Ceridian HCM Holding, Inc. Aktie

Welcome, everybody, for joining us for day 1 of KeyBanc's Technology Leadership Conference. We are very pleased to have Dayforce's CFO, Jeremy Johnson, joining us today for a 25-minute fireside chat. And my name is Devin Au. I'm part of software research team here, and I'm sitting in for Jason Celino, who is super bomb, he couldn't make it today because he's just having a second kid with his wife. So I'm sure his wife would appreciate him being home. But with that, let's move on to some hot questions since this is a fireside chat after all.

So Jeremy, maybe if we could just dive right in, can we start what Dayforce is seeing from kind of a Go Live and forward-looking perspective because kind of from our seat, Dayforce has seen kind of a dichotomy between current reported revenue performance and forward-looking bookings commentary. So if you can kind of explain the air pocket of demand from last year. And that has kind of like led to a decel in top line growth a little bit. So maybe if we could just start there, that will be good.

Yes. Yes. Definitely. It's good to see everybody, and thanks for coming to the presentation today. Look, Dayforce is, I don't know how else to describe it, but on fire from a demand perspective. We are having about 3 straight quarters of 40% plus bookings growth. And that started in Q4 last year and has continued in through the last second quarter here. And all indications are that Q3 is shaping up to be a nice quarter as well as we had a nice strong July.

The 40% plus bookings growth that we're seeing is in contrast, as you said, to the Dayforce recurring revenue growth that was growing at about 14% constant currency this last quarter. And you can't really say that 40% bookings is ever going to get you to 40% revenue growth unless you grow consistently for about 8 years, I think, at 40%, just because of the difference of bookings and our $2 billion kind of revenue base. But over time, as we continue to have success, you should see those 2 lines converge. And that's really what you're seeing in our forecast and our guidance. Our guidance, I think Q2 was the low point and you kind of call it an air pocket. I think we're feeling the slower demand from the last year, early part of last year and even the year before in 2023.

And that's, for us, Go Lives take about 12 months to get -- sales take about 12 months to get to revenue. So on average, you'd say that we are essentially taking things live that we sold last year at this time. And that takes a little bit of time for the revenue to get through the pipe. And that's what we're feeling in our forecast right now is that in Q3, our forecast is expected Dayforce recurring 13% to 16%. Q4 at 16% to 19%. And we've signaled that we expect to maintain that strength as we go out through 2026 and beyond. So we are seeing a ton of demand. We're executing on that well. I think our message is resonating really, really nicely with prospective customers.

On a couple of fronts, you'll see that our add-on sales are surging, 40% of our total sales this year-to-date period so far have been add-on sales back to the base. Managed Services sales which we can touch on, on that strength. 17% of our total sales were managed services sales and managed services where we actually act as the -- essentially the payroll department for the companies. And for us, it can double our per employee per month revenue that we get for every customer.

And I think across the board, we're just really -- messages continue to resonate on this 12:1 consolidation play. So what we go out to a new prospect with is you probably have a separate provider for payroll, a separate provider for time and attendance, a separate provider for recruiting and performance management and compensation.

And we're able to take all of those and put it into 1 single application that's Dayforce. And that's kind of the 12:1. We sell it on an ROI basis. So you can not only save a bunch of different vendor costs and software subscriptions, but we also -- you can save internal labor costs for maintaining all those subscriptions and the APIs and the tech behind that with 1 single Dayforce. So the message just seems to be resonating. That's what's driving the demand. And ultimately, we feel confident that the strong demand can continue in the future and then also drive strong revenue in the future.

Okay. Yes, it sounds like a lot of good news happening within the business. Maybe just kind of go back to the customer Go Lives. I think quarter-over-quarter, the past 2 quarters has been around like in the 50% range, right? And I think historically, the Go Lives have kind of averaged closer to like 70% or maybe even 100 plus, depending on the quarter. I mean, you mentioned a lot of things that are happening. The messaging is resonating -- do we see that Go Lives quarter-over-quarter number get back to that historical levels? Can you just kind of speak to that?

Yes. The Go Live number that we're referring to is essentially the change in our live Dayforce customers. And that means it's a net number to start with, right? It's the increase net of any customer churn that we have. And what I don't love about that number is it doesn't actually depict what we're taking live. We have a lot of smaller customers on the workforce management only side that tend to churn a little bit faster than our normal 98% gross retention that we have of our customers. If you go to an enterprise customer that we have here, our retention rate is well above that 98%.

So these companies don't churn much. But we do have some smaller customers that churn probably in line with a smaller business provider, that 90% range, and you get some elevated churn that doesn't really have much revenue impact at all. That said, the live customers and the growth in the live customers plus, we also disclosed a figure called the Dayforce recurring revenue per customer. And the combination of the growth of those 2, it was 5% last quarter on the customer side of things, and it was 11% on the revenue per customer side of things, generally adds up to at the total Dayforce recurring growth or pretty close to it.

And if I look out in the future and say, do I think the number of live customers is going to grow or the revenue per customer is going to grow faster. I'd probably say the revenue per customer grows faster than the live customers. And that's okay to have that dynamic in my side of things. That means, number one, we're selling a larger customer size. So average is $170,000 per customer right now. I'll tell you that most of our new business customers coming on are much, much larger than that. And so we know that, that average can continue to go up. The second thing is, as we go back and sell additional functionality to our customers, so that 40% of our total bookings, you're not going to increase the number of customers alongside of that. And then the managed side of things, as we mentioned, it can continue to raise the size of the customer and the revenue per customer.

So I do expect those 2 -- obviously, you're going to see those continue to go online. But if you go out to our guidance of in Q4, for example, of 16% to 19%, the 2 that need to add up the number of customers plus the revenue per customer, I'd probably say it probably goes up for both of them, but a little bit higher on the revenue per customer, if I had to say.

Okay. That's helpful. And then I just want to go back to bookings again. Maybe just 1 last question here. I know you kind of mentioned, aside from net new sales, the back-to-base motion some of the add-ons has been going well too. Is there any way for us to like conceptualize or even parse out how much strength of the back-to-base motion from the 40% plus bookings growth you've talked about? Any way for us like think about just how strong back-to-base motion is?

Yes, it's growing faster than new business bookings. So if I go back to that 40% that we sold, that is add-on sales back to the base of our total last year, that was probably in the low 30% range. So we're increasing the total I think where we're having more success on bookings is customer base sales, and that team is just firing on all cylinders. And we really built that team out starting really early 2024. And we've grown that team from basically nothing into a team that's performing just exceptionally well. Where they're selling is really 3 key areas. The first is product back to the base.

If you go back to kind of 2013, I don't know, all the way to about 2019 just past our IPO, we were really selling a compliance base of software. And that's for -- compliance for us is payroll, time and attendance, some benefits administration type things. But really, we call that our compliance suite. That's the core kind of pay time and benefits. We brought in a guy named Joe Korngiebel to really elevate our product team. So he's our SVP of -- actually, sorry, he's our EVP of Product and Technology. And his goal was straightforward. It was build out the entire HCM suite beyond the compliance things so add in performance, adding talent, at in recruiting and really get that up to par with the other players in the space.

And we've done that really nicely. He's done that really nicely. So we now can go back to the customers that we sold from 2013 to 2019 and actually sell them more product. The second thing that we're seeing really strong sales in is, I mentioned managed. So our customer base sales team is actually going back to our existing customers and saying, "Hey, we can take this administrative burden of you guys being your own payroll department off of you." And we can be that. We maintain all the compliance behind the scenes and partner with our customers to then commit payroll and do all the audits and all the checks and it's a really nice service that we offer.

If we had to guess, I would say that if we fast forward a few years, the majority of our customers will be buying managed from us. And then the third thing is global that our customer base sales team sells. And global for us is where we go, and we're doing the software payroll workforce management, time and attendance for North America, for example. So you have U.S. and Canada, and we'll go and add other countries that this company has. And we have a network of in-country providers. We have owned technology in the APJ region that we utilize. And we have our own native solutions across Australia, New Zealand, Singapore, U.K., Ireland, Germany, Mauritius, Mexico and obviously, U.S. and Canada. So we've got a really full global suite that our customer base sales team can go back and sell to. So those are the 3 things that are really driving our customer base sales.

Okay. Maybe just want to dive deeper into the second point, which is product. I know a lot has come out. I remember at the conference, the Joe Show, a lot of projects were being introduced a lot of exciting products. I think the one thing I want to maybe dive deeper is AI just because that's kind of a hot topic. If you don't mind, can I just ask a difficult overview of kind of the AI products you guys have today? And kind of what's your monetization strategy there?

Yes. So it's obviously been a key focus for us the last probably 2 years here is building AI capabilities ahead of what our peers are doing. Dayforce, before I start with kind of what we're offering today has a foundational advantage that we have a single application with a single database. And that is something that no other vendor has. The single database allows you to actually build AI on top of that database so that you can actually do some pretty unique things, whereas our competitors alternatively have a separate time and attendance solution, a separate pay solution, a separate recruiting solution. It's really difficult to do AI across all of those when you have different systems that need to speak to each other.

And we have 1 single database with a single application on top of it. And with that competitive advantage, I think we were the first to launch what we called initially a copilot, we're calling it an AI assistant right now. And the AI assistant sits on top of the experience hub. The hub is the landing page when you log into Dayforce. And it's a really nice landing page that HR departments can manage include things that they want employees to know about. It benefits enrollment time, get your W-2 here, hear some company announcements here.

And you actually -- you can index all of your company documents loaded into the experience hub and index all of those documents so that you can train the AI assistant on your own company documents so that employees of our customers can go in and ask specific questions about their payroll about their benefits, about their time off policies, anything that they really want to ask about the company and can be answered through the AI system. And it's a really nice solution.

Year-to-date, we've attached it to about 50% of our sales. And it's resonating really nicely. It enhances the user experience. Where we're going next is agents. And so we're aggressively launching kind of agents to then take the next step to do tasks, ultimately for the user. And the user, in this case, can be either the employee or it can be the administrator on the payroll side of things. So audit might pay, do the checks and tell me if I'm ready to commit pay and then I can commit. Similarly on the recruiting side of things. You can think about someone posting a job. I need to post a job, let me walk you through the steps and just do it for you ultimately. We can write the job description, generate the drive description. You can edit it. And the use cases go on and on. We're in the plans of launching about 30 AI agents across the stack over the next few years.

Got it. Maybe just a follow-up there. I know -- do you have a question Matt?

Yes. How are you charging for that, the agents?

Yes. So right now, we're charging a per employee per month charge so a monthly subscription fee. We are likely going to bundle the agents together into -- you have access to all the agents or a subset of the agents and create a pricing module around that. We are monitoring the usage to understand if we need to charge on a usage basis and have kind of an upsell type thing that would happen for the enhanced usage. But given that we're in the early stages of it, it's just on the monitoring side of things. We haven't yet seen it on the copilot or on the AI assistant yet. But as we go into the agents, we'll continue to monitor.

Yes. Thanks for the question. Just a quick follow-up here. I know a lot of your peers in the HCM landscape have also launched their own kind of agent assist chatbot or whatnot, maybe more of like a conceptual question as more companies provide these products and agents. Do you view these products as like a table stake for the industry in the long term? Kind of how should we think about that?

I do think AI is going to be table stakes throughout our industry and throughout all other software. I think it will clearly define the winners and the losers. I think it will certainly change the way a user interacts with the software. And I think we're seeing that already so I think that's exactly the way we look at it. And I think our competitive advantage on the data side of things gives us a huge leap ahead from our peers.

Okay. And then I just want to switch gear back to maybe like the customer side of things, but also kind of macro end market. I know you guys have done really well going upmarket, winning large enterprise customers, government of Canada, I think there was like an earlier win within U.S. Fed. Can you just speak to the strength that you're seeing there? And what enabled Dayforce to win here? It seems like everyone is kind of maybe struggling and seeing challenges, especially in U.S. Fed. So can you just speak to why are you guys winning in a dynamic backdrop.

Yes. It's Dayforce itself, the sweet spot of Dayforce is really probably 1,000 employees up to around 5,000 employees. And we've done that really well. We've expanded inside that kind of base of customers -- of industry really well, and we've done well. I think as you look out, there is a path that you have to go down that says, you go lower and compete on the small end side of the world or you go higher. And we chose a number of years ago that we go larger customers. And we built out aggressively relationships with the large systems integrators as well as we attempted to bid for the government of Canada business for the replacement of their Phoenix product.

We, I think, probably went into that saying we learned a lot, but there's a very small chance that we'll win this thing. And we exceeded our own expectations there. And the government of Canada has been a great partner in kind of pushing us on different areas to move up market and our SI partners have also done that. Our product scales now from -- you can go as low as you want all the way up to our largest customers, which are now 500-plus thousand employees. And we talked about that with not only the government of Canada, who were actively kind of taking live right now, and we're selected this last quarter as the vendor officially as the vendor that will replace their old system.

But we also announced -- we took live our largest customer ever. It's a large logistics provider that we sold a few years ago. And they are now, I think, 300,000-plus planning to scale to 500,000 by the end of the year. As you mentioned, we had success in winning a large U.S. federal agency in the first quarter of this year, which was our largest single sale ever, and we'll work on taking that customer live over the next few years. So we're having success upmarket. We're doing a really good -- I think, a really good job moving the product up as well.

Great. That's certainly great to hear. I'll pause here and see if there's any...

I think for decades, most of us have heard everybody is taking share. Paylocity, Paycor, ADP ceding share. But ADP seems to be doing well. So where does the share come from? Is it greenfield stuff? You explained the dynamic, I guess, in general because everybody says they're taking share, right? Devin, you hear this, right?

Yes. Look, the market today, I think, is largely defined as Dayforce and Workday. And this is the enterprise side of the market, right? Because where we start is about 500 employees, and that's really where the Paycoms, the Paylocities and the other smaller players stop. But it's largely defined as Dayforce and Workday competing for ADP and UKG business. And I think we're continuing to do a good job at taking share from ADP and some of the other peers there, ADP is a great business. And the market is also growing nicely. You look at what we're selling today in a full suite sale and it's not just replacing things that the prior 1 single vendor would have had.

I'm replacing, as I mentioned, 12 different vendors. And some of those vendors or in some companies, they might not even be vendors. They might be nothing. A lot of companies still use Microsoft Word and e-mail for performance management. They use spreadsheets for compensation management. So the market continues to grow. Our competitors continue to do well, and we just think we're doing a little bit better than them. And it's a really durable market and one that I think will continue to be a very large one over a long period of time. But I think you will see those dynamics of Dayforce continuing to grow and expand and others whether depending on the pace, continuing to slow down.

It's a good question. Any other in the audience before I move back into some of the more financial questions? Great. We have a few minutes here. I want to close out with a couple more financial questions, if I may, Jeremy. It seems like profitability has been a big focus as of late. You guys have raised the free cash flow margin to 13.5% to 14% margin, a 4-point expansion year-over-year, which is great to see. And I think you also talked about some incremental tailwinds from the OBBVA on the call. How should we think about maybe expansion for margins or free cash flow maybe beyond '25? Should we still expect the same cadence that you kind of laid out at the Analyst Day? Or should we perhaps see even greater expansion?

This has been my greatest area of focus since I came as CFO back at the beginning of 2024. At the time, I think we had free cash flow margins that were well below 10%. And my goal was to get us in line with our peer group and potentially even above our peer group. We set at Investor Day targets of $1 billion of free cash flow by 2031 or we said 2031 plus. And we kind of, at this earnings call, really said, we can hit that. We feel very confident that we can hit the $1 billion by 2031. And what that will mean is that we're going from 13.5% to 14.5% up to 20-plus percent by 2031.

And in order to do that, we need to continue to expand free cash flow margins by 100 to 200 basis points a year. And I think we can certainly exceed those targets. We feel confident that and probably the most confident, I think, I'd say, in our ability to control costs, ability to improve the time to cash and the cash realization that we get. And I think the proof is really in our ability to do this over the last few years. So as you said, we're going from 9.7% margin up to 13.5% to 14%. There is a slight benefit from the taxes -- tax changes in the tax law, the One Big Beautiful Bill Act. We'll take that. And -- but even outside of that, I mean, we're up about 500 basis points year-to-date this year without any benefit from the tax. So we're getting more efficient and we're doing things, I think, that really benefit our ability to move up.

Awesome. And with that, I think we're out of time. Jeremy, I appreciate you being here and for the insights, and thank you, everyone, for joining us today.

Thanks for having me. Thanks, everybody.

Good day, ladies and gentlemen, and welcome to the Dayforce Second Quarter 2025 Earnings Call. Our host for today's call is David Niederman, Vice President of Investor Relations. [Operator Instructions] I would like to now turn the call over to your host, Mr. Niederman. You may begin.

Thank you for joining, and welcome to the Dayforce Second Quarter 2025 Earnings Call. I'm David Niederman, Vice President, Investor Relations. [Operator Instructions]

Joining me on the call today are CEO, David Ossip; and CFO, Jeremy Johnson. We also have Chief Strategy, Product and Technology Officer, Joe Korngiebel, and our President and COO, Steve Holdridge available for Q&A.

Before I hand the call over to David, I want to remind everyone that our commentary may include forward-looking statements. These misstatements are subject to risks and uncertainties that could cause Dayforce'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'll 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 these non-GAAP measures and for a full reconciliation of these GAAP to non-GAAP metrics. These documents, in addition to a replay of this call and also a transcript will be available on the Dayforce 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 will provide more detail on our financials and guidance. We had a great second quarter and came in above the high end of guidance across all metrics. Most noticeably, Dayforce recurring revenue excluding floating on a constant currency basis grew 14%.

Adjusted EBITDA margin 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 fall.

This year, we have increased our free cash flow margin 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 of free cash flow by 2031.

Jeremy will expand on the levers we can pull to achieve this. 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 and our 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 it 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 flywheel around simplicity, productivity and value come to life over the past year at our highly successful Dayforce Summit series, where we host gatherings of prospective customers, partners and existing Dayforce customers. The energy of the community and excitement around the product is palatable. With an impressive conversion and close rate that gives us great confidence in the year as we move closer to our annual customer conference, Dayforce 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, bookings have grown over 40%. New client bookings across all segments performed well in the second quarter. System integrator-led sales growth outpaced overall sales growth and we are pleased with the traction our partners are gaining.

Additionally, our back to the base sales strategy continues to succeed with sales to 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 penetration of modules in relation to our offerings.

You can see this in that our average PEPM is still only about $13 across the base. However, today, we have a full set of HCM offerings. At the 1,000 employees per customer level, payroll and time is about $10 per employee per month. The talent offerings add another $10, the managed another $10 and our data capabilities, including the AI Assistant, Experience Hub, Studio and Analytics add another $10. 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 segment, new sales were full suite. And Managed 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 PEPM across our base.

This is important from 2 aspects. First, we have much higher sales productivity in back-to-base sales and second, the product profitability of these sales is much higher. So as we execute this strategy, we expect to see higher EBITDA 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 Dayforce, adopting a full suite to support its 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 will be helping them streamline their HR operations, enhance their workforce agility, reduce operational risk and elevate their employee experience.

A leading U.S.-based provider of essential infrastructure services selected Dayforce management payroll, workforce management, HR and talent solutions to support its 10,000 employees across 45 states. This customer works with over 300 different unions and the Dayforce platform will allow them to accommodate their complex reporting and tracking required by their employee organizations.

A large multinational industrial company selected the full Dayforce suite, including Managed payroll for a divestiture consisting of 3,100 employees. This customer selected Dayforce for our integrated system and to have the ability to access real-time data. An energy service company with operations in the United States and Canada selected Dayforce 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.

And finally, in June, the government of Canada formally announced that they has selected Dayforce 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 had a strong quarter of go-lives. We took live our largest customer to date 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 and 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 to Dayforce at a predictable and sustained pace.

On the innovation front, we continue to deliver on our AI road map and further cement Dayforce as the AI people platform. This consists of 3 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 streamlined HR communications, new total rewards in compensation 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 wins included our AI analytics and nearly 60% of new business wins included our AI learning products. And third is our Dayforce AI agents.

Joe has a road map of over 30 agents 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 HCM platform.

We are focused on delivering on our commitments here and are 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 Dayforce Discover.

Getting back to our strong sales performance this year. We are seeing success because we purposely built Dayforce with a single data model with comprehensive capabilities from pre-hire to postretirement. This allows customers to replace a multitude of disparate HCM technologies with a single Dayforce 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-on 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. Dayforce is unique in market in this. 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's 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 data module is fundamentally required and Dayforce 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 payroll and compliance offerings to a comprehensive full-featured HCM suite, along with a road map for future development that we expect to extend our competitive advantage even further.

We are a clear leader in the large and growing HCM 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 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 employees across the globe are some of the most talented seasoned and passionate people out there, focused on being the best HCM company in the world and creating a generational software company. To all our day makers, thank you for all you do for us every day.

I'll now pass the call to Jeremy to discuss our financial results in more detail. Jeremy, over to you.

Thanks, David. We are pleased with our second quarter results. Top line revenue growth remained strong while we scaled the business and continued to expand cash flow margins. Total revenue was $465 million, up 10%. Excluding float, total revenue increased 12%. Dayforce 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 EBITDA 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 $108.3 million last year. 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 year-to-date bookings growth over 40%, a trend that has continued now for 3 quarters. We also have great line of sight into employment levels at 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 U.S. dollar across Canada, U.K. 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, an increase of 12.1% to 13.4% on a GAAP basis or approximately 13% to 14% on a constant currency basis, reflecting the ongoing shift in professional services revenue to our systems integrator partners.

Dayforce recurring revenue excluding float of $1.324 billion to $1.344 billion, an increase of 14.2% to 15.9% on a GAAP basis or approximately 15% to 17% on a constant currency basis. Float revenue of $186 million. Adjusted EBITDA margin of 32% and free cash flow margin of 13.5% to 14% reflecting an increase from the previously issued guidance of 12%. This increase reflects the impact of the One Big Beautiful Bill Act enacted by the U.S. 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, an increase of 10.1% to 12.6% on a GAAP 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 GAAP basis or approximately 13% to 17% on a constant currency basis. Float revenue of $42 million, adjusted EBITDA margin of 30% to 30.5%. We have great visibility into the back half of the year, and we are expecting Dayforce recurring revenue, excluding float growth rate in the fourth quarter of between 16% to 19%.

The 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.

Our WIP, meaning deals 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 float growth rates above 15% as we progress toward the 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 One Big Beautiful Bill Act, changing the tax deductibility rules for domestic R&D costs, which provides us with about a $40 million 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 stages of terminating our frozen defined benefit pension plan and BEP pension plan, as I previously had announced last year. If you recall, these are legacy pension plans that Dayforce inherited from Ceridian 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 13.5% to 14%. In the third quarter, a cash charge in the range of approximately $30 million to fully fund the plan and terminate the defined benefit pension plan. A noncash 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 $5 million to fully fund and terminate the BEP pension plan and a noncash benefit of approximately $3 million 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 noncash charges will flow through other income expense line on our P&L and will have no effect on EBITDA and has no impact on ongoing business performance or long-term cash flow generation.

With that, we can begin the Q&A portion of our call.

[Operator Instructions] Your first question comes from Scott Berg with Needham.

David, I wanted to follow up on your statement on sales growth outpacing, I guess, coming from your SI partners outpacing the rest of the business there. I guess what are you seeing in terms of, I don't know, deal sizes, customer segments, modules that are being bought by customers coming in through those channels versus maybe what you're selling directly? Just seeing if it's something different in the rest of the business Or I guess, if it's similar?

Scott, thanks for the question. Let me start off with the actual numbers. SI-led sales were up 80% for the first half of the year, which is obviously exceptionally positive. If you recall, what we're finding is that the single data model that we have is giving us 2 strong advantages in marketplace. First, it allows the 12:1 simplification across the different modules. And as we've spoken about previously, very strong cash IRR for our customers as they get better efficiencies, improve the experience, better decision making.

The second part of that is because we built Dayforce with a 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 that, what we're actually finding is that we're getting very strong full suite attachment rates, whether it be direct implementations or deals that are sold alongside the SIs.

Again, the numbers over there are very strong. Overall, full suite deals of new business was up -- sorry, was 90% on average in the quarter. When we look at the enterprise segment, again, that's about 3,500 employees per customer that had an attachment rate of 93%. In majors, it had 90%. SIs, we're finding are active on all segments of the business. And so you would expect that what they're implementing is the full HCM product from pre-hire to postretirement.

Your next question comes from Siti Panigrahi with Mizuho.

Great. Nice quarter with balanced growth and also good free cash flow. David, good to see the strong bookings growth, 40% plus in the last 3 quarters. So how should we think about these bookings translating to revenue? Mainly what kind of initiatives you are taking to handle smooth go lives? Are you partnering with any SIs? Or are you -- do you have any other plan there? And also, when you think about the strong back-to-base bookings versus new, should we see the go-live of those back-to-base faster than new bookings?

Siti, 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-led sales were up 80%. And in the second quarter, 45% of new sales are SI led, which is up from 35% of last year. So we're finding that to be very successful.

When we actually look at what's driving the 40% plus ACV growth, sales growth year-over-year, there are a number of aspects. Again, first, full suite sales are now above 90% attachment rates. We're finding AI, the attachment rate now is above 50% on new sales. Client-based sales, so these are the add-on modules is now at 40%, which is up 50% year-over-year.

Managed 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 12:1 simplification and from an AI perspective.

Your next question comes from Mark Marcon with Baird.

Congratulations on a strong quarter. Wondering if you can talk a little bit more about the various AI products that you're introducing. It sounds like there's a big slew of them, probably more than any of your competitors from the sounds of it. I'm wondering what percentage of those are you charging for? And what's the pricing for those? And what's the opportunity to go back to the base and reintroduce your current clients? And then lastly, if I could squeeze one in. I missed it if you talked about it, but any updates on the U.S. Federal Contract?

Great. Thank you. On the U.S. Federal Contract, we haven't provided an update that the project is going well. We did though provide an update on the government of Canada contract and their announcement that they have selected Dayforce as a go forward for the next-gen HR and payroll solution and obviously very, very proud of that. And we also spoke about the very large account that we took live in the quarter.

I believe it is now up to 300,000 employees on a single Dayforce instance. It grows above 500,000 by end of the year. I believe that's probably the largest cloud-based payroll solution that operates really truly at scale and something that we're very proud of from a product and technology as well as from a service perspective and for all of those day makers listening in, thanks a ton for that.

On the AI side, yes, there is a tremendous potential to go back to the actual base. We are launching a wide range of AI agents, about 30 or so that Joe will be showing and discussing at Discover, which is our client conference in October. Already, we have AI embedded in a number of our products. For example, the learning management product is, as you know, AI powered.

We have the AI agent there, which is able to create course content in a [indiscernible] compliant manner. We have the AI textual system, which is across the application, which helps with everything from performance reviews to job descriptions, et cetera. We have the AI assistance with inside the talent acquisition side, which allows us to do the grading of employees -- sorry, of candidates and the job matching, things towards that nature.

We have AI improvements embedded in our forecasting engine. We have it in the analytics, where we do predictive forecasting of the various types of measures. When I look at the overall PEPM of the Dayforce clients, which is really probably the most important. Average PEPM across the 7,000 customers is around $13 per employee per month.

We have though a full suite HCM system, which if I look at just the talent modules that adds a potential of another $10 across the base. Managed, which is gaining great traction. And remember, our Managed margins are pretty much the same as our cloud margins. Managed is now 17% of new business, which is up at 100%. So great potential.

And then data, which includes AI, currently is at 10. And as we roll out more of the agents and the kind of agent service as well, we believe there's a strong potential to increase the AI capability and as well what we'll be charging our clients.

Your next question comes from Jason Celino with KeyBanc Capital.

Maybe just one for Jeremy. Nice to see the benefits from the OBBVA. It sounds like this will affect your cash tax remittances going forward, but curious how much of your R&D operations are based in the U.S.? And then on a go-forward basis, would this also translate to benefit on the non-GAAP tax rate? Or -- just curious on those details.

Yes. Thanks, Jason. It's good to hear from you. Look, I think we were pretty pleased to see the benefit that we're going to get from the OBBVA. The domestic change -- the change to domestic R&D from -- move from 5-year capitalized to immediate expensing, that's really the most impactful piece of the act that was put forth. With this change, we can begin to expense immediately the R&D -- domestic R&D costs. So for us, that will result in, as we talked about, about a $40 million to $50 million benefit this year from a cash taxes side of things.

So we do have a decent portion of our domestic -- of our R&D domestic. We also have some in Canada, but we have a good chunk in the U.S. as well. On an ongoing basis, we expect that the benefit of this bill will be about $20 million 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 allowed us to have the confidence to increase our full year free cash flow guidance from 12% of revenue to 13.5% to 14% of revenue.

And I think it also is one of the factors that goes along with us having a lot of confidence in our long-range plan targets. And we feel very confident in our ability to achieve that $1 billion in free cash flow by 2031. It's not just 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, it's year-to-date. And I said it on in my scripted remarks, I'll say it again. Our year-to-date revenue is up just over $90 million and our year-to-date free cash flow is up just over $50 million. And so incremental 57% margin on our revenue there on the free cash flow side.

So we are getting a benefit from our operations, from scaling our operations, and we're really pleased with what we're seeing across automation, across driving technology changes and process changes in our organization and then the early stages of AI and the investment that we're making there. So we're feeling bullish about our ability to hit those long-range plan targets.

Your next question comes from Mark Murphy with JPMorgan.

I'll add my congrats, David and Jeremy. The bookings growth of 40% is just very, very impressive. We realize each company tends to define bookings slightly differently. Is there any way to dimensionalize that figure and help us understand how that might affect the Dayforce recurring revenue growth in terms of magnitude when that booked business begins to go live, say, perhaps a year down the road. I think you're giving us a look at that a couple of points of uplift by Q4. I'm just wondering a little around the corner, like what is the overall uplift or magnitude of that? Any kind of framework that would help us roll it forward in our models?

So the first part of your question, when we talk about ACV is 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. And that number is up more than 40% year-over-year and was 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, the reason again is more full suite deals above 90%, AI attachment, our client-based sales at 40% or up 50% year-over-year. Managed being sold now at 17% of new business, up 100% year-over-year. So all very, very good. We haven't yet done our modeling for 2026. You can see some of the benefit on the probably last year Q4 coming in towards the end of the year. And you can see that with the acceleration of the Dayforce recurring revenue. There is some seasonality to the business. So give us a bit of time before we come out with our '26 guide.

Your next question comes from Raimo Lenschow with Barclays.

This is Sheldon McMeans on for Raimo. David, I wanted to ask more on your 12:1 story. Historically, in this space, it seems the system consolidation idea has had more success in the mid-market with larger customers being more willing to integrate systems and the best-of-breed versus best-of-suite preference swings of macro conditions. It seems traction for you is picking up across all segments. So I would love to hear if you could speak to if you're seeing this trend as more of a cyclical dynamic as companies look to be more efficient? Or is this more structural due to some of the factors you discussed like AI highlighting the value of a single database?

Sheldon, 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 Dayforce, 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 one 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 linked to batch-based and very efficient processes.

As you know, we built Dayforce starting with the compliance modules. We started with pay at time because we found that the life of contract or the life of customer for the compliance modules was effectively endless. And the idea was to get a very strong foundation in compliance. And as you know, we are ranked #1 by Gartner in that regard. And once we had that to extend the product into a pre-hire to postretirement end-to-end solution. And I think we've done that very successfully, especially with the help of Joe and his team. We've been in the Gartner Magic Quadrant now for at least 5 years as a leader for full HCM solutions.

We're finding that the 12:1 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 Dayforce. 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 reporting. So there is 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 is altogether, 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, 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 really to give really great insights and answers about that data.

The other vendors do not have that. All of the other vendors typically have different databases, partner solutions, add-ons, bolt-ons, et cetera, 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 transitioning environment. And we can provide that where the others can't. And I believe that combination of that cash 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're seeing.

Your next question comes from Steve Enders with Citi.

Okay. Great. I guess I just wanted to ask just in terms of -- I mean it seems like the demand environment is strong, but just maybe what you're seeing across enterprise, mid-market and maybe on top of that, what you're seeing in the pipeline across those different segments as well?

Again, we've seen a very strong buying environment. And remember, this is consistent with the last few quarters as well. You see year-over-year sales growth above 40% is really, I think, a special time. So we're seeing great success. I believe that Sam has built a really an operational machine when it comes to sales. And when we pair that with the 12:1 simplification and the very strong AI capabilities that Joe has enabled has allowed us really to just drive a lot of sales, a lot of really good decision-making.

I don't see a difference between the segments that we play in and again, we typically don't play below, say, the 500 employee level. So we're talking 500 employees and above. And we've seen a lot of success whether it be in major markets, enterprise, large enterprise in the U.S., in Canada, across Australia and New Zealand, across the U.K., across Germany. So for us, it's been a very good sales environment and demand environment.

Your next question comes from Brad Reback with Stifel.

David, back in the macro, though, can we go a little deeper, totally understand the strong 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, et cetera. Anything you've seen recently that would corroborate the government data or actually run counter to it?

We're seeing employment levels are up about 1% year-over-year. So they are up, but they are up less than what I'd say we've seen historically. Historically, it's been about 2%. Remember that we play in frontline worker organizations. So where we have the most amount of success and where we have our customers is really around hospitality, retail, manufacturing, logistics, extended healthcare. And these are all segments 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, the people who work in the restaurants to do the dishwashing, to do the landscaping, the maintenance. When we talk about retail, we're talking about the people who help move the goods off the actual trucks into the store warehouses and onto the shelves and do recovery and do loss prevention and et cetera.

So the segments that we focus on, 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 jobs back to the U.S. benefits us and provides us with 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 in the 12:1, but remember, we are quite unique in our ability to do the compliance calculations. That single pay and time, continuous engine is still a very, very strong differentiator. The ability to handle very complex collective bargaining agreements to pay people accurately and on time is really resonating in market.

Your next question comes from Daniel Jester with BMO Capital.

Maybe 2 quick ones for Jeremy. First, on the updated free cash flow guidance. I've been trying to sort of do all the numbers while we've been going on the conversation today. And I just want to confirm, you talked about underlying efficiency. There's also some FX and then there's the OBBA impact. I just wanted to confirm, are you actually -- the increase in the free cash flow margin, does that see some underlying efficiency in the improvement? Or are these other factors like FX and OBBA, the biggest drivers of the full year increase?

And then just secondly, if I can squeeze it in. On the third quarter, Dayforce recurring constant currency ex float guidance of 13% to 17%. Maybe why is that range so wide? And what are the factors that get you to the top and bottom end of the range?

Yes. Thanks, Dan. It's good to hear from you. Look, I think it's important to see in our free cash flow guidance that we -- last year, we were at about 9.7% free cash flow margin. And our original guidance already included some pretty significant expansion from the productivity we're seeing in the business. That was to 12%. We are seeing that and we will continue to see that. The expansion that goes from 12% to 13.5% to 14% is largely driven by the tax changes in the One Big Beautiful bill. But it's important to note that we are still seeing some really nice expansion on the free cash flow side of things.

I think what I would look at is our trajectory on free cash flow has gone from very low single-digit free cash flow margins to now into the mid-teens. And we have kind of talked about this $1 billion free cash flow target by 2031, which implies some pretty significant efficiencies as we move forward. And we're feeling really, really confident, more confident than ever in our path to achieving those. So feeling good about that.

The recurring revenue side of things, Dayforce recurring revenue. Our guidance has a $10 million range. That just happens to be a $13 million to -- it looks like 16% range on a constant currency basis. So that's kind of how the numbers work when you have a $10 million range. The full year guidance has a $20 million range, which happens to be a 2 percentage point range. It's 15% to 17%, and that's holding with where we have previously said.

So a lot of confidence and visibility into the back half of the year. 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 really in the Q4 Dayforce recurring revenue guidance. 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 of that 15% Dayforce recurring revenue growth for the long term.

Your next question comes from Jared Levine with TD Cowen.

In terms of the professional services and other revenue attributed to reducing the ex float constant currency guide for the year, can you dig into some incremental color on what drove this and your confidence on visibility here going forward?

Yes. We are seeing greater success across the SI strategy, and that's really alongside the overall strength in professional services from our strong demand environment. Remember, professional services should be viewed as an early indicator of success on the recurring side of things. Remember, year-to-date professional services revenue is up about 32%, and that reflects the overall improvement in the demand environment that we've seen over the past few quarters and executing on some larger deals.

If I could add, sales are up 40% year-over-year. And one of the reasons for that is the partner ecosystem that we've developed over the last number of years. What we're seeing is that on the new bookings, which is up. SI-led sales where they're in bulk is up 80% year-over-year and 45% of our new business projects are being led by the SIs, which is up from 35% of last year. So the SI success -- remember, SI success from their perspective, is how much work are they doing on the Dayforce 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 Roberge with William Blair.

Congrats on the continued momentum on the sales bookings front. Great to hear. And nice to see that the Government of Canada continues to move forward with their deployment. Can you help us understand the phasing of that contract and how it should layer into Dayforce recurring revenue this year and in the next year?

Yes. So remember, we -- as we continue to work through the Government of Canada, we signed about USD 15 million deal last year. We've kind of worked our way through about half of that with the remaining still to come through the back half of this year. As we deliver, we will continue to recognize the revenue, but it kind of phases through the back half of this year. So we're halfway through and that what we booked last year in the second quarter, and we've got about halfway to go. Steve, anything you'd add on that?

Yes. And 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 Bhavin Shah with Deutsche Bank.

David, you spoke about very healthy bookings growth for the last 3 quarters at near 40% and you had strong win rates. How are you thinking or rethinking maybe your sales strategy? Are you kind of leaning into hiring more given the success you're seeing? Or are you kind of okay with where you're at?

Bhavin as you would expect, we're leaning in. We're hiring additional sellers, particularly in our major markets and our client base sales area, seeing really tremendous growth, as you would expect in both of those. So yes, we're investing more in the actual ability to convert pipeline into deals as well as to build top of funnel. We still believe we're very early on, both in terms of market penetration as well as there's tremendous opportunity across our client base, and we're getting tremendous success from that.

Your next question comes from Alex Zukin with Wolfe Research.

I guess it feels like -- I want to understand one thing. It's very clear from your RPO, which it feels like is the strongest we've almost ever seen both sequentially and year-over-year from an acceleration perspective in 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 kind of sequentially down on a percentage basis more than it has been in many years. And then the -- you're reguiding to a metric in Dayforce recurring that you stopped guiding to 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 does it -- is it fair to assume that as your size of the book of business is growing, the time -- like your actual predictability on which quarter the go-lives happen, there's more maybe back-end seasonality associated with it or linearity is a little bit changed. Just help us understand those moving pieces.

Yes. Alex, good to talk to you. Remember, in Q1, our Dayforce recurring revenue grew 16% in constant currency. And in Q2, that was 14%. And we talked about this quite a bit last quarter in that we're feeling a bit of just the air pocket from not having 40% sales growth over the past few years. And as we started to have that success, we've talked about that 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.

So that guidance range that we kind of hold at 15% to 17%, we have a really good amount of confidence in. The reason we're guiding again to the Dayforce recurring number is because if we guide to Q3, you can back into Q4, and so we wanted to be explicit about the numbers and just make sure that everyone knew a 13% to 16% in Q3 grows to about a 16% to 19% in Q4, and you start to see the benefit of those bookings and coming out of this little pocket that we're in.

Your next question comes from Michael Turrin with Wells Fargo.

I realize it's a bit of a lagging metric, but the go-lives in the first half have trended in the 50s each quarter. And clearly, the commentary around 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 just the mix between new and existing customers trends rest of year is helpful as we're just unpacking that a bit.

Yes. That's a great question, Michael. There are a few things. Remember that we're focusing our business really on that 500 and above market segment. And in the number that we talk about, it's a net number. So there are some smaller customers that, quite honestly, might not be a great fit for us. We would count one of those customers equivalent to, say, that large enterprise customer that went live with 300,000 employees. So that metric we reported from a continuation perspective, but it doesn't really have much meaning on the business.

So focus is required because it allows us to get much higher sales productivity across the Sam's organization and it allows Joe to focus on the product and technology side on a very well-defined market. And in Steve and Chris' organization allows us to build more automation and leverage AI to get really efficient around the onboarding and the experience of the actual customers.

In addition, we have built up the client base sales. Remember, we have 7,000 customers which, as I said, very kind of low PEPM penetration and just a tremendous white space opportunity across the client base. So what Sam has done over there to build out a really well-functioning client-based sales team, obviously, empowered by all the great product that Joe has put together really allows us to drive that.

And the one point that I'll probably end with is Jeremy spoke about this from a free cash flow perspective. Year-to-date, Dayforce recurring revenue is up about $90 million, just over $90 million. 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 over $1 billion of free cash flow by 2031. And in order to do that, we want to see Dayforce recurring revenue grow at about 15% 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.

I'm Siti Panigrahi, software analyst here at Mizuho. Welcome you all to Mizuo Technology Conference 2025. And it's my great pleasure to welcome Jeremy Johnson, CFO of Dayforce. Jeremy, welcome to the conference.

Thank you, Siti. Thanks for having me.

And it's been like you joined Dayforce, I remember 2012. You played a key role during IPO in 2018 and back in CFO role last 18 months. Hope you're enjoying that.

It is great to be back. It's great to be here with all of you today. And you put such a good job of putting on a conference. So I'm really happy to be here. Thank you.

Great. I think first thing I want to ask macro. That's everybody's mind. Macro variability right now, seems like what we heard the last couple of months. So the question, I think there is always an investor perception about payroll companies and macro is unemployment going up. I want to stay away from that. But unemployment really is what, 1, 2 point of impact. So help us understand like what are you seeing on the macro side? How is impacting you? And how has that been like last couple of months?

There's really 4 pieces of the macro that impact Dayforce and some of our peers as well. I'll tick through them all, and we can dive into the unemployment one as well. So first is it's very simple, interest rates. So interest rates, as they fluctuate, they impact our float business. We feel like we've got our hand -- our arms around kind of the interest rate impacts as they impact float. We had $200 million in float last year revenue. We'll have about $180 million this year, which is what our guidance is. And we feel like we've got a good hold on how those interest rates impact the rest of the year and aren't too concerned about that side. The second one is foreign exchange rates. Obviously, they've been very volatile. We have about 20% of our business in Canada. We've got about 4% in Australia and another 3% or 4% in the U.K. So FX rates impact us. We give constant currency guidance to help make sure everything is -- you can understand how the business is going, excluding FX.

And then obviously, we are pretty naturally hedged from an expense side of things. The revenue that we have is pretty well offset by the cost side of things as well. The third is unemployment and employment levels at our customers because Dayforce bills on a per employee per month basis. As employment levels at our customers go up and down, we do have fluctuations in our revenue. Historically, this has been a tailwind for us. You go back probably 2 years ago, it was maybe a 3% or 4% tailwind. Last year, it was probably a 1% to 2% tailwind. This year, we expected it to be very low. So under 1% is what we expected, and that's exactly what we're seeing. We aren't seeing contraction, though in our employment levels at our customers. So it is steady. It's kind of holding, and we're feeling really good about kind of what we're seeing on a month-to-month basis that would give us confidence for the rest of the year there.

The last thing, and I think it's probably the most important, and the key to, in my mind, the real macro is the demand environment. And what we're seeing in the demand environment is that customers are continuing to buy software. And that's a really, really encouraging sign for us. Q4 last year, we had a 40% increase in bookings. And for the first half of this year, we're expecting a 40% year-over-year increase in bookings, which is something we haven't been able to say in a long time. And so we're excited about what we're seeing on the demand side of things.

Yes, that's a good point, actually. You guys talked about win rates 2x from last year. So what's really driving that? Is it something like internal execution? Or are you seeing any kind of shift in this competitive landscape?

There's a few things in here, actually. We've done a really good job of building out the platform over the last few years. And I'm going to go into a little bit of detail here, so I apologize. I'll talk for a while here. You go back a few years ago, and really all we had was a pay and time compliance type bundle. We call it the continuous calculation of net pay. It's really the differentiation of Dayforce from all of the other providers. It means that payroll and time are in a single application, and it allows us to calculate the net earnings of any employee net of their own individual taxes, deductions, benefits. It's really Dayforce is the differentiation there. We would sell that to customers for about $10 to $12 per employee per month at about 1,000 employees.

If you fast forward to a few years ago, we said we need to build out a full HCM suite in that single application. And we hired a guy named Joe Korngiebel, who is now our Chief Product and Technology Officer. He was one of the early people at Workday. And we gave Joe a remit to go and build the full HCM suite inside of Dayforce. And our thesis was that would allow us to take that $10 to $12 per employee per month and actually double it to another $10 to $12 per employee per month. And that would be adding things like the whole talent side of the things. So recruiting, performance management, compensation, learning management. And our thesis proved out really nicely. So we are now a top right quadrant for full suite HCM in Gartner and the leader in Gartner for the last 2 years for enterprises. So that's worked out really nicely. So the product side is coming together really nice.

The third piece of this is we started launching a product we call managed services. And managed services is a slightly different product than -- actually, it's quite a different product than like a typical PEO that you would expect. We're not outsourcing the HR function. We're actually operating as a payroll and benefits department for the company. So we are running the payroll, and we're doing all the compliance checks, the audits, the quality control and then committing the payroll on behalf of the customer. And by doing this, we're actually able to take another $10 to $12 per employee per month for those customers. So we've got this full product now that goes pay in time, full HCM suite, managed services and the product side is really coming together nicely.

On top of that, our messaging seems to be resonating with prospective customers really nicely. We went from the message that was this continuous calculation, product differentiation, and that was really, really, really resonated nicely with customers. We pivoted though around COVID to a message that I don't think resonated as well. It was this -- there's a complexity crisis in the world. The workforce is virtual. Here's how we can help you. It just didn't really resonate. It was tough for our sellers to deliver. It was tough for customers to hear. Last year, we pivoted to a talk track that was a consolidation play. So we talked to our customers about a hard dollar ROI by combining, on average, 12 systems into one Dayforce. So we can replace 12 technologies where you're paying 12 software subscriptions. You have 12 groups of people that are managing that technology. They're also managing 12 different integrations into your HR systems and your ERP systems. And we can replace that with one single application in Dayforce.

And what that provides is a really nice ROI for our prospective customers. And the nice part about that is what we've seen lately is that every deal that we sign goes through some sort of CFO or CEO approval. And while most of the RFPs are driven by the HR teams and the HR team is who's trying to buy the software, there's now this gate. And this selling on an ROI actually really allows us to get through that gate really nicely and easier. So I think those are the key things that have driven kind of our win rate improvement. It's a culmination of a couple of things that come together.

That's a great color. Now Jeremy, that I have CFO on the stage, I need to ask guidance question. That's the most important part, right? Look, your key metrics, Dayforce recurring ex float, you have a 15% to 17% constant currency growth. And if I compare last year ex eloomi acquisitions, probably about 18, 18.5 slight deceleration. But that's still impressive if I look at payroll peers. They are all growing high single digit, low double digit. So what gives you that confidence? And what is baked into that guidance, assumption? And how has that changed? You guided in our Q4 call, but what you're seeing right now, do you expect any kind of change there? Any color would be great.

Yes. Most of our revenue growth comes from what we've sold over the past, let's call it, 2 years. If you think about our business, and it's driven on Go Lives of what we've sold. And those Go Lives have cycle times with them. We sell in 3 primary segments. So major markets, we call that 500 employees to about 3,500 employees. And those customers, when we sell them, take somewhere between 6 to 9 months to Go Live, and that's when we start realizing revenue. Enterprise for us is 3,500 employees to 12,000 employees. And those customers take 9 to 12 months, could be a little bit longer depending on the complexity. And then large enterprises, usually 12 months plus. Sometimes they end up with global rollouts, phased rollouts across the different locations that they have.

And so if you kind of look at what's driving revenue this year, it's what we've sold in the last 1 to 2 years. And as I mentioned, our demand that we saw in Q4 and Q1 and as we're seeing starting in Q2 here is really strong. So we've got really good visibility into this year's numbers. In Q1, we grew -- our full year guidance was 15% to 17% constant currency. We grew 16%. I think Q2, it will probably be just below that full year 15% to 17% range. And then in Q3, Q4, obviously, it's probably at the upper end of that range, and that's what gets us to the full year number. But it's what we've been -- it's taking live what we've been selling, and we have really good visibility into those numbers and feel confident with the full year guide.

So I just want to make sure that the second half ramp gets you confidence because of the Go Live that's scheduled.

Yes, you think about the Q4 and Q1 sales and those cycle times for major market. And even in the lower enterprise, we should be able to take those customers live here in the second half of the year.

And based on the Go Live you mentioned, so any deals that you've signed now is not going to impact your revenue for this year.

Likely, yes. There might be -- I mean, add-ons -- some of those add-ons when the product add-ons, we can flip pretty quickly. You get into some smaller side of those customers, we can take them live. But for the most part, that's a correct statement.

And are you expecting any kind of larger deals that you have, any Go Live that's scheduled in fiscal '24?

Certainly, we've got a couple of large deals that we've talked about in the past that have Go Lives scheduled for this year. And our process that we have for taking customers live is one that we've used for a long time. Basically, you can think of it as we've got customers, we're working on specific projects for each of those customers. We have a date that we've worked with each of those customers. We go through with our implementation group on a Friday, every single Friday. We go through, we talk about risks, opportunities to either pull forward. That team, I guess, I would describe it as they don't miss their numbers. That doesn't mean that deals might not slip, and customers might not push Go Lives, but we're always able to pull deals in, and we have not had misses on that team. So we -- our level of confidence in that team is very, very high.

Another topic I want to hit on, you mentioned managed services. This is relatively new, and you guys talked about that at the Investors Day, too. So how big is that opportunity for you managed services? So that -- you talked about you're seeing strong traction. Who are you competing with there?

Yes. It's an interesting question. We're not really competing with anybody here. Most companies do their own payroll. And the reality is that a lot of companies have a payroll department that is a few people big. Maybe it's one person and a couple of people that support that person. And each of those people tend to have either lower college educated or even high school education. And they're running payroll for some large, large companies. And the question is why? Payroll is very complex. I would argue that you probably want somebody with a JD running your payroll with the complexity across both workforce management and the workforce labor laws, payroll laws, not only across U.S., but also, you've got to deal with state and local laws, obviously, tax. And it becomes very complex.

And so we ask our prospects and the customers a simple question is who do you want managing that compliance? And we're happy to do that for you. So by offering the service to our customers, I think it's a really unique value proposition that we can provide for them. And it's a gap that probably they don't even see that we can fill. And it's really nice revenue for us. I think the interesting part for us is -- we've been doing this for a few years now, and we haven't really leaned into it until recently in the last year or so. And the reason for that is when customers came to us and said, will you do managed for us? We said, sure to win the deal. But the margin profile, as I looked at it, was really low. And that was our -- we kind of set a path about 2 or 3 years ago to say, let's drive margin improvement. And we wanted to drive margin improvement by taking the people that were running the managed services and scaling them across multiple customers. We wanted to push some automation through that group. And then we wanted to move them into lower-cost geographies.

So we built out a team in the Philippines to help us do a lot of this stuff. And so now we've gotten to a point where the margin profile, the recurring gross margin profile of a managed service is actually on parity with our software margins. And so when I saw that and we actually reached that, I was able to push our sales and marketing teams to lean in a little bit and start pushing managed. So we think it's a big opportunity. The attach rate across our base is still very low. And so there's a lot of white space for us to go. And as I mentioned, about 1,000 employees, it's another $10 to $12 per employee per month. So it's a good opportunity for us.

Actually, the margin part you say it's same as your software. That is impressive. Actually, first time when I heard about managed services, like that's going to hit your margin. That's an impressive job there. So are you seeing the interest on managed services in certain verticals or customer size? Where exactly you see the traction there?

Well, remember, Dayforce is -- we thrive in complexity. And so Dayforce really primarily services, we call it kind of frontline worker type businesses. So you think about us in retail, in hospitality, in manufacturing, in health and human services or some consulting services businesses, those -- the ones that are really complex where workers are either clocking in, clocking out, and we're dealing with some of these complex labor laws or they're working across state lines and on an hourly basis and have to track to multiple projects. And so managed services goes really well with that, and that's where we're seeing customers. We see them across financial services and some large customers here in New York that we have, including Amex and BlackRock and a few others. And then across a bunch of retail customers and manufacturing customers. So it cuts right across our customer base.

I would switch to the next topic that's very dear to you is like margin and cash flow. Look, you've done a pretty good job, I would say, on margin side last year as well, and you laid out a framework of margin as well as you hit $5 billion revenue as well. So what gives you that confidence? Where you are driving that leverage at this point? Is it improving sales productivity or anything else? I know there was some kind of reduction in force as well. Walk us through that, how are you going to achieve that and not only this year and going forward.

When Siti says I'm doing a pretty good job at margin control, I'm feeling pretty good.

That was one of the [indiscernible] I would say before you joining.

This is great. I'll tell you what, though, it has been a focus since I joined about 18 months ago. And I think on my first earnings call, I think it might have even been you that asked the question, what's your focus going to be? And I said it was going to be on free cash flow expansion. And it was an area that I know we -- I looked at the business, came in from -- after being away for a couple of years and came back and said, this is a business that needs to improve its free cash flow profile. And so that's what we've done and set a path to achieving that. And I think we're doing really well. We've taken free cash flow margins from just under 7% 2 years ago to just under 10%, 9.7% of revenue this year -- past year. And this year, we'll be at 12%.

So we've got a nice path that we're going. But we're still -- we've got room to go. and how we're going to get there and how we're doing it this year. It's actually pretty simple. It starts with the P&L. The first one is recurring services and our recurring gross margin. Our recurring gross margins can expand from where they are. We're in the upper 70s on an adjusted basis right now, 70% range. So 78%, 79%. And we think those can get into the low to mid-80% over time. That happens because of our back to the base motion. We now have this full suite of software that we can sell into customers. And when we increase the recurring revenue per customer, we actually, in that scenario, don't need to add incremental costs when we sell add-ons. So we feel good about our path to get there from that side of things. We've also got automation that we can push throughout our entire support function and use of lower-cost geographies. We use lower-cost geographies pretty nicely, but we still have some room to go there. So recurring margins will continue to expand.

The second one is professional services and other gross margins. And as you guys know, it's probably been a loss leader for us in the past. We're happy to discount the implementations upfront and in favor of a recurring revenue stream that's going to be here for 10, 20 years. And so we'll take that hit upfront. And our recurring -- our professional services and other gross margins have been in the negative mid-teens. So last year, it was about negative 13%, 14% on an adjusted basis. This year, we're pushing those toward breakeven. And we think those can get into the low single, even maybe in the low double-digit positive in the future. And so there's an opportunity around that. It really becomes process improvement, automation, pushing AI through those processes and also use of low-cost geographies. But there's a nice opportunity for us to continue to go there. The last piece on professional services is we do have a larger mix of post Go Live professional services where we actually don't have to discount the rate so much because we've already got the customer.

So we're seeing, as our customer base grows, the mix of those services go up, and there's just a mix shift that helps our margins as well. We will scale our product and development teams, product development teams slightly. You'll see slight scale as a percent of revenue. You're seeing it this year. I think you saw it a little bit last year. But that's just as we clear this hurdle from building out that full HCM suite, we don't have to invest as much. There's still some gaps that we want to cover throughout the product, and there always will be, but those gaps aren't as big as building out a full HCM suite. And so we've done that and gotten over that hurdle, and we've now got a path there. Sales efficiency is near and dear to my heart. Last year was an investment year for sales for us. We brought in Sam Alkharrat who's our CRO, and he's doing a fantastic job, but he made a bunch of changes last year.

And so we knew went into that year knowing we were going to make an investment and knowing that this year was going to be the year of productivity. And the reality is it's a lot easier to scale your -- make your sales and marketing efficient when you're growing sales at 40% as well. And then G&A can scale. So that's the real driver that's going to help us get to free cash flow margin expansion. We'll also scale some CapEx along with our product development expenses and improve that conversion from cash collection as well.

Yes. One thing I didn't hear about your internal use of AI in all software development, your sales and marketing, G&A. And I want to put a plug here that our team published a note on how you can leverage internal AI, companies are leveraging to expand their margin. I want to hear your view on that. Like how are you guys leveraging that? Of course, no one yet publicly said we're benefiting this many bps, but would love to hear your thoughts on how you're pushing down into the company use of AI.

Yes, it's a key focus for us. There's a long ways to go here, and we see a big opportunity. And we see it across -- and maybe I'll just highlight 2 or 3 of them. We started rolling out some AI through our customer support organization. It was probably 2 years ago. And really, we're leaning into that quite a bit now. We've built out tools to allow our customer support reps to actually handle kind of first calls that we get from customers so much easier. So we've trained a model for these folks internally on all the historical calls that we've gotten from customers and inbounds that we've gotten from customers such that they've -- obviously, it's -- you get to a point where a lot of people have seen the same things and you can utilize the tool to improve your time to resolution.

And so we've seen significant improvements in the efficiencies of that team. I talked about the professional services and the implementation improvements, and we're really taking an AI-first approach as we redesign those processes. And we think there's a lot of room to bring the hours down from an implementation side of things there. We're rolling those out this year and into next year as well. And the last part, I mean, it's no surprise that product development is using a lot of AI tools to help them get more productive. And so we're certainly leaning in there. My team from a finance perspective utilizes AI throughout forecasting, financial forecasting, revenue forecasting, invoicing and AP as well as on the Investor Relations side, helping out with how we think people are going to react to the things we're going to say.

That's great color. Now I'll switch to the other part of it, AI as an opportunity for increased revenue. I know Dayforce probably, you're well ahead of your peers in terms of using AI, building features into that. How do you see that opportunity in terms of what you're seeing customer right now using it? Are you going to price it on a per employee basis? Or is it going to be uses? What exactly an AI can bring in HCM and payroll industry?

Yes. I mean, first and foremost, we are -- Dayforce is uniquely positioned to be a first mover in this spot and using AI for our customers and inside our products. I say that because we have the only ones with a single application, also a single database. And that makes the foundation for AI so much easier to drive throughout our products. We have a really bold vision for intelligence and AI throughout our products, and we're starting here with what we called our AI assistant or a Copilot to start. If we just take one step up real quick, though, it's -- I mentioned that pay in time was $10 to $12 per employee per month. You got the HCM suite adds another $10 to $12, and the managed services can add another $10 to $12. We actually have a vision where we can get another $10 to $12 from what we're calling data and intelligence. And that starts with combining some of the things we've been doing for a while, dashboarding, analytics, visualization, things like that, alongside the Experience Hub.

And the Experience Hub for us is a landing page that everyone lands on when you open up Dayforce for the first time. It's kind of a configurable homepage that HR teams can really easily drop and drag things that they want to get across to their employee base. It's a really nice solution. But actually, what it is, is a content management solution. And this is where our AI assistant, our Copilot sits is on top of the Experience Hub. And it allows employers to load every document and every employee-facing document that they have into this content management tool and train an AI on it such that both employees and administrators can use the Copilot to really easily answer any questions they have. That's questions about themselves, questions about the benefits they have, even something as simple as who do I call for if I have a benefits claim.

You don't have to search through all these different handbooks or call your HR generalist or something. You can very quickly just get an AI type response in the Copilot. So that's where we're at right now is we've launched the Copilot. We've attached it in Q1 to 50% of our new business deals, and we're seeing really nice traction there. A few dollars per employee per month on that piece of it. And where we're heading with it is a more genetic approach. So if you think about our platform, it's kind of pay, time, HR, analytics, we will have agents that cut across each of those launched at the end of this year, we'll launch the first few. And into next year, we imagine that we'll have some agents. Those agents will be both admin focused, and employee focused.

Yes. If there are any questions, please raise your hand. Otherwise, I'll continue. Jeremy, I want to ask you free cash flow question. You set a target of 20% free cash flow margin, right? The question is, what stops you in exiting that 20%? Is there a structural problem -- not -- I wouldn't say a problem. Is there anything structural that stops you to even exit 20%? Or it's just a mark that you can keep exiting?

Yes. There's nothing structurally that stops us from going beyond 20%. We set 20% because I was at 10% and setting it beyond that felt a little bit -- you didn't want to be too crazy on that one. So honestly, I am more and more encouraged every kind of day that goes by and every time we update numbers as we look out in our path to free cash flow margin expansion. And I -- we set at Investor Day this target of about 100 to 200 basis points expansion per year as we move out. And I think that's a conservative path now that I look at it. I think we'll be able to exceed that, and we're showing it this year with about 230 basis points expansion in our free cash flow margins. That year -- this year actually includes some onetime headwinds that go away next year.

So we've got the reduction in force that you talked about, that's about $25 million. And we've also got a $25 million termination of a defined benefit pension plan from our legacy with Ceridian. And that's a termination that goes away next year. So we now have -- in addition to the margin expansion that's going to drive free cash flow expansion, we've got the ability to actually accelerate that through getting past these onetime things these -- so I see our path to 20% and beyond even sooner than maybe what we would had originally thought.

Great point. And last question. What are you most excited about now this year? If you come back next year around this time, what's the topic we'll be talking about most?

I'll tell you what, I think the most exciting thing for us is probably our managed services business. And I think if we were to talk next year about our path to that, you'll see that our traction we're getting is even better than I think what we're seeing right now. So I think we're excited about that. We're excited about the revenue lift that can get us. I'll tell you what, managed services customers have higher retention. They have higher customer NPS scores. They stay with us a lot longer, and we're really excited about converting existing customers over to managed services.

And that's one of the factor of your $5 billion revenue target?

Certainly.

That's going to ramp.

It will help sell from new customers and from an add-on side of things. It will help us get to our $5 billion.

Okay. I'll add one more question on that. So you talked about the other 2 topic, Wallet and Flex, how do you see that ramping on that $5 billion revenue target?

Ramping nicely. I think the one we have the most visibility into right now is Wallet. I'd say Flex is still early days. We've got a number of customers that are launched with Flex. And this year is the really testing ground on whether we think that can be a business that we'll really lean into going forward. It's a different profile from our business today. And so we're using this as the test year, and we'll keep you updated as we go through on that. But Wallet, I mean, it's grown from $12 million in revenue to $30 million last year, and it's still -- we expect it to be near $50 million this year. It will be one of our fastest-growing products continually. And we're feeling really good about our path to Wallet.

That's great. Actually, I didn't read that clock. That's actually going other way negative now. So we're ahead of time. Yes, already past 2 minutes. Thank you so much, Jeremy. And David, thanks for joining us.

Thanks for having.

All right. Well, good afternoon, everyone. Thanks for joining BMO Software event today. Really appreciate all of your time. Next up, we have human capital management and payroll software provider, Dayforce. And I'm very excited to have Jeremy Johnson, who's the CFO, with us today. Jeremy, thanks for joining.

Thanks for having me, Dan. Good to see you.

Great. Thank you so much. So in terms of logistics, this will be the same as all the other sessions. If you have a question that you'd like me to ask Jeremy, shoot me an e-mail, and I will do my best to get that answered for you.

But with that, why don't we just jump right in? So it's been interesting, Jeremy. We've gone through both March quarter end reporters, and now we've had April quarter end reporters in software. And it feels like everybody is feeling and seeing something a little bit different. So I think maybe to start the conversation, I would love to kind of hear what Dayforce is seeing in the current market environment. How are your customers reacting? How are you reacting? Kind of give us the lay of the land as you see it today.

Yes. Thanks, Dan. Well, we had a good first quarter. You can see, obviously, the results were strong, and we're really pleased with what we saw. I think I look at the whole macro as a few pieces, and we can get into each of them. But the first one is probably just around employment levels at our customers. Employment levels of our customers have kind of remained in line with our expectations and that is lower than where they've -- lower growth than where it's been in the past.

So if you go back a couple of years ago, we may have gotten a few percentage points from employment levels from our customers of growth. Last year, it was lower. And even this year, it's below 1%. And that's really what we expected, but it's what we've seen. So I don't know that, that's -- it's not a huge driver of our growth. As I mentioned, each -- it's a percentage or so of growth year-over-year.

But it's kind of where we expected it to be based on where the economy was looking coming out of last year. I think the second thing from us is you get an impact from interest rates and what happens at either the Bank of Canada or the U.S. Fed. That flows through us from the -- through our float balances. Yield for us is coming down year-over-year. Float revenues last year were about $200 million. We're expecting it to be about $180 million. And that will change, I'm sure, tomorrow and the next day, and it will fluctuate continuously.

But I'm glad I don't have to forecast that on a daily basis, I guess, is what I would say. FX is an impact for us. We have something like 20-some-odd percent of our business in Canada, another 4% or 5% in Australia and a little bit less than that in the U.K. So FX rates impact us, and we give constant currency guidance. That's really it from a macro side of things like the impacts to our business.

I think the biggest thing that I'll talk about when I say -- when I think about the macro is the demand environment. And the demand environment for us, it's probably the best indicator of what -- how things are going in the macro. And it's been really, really solid. And we've had a strong Q4 growth rate in bookings where we had 40% growth. And we expect the first half of this year to also grow at about 40% as well. And -- so continued Q4 into Q1 and into Q2, and we're feeling really strong about how our message is resonating with investors and that has to be the biggest impact for macro from our side of things.

Okay. That's great. And I definitely want to dig into the bookings environment and what you're seeing there and how that flows through. But one of the questions I get from people who are newer to the Dayforce story is they just try to understand the sequentials of the business. And so if I look last year, Dayforce recurring ex float constant currency was growing something like 20%, 21%. And in the first quarter, you grew about 16% and so a step down. And you don't guide for the second quarter. But if I look at consensus numbers, it looks like another kind of lower pace of growth than last year. So maybe just help me like why was the business growing 20% last year? And why is it growing 16% today? What are the variables to consider for that deceleration?

Yes. So Dayforce, you're exactly right. Dayforce recurring grew at around 20% last year, excluding [ float ], constant currency. The one thing that is inside of those numbers is we did an acquisition of a company called eloomi. I'm sure we'll probably get into that later, but it's a learning acquisition platform -- a learning management platform and that was folded in. It added about 150 basis points of growth to last year.

So if you kind of take that out, we were growing in the upper teens. That comes down to about 16% in Q1. We guided to the full year at around 15% to 17%. And Look, I think part of this is some of the employment levels that we've been seeing. There is some macro. You've seen inflation in the past. We get a price increase adjustment every year. It's CPI-based. We saw some really nice price increases over the last few years.

There's a slight headwind from that. But the biggest piece of this is that we are seeing just -- we're kind of in a little bit of a pocket from a growth perspective from a new business side of things. And I think we talked about this demand that we saw in Q4 and into Q1, and we're seeing into Q2 and the first half of this year. Our business is -- we recognize revenue once we take that customer live.

So that bookings goes through over the next kind of on average, major markets for us is around 6 to 9 months. Major markets is about 500 employees to 3,500 employees. Enterprise goes from 3,500 to 12,000. It's around a 12-month cycle time on average. And then large enterprise can be 12-plus as you get into those larger global rollouts or phased rollouts across different departments.

So you kind of reverse that and go back and say what we are experiencing now is what we sold in 2023 and kind of early 2024, where it just wasn't as strong. We couldn't actually come out and say, I've been seeing 40% growth rates. And so we are in a little bit of a pocket right now on top of some of those macro headwinds that you see in the numbers. But I think what I look at it is I say there's confidence in, obviously, the back half but into 2026 as well.

So we feel really good about our path to achieving guidance this year and then continuing to grow in the right direction here in 2026 and beyond.

Okay. Okay. So I think since we brought it up the bookings environment a couple of times, you probably just hit it now. And so what in your mind was the catalyst that took us from the bookings environment in the first half of '24, which you just mentioned was kind of okay to the fourth quarter of '24 and the first quarter of this year, which were much stronger. So from your perspective, what drove that step up?

I think there's a few things. You go back a few years ago, and we were largely selling pay and time. We built Dayforce as this pay and time continuous calculation, single application and that's what we were selling up until about 2020, 2021 time frame. We brought in -- and that's a great value proposition. It was a great differentiation, and we have done and still have that differentiation in market.

We are the only ones that have a single application for pay and time. For most part, at about 1,000 employees, we get about $10 to $12 per employee per month for that pay and time kind of bundle and most of our customers buy that bundle. But we didn't have the full suite HCM at that time. And we brought in a guy named Joe Korngiebel, who's our Chief Product and Technology Officer. He came in from Workday, a competitor. And his remit was very simple. It was go and build out full suite. Don't lose anything on the compliance side, which is that pay and time core, but go and build out full suite and make us competitive as much as possible.

And our idea is that by adding the full suite across the talent portfolio. So this would include recruiting, performance management, compensation management, learning management and everything else across the suite, we could actually go in and take that $10 to $12 per employee per month that we get at 1,000 employees and double it and get another $10 to $12. And Joe has done a fantastic job at that.

We are now a top right quadrant in Gartner for enterprise full suites and that's a couple of years in a row. This last quarter, on new business sales, we attached a full suite deal to 86% of our major market customers and 100% of our enterprise customers, so that 3,500 to 12,000 bought a full suite. And even some of the larger customers are buying a full suite as well.

So we've, I think, reached parity in terms of talent, which is helping us. That helps us get a larger deal, it helps us with win rates, and that's a benefit. The other thing that we've started to lean into is managed services. And managed services for us is, again, adds another $10 to $12 per employee per month at about 1,000 employees. As you move upmarket, all those numbers come down with volume discounting.

But managed services for us is when we actually go in and we're the payroll department. We act as -- we do a managed service to be the payroll department for our customers. So it's not a PEO. We're not outsourcing HR. We're not the employer of record or anything like that. We are truly just acting as the payroll department for our customers, and we extend it into benefits sometimes as well. And we started doing this about 3 years ago with some larger customers that asked us to do it.

And we to win the deal would say, yes, let's -- we can do it. And we have these a few customers where we saw this. And we saw higher revenue per customer. We saw higher NPS scores, higher retention and an overall better customer experience. One thing we didn't have at the time, though, was the margins of managed services were lower than the software margins we're getting. We charge it as a recurring fee just like a PEPM, the margins were lower.

And so over the last few years, we really focused on driving those margins up. And now we're at parity with the software margins and the managed margins such that we actually feel comfortable leaning into managed a little bit more. And so we've done that really nicely. In Q1, 70% of our growth came from managed -- or 70% of growth in managed services sales year-over-year. And it's still a relatively low attach rate across our base and across the new customers, but it's growing really fast.

And that's helping us resonate not only on new business side, but on the add-on side. And then there's back to the base sales. And as I mentioned, add-on sales, back to the base motion is going really well. So we're -- our add-on sales grew 30% in Q1 year-over-year. Last year, we talked about 40-some-odd percent or just under 40% of our sales -- total sales were add-on sales and the other -- the rest of it was new business.

In Q1, it was a little bit lower because we had such a high new business quarter, but we still grew at 30% on add-on sales. So we're loving the traction that we're getting on that side of things. And I think if I was to strip it all out -- if you go through all of that and you strip it out and say, what do we think is driving this? I think our messaging is really resonating with customers. And I think our sales team is executing really well. And all of that is driving win rates to almost double year-over-year. And those 2 things, I mean, are certainly behind a lot of the bookings.

It's very comprehensive. So thank you to go through all of the pieces there. I guess one thing that you didn't mention that comes up from time to time is total cost of ownership, right? Like when you do the simplification that David Ossip, your boss, has been talking about, right, the 12:1 simplification that ostensibly reduces the cost of ownership, which makes you maybe more compelling compared to an ERP-centric provider.

So if you had to think about sort of the things you just talked about versus your ability to deliver at maybe a more reasonable price, where does that fall in the continuum of buying decision for customers these days?

I think it's huge. It actually plays into that messaging story really well, right? Like I think if you go back, again, a few years ago, we were -- had this very simple message. It was that single application, pay and time, continuous calculation, here's our differentiation. And then we got into COVID and our messaging kind of shifted with what we thought was the market. And that market was there's a boundless workforce. There's a complexity crisis, and we're going to help you tackle that.

And what we found is that, that was a very hard message to deliver for our salespeople and also hard to quantify and understand for our customers. And so this past year, we actually pivoted that message back to -- or to -- now we have the ability to do this 12:1 kind of consolidation play, you could think of it as. And that messaging is really nice because what it allows us to do is not only -- most of the RFPs come in from the HR side of things.

And what happens now is that there's a gate at either technology or CFO or even CEO with getting these deals across the lines. And with this 12:1 consolidation play where we can basically come in and say, you've got about 12 on average systems that are doing all of the things for you on HR, and that's payroll, that's tax, that's benefits, that's your learning. You probably have 2 or 3 vendors for learning. You've got a vendor for recruiting. You've got a different vendor for performance management. You got a different vendor for compensation and raises and things like that.

Across the board, you've got a ton of different vendors. And that just means you've got a bunch of subscriptions. You've got a bunch of people managing those technologies. You've got a bunch of people that are managing the integrations with those technologies into your ERP or into your HR stack. And what we come in is one Dayforce . we say we've got one Dayforce that is a single subscription. It's a single integration and tech team that can run it. And there's truly a hard dollar ROI there.

And that message resonates really nicely with the CFOs and the CEOs of the world, which is now a gate through this. And it also resonates really nicely with the CTOs of the world because they're all about simplification. And so I think it's going really nicely. And I think it's a message that's differentiated from any of the other players out there right now.

Okay. On the managed services bit, I think you talked a little bit about this at Investor Day. Obviously, we talked a little bit more about it today. It seems like a really interesting opportunity. How have you been able to drive this business that has the same gross margin profile as software? You think it'd be a people-centric processes. And so what have been the steps to get that business now to parity? And can it be above parity in the future? Or is this now kind of where we should be thinking about it?

I think this is where we should be thinking about it, I think at parity. You would -- that's how we started was a very people-centric approach to it. We obviously added a bunch of automation across the board. We were able to scale this pretty nicely such that a single person or a group of people can manage multiple customers pretty efficiently. We are also able to utilize lower cost jurisdictions. So we utilized the Philippines quite a bit and some of our other lower-cost geos where it helps us reduce the cost.

And then on top of that, it's -- we found that customers are willing to pay for it. So just for this one thing, we're able to get kind of $10 to $12 per employee per month at that 1,000 employee level. So we had some -- it's easier to make the margins work when the revenue is there, I guess, is what I would say.

Okay. And so maybe we can just pivot a little bit to margins because that's been something that you've really worked hard on improving since you've come back into the CFO role. If I look in the first quarter, I think underlying EBITDA margins like ex float were up 5 percentage points year-over-year, like a big significant improvement. How much of what you've been able to accomplish on the margin side is just scale? How much of it has been some of the restructuring and optimization that you've done? Sort of help us sort of unpack sort of why we've been able to see so much improvement on the margin front over the past year.

Yes. It starts with the recurring nature of our business. And our Dayforce recurring revenue is obviously the most profitable. And as we continue to grow that piece of the business compared to some of the other pieces, it helps us out quite a bit. We've gotten Dayforce recurring revenue margins above that 80%. Obviously, Powerpay is really nice from a margin perspective and that other kind of Bureau business is shrinking and shrinking.

So it does start there, and we'll continue to drive efficiency through that. The other piece of it is the professional services and other gross margin is going to continue to improve. So we've been able to drive some process improvement through that business, some automation, some use of low-cost geographies. And we think we can get that into a breakeven state on an adjusted basis this year.

And I don't think it will stop there. I think we can continue to improve those margins. Also the mix of kind of high-value, high-margin post go-live professional services, we call them [ VaaS ] services helps us out quite a bit there. So those things help. Last year, in 2024, it was an investment year for sales and marketing. We knew that. This year, it's the reaping of the productivity, and we're doing that really nicely.

I think, obviously, when you improve your win rates pretty substantially that helps quite a bit, too, from a productivity side. Scale and G&A is something that you'll continually see. And our product development and management costs, as I mentioned, we had built out a lot -- done a ton of work to build out the platform, and we had invested there. So I think you should start to see us go into a period of slight scale.

We still got work to do on the product and that will never end. But I do think like the big builds have kind of ended. Now we focus on kind of making the platform more AI ready. And so in general, our ability to generate adjusted EBITDA and convert that into free cash flow is going really, really nicely. So you talked about the adjusted EBITDA side. We're focusing more on the free cash flow margin side of things right now, where we've grown that from -- I think it was below 7% a few years ago to now this year, we're targeting 12%.

And even in that 12%, I've got about $25 million or so of my onetime costs for the separation of -- and the reduction in force that I did in March. But I've also got $25 million of pension termination costs in the back half of the year. And those things go away next year and provide an incremental benefit to next year. So we have really good line of sight to, I think, exceed our expectations that we set at Investor Day where we said we'd expand free cash flow margins at 100 to 200 basis points a year. I mean this year, our guidance would imply we're doing 230. Next year, I think we can certainly do that or more. So we're feeling really good about our path here on profitability.

That's great. I was going to ask about free cash flow next, so you beat me to the punch. So -- and just to be clear, that free cash flow is kind of independent of the interest rate environment because clearly, there's some moving pieces there. Float is very helpful. So even as float is going down, you're still able to drive those free cash flow outcomes.

That's exactly it. Yes, that's the other headwind I didn't even mention because it's just part of our business and it's part of our planning. So float is -- was $200 million last year. It will be -- I think our guidance says $180 million this year. So that's a $20 million headwind that we're eating inside of that number.

Okay. That's great. So I want to zoom back to Joe and sort of the HCM development and some of the AI developments that have been introduced at least over the past couple of quarters. Maybe to get some perspective from you about sort of where on the customer side, are you seeing the most pull for AI? And how do you see Workday's AI position relative to your competitors? Anything you would call out that you think is differentiated in terms of how you're approaching the market versus what you're seeing from your peers?

Yes. We're -- first of all, we're set up really nicely from an AI perspective. We are, I think, the only vendor that has a single application for the entire people platform in one application. That means we have really a single database that we can actually utilize to drive some of our AI agenda. So I think we are positioned really nicely. I talked about the $10 to $12 per employee per month for pay and time, another $10 to $12 for the full suite and another $10 to $12 for managed. I think there's another opportunity out here for what we call kind of data and intelligence for another $10 to $12 over time.

And again, that's at 1,000 employees and scales downward as we move up. And it will take us a little bit of time to get to that full amount. But you start to think about data and intelligence as kind of dashboards and analytics, which we've had for a little bit of time. You've got the Integration Studio, which we launched last year, which really connects your system with the others and allows customers to manage those integrations nicely.

we've got the hub experience, which is the basis for a lot of things. The hub experience for us is the landing page where customers and employees land when they open Dayforce. And it's a really kind of like Wix-type tool where customers can and HR teams can really manage that landing page easily and nicely. But what it actually is the content management system.

And that content management system customers can load all of their documentation, whether that's handbooks or manuals or benefits packages or expense policies or anything they want into that content management system, and we can apply our Copilot, which is our first stage of kind of this rollout of AI to that and train it against their own documents. Such that an employee can go in and start interacting with the Copilot or the AI assistant that we have there and really improve their user experience, but also stop calling HR for a lot of things that they would be doing.

And that's the level 1 there. Level 2 gets into a more agentic approach. And I think Level 3 just becomes a full AI-enabled platform. And the agentic approach that we're going to start rolling out a couple of agents here towards the end of this year will cut across the HR, the talent, the time, the pay, the analytics side of things. And eventually, we'll have agents that kind of dig down into each -- a number of different workflows there that help with -- I'd probably call it workforce assistance, right? And then you get into more of the workforce augmentation, which is really real-time insights and recommendations in the flow of work to really drive some better decision-making. And ultimately, I think where this can go is autonomous people operations. And that's kind of the end state.

We're a little bit ways out from that, but that's kind of how we think about AI in our platform. And I think there's dollars to be had from a sales side of things there. We're starting to see it with the Copilot right now, where we had 50% of our Q1's new business sales attach Copilot to it. And we're starting to get some nice use cases of how customers are using those.

Okay. And will each one of these AI use cases come with their own like $1 of PEPM here, $1 PEPM there and build up? Or are you going to be packaging these together into more comprehensive sets of solutions?

I think as you go longer term on new business sales, you start to just say, here's everything we've got and this is the price for it. But as we kind of build it out, you're going to have to take that kind of iterative approach. So here's what's available today, we upsell in future. But in the future, we should be able to sell a data package that includes all of this to new customers as we build -- as it's built.

Okay. And so maybe we talk a little bit more on the technology side. You bought eloomi last year to bulk up on the learning side. Joe has released a bunch of innovation on sort of the HCM, the talent side. Is there any part of the portfolio here where you envision that there could be technology tuck-ins or bolt-ons to sort of further accelerate the trajectory and the road map where you want to go? Or just maybe more generally, how should we think about inorganic as a contribution to the growth of the story?

Yes. It's -- what we've done in the past is probably what we do in the future, which ends up being smaller tuck-in acquisitions more than anything bigger. I think eloomi was one of our larger acquisitions that we had done. And even that was pretty small. I think what's great about eloomi, and this is kind of how we think about it is that we actually replatformed eloomi on to Dayforce within 6 months of acquisition.

So now we're selling a Dayforce Learning that is Dayforce native, single application allows us to continue that message of kind of one system, one data source, one experience type thing. So there are certainly areas that we could go in and shore up and add, but that's how you'll think about it, how we'll think about it is I think there's a ton of value to having that kind of differentiation of one system and that generally leads to smaller kind of tuck-in acquisitions that we can replatform.

Not to say that we won't ever do anything bigger. It's just right now, that's really our focus. If I think about areas, we talked about expense management could be an interesting one for us. just trying to find the right asset. I think there are some things in recruiting that we can add. And obviously, we'll look at the AI front as well.

Okay. Maybe we can go and do an update on what you're doing in terms of pricing and packaging. So I think a few years ago, there were some comments that as you use more system integrators, more partners, there's the opportunity to do more pay on provisioning. And as we think about sort of AI tools, maybe you want to be a different pricing model than a PEPA model. So maybe just give us sort of the lay of the land where you see pricing packaging today, where we stand today and maybe how it could evolve going forward?

Yes. It's -- today, just where we're at is we price on a per employee per month basis, and we generally charge at go-live. There are customers where -- and there's a lot of times when we'll be able to get some pre-go-live kind of revenue ahead of time. But most of it is still a go-live-driven business. And that's -- it's fine. It's an okay business model. I think customers can tend to resonate with that.

They associate value with kind of that go-live because they can start paying. But I would say that the market today is really largely defined as us and a Workday competing for a couple of the legacy vendor businesses. And when we're up against Workday, they are charging on a subscription kind of basis as a true software company would. And I think there's a path for us to move forward toward a model like that.

And you'll see us start to test that out here in the back half of the year and see if we can move into that full time. But definitely moving to a simplistic packaging pricing model that is a subscription-based model that has a defined term and ability to raise kind of price and talk to the customer at renewal time and upsell additional functionality and a true software model that I think -- personally, I think I know our customers would really appreciate than getting a monthly invoice every single month with here's how much -- how many people you paid and here's your price for each of those and doing a bunch of reconciliation there. I think it's a lot easier to administer. And I think there's a lot more value that can be gotten out of that model, too.

Okay. And on the AI side, would you price things differently, do you think? Or would that still be a PEPM model from your perspective today?

I think it will still be kind of a PEPM subscription type model. But we're going to -- we'll watch out for it. I think everyone seems to be worried about costs and the cost of that, which is a great concern. I think the way we've done things with our LLMs that we're training things on to date has been pretty unique in that we're -- it's not -- it's kind of an individualized LLM for each customer. And that way costs don't get too far out of control.

And I think we're feeling okay about where we're at right there. As we roll out the agents, we'll see how this evolves. But right now, we're pretty confident it can be a per employee per month kind of subscription model.

Okay. So in terms of maybe going back to the strength of back to the base, how much has this been sort of right salespeople right aligned right moment? So you've done some more on the processes to go and focus more heavily on that? Or maybe is there sort of the product has gotten to the point where you can sell more talent now in many different ways than maybe 3 years ago, you couldn't do. What are some of the drivers that have helped you been able to do this back to the base strength?

Yes. As with everything, it's not just one thing that it's a couple of things. And I do think we are at a perfect point here in our product life cycle that we can actually start going back to the base. When we started with nailing pay and time, and we say pay, but the pay is deep, right? And time is deep as well. And you start with nailing that. And now that we've got the full talent and HR suite and we've got analytics on top of that, you do have the ability to now go back to the base and that base of customers that we've grown from 0 to near 7,000 already and selling them what they didn't have, what they don't have from what we've already developed and now developed.

So there is a product life cycle side of this. The other side, though, is having the right people and putting the right processes in place. And we brought in a seller, a leader for the back to the base team and built out that team. In the past, we had our new business sellers kind of having a quota that they could either fulfill through new business or add-on sales. And of course, when you do it that way, they're going to go after the big dollar deal, right, which is the new business deal. And they're going to -- second fiddle will always be the add-on sales.

So when we pulled it out and we created our own team that was a back to customer base team, back to the base team, we were -- and brought the right leader in and then had the product. It's just -- that along with the messaging, it's working really, really nicely. And we think that over time, I think last year, it was just under 40% of our total base -- total sales were back to the base sales or add-on sales. We think that can get to 50% or so over time, which has a nice ability to go into a net retention play.

Our gross retention is 98% last year. Our net retention should be 110% plus. And we think there's a path to get there. We're not there right now, but we're having a lot of success this year, and we think that will continue into the future here.

Okay. Maybe a couple of quick hitters on the go-to-market in other ways, partner investments. So you made a lot here over the past few years from having not sort of that well-defined strategy in sort of the pandemic time frame to now, I think, a very clear one. Where do you stand in terms of the need to further invest and grow maybe from an outsized perspective, the partner ecosystem? Or are we now on sort of the right slope to be able to meet the needs of the business as you foresee it over the next few years?

Yes. I think partners for us is really 2 things. One is the SI side of the partnership and then the other one is really software partnerships. And on the SI side of things, we spent a lot of time and effort building those relationships up. And I think it's going really nicely. We've figured out that in different geographies and in different kind of segments, certain partners are emerging as the premier partner.

It's some of the likely ones that you'd expect some of the larger consulting firms, and we're building great relationships with those. Where you see the partners mostly on the SI side of things is in the large enterprise and enterprise side. We still have partners that do some of the things in the major market space. But what we found is that a lot of the partners are too expensive for some of the budget envelopes of the major market customers.

And so we will continue to have a really nice efficient team that does the implementations in that major market space, and we'll utilize partners not only do some of the implementations on their paper and make it kind of a real nice software -- clean software play but also to bring us pipeline. And that can happen across the board, and we're starting to see that happen as these relationships with the SIs get stronger and stronger and they build practices around Dayforce.

So that's a good thing. On the software side of things from a partnership side, you need to have an open platform. And there's always going to be things that we say we're not going to do it or somebody else can do it better. And we are, I think, really good at that. I think it's something we can drive further and actually create a revenue opportunity on and that's something that is probably in the next few years, we should build out and we will build out is more of a partnership business. It's there, but it's not as big as it could be today.

Okay. And on these sort of auxiliary revenue streams, maybe touch on the Wallet and Flex. What are you seeing in those businesses today? I know Flex is very, very small, but maybe just where the momentum has been in the business since you've launched that more fulsomely last year?

Yes. I mean I'll start with the Wallet, and then we can go into Flex, which, as you mentioned, is pretty small and still early days on that. But on the Wallet side of things, it's going really nicely. We've grown that revenue from -- I think in 2023, it was around $12 million. In 2024, it was $30 million or so. And this year, it's going to continue that trajectory of growth and be one of our fastest-growing products that we have out here.

So I really like that the traction that we're hitting with Wallet this year. Last year, we talked about that it was mostly not only just new customers but we also launched a couple of different ways to move money in and out of the Wallet. This year, it's actually innovating outside of the Wallet. And what we've done is we've launched a functionality called Direct to Bank where you actually don't need to go in and register for the Wallet.

You can, inside of the mobile application or inside your web application, actually just see your earned wages, any employee can, whether they're registered or not and choose to move that money into their direct deposit account or into a debit card that they had. And because they're not doing that through the Wallet, we don't have the ability to not charge a fee because of the interchange. So we're actually charging a fee for that like some of the other earned wage access players are. Still -- employees can access their money completely free if they want to by registering for the Wallet.

But if you don't want another piece of plastic in your wallet or another app on your phone, this is a unique way to do it. And I think that's seeing some really nice traction year-over-year and can drive some incremental revenue growth here this year and continue the traction there. Actually, what it does is it opens up that market to -- right now, it's kind of with the wallets limited to the unbanked for the most part. And there's kind of a ceiling on growth, I think.

And what we're doing here is moving outside of that and hopefully opening up even more growth for the future there. The Flex Work business continues to go pretty well, I think. It's early days. Like we said, we've got a dozen or so customer -- I don't call them charter customers, customers using it, posting shifts, filling shifts, working. It's -- this is the year where we're going to decide if this is a business model we want to continue with and if it makes sense inside of the Dayforce asset or if it evolves into something different. And I think we just got to see where the results are, and we'll see -- we'll keep you updated as we come through next year.

That sounds fantastic. All right. Well, we are out of time. So Jeremy, it's a pleasure to talk to you as always. Thank you so much for spending time with us this afternoon. Appreciate it.

Thanks for having me.