Executive Summary / Key Takeaways

• Dayforce Inc. ($DAY) is poised for accelerated growth and profitability, driven by its unique single-platform Human Capital Management (HCM) solution and aggressive expansion into AI-powered capabilities, culminating in a definitive acquisition agreement by Thoma Bravo for $12.3 billion.
• The company's core investment thesis centers on its "12:1 simplification" value proposition, enabling customers to consolidate disparate HR systems into a single, real-time data model, which is proving highly effective in driving sales momentum and competitive wins.
• Dayforce's financial performance demonstrates strong recurring revenue growth, with Dayforce recurring revenue (excluding float) increasing 14.0% in Q3 2025, alongside significant expansion in Adjusted EBITDA and Free Cash Flow margins, with a target of $1 billion in free cash flow by 2031.
• Technological differentiation, particularly its single database architecture, provides a significant competitive moat for AI integration, allowing rapid deployment of AI Assistant and a roadmap of over 30 AI agents, which are seeing strong customer adoption.
• The pending acquisition by Thoma Bravo at $70 per share, expected to close in late 2025 or early 2026, offers immediate shareholder value while aiming to accelerate Dayforce's strategic initiatives and AI leadership as a private entity.

The Unifying Force in Human Capital Management

Dayforce Inc. ($DAY) stands as a pivotal player in the Human Capital Management (HCM) software landscape, offering a comprehensive suite of solutions designed to streamline and optimize employment processes for organizations globally. Founded in 1992, Dayforce has evolved from its roots in payroll and tax filing to become a leader in cloud-based HR, workforce management, benefits, and talent intelligence. Its overarching strategy is built upon a singular, powerful premise: the "12:1 simplification." This core value proposition enables customers to replace an average of 12 disparate HR systems with the integrated Dayforce platform, delivering substantial efficiencies, enhanced employee experience, and superior decision-making capabilities.

The company's journey has been marked by strategic growth and a relentless focus on its flagship Dayforce product. A significant rebranding in February 2024 from Ceridian HCM Holding Inc. to Dayforce Inc. underscored this commitment, aligning the corporate identity with its core offering. This strategic pivot, coupled with a focus on higher-margin cloud revenue and the phasing out of legacy segments, is designed to drive significant improvements in profitability and cash flow generation. The broader industry is witnessing a strong demand for unified HCM systems, driven by the need for digital transformation and the increasing complexity of workforce management. Dayforce's emphasis on frontline worker organizations, particularly in sectors like hospitality, retail, and manufacturing, provides a resilient market focus, as these industries continue to grow and benefit from streamlined operations.

Technological Edge: The Single Data Model and AI Leadership

At the heart of Dayforce's competitive advantage is its proprietary, cloud-native platform, built from the ground up as a single application with a unified data model. This architectural choice is not merely a technical detail; it is a fundamental differentiator that underpins the company's entire value proposition and its rapid ascent in the AI era. The single employee record and rules engine spanning all areas of HCM enable continuous, real-time calculations across modules, a capability that significantly reduces errors and improves efficiency compared to systems requiring batch processing or complex integrations.

The tangible benefits of this technology are compelling for customers. By consolidating an average of 12 systems into one, organizations achieve a strong cash internal rate of return (IRR) through reduced subscription fees, lower labor costs associated with managing multiple vendors, and the elimination of interoperability challenges. For instance, the platform's ability to handle complex collective bargaining agreements and ensure accurate, on-time payroll processing is a critical differentiator, particularly for its target market of frontline worker organizations.

Dayforce's technological leadership extends prominently into Artificial Intelligence. The single database architecture provides a robust foundation for AI, as well-formed, comprehensive data is crucial for effectively leveraging foundational language and machine learning models. This has allowed Dayforce to rapidly embed AI across its entire platform, positioning itself as the "AI people platform." Key AI initiatives include:

• Dayforce AI Assistant (formerly Copilot): This generative AI offering, extended to native iOS and and Android apps, saw a 50% attachment rate to new deals in Q1 2025. It allows users to ask questions from uploaded documents (e.g., employee handbooks, benefits guides) and receive contextual, privacy-compliant responses, significantly reducing inbound calls to HR teams. Management anticipates this feature alone could drive a 5% to 7% uplift in revenue from the existing customer base.
• Dayforce AI Agents: The company has a roadmap of over 30 AI agents designed to automate tasks and provide insights across HR, payroll, time, and talent. Initial releases include the Pay Discovery AI agent and a contextual writer agent, offering generative AI writing assistance for tasks like performance goals, job descriptions, and employee feedback. These agents are built into the flow of work, aiming to accelerate collaboration and decision-making.
• Dayforce Strategic Workforce Planning: Accelerated by the October 2025 acquisition of Agentnoon, this offering helps organizations connect workforce planning to business outcomes. Agentnoon's open platform is being re-platformed within Dayforce, leveraging the single data model to provide intuitive, collaborative tools for anticipating change and optimizing resource allocation.
• Dayforce AI Workspace: Announced for availability to new customers in 2026, this collaboration environment combines automation and intelligence, allowing people and AI to work side-by-side on complex workforce challenges.

The "so what" for investors is clear: Dayforce's differentiated technology, particularly its single data model and aggressive AI roadmap, creates a formidable competitive moat. This technological edge translates directly into higher win rates (almost doubled year-over-year), strong customer retention (98% gross retention rate), and significant opportunities for add-on sales, driving higher average revenue per employee per month (PEPM) and ultimately, superior financial performance.

Competitive Landscape and Strategic Positioning

Dayforce operates in a highly competitive HCM market, primarily contending with one other major HCM provider and the typical enterprise resource planning (ERP) players as it moves upmarket. While its overall market share remains relatively low, estimated at under 4%, the company's strong win rates demonstrate its ability to gain market share effectively. Dayforce does not compete in the down-market segments served by companies like Paychex (PAYX) or Paycor (PYCR), maintaining its focus on organizations with 500 or more employees, particularly those with a high percentage of frontline workers.

Dayforce's competitive advantages are deeply rooted in its technology and service model:

• Unified Platform for AI: Dayforce's single database across all HCM functions is a critical differentiator for AI. Competitors often rely on disparate databases or partner solutions, making comprehensive, real-time AI integration challenging and less secure. This allows Dayforce to offer superior insights and automation across the employee lifecycle.
• Compliance Leadership: Recognized by Gartner as a compliance leader for firms with over 1,000 and 2,500 employees for five consecutive years, Dayforce's robust payroll and tax compliance capabilities are a significant draw, especially for organizations facing complex regulatory environments.
• Global Payroll Capabilities: The platform's ability to natively process payroll in over 20 countries, with built-in tax compliance and labor law support, provides a strong global offering, further enhanced by in-network partners for broader reach.
• Managed Services: Dayforce's managed services, particularly for payroll and benefits, are a strong differentiator, with bookings in this segment growing over 100% year-over-year in Q2 2025 and representing 17% of new business deals. These services boast margins similar to the company's cloud margins, contributing significantly to profitability.
• High Retention: An impressive gross retention rate of 98% underscores customer satisfaction and the stickiness of the Dayforce platform, reflecting the value derived from its integrated solutions.

Compared to competitors like Workday (WDAY), Dayforce's emphasis on real-time data and user-friendly integration for payroll and workforce management often resonates more strongly with mid-market and large enterprise clients seeking operational efficiency. While Workday excels in advanced analytics and customization for very large enterprises, Dayforce's "12:1 simplification" can offer a more immediate and quantifiable ROI. Against ADP (ADP), Dayforce's modern cloud-native platform provides greater agility and a unified experience, contrasting with ADP's more traditional, often legacy-system-reliant service offerings. Oracle and SAP , with their broader ERP ecosystems, offer deep integration but can be perceived as more complex and costly to implement, giving Dayforce an edge in ease of use and time-to-value for HCM-specific needs.

Dayforce's strategic partnerships, including its collaboration with Microsoft (MSFT) and availability on the Azure marketplace, further enhance its competitive standing by simplifying adoption for enterprise customers and leveraging broader technology ecosystems. The company's focus on building a powerful system integrator (SI) ecosystem, with SI-led sales up 80% in the first half of 2025, is also critical for scaling implementations and expanding pipeline.

Financial Performance and Operational Momentum

Dayforce has consistently demonstrated robust financial performance, reflecting its effective strategy and operational execution. For the three months ended September 30, 2025, total revenue increased 9.5% to $481.60 million, up from $440 million in the prior year. This growth was primarily fueled by Dayforce recurring revenue, which rose 14.0% to $333 million. Professional services revenue also saw a significant increase of 22.5% to $78.50 million, indicating strong demand for new implementations and module additions.

Despite a 7.5% decrease in float revenue to $42.20 million due to a decline in average yield, the underlying business momentum remained strong. The company's focus on efficiency is evident in its profitability metrics. Operating profit for Q3 2025 reached $30.50 million, a substantial increase from $20.80 million in Q3 2024. This improvement occurred despite a notable $22.20 million in non-recurring acquisition and transaction fees related to the pending Thoma Bravo Transaction, which impacted general and administrative expenses. A significant non-cash loss of $172.10 million related to the partial settlement of the U.S. pension plan termination resulted in a net loss of $196.80 million for the quarter, compared to a net income of $2 million in the prior year. However, this non-cash charge has no impact on ongoing business performance or long-term cash flow generation.

For the nine months ended September 30, 2025, total revenue grew 10.3% to $1.428 billion, with Dayforce recurring revenue increasing 14.0% to $971.60 million. Operating profit for the nine-month period was $103.80 million, up from $75.60 million in the prior year. The company's efficiency plan, initiated in February 2025, included a 5% workforce reduction and incurred approximately $31.90 million in restructuring charges, contributing to cost optimization.

Dayforce's liquidity remains robust, with cash and equivalents of $627.60 million as of September 30, 2025. Net cash provided by operating activities for the nine months ended September 30, 2025, was $193.50 million. The company's primary liquidity needs include general business requirements, debt payments, capital expenditures, and funding Dayforce Wallet on-demand pay requests. The Convertible Senior Notes, with a principal amount of $575 million, are due in March 2026 and are classified as a current liability, with the company planning to settle the conversion obligation through a combination of cash and common stock.

Operationally, Dayforce continues to achieve significant milestones. The number of live Dayforce customers increased 4.4% to 7,025 at September 30, 2025, from 6,730 a year prior. Dayforce recurring revenue per customer for the trailing twelve months ended September 30, 2025, grew to $175,172, up from $159,496. The company successfully took its largest customer live, with over 300,000 employees, expected to exceed 500,000 by year-end, showcasing its ability to handle immense scale. Year-to-date bookings growth has been over 40%, with new client bookings performing well across all segments. Back-to-base sales to existing customers grew over 50% in Q2 2025, representing 40% of total bookings, highlighting the significant opportunity for module penetration within its nearly 7,000-strong customer base, where the average PEPM is currently around $13.

Outlook and Strategic Trajectory

Dayforce's outlook is characterized by continued strong growth and an accelerated path to profitability, underpinned by its strategic initiatives and the impending acquisition by Thoma Bravo. The company expects to complete the Thoma Bravo Transaction in late 2025 or early 2026, subject to customary closing conditions.

For the full year 2025, Dayforce projects total revenue between $1.935 billion and $1.955 billion. Total revenue, excluding float, is expected to increase by approximately 13% to 14% on a constant currency basis. Dayforce recurring revenue, excluding float, is guided to grow approximately 15% to 17% on a constant currency basis, with float revenue anticipated at $186 million. The company has raised its Adjusted EBITDA margin guidance to 32% and significantly increased its free cash flow margin guidance from 12% to between 13.5% and 14%, representing an approximate 400-basis point expansion year-over-year. This upward revision in free cash flow is largely attributed to the positive impact of the One Big Beautiful Bill Act (OBBBA), which is expected to provide a $40 million to $50 million benefit to cash taxes in 2025 and an ongoing $20 million annual benefit from immediately expensing domestic R&D costs.

Looking ahead to the fourth quarter of 2025, Dayforce anticipates Dayforce recurring revenue (excluding float) growth rates to be between 16% and 19%. This acceleration is driven by revenue recognition from strong bookings over the past three quarters and the maturation of larger deals. The company's "work in progress" (deals sold but not yet live) is at its largest historical level, with customers continuing to go live predictably.

Dayforce is confident in its long-range plan targets, aiming for Dayforce recurring revenue (excluding float) growth rates above 15% and achieving $1 billion in free cash flow by 2031. This trajectory is supported by a strong demand environment, with year-to-date bookings growth exceeding 40% in Q2 2025, and a healthy sales pipeline. Management's assumptions include moderate employment growth of about 1% year-over-year and a disciplined approach to operational efficiencies, leveraging technology, automation, AI adoption, and cost-effective jurisdictions.

Risks and Considerations

While Dayforce's outlook is strong, several risks warrant investor attention. The most immediate is the pending acquisition by Thoma Bravo. Failure to satisfy closing conditions or obtain regulatory approvals could significantly delay or prevent the transaction, potentially triggering a $351 million termination fee and diverting management's focus. Litigation related to the transaction, alleging "materially incomplete and misleading" disclosures, also poses a risk of injunctions that could delay or halt the deal.

Dayforce is exposed to market risks, including foreign currency fluctuations, particularly with the Canadian Dollar, which can impact reported revenue and cash flows. Interest rate risk affects float revenue and debt interest payments. A 100-basis point decrease in market investment rates could reduce float revenue by approximately $27 million over twelve months, while a similar decrease in reference rates could reduce interest expense by $6 million. The company's ongoing termination of legacy U.S. pension plans, while largely settled, involves non-cash losses and anticipated additional settlement costs.

The competitive landscape, while currently favorable to Dayforce, remains dynamic. While Dayforce's single data model provides a strong AI advantage, the rapid pace of technological change and the significant R&D investments by larger competitors like Oracle (ORCL) and SAP (SAP) could intensify future competitive pressures. Dayforce's reliance on system integrator partnerships, while beneficial for scaling, also introduces a degree of dependence on third-party channels.

Conclusion

Dayforce Inc. is at a pivotal juncture, demonstrating robust operational momentum and a clear strategic vision, all while preparing for a transformative acquisition. The company's core investment thesis, centered on its unique single-platform HCM solution and aggressive AI integration, is proving highly effective in a market hungry for efficiency and advanced workforce intelligence. Strong financial performance, marked by consistent recurring revenue growth and expanding profitability margins, underscores the efficacy of its "12:1 simplification" value proposition and its disciplined approach to operational excellence.

The impending privatization by Thoma Bravo, at a compelling $70 per share, offers immediate and significant value to shareholders, reflecting confidence in Dayforce's future trajectory. As a private entity, Dayforce is expected to further accelerate its strategic initiatives, particularly in AI leadership, leveraging its differentiated technology to capture greater market share and deepen customer penetration. While the transaction carries inherent risks, Dayforce's foundational strengths, technological superiority, and clear roadmap position it for continued success, making it a compelling story of value creation through unification and innovation in the evolving HCM landscape.