Ceridian HCM Holding Inc. Presents at Deutsche Bank Technology Conference 2018, Sep-13-2018 09 - 20 AM

Ceridian HCM Holding Inc.
NYSE:CDAY
Company Conference
Presentation
Thursday, September 13, 2018 5:20 PM GMT
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Contents
Table of Contents
Call Participants .................................................................................. 3
Presentation .................................................................................. 4
Question and Answer .................................................................................. 5
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CERIDIAN HCM HOLDING INC. COMPANY CONFERENCE PRESENTATION | SEP 13, 2018
Call Participants
EXECUTIVES
David D. Ossip
Chairman & CEO
ANALYSTS
Michael Turrin
Unknown Analyst
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Presentation
Michael Turrin
Good morning, everyone. We'll go ahead and get started with our next session. This is day 2 of the
Deutsche Bank Technology Conference here in Las Vegas. Thanks for joining us. I'm Michael Turrin on the
software research team here at DB.
We're very pleased to have David Ossip, CEO of Ceridian. To those who are less familiar, Ceridian, global
HCM software provider, undergone a transformation via the 2012 acquisition of Dayforce. And so I think,
that's a natural place to start here, David.
Question and Answer

Michael Turrin
Can you walk us through the evolution of the company? What's changed since you've come onboard? And
the trajectory of the company as it currently stands?
David D. Ossip
Chairman & CEO
Sure, Mike. Really, the story is -- started in 2009. And I apologize for those of you who know the story. In
2009, my non-compete in my prior company had ended, and I looked at reentering the space. And when I
look at the HCM space, particularly payroll space, I liked the characteristics of it. Very, very large market,
consistent requirement regardless of company, industry or size of company. So from a cloud perspective,
very -- are very attractive.
When I looked at the average life of customer across all the vendors, the average life typically was above
10 years. So from an LTV perspective, very strong numbers.
Also, when I looked at the space, there seemed to be an opportunity to build a platform. In other words,
get the customer for workforce management or payroll, and then layer on top of that the talent modules,
recruiting performance, comp and et cetera, which would increase your recurring revenue, but wouldn't
impact your bottom line. So you'll be -- have very attractive profitability levels, if you like.
So at that point, I started to look at the industry. And my question was, is there a vector I could use
to enter the space? And what I noticed was that, the basic workflow between time and attendance and
payroll, HR and payroll and time wasn't optimal. Effectively, the payroll people couldn't get access to their
data with enough time to do the quality check on the data entry required to pay people accurately. And
that was because the data resided in the time system for the duration of the pay period, which is typically
a week or a 2-week period. So during that period, data's stuck in time. But 18 hours after the end of the
pay period, they would export it, import it into the payroll system, process the actual data. And by the
time that payroll people could access the data, they had a very short window, just a few hours to do what
is required. And so as a result, people were not being paid correctly and compliance issues and such. And
so the idea was to solve that by building a single application to do HR, payroll, benefits, time and to enter
the market with that advantage.
To enter the market, I had 2 options: I could enter by myself with Dayforce or I could look for a
partner. And when I did a market sweep, I liked what I saw in Ceridian. Ceridian had very good service
characteristics, but hadn't had any tech innovation for probably a 20-year period. At the time, Ceridian
was basically declining. I approached the owners of Ceridian, which was Thomas Lee and Fidelity National
Financial, with the idea of Ceridian buying Dayforce, me taking over the organization. And that happened
in mid-2012.
From that point on, we had a relatively simple strategy, which was, first, we were going to simplify
the business by divesting everything that wasn't related to the growth of our Cloud human capital
management business. We've done that very successfully today. 72 -- or 71% of our businesses is Cloud
revenue.
The second priority was, that we were going to reinvent the culture of the organization. And again, we
did that very nicely. Our Glassdoor rating today are about 4.3, 4.4 Top 100 Company To Work For in both
the U.S. and Canada. We've won almost every type of employee engagement culture award. And that's
important, because the employee engagement has led to a tremendous client experience, and the client
experience that has led to referenceability and such.
And last -- the last priority was to complete the Dayforce platform. And again, we did that very nicely.
We had probably the widest native platform in the human capital management industry today. We cover
everything from recruiting, onboarding, performance, compensation, learning management. At our
customer conference in October, we'll be showing succession planning and surveys. We've got very deep
payroll capability, both in the U.S., Canada as well recently, we've launched in the U.K. with native payroll
capability, and we have a ConnectedPay product on Dayforce as well, which allows us to do payroll in
about 50 countries across the world, too.
We have very deep workforce management, which is everything from labor planning, scheduling,
schedule optimization, time and attendance. We're viewed, by the way, #1 in the industry for workforce
management, and we have been ranked by almost every analyst as #1 for the last 5 years. And we are
very excited. This is a nice story.
By the numbers, I think most people know it. Q2 results were very strong. Dayforce, our revenue went up
by about 40%. EBITDA went up by about 49% year-over-year. So we're quite excited.
Michael Turrin
Excellent. Forgot to mention the Top CEO rating on Glassdoor as well, so I'll add that in.
David D. Ossip
Chairman & CEO
Thank you, Mike.
Michael Turrin
Congratulations on that. So we'll dive into some of the aspects of the model in a minute. But just staying
at the high level, market segmentation, can you just remind us how you segment the market, which
segments you're focused on, and then the competitive landscape within those segments?
David D. Ossip
Chairman & CEO
Sure. We see effectively 3 segments inside the market. We don't play in the very small, which is that
under about 300-employee space. So our small- to mid-market goes from about 300 to about 1,500
employees. In that particular space, we typically sell the 4 human capital management suites. So we get
our highest per employee per month revenue in that particular segment. The competitors that we see over
there are largely Ulti and ADP. Both are great companies. Both are doing very, very nicely.
In the large market space, for us, really starts at about 1,500 employees and goes up to about 6,000.
Again, in that space, we typically see the full suite of human capital management, pretty much the same
competitors.
And then in the large enterprise space, which is a new space for us -- although we have been successful
with some great deployments at companies like BlackRock and American Express, et cetera. In that
particular market, we do play alongside the ERP, usually competing again against ADP and Ulti. In that
market, it's largely a best-of-breed environment, where the core HR usually is part of the ERP system. And
we will do the compliance modules, so pay, ben and time. And then we compete with the best-of-breed
vendors for recruiting, performance, compensation, succession, learning management and the like.
Michael Turrin
Okay, great. That's helpful. And then key differentiators of the Dayforce product. We've heard a few.
The ability to handle mobile and some of the complex tax and payroll issues are some of the aspects
that we've heard highlighted. But from your perspective, what are some of the key selection criteria or
differentiators for the Dayforce product?
David D. Ossip
Chairman & CEO
Sure. So what we're finding is resonating very well is that Ceridian is a perfect example of how an
organization can use Dayforce to impact culture. And in many ways, Dayforce has become culture, and
we're an example of how to use Dayforce to create that culture of innovation and get great impact.
From a product perspective, we are one application with one database with a continuous calculation
engine, which means that any time you modify an HR record, a benefit record, a time record, we calculate
net earnings immediately. That, from a customer perspective, saves an amazing amount of time. You go
from processes that take 2 days to 2 hours. It's that dramatic. And in the market, we seem to be the only
ones who have that capability, and I don't see the other vendors of closing that gap in the short term.
That calculation engine, and the fact that we have access to all pieces of the data, allows us to do
compliance calculations better than the others. For example, if I'm doing things like, FLSA Overtime,
where the numerator comes from payroll and the denominator comes from workforce management, we
do that very well. FLSA Overtime, by the way, is if I give you a bonus going back a few weeks, I have
to recalculate your average overtime rate and apply that new average overtime rate to every piece of
overtime that's been worked over the last period of time, and then generate a retro adjustment for you in
the current paper that has the delta. And that's very complicated to do.
If we get into things like the Affordable Care Act, where eligibility come from workforce, management
and HR, affordability comes from your W-2 as well as the benefit module. We have the ability to do those
calculations in the reporting very, very naturally as opposed to pulling data from various systems, trying to
stage it up and the like.
Michael Turrin
Helpful. One of the other unique characteristics of the model is that the sales force hasn't seen dramatic
change in a number of years. So I'd like to spend a moment on that, and then the allocation of some of
the incremental investments you're making, the prioritization of those.
David D. Ossip
Chairman & CEO
So the IPO, obviously, was to restructure the balance sheet, and that went nicely. Prior to that, we
were somewhat capital constrained. So we got the growth out of the Dayforce side really by increasing
productivity of the sellers. We didn't increase the size of the sales force throughout the last 4, 5 years.
And even so, we managed to have a compounded annual growth rate of Dayforce of about 60% over that
period of time.
Where we are at the moment, if you all start to see us make some investments in the sales force, we're
allocating them mostly to white space. So recently, we brought on Leagh Turner as our President. Leagh
joins us from SAP, where she was the Global COO of Strategic Account; and prior to that, she the Global
COO of EMEA; and before that, the Global COO of Canada. She has a lot of experience in the strategic
sector, and she has a lot of experience in running sales organizations, several size the side -- several
times the size of ours. And so I would expect to see us investing more into the strategic sectors, so say,
about 10,000-employee segment, where we are some investments. And on these investments, they are
higher-return investments. In other words, they are investments that we believe will lead to short-term
ACV growth. We've started to add BDEs. BDEs are the guide to do the outbound calling to identify the
opportunities. We've done that both in North America as well as now in the U.K.
The second thing we did is, we've increased the number of HCM summits that we're doing this year. These
HCM summits are where we're bringing in a group of prospects, anywhere between, say, 100 and a few
hundred. And we have 5 customers speak at each of the summit, and the customers effectively speak
about, why do they select Dayforce? What is the implementation like? What's it like to work with Ceridian?
And what's the ROI of the project?
This year, we started off in San Diego, where the San Diego Zoo opened. We then had one in Denver
with the Denver Broncos. We then had it in New York, where we had Spirit Aero Sciences (sic) [ Spirit
AeroSystems ]. They make the single-body jets. We then had one in Chicago, and we then had one more
recently in London. We have one more coming at the end of the year, which will be in Orlando, and we
have our customer summit, which we've also invested a bit more funds at, which is in October in Vegas.
Michael Turrin
And the number of those this year was a pretty notable expansion from the number you've had in the last
year. And so do you feel that number could expand into next year as well? Or...
David D. Ossip
Chairman & CEO
I think we'll continue to work on the experience side of our customers, which is what this summit is. I
mean, each summit effectively has 5 customers that speak. And each -- as I mentioned before, we've
had a laser focus on our own external culture using our products, and that led to a much better customer
experience. And so we're -- we have many client advocates, and we find it's a very effective way to
communicate the benefits of the platform.
Michael Turrin
Okay, great. You mentioned a couple of aspects of Q2 in earnings. But I think a couple of questions came
up more than the rest. And so wanted to give you an opportunity to address those again. And so the first
one is just this -- the sequential trajectory of accruing revenue. Q1 had some impacts, and Q2 had some
impacts as well. So thinking about the sequential trajectory of that number, can you just walk through
some of the puts and takes?
David D. Ossip
Chairman & CEO
So when we look at our business, there is some seasonality to some of the quarters. In particular, in Q1,
you have some print business relating to the W-2s in the U.S. and the T4s in Canada. As well, we do have
a float business. And float balances go up in Q1 because of the bonus payments, so just to be clear, kind
of a bump that you get in Q1.
If you look at the growth of the business, I think it's very healthy. As I mentioned before, Dayforce growth
in Q2 was up 40% year-over-year, which is obviously very strong.
And the other part as well is on the EBITDA side. We've seen tremendous improvement as well. EBITDA
was up 49% year-over-year. That's largely been driven by the improvement in gross profit on the Ceridian
revenue, and as well the improvements that we're seeing on the professional services and other line as
well.
Michael Turrin
Yes. Okay. And then, how are you thinking about that balance, right? There's some natural balance on the
margin side, but there's also a big opportunity to invest here. You -- with respect to guidance, the revenue
numbers came up, EBITDA guidance holds. And so there's an opportunity to drive incremental investment
just as you're -- as you're thinking about that balance, love to hear more.
David D. Ossip
Chairman & CEO
Well, I think we've heard strongly from the investment community that they like the growth story. And
that the investments and growth are appreciated. And so the messaging around Q2 was the start of that.
To put it in perspective, we didn't take down EBITDA guidance. EBITDA has been -- is up 49% year-over-
year. What we effectively said is we're going to make several high-return investments with the overage.
And Q2 was up by about -- it exceeded kind of guidance by about $5 million or so. And that's the amount
that we basically said we're going to invest.
Michael Turrin
Yes. Makes sense. International expansion, I want to talk a little bit about the opportunity there. You
alluded to the HCM summit in the U.K. How do you prioritize which markets to go into? And how do you
think about that as a driver for the business going forward?
David D. Ossip
Chairman & CEO

So firstly, there's tremendous opportunity in North America. And North America will be the driver of the
next few years of growth for the company. However, when we look at the company, we have to plan on a
longer-term basis. And on the longer-term basis, international will become substantial.
From the design of application, we built it as a global platform. So from the onset, we had the concept of
a global employee record. We had different cultures. We had the product localized into over 20 different
languages today. We built out global workforce management, which, in most parts of the world, is more
complicated than payroll, and the U.S. is an exception. We have global talent as well. And we've been
deploying global workforce management, global HR for quite some time.
What we've now started to do is we've started to add the native payroll capabilities in certain jurisdictions.
So we have the U.S., we have Canada, we've launched in the U.K. this year as well. An example of a
customer who went live there was BlackRock. And the advantage of a native calculation really allows
an organization to have an immediate view of their total labor cost, regardless of where someone is
working. And if I look at myself, as an example, we have R&D people in Canada, in the U.S., in Mauritius
and Glasgow. And it's very important, when we make decisions about where to add headcount, that we
take into account the full cost of those people. So if I add someone, say, in California, it might cost me
$200,000. If we add someone in Mauritius, it might cost me $28,000. And so we can make decisions
about deployment of capital more efficiently.
And other organizations are trying to do that with inside their organizations. We're now building out
native Australian payroll, which we will launch with the payroll year, which is in, I believe, April. That
will be followed by Ireland and New Zealand, just to complete those 2 regions. And we also are now
looking at other jurisdictions as to where we'll start to extend the native payroll capabilities, okay. And as
I mentioned, that's in addition to the ConnectedPay capability, which allows us to do the aggregation with
inside Dayforce, the same self-service experience for both the employees and the managers. And we are
active in about 50 different countries.
Michael Turrin
Okay, that's great. The pricing model, fairly straightforward, per employee per month. Can you talk about
some of the add-on modules that you've been layering in there? And what kind of uplift those provide as
well?
David D. Ossip
Chairman & CEO
Sure. So the general idea is that, over time, you increase the recurring revenue per employee at each
customer. And if I go back to about 2014, our target PEPM, say, for 1,000-employee company would've
been about $12 to $15.
Today, when we go into that segment, we're looking somewhere around $25 of PEPM per employer, at
realized, not at list price. The general idea is that every year, we add between 1, 2, 3 new talent modules.
So if I look at this year, we added compensation management and we added learning management. We'll
be showing, as I mentioned, succession planning at INSIGHTS, and we'll follow that up with surveys and
various types of engagement tools. And each of the modules that we add typically adds a few more dollars
of per employee per month, PEPM, potential.
If I look at our monthly sales today, to be clear, in every month, about 20% of our ACV come from add-
ons with customers that are already live on the Dayforce platform. And so you'll see us continuing to do
that. And as I mentioned, it's tremendous growth opportunity in North America just on that strategy,
which has really increased the customer acquisitions and continue winning more and more customers.
And today, we have over 3,300 customers, who are live on the Dayforce platform. And that's been done in
about a 5-year period, so very, very rapid growth.
The second piece is to sell additional modules that we already have built to the customers that are already
live. The third piece is to build new modules, and then again, go back to those customers and upsell them
on the new modules. And that's proven to be very -- a very good strategy.
Michael Turrin
Okay. Thank you. I want to leave some time for audience Q&A as well. So we have mic runners here. As
there are questions, feel free to pipe in. I think we have one here. Do we have a microphone? Great.
Unknown Analyst
Ask you just around the sequential Dayforce revenue growth that you've put up in the most recent
quarter. I think there were some concerns that it might've decelerated a little bit. But I also think that
there might have been some onetime factors that contributed to that. And I just want to give you an
opportunity to draw those out, so we can get a better sense of the Dayforce momentum, at least reported
in the subscription line.
David D. Ossip
Chairman & CEO
Yes. So again, Dayforce revenue is up 40% year-over-year. Between Q1 and Q2, there are really 3 things
that you have to normalize for: The first, as I mentioned, is that we do have a print business, which is part
of our recurring revenues, part of the annual fees of the customer. And all of that revenue comes into Q1,
and that's probably about $1 million on Dayforce, about $1 million on our Powerpay.
The second thing that comes in is that, the bonuses are paid out in Q1. So float balances go up in Q1, and
that adds a bit more revenue to the business.
And lastly, we do have a Canadian business, which is about 30% of our overall revenue. And we had a FX
headwind between Q1 to Q2, in that the Canadian dollar went down relative to the U.S. dollar between
those 2 quarters, and that's about another $1 million.
Now when we look at the business from a management perspective, we look at it more from a quarter-
over-quarter basis prior year, so a year-over-year quarter analysis. Or we look at it on a half year basis.
And if you look at it on a half year basis, the numbers are very strong. And also, remember, we increased
revenue guidance for the year, which is really an indication as to where bookings have been for the last,
say, 9 months or so.
Michael Turrin
Do you have the base of your customers as well? I'm just wondering, is there any incumbency advantage
to having those and then bringing Dayforce to those customers? Or is that sell cycle still somewhat similar
to what you see in the broader market?
David D. Ossip
Chairman & CEO
So the first point I'd make is in Q2, 82% of the growth of Dayforce was net new logos or add-on sales to
customers that are already live on the Dayforce platform. And that was consistent with the guidance we
gave, which was 15% to 20%. So the growth of Dayforce already has been from net new and add-on.
In terms of the migrations from the base, those are competitive sales. We go -- the customers go through
a full RFP. For those, we allocate a new business seller to each of those opportunities. There might be a
slight incumbent advantage, but generally, it is a full competitive sale.
Michael Turrin
Okay, helpful. And then Powerpay. I want to make sure we touch on all aspects of the business. So
maybe a bit of an overview for those who are less familiar, the opportunity there. How could it evolve and
enhance over time? Is there an opportunity to introduce new modules onto that base as well?
David D. Ossip
Chairman & CEO
So our Powerpay is our small business solution for Canada only. It's a single-instance application that's
used by somewhere close to about 35,000 to 40,000 customers, comprising about 900,000 employees.
We probably are the market leader in Canada in that segment. Us and probably ADP combined over have
low double-digit market share, and we normally compete with boxed software.
If we look at Q2 on a constant currency basis, the growth of Powerpay was about 8%. In Q1, it was about
10%. But again, that's helped by the increase in both the float balances as well as the print business. We
believe that, that should be a double-digit grower.
The way to get that there is really twofold: The first is, we're now beginning to invest a little bit more
in sales and marketing on the Powerpay product. That's effectively building out more relationships with
business associations. And it's really lead generation.
And the second piece is that there is a demand in that customer base for light HR and light talent
functionality. And we believe that if we are to build that internally, we do some sort of acqui-hire for that
particular segment. We could increase the PEPM for those 900,000 employees probably by about $1 or so.
And if we increase it by $1, that would increase the growth rate effectively by about 10%.
Michael Turrin
Okay. You shared some interesting observations with us in the past around just the unit economics of the
various segments. Can you touch on where those are highest? If intuitively, we might think the larger
customer would have the greater opportunity there. But it sounds like it's somewhere more in the middle
for you.
David D. Ossip
Chairman & CEO
Well, the unit economics are very, very attractive, regardless of segment, largely because you are dealing
with a tremendously long life of customer. You would expect the life of a customer to be well beyond 10
years.
The second reason is that, if you look at the gross profit on recurring services, we expect it to be north
of 75%, quite powerfully above the 75%. So you're effectively dealing with a very long life of customer.
There's a very profitable cash flow coming from it.
In terms of the onboarding of the customer. In the first year, you have sales and marketing and other
activation expenses, so you lose a little bit of money in the first year. And we typically try get a break
in -- breakeven on a customer of about 2 -- 2, 3 years, regardless of segment. And the levers that you
really have to play with is, what is the amount of SSO implementation? How much do I want to subsidize
implementation to get to the very profitable recurring revenue?
As we go upmarket to large enterprise size, there's more money to be had for implementations and
activations. So you take less of an initial investment in activating the customer. But on the converse, the
PEPM per employee is slightly lower. That, again, is slightly offset, that your support cost and hosting costs
for larger customers is much less than for a smaller customer. It kind of all balances out. In any segment,
the IRR calculations are exceptionally helpful.
Michael Turrin
It sounds like it. Excellent. I want to touch on just the hiring environment and how your balance bringing
on new talent with having the relatively high bar that you have. You pride yourself on strong company
culture and a good workforce. You're making some of these incremental investments. We hear all the time
across various companies and technology how difficult the hiring environment can be at certain times. And
so I just want to talk a bit about how you strike that balance.
David D. Ossip
Chairman & CEO

So first, we focus on our own internal people and our culture. And as I mentioned, we've got a fantastic
culture with inside the organization. That allows us to retain our people. So if you look at our recordable
turnover, it's effectively -- it's very, very, very low.
The -- within attracting people, we were ranked in the top 10 companies in the U.S. of places to work,
where people recommend friends to join. And you'll always find that a referral from a friend is always
a higher-quality hire than someone that you haven't -- than someone who's kind of unknown to the
organization. We've been taking advantage of that and the success of the IPO to really attract top talent
from some of the competitors and some of the other star players in the industry. For example, Leagh
Turner from SAP is an example. Erik Zimmer, who joined us from T.H. Lee. And Erik and I have worked
together very closely for about the last 6 years.
We've brought in other guys, like Steve Weintraub, who joined us. He was President of NGA, so very deep
experience. He's now running our professional services. We brought in some amazing top talent in terms
of sales from some of our direct competitors at the VP level and at the individual contributor levels as well.
And so I think our central focus on culture and really trying to be the best place for people to work in our
industry is paying dividend.
Michael Turrin
Helpful, thank you. We have a question in the audience. Is there a mic? Right here.
Unknown Analyst
David, another question, just on the sales investments. One of the, I think, super interesting things about
your story is that historically, maybe in part due to the ownership structure and the debt burden you
had, I think it's fair to say -- tell me if you agree, that Ceridian sort of under invested in sales in the past.
I mean, you've got this amazing opportunity to expand that and to take the product upstream and in
different directions. So to me, that's one of the more interesting parts of the whole story. And obviously,
you've brought Leagh in to spur that on. So as we looked out over the next couple of years, how would
you frame what that TAM expansion, if you like, can be now that you'll have a larger, more robust sales
rep effort? How should we think about maybe the timing of seeing that investment pay off? How focused
are you in moving Ceridian upstream? Maybe a little color on the opportunity set.
David D. Ossip
Chairman & CEO
So the first point that I would make is that, we've grown tremendously quickly over the last 5 years. And
in fact, I would say, up until 2017, our struggle really was scaling up operations to handle the demand,
getting through the backlog of accounts and such. And that involved everything from building out a
platform, which we have; building out a tenured workforce for implementations and for customer support;
and all of the other pieces that are involved, which I think we've done very, very nicely.
In terms of what we're doing now, so effectively, we're leveling up the organization. So by bring in people,
like Leagh and Erik, you're bringing in people that have been successful at the next level of business. So
as opposed to trying to evolve the organization, we can bring in people who know what the organization
should be set up like and how we need to adjust the various types of processes to be successful as we
continue to grow.
In terms of segmentation, our market focus historically has really been on that 700 to about 6,000
segment. And that wasn't because of product limitation. It was because that's where the historical
Ceridian sellers were focused on. And when you begin to go upmarket in strategic accounts, the sales
process is quite difficult in how you build relationships and how you do the entire sale kind of interaction
begins to change. So bringing in people, like Leagh and others, who have been very successful, allows us
now to start targeting that upper market segment.
We have already been successful with deployment. So we have a lot of referenceability in that particular
segment already. And now it's just a matter of targeting that segment and being successful.
There also, by the way, is an opportunity to take Dayforce down market. We have an implementation
method called Dayforce light, which we've been using now in Canada. And in Canada, we are active in
that 50 to 300 segment with Dayforce. And Dayforce light effectively allows us to do these deployments.
Instead of doing a bottom-up configuration, we take a preconfigured instance, and we load in the
employee data, so their employees and their departments and jobs and such. And that allows us to get
them live very, very quickly. And most of the configuration, we do out of Mauritius, about 80% of that.
And to enter the -- that segment in the U.S., it's really developing the go-to-market, resources and
strategy for that particular segment. So we can expand to that segment as well.
Michael Turrin
Excellent. Maybe we have time for one more. Just briefly, we've alluded to the fact that the company has
been more constrained in the past. Now you're having the opportunity for capital to free up over time. Can
you just remind us where you are with respect to our leverage targets? And just how you think about use
of capital as that evolution plays out?
David D. Ossip
Chairman & CEO
Sure. So by the end of the year, we'll be probably just under 3x levered. Going into next year, we'll get
into the mid-2s. On a long-term basis, I'd like to keep the leverage ratio above 2. I think that's an efficient
use of capital.
How we are going to maintain that? We'll have to be kind of -- we'll have to give that a bit more thought,
because the profitability of the company naturally increases year-over-year as the percentage of
customers that have been live on Dayforce for more than 2 years continues to increase. And that, paired
with the very healthy gross profit that we have on recurring margins, it means that EBITDA goes up very
dramatically. As I mentioned, this year, it's up about 50%. When we go into next year, it means that the
leverage ratios drop down quite dramatically. But there are some investments that we can make, more
INSIGHTS products. There might be some acqui-hires that we actually do to keep the leverage higher. The
leverage ratio is inside that level.
Michael Turrin
Excellent. David, we appreciate you joining us. Thank you.
David D. Ossip
Chairman & CEO
Great. Thank you. Thanks very much, everyone.
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