Ceridian (NYSE:CDAY) Posts Better-Than-Expected Sales In Q2, Next Quarter Growth Looks Optimistic

Jabin Bastian /
2022/08/03 4:46 pm EDT

Online payroll and human resource software provider Ceridian (NYSE:CDAY) reported results ahead of analyst expectations in the Q2 FY2022 quarter, with revenue up 20.2% year on year to $301.2 million. Guidance for next quarter's revenue was $305.5 million at the midpoint, which is 1.06% above the analyst consensus. Ceridian made a GAAP loss of $19.8 million, improving on its loss of $25.8 million, in the same quarter last year.

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Ceridian (CDAY) Q2 FY2022 Highlights:

  • Revenue: $301.2 million vs analyst estimates of $294.5 million (2.27% beat)
  • EPS (non-GAAP): $0.21 vs analyst estimates of $0.10 ($0.11 beat)
  • Revenue guidance for Q3 2022 is $305.5 million at the midpoint, above analyst estimates of $302.2 million
  • The company reconfirmed revenue guidance for the full year, at $1.22 billion at the midpoint
  • Free cash flow of $10.9 million, up from negative free cash flow of $14.4 million in previous quarter
  • Customers: 5,728, up from 5,609 in previous quarter
  • Gross Margin (GAAP): 38.5%, down from 42.5% same quarter last year

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 year, growing from quarterly revenue of $250.4 million, to $301.2 million.

Ceridian Total Revenue

This quarter, Ceridian's quarterly revenue was once again up a very solid 20.2% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $7.9 million in Q2, compared to $11.2 million in Q1 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Ceridian is expecting revenue to grow 18.7% year on year to $305.5 million, slowing down from the 25.8% 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 16.1% over the next twelve months.

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Customer Growth

You can see below that Ceridian reported 5,728 customers at the end of the quarter, an increase of 119 on last quarter. That is a little 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 Q2 Results

With a market capitalization of $8.43 billion Ceridian is among smaller companies, but its more than $371.2 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We were very impressed by the strong improvements in Ceridian’s gross margin this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see the slowdown in customer growth. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is flat on the results and currently trades at $58.78 per share.

Should you invest in Ceridian 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.