Citi has adjusted its price target for Dayforce (DAY, Financial), reducing it to $68 from the previous $78, while maintaining a Buy rating on the stock. As the first-quarter report approaches, the firm expresses caution regarding the valuation setup for payroll companies. Despite potential disruptions in Dayforce’s bookings linked to current macroeconomic conditions, Citi is reassured by the company's near-term opportunities to improve its margins. Human capital management is considered a defensive sector, though it might experience underperformance due to a shift within the software industry towards growth, according to insights shared with investors.
DAY Key Business Developments
Release Date: February 05, 2025
- Total Revenue (Q4 2024): $465.2 million, up 16.4% on a GAAP basis, 17% on a constant currency basis.
- Total Revenue (Full Year 2024): $1.76 billion, up 16.3% on a GAAP basis, 16.7% on a constant currency basis.
- Dayforce Recurring Revenue (Q4 2024): $307.6 million, up 20% on a GAAP basis, 20.4% on a constant currency basis.
- Dayforce Recurring Revenue (Full Year 2024): $1.16 billion, up 20.4% on a GAAP basis, 20.7% on a constant currency basis.
- Adjusted EBITDA (Q4 2024): $129.2 million, up 30.2%, with a 27.8% margin.
- Adjusted EBITDA (Full Year 2024): $501.5 million, up 22.3%, with a 28.5% margin.
- Free Cash Flow (Full Year 2024): $171.5 million, up 63.2%, representing 9.7% of revenue.
- Gross Profit (Q4 2024): $218.6 million, up 28.7%.
- Gross Profit (Full Year 2024): $812 million, up 25.6%.
- Cloud Recurring Gross Margin (Full Year 2024): 78.9%, expanding 190 basis points.
- Adjusted Cloud Recurring Gross Margin (Q4 2024): 80.4%, expanding 230 basis points.
- Adjusted Cloud Recurring Gross Margin (Full Year 2024): 79.8%, expanding 150 basis points.
- Revenue Guidance (2025): Total revenue growth of 14% to 15% on a constant currency basis, excluding float.
- Adjusted EBITDA Margin Guidance (2025): 32% of revenue.
- Free Cash Flow Margin Guidance (2025): 12% of revenue.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Dayforce Inc (DAY, Financial) reported strong Q4 sales, exceeding expectations and setting a positive tone for 2025.
- Total revenue for 2024 was $1.76 billion, growing 17% on a constant currency basis, with recurring revenue excluding float growing 21%.
- The company achieved an adjusted EBITDA margin of 28.5%, expanding by 140 basis points, and free cash flow was $172 million, or 9.7% of revenue, expanding by 280 basis points.
- Dayforce Inc (DAY) secured several key new business wins, including large contracts with a 60,000 employee grocery chain and an 18,000 employee space exploration company.
- The company continues to lead in product innovation, with significant advancements in compliance, IT simplification, and AI-driven solutions, contributing to strong customer retention and industry recognition.
Negative Points
- Dayforce Inc (DAY) experienced some challenges in Q4 with lower-than-expected employee volumes, tax filing fees, and print fees, impacting recurring revenue.
- Contract amendments with a few customers led to a reallocation of revenue, affecting recurring revenue negatively.
- The company faces foreign exchange headwinds, with current FX rates driving about 200 basis points of headwind to full-year 2025 revenue growth ranges.
- Professional services and other revenue, historically a negative margin business, is only expected to break even in 2025, indicating ongoing challenges in this segment.
- Despite strong sales performance, the guidance for Dayforce recurring revenue growth in 2025 was slightly below consensus expectations, raising concerns about future growth momentum.
