Ceridian HCM Holding Inc. (CDAY) Q1 2022 Earnings Call Transcript

Ceridian HCM Holding Inc. (CDAY -0.64%)
Q1 2022 Earnings Call
May 04, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Matt Wells

Good evening, good evening everyone. My name is Matt Wells, and I'm the senior director of Investor Relations at Ceridian. I'd like to welcome everyone to the Ceridian first quarter 2022 conference call. All participants are in listen only mode and a question-and-answer session will follow the formal remarks.

As a reminder this conference is being recorded. Joining me on the call today we have co-CEOs David Ossip; and Leagh Turner; CFO, Noemie Heuland; and EVP of corp dev and Investor Relations, Erik Zimmer. Before I hand the call over to David, I'd like to remind everyone that are remarks may include forward-looking statements and projection. These forward-looking statements are based on management reasonable assumptions and current beliefs.

There are a number of factors that could cause certain results to differ materially from our expectations. You can learn more about these risks in the press release and shareholder letter issue earlier this afternoon on our website and in our SEC filings. Ceridian undertakes no obligation to revise any forward-looking statements made on this call, except as required by law. With that, I'll turn the call over to David.

David Ossip -- Co-Chief Executive Officer and Chairman

Thanks, Matt and good evening, everyone. Thank you for joining the call today. Before we go into Q&A, I want you to spend a few minutes highlighting the quarter. We had a strong start to the year, executing well across sales, implementation, customer support, product and technology.

Dayforce recurring revenue excluding float grew by 31% year-over-year, exceeding the high end of our guidance range. Total revenue was 20 --- grew by 25.1%, and adjusted gross margin on recurring increased by 220 basis points to 75.5%. Adjusted EBITDA margin exceeded the high end of our guide by 347 basis points. On the customer side, we added a 175 customers and now have 500 -- 5,609 customers live on day four.

At the same time, the average recurring revenue for Dayforce customer grew by 10%, and on new sales, we sold over 35% of customers requiring a full suite. Dayforce wallet continues to do well. We now have sold over 1,100 customers on the Dayforce wallet, of which 530 are live, registration rates have increased to 36% across the eligible employees. Float balance also increased by 17% year-over-year.

Overall, very strong quarter. On the macro environment, our business remains resilient, and we continue to benefit on [Audio gap] the employee indicators and rising interest rates. And as such, we are raising our fiscal year 2022 guidance for revenue and profitability as detailed in our shareholder letter. With that, I'd like to turn the call over to Matt will guide us through the Q&A.

Matt Wells

Thank you, David. As we go through the Q&A portion of the call, I'll announce your name. And at that point, we ask that you please unmute your line and ask your question and then remute your line. We also ask that you please limit your time to one question and one follow up.

Thank you. First question from Siti Panigrahi from Mizuho.

Siti Panigrahi -- Mizuho Securities -- Analyst

Hey, David and team. Thanks for taking my question. Just wanted to dig into the wallet. So it's almost like two years.

The first year was the time of year period and now full year. So it's good to see the momentum and even registration, 36%. Just wondering what's -- how is it trending compared to your expectation so far? And also, what sort of feedback you're getting on the new products like cashback and [Inaudible]? And what should we expect in the remaining -- remainder of 2022?

David Ossip -- Co-Chief Executive Officer and Chairman

To answer your question, [Audio gap] tracking well against our expectations. Also, of note, is that 89% of our new U.S. customers are attaching wallets, which is obviously an increase that we've seen year-over-year. We've seen good reception from the cashback partnership that we have with us.

Also, within the quarter, we added support for minor employees, which allows us, obviously to deliver the solution better to hospitality and retail.

Siti Panigrahi -- Mizuho Securities -- Analyst

OK. And just a quick follow up to EBITDA margin seems to be pretty good this quarter. Is there a one time thing? Or as we think about the remainder of the quarter, given some of the -- realigning workforces?

David Ossip -- Co-Chief Executive Officer and Chairman

[Audio gap] I'll start by saying, look, we've raised guidance for the year and we've raised both the low end and the top end by $10 million. I'll add -- I'll ask Naomi to add a bit more color to that?

Noemie Heuland -- Chief Financial Officer

Yeah. Sure. So for Q1, Siti, we had a couple of things. We've increased our cloud recurring gross margin that actually exceeded our expectations last quarter.

As you remember, we've discussed that we took some actions to rebalance some of our workforce into our shared services that are in APJ. We've executed that very well. We've gain efficiencies on cloud recurring gross margin, and that will continue throughout the year. That's very important because that's also helps the scale in the long-term.

We had also taken a little bit of an upside on Bureau. We had a better volume than expected in our tax and payroll in North America. So that flew also directly through the bottom line, and we had a little bit of float upside as well. So those are the main things that happened in Q1.

Of note, we also continue to make some investments in our product and technology as well in Q1 and we'll continue to do so in the second half of the year in Q2 as well.

Siti Panigrahi -- Mizuho Securities -- Analyst

Great. Thank you.

Questions & Answers:

Operator

Next up, we have Jared Levine from Cowen.

Jared Levine -- Cowen and Company -- Analyst

Thank you. Can you discuss how 1Q bookings performance came in versus your internal expectations, including contributions by employer size segment and geography as well?

David Ossip -- Co-Chief Executive Officer and Chairman

Leagh, do you want to take that one?

Leagh Turner -- Co-Chief Executive Officer

Sure. Here's what I'll say. Q1 was an excellent bookings quarter. A really solid result and really robust customer demand.

Solid growth in the North American mid-market and excellent quarter in EMEA, and a really good out of the gate performance in APJ. As David said, more than 35% of our sales in the first quarter were full suite, and we are seeing continued innovation on the platform and therefore, ability to go back into the base and continue to sell. And we're seeing that our retention rates and net promoter scores remain very, very high, which makes for a very warm base to be able to sell back into. The pipeline for the full year rolling to quarter and rolling fourth quarter is very strong, and our win rates have gone up pretty demonstrably year-over-year.

As a result of a number of things, one of which is our consistently building SI ecosystem. And they were third pipeline that we're seeing from that ecosystem, which is well-known by the SIs and therefore drives greater win rates. So a really solid bookings quarter overall.

Jared Levine -- Cowen and Company -- Analyst

OK. Great. And then in terms of sales force activities that are trending higher, so is it basically improving sales force productivity as well as a healthy demand environment? It sounds like no impact from any macro concerns, whether that be Russia-Ukraine or inflation, but just be great to hear your colleague there?

David Ossip -- Co-Chief Executive Officer and Chairman

Not at all. The sales force executing it well across geo and across the segment.

Matt Wells

Thank you. Next up, we have Matthew Pfau for William Blair.

Matt Pfau -- William Blair and Company -- Analyst

Great. Nice results, guys, and thanks for taking my question. I wanted to ask on the full suite attached that you're seeing, how does that 35% compare to what you've seen historically? And are there any major differences in attach by client size?

David Ossip -- Co-Chief Executive Officer and Chairman

You've seen the attached rate go up quarter-over-quarter for quite some time now. So is significantly higher than where it was, say, a year ago or two years ago. And we would continue to see that to do well. We're doing particularly well in our majors market, which goes up to about 3,500 employees.

And I would say when I look at us competitively now on the talent side, we are very strong relative to both the ERP side and more of the pure play -- players.

Matt Pfau -- William Blair and Company -- Analyst

Got it. And so follow up on the Talent Intelligence Suite and some of the functionality you released. Is that a major discussion point in some of the full service wins that you're seeing there? And is that a big differentiation point relative to some of your competition?

David Ossip -- Co-Chief Executive Officer and Chairman

I think, again, as you know, we differentiate having a single database, a single application, one user experience within the system. And so, when we actually compete, we are differentiated, I think, from all, in terms of our end-to-end capability across co-HR, Talent and payroll.

Matt Pfau -- William Blair and Company -- Analyst

Great. Thanks, guys. Appreciate it.

Matt Wells

Next up, we have Kevin McVeigh from Credit Suisse. Kevin, it sounds like you're muted.

Kevin McVeigh -- Credit Suisse -- Analyst

Sorry about that. -- Thank you. Thank you so much, and congratulations on the results. Can you give us a sense of where you beat expectations in a cloud recurrent gross margin in the first quarter? And really nice leverage coming through the model for the full year, but just relative to expectations in the first quarter?

David Ossip -- Co-Chief Executive Officer and Chairman

Yeah. Look, we perform very well. What we're finding is that the robustness of the technology, which is reflected in the very high customer retention rate, as well as our net promoter scores, has led to a decrease in inbound call volumes and so, lower cost. We're also seeing more efficiencies across the implementation, and obviously, the parts of the hosting the customer support.

Leagh Turner -- Co-Chief Executive Officer

The only other thing I would add is, we've spent the 8 year building customer communities, where customers can self solve issues that may come in, may have previously come in to our support center. And so, as a result, we have like a really sustainable way of solving customer need that's been built by a really good team.

Kevin McVeigh -- Credit Suisse -- Analyst

Great. And then just a quick follow up. Of the 1,100 customers that are signed on the Dayforce wallet. I think in the shareholder letter, you said 530 were live, the incremental 570, how should we think about the sequencing of that in terms of them going live?

David Ossip -- Co-Chief Executive Officer and Chairman

It's -- there's no real magic to the sequencing of the actual customers. As you know, we typically try and take our payroll customers live on a quarter end in the U.S., and in the Canada will more monthly -- will be more monthly in the [Inaudible] and APJ. When it comes to wallet, it really comes down to how quickly the customers want to move. And those customers start off with the smaller group of employees which they test it out, roll it out.

And once they get comfortable, and then extend it to the full population.

Kevin McVeigh -- Credit Suisse -- Analyst

Thank you so much.

Matt Wells

Next up, we have Mark Marcon from Baird.

Mark Marcon -- Robert W. Baird and Company -- Analyst

Hey, congratulations on the quarter, and thanks for taking my call. Wanted to delve more deeply in terms of the bookings that you highlighted in the shareholder letter. I was particularly impressed by the Government of Canada, it looks like that is progressing well. Wondering if you can give some color there, as well as with regards to the magnitude of the International wins that you're getting, it looks like you're really nice progress from that perspective.

Wondering if you can comment about what the competitive environment it's like there, who the takeaways are from, and what the scope of the services are that the International clients are checking on? And then I've got a follow-up.

David Ossip -- Co-Chief Executive Officer and Chairman

I'll start direction and I'm sure they will add more color. The Government of Canada project appears to be progressing very well. The contract value was increased by $21 million Canadian side of the quarter. So I think that's a good reflection of the progress that we're making over there.

On the global side, I think, I'd be a missed if I didn't talk about the expansion we've had across nature of payroll. Within the quarter, we started releasing Singapore major peril, which is now in pilot with a few charger customers. And as well with project unify, which is a sanity and the ascendant they engines. We are now supporting countries in Indonesia, the Philippines, Thailand, Malaysia, South Korea, Taiwan, and Hong Kong.

They would make just tremendous progress on the global side. Two data points on the on the global side; One, our products are very competitive to the players inside those geographies. That we are not only selling to North American companies that have populations in the [Inaudible] APJ, LatAm, Brazil and Caribbean marketplaces that we actually compete head on with the local players. And because of the investments we have made, employee HR and talent and workforce management, our product, obviously, is very, very competitive inside the market.

In terms of percentage of ACV, global is now becoming quite considerable. I believe -- of the ACV sales number within the quarter, about 20% of it was outside of North American. Leagh, you want to add any color to either global or GOC?

Leagh Turner -- Co-Chief Executive Officer

Yeah. I think the only thing I would add is the way that we think about global is, as we expand, there's an opportunity to do two things, Mark. We can sell locally. So to customers that only have an employee base in the locale that we're servicing or we can sell to global multinationals with lots of different geographies.

So our global expansion allows us to unlock TAM in both of those indices simultaneously, and you can see that in our shareholder letter. So what I would say is, in the shareholder letter, we call out the longest standing retailer, based in EMEA. With 10,000 employees, they bought the full suite. They're EMEA-based largely and they're going to roll it out to their entire population.

A global online gaming company in the UK with operations across 10 countries and 7,000 employees can also be serviced by us. When you shift to some of the larger references that we noticed -- that we noted, excuse me, in the shareholder letter, the second largest global consultancy in the world chose Ceridian to deploy to their North American population of 52,000, but with opportunity to expand globally. And then, as we referenced under our customer section, the world's -- largest leading global business information company chose us to service their North American population first, which went live in less than a year. And they're now rolling us out to 16 countries over the course of the next 14 months.

So we have an opportunity to do those two things as we grow globally, which is a really important marker to our success.

Mark Marcon -- Robert W. Baird and Company -- Analyst

That's fantastic. And I have question for Noemie. Can you talk a little bit about the impact in terms of rising rates? What did you already baked into the guidance? And what could potentially be a further addition as we think about the Fed's discussions this afternoon in terms of rolling out short-term rate hikes?

Noemie Heuland -- Chief Financial Officer

So we've raised our guidance, as you saw, on cloud revenue and total revenue to account for the near-term rate environment. So we've accounted for the recent hikes that we saw, including today. And we also have to take into account a lot of portfolios. And remember, there's we have half of our portfolio that's invested in liquidity and the other half is invested in longer term instruments.

So there's not a -- little bit more timing until all those interest rates benefit will be reflected what we believe is the year's interest rate environment.

Mark Marcon -- Robert W. Baird and Company -- Analyst

Great. Thank you so much.

Matt Wells

Next up, we'll go to Robert Simmons from D.A. Davidson.

Robert Simmons -- D.A. Davidson -- Analyst

Hey, guys, thanks for taking a question. First, I was wondering, what impact are you seeing from higher inflation rates? Are you able to pass some of the that on terms of price increases to customers, presumably at renewals?

David Ossip -- Co-Chief Executive Officer and Chairman

Yeah. In maturity of our contracts we have CPI, high rises [Inaudible] over time increase.

Robert Simmons -- D.A. Davidson -- Analyst

The sample is a little off. I think maybe that's something wrong with your microphone or speakers, something like that. It's kind of hard capturing you some times. But the second question, the seven starters in the quarter were pretty high? I guess, can you talk about what kind of changes you're making? Do you think you've got things pretty much set at this point?

Noemie Heuland -- Chief Financial Officer

Yeah. So let me take that and maybe, you can add some color. So first of all, as we've discussed before, and now we expected we had rebalanced our workforce, especially in the support and operations into our shared services centers and APJ. We've expanded our support center in Manila.

We've done that quite successfully. We had a very good hiring trends over there that has helped us be more efficient in gaining skill in the cloud recurring our gross margin, as we've mentioned. We've also done typically what we do at the -- beginning of the year, we've also performance managed and look at our existing salesforce, as well as the resources in the product [Audio gap] and looked at our performance management [Audio gap] as you would expect us to do every beginning of the year. So that's the only part of it.

Robert Simmons -- D.A. Davidson -- Analyst

Got it. Great. Thank you very much.

Matt Wells

Next up, we have Pinjalim Bora from J.P. Morgan.

Pinjalim Bora -- J.P. Morgan -- Analyst

Oh, great. Hey, everyone, congrats on the quarter, and thanks to taking our questions and the sitting from our care. David, I have a question on wallet. How far along are you -- with respect to the original vision of the product? Because I remember it was a pretty grand division with respect to the Dayforce identity where employees will be able to carry them, carry the wallet across different organizations.

Help us understand where are you in that journey? And maybe, just a unit economics that you are realizing at wallet at this point.

David Ossip -- Co-Chief Executive Officer and Chairman

So we're very happy with the traction we're getting with wallet and wallet capabilities. I also would say that the wallet is a very robust system. In other words, we moved to a lot of money very reliably over the last about 18 months to two years. In terms of the full vision, we are actively now building that.

And I would expect it to come to market late next year.

Pinjalim Bora -- J.P. Morgan -- Analyst

Later this year. And we'll expect more revenue? --

David Ossip -- Co-Chief Executive Officer and Chairman

Late next year, sorry.

Pinjalim Bora -- J.P. Morgan -- Analyst

Late next year. OK. Got it. And the second question about [Inaudible] hiring.

Helps us understand where are you with respect to sales capacity for this year given the tight labor market?

Leagh Turner -- Co-Chief Executive Officer

I would say the sales organization is near capacity now. So we spent a huge amount of time in Q1 doing what every organization does in Q1, which is setting their go-to-market, making the changes that we believed were required in order to unlock the year, and we went on not only -- to Noemie's point, we performance-managed the sales team appropriately, which one should do every year in a healthy sales organization, and we hired the backfill appropriately and of higher-quality in our belief. And so as a result, have a really great go-to-market setup for the full-year.

Pinjalim Bora -- J.P. Morgan -- Analyst

Good to hear. Thank you.

Matt Wells

Next up, we have Bhavin Shah, Deutsche Bank. Bhavin? OK. We'll circle back. Next up, we have Dan Jester from BMO.

Dan Jester -- BMO Capital Markets -- Analyst

Hey, good afternoon. Just conceptually, how should we be thinking about in a higher interest rate environment and how you fund the wallet? And any puts and takes we should be thinking about from that perspective?

David Ossip -- Co-Chief Executive Officer and Chairman

In terms of the actual wallet as the interest rates go up, the basis points do go up as well, but if you take a data 25 basis points amounts to probably about seven basis points, the amount of time that's outstanding. Say if it goes up by 1% it will be 28 basis points type of thing.

Dan Jester -- BMO Capital Markets -- Analyst

OK. And then with regards to the International commentary, sounds very positive. I didn't catch how much of that was net new versus conversions from some of the acquisitions data over the years, can you just dive in to that, please? Thank you.

David Ossip -- Co-Chief Executive Officer and Chairman

They were all net new.

Noemie Heuland -- Chief Financial Officer

Did you here that? I don't know if we're a little choppy on this end. David said, "they were all net new."

Dan Jester -- BMO Capital Markets -- Analyst

OK. Great. Thank you.

Matt Wells

So next up we have Josh Reilly from Needham.

Josh Reilly -- Needham and Company -- Analyst

Hey, guys, thanks for taking my questions. Maybe one on the macro here. When you're looking at the business outside the United States, we know that the U.S. has been pretty resilient here since the Ukraine war started.

But have you seen any divergence in customer confidence outside the U.S. since the war has started specifically?

David Ossip -- Co-Chief Executive Officer and Chairman

We have very little exposure to Russia and Ukraine. I was in London, probably about four weeks ago, and I didn't see any impact from the war, as strange as that might be. So we've continued to do very well in EMEA and in the UK and Ireland.

Josh Reilly -- Needham and Company -- Analyst

Got it. That's helpful. And then you mentioned in the shareholder letter that the Dayforce card continues to be used in average of 23 times per month by customers where it's relevant?

David Ossip -- Co-Chief Executive Officer and Chairman

25 times.

Josh Reilly -- Needham and Company -- Analyst

Oh, is it 25? OK. Sorry, it's 25. Curious, is the mix and or size of these transactions changing now that the economy's reopening?

David Ossip -- Co-Chief Executive Officer and Chairman

I haven't looked at that in particular. It still seems to be the same, largely, grocery, fast food, restaurants, gas, and convenience, followed by ATM withdrawals. The average withdrawal typically is about $30.

Josh Reilly -- Needham and Company -- Analyst

Got it. Thanks guys.

Matt Wells

Next up, we have Raimo Lenschow from Barclays.

Raimo Lenschow -- Barclays -- Analyst

Hey. Thank you. I'm calling with a black t-shirt that's [Inaudible] David, I wanted to ask about the wallet in terms of -- it offered a differentiation factor for you in sales pitches. Like how's that playing out? What do you also expect from the industry there, in terms of trying to come up with copycat products to say, "Oh, we have that as well".

Can you speak to that, please?

David Ossip -- Co-Chief Executive Officer and Chairman

Look, Raimo, it's very strong. As I mentioned, in the U.S., we're seeing an 89% attachment rate for wallet to new sales, which talks about, obviously, the perceived strength of the product and the value that it brings to the employees of our customers. We have seen the other players in market bringing bolted-on solutions into the marketplace. The major difference is with us, there's no reconciliation that's required, and there is no loan made to the employee.

All of the other solutions, the card vendor effectively gives a loan to the employee for the number of days outstanding. We don't do that. We do a true payroll where we do the remittances at the federal and the state level the very next day. So it's a truly compliant type of solution.

The other difference is we do not charge any direct fees to the employees of our customers. We don't believe in doing that. We think that would be morally wrong, whereas the other solutions do require membership fees or fees to use the actual wallet.

Raimo Lenschow -- Barclays -- Analyst

OK. And then if I may, one follow-up. As you started winning more upmarket, you have bigger accounts, what do you see in terms of customer interest -- customer appetite revisit their HR systems? Going back to that whole theme of back office and realizing like, "Oh, my front office systems look really good, but my back office is very dated". You have more success upmarket now.

What do you see in terms of customer conversations here? Thank you. And congrats from me as well.

David Ossip -- Co-Chief Executive Officer and Chairman

Raimo, I would start off by saying the government of Canada. What with all quality and testing is core HR talent, payroll, and workforce management, and as you know, if that goes forward, that's for well over 100,000 people. In the major market and enterprise space, we have a very, very healthy attachment rate and upsell rate to the customers where we do to the core HR, as well as the Talent margin. In EMEA, we typically start off with core HR our and Talent, because as you know, those are more demanded to then probably payroll in that particular market and probably the same across APJ.

We now are gauging traction and our Gartner positioning, means that we are being considered for the back-office thesis, as you would say, the core HR, but as well some of the Talent components.

Raimo Lenschow -- Barclays -- Analyst

OK. Thank you.

Matt Wells

At this point, we'd like to poll the audience to check if there are any remaining questions. If you have one, please raise your hand. There are no further questions. Thank you all for joining us on the call, and we look forward to speaking with you in the future.

David Ossip -- Co-Chief Executive Officer and Chairman

Thank you.

Noemie Heuland -- Chief Financial Officer

Thank you. [Operator signoff]

Duration: 29 minutes

Call participants:

Matt Wells

David Ossip -- Co-Chief Executive Officer and Chairman

Siti Panigrahi -- Mizuho Securities -- Analyst

Noemie Heuland -- Chief Financial Officer

Jared Levine -- Cowen and Company -- Analyst

Leagh Turner -- Co-Chief Executive Officer

Matt Pfau -- William Blair and Company -- Analyst

Kevin McVeigh -- Credit Suisse -- Analyst

Mark Marcon -- Robert W. Baird and Company -- Analyst

Robert Simmons -- D.A. Davidson -- Analyst

Pinjalim Bora -- J.P. Morgan -- Analyst

Dan Jester -- BMO Capital Markets -- Analyst

Josh Reilly -- Needham and Company -- Analyst

Raimo Lenschow -- Barclays -- Analyst

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