Ceridian (NYSE:CDAY) Exceeds Q3 Expectations But Gross Margin Drops

Radek Strnad /
2021/11/03 4:33 pm EDT

Online payroll and human resource software provider Ceridian (NYSE:CDAY) reported Q3 FY2021 results topping analyst expectations, with revenue up 25.8% year on year to $257.2 million. Ceridian made a GAAP loss of $20.9 million, down on its loss of $0.8 million, in the same quarter last year.

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Ceridian (CDAY) Q3 FY2021 Highlights:

  • Revenue: $257.2 million vs analyst estimates of $253.5 million (1.45% beat)
  • EPS (non-GAAP): $0.05 vs analyst estimates of $0.04 (16.4% beat)
  • The company reconfirmed revenue guidance for the full year, at $1.01 billion at the midpoint
  • Free cash flow of $11.4 million, roughly flat from previous quarter
  • Customers: 5,227, up from 5,164 in previous quarter
  • Gross Margin (GAAP): 36.1%, down from 43.3% same quarter last year

"I am pleased to report that our business continues to perform well, and in the third quarter, we made strong progress against our growth objectives and financial guidance for the year," said David Ossip, Chair and Chief Executive Officer of Ceridian.

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

Ceridian benefits from 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.

Sales Growth

As you can see below, Ceridian's revenue growth has been decent over the last year, growing from quarterly revenue of $204.4 million, to $257.2 million.

Ceridian Total Revenue

This quarter, Ceridian's quarterly revenue was up a very solid 25.8% year on year, which is above average for the company. But the growth did slow down compared to last quarter, as the revenue increased by just $6.8 million in Q3, compared to $15.9 million in Q2 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 18.6% over the next twelve months, although estimates are likely to change post earnings.

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Customer Growth

You can see below that Ceridian reported 5,227 customers at the end of the quarter, an increase of 63 on last quarter. That is a bit slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing a little bit.

Ceridian Customers

Key Takeaways from Ceridian's Q3 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Ceridian’s balance sheet, but we note that with a market capitalization of $19.5 billion and more than $378.8 million in cash, the company has the capacity to continue to prioritize growth over profitability.

Ceridian delivered solid revenue growth this quarter. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. Less good was the pretty significant deterioration in gross margin and slowdown in customer growth. Overall, it seems to us that this was a mixed quarter for Ceridian. The company is down 1.79% on the results and currently trades at $126.01 per share.

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