David Ossip
Chairman and CEO

From the CEO

Dear Fellow Stockholders,

I am pleased to share that we had strong financial performance in the second quarter. Our results were meaningfully above guidance across all metrics. Dayforce recurring revenue, excluding float revenue, grew by 30%, and total revenue, including Powerpay and Bureau revenue, also grew by 30%.

Based on our solid execution and increased confidence in employment levels at our customers, we are raising our guidance and we now expect:

We were pleased with our second quarter sales performance, which was above both 2019 and 2020. We continue to see success in the enterprise and large enterprise segments, and we also saw solid traction in the major market segments. The number of opportunities closed during the second quarter grew significantly compared to 2019 and 2020 levels.

In addition, over 35% of new Dayforce customers have purchased a comprehensive product suite, and we continued to see strong add-on sales of additional modules, at approximately 25%, into our existing customer base.

Our pipeline is strong, and we expect healthy sales performance to continue into the second half of 2021.

We believe with the execution and momentum we are seeing across the company that we are strongly positioned to advance our leadership in the global HCM market.

While the COVID-19 pandemic is not over, many of our customers and prospective customers are returning to newly designed offices with redefined digital strategies and initiatives to drive growth.

Every organization faces a new world of work that is more fluid, borderless, and always-on than ever before. With these new realities come significant compliance complexities, challenges to unify company cultures in a hybrid environment, and a hyper-competitive talent landscape. In this tight talent market, organizations need to augment their workforce quickly with gig workers, retirees, and contingent workers to stay competitive.

Employees are now driving their own work agenda. They want to work from anywhere - home and office – to get their work done and collaborate with their teams. They want to grow their skills and careers, and they will change employers quickly to do so. They also are taking on more – sometimes working two or three jobs.

Most importantly, they want more health and financial wellness woven into their day-to-day work life and employee experience.

Ceridian has focused its investments and innovation in areas that will address these unique challenges, making Dayforce into the engine powering the future of work for our customers.

Our customers rely on Dayforce for data-driven intelligence to better inform all aspects of decision-making in their businesses; to provide engaging employee experiences, like Dayforce Wallet, with “always-on” consumer-grade technology; and to easily manage global compliance complexity resulting from borderless work.

We look forward to sharing more about where we believe the future of work is headed at the Ceridian World Tour – our innovative new live and virtual event series that will bring leaders and experts together to connect, learn, and share thinking on the workplace of the future. The event series kicks-off in Las Vegas on October 4-7 and will be followed by events in New York, London, Singapore, and Melbourne.

Our sustainable growth agenda, anchored in five strategic levers, continues to guide our focus and execution:

We are seeing significant momentum across all aspects of our business, particularly in our pace of innovation. In the second quarter, we delivered important advancements in workforce management, talent intelligence, and our consumer-grade user experience.

In addition, following the launch of Dayforce Wallet in Canada, we now have more than 600 Dayforce Wallet customers, with over 200 customers live. We are also seeing impressive transaction and spending patterns, with more than 24 transactions per active cardholder per month. This underscores the Dayforce Card as a top of wallet, go-to card for spending.

Looking across the entire Dayforce platform, we continue to keep customer satisfaction at the center of everything we do by ensuring we take customers live quickly, predictably, and on time. In the second quarter, our core delivery metrics remained strong, and continued to meaningfully improve alongside our customer satisfaction scores.

We made strong progress on our global expansion efforts, as more organizations turn to Ceridian to support their own global growth initiatives. In the second quarter, global sales in Europe, Middle East and Africa (EMEA) and Asia-Pacific Japan (APJ) were up five times over the same period last year.

In the APJ region, we are seeing very positive results from our recent acquisition of Ascender, which builds on the strategic investments we’ve made in the region with Singapore-based Excelity and Australia-based RITEQ over the last 24 months.

It is worth noting that the Dayforce revenue sold to RITEQ customers now exceeds RITEQ’s recurring revenue at the time of the acquisition. This is consistent with our acquisition thesis and is an example of the upsell revenue potential from Excelity and Ascender clients. We expect that we will deliver additional value to Ascender’s customers through the full-suite HCM capabilities in Dayforce. And we expect to begin selling Dayforce into the Ascender customer base in Australia and New Zealand in the second half of this year.  

We are seeing significant momentum across all areas of the business in all geographies. We are executing very well against our global growth agenda, delivering measurable value to our customers, and we believe we are in a strong position to continue to grow profitably with the long-term global opportunity in front of us.

Financial highlights

We are very pleased with our strong financial and operating performance in the second quarter. Our financial results were meaningfully above our guidance across all metrics.

We maintained very strong topline growth driven by Dayforce recurring revenue, which grew by 30% excluding float revenue, or 27% on a constant currency basis.

Employee counts at our Dayforce customers began to show improvement compared to the first quarter. The average employee count per Dayforce customer is now larger than pre-pandemic levels, reflective of our move into enterprise and better employment levels. This is expected to benefit our second half 2021 revenue. The financial impact of this improvement was minimal to our second quarter 2021 revenue, and in-line with our expectations.

Cloud recurring gross margin was 72.0%, up 130 basis points compared to the second quarter of 2020. Excluding float revenue cloud recurring gross margin expanded by 200 basis points.

Customer highlights

We see continued resilience and growth in our customer base as our customers create new hybrid work models and build for the future.

We ended the second quarter with 5,164 customers live on the Dayforce platform, a net increase of 125 customers since the first quarter, and a 12% increase compared to the second quarter of 2020. Reflecting both a larger average customer size and our success at selling a broader HCM suite, trailing twelve-month Dayforce recurring revenue per customer for the same period was $103,757, up 11%* year-over-year. And incremental Dayforce recurring revenue per customer for the same period increased by 8% to $186,631.*

* Excluding float revenue, Ascender revenue, and COVID-19
volume impact, on a constant currency basis

During the quarter, we took some notable companies live on Dayforce and expanded functionality with key customers, including:

We are seeing strong momentum around our partner ecosystem, where our strategy is to broaden our global reach, expand further into the enterprise segment, and continue to deepen our industry expertise – all aimed at creating even more value of Dayforce for our customers.

In addition, our partner strategy will allow us to continue to meet the demands from our growth in a tight labor market, as we leverage the talented global teams of our systems integrator (SI) partners.

We currently have 21 partner organizations signed, and in the second quarter, we announced new partnerships with Deloitte and PwC to deliver industry expertise and best-in-class services to our mutual customers. We also continue to deepen our relationship with Accenture through its acquisition of REPL.

While our SI partners provide a valuable complement to our implementation and services teams, we also utilize their capabilities as a demand generation engine. During the second quarter, our SI-primed deals continued to grow, and our partner-referred pipeline is strong.

Sales highlights

We were pleased with our sales performance in the second quarter, and we expect strong momentum to continue into the second half of 2021.

In North America during the second quarter, we had continued success across enterprise and large enterprise markets:

modern, flexible solution to help improve the experience for their 4,200 employees. Our focus on innovation, strong compliance capabilities, and ability to customize the Dayforce configuration were key differentiators in this win.

We continue to execute on the strategic growth lever of expanding internationally in APJ as well as across EMEA. Our key global wins during the second quarter included:

systems with a single HCM solution that provides real-time data, global compliance, and an engaging employee experience to support global growth.

APJ highlights  

As discussed, we are seeing positive results of our recent acquisition of Ascender, which builds on the strategic investments we’ve made in the region with Singapore-based Excelity and Australia-based RITEQ over the last 24 months.

We have created one sales team and go-to-market strategy across the region, and we are seeing success:

On product innovation in the region, we are expanding our native payrolls with the extension of our platform to support external payroll engines delivered with our single Dayforce user experience. It’s one product, one experience, and one contract across the globe.

Marketing highlights

In the second quarter, we continued to execute virtual events to drive demand and engage our customers and prospective customers with content and experiences to help them navigate the new world of work.

We hosted our HCM Summit for prospects and we also had more than 1,500 customer attendees at our first ever virtual Customer Summit.

Looking ahead, we are thrilled to introduce the Ceridian World Tour - our innovative new event series that will set a new bar for how we engage our customers, partners, and prospects around the globe.

The kickoff event will be in Las Vegas on October 4-7, 2021. Four events will follow in New York City, London, Singapore, and Melbourne. The events are designed to help organizations around the globe transform their operations and prepare for the borderless, skills-based, fluid, and always-on

workplace of the future. They will have live and virtual programming to make it accessible to everyone.

We look forward to sharing more details in the coming weeks.

Product innovation

In the second quarter, we maintained our strong pace of innovation, furthering our ability to drive quantifiable value for our customers and differentiate Dayforce in the market.

We deepened our investment in talent intelligence, following our recent acquisition of Ideal (a market leader AI-based intelligence) by unleashing new talent skills matching and screening within Dayforce. With the incredible pressure on the talent acquisition markets right now, our AI-driven innovations are allowing our customers to make more rapid, accurate, efficient, and fair talent decisions. Additionally, we launched variable compensation plans to empower managers and administrators with data-informed compensation decisions as well as candidate self-scheduling to transform the traditional recruiting interviewing model from employer-driven to flexible scheduling that dramatically improve the candidate experience.

We remain focused on providing a consumer-grade user experience that meets the rapidly evolving demands of an always-on workforce. With Dayforce Hub we added deeper customer branding flexibility as well as several key personalization enhancements. These enhancements include configurable widgets enabling essential experiences like continuous listening with engagement survey, seamless onboarding for remote employees, and pervasive learning which supports upskilling and reskilling, helping employees to continue to grow and thrive.

We are also advancing the ease-of-use of Dayforce by simplifying the ability to find information with our efforts in a consumer-grade search experience with our Intelligent Search experience.

To create even more anytime access to Dayforce, we are building out our open API capabilities with integrations to workforce collaboration tools like Microsoft Teams and Slack which enables work to get done anywhere, within any interface.

We continue to deliver best in class global regulatory and legislative compliance for our customers with over a dozen compliance-related enhancement shipped in the quarter. Additionally, we are developing our native payroll offerings with plans to release payroll in Germany and across several APJ countries including Singapore, Philippines, Indonesia, Malaysia, Hong Kong, Thailand, Taiwan, and South Korea in the year-ahead.

Dayforce Wallet

We have seen strong market momentum for Dayforce Wallet. We now have more than 600 customers signed with over 200 customers live on Dayforce Wallet. Within our live customers, registration rates continue to be strong, and inside our top quartile of customers, registration rates are averaging approximately 40% of eligible users.

We also are seeing impressive transaction and spending patterns further positioning the Dayforce Card as a top of wallet, go-to card for spending earned money. The average active Wallet holder loads money on their Wallet 5 to 6 times per month at an average of approximately $120 per load. In addition, an average active user transacts with the card approximately 24 times per month - almost every day.

We are planning to introduce new features into Dayforce Wallet, such as rewards, seamless direct deposit, and more pay card functionality. We believe these features will enhance our Dayforce Wallet consumer experience and help improve financial wellness over the long term.

Summary

In summary, we are seeing significant momentum across all areas of the company. Our execution was strong across segments and geographies, and our financial performance exceeded expectations.

The world is far different than it was 18 months ago. Today, we stand at the intersection of two seismic events in the HCM industry: the return to work and the future of work. These two events pose challenges, but they are ripe with opportunity for the bold and the visionaries.

I have spent much of the past quarter speaking to our customers about their return to work and desire to invest in and lean into digital solutions: Solutions that not only simplify workflows, increase accuracy, enhance compliance, and save money, but also solutions that provide critical data-driven insights to make faster, better-informed decisions.

Our customer focus, our single solution product and technology, our scale, and our geographic reach, coupled with the tremendous resilience we are seeing in our customer base, give us tremendous optimism and confidence in our ability to lead the industry.

In the second half of 2021, we will continue investing in Dayforce to help our customers drive scale and attract, develop, engage, and retain their most precious asset: Talent. That’s the Dayforce difference. And that’s how we deliver value to our customers and to you: our fellow stockholders.

Noémie Heuland
EVP and Chief Financial Officer

From the CFO

The quarterly financial highlights and business outlook below are on a year-over-year basis and reported in U.S. dollars, unless otherwise stated.

Revenue

Our financial performance in the second quarter of 2021 was strong:

Our second quarter results included $22.9 million of Ascender revenue, of which $5.0 million was recognized in Dayforce recurring revenue, $1.1 million was recognized in Dayforce professional services and other revenue, and $16.8 million was recognized in Bureau revenue.

The average float balance for our customer funds during the second quarter increased 27% to $3,771 million, compared to $2,977 million. The average yield on our float balance was 1.11% during the second quarter, a decline of 44 basis points. As a result, float revenue from invested customer funds was $10.4 million in the second quarter, compared to $11.5 million. The allocation of second quarter 2021 float revenue to Dayforce and Cloud revenue was $7.5 million and $9.5 million, respectively.

Impact of COVID-19

As anticipated, the COVID-19 pandemic has had an adverse impact on revenue during the second quarter, primarily in the form of lower employment levels at our customers, and lower demand for professional services.

We estimate that lower employment levels at our customers adversely affected second quarter revenue by approximately $7.5 million, of which approximately $6 million was related to Dayforce and approximately $1.5 million was related to Powerpay.

We believe that our ability to earn float revenue on invested customer funds is a positive aspect of our business model. Insofar as market investment rates return to pre-pandemic levels, we believe there is opportunity for high-margin float revenue to increase and provide a tailwind to future revenue growth and cash flow. Based on current market conditions, portfolio composition, and investment practices, a 100-basis point increase in market investment rates would result in an approximately $21 million increase in float revenue, and an approximately $14 million increase in cash flow, over the ensuing twelve-month period.  

Gross margin

In the second quarter of 2021, Cloud recurring gross margin was 72.0%, compared to 70.7%, an expansion of 130 basis points. Excluding float revenue, Cloud recurring gross margin expanded by 200 basis points despite an approximate $7.5 million headwind from lower employment levels due to the pandemic at Dayforce and Powerpay customers. Professional services and other gross margin was (11.8)%, compared to (13.1)% last year, an expansion of 130 basis points.

Earnings per share

Net loss in the second quarter of 2021 was $(25.8) million, or $(0.17) per diluted share, compared to net income of $5.5 million, or $0.04 per diluted share, primarily due to higher share-based compensation, lower float revenue, and lower revenue from employment impacts to our customers from the COVID-19 pandemic. Adjusted net income in the second quarter of 2021 was $9.1 million, or $0.06 per diluted share, compared to $19.4 million, or $0.13 per diluted share, in the second quarter of
last year.

Adjusted EBITDA

Adjusted EBITDA increased by 6% to $39.9 million in the second quarter of 2021. Excluding float revenue, Adjusted EBITDA increased by 13%, and Adjusted EBITDA margin contracted by 210 basis points, reflecting adverse effects of the COVID-19 pandemic on our revenue and continued investment in product development and sales and marketing.

Depreciation and amortization

In the second quarter of 2021, depreciation and amortization increased by $11.2 million to $23.3 million. The increase is primarily driven by $8.8 million of depreciation and amortization from Ascender and Ideal, which includes amortization of intangible assets and depreciation of fixed assets.

Balance sheet and liquidity

As of June 30, 2021, we had cash and equivalents of $335 million, and our total debt balance was $1,247 million.

Business Outlook

Based on information available to us as of August 4, 2021, we are raising our guidance for the remainder of the year as follows:

Third quarter 2021 guidance

Fourth quarter 2021 guidance

Full Year 2021 guidance

Supplemental guidance details

Our full year 2021 guidance includes Ascender revenue of $72.5 million, of which $16 million is Dayforce recurring revenue, $4 million is Dayforce professional services and other revenue, and $52.5 million is Bureau revenue.  

In each of the third and fourth quarters, our guidance includes Ascender revenue of $21.5 million, of which $4.5 million is Dayforce recurring revenue, $1 million is Dayforce professional services and other revenue, and $16 million is Bureau revenue.

As a result of the increased depreciation and amortization related to Ascender and Ideal, we now expect full year 2021 depreciation and amortization expense of approximately $85 million, an increase of approximately $20 million compared to our previous expectations. While this is a non-cash expense, and does not impact our Adjusted EBITDA, it will have a negative impact to net income and Adjusted net income compared to our previous expectations.

We have not reconciled the Adjusted EBITDA range for the third or fourth quarters of 2021 to the directly comparable GAAP financial measure because applicable information for the future period, on which this reconciliation would be based, is not readily available due to uncertainty regarding, and the

Dayforce

We had previously estimated a negative impact to Dayforce recurring revenue in the second quarter of 2021 of approximately $6 million as a result of lower employment levels at our customers. Actual results during the second quarter of 2021 were in line with our expectations.

In the third quarter of 2021, our guidance assumes a negative impact of approximately $3 million to our Dayforce recurring revenue, which would represent an improvement in employment levels at our customers of $3 million compared to the second quarter of 2021.

In the fourth quarter of 2021, our guidance assumes a negative impact of approximately $1.5 million to our Dayforce recurring revenue, which would represent an improvement in employment levels at our customers of $1.5 million compared to the third quarter of 2021.

Powerpay

We had previously estimated a negative impact to Powerpay recurring revenue in the second quarter of 2021 of approximately $1.5 million as a result of lower payroll processing at our customers. Actual results during the second quarter of 2021 were in line with our expectations.

In the third quarter of 2021, our guidance assumes a negative impact of approximately $1 million to our Powerpay recurring revenue, which would represent an improvement in payroll processing at our customers of $0.5 million compared to the second quarter of 2021.

In the fourth quarter of 2021, our guidance assumes a negative impact of approximately $0.5 million to our Powerpay recurring revenue, which would represent an improvement in payroll processing at our customers of $0.5 million compared to the third quarter of 2021.

Foreign exchange impacts

Our third and fourth quarter 2021 guidance assumes an average U.S. dollar to Canadian dollar foreign exchange rate of $1.27, compared to an average rate of $1.33 in the third quarter of 2020 and $1.30 in the fourth quarter of 2020.

For the full year 2021, our guidance assumes an average U.S. dollar to Canadian dollar foreign exchange rate of $1.26, compared to an average rate of $1.34 for the full year of 2020.