Ceridian (NYSE:CDAY) Q3: Beats On Revenue

Radek Strnad /
2022/11/02 4:34 pm EDT

Online payroll and human resource software provider Ceridian (NYSE:CDAY) reported results ahead of analyst expectations in the Q3 FY2022 quarter, with revenue up 22.7% year on year to $315.6 million. The company expects that next quarter's revenue would be around $324.5 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Ceridian made a GAAP loss of $21 million, down on its loss of $20.9 million, in the same quarter last year.

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Ceridian (CDAY) Q3 FY2022 Highlights:

  • Revenue: $315.6 million vs analyst estimates of $305.5 million (3.28% beat)
  • EPS (non-GAAP): $0.20 vs analyst estimates of $0.12 ($0.08 beat)
  • Revenue guidance for Q4 2022 is $324.5 million at the midpoint, below analyst estimates of $327.2 million
  • Free cash flow of $29.4 million, roughly flat from previous quarter
  • Customers: 5,848, up from 5,728 in previous quarter
  • Gross Margin (GAAP): 37.7%, down from 41.3% same quarter last year

“We delivered strong financial and operating performance in the third quarter. Our results exceeded our guidance on all revenue and profitability metrics, with Dayforce recurring revenue growing 30%, and 32% at constant currency,” 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 solid over the last two years, growing from quarterly revenue of $204.4 million in Q3 FY2020, to $315.6 million.

Ceridian Total Revenue

This quarter, Ceridian's quarterly revenue was once again up a very solid 22.7% year on year. On top of that, revenue increased $14.4 million quarter on quarter, a very strong improvement on the $7.9 million increase in Q2 2022, which shows acceleration of growth, and is great to see.

Guidance for the next quarter indicates Ceridian is expecting revenue to grow 15% year on year to $324.5 million, slowing down from the 26.6% 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 15.4% over the next twelve months.

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Customer Growth

You can see below that Ceridian reported 5,848 customers at the end of the quarter, an increase of 120 on last quarter. That's in line with the customer growth we have seen last quarter but a bit below what we have typically seen over the last year, suggesting that sales momentum may be slowing a little.

Ceridian Customers

Key Takeaways from Ceridian's Q3 Results

With a market capitalization of $10 billion, more than $408.4 million in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

It was good to see Ceridian outperform Wall St’s revenue expectations this quarter. And we were also glad that the revenue guidance for the rest of the year exceeded expectations. On the other hand, it was less good to see the pretty significant deterioration in gross margin. Overall, this quarter's results were mostly showing the company is staying on target. The company is up 1.6% on the results and currently trades at $62.85 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.