Dayforce Inc (DAY) 2020 Q2 法說會逐字稿

Greetings, and welcome to the Ceridian Second Quarter 2020 Earnings Conference Call.

I will now turn the call over to your host, Mr. Jeremy Johnson.

Please go ahead, sir.

Thank you, and good evening.

On the call today, we have Ceridian CEO, David Ossip; and CFO, Arthur Gitajn.

We do apologize for the additional conference call as our vendor had technical issues.

I will read the safe harbor once again and then I'll hand the call over to David before we go into Q&A.

Allow me to provide a disclaimer regarding forward-looking statements.

This call may include forward-looking statements about our current and future outlook, guidance, plans, expectations and intentions, results, levels of activities, performance, goals or achievements or any other future events or developments.

These statements are based on management's reasonable assumptions and beliefs in light of information currently available to us.

Listeners are cautioned not to place undue reliance on such statements.

Each forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in such statements.

We refer you to our previous filings with the SEC for information regarding the significant assumptions underlying forward-looking statements and certain risks and other factors that could affect our future performance and ability to deliver on these statements.

We undertake no obligation to update or to revise any forward-looking statements made on this call, except as may be required by law.

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

I will now turn the call over to David.

Thanks, Jeremy, and good evening, everyone, and thank you for joining our earnings call again.

I hope everyone is healthy and doing well during this particular period of uncertainty.

Before we go to the Q&A, I want to just recap the highlights of the quarter.

First, Dayforce recurring ex float in constant currency grew by 24.2%.

The second point is that we were pleased that the gross margins on recurring increased 140 basis points, and excluding float would have grown 360 basis points, which gets is very close to our mid-70 gross margin on recurring that we've been speaking about for quite some time.

Third, on the sales side, Q2 sales were higher than the Q2 sales of last year, and so a record Q2 of sales.

The way that I would position Q2 is that the ACV or the sales in Q2 came in ahead of what we had expected at the beginning of the quarter, but obviously below what we had expected at the beginning of the year pre-COVID.

However, when we look at Q3, we expect that Q3 sales will be in line with the levels that we had expected prior to COVID, so at the start of the year.

And so we're seeing an acceleration of sales momentum, obviously, very healthy pipeline, getting us back to the growth rates that we've experienced historically.

In terms of customers, we saw the continuation of the move-up market as evidenced in that the trailing 12-month Dayforce revenue per customer increased by 13%.

And if we look at it on an incremental Dayforce basis, the incremental size of a Dayforce customer grew by 68% year-over-year, so similar to the 63% level that we saw last quarter.

The net is that we're seeing acceleration in terms of pipeline and sales in the marketplace.

Customers are continuing to go live.

And we're continuing to invest in the long-term growth and in the scale of the business.

With that, Jeremy, I'd like to hand it back to the operator for Q&A.

(Operator Instructions)

For everyone on the call, if you're having a problem asking questions, please possibly message Jeremy with your question, and we'll take the questions via that medium as well.

And your first question comes from the line of Daniel Jester with Citi.

Maybe, David, could you provide some additional color about kind of how you saw the months of the second quarter progress in terms of the employment level at your current customers?

And can you also provide an update on what you're seeing in terms of furloughs versus permanent layoffs?

How has that trended into June and July?

Sure.

Thanks again for joining the call again.

So we saw employment levels grow at our customers across the quarter.

So in other words, we -- if I look at the current month, the employment levels are higher than they were in July, I know they're higher than in June, and they're higher than they were in May.

However, the rate of growth has begun to level off somewhat.

So even though we are still seeing week-over-week increases across the Dayforce customers and the Powerpay customers, the increases aren't as much as we saw earlier in the actual quarter.

In terms of the trend between inactive or furloughed employees and active employees, we've seen the percentage of furloughed employees go down quite considerably from the beginning of the quarter.

Got it.

That's helpful.

And then just on the guidance and the cadence for recurring ex float Dayforce revenue, it grew 23% in the quarter.

And your guidance at the midpoint, I think, is about 15%, so that's an 8-point deceleration.

But if I look at your shareholder letter, it looks like there's only a $5 million kind of additional impact from lower employment count.

So can you help us kind of bridge what is driving the deceleration?

Is it just the employment count?

Or is there other things that you're seeing as well?

Well, remember that you're comparing 2 strong quarters of last year, but you're seeing the impact of March and through to Q2 in terms of a slowdown, in terms of new business and some pushing out of some of the actual projects.

In terms of Dayforce recurring, so if we look at on an ex float basis, as you pointed out, it was up by 24.2% in the actual quarter.

We've given guidance, midrange about 15% next quarter.

But in the stockholder letter, we mentioned that we would expect to see a beginning of a reacceleration going into Q4, so expect a number above 18% in Q4.

And given that we're expecting robust sales in Q3, it takes about 6 to 9 months, so 2 to 3 quarters to move through the system to revenue recognition.

So I would expect in that time frame for us to return to historical growth rates.

Your next question comes from the line of Alex Zukin with RBC Capital.

This is Robert Simmons on for Alex.

Can you give a little more color on the Excelity acquisition?

Does the $5 million to $6 million revenue include any revenue write-downs?

And then kind of what's the kind of base growth rate for that business going forward?

Sure.

So -- thanks again for joining.

I believe in the quarter, and Jeremy can confirm, the number from Excelity was actually $2 million, but it will be $5 million next quarter.

I remember that we acquired Excelity kind of mid-quarter, so we don't get the full revenue for the full 3 months in the last quarter.

In terms of write-downs, no, I don't believe it did include any write-downs.

So Jeremy, could you confirm that?

That's correct, David.

Okay.

Great.

And then so you sized the employment revenue impact for 2Q and 3Q.

Do you have any thoughts on what it might be 4Q if the kind of trends you're seeing now will continue.

Should it shrink in 4Q from the $8 million?

So remember, on Excelity, we purchased it from a strategic perspective that it gives us coverage in another 11 countries in APJ.

The longer-term growth in those regions will come from the extension of the Dayforce application to native payroll for those countries.

Obviously, with COVID, it was somewhat impacted in how quickly we can do the integration and start to move the technology over to Dayforce.

So what we've done is we've focused on building our Dayforce ConnectedPay in the meantime to the Excelity technology, which gives us one system for HR and payroll and workforce management across those particular jurisdictions.

So in terms of the revenue that I would expect from Excelity, I don't expect it to change materially until we start to do the migration to Dayforce.

Okay.

Great.

And then do you have any thoughts on the size of the employment impact to future quarters after 3Q?

Would you expect that to shrink going forward?

I -- look, we're still seeing the employment numbers go up week-over-week.

We don't know what the impact is going to be of Q -- I'm sorry, of wave 2 coming through.

I suspect that you'll continue to see gradual increases in the employment rate, and you'll continue to see kind of a stabilization of the number of furloughed employees.

But going out to Q4 is -- I don't want to try and guess too much in terms of absolute numbers.

And your next question comes from the line of Samad Samana with Jefferies.

David, if I could kick one off on the Wallet side.

I saw that you have 40 pilot customers.

You have another 100 that are waiting to be implemented.

Could you give us any sense of what type of TPV those pilot customers are driving and/or, like, how much do they represent in terms of wages, just so we can get a sense of the opportunity?

Thanks, again, for rejoining the call.

It's still early days.

Where we are is that we have 41 customers that are currently piloting the Wallet.

And what a pilot means is, in most cases, we've limited the rollout to a percentage of the overall population.

What we are seeing across the active card users is an ARPU that's very consistent in the way that we had modeled the business, which is obviously very encouraging.

In terms of the readiness of the Wallet, the Wallet is, what I would say, approaching Version 1. So during this quarter, we continued to add capability.

For instance, we completed the rollout to New York, which was -- had a few more kind of legislative hurdles than some of the other states.

We now have the Wallet available in all 50 states.

Some of the development that we're doing at the moment is to add pay card functionality, and that's required to make the cards available to workers who are under the age of 18 and also to provide an option for the unbanked employees to use the Dayforce Wallet instead of getting paper checks and such.

And so both of those will expand the available market for us.

Also in the quarter, we're beginning to do the build for bill pay, which, again, will allow us to capture more of the aggregate spend of the actual employee.

So it's still quite early.

But again, the ARPU numbers are coming in, in line in what we had expected.

Great.

Helpful.

And then maybe just a follow-up on the Dayforce recurring services ex float.

If I add back the $5 million impact in 2Q, that implies kind of a 29% normalized growth.

And if I add back the $8 million for 3Q, it's still low 20s, and then it's mid- to high 20s for 4Q.

So I just -- I guess what I'm trying to figure out is, is it fair to assume that mid- to high 20s is the type of growth that we could have expected ex COVID?

And then as -- I know it's too early to think about 2021, but is it fair to think about that exit rate into next year on a, let's call it, the world going back to normal basis, that mid-20s growth is durable for Dayforce recurring services ex float?

Samad, I think you know that I can't give numbers that we haven't kind of published type of thing.

The numbers that you're seeing, obviously, in terms of Q2, Q3 and obviously, in Q4, are more than just the headwind of the $5 million in terms of employment numbers and the impact of the float.

There obviously also was a slowdown in terms of sales and some pushes in terms of implementation that have -- that will take 6 to 9 months to work their way through the actual system.

So in terms of thinking about long-term growth rates, it will basically be based off the ACV numbers that we see in Q3, which again are going to come in, we believe, in line with the numbers that we had at the beginning of the actual year, so back to kind of more historical growth rates for the business.

Great.

And then just probably last one for me.

I know you said for 3Q, new bookings are expected to be in line with your pre-COVID targets.

As I think about maybe the guidance implied for 4Q, does that also assume pre-COVID level bookings being achieved in 4Q as well?

So remember, we don't -- we do some -- by the way, we do some recognition -- recognizing of PEPM revenue on provisioning now.

But the majority of the time, we only recognize the recurring revenue when a client goes live.

So when I look at the Dayforce recurring growth rate that we're expecting Q3 or even Q4, it's not impacted by the sales that we do in the current -- in that current quarter.

And your next question comes from the line of Scott Berg with Needham.

Congrats on a great quarter.

I guess 2 for me.

First for you, David, we'll start off in the commentary on the third quarter bookings.

Just trying to understand how you're looking that relative to your pre-COVID expectations.

Do you view the number of deals to be similar versus pre-COVID?

Or kind of ASPs on transactions signed versus those pre-COVID expectations?

Or kind of both of those will be in line with what your thoughts were 6 months ago?

At my level, I look at the annual contract value number.

I don't look at the number of deals.

But rather, I look at the total bookings that I expect them to close inside the quarter.

And so on a dollar amount is in line with what we would have expected for Q3 at the beginning of the year.

Got it.

Helpful.

And then from a follow-up perspective, we see downturns like this often strengthen strong competitors in the space and further weaken others, whether it's based on maybe inferior products or sales launches, et cetera.

Do you feel like you have the opportunity to come through this in a relatively stronger position competitively maybe than what you were 6 months ago?

Not sure if you're seeing anything anecdotally that might support or not support that kind of hypothesis.

So we spoke about this last quarter.

We continue to lean in into this period to strengthen our company.

You've seen some significant key hires like Joe joining the organization.

Joe joins as Chief Product and Technology Officer.

He comes from a very well-established human capital management enterprise player inside the actual marketplace where he was CTO over there.

And that obviously lifts up our organization.

In terms of investments, we've continued to invest in the actual product.

In fact, if you look at it on a cash spend basis, you can see that we've continued to invest in the actual business during this particular COVID period, which is obviously very important.

In other words, if we look at Q2, we spent on a cash basis about $16.9 million, which is up from $15.6 million in the same period last quarter.

On the sales and marketing side, continued to invest, although the move to digital marketing did yield about a $2 million savings on the marketing side.

And even with that, we're able to get about 2x as many touches with the customers as we typically would have gotten from the more traditional types of summit.

Yes, I do believe we'll come out of this particular period of uncertainty as a very strong organization.

Excellent.

Congrats again.

Your next question comes from the line of Mark Marcon with Baird.

Gross margin ex float on recurring was quite strong, and that was despite the loss of the incremental paper control revenue from the unemployment situation.

Can you talk a little bit about how that compared to expectations?

And just how that -- how that -- how you ended up managing to do that despite the headwind from the increased unemployment?

Yes.

So look, I think the improvements in the gross margin on recurring are -- is a very positive story.

I mean the numbers went up 140 basis points year-over-year despite having a $5 million revenue headwind.

Where the benefit is -- where the improvements are coming from is that, obviously, the Dayforce technology is highly scalable.

And so as we grow the revenue, we see lower support and hosting costs for the application.

If we look at the actual business, ex float, Dayforce gross profit on recurring grew by 360 basis points, which takes us very close to the mid-70s gross margin on recurring that we've been speaking about for a long time.

So we're very pleased with that number.

Yes.

I thought it was very impressive, particularly given the headwinds on the employment side.

Well, on the professional services, David, how should we think about what drove that -- the gross margins there this quarter and how we should think about that on a go-forward basis?

And particularly in light...

Yes.

There are 2 elements, really.

The move to work from home at both us and our customers meant that it did take, in some cases, longer to do the same task.

So we saw -- although we saw ours at the levels that we had expected, we saw billable utilization.

Our rates come down with inside the actual quarter.

Obviously, I think things have stabilized.

I think our customers now have the technology and the platforms to be efficient from working from home.

They aren't as distracted as they were at the beginning of the second quarter in terms of getting adjusted.

In terms of our organization, I think we've become very efficient in terms of how to run our professional services organization in a work-from-home basis.

The second kind of headwind that we had was that there was a slowdown on professional services types of work, which are the higher-margin businesses.

And also, if you look at the percentage of revenue in that line item that came from clocks, it declined to 10% from effectively 17% in the prior quarter.

And again, the clock revenue typically is a higher-margin business.

So our clock sales obviously under pressure, given that in a non-touch world, there's less demand.

And with people working from home, again, there's less requiring for clocks.

But I would expect that both the professional services and the clock business will recover with time.

Okay.

But probably not in the immediate quarter.

Or would that -- or would we see a bounce back right away?

No.

I think it will take time.

I think the clock revenue and the professional services and other is somewhat dependent on people coming back to work.

Great.

And then you noted a number of really nice wins.

Any changes with regards to -- notable changes with regards to the reasons why you were selected?

Or a difference in terms of being able to close them relative to the past?

How is your reputation and...

Well, I think our competitive positioning has strengthened.

And I think that's been driven by, obviously, having a lot of momentum in marketplace, having a very differentiated product, but also from some of the great work that lead sales team has been doing in positioning the value that our systems create for our customers.

And so if I look at the particular quarter and where we took the business away, we did replace several of our competitor systems.

We won against the ERP competitors on a regular basis.

And also, if I look at the wins we got, some of the ones we highlighted, one point I would make is that they weren't the industries that I would have guessed at the beginning of COVID.

We highlighted a 100,000-employee rental car company that signed up for Dayforce in the quarter.

We sold a system to the fifth-largest theater chain in North America, which I wouldn't have expected either.

So we're seeing wins across the industry.

And where we see it coming from is that there's been an acceleration of companies digitizing their critical systems.

So those companies that did not have robust cloud solution prior to COVID are moving very quickly to get such a system.

What would spur a company -- I appreciate what you said in terms of the changes in COVID.

But for a rental car company and a theater chain, it would seem like they would have a lot of other pressing matters besides their HCM system.

Remember that an HCM system is not an optional system.

Payroll is a critical system.

And most -- for most organizations, the majority of their expenditure is people.

And if you did not have a system that you could operate with reliability and predictability during a period like COVID where you can't have your IT staff going to the premises, you move very quickly to get critical systems that have those characteristics.

Your next question comes from the line of Mark Murphy with JPMorgan.

I'll add my congrats.

David, regarding the bottoming out and the expected pickup in the new bookings, especially in Q3, does it give you any inclination to possibly lean in incrementally more aggressively with sales hires as you come out of Q4 and into 2021?

Or do you look at what you have in the field and sense that there's enough capacity as is or kind of with the current plan?

Mark, we're continually going to invest in our people.

And we continually are going to attract and onboard the best talent that we can, especially on the sales side.

However, it's not only our sales group.

In the quarter, we did sign several agreements with the largest SIs, and we have now moved on to training their resources on the Dayforce system.

And the partnership with the large SIs is going to be a big focus of our sales organization or our go-to-market team over the next 12 to 24 months.

So in addition to investing in direct sellers, we are now investing quite significantly in SIs, which we believe, again, will accelerate our growth into both the enterprise and global markets.

Okay.

Very clear.

And then just as a follow-up.

If you think back, David, up to a few months ago in the category of companies that were engaging in some type of surge hiring, for example, as Amazon might have done or Shopify might have done, what is that hiring trend now among that category?

And does the surge feel like it's something that's enduring to you?

I do, Mark.

Look, I think coming out of COVID, we're going to see a somewhat adjusted economy.

Certain organizations, I think, are going to come out more tighter with less headcount that they had going in.

And it could be that they should have had less people in their organization beforehand and COVID forced them to make -- or to get more efficient.

You are going to see other organizations that are going to come out bigger just based on the way that I think consumer trends have changed from COVID, and I think many of those changes are going to be on a long-term basis.

So we are still seeing organizations that were hiring early on in COVID continue to grow and invest.

But we're also seeing a movement from, say, furloughed employees back to active.

And we are seeing a general increase in terms of headcount at our clients.

But as Jeremy pointed out, I think, earlier, the increases that we're seeing now week-over-week are leveling off -- they still are going up, but the rate of increase has slowed down a bit from the beginning of the quarter.

Your next question comes from the line of Michael Turrin with Wells Fargo Securities.

David, you've laid out a number of growth drivers, the continued move upmarket, expanding internationally.

You've got Wallet and other new modules you mentioned in the shareholder letter.

Can you maybe also just help us out with the expected cadence of those drivers?

Which of those are you expecting can show up here in 2021 as growth drivers?

And which of those are maybe still a bit further out in terms of your plans?

Yes.

Look, what I would say is we've been quite consistent in having the same 5 growth levers for the business since the -- really, the inception back in 2012, 2013.

What we do know is we're playing in this massive market of -- and we believe we have about a 3% to 4% market share.

So there's just still tons and tons of growth for us inside the market.

The growth, as you pointed out, firstly, comes from acquiring new customers.

And you're seeing us do that every quarter, we increase the number of customers.

The second is that we typically extend the platform with new modules.

And then we go back to those customers and we sell them the new modules.

And we spoke about in the shareholder letter, the success of the engagement surveys module and the launch now of the Dayforce Hub and business intelligence, which both, again, will drive additional revenue from our customer base.

Typically, about 20% of our quarterly sales come from add-ons.

The third growth driver is we move upmarket, and you see that evidenced in that the trailing 12 months revenue per customer increased by 13% in the quarter.

And if I look at it on an incremental new Dayforce customer, the size of the customer grew 68% year-over-year, which is consistent again with what we saw last quarter, which was an increase of 63%.

The fourth growth is -- driver as we move globally.

And you see that in some of the wins that we actually highlighted in the shareholder letters.

We are winning consistently now on a global basis.

Strategically, you saw our investment with the acquisition of Excelity, which increases us or increases our range into 11 new countries in APJ.

And you also see that in the investments that we're making now in SI partnerships, which we believe as well are very -- have a lot of potential for both the enterprise and global markets.

And then lastly, we move into adjacent markets.

And what we really mean by that is that there are ways that we can increase the revenue that we get from the employees of our customers.

And so you saw us launch the Dayforce Wallet.

It's going really, really nicely.

The numbers again, 41 customers piloting the Wallet, now more than 100 other customers have signed on to use the Wallet, now just waiting for implementation.

And that effectively adds quite significantly to the recurring revenue we can get per employee across our customer base.

And your next question comes from the line of Brad Clark with Bank of Montreal.

I just wanted to touch just a bit more on the international expansion part of the growth.

You mentioned being able to expand into APJ with part of Excelity.

I want to just pivot over to Europe, specifically within the U.K. and your building out payroll in Germany.

What have been some of the challenges and also positive of expansion into Europe?

And do you think that's a faster time line than the APJ expansion?

Yes.

So thanks again for joining the call.

So the 2 are quite different.

In the U.K., we've been in the U.K. now with the Dayforce product, I believe, for about 2 years, and we've seen some significant wins and traction with the U.K. product.

We also built out a native payroll for Ireland, which really competes there to U.K., Ireland market, if you like.

And we've seen a lot of success over there.

In terms of Germany, we already have several very significant customers that are based out of Germany.

Several of them have hundreds of thousands of employees.

And they all are global customers, headquartered out Germany.

What we're doing now is, obviously, we're adding native payroll for Germany, and we expect to complete that in 2021.

And once we have that, that will form a base for us to extend into Europe around Germany.

So if you're in Germany, you can go very nicely into Switzerland.

You can go into the Benelux countries and the like, and it gives you a very, very strong base.

In addition to Europe, we're also looking at Latin America.

And we currently are built in on Mexico, as you pointed out, which is a very similar type of model, except that there are a lot of manufacturing organizations in the U.S. that do have facilities in Mexico.

And so we expect we'll see a natural uptake from there.

And then lastly, that what -- I don't want to get left out is that in the second quarter, we built and we launched native payroll for Mauritius.

Mauritius is part of Africa.

And we also signed the largest company in Mauritius that's expected to go live next quarter.

The significance of that is that it gives us also a launch pad into the Middle East and parts of Africa from Mauritius that we believe does have potential, too.

(Operator Instructions) And your next question comes from the line of Stephanie Price with CIBC.

I wanted to focus in on the implementation time lines.

You mentioned your customer -- in your President's letter some customer delays.

I'm wondering if you continue to see those into Q3 and how should we think about those implementation time line?

So those customers are still continuing to go live.

So there will be some impact, obviously, into Q3 in terms of professional services, implementation and classes I kind of discussed beforehand.

Given that we are expecting quite a strong sales quarter in Q3, I would expect that in subsequent quarters, that you'll begin to see the professional services and other revenue line begin to grow again quite nicely.

In terms of the margins on the professional services and other, as I mentioned, we saw lower billable utilization rates really caused by the shift to a work-from-home environment of both us and our customers.

But I do believe that the world has stabilized.

In other words, people know now how to work quite efficiently remotely.

Whereas at the beginning of the quarter, I think people were still coming up the learning curve.

And so I would expect the trend to kind of begin to improve from there.

Great.

And then also hope you can give us an update on the outlook for Powerpay.

Sure.

So in terms of Powerpay, it's -- as you know, it's a Canadian-only business targeting companies that are relatively quite small.

And that part of the economy obviously got impacted more than the market that Dayforce serves.

When we talk about Powerpay, there are kind of 3 revenue streams.

One of the revenue streams is we get paid based on a pay.

So if you get a check or direct deposit, we get a certain payment for that.

And with employment levels coming down more in that segment, obviously, we're impacted.

The second area is that we also charge per active customer.

And we saw the number of active customers drop down as well with inside the actual quarter.

However, as we are seeing the employment levels in that sector come back quicker than we are seeing for the overall Dayforce market, I would expect that as we get into kind of a Q4 time frame, we'll begin to see some improvement.

Jeremy, anything that you would add around the Powerpay side?

No, I think you said it nicely.

You said, we saw a decline in Q2 pretty quickly, and then it's coming back very nicely, and I think you can see that reflected in our guidance.

Next question from the line of Arvind Ramnani with Piper.

Congrats on another good quarter.

In your shareholder letter, you have provided an excellent color on the client sign-ups.

And some of your remarks earlier, you talked about client sign-ups.

So assuming a lot of those clients have signed up remotely and they're getting started remotely, do you anticipate making some permanent changes in your sales process and sales teams?

That's a great question.

And yes, we have and we'll continue to do that.

So 2 aspects on that.

One, early on, we moved very quickly to a digital-marketing-first approach, so holding summits virtually as opposed to in-person.

And we saw effectively the number of people that we were able to reach go up by about 2x.

And that has strengthened our pipeline quite considerably.

So we've seen a lot of success over there.

We also saw a much lower cost of events.

In fact, we saved about $2 million just from moving to a virtual summit.

We recently announced that our annual customer conference, INSIGHTS, is also going to be a virtual event, and we expect to see a similar impact from INSIGHTS as we have in previous years.

In addition to that, we are making a shift to what I'd call more of a digital sales methodology, in other words, taking advantage of how people have adjusted to working from home and using technologies that allow people to communicate very, very effectively from afar.

Great.

Great.

And then I had a follow-up question on your partnerships with the system integrators.

And I certainly agree with you that there's a lot of value in working with SIs in terms of driving accelerated growth, and your margins will also -- will help you offload some of them, essentially, the people work to the SIs.

But can you kind of talk a little bit about how you're going to balance essentially your own kind of direct sales channel and kind of growing with -- incenting the sales teams versus incenting the SIs?

Well, what I would point out is that we're not inventing the wheel over here.

That when we look at how the successful ERP companies and other enterprise software companies go-to-market in the large enterprise and in the global segment, this is how they do it.

It's typically very strong partners with the SIs, and the SIs are able to obviously influence the selection of the various types of vendors.

The second part as well is that we can get more scale for implementation by having the SI front the implementation for customers in those segments.

And in order to do that, it provides an opportunity for us to also begin charging for the recurring revenue upon provisioning as opposed to upon go live, which, again, is the way that almost all cloud companies actually do price their software.

So the -- I think the benefit of all 3 of those gives us a lot of optimism that partnering with the SIs and investing in the SI channels will allow us to accelerate the growth rate of the business.

And your next question comes from the line of Brad Zelnick with Crédit Suisse.

This is Yaoxi on for Brad Zelnick.

I wanted to double-click on enterprise.

Congrats on the new CTO hire.

There's a lot of threads here.

You've talked about building out international functionality.

You've talked about increasing SI involvement.

Again, big CTO hire here.

With the environment stabilizing somewhat, would you say this is capitalizing more opportunities for Leagh and the team in enterprise?

I guess the question I had as well on some of those customers you called out, the movie chain theater and rental car company, were these customers who were in the pipeline and accelerated stuff as a result of the new offerings that you had, or brought in newly as a result of COVID forcing these opportunities down the funnel, per se?

So let me start with the last question.

So as I mentioned, we have seen an acceleration of some of the deals, especially on companies that had on-prem systems.

That if you had an on-premise system, during COVID, you weren't able to send your IT team in.

Or if you did send your IT team in, you were putting them into what potentially could have been kind of an unsafe environment.

So companies have accelerated investments in critical systems like Dayforce during this particular period.

And I think that will kind of speak to both the rental car company and the theater company.

In terms of success in the market -- in the upper market, I think that is true as well.

And what we're finding is that our value proposition, which, again, is that we create quantifiable value by implementing our solutions.

So if you buy from us, we will say, "Here are the 3 or 4 KPIs that we can directly impact at your organization, and a 1% movement on that KPI translates into this amount in terms of dollars savings." And I do believe that that quantifiable value proposition is resonating exceptionally well in today's environment.

Understood.

Very helpful.

And I think on the -- just referring to a comment made on the first call back on retention.

You'd mentioned the stable retention.

And I just wanted to understand, does this surprise you given where we are in the economic cycle right now?

Maybe asked a different way, business deals continue to happen as we continue through.

Do you see any of the customer base at risk at this point?

And do you account for that in guidance in any way?

So look, I think we've been confident on the business all along.

And if you recall, at the very beginning of COVID, we had a series of analyst and investor calls where we spoke about the health and the robustness nature of the actual business.

The fact that we do get revenue from furloughed employees, I think we've called out early, and we felt that that would give us a bit of a cushion or safety in what's going to be kind of a difficult period going forward.

We also did believe that our value proposition that I spoke about was going to resonate even stronger and further differentiate us from some of the competitors.

In terms of the COVID period, I am very proud of the way that the organization acted.

The webinars that we held, helping customers adjust to this period, helping them do the necessary configuration for the various types of government programs and subsidies so that they could help their particular employees, the use of the Dayforce product in terms of being able to help employees work from home, the way that the organization could use the technology to communicate really easily and effectively with this employee base during this very difficult period did really kind of resonate.

And then some of the investments that we continue to make in terms of leaning in, in terms of continued investments in product.

In the quarter, we launched 2 new products and the Dayforce Wallet, and that's during a period of COVID.

In terms of organizational strength, several key hires, including the new Chief Product and Technology Officer, who, I believe, is wonderful and definitely will strengthen the product and the organization and the culture of the company.

So I would say that we're very confident on the future of the business.

And your next question comes from the line of Siti Panigrahi with Mizuho.

David, just in terms of cross-sell opportunity, I understand within your installed base you don't have much control over unemployment rate.

But given that so many products you released in the last few years, what sort of trends are you seeing in terms of cross-selling them to your installed base?

And what sort of opportunity do you think ahead?

Well, if I look at COVID, I think the requirement to have a learning management system is very important.

We're seeing quite a strong demand for the Dayforce Hub, which is just about to be released, which is -- really allows customers to create that communication portal that matches the experience that they would like for their particular employees.

The demand for the Dayforce Wallet is quite strong.

And we're quite pleased with the traction that we're getting even with the early version of the actual product.

So yes, much like other software companies, we obviously are looking for cross-sell opportunities across our base.

And then a follow-up to the Dayforce Wallet.

I understand this is the first release, and you are doing a controlled release as well with this 41 customer you said.

But when you think about this environment, this is a nice work for any employer to offer to employees, and it doesn't cost them anything, either to employer or employee.

So where do you see, when you think of adding other features and when you think about your installed base, where do you see -- what -- 100 customer you said next quarter, but how big it could be in terms of penetration?

Well, my belief is that on the long term that having access to on-demand pay, which, again, requires the continuous calculation engine that we have in Dayforce, is going to be the norm in America and in Canada.

Remember, the way that it works at the moment is most people get paid on a weekly or biweekly basis, which means that they are paid in arrears and effectively are loaning their employer their wages during that period of time.

And what the Dayforce product does, it allows the employee to see how much they've earned, net of all taxes and deductions, and have the ability to add that to their wallet and to go spend it immediately, which is their right.

And that's obviously a tremendous benefit.

A few kind of points that we've spoken about beforehand, the vast majority of people, regardless if they're hourly or salary, do those paycheck to paycheck.

And that they struggle really to bridge their finances and often have to resort to payday loans, which have annualized interest rates of upwards of about 400%.

Or they leverage their credit cards, which have interest rates above 20%.

Also, if you look at the various types of studies, a high percentage of people's wages are actually spent within a day of them receiving the check.

And so you have this kind of splurge spending that happens when people get their paycheck just on a biweekly basis or a weekly basis and getting the continually alleviates that and you see kind of spending levels be much more responsible.

When I look at the actual market, say, if I'm a customer, I'm going live with Dayforce, being able to speak about the Wallet to their employees at the time of implementation is a very big positive because there's obviously some change management that has to happen moving to a new system.

And even organization can say, "You'll be getting the Dayforce Wallet, which gives the ability to get paid on a daily basis as opposed to on a biweekly or weekly basis." That's a big benefit for the actual employee base and excites people to use the Dayforce application.

Also the fact that the Dayforce Wallet is available in the Android and in the iOS app stores means that when the employees get to download the Dayforce app, they're going to see the Wallet application and ask their employer when it's going to be available.

So I think it's quite important for new Dayforce customers to really speak about the Dayforce Wallet, which may not be turned on on the first day of going live with the customer, but they should have a vision as to when they'll offer that benefit to them.

Ladies and gentlemen, there are no further questions at this time.

This concludes today's conference call, and you may now disconnect.

Thank you.

Thanks, everyone.

Thank you.