Ceridian (NYSE:CDAY) Exceeds Q1 Expectations But Quarterly Guidance Underwhelms

Jabin Bastian /
2023/05/03 4:26 pm EDT

Online payroll and human resource software provider Ceridian (NYSE:CDAY) reported Q1 FY2023 results that beat analyst expectations, with revenue up 26.4% year on year to $370.6 million. However, guidance for the next quarter was less impressive, coming in at $358 million at the midpoint, being 1.44% below analyst estimates. Ceridian made a GAAP profit of $9.9 million, improving on its loss of $27.4 million, in the same quarter last year.

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Ceridian (CDAY) Q1 FY2023 Highlights:

  • Revenue: $370.6 million vs analyst estimates of $361.2 million (2.6% beat)
  • EPS (non-GAAP): -$0.18 vs analyst estimates of $0.32
  • Revenue guidance for Q2 2023 is $358 million at the midpoint, below analyst estimates of $363.2 million
  • The company reconfirmed revenue guidance for the full year, at $1.49 billion at the midpoint
  • Free cash flow was negative $17.1 million, down from positive free cash flow of $32 million in previous quarter
  • Customers: 6,179,000, up from 5,993,000 in previous quarter
  • Gross Margin (GAAP): 43.3%, down from 44.6% same quarter last year

“I am very pleased with our performance in the first quarter – as Dayforce recurring revenue grew 44% or 46% on a constant currency basis and we exceeded our profitability objectives,” said David Ossip, Chair and Co-CEO of Ceridian.

Founded in 1992 as an outsourced payroll processor and transformed after the 2012 acquisition of Dayforce, Ceridian (NYSE:CDAY) is a provider of cloud based payroll and HR software targeted at mid-sized businesses.

HR software benefits from dual trends around costs savings and ease of use. First is the SaaS-ification of businesses, large and small, who much prefer the flexibility of cloud-based, web-browser delivered software paid for on a subscription basis than the hassle and expense of purchasing and managing on-premise enterprise software. Second is the consumerization of business software, whereby multiple standalone processes like payroll processing and compliance are aggregated into a single, easy to use platforms.

Sales Growth

As you can see below, Ceridian's revenue growth has been strong over the last two years, growing from quarterly revenue of $234.5 million in Q1 FY2021, to $370.6 million.

Ceridian Total Revenue

This quarter, Ceridian's quarterly revenue was once again up a very solid 26.4% year on year. On top of that, revenue increased $34.5 million quarter on quarter, a very strong improvement on the $20.5 million increase in Q4 2022, which shows re-acceleration of growth, and is great to see.

Guidance for the next quarter indicates Ceridian is expecting revenue to grow 18.9% year on year to $358 million, in line with the 20.3% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 16.9% over the next twelve months.

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Customer Growth

You can see below that Ceridian reported 6,179,000 customers at the end of the quarter, an increase of 186,000 on last quarter. That is a little better customer growth than last quarter and quite a bit above the typical customer growth we have seen lately, demonstrating that the business itself has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well.

Ceridian Customers

Key Takeaways from Ceridian's Q1 Results

With a market capitalization of $9.81 billion Ceridian is among smaller companies, but its more than $428.6 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

It was great to see that Ceridian’s customer growth is accelerating. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and gross margin deteriorated. Overall, this quarter's results could have been better. The company is down 2.65% on the results and currently trades at $61 per share.

Ceridian may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.