, which is gaining great traction. And remember, our managed margins are pretty much the same as our Cloud margins manage is now 17% of new business, which is upper 100%. So great for cancel.
And then data, which includes AI currently is at 10 and as we uh, uh, roll out more of the agents.
And the kind of Agents servers as well. We believe there's a strong potential to increase the, a, a AI capability, and as well. What will be charged in our clients?
Your next question comes from Jason selino with keybanc capital. Your line is open.
Hey great. Thanks for taking my question. This morning. Uh maybe just 1 for Jeremy. Nice to see the benefits from the obba. Sounds like this will affect your cash tax remittances. This is going forward but curious how much of your R&D operations are based in the US and then on a go forward basis. With this also translate to benefit on the non-gaap tax rate or just curious on those details. Thanks.
Basis, we expect that the the benefit of this bill will be about dollars. Um, just from immediately expensing as opposed to our original kind of long-term assumptions assuming that we would spread that out over 5 years. So there's a nice benefit inside of there and that that allowed us to uh have the confidence uh, to increase our our full year free cash flow guidance from 12% of Revenue to 13.5 to 14% of Revenue. Um and I think it it it also is 1 of the factors that goes along with us, having a lot of confidence in our long-range plan targets and uh we feel very confident in our ability to achieve that billion dollars in free cash flow by 2031. Uh, it's not just the the tax changes here that are driving. That I think you look at our success that we're having in driving free cash flow outside of this that this year to date. Um, and I set it on and my scripted remarks. I'll I'll I'll say it again, our year to date Revenue, uh, is up just over.
Over 90 million dollars and our year to date free cash flow is up, just over 50 million dollars. And that so incremental 57% margin on, uh, our, our, our Revenue there and the free cash flow side. So we are getting uh, a benefit uh, from our operations from scaling, our operations. And we're uh, really pleased with what we're seeing across automation, uh, across driving technology, changes and process changes in our organization. Uh, and then the early stages of of
AI, uh, and uh, the investment that we're making there. So, we're, we're feeling bullish about our ability to, uh, to hit those. Long-range plan targets.
Your next question comes from Mark Murphy with JP Morgan. Your line is open.
Uh, thank you so much and I'll add my, uh, congrats David. It and Jeremy, uh, the, you know, the bookings throughout the 40% is just very, very impressive. We, we realize each company tends to uh, Define bookings slightly. Uh, differently is there any way to dimensional that figure and help us understand how that might affect the, uh, the DeForest recurring Revenue growth in terms of magnitude, when that booked business begins to go live, you know, say perhaps a year down the road I think you're you're giving us a look at that. Uh um, you know a a couple points of uplift by Q4. I'm just wondering a little a little around the corner. Like what is the overall uplift or M or magnitude of that. Any kind of framework that would help us Roll It Forward in our models.
So, um, first, the first part of your question, uh, when we talk about ATV, it’s annual contract value. We’re looking at the amount of recurring revenue that we sold, and we take the monthly amount and we multiply it by 12 to get an annual contract value of recurring revenue.
Is up more than 40% year-over-year and it's consistent with what we saw in terms of the growth rate in q1 and as well in Q4. So we're very, very happy with that. And again, Mark, uh, the reason again is more full suite deals, uh, above 90%.
uh, AI attachment a client base sales,
uh, uh, um, at 40% or 50% year-over-year, managed, uh, being sold now at 17% of new business, of 100% year-over-year. So, all very, very good. Uh, we haven't yet done our modeling for 20, uh, 26. Uh, you can see some of the benefits, uh, on the probably last year Q4 coming in towards the end of the year and you can see that with the acceleration of the day Falls, recurring Revenue. Uh, there is some seasonality to the business. Uh, so give us a bit of time before we come out with our 26 guide.
Your next question comes from limo Ramo linqiu with Barkley's, your line is open.
Uh, as Sheldon the, uh, the the market demand for a single system, I believe has always been there. It ties to the research. We did at the very beginning when we started day 4 and we found that there was a disconnect between what the CEO expected from an HR System versus what was actually implemented across the organization. The CEO had expected 1 system for all things around their people. In reality, we found on average, a typical organization would have 12 different components in their HR stack with different databases user experiences into batch based and very efficient processes.
um, as you know, we built a day before starting with compliance modules, we started with pay and time because we found that the life of contract
Or the life of a customer for the compliance modules was effectively endless and the idea was get a very strong foundation in compliance. And as you know we are ranked number 1 by Gardner in that regard. And once we had that to extend the product into a pretty high to post retirement end to end solution, and I think we've done that very successfully especially with the help of Joe and his team.
Uh, we've been in the garden magic quadrant now, for at least 5 years, as a leader for 4 HDM Solutions.
Uh, we're finding that the 1221 messaging resonates for a few reasons. First of all, it allows a customer to reduce the total aggregate subscriptions that they're paying where they go from 12 different systems to 1 System day Force.
Second, they don't need as many full-time people maintaining all those disparate Technologies, and they don't have to have resources and platforms to do interoperability and as well to do, uh, reporting.
So, there's a very strong cash IRR.
The second aspect is when you bring it together, the experience for all users, whether it be the Frontline worker, whether it be the Frontline manager, whether it be Specialists such as in HR and payroll and talent or whether it be Executives, you're lifting up the overall experience. And because the data of all together, you have much better decision, making much better analytics, and it gives us a very strong advantage in AI. Because as I mentioned, in order to leverage AI, uh, you typically are finding that the foundation language models are evolving very quickly but are relatively similar, but having access to well-formed, data allows these foundational, language models, ready to give really great insights and answers about that data.
Uh the other vendors do not have that uh all of the other vendors typically have different databases, partner Solutions, add-ons bolt-ons Etc, and that makes it almost impossible because remember to answer questions about your people, you have to do it in a way that you adhere to privacy.
And as well to very complex Security in a data effective transition in environment and we can provide that with the others can't. And I I believe that combination of that cache irr combined with the capabilities that we can deliver across, AI has led to our very strong, win rates and the sales momentum that we've seen.
Your next question comes from Steve Enders with City. Your line is open.
Okay, great. Thanks for. Um, thanks for taking the questions here. Um,
I guess I just wanted to ask just in terms of, I mean it seems like there's a man environment strong, but just maybe what you're seeing across Enterprise, you know, mid-market and and maybe on top of that, what you're seeing in the in the pipeline and across those, you know, those different segments as well. Thanks.
Um, again we've seen a very strong buying environment. Uh, you know, I remember this week's consistent with the last few quarters as well.
To see year-over-year sales growth above 40% is really I think a special time. So we've seen great success. Um, I believe that.
Sam has built a really an operational machine when it comes to sales and we repair that
With the 12 to 1% for the case and the very strong AI capabilities. That Joe's enabled has allowed us really to just drive a lot of sales. A lot of, you know, really good decision making
I don't see a difference between the segments that we play and again, we typically don't play, uh, below say the 500 employee level. So we're talking 500 employees, and above
Is large Enterprise, uh, in the US in Canada uh across Australia and New Zealand uh across the UK across Germany. So for us, it's been a very good, uh, sales environment and demand environment.
Your next question comes from Brad, Reddick with stifle your line is open.
Uh, great, thanks very much. David back in the macro though, can we go a little deeper totally understand the strong? Uh, demand signals out there but a lot of the data that we're seeing reported seems to suggest the economy slowing a bit. And you all have very real time data. As it relates to punching hours, worked overtime, Etc. Anything you've seen recently that would cooperate the, uh, the government data or actually run counter to it. Thanks.
Um, we're we're seeing employment levels are up about 1% year-over-year.
So they are up but they are up less than what I'll say. We've seen. Historically, historically, it's been about 2%.
Uh, remember that we play in front line worker organizations. So where we have the most amount of success and where we have uh our customers is really around hospitality.
Uh, retail manufacturing Logistics, uh, extended health care. And these are all, um, uh, uh, uh, statements or or verticals where you typically find that AI is not going to have or hasn't had much of an impact. For example, if I go to hospitality, we really are talking about the people who maintain and clean the rooms. Uh, the people who work in the restaurants to do, the dishwashing to do the Landscaping, the maintenance.
Uh, when we talk about retail, we talking about, the people who helped move the goods off the actual trucks, into the store, warehouses and onto the shelves and do the recovery and do loss prevention.
And uh, etcetera. So uh, the segments that we focus on
I I think are still growing very well. I would argue that some of the administration's decisions of really bringing a lot of the manufacturing and type and, uh, jobs back to the US benefits us and provides us with a, a, a bit of a Tailwind in terms of the industries that we serve and because of our very strong differentiation, not only on the data and the 12 to 1. But remember, we are quite unique in our ability. To do the compliance calculations. That single pay in time, uh, continuous engine is still very, very strong differentiated the ability to handle very complex collective bargaining agreements to pay people
Accurately and on time is really resonating in the market.
Your next question comes from. Daniel gesture with BMO Capital, your line is open.
Great. Uh, good morning everybody. Thank you for taking my question. Maybe 2, quick ones for Jeremy first on the updated free cash flow guidance. Uh, I've been trying to sort of do all the the numbers while we've been going on the conversation today. And I just want to confirm, you talked about underlying efficiency. Uh, there's also some FX and then there's the obba impact. I just wanted to confirm, are you actually when the increase in the free cash flow margin is that? See some underlying efficiency in the Improvement or are these other factors like FX and obba the biggest drivers of of the full year increase and then just secondly, if I can squeeze it in on the third quarter de force, recurring constant currency, exploit guidance of 13 to 17%. Maybe why is that range? So so wide. And what are the factors that get you to the top and bottom end of the range? Thank you so much.
Yeah, thanks Dan. It's good to good to hear from you. Um, okay. I think it's important to see in our free cash flow guidance that we last year were at about 9.7%, free cash flow margin and our original guidance already. Included some pretty significant expansion uh, from the productivity we're seeing in the business uh, that
Was to 12%. Uh, we are seeing that and we will continue to see that.
The expansion that goes from 12 to to 13 and 1.5 to 14 is largely uh driven by the the uh tax changes in the 1. Big beautiful bill. Um but it's important to note that we are still seeing some really nice expansion on the Free Cash Flow side of things. Uh, I think what I would look at is
And uh and we have kind of talked about this 1 billion dollar free cash flow Target by 2031, which implies some pretty significant uh efficiencies as we move forward. And and we're feeling really, really confident more confident than ever in our path to, to achieving those.
Um, so, so feeling good about that. Uh, the the recurring Revenue side of things de force, recurring Revenue, uh, you know, our, our guidance has a t million dollar range that just happens to be a 13 to, uh,
looks like 16 or or percent range on a constant currency basis. Um, so that that's kind of how the numbers work when you have a 10 million dollar range. Um, the full year guidance, has a, a 20 million dollar range, which happens to be a 2 percentage Point range. It's a 15 to 17% and that that's holding with where we we have uh previously said so a lot of confidence and visibility into the back half of the year. Uh, the demand Trends as we've talked about a number of times on this call are very strong and you're beginning to see that flow through into the back half. And and really in the Q4 a day Force, recurring Revenue guidance. Uh, I I would ultimately say all the sales success we're having right now, gives us a lot of confidence into our long range plan targets uh of that 15% uh date.
Force recurring Revenue growth over the long term.
Your next question comes from Jared Levine with TD Cowen, your line is open.
Thank you. In terms of Professional Services and other revenue, can you dig into some incremental color that attributed to reducing the EXO consequences guide for the year? What drove this, and what is your confidence on visibility here going forward?
Yeah we are seeing greater success across the SI strategy. Uh and that's really alongside the overall strength and Professional Services from our strong demand environment. Remember Professional Services should be used as a uh an early indicator of success on the, the recurring side of things, remember year to date. Professional Services revenue is up about 32%, and that reflects the overall improvements in the demand environment that we've seen over the past few quarters and executing on some larger deals. Okay? If I could, uh, uh,
Sales are up 40% uh, a year over a year and 1 of the reasons for that is the partner ecosystem, that we developed over the last number of years.
uh, what we're seeing is that on the new bookings,
Uh, which is up 8. SI lead sales where they're involved. It's up 8% year-over-year.
And 45% of our new business.
Projects.
Uh, are being led by the SI, which is up from 75% of last year.
So, the SI success remember si6 says, from their perspective is how much work are they doing on the day of force platform?
Kind of factors into that Professional Service number and we see it as a very positive sign. In terms of the ability to grow dayforce, recurring Revenue,
Your next question comes from Jake Roberts with William Blair. Your line is open.
Yeah. Thanks for taking the questions and congrats on the the continued momentum on the the sales bookings front. Great to great to hear. Um, and nice to see that the government of Canada continues to move forward with their deployment. Can, can you help us understand the phasing of that contract and how it should layer in the day Force, recurring Revenue this year, and in the next year,
Yeah, yeah. So, um, remember we, as we continue to work through the Government of Canada, we signed up about a $15 million USD deal last year.
We've kind of worked our way through about half of that, uh, with the remaining, uh, still to come through the, the, the back half of this year, um, as we deliver, we will, uh, continue to recognize the revenue. Um, but it kind of phases through the back half of this year. Um, so, uh, we're halfway through and, and, uh, that what we booked last year, in, in the second quarter, and we've got about halfway to go,
Steve anything, you'd add on that.
Yeah, and and we're, we're tracking to the plan that we've talked about, we expect in 26 to move from configuration and design into the early phases of implementation.
your next question comes from Bob and sha with Deutsche Bank, your line is open
How are you thinking or rethinking? Maybe your sales strategy are? Are you kind of leaning into to hiring more given success? You're seeing, are you kind of okay, well, with where you're at?
Uh, be as you would expect, we're leaning in. Um, we're hiring additional sellers particularly in our major markets and our client base sales area, uh, seen really tremendous growth as you would expect in in both of those. Uh, so yes, we're investing more in the actual ability to convert pipeline into deals, as well as to build top of funnel. Uh, we still believe we're very early on both in terms of Market penetration, as well as this tremendous opportunity across our client base and we get in tremendous success from that.
Your next question comes from Alex zucken. With wolf research, your line is open.
Hey guys, thanks for taking the question. Um, I guess it. It feels like I I I want to understand 1 1 thing. It it it it's very clear from a from your RPO, which it feels like is the strongest. We've almost ever seen both sequentially and year-over-year from acceleration perspective and dollar value added that the bookings are really strong.
I guess what I'm trying to kind of figure out is why was dayforce recurring Revenue in the quarter, uh, kind of sequentially down, um, on a percentage basis, more than it has been in many years. And then the, the con, the, the you, you're redo to a metric in de force, recurring that you stopped guiding to, uh, for Q3 the range is a little bit wider than historical periods and then the range for the year implies a pretty meaningful acceleration. So is it does it is it fair to assume that the, as your size of the book of businesses? Growing the time, like your, your actual predictability on which quarter of the go lives happen. Uh, there's more maybe back end, seasonality associated with it. Or linearity is is a little bit changes, help us understand those moving pieces.
To you. Uh, remember in q1 our day Force, recurring Revenue, grew 16% constant currency and in Q2 that was 14% And we talked about this quite a bit last quarter and that we're feeling a bit of a just, you know, the the air pocket from uh not having 40% sales growth over the past few years. Uh, and as we started to have that success, we've talked about that um, you know, in in the back half of this year, you will start to see the benefit and some benefit from having success on the sales side of things. Uh, so that guidance, uh, range that we, you know,
I'm going to hold at 15 to 17%. We have a really good amount of confidence in uh, the reason we're guiding again to to the day Force recurring number is because, you know, if we guide the Q3, you can uh, back into Q4. And so we wanted to be explicit about the numbers and just uh, make sure that everyone knew a 13 to 16% in. Q3 grows to about a 16 to 19% in Q4, uh, and you start to see the benefit of those those, uh, bookings. And, and come
out of this little um uh pocket that we're in.
Your next question comes from Michael. Turan with Wells, Fargo. Your line is open.
Yeah, great. Thanks very much. Appreciate you taking the question. Um, realize it's a bit of a, a lagging metric, but the the go lives in the first half of trended in in the 50s each quarter and clearly the commentary on bookings. And what you're expecting into the rest of year, sounds fairly strong so just any additional commentary. You can provide to help bridge. Those is it just the customers are larger and so that metric becomes less useful or how you're expecting. Um, just the mix between new and existing customers Trends rest of your year is, is helpful as we're just unpacking that a bit. Thank you.
And Steve and Chris's organization allows us to build more Automation and leverage AI to get rid of the onboarding experience of the actual customers. Uh, in addition we have built up the client-based sales. Remember we have 7,000 customers with, as I said, very kind of low pep and penetration and just a tremendous wide space opportunity across the client base.
So what Sam's done over there to build out a really well, uh, functioning client base sales team, uh, obviously empowered, by all the great products that just put together really, uh, allows us to drive that, you know, the 1 point that I'll probably end with is Jeremy spoke about this from a free cash flow perspective.
A year to date.
Day for recurring revenue is up about 90 million dollars, just over 90.
And of that the contribution in terms of free cash flow from that 90 million of added revenue is above 50 million or 57%.
So I believe the strategy is very sound. And remember, as I said at the very start of my script, the goal here is to generate uh over a billion dollars of free cash flow by 2031. And in order to do that, we want to see dayforce recurring Revenue, grow at about 15% uh to get there. While increasing the free cash flow conversion, quite rapidly.
This concludes the Q&A session and today's call. Thank you for attending and have a wonderful rest of your day.