Executive Summary / Key Takeaways

• Dayforce (NYSE:DAY) delivered a strong start to 2025 with Q1 revenue growth of 13.6% constant currency (17.1% excluding float), driven by increasing live customers and higher recurring revenue per customer.
• Sales momentum is robust, with Q1 bookings in line with a strong Q4 2024 and expectations for H1 2025 bookings to be up approximately 40% year-over-year, fueled by strong win rates and increasing full-suite and add-on deals.
• The company is demonstrating significant profitability expansion, with Q1 2025 Adjusted EBITDA margin at 32.5% (+240bps YoY) and Free Cash Flow margin at 4.0% (vs. -4.4% YoY), supported by efficiency initiatives and operational leverage.
• Management reiterated full year 2025 guidance for Total Revenue ex Float growth of 14-15% constant currency, Adjusted EBITDA margin of 32%, and Free Cash Flow margin of 12%, signaling confidence in continued profitable growth.
• Dayforce's differentiated single-platform technology, focus on simplification (12:1 value proposition), global compliance leadership, and expanding AI capabilities provide a strong competitive moat in the Human Capital Management market.

Dayforce's Evolution and the Power of Simplification

Dayforce, Inc. has evolved from a provider of human capital management (HCM) services into a leader focused on its flagship cloud-native platform. The company's history, dating back at least to 1995, is rooted in providing essential employment processes like payroll, tax filing, and HR information systems through long-term customer relationships. This foundation built a business model characterized by high recurring revenue.

The pivotal shift centered on the development and strategic prioritization of the Dayforce platform. Conceived as a single application built from the ground up, it integrates HR, payroll, benefits, workforce management, and talent management on a unified database with a single employee record and a powerful rules engine. This architecture enables continuous, real-time calculations across all modules, a key differentiator in the market. The core value proposition Dayforce presents to customers is the ability to simplify their complex HCM software stack, often replacing as many as 12 disparate systems with a single, integrated platform. This "12:1 simplification" resonates strongly in the market, promising reduced complexity, streamlined workflows, improved decision-making through unified data, and tangible ROI by lowering overall subscription costs and reducing the labor needed to manage multiple systems.

The business model is designed to maximize the lifetime value of customer relationships. While initial implementation and acquisition costs mean it takes approximately two years to recover these expenses on a new contract, the opportunity to realize additional revenue over time through customer growth, increased employee count, and selling additional modules provides a clear path to long-term profitability. Costs associated with managing accounts, retaining customers, and upselling are significantly lower than initial acquisition costs, contributing to expanding margins over the customer lifecycle.

The Technological Edge: Fueling Efficiency and Experience

At the heart of Dayforce's competitive advantage is its differentiated technology platform. The single application, single database architecture is not merely a technical detail; it translates into tangible benefits for customers and forms a significant competitive moat. Unlike many competitors whose offerings are built through acquisitions or integrations of disparate systems, Dayforce's unified design eliminates the need for complex integrations between modules. This inherent integration enables real-time data flow and calculations across the entire HCM suite, providing administrators and managers with immediate access to up-to-date information for better decision-making, from optimizing work schedules to managing payroll throughout the pay period.

This technological foundation also positions Dayforce favorably for leveraging artificial intelligence (AI). With a well-structured, single data set, the company can effectively apply machine learning (ML) and large language models (LLMs) across all areas of HCM. Recent innovations highlight this capability:

• AI Copilot/Assistant: Extended to native mobile apps, the AI Assistant allows users to query uploaded documents (like benefits handbooks or policy documents) in a conversational format, providing contextual responses with source references. This feature, attached to 50% of new deals in Q1 2025, is expected to add 6-7% of white space for upsell across the client base and can reduce inbound calls to HR teams.
• AI Agents: Planned releases of AI agents across HR, payroll, time, and talent aim to automate workflows and provide intelligent assistance (e.g., an AI report writer).
• Dayforce Skills Engine: Uses AI to identify skill gaps and facilitate sourcing and upskilling talent within customer organizations.
• ML for Operations: AI is applied to tasks like job description writing, candidate grading and matching, predicting employee leave, and labor forecasting.

Beyond core HCM, the Dayforce Wallet product showcases unique technological underpinnings. Its on-demand pay functionality is built on a true payroll engine, processing off-cycle payrolls and remittances within 24 hours, fundamentally different from payday loan models used by some competitors. Recent enhancements like direct-to-bank capabilities (via debit card or direct deposit) expand its utility to banked employees and are already showing promising revenue growth.

The company's commitment to innovation is further evidenced by its pace of compliance updates (over 900 in 2024, with specific global enhancements in Q1 2025) and new product launches like Dayforce Flex Work and Dayforce Payroll in new regions like Singapore. This continuous development, built on a differentiated technical core, is a critical driver of customer value, retention, and the ability to win new business.

Competitive Landscape: Differentiated in a Dynamic Market

The Human Capital Management market is competitive, with Dayforce primarily vying for business against large ERP vendors (like SAP (SAP) and Oracle (ORCL), particularly in the enterprise space) and other established HCM providers (like Workday (WDAY), ADP (ADP), Paycom (PAYC), and Paylocity (PCTY)). Despite this crowded landscape, Dayforce has demonstrated increasing competitive strength.

Management commentary indicates that win rates have significantly increased year-over-year, in some cases nearly doubling. This suggests Dayforce is effectively taking market share, particularly from a historical competitor and the ERP players. Dayforce's overall market share remains relatively low, estimated at under 4%, which management views as significant white space for future growth.

Dayforce's differentiation stems directly from its technology and strategic approach:

• Single Platform vs. Integrated Suites: While competitors like Workday offer comprehensive suites, Dayforce emphasizes its truly unified, single-database architecture as providing superior real-time capabilities and simplification compared to potentially integrated systems.
• Global Compliance & Payroll: Dayforce positions itself as a leader in global compliance, a critical factor for multinational clients. Its global payroll story is highlighted as a strong differentiator, complementing its core HCM suite.
• Managed Services: The company's managed services offerings, particularly for payroll and benefits, are a strong differentiator, showing significant growth (up ~70% YoY) and providing a competitive edge.
• System Integrator (SI) Channel: Dayforce has invested heavily in building out its SI ecosystem. These partners are increasingly involved in sales and are priming implementations, allowing Dayforce to scale its delivery capacity and expand its reach, particularly upmarket. This strategy helps differentiate Dayforce's go-to-market motion compared to competitors who may rely more heavily on their own services arms.
• Value Proposition in Macro Environment: In the current macroeconomic climate, the 12:1 simplification message and the tangible ROI it offers (reduced costs, improved efficiency) resonate strongly, helping Dayforce win deals even when buyers are more cautious.

While competitors like Workday may have a larger presence in the very top tier of enterprise or offer broader financial suites, and others like ADP have vast client networks and strong outsourcing capabilities, Dayforce's focus on its core all-in-one platform, its real-time capabilities, and its growing global reach and managed services position it as a formidable competitor, particularly in the mid-market and enterprise segments with significant frontline workforces. The increasing percentage of full-suite deals (around 50% of new deals overall, and higher in specific segments) underscores the market's adoption of Dayforce's integrated value proposition.

Recent Performance: Momentum Translates to Margin Expansion

Dayforce delivered solid financial results in the first quarter of 2025, demonstrating continued top-line growth and notable progress on profitability and cash flow. Total revenue grew 11.7% year-over-year to $481.8 million, or 13.6% on a constant currency basis. Excluding float, total revenue increased 15.0% GAAP and 17.1% constant currency, highlighting the strength of the core software and services business.

The growth was primarily driven by the Dayforce recurring revenue stream, which increased 14.4% GAAP and 15.9% constant currency to $323.1 million. This performance reflects both the increase in live Dayforce customers (up 5.4% YoY to 6,929) and the continued growth in Dayforce recurring revenue per customer (up 11.5% YoY to $167,600 on a TTM basis). Professional services revenue saw a significant surge, growing 46.1% GAAP and 49.8% constant currency to $71.3 million, a direct result of implementing projects from strong sales quarters in late 2024 and early 2025. The "Other recurring" revenue line continued its expected decline (-31.4% GAAP, -29.3% CC) as the company strategically moves customers off legacy platforms. Float revenue decreased 8.9% GAAP (-7.6% CC) to $55.3 million, impacted by lower average yields despite a healthy increase in average float balances.

Profitability showed meaningful expansion. Adjusted EBITDA grew 20.6% to $156.7 million, resulting in a margin of 32.5%, a 240 basis point improvement year-over-year. This expansion occurred despite increased operating expenses across most categories (costs of recurring/professional services, product development, selling/marketing, G&A), driven by higher labor and benefit expenses, including severance costs associated with the efficiency plan. The efficiency plan, announced in February 2025, involved a ~5% workforce reduction and resulted in a non-recurring restructuring charge of $29.2 million in Q1 2025. This plan is expected to yield $65 million in cost savings in 2025 and $80 million annualized, contributing to future margin improvement.

Cash flow generation saw significant improvement. Net cash provided by operating activities was $49.6 million in Q1 2025, a substantial increase from $9.1 million in the prior year period. Free cash flow was $19.5 million, compared to negative $18.8 million in Q1 2024, resulting in a Free Cash Flow margin of 4.0% (vs. -4.4%). While Q1 is typically the lowest free cash flow quarter due to seasonal payouts, this performance positions the company well for its full-year cash flow targets.

Liquidity remains solid. As of March 31, 2025, cash and equivalents stood at $557.3 million. Total debt was $1.23 billion, including the $575 million Convertible Senior Notes maturing in March 2026, now classified as a current liability. The company plans to retire these notes at maturity using cash and liquidity on hand. The $350 million Revolving Credit Facility remained undrawn. The company is actively returning capital to shareholders through its $500 million share repurchase program, buying back $30.4 million of shares in Q1 2025 and planning to repurchase over a million shares in 2025 to offset dilution.

Outlook and Guidance: A Clear Path to Profitable Growth

Dayforce's outlook for 2025 reflects confidence in its ability to sustain durable revenue growth while significantly expanding profitability and free cash flow. Management reiterated its full year 2025 guidance on a constant currency basis, updating reported dollar figures to reflect recent FX movements.

Key guidance figures for full year 2025 include:

• Total Revenue: $1.929 billion to $1.944 billion
• Total Revenue, excluding float: $1.749 billion to $1.764 billion, representing 14% to 15% growth on a constant currency basis.
• Dayforce recurring revenue, excluding float: $1.317 billion to $1.342 billion, representing 15% to 17% growth on a constant currency basis.
• Float revenue: $180 million, based on expected mid- to low single-digit growth in average balances and an effective yield of approximately 3.6%. This represents a projected headwind of $25 million to $30 million compared to 2024 float revenue.
• Adjusted EBITDA margin: 32%, an increase of 100 basis points from previous guidance and a significant expansion from 28.5% in 2024.
• Free cash flow margin: 12%, a substantial increase from 9.7% in 2024.

For the second quarter of 2025, the company expects Total Revenue between $454 million and $460 million, with Total Revenue excluding float growing 10% to 11% on a constant currency basis. Adjusted EBITDA margin is guided at 30.5% to 31.5%.

Management's confidence in this outlook is underpinned by several factors:

• Strong Sales Momentum: Q1 bookings were strong, and H1 2025 bookings are expected to be up significantly, providing a solid foundation for future revenue.
• Healthy Pipeline and Go-Lives: The sales pipeline remains in excellent shape, and project kickoffs and go-lives are on track, ensuring conversion of bookings into revenue.
• Efficiency Plan Benefits: The cost savings from the recent workforce reduction are expected to contribute meaningfully to margin expansion in 2025.
• Focus on Core Business: The strategic emphasis on the higher-margin Dayforce and Powerpay cloud offerings, coupled with the phasing out of legacy businesses, is expected to drive overall profitability improvements.
• Predictable Business Model: The high level of recurring revenue and visibility into the implementation pipeline provide a strong degree of predictability.

Looking further ahead, Dayforce has set ambitious midterm targets, aiming for sustained total revenue growth close to 15% and aggressively driving towards a Free Cash Flow margin exceeding 20%. This path is expected to involve continued expansion of Adjusted EBITDA margin by 100 to 150 basis points per year beyond 2025, fueled by operational efficiencies, sales productivity gains, and leveraging its scaled operating model.

Risks and Considerations

While the outlook is positive, investors should consider potential risks. Macroeconomic conditions, including fluctuations in employment levels at customer sites, changes in interest rates impacting float revenue, and foreign currency exchange rate volatility, could affect financial results. Although the company has minimums in most contracts and a natural FX hedge on EBITDA, these factors remain outside of direct control.

Competition in the HCM market is intense, requiring continuous innovation and effective execution to maintain win rates and market share. The ability to effectively manage growth, successfully implement complex deals (particularly upmarket and global), and continue building out the SI channel are crucial operational considerations. Technology risks, including maintaining the competitive edge of the platform, managing aging infrastructure, and navigating evolving regulatory frameworks around AI, also warrant attention. Financial risks include managing debt obligations and ensuring sufficient liquidity, although current cash position and cash flow generation appear robust. Execution risk related to the ongoing efficiency plan and the strategic migration of customers from legacy platforms also exists.

Conclusion

Dayforce has demonstrated a compelling transformation into a focused, cloud-native HCM leader. Powered by its differentiated single-platform technology, the company is effectively addressing the market's need for simplification and tangible ROI, driving strong sales momentum and increasing win rates against established competitors. The recent financial performance, particularly the significant expansion in Adjusted EBITDA and Free Cash Flow margins in Q1 2025, underscores the benefits of its strategic focus on efficiency and higher-margin business.

With a healthy pipeline, predictable recurring revenue streams, and a clear path outlined by management, Dayforce is positioned for continued durable growth and accelerating profitability. The reiterated 2025 guidance and ambitious midterm targets signal confidence in the company's ability to execute on its strategy of becoming a scaled, highly profitable player in the global HCM market. While macroeconomic factors and competitive pressures persist, Dayforce's technological edge and strategic execution provide a strong foundation for the investment thesis. Investors should monitor the company's continued execution on its sales pipeline, implementation targets, efficiency initiatives, and the successful adoption of its expanding AI capabilities as key indicators of its progress towards its long-term financial ambitions.