Dayforce Inc (DAY) 2020 Q4 法說會逐字稿

Greetings.

My name is Jeremy Dobson, Head of FP&A and Investor Relations at Ceridian.

I'd like to welcome everyone to the Ceridian Fourth Quarter 2020 Earnings Call.

(Operator Instructions) As a reminder, this conference is being recorded.

On the call today, we have Ceridian's CEO, David Ossip; and CFO, Noemie Heuland.

Before I hand the call to David for some brief remarks, 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 statement is 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.

The fourth quarter stockholder letter and earnings release have been furnished with the SEC and will be available on the SEC's EDGAR database in the U.S. and the SEDAR database in Canada as well as on the Ceridian Investor Relations website at investors.ceridian.com.

With that, I'll turn the call over to David.

David, you're on now.

Thanks, Jeremy.

Good evening, everyone, and thank you for joining our earnings call.

I hope everyone is healthy and staying safe.

Before we go to Q&A, I want to spend a few minutes on some important points from our stockholder letter.

First, we had a strong quarter.

We delivered fourth quarter revenue results, which were above the high end of our guidance range.

Dayforce recurring revenue, excluding float revenue, grew by more than 19% despite COVID-19 headwinds remaining elevated.

Also, we delivered on our adjusted EBITDA guidance while accelerating the pace of our investments in product and technology and sales and marketing.

Cloud recurring gross margin increased by 210 basis points to 70.9%, and excluding float revenue, expanded by 380 basis points.

Second, on the sales side, we did see an impact from the second wave of COVID-19 in the form of elongated sales cycles for several large enterprise opportunities, which closed in January instead of December.

While fourth quarter sales were below previous expectations, when factored together with January's closing of those transactions, sales performance was in line with last year, which was the strongest quarter in our history.

Our sales pipeline is very strong.

And we believe by the second half of 2021, our Dayforce recurring revenue growth rates, excluding float revenue, will return to pre-COVID-19 levels above 25%.

Third, Dayforce Wallet continues to go very well, and we remain confident in the wallet strategy.

We continued to see strong traction in adoption.

More than 100 customers are using the wallet and over 375 have signed up in total.

Attach rates on new sales have continued to be above 80%.

In addition, data from our early adopters is proving our thesis that the wallet can have a positive impact on our customers' businesses.

Wallet customers are seeing a 5% increase in recruiting close rates, a 9% reduction in the time it takes to fill an open position as compared to our broader group of customers.

Additionally, wallet customers experienced 42% lower voluntary turnover among employees using the wallet.

These metrics will continue to strengthen and validate the value proposition of the wallet, creating quantifiable value for our customers and their employees.

Finally, we are very excited about the acquisition of Ascender.

Ascender provides payroll for more than 1,200 customers, serving more than 1.3 million employees across APJ.

Combined, we will serve over 1,500 customers and 2.5 million employees in the region.

This positions us as the dominant contender in APJ, one of the fastest-growing regions and provides a significant cross-sell opportunity for Dayforce.

We expect the acquisition to close in the second quarter, and we'll provide greater clarity to the financial implications of the acquisition at that time.

I would like to now hand it back to Jeremy to open the call up for questions.

Thank you.

Thanks, David.

(Operator Instructions) First question comes from the line of Mark Murphy, JPMorgan.

Mark doesn't seem -- Mark, are you on?

We'll move on.

The next question we're going to go to is Mark Marcon of Baird.

Wondering if you can talk a little bit more about the impact with regards to the sales in this quarter and what spilled over into January.

And should we anticipate that the first quarter sales numbers are going to end up being elevated because of what was -- what fell into this quarter?

How should we think about that?

Yes.

Mark, it was a handful of very large accounts that closed in early January as opposed to late December.

What I'd say is that the customers were less reluctant to call executives back to just do the T's and C's.

So in all cases, we're in the final stages of contracts, normally black line just waiting for final signatures, and they spill over into January.

In terms of revenue impact, obviously, it's minimal because, as you know, we typically recognize revenue on the whole when the customers go live.

In terms of January, we're optimistic about the actual quarter.

We had a strong January, obviously, given the spillover from December, and the pipeline still remains very strong.

Great.

And can you talk a little bit about just the pipeline?

We're hearing some chatter from some systems integrators saying that there's a greater number of really large enterprises that are looking at digitizing their CM processes to an even greater extent than they were previously.

Are you seeing that?

And how do you think that unfolds over the course of the year?

So it's an interesting question to ask.

Remember that we've been moving up into the large enterprise space over the last 18 months.

So it's hard to differentiate if there are more opportunities out there or it's just us being more relevant in the large enterprise space.

That being said, David, can you just say how many more opportunities you're seeing relative to what you would have expected or anything along those lines?

Mark, it's hard to really again differentiate.

Obviously, we are seeing more opportunities.

I don't know what it is, as you said, more large enterprises looking at digitizing their HR processes or was just that we are a proper contender.

And there are a lot of data points in there.

Obviously, we had many more large deals last year.

We were included in the Gartner leadership quadrant, which obviously makes us much more relevant for that particular enterprise space as well.

Our global offering has strengthened as well year-over-year, and most of those large opportunities do have a global component.

So we are seeing more large enterprise deals, but I can't tell you if it is from more opportunities in market or just us being included in more opportunities.

The next question comes from Siti Panigrahi at Mizuho.

Yes.

Yes.

Just in terms of your guidance, I know you didn't give the full guidance for Dayforce recurring revenue, 22%, Q2, and second half, 25%.

So David, what's your adjunction in terms of unemployment rate in 2021?

And in that guidance, how much of conservatism is baked into new sales versus unemployment level within your install base?

Well, about 25% of our sales is add-ons to the base, and those add-ons, say, 2 formed either additional populations, normally from their global employees or from buying new modules.

So the majority of our growth obviously comes from the acquisition of new customers in market.

In terms of the growth rate, remember, it's very consistent with what we said last quarter.

We said that we would expect to see the recovery in the second half of 2021 given that we saw sales recovery starting in about Q3 of last year.

Okay.

And then wanted to follow up on the international opportunity.

Last year, you talked about 20 -- expanding into 20 countries, and now you mentioned about 50 countries.

That seems like for me aggressive international expansion.

So what sort of revenue contribution now you have?

And how should we think about the international revenue contribution going forward?

So Siti, as we move up market in the enterprise space, we obviously see many more global opportunities.

The acquisition that we did of Excelity last year had a very positive impact in helping us with global opportunities.

So we did see a lift, if you like, in win rates, especially with organizations that have populations in APJ.

Our upcoming acquisition of Ascender obviously will strengthen us in that regard as well, but we also have continued building out major capabilities into Germany.

The UKI region has done tremendously well over the last year.

So we remain very optimistic on the global side.

Next question comes from Samad Samana, Jefferies.

So David, as always, we appreciate all the thoughtful remarks in the shareholder letter.

That's always very helpful, especially when there's this much uncertainty.

So thank you for that.

But maybe in the remarks, you talked about returning to pre-COVID growth levels.

And so I just wanted to triangulate maybe a little bit further on that.

Does that mean that you think that the growth for Dayforce recurring ex-float, we'll get back to that 30% plus type of level that we saw in 2019 and 1Q of '20 before COVID hit?

I'm not trying to pin you down on the timing of when that happens.

I don't think any of us know, but is that you saying that 30% is achievable as a recurring level?

So Samad, I don't want to put a number out outside of guidance, but what I will say is we've given a guidance number that we feel quite comfortable with.

There's still a bit of uncertainty around the impacts of COVID.

For example, if I look at Q4 that we just passed, we had expected to see about a $2 million recovery in terms of employment levels.

So the impact from higher employment increasing our revenue by about $2 million.

In reality, we only saw about $0.5 million recovery.

And so it all depends really on what goes on at the employment levels as we move into the second half of 2021.

If we see the recovery kind of solidify, then I think we can be a little bit more aggressive in looking at the growth rates in the second half of the year.

Great.

And then as my follow-up, I'd like to maybe add on to Siti's question around the international side, clearly, with the 3 acquisitions over the last couple of years.

I'm curious if you could give us any data or at least anecdotal data points on how the uplift has looked for customers that were using Excelity that have added on Dayforce products or RITEQ?

And just so we can start to think about what that -- the long-term opportunity looks like.

So if they were spending x dollars before, what's that revenue uplift or sales uplift look like when you've sold in your Dayforce products into their base?

I don't think we've disclosed the uplift number on the upsells to RITEQ and to Excelity, but we obviously do expect a significant cross-sell opportunity.

So if I look at the Ascender opportunity, and I'll break it down, 1,200 additional customers, most of them actually are quite nice in enterprise size.

That provides a significant opportunity for us to obviously migrate to Dayforce, and Ascender effectively does payroll.

So we should be able to add on workforce management and all of the various talent components as well.

So we're quite excited about the opportunity over there.

One other point about Ascender is when you combine Ascender with Excelity, we're at about 1,500 customers, about 2.5 million employees paid, and we believe that positions us as the dominant leader in the APJ region, which is the fastest-growing region for human capital management.

So again, a very good data point and other reason for optimism.

Our next question is going to come from the line of Michael Turrin.

Going back to just the questions on the shape of Dayforce.

I think we're all just recalibrating and can appreciate the moving pieces there.

Last quarter, you were guiding for what looks like a slight acceleration into Q1.

It looks like Q4 actually came in a touch ahead of maybe where we were modeling, but the Q1 outlook now implies maybe a slight step down before you move back up towards that 25% target in the second half.

So I know David mentioned some of the enterprise impacts, and there are some good details in the letter.

But can you just help with level setting if there's anything else driving that change in trajectory and maybe just touch on also how much visibility you have into that second half target level?

So we're obviously going to the year with very good visibility.

In terms of Q1, you're right, we outperformed in Q4.

And if employment levels have improved the level that we had expected, you probably would have seen another about $1 million to $2 million of revenue on the Dayforce side.

However, the employment levels haven't recovered to levels that we had expected when we did the Q3 call.

And so we're taking that into account when we look at the Q1 guidance.

Noemie and Jeremy, anything else that you would add to that?

No.

I think that's a good summary.

I think the other thing I would point out is the -- on the professional services side and implementation, we've seen a pretty steady pace of go-live in Q4.

And I think that, that may have shifted some of the revenue expected from that Q1 to Q4.

But really beyond that, I think David covered it all.

That's helpful color.

If I can squeeze in just a quick follow-up on wallet.

The numbers keep moving up.

It's now 100 customers using it, and 375 signed up.

That's a pretty big sequential step-up from the 200 last quarter.

Are those -- some of those stats that you laid out, are those at all helping with adoption and traction?

It would seem that some of those metrics around things like retention and turnover in this environment could certainly help with adoption on something like wallet.

So a few things on wallet.

The actual numbers are slightly higher.

I think it's actually about 122 customers that are live on wallet, and 399 customers have signed up.

So obviously, we're still seeing rapid, if you like, adoption of the actual wallet.

Obviously, yes.

So as we see the economy moving to recovery, probably starting in the second half of the year, we expect that focus will be on talent acquisition.

And the fact that wallet significantly improves the time that it takes to find people, the time that it takes to actually -- the probability of closing helps a lot, and also the fact that it reduces voluntary turnover across wallet users is obviously a big selling point, but not only for wallet, but actually for Dayforce as well.

The next question comes from the line of Dan Jester.

Great.

So sticking with wallet, we've seen a couple of stories about state and local authorities looking to potentially put some additional regulations around earned wage access and limit some of the fees.

Is that something that you're hearing?

And does that have any impact on how you think about rolling out wallet from here?

So Dan, I appreciate your question, but that's actually how we differentiate in markets.

We don't charge the employees any fees.

So if you compare our wallet to some of the third-party wallet in markets, they charge a certain amount per month per active wallet holder or cardholder.

We don't do that.

We don't charge any direct fees for usage of the wallet.

So there's no fees to loan money in.

There's no fees to effectively spend on the actual wallet either.

And so we had expected that.

And our belief is that in the longer term, this construct of a pay period, which, as you know, weekly, biweekly, in some cases, even monthly, no makes -- no longer makes any sense.

People should have access to their earned wages as they earn it.

Great.

And then just maybe turning to margins and sort of the comments around 2021.

Can you help us think about the sort of the puts and takes between sort of the step-up investment and the fact that float revenue is going to be lower?

Would margins excluding float, could they go higher in 2021?

Or did the investments offset that?

So from a margin perspective, the metric we look at most is our gross profit on recurring revenue on Cloud.

As you know, that went up by 200 basis points or 380 basis points ex-float in Q4.

We would expect to see that metric continue to grow into 2021.

In terms of EBITDA margins, it's another year that we do have headwinds.

If we do look at it -- if I look at just Q4 alone relative to the prior Q4, the impact of employees and employment levels was about $9.5 million as compared to Q4 of 2019, and we had a float headwind of about $7 million compared to 2019.

When we look at Q1, we go in again with headwinds from the employment side.

I believe Jeremy, correct me, or Noemie correct me if I'm wrong, of about $6.5 million.

Yes.

And from a float perspective, I think we actually go in at least, from a Q1 perspective, of about a $9 million total of float headwind.

If you divide it out between Dayforce and Powerpay, it's about 6 and 3, respectively.

Now obviously, as we start to get into Q2, Q3, Q4, on a normalized basis, it becomes a little bit more even because we are operating in 2 COVID years.

Yes.

And maybe if I can add to the color on margins and some of the investments we're making.

I think we're looking beyond 2021.

As David mentioned earlier, there's a lot of opportunities with customers globally as well as customers in the market, and we're definitely investing in our product capabilities to support those customers.

And we're also investing in sales and marketing to go after that massive TAM that we haven't yet tackled.

So I think that's really important.

We're making conscious decisions to invest to fuel the growth of Dayforce recurring in the future because that's really where we're betting, but I think we're also managing on the G&A side very cautiously to get scale.

So I think the combination of both, you'll see some improvements towards the back of 2021 and more in 2020.

But that's important to really focus on addressing the growth that we have and then looking at the global opportunities and the expansion of the product capabilities.

I think that's critical for we want to understand.

Next question is going to come from Bryan Bergin at Cowen.

All right.

I wanted to start with Ascender.

David, can you talk about the strategy with this one as far as whether it was really targeted for the in-country expertise and to migrate the clients over to Dayforce versus -- also the attractive technology that you'll layer into?

And also, it seems like it's a larger deal than your other recent transactions.

I'm curious if this is a one-off or if this is a signal you're going to be at market for bigger transactions.

Let me start with why Ascender.

So if I look at the Ascender 1,200 customer base and employee base, the majority actually is in Australia.

In Australia, they actually have 2 products.

One of the product is in education and in government, which are new verticals for us in market.

They have an exceptionally strong team when it comes to domain knowledge around payroll, which will help us significantly in the A&D space because, as you know, one of our constraints always for growth is just having great people around who can help implement and support our products.

The plan for Ascender is no different than what we've spoken about historically that the technology stack is largely dated as compared to Dayforce.

And so over a period of time, it provides a movement opportunity towards Dayforce.

And as we do that, we would expect also to have the ability to upsell them on time and attendance, workforce management, talent acquisition, performance, comp, engagement and the like.

So tremendous cross-sell ability.

The other point about Ascender is when we combine it, as I mentioned, with Excelity, we do become the dominant player in the APJ region.

And if I look at the APJ region, it's probably about 25% of the global TAM when you look at human capital management systems, and it's probably the fastest-growing regions as well.

So it gives us a significant, if you like, presence inside the actual region.

And already, we've seen impact of the Excelity acquisition in helping us win not only accounts in APJ, but other global accounts where both companies had significant headcount in the APJ region.

So it fits very, very nicely.

In terms of the future, we'll continue to look for opportunities in-country where we can find great people, customers that provide that opportunity to move to Dayforce and to upsell and to get the local knowledge, if you like, with inside the actual marketplace.

So it's -- what I would say about Ascender, it's very much in line with what we communicated to the market well over a year ago.

Okay.

And then a follow-up here around the Bureau.

Can you comment on what the Bureau migration benefit to Dayforce was in fiscal '20 and what's left in the Bureau that you expect to be potentially convertible here in the future?

At what point is it based out at?

So the numbers for 2020 were 5.8, 5.8, 5.1 and 4.1 -- sorry, 4.4 across the year.

As we go into next year, obviously, we're going to start to see lower numbers as we come into the actual end.

And by the end of 2021, they effectively should be almost no Bureau revenue as it relates to payroll.

Noemie or Jeremy, anything that you would add to color about what remains at the end of the year.

No.

On that, David, I think you covered it all.

But on Ascender, the other point I would make on the acquisition and why it's very relevant for us is on the global operating model that we are trying to build.

I mean, we've been so far North American Canadian company centered around serving customers globally.

And now if you start to add Excelity, RITEQ and now Ascender, we're really building a region in APJ to serve our customers locally with the robust partners ecosystem, and we have a strong leadership that's going to come on board as well with deep knowledge of the customer.

So I think that's also very critical for us in that regard as we're building a real global company.

So I just wanted to highlight that for you as well.

But I really think you covered it all, David.

The next question comes from the line of Mark Murphy, Mark at JPM.

Going back to the comment about the impact from the second wave of COVID is certainly understandable.

Can you help us understand maybe how many transactions in total you were looking at or the dollar value bookings that closed in January?

And I think, more importantly, just is your suspicion -- are you trying to convey that you are past the period where there would be those kinds of disruptions sounds outweigh based on your commentary, but just with vaccines rolling out and kind of the infections trending a little lower, do you think that, that might have been a bit of a one-off?

So -- and Mark, I would say, at the end of last year, we started to see fatigue, if you like, in the customer teams.

What I mean by that is that we didn't have the same urgency that we typically have at end of year where it's all hands on deck from the customer to get the contract signed.

So even though we were at black lines with the actual customers, getting that final signature was a little bit more effort than we've seen beforehand.

So shortly after New Year, those transactions close, we're talking about a handful of customers, 3 or 4 large transactions that moved over into the January.

In terms of COVID, we didn't see the recovery that we had expected in Q4.

And as I mentioned, we had thought that the headwinds in terms of employment numbers would improve between $1 million to $2 million in Q4.

In reality, we only saw about $0.5 million of recovery.

And so we are still seeing impact of COVID, if you like, in Q1 in terms of employment counts.

We do believe, though, by the second half of the year, we should be through that.

In the U.S., already, I would say, it looks like -- and we've seen the numbers being published that the employment numbers in the U.S. seem to be going up.

Canada, though, it's a little bit behind because I think you know the vaccine rollout in Canada hasn't been as successful as it is in the U.S.

Okay.

If I can sneak in a quick follow-up.

I think that the growth in the Dayforce revenue per customer that you've listed here, 8.5% during 2020, it's quite impressive, that has to be well above your peer group.

Is it possible to just unpack that in terms of how much is larger customers you brought on that are lifting that average up versus how much of that is the existing base kind of absorbing more of your technologies?

So it's -- look, if I look at the ratios at the end of the year, it still was about 53% in kind of the mid-major markets and about 35% in the enterprise side.

What we are seeing, though, is tremendous upsell across our customer base.

Now if I go back a year ago, when we spoke about add-ons, we typically were speaking about additional modules that we're adding to the customer.

Now we're also seeing the impact of global.

So last year, the add-ons were about 20%.

If I look at Q4, we were at 25%, and I would say that probably is the impact of the global employee populations that we're actually adding on to Dayforce.

The other point that I've mentioned that if I look at the actual growth in terms of employment accounts, we obviously are up about 9%, I believe, in terms of the average size in Q4.

But remember, that is after taking into account the employment headwinds that we typically wouldn't have had and the float headwind.

So if you actually corrected from that, I think it actually would have been even more significant.

Other metrics that I really do think are impressive that even in a COVID year, our retention rate remained around 96% on Cloud.

And if I look at our net retention rate, we remained at about 106%.

And I think those are very, very strong numbers.

Next question comes from the line of Arvind Ramnani from Piper Sandler.

I wanted to really kind of go back to digital wallet.

You've provided some good color on it.

And also, part of my research has suggested that reception for On-Demand Pay continues to grow, and you'll really have a compelling solution.

Can you talk about some of your customer conversations in terms of your -- are customers kind of looking at your digital wallet as a reason to (inaudible) versus the competitor?

How much is it helping on the win rates?

And even if the metrics are not high in terms of actually usage, is this kind of like a secular driver where we are in the early stages, and the next 2, 3 years will become fairly mainstream?

So it definitely is having an impact on our win rate on Dayforce.

As I mentioned, we've seen about an 80% attachment rate of wallet to new customers.

The metrics that we now also have, if I look at -- remember, when we build a module, we've used the same methodology from a very onset, which is what are the KPIs we can impact at the customer through use of the actual module and how does an improvement in that KPI translates into dollar or money benefit for the customer.

And so when I look at the actual wallet metrics that we're now able to look at, and we get that by looking at wallet users versus the general population of our customers, and we obviously have almost 5,000 customers now.

So we have a big group we did a test in.

We're seeing the benefit on the talent acquisition side and on retention side.

And just the retention side alone, I mean, if you actually run through the numbers, you get a 42% reduction in voluntary turnover.

And if you just make the math easy, you say, okay, a person makes $50,000.

We're looking at typically a 10% voluntary attrition rate at a company.

If they have 1,000 employees, that means that they typically would lose about 100 people per year.

If we can impact that by reducing that by 40%, that means that we can save them 40 people.

The cost of replacing each of those people is probably 25% of their salary.

So 12.5 $1,000 per person, times 40 people, right?

And that's obviously a big number.

That's about 100,000 just from the use of the wallet in that particular customer.

So you're beginning to see the ROI.

And again, it ties back to the whole premise we have to create quantifiable value for our customers.

Now with wallet, we extend that onto the employee side as well.

Because when an employee actually begins to use a wallet, they get access to their funds continually.

So if you have a credit card bill that comes due in the middle of the month between pay periods, this allows you to pay off your credit card as opposed to doing the minimum payment paying the interest of 22% on the full balance.

And also, if you are someone who is really a non-bank employee or you paycheck to paycheck, it allows you to avoid those very extensive fees of going to payday loan or to actually other types of extensive types of borrowing.

And when we look at the way that we built the wallet, it leverages that continuous pay engine that we have with inside Dayforce.

Remember, as we compare to any other competitor in market, with us, we have one system with one rule engine, so that's continually throughout the pay period, we calculate your net earnings.

The wallet allows the employee to see how much they've made net of other deductions and taxes added to the Dayforce wallet, go off and spend it.

We don't charge the customer anything for the use of the wallet.

We don't have them change the way that they fund their payroll.

They still fund at the end of the actual payroll cycle.

We don't charge the employee any direct fees or the usage of the actual wallet to load money onto the actual wallet or to actually do the spend.

So again, we're creating tremendous value for the employees of our customers as well as for the customer base.

And that is a big differentiation relative to anyone else in the market.

Yes.

Yes.

Absolutely.

That's an incredible success, and I appreciate providing the detailed metrics.

Given the high ROI, philosophically, will wallet always be essentially a free product?

Or at some point, when there's broad enough usage, there may be some fees?

Or are you just going to look at like changing (inaudible)?

I think fundamentally, we would have just a kind of, let's call an ESG, a challenge of actually charging employees for the usage of the wallet.

I think that will go counter to what we're trying to do.

Remember, our brand promises to make work-life better.

And I don't think charging those employees, especially those employees who can't afford to pay usage of the wallet, I think that is actually ethically wrong.

So the intent to be here is to make sure that we design the wallet in the way that we can benefit from the interchange, at least in North America, that funds the wallet and allows us to make a nice profit through the use of the wallet.

Our next question comes from Josh Reilly, who's in for Scott Berg at Needham.

So I was curious, what are you guys seeing with usage trends on the platform during the pandemic now that you have several quarters of data points here?

Are there any modules that might be surging in activity or upselling better than the pre-pandemic period?

And then are you using any of that data in the sales process to cross-sell complementary modules?

So we've obviously seen a lift in terms of add-ons, as I've mentioned, in 2020.

In 2019, we averaged about 20% of our monthly sales were add-ons to the base.

That grew to 25% in 2020.

And part of that was the global add to the employee bases, but we obviously did see as well additional module add-ons.

The type of add-ons that we typically saw were typically things around learning management, performance management, the compensation, the engagement surveys.

If I look into 2021, very optimistic about what we're going to see in terms of the hub and the hub plus that are coming out.

I believe we'll continue to see benefit from the benefit intelligence that we released at the end of last year, which again focused on that quantifiable value and very, very strong ROI for the customers.

So Josh, we did see obviously more usage across the modules and feels a general trend for more digitization across our customer base.

Okay.

Great.

And then just one follow-up.

International outside of Canada obviously has been growing as an opportunity here given the M&A activity and investments in native payroll.

How should we think about what regions you're going to be targeting for sales and marketing investments here in 2021?

Obviously, we focused on APJ, but is there anything else that we should be aware of where there's a pretty meaningful opportunity here?

Well, obviously, we're building out major pay for Germany at the moment.

We've been quite successful in market with our workforce management product inside that particular region.

And so you'll see us do a lot more investments in Germany and the surrounding countries.

Next question comes from the line of Yao Chew at Crédit Suisse.

David, I have one philosophical one for you on M&A.

I can't imagine you have the only one hunting for these assets out there.

Can you help us explain how Ceridian is differentiated or advantaged as a buyer versus the either sponsors or local acquirers and maybe looking at the same assets that you are?

I think a lot of it comes down to what we can actually offer the employees or those particular customers.

I think if you look at us compared to where they typically would land up with the companies, for a lot more attractive options.

Remember, if you look at the history of Ceridian today, it really started with the acquisition of Dayforce.

And if you look at how we leverage the people from Dayforce, myself, would be an example of that, in creating really significant career opportunities with inside the really an organization.

And as Noemie mentioned, a large part of doing the Ascender acquisition was that we are now beginning to transition from that North American company operating globally to really a more of a regional model.

And Ascender gives us really critical mass inside the APJ region, which again further differentiates us from the other players inside the actual market.

On the global side, I do believe we have a significant opportunity to be differentiated in terms of our technology platform and how we can actually, if you like, leverage the people that we see inside country to win more and more customers.

That's great.

And if I may, just have one quick follow-up on the pricing environment.

Can you speak at a high level just how pricing has trended more broadly and the competitive dynamic?

Are you seeing rationalizing the marketplace?

Do you expect pricing to recover from what you might call depressed second half COVID levels?

How you just conceptually approach pricing and competition here?

I don't think that pricing really changed in 2020 as compared to 2019.

What I would say is it came down to more to contract terms as us and others provide more flexible terms to our customers starting in Q2 of last year just given the inherent risk of COVID.

Next question comes from Kevin Kumar who's in for Chris Merwin at Goldman Sachs.

Question on Powerpay.

How should we think about COVID and employment impacts to that business and the trajectory of growth?

Should we think of it similar to Dayforce seeing kind of a rebound in the back half of '21?

I think that Powerpay is going to be under more pressure than Dayforce because it largely is -- what only is a small business in Canada.

And if we look at Canada, the largest markets that we have, which would be Toronto and Montreal, are both under lockdown.

So we are seeing more revenue pressure on Powerpay than we are seen on Dayforce.

To kind of quantify it.

When we actually look towards Q1, the headwind, I believe, for Powerpay, Jeremy, is going to be what about a $3 million or so?

Yes.

That's correct.

Going into Q1.

Whereas we look at Dayforce, which is a much more significant revenue stream in aggregate, is about $6.5 million.

So it's obviously -- Powerpay is still feeling covering much more than we are seeing with Dayforce.

And now I think the recovery is largely determined on the Canadians really getting the act together in terms of vaccine distribution.

And currently, it looks like the expectation is that they'll be able to provide vaccines to everyone who wants it by the end of Q3, which is somewhat in line with the U.S., although it's going to start probably a quarter later.

Next question comes from Brad Clark at BMO.

Just wanted to revisit Cloud revenue retention rate tick down a little bit compared to 2020.

Just want to understand how much was employment impacting that metric versus other factors in the market.

Sure.

So the employment would actually impact really the net retention rate, which effectively remain constant around 106 about -- on the average, if you add on less the unemployment numbers, you basically net it to the same amount.

In terms of the actual retention rate, it came in at kind of 195.8 relative to 96.3 the year before or 96 the year before that.

So largely around 96% over the last 3 years.

It was impacted by some of the small business losses that we saw on Dayforce that were linked to very small Powerpay customers that went out of business.

Next question comes from Matt Pfau at William Blair.

Just wanted to ask on the international expansion strategy.

So you kind of seem to be taking 2 different approaches with Europe a bit more organic in terms of the build-out and Asia Pac a bit more driven by acquisitions.

So maybe just the rationale behind the different strategies there.

And then also in terms of the partner program, any difference in how you think about that between the 2 different regions?

Yes.

So actually, in reality, they're not that different.

So if I look at UKI, we built out native payroll for first the U.K. and then we extended into Ireland.

And we've been very successful there, but we started with a little bit more momentum given the history that we had inside the country beforehand.

In Australia, we started off by building native, time and payroll for the ANZ market.

We've entered an acquisition of RITEQ, which largely was to get people who understood the workforce management side to allow us to continue doing implementations inside the region.

Excelity and Ascender slightly different because we were expanding our scope outside of ANZ into the broader APJ type of region.

And particularly with Ascender, we're picking up a wonderful team of really experienced people in the ANZ marketplace that we do believe will further differentiated but also allow us to continue to grow inside that region.

When we look more broadly on the global market, you'll continue to see that we're building out major pay for Germany.

That doesn't mean that we weren't, looking for some of the types of assets around that particular type of region.

We still have to ourself looking towards Latin America and other parts of Europe.

The world is a big place.

So there are lots and lots of opportunities out there.

And I do believe that the Dayforce global strategy from a technology platform perspective is very differentiated with the other players in market.

Got it.

And then in terms of the partner strategy, any difference between the different regions?

Sorry.

That's a great question.

I'm sorry.

Noemie mentioned that beforehand, another very attractive piece of both Ascender and Excelity where both the software partners and the SI partnerships that we picked up with that.

And just on the SI side, we've made tremendous progress in terms of building out a network of system integrators, many of them being the large global SIs.

If we look at it, I would say it's not really differentiated by a region, but largely by size of customer.

But as we begin to play more and more in that large enterprise space, you'll see us doing much more work with the large system integrators.

And the shareholder letter report are one example, which was a government opportunity that we actually partnered with a system integrator.

In fact, they are leading, and they led the contracts for that particular account.

Our next question comes from the line of Chris Silvestre from Veritas.

Just another one on wallet, if you don't mind.

Of course, like the digital wallet space is very active right now, and Ceridian seems to be in a very privileged position with what seems like a captive audience.

So just wondering whether you see an opportunity to add some more of the typical wallet functionality that's proven really popular over the past year and help some of these other wallets kind of achieve virality and really explosive growth like peer-to-peer transfers, and I know this is more of a stretch but digital currencies and whatnot.

So that's kind of part one.

And I know you need critical mass, which leads me to my second question.

Why not

(technical difficulty)

of wallet?

I mean, what...

Sorry.

Chris, you seem to have frozen up on the second part of your question.

But in terms of your first question, yes, we are adding the typical wallet features that you would see, things like bill pay, peer-to-peer transfers, OCT transfers.

Another area that we do have a large differentiation is really around direct deposit.

And so as we're adding more and more pay card capability to the actual wallet technology should allow us to actually capture even more, if you like, usage of the actual wallet.

What I will say about wallet is we brought on a very seasoned individual in the -- in Q4.

He joined us from Green Dot.

[Seth] has, obviously, wonderful, tremendous experience on the consumer side as it pertains to wallet technology.

chris, I see you're still there.

It looks like you're having network issues, but you want to try to maybe ask your second part of your question again?

Yes.

Sorry about that.

So the second question is, I guess, I know you need some like critical mass for some of the peer-to-peer stuff.

And I'm just wondering, why not accelerate the rollout of wallet?

I mean, what prevents you from reaching out to all the customers and just turning it on right away for anyone who wants to use it?

Is it just -- what's the limiting factor there?

Well, remember, we only launched the wallet in May of last year.

And so for us, it's making sure that we do it properly.

We create value for our customers and for our employees, that we will make sure that the experience is tremendous.

Remember, from our perspective, when we look at building the product, and we talk about user experience, we don't just think, hey, we have to have a really easy-to-use mobile app, which we do.

We think really how do we benefit the employee by giving them continual access to their earned wages without charging them any types of fees and focus on the use cases of which most attractive to them.

But if I go out a year from now, I think you'll see these features in our wallet be very much on par with some of the other wallet vendors that you'll see in market.

Of importance for the end of Q1, we are launching now in Canada.

So at the end of Q1, we'll launch the wallet in Canada as well.

And our last question comes from the line of Stephanie Price at CIBC.

Just curious if you're seeing any change in the pace of implementations where the smaller the larger deals just given the second wave of COVID that we're going through here.

Stephanie, I think Noemie actually mentioned that earlier as well.

We actually saw an acceleration of implementations in Q4.

What I will say is, I think, again, we're differentiated in markets in that we have a robust technology.

There are almost 5,000 customers using Dayforce today.

When a customer signs up, we have a very high confidence that we can take the customer live, on time and on budget and with a very good customer experience.

And if I look at our Net Promoter Scores on implementation, year-over-year, they were up significantly.

So even during this COVID period, not have we been able to only accelerate implementations, but we also have seen much better implementation experiences as measured by NPS.

Right.

And maybe just one follow-up.

Just curious with the composition of bookings in Q4 versus Q3.

And any sense of where you think kind of the strongest demand across the client size?

It's a hard question.

We continue to do very well in major markets.

But obviously, we're seeing a lot of success in the enterprise space as well.

So I would say it's very much in line with what we saw in Q3 and probably earlier in the year as well.

That concludes the earnings call for today.

I want to thank you for joining and for the excellent questions and wish everyone have a happy -- have a good evening.

Thank you very much.

Thank you, everyone.

Have a great one.

Thank you, everyone.