Dayforce, Inc.

Hello, and welcome to Ceridian's third quarter 2022 earnings conference call. I'm Matt Wells, Senior Director of Investor Relations. And on the call today, we have our co-CEOs, David Ossip and Lee Turner, and our CFO, Noemi Hewlin. As a reminder, all participants are in listen-only mode, and a question and answer session will follow the opening remarks. 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 Ceridian's 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, we will reference non-GAAP measures to describe our performance. Please review our earnings press release and filings with the SEC for our rationale behind the use of non-GAAP measures and for a full reconciliation of these GAAP to non-GAAP metrics. Both our earnings press release and SEC filings are available on the Ceridian Investor Relations website. As a final note, a replay of this call will also be available on our Investor Relations website. And with that, I'd like to turn the call over to David.

Hello, everyone, and thank you for joining our Q3 earnings call. Today, I'll speak about our very strong performance in the quarter and continued company momentum as well as some exciting product highlights as we prepare for our global customer conference insights taking place next week. Lee will elaborate on both our market momentum and our continued ability to scale. And then Naomi will provide commentary on the Q3 results and four-year guidance before we open the call for questions. Let me start with our financial performance. We had a very strong third quarter. We exceeded the high end of our guidance across all metrics, despite the headwinds of a stronger U.S. dollar. Our PEPIM revenue growth remains strong, and float income continues to benefit from a return to a more normalized interest rate environment. On a constant currency basis, day-force recurring revenue grew 32% and 27% excluding float. Our business continues to scale very well. I'm pleased to report that adjusted EBITDA was $63.5 million, a 61% improvement year on year. And adjusted EBITDA margin was 20.1% of revenue, an expansion versus a year ago when the business operating at 15.3%. Adjusted cloud recurring gross margins of 74.8% expanded 50 basis points year over year. We continue to invest in sales and product innovation to fuel durable revenue growth, while also demonstrating our ability to scale operations. Third quarter operating cash flows were $52.1 million in the third quarter, doubling from last year, and driven by operating margin expansion and flow benefits. Our brand promise has always been to make work life better. The reality of the post-pandemic world is the way people work has permanently changed, and as a result, the demand for day force remains robust. Furthermore, in a difficult market, every organization worldwide is focused on efficient growth, and the most significant asset companies have is its people. Dayforce has always promised the delivery of quantifiable value, meaning real money saving and ROI back to our customers. We are the engine that helps companies determine the most efficient, high-value way of engaging employees across the enterprise, while also providing real-time insights and reporting. This delivers quantifiable value for the organization. Given the new reality of work and the fact that every organization is striving to operate efficiently in today's market conditions, it's clear why demand for Dayforce is growing. Year-to-date sales are up significantly and our pipeline remains strong, all of which I will ask Lee to discuss in more detail in a moment. Turning to technology and product innovation, we are very pleased to report that for the third year in a row, we have been named a leader by Gartner in its magic quadrant for cloud HCM suites for organizations that have more than 1,000 employees. It's worth noting that we are the only pure play HCM vendor in the leader quadrant alongside the ERP vendors. We have continually said our ability to innovate at pace and scale will result in us separating ourselves from our competition. We believe that's been clearly validated and at a point in time when demand for what we do remains strong. A consistent pace of innovation allows us to expand our addressable market across all segments and geographies simultaneously. Whether it's serving the world's largest global multinationals delivering full suite capabilities in our native markets, or breaking centuries-old models around how and when people get paid. So far in 2022, we've delivered more than 840 new features to our customers, and we're not done. In the quarter, we delivered the following technology that makes work life better for our customers. HR knowledge management, which provides HR professionals with the ability to create knowledge bases that empower employees to find answers to their common HR and compliance questions proactively. HR knowledge management is delivered seamlessly to employees through our engaging employee experience hub. Mobile time team management that provides managers with a fast and efficient way to view and edit and manage client information for their teams directly on their mobile devices. and Integration Studio, which provides self-service enterprise integration capabilities, enabling customers to build, deploy, and manage their integrations with their pools. Integration Studio automates many of the traditional manual integration reporting tasks that companies wrestle with, and in doing so, makes our customers more efficient. Further, it's the strength of our highly differentiated technology, a single solution, and continuous calculation engine that allows us to deliver innovation like Dayforce Wallet, where we continue to see incredible market momentum. Today, more than 1,340 customers have signed for the Dayforce Wallet, and over 750 are live. Average registrations continue to trend at 45% of eligible users, and the typical wallet user uses the wallet about 25 times per month. These trends illustrate what our customers are telling us, which is that Dayforce Wallet is modern payroll. It's increasingly becoming an expectation from employees across organizations of all sizes and industries. Recall Dayforce Wallet is differentiated in that it allows employees to get paid when they want in real time with no additional cost to the employee or the employer. thereby improving employees' financial wellness by avoiding costly alternatives, and while significantly reducing employee turnover and costs for our customers. All of this and more will be on full display at our annual customer conference held live for the first time in three years, starting next week, November 7-10 in Las Vegas. Reflective of our market demand, we have a high number of attendees across both customers and prospective customers, and we look forward to introducing you to what I believe will be another paradigm-breaking innovation. Before passing it over to Lee to give you more details on our results, let me conclude by saying I'm very pleased to see us continuing to execute on all of our growth initiative and making meaningful progress on our path to 30% adjusted EBITDA and operating cash flow generation. We have a long committed to being the market leading global HCM company, and this quarter is continued proof of that. Lee, I'll turn it over to you.

Thank you, David. As David noted, we're continuing to execute on our growth levers while at the same time demonstrating our ability to drive scale. In Q3, we saw continued momentum across all segments of our business from emerging to large enterprise and in every region in which we operate. Year-to-date sales are up significantly year on year. This is driven primarily by net new customer wins, And after two years of significant investment in the strength of our sales engine, we continue to see sellers' productivity increase. For the nine-month period or year to date, deals above $1 million are up over 50% year over year, which is indicative of both our move-up market and also the breadth and relevance of our offering in the mid-market. Global traction continues with a stellar sales performance from our MIA region in the third quarter, wherein we have strong momentum in the mid-market that's becoming consistently augmented by large global transactions with notable large enterprise and MIA-based customers. Our fourth quarter pipeline is strong, and while our teams are focused on delivering in Q4, they are simultaneously building pipeline on the back of very strong market demand. I'd also like to note that amongst our customer base, 38% now take the Dayforce suite and we maintain a healthy back to the base sales motion, which represents approximately 25% of year to date sales. The customer wins listed in our earnings release illustrate the strong demand for Dayforce. As we've said all along, our platform scales, and this is evidenced by several very large global customers selecting Dayforce as their platform of choice over the course of the last quarter. As already reported, one of the world's largest shipping and logistics companies chose Ceridian to provide Dayforce payroll and Dayforce wallet to modernize its payroll processes and to offer unique recruitment and retention benefits. At seasonal peak, we will handle approximately 700,000 employees on our platform for this single customer. And we have shifted to the critical work of getting them live successfully. As well in Q3, a leading UK retailer chose Ceridian to provide its full suite of day force capabilities, including managed services to support 50,000 employees across Europe and Asia Pacific, and the largest flat rolled steel company in North America selected Ceridian to provide its 25,000 employees with payroll and workforce management in a complex and highly regulated environment. In line with our growth lever strategy, we've delivered momentum in the global large enterprise while continuing to win in the mid market and in selling back to the base. A U.S. financial services company with 8,000 employees globally chose to expand its Dayforce use to include payroll. With workforce management already in place, the company was focused on streamlining its payroll processes with the help of Dayforce. The key differentiator in this win was Ceridian's modern technology that provides continuous calculation and the ability to increase payroll accuracy and efficiency. A global leader in packaging, machinery, and manufacturing, chose Dayforce as its unified human capital management solution. With 5,000 employees in 27 countries, the company was looking for a single system to replace multiple platforms. With pay, time, and HR, in the single global Dayforce platform, the company will have better visibility into its data and can strengthen security and compliance. In addition to great sales momentum, we're now operating at 74.8% adjusted cloud recurring gross margin and have a clear path to greater efficiencies ahead as we continue to leverage our global footprint, international shared services centers, and as we scale our platform. All of this operational scale is being driven while we continue to improve the core service metrics our customers have come to expect from us. Customer retention rates remain best in class. Customer SAT scores, which we monitor daily, continue to exceed expectations. Support tickets, which are a proxy for both customer and product efficiency, continue to trend downward despite us supporting a record number of customers. Our SI ecosystem, essential to our ability to grow and scale, is now comprised of more than 170 partners, many of which are priming our customers' implementations of Dayforce globally. And looking internally, we are so proud of the way that we are growing and developing our people to reflect the customers that we serve and to ensure the long-term health of the business. As examples, more than 50% of our employees globally are female, 50% of our VP level and above are female. As a result of these stats and many more, we were welcomed earlier this year onto the Bloomberg Equality Index, and we have completely eradicated pay disparity inside our four walls. By every measure, This is a very healthy business, primed for continued success. And before I pass it on to Noemi, I'd just simply like to thank our customers and partners who have registered for our Insights Conference starting next week. We deeply appreciate customers like Coca-Cola and Blackstone and Danone North America and 14 Foods and so many others taking the stage to showcase how Dayforce has made their people's work lives better while delivering the value and return on investment that is just so critical during these uncertain times that we are all navigating together. As I do each quarter, I would like to close with a broader thank you to our customers, to our shareholders, and to our people. Thank you. Thank you for the faith that you have put in us while we make it our mission to deliver on that in the day to day and quarter after quarter and year over year. And with that, I'll simply turn it over to Noemi.