Ceridian (NYSE:CDAY) Exceeds Q3 Expectations, Provides Encouraging Quarterly Guidance
Online payroll and human resource software provider Ceridian (NYSE:CDAY) reported Q3 FY2023 results beating Wall Street analysts' expectations , with revenue up 19.6% year on year to $377.5 million. Guidance for next quarter's revenue was also better than expected at $399.5 million at the midpoint, 1.67% above analysts' estimates. Turning to EPS, Ceridian made a non-GAAP profit of $0.37 per share, improving from its loss of $0.14 per share in the same quarter last year.
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Ceridian (CDAY) Q3 FY2023 Highlights:
Revenue: $377.5 million vs analyst estimates of $369.4 million (2.19% beat)
EPS (non-GAAP): $0.37 vs analyst estimates of $0.29 (26.3% beat)
Revenue Guidance for Q4 2023 is $399.5 million at the midpoint, above analyst estimates of $392.9 million (adjusted EBITDA guidance was also ahead)
Free Cash Flow of $4.8 million, down 93.9% from the previous quarter
Customers: 6,346,000, up from 6,272,000 in the previous quarter (slight miss)
Gross Margin (GAAP): 42.5%, down from 43% in the same quarter last year
“Ceridian delivered another strong quarter, underpinned by Dayforce recurring revenue growth of 34.6%,” 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
Modern HR software has two powerful benefits: cost savings and ease of use. For cost savings, businesses large and small much prefer the flexibility of cloud-based, web-browser-delivered software paid for on a subscription basis rather than the hassle and complexity of purchasing and managing on-premise enterprise software. On the usability side, the consumerization of business software creates seamless experiences whereby multiple standalone processes like payroll processing and compliance are aggregated into a single, easy-to-use platform.
Sales Growth
As you can see below, Ceridian's revenue growth has been strong over the last two years, growing from $257.2 million in Q3 FY2021 to $377.5 million this quarter.
This quarter, Ceridian's quarterly revenue was once again up 19.6% year on year. On top of that, its revenue increased $11.6 million quarter on quarter, a strong improvement from the $4.7 million decrease in Q2 2023. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter's guidance suggests that Ceridian is expecting revenue to grow 18.9% year on year to $399.5 million, in line with the 19.1% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 15.5% over the next 12 months before the earnings results announcement.
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Customer Growth
Ceridian reported 6,346,000 customers at the end of the quarter, an increase of 74,000 from the previous quarter. That's a little slower customer growth than what we've observed in past quarters, suggesting that the company's customer acquisition momentum is slowing.
Key Takeaways from Ceridian's Q3 Results
With a market capitalization of $9.85 billion, Ceridian is among smaller companies, but its $511.1 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.
It was good to see Ceridian's strong revenue and adjusted EBITDA guidance for both next quarter and the full year, which all topped analysts' expectations. We were also glad its revenue outperformed Wall Street's estimates. On the other hand, its customer count missed, with customer growth decelerating, and its gross margin declined . Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The market was likely expecting more, and the stock is down 1.3% after reporting, trading at $63.20 per share.
So should you invest in Ceridian right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.
