Ceridian (NYSE:CDAY) Q1: Beats On Revenue, Next Quarter Growth Looks Optimistic

Adam Hejl /
2022/05/04 4:57 pm EDT
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Online payroll and human resource software provider Ceridian (NYSE:CDAY) reported Q1 FY2022 results that beat analyst expectations, with revenue up 25% year on year to $293.3 million. Guidance for next quarter's revenue was $294.5 million at the midpoint, which is 1% above the analyst consensus. Ceridian made a GAAP loss of $27.4 million, down on its loss of $19.2 million, in the same quarter last year.

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Ceridian (CDAY) Q1 FY2022 Highlights:

  • Revenue: $293.3 million vs analyst estimates of $289.4 million (1.33% beat)
  • EPS (non-GAAP): $0.13 vs analyst estimates of $0.08 ($0.05 beat)
  • Revenue guidance for Q2 2022 is $294.5 million at the midpoint, above analyst estimates of $291.5 million
  • The company lifted revenue guidance for the full year, from $1.2 billion to $1.21 billion at the midpoint, a 1.2% increase
  • Free cash flow was negative $14.4 million, compared to negative free cash flow of $4.3 million in previous quarter
  • Customers: 5,609, up from 5,434 in previous quarter
  • Gross Margin (GAAP): 35.1%, down from 44.8% same quarter last year

"I am very pleased with our strong start to the year. In the first quarter, Dayforce recurring revenue excluding float grew 31% year-over-year. And, Adjusted EBITDA of $57.4 million exceeded the high end of our guidance," 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 year, growing from quarterly revenue of $234.5 million, to $293.3 million.

Ceridian Total Revenue

This quarter, Ceridian's quarterly revenue was once again up a very solid 25% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $11.2 million in Q1, compared to $24.9 million in Q4 2021. 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 17.6% year on year to $294.5 million, slowing down from the 30% 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% over the next twelve months.

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Customer Growth

You can see below that Ceridian reported 5,609 customers at the end of the quarter, an increase of 175 on last quarter. That is a little slower customer growth than last quarter but quite a bit still above what we have typically seen over the last year, suggesting sales momentum is coming off slightly after a stronger quarter.

Ceridian Customers

Key Takeaways from Ceridian's Q1 Results

With a market capitalization of $8.69 billion Ceridian is among smaller companies, but its more than $354.8 million in cash and positive free cash flow over the last twelve months give us confidence that Ceridian has the resources it needs to pursue a high growth business strategy.

It was good to see Ceridian revenue guidance for the full year, exceed market's expectations even if just slightly.  And we were also glad to see good revenue growth. On the other hand, it was less good to see the pretty significant deterioration in gross margin and there was a slowdown in customer growth. Overall, it seems to us that this was a complicated quarter for Ceridian. The company is down 2.05% on the results and currently trades at $59.57 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.