Ceridian (NYSE:CDAY) Posts Better-Than-Expected Sales In Q2

Online payroll and human resource software provider Ceridian (NYSE:CDAY) reported Q2 FY2023 results topping analysts' expectations, with revenue up 21.5% year on year to $365.9 million. The company also expects next quarter's revenue to be around $369.5 million, roughly in line with analysts' estimates. Ceridian made a GAAP profit of $3.1 million, improving from its loss of $19.8 million in the same quarter last year.

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“Our results reflect the strength and resiliency of our business, coupled with strong demand for Dayforce,” 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 strong over the last two years, growing from $250.4 million in Q2 FY2021 to $365.9 million this quarter.

This quarter, Ceridian's quarterly revenue was once again up a very solid 21.5% year on year. However, the company's revenue actually decreased by $4.7 million in Q2 compared to the $34.5 million increase in Q1 2023. While we'd like to see revenue increase each quarter, management is guiding for growth to rebound in the next quarter and a one-off fluctuation is usually not concerning.

Next quarter's guidance suggests that Ceridian is expecting revenue to grow 17.1% year on year to $369.5 million, slowing down from the 22.7% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 15.3% over the next 12 months.

While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Customer Growth

Ceridian reported 6,272,000 customers at the end of the quarter, an increase of 93,000 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 Q2 Results

With a market capitalization of $11 billion, a $486.6 million cash balance, and positive free cash flow over the last 12 months, we're confident that Ceridian has the resources needed to pursue a high-growth business strategy.

It was good to see Ceridian beat analysts' revenue expectations this quarter and product solid free cash flow. That really stood out as a positive in these results. On the other hand there was a slowdown in customer growth. Overall, this was a decent quarter for Ceridian. The stock is flat after reporting and currently trades at $67 per share.

Ceridian may have had a tough quarter, but does that actually create an opportunity to invest 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.