Ceridian HCM Holding Inc

NYSE:DAY

Earnings Call Transcript 2020-Q2

[Operator]

Greetings and welcome to the Ceridian Second Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the call over to your host for today, Jeremy Johnson, Vice President of Finance and Investor Relations at Ceridian. You may begin, sir.

[Jeremy Johnson, executive]

Thank you and good evening. On the call today, we have Ceridian's CEO, David Ossip; and CFO, Arthur Gitajn. Before I hand the call to David for some brief remarks, allow me to provide a disclaimer regarding forward-looking statements.

This call may include forward-looking statements about our current and future outlook, guidance, plans, expectations and intentions, results, levels of activities, performance, goals or achievements or any other future events or developments. These statements are based on management's reasonable assumptions and beliefs in light of information currently available to us. Listeners are cautioned not to place undue reliance on such statements.

Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those set forth in such statements. We refer you to our previous filings with the SEC for information regarding the significant assumptions underlying forward-looking statements and certain risks and other factors that could affect our future performance and ability to deliver on these statements. We undertake no obligation to update or revise any forward-looking statements made on this call, except as may be required by law.

The second quarter stockholder letter, earnings release and quarterly report on Form 10-Q have been furnished or filed with the SEC and will be available on the SEC's EDGAR database in the U.S. and the SEDAR database in Canada as well as on the Ceridian Investor Relations website at investors.ceridian.com.

With that, I will turn the call over to David.

[David Ossip, executive]

Thanks, Jeremy. Good evening, everyone, and thank you for joining our earnings call. I hope everyone is staying healthy and safe during this time of uncertainty.

Before we go to Q&A, I want to spend a few minutes on some important points from our stockholder letter. First, we had a strong quarter. Despite COVID-19 headwinds, Dayforce recurring revenue ex float on a constant currency basis grew by 24.2%. In addition, Cloud recurring services gross margin increased by 140 basis points to 70.7%, and excluding float revenue, it expanded by 360 basis points.

Second, we continue to see strong demand for Dayforce. Sales in the second quarter increased year-over-year, and it was our best second quarter in our history. Sales momentum and pipeline has accelerated, and we expect sales in the third quarter to also be a record-setting quarter and in line with our pre-COVID-19 growth targets.

Third, Dayforce Wallet was launched in the second quarter, and it's going well. We have over 40 customers piloting the Dayforce Wallet and have over 100 more who have signed and are ready for implementation. While it's too early to disclose specific metrics, we are pleased with the product and confident in the business model.

I would now like to hand it back to the operator to open the call up for questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Siti Panigrahi from Mizuho Group.

[Michael Berg, analyst]

This is Michael Berg on for Siti. Congrats on a great quarter. I wanted to ask real quick. I saw you had some nice new additions this quarter, actually increased from Q1. And you mentioned that Q3 is -- correct me if I'm wrong, is on pace for a record new bookings quarter. So how can we expect in terms of net new additions trending from here on for the rest of the year? Is it going to be close to the pre-COVID levels of 150 to 200 new adds? And what are the size of those new customers? Are they larger or increased revenues? Looking at your 13% increase in Dayforce revenue per customer in trailing 12 months, I'm wondering if that applies to your new customers as well.

[David Ossip, executive]

Yes. So Mike, let me answer the last question. Yes, it does. The incremental revenue per new client went up by 68% in the quarter. So we're very pleased with that. So I would expect in Q3 to see the trend continue, where the trailing 12-month Dayforce revenue per client will continue to increase.

As to the start of your first question, in terms of the number of adds, as you know, it fluctuates quarter-to-quarter. I would look at Q3 and Q4 probably combined, but more so, I would look at the product of the number of adds multiplied by the incremental Dayforce revenue per client, which obviously we would expect to go up.

[Michael Berg, analyst]

All right. That helps clarify it. And then a quick follow-up. Is there anything competitively or -- just in the market in general for new business that you feel like will be key to point out? Any color or commentary on just the market, in general, you're seeing and for pipeline volume?

[David Ossip, executive]

As I pointed out, our shift to digital marketing has worked very well for us. We've seen attendance at our virtual summits go up 2x year-over-year. As I mentioned, we're very confident on Q3, and we expect Q3 sales to be in line with our targets that we set at the beginning of the year before COVID began. So there's obviously been an acceleration of sales pipeline and momentum with inside the business. I would say that we're doing quite well competitively.

[Operator]

[Operator Instructions] Your next question comes from the line of Bryan Bergin.

[Bryan Bergin, analyst]

I wanted to ask about implementation pace. So can you give us a sense how the pace of the pipeline and the signings is converting to implementation in live clients? Curious if you're seeing any material deferrals by some signed clients. And really just how the behavior has changed from, let's say, April, May to kind of July?

[David Ossip, executive]

So as mentioned in the shareholder letter, clients continue to go live. And obviously, we're very pleased with that. In terms of how bookings translate into revenue, generally, it takes us about 6 to 9 months from time of contract signing before we take the customer live and we start to begin recognizing recurring revenue on those accounts.

In terms of the trends that we've seen in the market, I would say that at the very start of COVID, there were -- a lot of companies were distracted in moving to work-from-home environment. And so we saw some delays, and we saw utilization levels go down within the quarter basically in response to that.

When I look towards Q3 and Q4, I would say that our implementation and professional servicepeople are working tremendously hard and doing great work. And we're confident they'll get the customers live.

[Bryan Bergin, analyst]

Okay. And then as far as retention, can you just give us some color there? Are you seeing any notable changes in enterprises that are going away? Or has it been still relatively sticky there?

[David Ossip, executive]

It's been very sticky. We'll report the retention rates at the end of the year. But we haven't seen any material change or negative change in terms of retention on the Dayforce side.

[Operator]

[Operator Instructions] And there are no questions in queue. And thank you for joining today's presentation. You may now disconnect.