I'm Siti Panigrahi, Software Analyst here at Mizuho. Welcome you all to Mizuho Technology Conference 2025. And it's my great pleasure to welcome Jeremy Johnson, CFO of Dayforce. Jeremy, welcome to the conference. Thank you, Siti. Thanks for having me. It's been like you joined Dayforce, I remember 2012. You played a key role during IPO in 2018 and back in CFO role last 18 months. Hope you're enjoying that. It is great to be back. It is great to be here with all of you today. You always do put such a good job of putting on a conference. I am really happy to be here. Thank you. Great. I think first thing I want to ask macro, that's everybody's mind, you know, macro variability right now since like what we heard last couple of months. The question I think there is always an investor's perception about payroll companies and macro is unemployment going up. I want to stay away from that. Unemployment really is what, one to point of impact. Help us understand like what you're seeing on the macro side. How is it impacting you and how has it been like last couple of months? Yeah, there's really four pieces of the macro that impact Dayforce and some of our peers as well. I'll tick through them all and we can dive into the unemployment one as well. First is very simple, interest rates. Interest rates, as they fluctuate, impact our float business. We feel like we've got our arms around kind of the interest rate impacts as they impact float. You know, we had $200 million in float last year revenue. We'll have about $180 million this year, which is what our guidance is. We feel like we've got a good hold on how those interest rates impact the rest of the year and aren't too concerned about that side. The second one is foreign exchange rates. Obviously, they've been very volatile. We have about 20% of our business in Canada. We've got about 4% in Australia and another 3% or 4% in the U.K. FX rates impact us. We give constant currency guidance to help make sure everything's, you can understand how the business is going, excluding FX. Obviously, we are pretty naturally hedged from an expense side of things. The revenue that we have is pretty well offset by the cost side of things as well. The third is unemployment and employment levels at our customers. Because Dayforce bills on a per-employee-per-month basis, as employment levels at our customers go up and down, we do have fluctuations in our revenue. Historically, this has been a tailwind for us. You go back probably two years ago, it was maybe a 3% or 4% tailwind. Last year, it was probably a 1%-2% tailwind. This year, we expected it to be very low. Under 1% is what we expected. That's exactly what we're seeing. We aren't seeing contraction though at our employment levels at our customers. It is steady. It's kind of holding. We're feeling really good about kind of what we're seeing on a month-to-month basis that would give us confidence for the rest of the year there. The last thing, and I think it's probably the most important and the key to, in my mind, the real macro is the demand environment. What we're seeing in the demand environment is that customers are continuing to buy software. That's a really, really encouraging sign for us. Q4 last year, we had a 40% increase in bookings. For the first half of this year, we're expecting a 40% year-over-year increase in bookings, which is something we haven't been able to say in a long time. We're excited about what we're seeing on the demand side of things. Yeah, that's a good point actually. You guys talked about win rates 2X from last year. What's really driving that? Is this something like internal executions or are you seeing any kind of shift in this competitive landscape? There's a few things in here actually. We've done a really good job of building out the platform over the last few years. I'm going to go into a little bit of detail here. I apologize. I'll talk for a while here. You go back a few years ago and really all we had was a pay and time compliance type bundle. We call it the continuous calculation of net pay. It's really the differentiation of Dayforce from all of the other providers. It means that payroll and time are in a single application and it allows us to calculate the net earnings of any employee, net of their own individual taxes, deductions, benefits. It's really Dayforce is the differentiation there. We would sell that to customers for about $10-$12 per employee per month at about 1,000 employees. If you fast forward to a few years ago, we said we need to build out a full HCM suite in that single application. We hired a guy named Joe Korngiebel, who is now our Chief Product and Technology Officer. He was one of the early people at Workday. We gave Joe a remit to go and build the full HCM suite inside of Dayforce. Our thesis was that would allow us to take that $10-$12 per employee per month and actually double it to another $10-$12 per employee per month. That would be adding things like the whole talent side of the thing, so recruiting, performance management, compensation, learning management. Our thesis proved out really nicely. We are now a top right quadrant for full suite HCM in Gartner as a leader in Gartner for the last two years for enterprises. That has worked out really nicely. The product side is coming together really nice. The third piece of this is we started launching a product we call Managed Services. Managed Services is a slightly different product than, actually, it is quite a different product than like a typical PEO that you would expect. We are not outsourcing the HR function. We are actually operating as the payroll and benefits department for the company. We are running the payroll and we are doing all the compliance checks, the audits, the quality control, and then committing the payroll on behalf of the customer. By doing this, we are actually able to take another $10-$12 per employee per month for those customers. We've got this full product now that goes pay and time, full HCM suite, managed services, and the product side is really coming together nicely. On top of that, our messaging seems to be resonating with prospective customers really nicely. We went from the message that was this continuous calculation, product differentiation, and that really, really resonated nicely with customers. We pivoted though around COVID to a message that I don't think resonated as well. It was this, there's a complexity crisis in the world. The workforce is virtual. Here's how we can help you. It just didn't really resonate. It was tough for our sellers to deliver. It was tough for customers to hear. Last year, we pivoted to a talk track that was a consolidation play. We talked to our customers about a hard dollar ROI by combining, on average, 12 systems into one Dayforce. We can replace 12 technologies where you're paying 12 software subscriptions. You have 12 groups of people that are managing that technology. They're also managing 12 different integrations into your HR systems and your ERP systems. We can replace that with one single application in Dayforce. What that provides is a really nice ROI for our prospective customers. The nice part about that is what we've seen lately is that every deal that we sign goes through some sort of CFO or CEO approval. While most of the RFPs are driven by the HR teams and the HR team is who's trying to buy the software, there's now this gate. Selling on an ROI actually really allows us to get through that gate really nicely and easier. I think those are the key things that have driven kind of our win rate improvement. It's a combination of a couple of things that come together. That's a great color. Now, Jeremy, that I have CFO on the stage, I need to ask guidance questions. That's the most important part, right? Look, your key metrics, Dayforce recurring ex float, you have a 15%-17% constant currency growth. And if I compare last year, ex Illumia acquisitions, probably about 18%, 18.5%, slight deceleration. But that's still impressive if I look at payroll peers. They're all growing high single digit, low double digit. So what gives you that confidence and what is baked into that guidance assumption, and how has that changed? You guided in a Q4 call, but what you are seeing right now, do you expect any kind of change there? Any color would be great. Yeah. Most of our revenue growth comes from what we've sold over the past, let's call it, two years. You think about our business and it's driven on go lives of what we've sold. Those go lives have cycle times with them. We sell in three primary segments. Major markets, we call that 500 employees to about 3,500 employees. Those customers, when we sell them, take somewhere between six to nine months to go live. That's when we start realizing revenue. Enterprise for us is 3,500 employees to 12,000 employees. Those customers take nine to twelve months. Could be a little bit longer depending on the complexity. Large enterprises, usually twelve months plus. Sometimes they end up with global rollouts, phased rollouts across the different locations that they have. If you kind of look at what's driving revenue this year, it's what we've sold in the last one to two years. As I mentioned, our demand that we saw in Q4 and Q1 and as we're seeing starting in Q2 here is really strong. We've got really good visibility into this year's numbers. In Q1, we grew, our full year guidance was 15%-17% constant currency. We grew 16%. I think Q2, it'll probably be just below that full year 15%-17% range. In Q3, Q4, obviously it's probably at the upper end of that range. That's what gets us to the full year number. It's taking live what we've been selling and we have really good visibility into those numbers and feel confident with the full year guide. Just want to make sure that the second half ramp gives you confidence because of the go live schedule. Yeah, you think about the Q4 and Q1 sales and those cycle times for major market. Even in the low enterprise, we should be able to take those customers live here in the second half of the year. Based on the go live you mentioned, any deals that you sign now is not going to impact your revenue for this year. Likely, yeah. There might be, I mean, add-ons, some of those add-ons when they're product add-ons, we can flip pretty quickly. You get into some smaller side of those and customers, we can take them live. For the most part, that's a correct statement. Are you expecting any kind of larger deals that you have, any go live that's scheduled in fiscal 2024? Certainly. We've got a couple of large deals that we've talked about in the past that have go live scheduled for this year. Our process that we have for taking customers live is one that we've used for a long time. Basically, you can think of it as we've got customers, we're working on specific projects for each of those customers. We have a date that we've worked with each of those customers. We go through with our implementation group on a Friday, every single Friday. We go through, we talk about risks, opportunities to either pull forward. That team, I guess I would describe it as they don't miss their numbers. That doesn't mean that deals might not slip and customers might not push go lives, but we're always able to pull deals in and we have not had misses on that team. Our level of confidence in that team is very, very high. Another topic I want to hit on, you mentioned managed services. This is relatively new and you guys talked about that at the investor's day too. How big is that opportunity for you, managed services? You talked about you seeing strong traction. Who are you competing with there? Yeah, it's an interesting question. We're not really competing with anybody here. Most companies do their own payroll. The reality is that a lot of companies have a payroll department that is a few people big. Maybe it's one person and a couple of people that support that person. Each of those people tend to have either lower college educated or even high school education. They're running payroll for some large, large companies. The question is why? Payroll is very complex. I would argue that you probably want somebody with a JD running your payroll with the complexity across both workforce management and the workforce labor laws, payroll laws, not only across the U.S., but also you've got to deal with state and local laws, obviously tax. It becomes very complex. We ask our prospects and customers a simple question: who do you want managing that compliance? We are happy to do that for you. By offering the service to our customers, I think it is a really unique value proposition that we can provide for them. It is a gap that probably they do not even see that we can fill. It is really nice revenue for us. I think the interesting part for us is we have been doing this for a few years now. We have not really leaned into it until recently, in the last year or so. The reason for that is when customers came to us and said, well, you do manage for us, we said, sure, to win the deal. The margin profile, as I looked at it, was really low. That was our, we kind of set a path about two or three years ago to say, let's drive margin improvement. We wanted to drive margin improvement by taking the people that were running the managed services and scaling them across multiple customers. We wanted to push some automation through that group. We wanted to move them into lower cost geographies. We built out a team in the Philippines to help us do a lot of this stuff. Now we've gotten to a point where the margin profile, the recurring gross margin profile of a managed service is actually on parity with our software margins. When I saw that and we actually reached that, I was able to push our sales and marketing teams to lean in a little bit and start pushing managed. We think it's a big opportunity. The attach rate across our base is still very low. There is a lot of white space for us to go. As I mentioned, at about 1,000 employees, it is another $10-$12 per employee per month. It is a good opportunity for us. Actually, that margin part you said it's same as your software. That is impressive. Actually, first time when I heard about managed services, like that's going to hit your margin. That's an impressive job there. Are you seeing the interest on managed services in certain verticals or customer size? Where exactly you see the tracks on there? Dayforce is, we thrive in complexity. Dayforce really primarily services, we call it kind of frontline worker type businesses. You think about us in retail and hospitality and manufacturing and health and human services or some consulting services businesses. The ones that are really complex where workers are either clocking in, clocking out, and we're dealing with some of these complex labor laws or they're working across state lines and on an hourly basis and have to track to multiple projects. Managed services goes really well with that. That's where we're seeing customers. We see them across financial services and some large customers here in New York that we have, including AMEX and BlackRock and a few others. Then across a bunch of retail customers and manufacturing customers. It cuts right across our customer base. I would switch to the next topic that's very dear to you, is margin and cash flow. Look, you've done a pretty good job, I would say, in margin side last year as well. You laid out a framework of margin as well as you hit $5 billion revenue as well. What gives you that confidence? Where are you driving that leverage at this point? Is it improving sales productivity or anything else? I know there was some kind of reduction in force as well. Walk us through that. How are you going to achieve that and not only this year and going forward? When Citi says I'm doing a pretty good job at margin control, I'm feeling pretty good about it. That was one of the bare thesis, I would say, before you joined. This is great. I'll tell you what though, it has been a focus since I joined about 18 months ago. I think on my first earnings call, I think it might even have been you that asked the question, what's your focus going to be? I said it was going to be on free cash flow expansion. It was an area that I know we, I looked at the business, came in from after being away for a couple of years and came back and said, this is a business that needs to improve its free cash flow profile. That is what we've done is set a path to achieving that. I think we're doing really well. We've taken free cash flow margins from just under 7% two years ago to just under 10%, 9.7% of revenue this year, past year, and this year will be at 12%. We've got a nice path that we're going, but we've got room to go. How we're going to get there and how we're doing it this year, it's actually pretty simple. It starts with a P&L. The first one is recurring services and our recurring gross margin. Our recurring gross margins can expand from where they are. We're in the upper 70s on an adjusted basis right now, 70% range, so 78%, 79%. We think those can get into the low to mid 80% over time. That happens because of our back to the base motion. We now have this full suite of software that we can sell into customers. When we increase the recurring revenue per customer, we actually, in that scenario, do not need to add incremental costs when we sell add-ons. We feel good about our path to get there from that side of things. We have also got automation that we can push throughout our entire support function and use of lower cost geographies. We use lower cost geographies pretty nicely, but we still have some room to go there. Recurring margins will continue to expand. The second one is professional services and other gross margins. As you guys know, it has probably been a loss leader for us in the past. We are happy to discount the implementations upfront and in favor of a recurring revenue stream that is going to be here for 10, 20 years. We will take that hit upfront. Our recurring, our professional services and other gross margins had been in the negative mid teens. Last year was about negative 13%-14% on an adjusted basis. This year we're pushing those toward break even. We think those can get into the low single, even maybe in the low double digit positive in the future. There's an opportunity around that. It really becomes process improvement, automation, pushing AI through those processes and also use of low cost geographies. There's a nice opportunity for us to continue to go there. The last piece on professional services is we do have a larger mix of post-go live professional services where we actually do not have to discount the rate so much because we've already got the customer. We're seeing as our customer base grows, the mix of those services go up and there's just a mix shift that helps our margins as well. We will scale our product and development teams, product development teams slightly. You'll see slight scale as a% of revenue. You're seeing it this year. I think you saw it a little bit last year, but that's just as we clear this hurdle from building out that full HCM suite, we don't have to invest as much. There's still some gaps that we want to cover throughout the product and there always will be, but those gaps aren't as big as building out a full HCM suite. We've done that and gotten over that hurdle and we've now got a path there. Sales efficiency is near and dear to my heart. Last year was an investment year for sales for us. We brought in Sam Alkharrat, who's our CRO, and he's doing a fantastic job, but he made a bunch of changes last year. We knew, went into that year knowing we were going to make an investment and knowing that this year was going to be the year of productivity. The reality is it's a lot easier to scale your, make your sales and marketing efficient when you're growing sales at 40% as well. G&A can scale. That's the real drivers that's going to help us get to free cash flow margin expansion. We'll also scale some CapEx along with our product development expenses and improve that conversion from cash collection as well. Yeah. One thing I did not hear about your internal use of AI in all software development, your sales and marketing, G&A. I want to put a plug here that our team published a note on how you can leverage internal AI companies are leveraging to expand their margin. I want to hear your view on that. Like how are you guys leveraging that? Of course, no one yet publicly said we are benefiting this many basis points, but would love to hear your thoughts on how you are pushing down into the company use of AI. Yeah, it's a key focus for us. There's a lot, a long ways to go here and we see a big opportunity. We see it across, and maybe I'll just highlight two or three of them. We started rolling out some AI through our customer support organization. It was probably two years ago and really we're leaning into that quite a bit now. We've built out tools to allow our customer support reps to actually handle kind of first calls that we get from customers so much easier. We've trained a model for these folks internally on all the historical calls that we've gotten from customers and inbounds that we've gotten from customers such that they've, obviously you get to a point where a lot of people have seen the same things and you can utilize the tool to improve your time to resolution. We have seen significant improvements in the efficiencies of that team. I talked about the professional services and the implementation improvements and we are really taking an AI first approach as we redesign those processes. We think there is a lot of room to bring the hours down from an implementation side of things there. We are rolling those out this year and into next year as well. The last part, I mean, it is no surprise that product development is using a lot of AI tools to help them get more productive. We are certainly leaning in there. My team from a finance perspective utilizes AI throughout forecasting, financial forecasting, revenue forecasting, invoicing and AP, as well as on the investor relations side, helping out with how we think people are going to react to the things we are going to say. That's great color. Now I'll switch to the other part of it, AI as an opportunity for increased revenue. I know Dayforce probably you're well ahead of your peers in terms of using AI, building features into that. How do you see that opportunity in terms of what you're seeing customers right now using it? Are you going to price it on a per employee basis or is it going to be usage? What exactly can AI bring in HCM and payroll industry? Yeah. I mean, first and foremost, we are, Dayforce is uniquely positioned to be a first mover in this spot and using AI for our customers and inside our products. I say that because we have the only ones with a single application, also a single database. That makes the foundation for AI so much easier to drive throughout our products. We have a really bold vision for intelligence and AI throughout our products. We are starting here with what we've called our AI assistant or our co-pilot to start. If we just take one step up real quick though, I mentioned that pay in time was $10-$12 per employee per month. You got the HCM suite adds another $10-$12 and the managed services can add another $10-$12. We actually have a vision where we can get another $10-$12 from what we're calling data and intelligence. That starts with combining some of the things we've been doing for a while, dashboarding, analytics, visualizations, things like that, alongside the Experience Hub. The Experience Hub for us is a landing page that everyone lands on when you open up Dayforce for the first time. It's kind of a configurable homepage that HR teams can really easily drop and drag things that they want to get across to their employee base. It's a really nice solution, but actually what it is is a content management solution. This is where our AI Assistant, our Co-Pilot sits, is on top of the Experience Hub. It allows employers to load every document and every employee-facing document that they have into this content management tool and train an AI on it such that both employees and administrators can use the co-pilot to really easily answer any questions they have. That's questions about themselves, questions about the benefits they have, even something as simple as who do I call for if I have a benefits claim. You don't have to search through all these different handbooks or call your HR generalist or something. You can very quickly just get an AI type response in the co-pilot. That's where we're at right now is we've launched the co-pilot. We've attached it in Q1 to 50% of our new business deals. We're seeing really nice traction there, a few dollars per employee per month on that piece of it. Where we're heading with it is a more agentic approach. If you think about our platform as kind of pay, time, HR, analytics, we will have agents that cut across each of those. At the end of this year, we'll launch the first few. Into next year, we imagine that we'll have some agents. Those agents will be both admin-focused and employee-focused. Yeah. If there are any questions, please raise your hand or otherwise I'll continue. Jeremy, I want to ask you a free cash flow question. You said a target of 20% free cash flow margin, right? The question is, what stops you even exceeding that 20%? Is there a structural problem? I wouldn't say problem. Is there anything structural that stops you to even exceed 20% or it's just a mark that you can keep exceeding? Yeah. There's nothing structurally that stops us from going beyond 20%. We've set 20% because I was at 10% and setting it beyond that felt a little bit, we didn't want to be too crazy on that one. Honestly, I am more and more encouraged every kind of day that goes by and every time we update numbers as we look out in our path to free cash flow margin expansion. We set at investor day this target of about 100-200 basis points expansion per year as we move out. I think that's a conservative path now that I look at it. I think we'll be able to exceed that and we're showing it this year with about 230 basis points expansion in our free cash flow margins. That year, this year actually includes some one-time headwinds that go away next year. We've got the reduction in force that you talked about. That's about $25 million. We've also got a $25 million termination of a defined benefit pension plan from our legacy with Ceridian. That's a termination that goes away next year. We now have, in addition to the margin expansion that's going to drive free cash flow expansion, the ability to actually accelerate that through getting past these one-time things. I see our path to 20% and beyond even sooner than maybe what we had originally thought. That's a great point. Last question. What are you most excited about now this year? If you come back next year around this time, what's the topic we'll be talking about most? I'll tell you what, I think the most exciting thing for us is probably our managed services business. I think if we were to talk next year about our path to that, you'll see that our traction we're getting is even better than I think what we're seeing right now. I think we're excited about that. We're excited about the revenue lift that can get us. I'll tell you what, managed services customers have higher retention. They have higher customer NPS scores. They stay with us a lot longer. We're really excited about converting existing customers over to managed services. That's one of the factors of your $5 billion revenue target? Certainly. That's going to ramp. It'll help sell from new customers and from an add-on side of things. It'll help us get to our $5 billion. Okay. I lied. One more question on that. You talked about the other two topics, Wallet and Flex. How do you see that ramping on that $5 billion revenue target? Ramping nicely. I think the one we have the most visibility into right now is Wallet. I'd say Flex is still early days. We've got a number of customers that are launched with Flex. This year is the really testing ground on whether we think that can be a business that we'll really lean into going forward. It's a different profile from our business today. We are using this as the test year and we'll keep you updated as we go through on that. Wallet, I mean, it's grown from $12 million in revenue to $30 million last year and we expect it to be near $50 million this year. It'll be one of our fastest growing products continually. We're feeling really good about our path to Wallet. That's great. Actually, I didn't read that clock. That's actually going all the way negative now. So we're ahead of time. Yeah, already past two minutes. Thank you so much, Jeremy and David. Thanks for joining us. Thanks for having us, Siti.