Dayforce Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 7, 2025

Key Takeaways

  • Dayforce delivered its best first quarter in company history with bookings expected to be up ~40% year-over-year in H1 and full-suite deals comprising over half of new contracts.
  • Q1 revenue reached $482 million, up 17% on a constant currency basis (excluding float), with an adjusted EBITDA margin of 32.5% (+240 bps) and free cash flow of $19.5 million.
  • The company initiated a 5% global workforce reduction, targeting $65 million of 2025 cost savings ($80 million annualized), and incurred $29.2 million in Q1 restructuring charges.
  • Product innovation accelerated as AI “Copilot” was extended to iOS/Android (attached to 50% of new deals), new AI agents were unveiled, and Dayforce launched on the Microsoft Azure marketplace.
  • Full-year 2025 guidance was reiterated, forecasting 15–17% recurring revenue growth (constant currency) and a 12% free cash flow margin, with FX and interest rate assumptions largely unchanged.
AI Generated. May Contain Errors.
Earnings Conference Call
Dayforce Q1 2025
00:00 / 00:00

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Operator

Greetings, and welcome to the Dayforce First Quarter twenty twenty five Earnings Conference Call and Webcast. At this time, participants are in a listen only mode. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to David Nederman, Vice President, Investor Relations. David, please go ahead.

David Niederman
David Niederman
VP - Investor Relations at Dayforce

Thank you for joining, and welcome to the Dayforce First Quarter twenty twenty five Earnings Call. I'm David Nederman, Vice President, Investor Relations. As a reminder, all participants are in a listen only mode and a question and answer session will follow our opening remarks. Joining me on the call today are CEO, David Offset and CFO, Jeremy Johnson. We also have Chief Strategy, Product and Technology Officer, Joe Corndible and our President and COO, Steve Holdridge available for Q and A.

David Niederman
David Niederman
VP - Investor Relations at Dayforce

Before I hand the call over to David, I want to remind everyone that our commentary may include forward looking statements. These statements are subject to risks and uncertainties that could cause Dayforce's results to differ materially from historical experience or present expectations. A description of some of these risks and uncertainties can be found in the reports we file with the Securities and Exchange Commission such as the cautionary statements in our filings. Additionally, over the course of this call, we'll reference non GAAP measures to describe our performance. Please review our earnings press release and filings with the SEC for our rationale behind the use of non GAAP measures and for a full reconciliation of these GAAP to non GAAP metrics.

David Niederman
David Niederman
VP - Investor Relations at Dayforce

These documents, in addition to a replay of this call and also a transcript, will be available on the Jayforce Investor Relations website. And with that, I'd like to turn the call over to David.

David Ossip
David Ossip
Chairman, CEO at Dayforce

Thanks, David, and thank you all for joining us. I'll begin with some high level commentary on our results and outlook before handing the call over to Jeremy, who will provide more detail on our financials and guidance. Dayforce performed well throughout the first quarter. Our sales momentum continued, building off the strong performance we experienced in the fourth quarter of twenty twenty four and our sales pipeline remains in excellent shape. Project kickoffs are up significantly following two strong sales quarters and go lives remain on track.

David Ossip
David Ossip
Chairman, CEO at Dayforce

These key indicators give us confidence for 2025 and 2026. Specific to the first quarter, total revenue was $482,000,000 growing 14% on a constant currency basis. Excluding float, total revenue grew 17% on a constant currency basis. Dayforce recurring revenue excluding float grew 16% on a constant currency basis. Adjusted EBITDA margin was 32.5, up two forty basis points year over year and free cash flow of $19,500,000 was up significantly versus last year keeping us on track to achieve our full year target of 12%.

David Ossip
David Ossip
Chairman, CEO at Dayforce

Our value proposition of providing companies with the ability to simplify their people operations at scale by streamlining their HCM software stack continues to resonate with current and potential customers. Dayforce allows organizations to reduce the number of applications from an average of 12 down to the single Dayforce application. With Dayforce, customers can operate with confidence, empower their workers and obtain a tangible ROI. Even during periods of economic uncertainty, this value proposition allows our teams to continue building sales pipeline and results. From a sales perspective, Sam and his team are achieving superb results.

David Ossip
David Ossip
Chairman, CEO at Dayforce

We had the best first quarter in our history and we anticipate bookings in the first half of twenty twenty five will continue to be strong and in line with the Q4 of last year. Results were distributed nicely across most of our segments and geographies with healthy growth in each of our key segments. Our back to the base sales strategy is performing well with Q1 sales to existing customers growing 30%. In the first quarter, we secured several key new business wins. Selected highlights include a large entertainment and leisure company that chose the complete Dayforce suite as its unified HCM solution to support 61,500 employees across North America, a leading uniform and workplace solutions provider that selected the full Dayforce suite to support its 22,000 employees across North America, a leading North American utility infrastructure service provider that selected the full Dayforce suite to modernize and unify its systems supporting over 9,000 employees, a global safety solutions provider that selected the full Dayforce suite including managed payroll and managed benefits to support 8,000 employees across 30 countries in North America, EMEA, LATAM and APJ and a leading North American civil engineering heavy construction company that selected the full Dayforce suite to support its more than 7,200 employees consolidating 14 systems into one.

David Ossip
David Ossip
Chairman, CEO at Dayforce

Live customers on Dayforce platform grew 5.4% to 6,009 hundred and 20 9 and Dayforce recurring revenue per customer grew 11.5% to $167,600 Turning to our partner efforts, our system integrated channel is performing well with our top SI partners delivering an outsized impact. SI Prime deals won during the first quarter were up significantly versus last year and exceeded our expectations, underscoring strong alignment and demand generation across strategic accounts. We're seeing a growing partner led pipeline and an increase in co sell velocity across regions. We also announced a partnership with Microsoft, which puts Dayforce on the Azure marketplace. This launch makes it easier for enterprise customers to adopt the Dayforce platform with the security, scalability and streamlined procurement.

David Ossip
David Ossip
Chairman, CEO at Dayforce

On the product side, we continue to make excellent progress. In the quarter, we extended our AI Copilot to our native iOS and Android apps. Copilot is performing well. In Q1, '50 percent of new deals had it attached. We also enhanced our talent modules with personalized updates for the Advanced Experience Hub, improved the intuitiveness and workflows of our learning and recruiting modules and launched new direct to bank capabilities for Dayforce Wallet that allows employees to route their pay to any personal bank account.

David Ossip
David Ossip
Chairman, CEO at Dayforce

And as always, we continue to remain a solid core of compliance, releasing features like the total remuneration package calculation for comprehensive compensation management and compliance enhancements for global statutory requirements in The United Kingdom, Singapore, Australia and New Zealand. And finally, a brief update on our engagement with the Government of Canada. Our teams continue to work towards configuration and delivery milestones outlined by the Government of Canada. The GOC has signed a fifteen month contract to extend the configuration work through go live. I'll now pass the call to Jeremy to discuss our financial results in more detail. Jeremy, over to you.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

Thanks, David. We were pleased with our first quarter results. Top line revenue growth remained strong, while we scaled the business and continued to expand cash flow margins. Before I get to the numbers, want to highlight a refreshed look to the face of our P and L, where we have removed the gross profit break and broken out depreciation and amortization on one line. We also simplified the disaggregation of revenue tables in our press release and MD and A to simply show four revenue lines, Dayforce recurring, Powerpay recurring, other recurring and float recurring, which sum to total recurring revenue as shown on our P and L.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

With these changes, we will no longer refer to cloud revenue or profitability. As of this quarter, 96% of our recurring revenue excluding float is from Dayforce or Powerpay, what we've historically referred to as our cloud solutions. Our goal with these changes was to improve comparability between Dayforce and our software peers, and make it easier for users to analyze our financial performance as we continue to grow and scale the business. Now turning to our first quarter results. Total revenue was $481,800,000 up 11.7% on a GAAP basis and 13.6% on a constant currency basis.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

Excluding float, total revenue increased 15% on a GAAP basis and 17.1% on a constant currency basis. Dayforce recurring revenue, excluding float, was $323,100,000 up 14.4 on a GAAP basis and 15.9% on a constant currency basis. Professional services and other revenue was $71,300,000 up 46.1% on a GAAP basis and 49.8% on a constant currency basis. Operating profit was $31,000,000 and adjusted EBITDA was $156,700,000 up 20.6% or a 32.5% margin expanding two forty basis points. Operating cash flow was $49,600,000 and free cash flow was $19,500,000 versus negative $18,800,000 last year.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

Free cash flow as a percent of revenue was 4%, expanding eight forty basis points. During the quarter, we announced an efficiency plan and the reduction of our global workforce by approximately 5%. We expect our original estimates of pretax cost savings to remain accurate. That is $65,000,000 in savings in 2025 and $80,000,000 of savings annualized. In connection with this plan, we incurred a nonrecurring restructuring charge in the first quarter of twenty nine point two million dollars including severance, employee benefits and related costs and noncash stock compensation.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

These savings were reflected in our initial 2025 guidance and of course remain reflected in our reiterated 2025 guidance. On share repurchases, we repurchased $30,400,000 of shares or approximately 519,000 shares during the quarter under our $500,000,000 share repurchase program. Cumulative to date, we have returned more than $66,000,000 of capital to shareholders under this program. We still anticipate continuing to purchase shares in 2025 with the goal of minimizing dilution to our shares outstanding from stock based compensation. Overall, it was a solid first quarter and a nice start to 2025.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

A few comments on what I'm seeing in the macro before we move to our guidance. First, we saw solid demand environment in the first quarter. As David said, our sales momentum continued building off the strong performance we experienced in the fourth quarter of twenty twenty four. Our HCM solutions and value propositions continue to resonate with buyers. It's also important to note that we haven't seen a change in customer retention and continue to expect retention rates at our historical ranges.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

Second, employment levels were largely in line with our expectations during the first quarter. As we invoice on a per employee month basis, employment levels at our customers do have a direct impact to our revenue. However, we do have minimums built into most contracts at about the 80% level. We'll continue to monitor these employment levels and report to you as we progress throughout the year, but do not see a need to adjust our outlook or guidance related to employment levels. Regarding interest rates, which impact Dayforce through our float revenue, we now expect three rate cuts in The U.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

S. In the back half of the year compared to one rate cut previously assumed in our original guidance. However, with Q1 float revenue coming favorable to our expectations on higher average balances and higher yield, we are comfortable holding our full year float revenue guidance. For full year 2025, we still expect mid to low single digit growth in average balances and an effective yield of about 3.6%. And finally, foreign exchange rates.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

In Q1, FX rates were in line with our expectations. However, since the announcement of tariffs, we have seen the U. S. Dollar weakened. This weakening has the impact of increasing the U.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

S. Dollar amount to both revenue and expenses. So we've updated our Q2 guidance to align to the average FX rates we saw in April, but we've left the rest of the year assumption flat with our original guidance. All of the rates that we've used in our guidance for U. S.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

Dollars to Canadian dollars, Australian dollars and British pound can be found in our press release. And just a reminder that we are naturally hedged from FX on an EBITDA perspective. We provide constant currency growth rates in our guidance for this purpose. And to be clear, we are leaving constant currency growth rates unchanged to prior guidance. Now turning to our guidance.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

As I mentioned, we are reiterating our previously issued full year 2025 guidance on a constant currency basis, but you'll note the dollar amount of guidance to reflect the Q2 FX rates. Specifically, we expect total revenue of $1,929,000,000 to $1,944,000,000 total revenue excluding float of $1,749,000,000 to $1,764,000,000 an increase of 12.1% to 13.1% or 14% to 15% on a constant currency basis Dayforce recurring revenue excluding float of $1,317,000,000 to $1,342,000,000 an increase of 13.6% to 15.7% or 15% to 17% on a constant currency basis float revenue of $180,000,000 adjusted EBITDA margin of 32%, and free cash flow margin of 12%. And for the second quarter, we expect total revenue of $454,000,000 to $460,000,000 total revenue excluding float of $4.00 8,000,000 to $414,000,000 an increase of 9% to 11% or 10% to 11% on a constant currency basis, float revenue of 46,000,000 and adjusted EBITDA margin of 30.5% to 31.5% of revenue. With that, we can begin the Q and A portion of our call.

Operator

Thank you. We'll now be conducting a question and answer session. Our first question today is coming from Titi Panigrahi from Mizuho Securities. Your line is now live.

Siti Panigrahi
Managing Director at Mizuho Securities

Thank you. Want to can you hear me?

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

Yes, we got you, Citi.

Siti Panigrahi
Managing Director at Mizuho Securities

All right. So I want to ask about this in this macro environment. What are you hearing from your customer mainly for their HR and payroll project? David, you talked about strong sales pipeline and project kick up. Wondering if you're seeing anything different in The U.

Siti Panigrahi
Managing Director at Mizuho Securities

S. Versus international market given what we have seen last month or so?

David Ossip
David Ossip
Chairman, CEO at Dayforce

Sidney, thanks for the call. Let me start by saying this. Bookings in Q1 were very strong. They were in line with what we saw in Q4 of last year. And if you recall, bookings in Q4 were very strong as well.

David Ossip
David Ossip
Chairman, CEO at Dayforce

When we look at the month of April, bookings continued to be very strong. And in terms of numbers, we would expect the first half bookings to be up approximately 40% year over year. As you know, it takes a bit of time for that to translate into revenue, But that obviously gives us tremendous confidence as we go into 2026 and beyond as well. If I actually dissect the sales, add on sales, as I mentioned on the call, were up 30% year over year. And that means that we are seeing more new customers sign with Dayforce.

David Ossip
David Ossip
Chairman, CEO at Dayforce

Where I'm very encouraged is when I look at our strategy of building out a single application and I look at the percentage of full suite deals that we are now doing for new customers. We saw full suite deals be approximately 50% of the total deals we did in the quarter. But when I actually dissect it and I look at the major market space, the enterprise space and the emerging space, again, emerging is 500 up to 500 employees, major markets up to 3,500, enterprise above 3,500 employees but below 12,000. We're seeing almost 100% of those particular segments by full suite deals. And obviously, that's very encouraging.

David Ossip
David Ossip
Chairman, CEO at Dayforce

We're also seeing impact from the SI channels. SI prime deals were 50% overall, and we're gaining traction with our managed offering, which is also up quite considerably year over year. It's up by about 17% year over year, but still less than 10% of sales. So still tons of room to actually grow. So we haven't seen impact at all from the macro in terms of buying decisions.

David Ossip
David Ossip
Chairman, CEO at Dayforce

When we look at project kickoffs, obviously, following a very strong Q4 and a very strong Q1 of sales, you would expect that kickoffs would be also up significantly year over year. And again, that gives us confidence into 2026 and beyond.

Operator

Thank you. Next question is coming from Scott Berg from Needham and Company. Your line is now live.

Scott Berg
Managing Director at Needham & Company

Hi, everyone. Nice quarter. Thanks for taking my questions here. David, on the fourth quarter call, you had mentioned some increased demand strength on HRMS and payroll deals upmarket in the kind of the larger enterprise segments that you all play in. How has that played out kind of ninety days later? Are you still excited about that segment? I know your overall sales and pipeline commentary is really good, but those deals tend to have a longer sales cycle. So I guess just trying to understand how that setup looks like maybe in the second half? Thanks.

David Ossip
David Ossip
Chairman, CEO at Dayforce

It's continued as well, Scott. Thanks for the question. In fact, in the first quarter, we signed our largest deal ever, which is another government agency that will probably have similar characteristics to what we've seen from the Government of Canada deal. So in other words, obviously, it starts with scoping, a bunch of service work, and that will lead to quite nice recurring revenue into the actual future. We also seem to have been quite successful at selling full suite deals into the large enterprise space as well.

David Ossip
David Ossip
Chairman, CEO at Dayforce

The entertainment and leisure company we spoke about would be a perfect example of that. That's about 62,000 employees. So we saw strong sales performance across segment and across geo in the first quarter, and we've seen that continue in the month of April as well.

Operator

You. Next question today is coming from Mark Marcon from Baird. Your line is now live.

Mark Marcon
Senior Research Analyst at Baird

Hey, good morning. Really nice to see the free cash flow margin improvement. Wondering if you can just talk a little bit about the cadence in terms of total revenue growth. It looks like you're basically projecting for the second quarter on a total revenue perspective to see a little bit of a deceleration and then a pickup in the second half. Wondering if you can just talk to some of the dynamics that would be driving that?

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

Yes. Thanks, Mark. It's good to hear from you. Look, maybe I'll start with Q1 total revenue and then we can move into the full year. The primary drivers between that 14% kind of constant currency revenue growth is look we were up about $58,000,000 year over year.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

You can look at that as mostly Dayforce recurring $45,000,000 up. Professional services had a really strong quarter that was up about $23,000,000 20 4 million dollars Powerpay was relatively flat and then we had the headwinds from other recurring, which was down about 6,000,000 and float was down about $4 Now the Dayforce recurring, that drive is driven mostly by go lives. You can generally think about that as mostly new business and now seeing a greater proportion of add ons. We also had some migrations from the APJ business which is driving that $6,000,000 part of that $6,000,000 decrease in the other recurring. And professional services and other was a huge increase in Q1.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

As you move into Q2 and beyond, you've got some seasonality in there. Our seasonality primarily around the Dayforce recurring side of things comes from the year end solutions. If you think about our year end services in the past, you should think about that pretty consistently year over year, which drives that same seasonality between Q1 and Q2 and that's how I would think about it. In Q2 also, I wouldn't expect as much growth in the professional services side. We grew 50% in Q1.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

I would expect that still above the recurring growth as I talked about in the first quarter, but not at 50% level. We're seeing strength in that number from obviously all the demand that we've seen in Q4 and into Q1. On Powerpay side of things expected relatively flat and then obviously we that other recurring in the bureau side goes down. The last piece of that is the float. And think about float as I think we gave specific guidance on this one kind of average balances in the $5,000,000,000 range.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

That's and an effective yield of about 3.6% for the second quarter.

Operator

Thank you. Next question today is coming from Mark Murphy from JPMorgan. Your line is now live.

Mark Murphy
Mark Murphy
MD - Software Research at JP Morgan

Thank you so much. I'll add my congrats. Jeremy, I'm curious how you're seeing the trends in some of your industries that are most acutely affected by tariffs thinking about airlines, retailers, maple syrup, energy providers, all that. Is there anything in the pipeline or employment levels that's reflecting any of the trade tensions yet when you look at the forward indicators? And then just on the Azure marketplace setup, can customers burn down their Azure credits to purchase Dayforce?

David Ossip
David Ossip
Chairman, CEO at Dayforce

Mark, I'll start with the easy question. Yes, they can burn down their Azure market credits, which is a big part of the actual partnership as well it does benefit the SIs from the same perspective. To the first part of your question, we haven't seen impact from the tariffs.

Operator

Thank you. Next question today is coming from Kevin McVeigh from UBS. Your line is now live.

Kevin McVeigh
Kevin McVeigh
Managing Director at UBS Group

Great. Thanks so much. David, you talked about that Canadian contract a little bit. I just want to make sure I understood. Did they extend that contract?

Kevin McVeigh
Kevin McVeigh
Managing Director at UBS Group

Was the dollar amount increased? Just could we start there real quick?

David Ossip
David Ossip
Chairman, CEO at Dayforce

Sure. On the Canadian, so there are two points over there. The first was, Kevin, we actually signed another federal agency contract with another government in Q1, similar types of dynamics to what you have with the Government of Canada deal. In regards to the Government of Canada deal, yes, they did sign an extension. It was a dollar amount of million, 70 2 million.

David Ossip
David Ossip
Chairman, CEO at Dayforce

That was mostly for services or digital services over the next I think fifteen months. So obviously that bears quite well for that project. But the comment that I made earlier was another government contract that we started in Q1.

Operator

Thank you. Our next question is coming from Samad Samana from Jefferies. Your line is now live.

Samad Samana
Samad Samana
Managing Director at Jefferies Financial Group

Hey, good morning and thanks for taking my question. Maybe just if I think about the guidance, it's a strong start to 2025. If you think about that range that you're reiterating, maybe help us understand what would allow you to get to the high end? Would that be bookings that have already been captured going live earlier than expected? Or would that be more of a function of out executing on bookings in the first half?

Samad Samana
Samad Samana
Managing Director at Jefferies Financial Group

Just as I think about that 15% to 17% constant currency, you guys split the middle in 1Q. How should we think about where you think you can land in the range? And as of today, you thinking closer to the middle where you started or towards the higher or lower end? Thank you.

David Ossip
David Ossip
Chairman, CEO at Dayforce

So, hey, Simon, nice to speak with you. I'll start and I'll hand it over to Jeremy. As you know, we have a very predictable business. We model out the revenue based on individualized projects tied to each of the different customers that we currently have in process and that shapes the revenue curve, if you like, for the various types of quarters. In terms of what could impact the second half of the year, one, obviously, we are benefiting from the strong Q4 and the strong Q1 sales.

David Ossip
David Ossip
Chairman, CEO at Dayforce

A portion of those will go live in October and then the remainder most likely would go live at the December for the fiscal year twenty six. There are some assumptions that we do have regarding the macro in terms of employment levels and obviously yields for the remainder of the year that kind of Jeremy went through in a bit of detail. Jeremy, what else would you add to that?

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

I think that's right. Employment levels are the key thing to watch for us. That's really kind of out of our control from a macro side of things. And to be clear, we haven't seen an impact to our expectations from employment levels yet. So if we kind of look at things right now, it's steady as she goes.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

I think otherwise no difference from prior years. It's add on sales as David mentioned, it's go lives. We've got our wallet business which continues to go strong and in line with our expectations and retention, which also, as I mentioned, very strong as well.

Operator

Thank you. Next question today is coming from Raimo Lenschow from Barclays. Your line is now live.

Raimo Lenschow
Raimo Lenschow
Managing Director at Barclays

Okay. Thank you. You said everything is on plan. The one question I have that is related to that is like on the go lives in Q1, is that just like the shape of where things were playing out with Q4 being very strong, etcetera? And in Q1, with bigger projects, they're getting more push in the later part of the year?

Raimo Lenschow
Raimo Lenschow
Managing Director at Barclays

Or is there anything else going on there? Thank you.

David Ossip
David Ossip
Chairman, CEO at Dayforce

Raimo, that's exactly right. If you look at Q4 of last year, it was up quite significantly relative to the year before, 01/1946 versus '47. When you look at it, you remember you have to look at really where the days of week align relative to the start of the payroll period for the customers. So in some years, go live was skewed towards Q4 and other years are skewed towards Q1. And you see that pattern as the year progresses between the differences between the actual quarters.

Operator

Thank you. Next question today is coming from Jared Levine from TD Cowen. Your line is now live.

Jared Levine
Jared Levine
Analyst at Cowen

Yes. Thank you. With your recently announced efficiency plan, can you discuss the primary expense items in the income statement expecting to see the benefit from the efficiency plans as well as the associated charges and how you're thinking about how much of those savings will be reinvested back into the business?

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

Yes, Jared, it's good to hear from you. Thanks for the question. Yes, I talked about this a little bit on the scripted remarks, but and we talked about this since it's we'd review the entire company from a functional and geographic perspective and the cuts really span broadly across both of those two vectors. I think going forward you should expect to see more leverage from G and A and we'll continue to drive slight scale and product and sales and marketing costs. And then our plan has always been to continue to improve recurring gross margins and our professional services gross margins when we get towards that breakeven line.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

The impacts and the savings are around $65,000,000 in year and $80,000,000 annualized. That's offset by probably about $10,000,000 of investment that we put back into the business on some specific projects. As far as the one time charges in connection with the plan, we incurred a non recurring restructuring charge in the first quarter of about $29,000,000 That includes severance costs, it includes employee benefits and related costs. It also includes non cash stock compensation. And those savings as we've talked about were reflected our initial 2025 guidance and of course remain reflected in our reiterated guidance.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

In Q1, it was about $11,000,000 and you'll see this in the notes to our 10 Q, dollars 11,000,000 of restructuring charges that were paid and that means we have a liability of about $18,600,000 The combination of those two gets you to the $29,000,000

Operator

Thank you. Next question today is coming from Steve Andrews from Citigroup. Your line is now live.

Steve Enders
Steve Enders
Analyst at Citigroup

Okay, great. Thanks for taking the question this morning. I wanted to ask just on the, I guess, the bookings and pipeline opportunity that you're seeing. I think last quarter you talked about new sales coming in above total revenue growth and it seems like it's looking that way for 1Q based on what you're saying. But do you feel the same way as you look out in the pipeline for the back half of the year or kind of what are you seeing in the pipeline dynamics right now?

David Ossip
David Ossip
Chairman, CEO at Dayforce

Question. As I mentioned on the call, the pipeline remains healthy. Q1 bookings were very strong. We expect that to continue through Q2 as well. Again, from a number perspective, we would expect year over year sales to come in about 40% greater than we saw in the prior year and in line with what we saw in Q4.

David Ossip
David Ossip
Chairman, CEO at Dayforce

So we're quite optimistic and confident on the sales front.

Operator

Thank you. Next question is coming from Alex Zukin from Wolfe Research. Your line is now live.

Ryan Krieger
VP - Software Equity Research at Wolfe Research, LLC

Hey, guys. This is Ryan Krueger on for Alex. Thanks for taking the question. I just wanted to circle back on some of the AI commentary, David, that you provided. It sounds like attach is really strong there, particularly around Copilot.

Ryan Krieger
VP - Software Equity Research at Wolfe Research, LLC

So just kind of curious what type of maybe Peppa uplift you're seeing in those AI deals versus the non AI deals and how that compares to initial expectations? And then just beyond Copilot, kind of what other AI features are you seeing good traction?

David Ossip
David Ossip
Chairman, CEO at Dayforce

Sure. So on the AI assistant, which is the new name, if you like, for Copilot, we saw a 50% attachment rate of that particular SKU to new deals. That's obviously very encouraging. We are launching a series of AI agents this year across all the various domains that we play in, so HR, payroll, time and talent. You'll see those coming out through the year and that obviously gives us another ability to see a revenue uplift or SKU uplift.

David Ossip
David Ossip
Chairman, CEO at Dayforce

We still have tremendous white space across our almost 7,000 customers where we can go back and upsell them the advanced experience hub with the AI assistant. What you'll see actually if you look at the application today and the features that we're releasing is that AI is everywhere. We have a distinct advantage over the others in that we have a single database, a single native code base and that allows us to really leverage that single database to drive AI in every touch point from the employee frontline manager all the way to the executive. In terms of the agents, we have two different types of agents. We have agents that are designed for their employee and we have agents that are designed for the administrator.

David Ossip
David Ossip
Chairman, CEO at Dayforce

And I think the customers will benefit greatly from the innovation that we're doing around AI.

Operator

Thank you. Our next question today is coming from Brad Reback from Stifel. Your line is now live.

Brad Reback
Brad Reback
Managing Director at Stifel Financial

Great. Thanks very much. David, on what appears to be meaningful acceleration in sales force productivity, Is that coming from meaningful uptick in win rates out in the field, growing pipeline, top of the funnel, DSI? Maybe you can talk to that a little bit. Thanks.

David Ossip
David Ossip
Chairman, CEO at Dayforce

Yes. So thanks for the question. So let me break it down. Yes, we've seen our win rates go up significantly year over year. If I were to estimate, would say they've almost doubled in terms of our win rates.

David Ossip
David Ossip
Chairman, CEO at Dayforce

I don't know how much further we could take the actual win rates. What is resonating very well is our technology leadership that we have that single code base, that single database. We do the twelve:one simplification. It's resonating with the actual market. We're seeing that reflected in percentage of full suite deals that we're now doing.

David Ossip
David Ossip
Chairman, CEO at Dayforce

If I would look at Joe's strategy when he joined the organization about three, four years ago, which was to build a full suite, So from pre hire to retire code base that is gaining traction. Again, when we look at kind of the major market space, which is at 500 to 3,500 employee or we look at the enterprise space, we've seen full suite deals in major markets of about 90 and full suite deals in enterprise of 100%. So that's one of the reasons that you're seeing our win rates go up. You're seeing the acceleration of the actual sales. I do believe we are quite differentiated in the segments that we play on.

David Ossip
David Ossip
Chairman, CEO at Dayforce

Our global payroll story as well is very, very strong and we're still seeing traction on that. Our advantage in managed services, which have to do with the payroll and on the benefit side is a very, very strong differentiator. That's up 70% year over year. And I would say that the execution of the sales organization led by Sam is working very, very well that they're able to articulate the value proposition clearly. Customers understand how that results in very strong ROIs to their organization, much better experience.

David Ossip
David Ossip
Chairman, CEO at Dayforce

We're obviously riding the AI kind of wave just given our advantage of having that single code base and that very well structured data set that allows us to leverage kind of large language models and other ML types of technology very, very effectively to the benefit of our customer bases. But as you can tell, we're very optimistic on the sales side.

Operator

Thank you. Our next question is coming from Daniel Jester from BMO Capital Markets. Your line is now live.

Daniel Jester
Daniel Jester
Director & Equity Research Analyst at BMO Capital Markets

Great. Thanks for taking my question. Maybe two real quick ones for Jeremy. First on free cash flow, first quarter was very strong. I think historically your first quarter cash generation is a little bit lighter.

Daniel Jester
Daniel Jester
Director & Equity Research Analyst at BMO Capital Markets

So can you help us think about the seasonality for the rest of the year? And then secondly on the Government of Canada contract that new $72,000,000 that David mentioned, is that net new or with some of that already contemplated in your guidance for the year? Thank you.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

Thanks, Dan. It's good to hear from you. The seasonality in free cash flow will continue. Q1 is the lower sales quarter you've got excuse me, the lower free cash flow quarter. You've got things like bonus runs for our employees.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

You've got annual subscription to go out the door and those things impact our cash flow. You'll see a very similar trend obviously with the tide raise with our increased cash flow, but a very similar trend to past years on a quarterly basis. And as we progress towards that 12% free cash flow margin in our guidance. As you think about the Government of Canada, it's a the work is continuing I think really, really nicely. That substantive contract that we signed continues the professional services work and that will continue to help drive that growth professional services revenue growth above the recurring growth for the near term here as we continue to work through that project. David, anything to add on Government of Canada?

David Ossip
David Ossip
Chairman, CEO at Dayforce

No, just I do think it is a sign of confidence on the actual project. It's consistent with what the government has said in prior years. Obviously, there was some risk going into the quarter with the elections that were going on, but I think we came out of that rather well. I think you'll see that reflected as well in the professional services and other line, which if you look at kind of the professional services and other adjusted margin, it's really improved very, very nicely. In terms of the guidance comment, yes, we had made assumptions that the project would continue and this obviously derisks that item, gives us certainty about the revenue stream.

Operator

Thank you. Next question today is coming from Jason Celino from KeyBanc Capital Markets. Your line is now live.

Zane Meehan
Zane Meehan
Associate Analyst, Equity Research at KeyBanc Capital Markets

Great. Thank you. This is Zane Meehan on for Jason this morning. Thanks for taking my question. Just a question on Wallet.

Zane Meehan
Zane Meehan
Associate Analyst, Equity Research at KeyBanc Capital Markets

For customers that are using Wallet, what level of utilization are you seeing by their employees? And in periods where macro might be more uncertain or tighten, would you expect for that utilization to increase? Thanks.

David Ossip
David Ossip
Chairman, CEO at Dayforce

That's an interesting question. We with the actual wallet product, we have on demand pay where the employees are able to move their earned wages onto their MasterCard and they can go off and obviously spend. For that particular product, it's largely for, I would say, the unbanked employees in The United States, which allows them to avoid check cash in fees. It allows them to not have to do payday loans to bridge their finances. For those employees, we're seeing a very, very high utilization rate.

David Ossip
David Ossip
Chairman, CEO at Dayforce

Typically, they use the product about 25 times per month with an average spend of about $25 It's been largely consistent, that type of utilization since we launched. We also have direct deposit capability, which is at the end of the pay period instead of having the money deposited to a direct deposit account or a paper check. We allow employees to get paid through direct deposit directly to the wallet. The benefit for the employee is that the money transfer happens immediately, whereas when we do direct deposit to other bank accounts, we go through the ACH system, which takes between $24 and $48 Again, with the unbanked employees, this gives them effectively a bank account, which allows them to get the money very, very quickly. We also have capability if employees have other cash apps or if they want to do instant transfer, we call that AFT and IFT, where people can do the transfers immediately or pull the money from the other wallets.

David Ossip
David Ossip
Chairman, CEO at Dayforce

We launched that last year and that immediately got a lot of traction. And we'll continue to see that traction grow. Earlier this year, we launched direct to bank capability. We started first with the ability of when someone does an on demand pay transaction, instead of going to the Mastercard that we provide, they have the ability to use any debit card. And there is a fee for that.

David Ossip
David Ossip
Chairman, CEO at Dayforce

We launched that. That's going very, very nicely. We're seeing effectively the revenue from that go up by a few thousand dollars each day of week relative to the same day of week last year. So we're very confident that will generate several million dollars of revenue over there. And more recently, we just launched the ability for someone to do an on demand transaction to any direct deposit account that they actually have as well.

David Ossip
David Ossip
Chairman, CEO at Dayforce

The last two items that I spoke about are largely focused around not the unbanked employees, but rather the banked employees. So we would expect to see a benefit to wallet this year from those capabilities much like we saw from AFT and IFT last year.

Operator

Thank you. Next question today is coming from Bobbin South from Deutsche Bank. Your line is now live.

Bhavin Shah
Bhavin Shah
Director - Software Equity Research at Deutsche Bank

Great. Thanks for taking my question. I think earlier you spoke about migrating customers from the APJ legacy business over to Dayforce. How is that going relative to your expectations? And kind of what kind of uplift are you seeing as you migrate legacy platform to the more modern Dayforce solution?

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

Thanks for the question, Bob. And yes, you can see in our other this most clearly in our other recurring line where that was down about 29%, thirty % year over year. And in the future in Q2 and Q3, I actually think that percentage could even accelerate above that into the 40% ranges. We made some decisions to really aggressively kind of move customers and target customers either over to Dayforce or off, so that we can drive the efficiency and the profitability of the company a little bit faster. As the customers move over and migrate over, we do get an uplift.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

That uplift varies contract to contract, but it's a pretty decent uplift probably on average 50% or so. And we continue to see that as we move customers over.

Operator

Thank you. Next question is coming from Michael Turrin from Wells Fargo. Your line is now live.

Michael Turrin
Michael Turrin
Managing Director, Software Equity Research Analyst at Wells Fargo

Hey, thanks. Good morning. I appreciate you taking the question. David, some notable commentary on bookings throughout the call would be useful to hear your perspective on the competitive landscape, how that's evolving? And if you can compare and contrast what you're seeing between mid market and enterprise as well as speak to some of the consolidation opportunities you're highlighting in the press release, that's all helpful. Thank you.

David Ossip
David Ossip
Chairman, CEO at Dayforce

So regarding the competitors, as I mentioned, we've seen our win rate go up by almost double if you like year over year. And so that gives evidence that I think our product is performing very well and we are gaining market share. Our overall market share still is relatively low, probably under 4%. So it gives us a lot of optimism that we should be able to be a market taker for quite some time going forward. What's driving this is that we are quite unique with our single database model, native code for all aspects from pre hire to retire.

David Ossip
David Ossip
Chairman, CEO at Dayforce

It does allow an organization to do that twelve:one simplification. And as they do that, they typically pay less subscription. They save a tremendous amount of labor costs in that they don't have to support 12 different systems when they move to a single Dayforce application. And equally important, they have the ability to do much better decision making because the data is all accessible and it's all in the same data store. And they can leverage newer technology like language models, machine learning and other AI type of tech, which obviously benefits everyone from their frontline worker to the executives.

David Ossip
David Ossip
Chairman, CEO at Dayforce

The value proposition I think is being understood by the market. And I think if people do field research, they'll find that the product truly is differentiated. In terms of the competitive market set, we haven't really seen much of a change. Our competitive market set has been largely the same, which is one other HCM provider that obviously has a few headwinds and then the typical ERP players as we go more and more upmarket. We've seen again tremendous success with full suite sales all the way from emerging to the enterprise space, so up to that 12,000 employee space.

David Ossip
David Ossip
Chairman, CEO at Dayforce

And we are beginning to see success with full suite sales in the large enterprise market. Again, like I mentioned, the entertainment and leisure company of about 62,000 employees buying the full suite. Our focus again remains on organizations that have frontline workers, which is the majority of the actual workforce. As you know, we have always focused that we have the continuous calculation. We've been the leader in compliance for quite some time.

David Ossip
David Ossip
Chairman, CEO at Dayforce

We continue to invest in compliance. Last year, we did over 900 compliance features. I called out some of the compliance features we did on a global basis in the first quarter of this year. And I think that continues to be a very, very strong differentiator. And now when you couple that with our really competitive talent offerings and data offerings and managed services offerings, we're a difficult organization to compete with.

Operator

Thank you. Next question today is coming from Alan Perkowski from Scotiabank. Your line is now live.

Allan Verkhovski
Associate Director - Equity Research at Scotiabank

Hey guys. Thank you for taking the question and great to hear about all the booking strength in the quarter. I want to follow-up on SI's priming implementations. Could you just go deeper on what business trends you've seen there over the past three months maybe compared to the year ago period? That would be great.

David Ossip
David Ossip
Chairman, CEO at Dayforce

So let me start by saying that building a powerful SI ecosystem is very important to our organization. Sam, our CRO and his organization has specific targets that we measure in terms of SI involvements in each of our sales and as well we measure the percentage of takeoffs and projects that are primed by the SIs. We have different layers or different levels of SI partnerships. We started the Tier 1s. For example, if we look at the Government of Tundra, you'll find ENY would be the prime on that particular deal.

David Ossip
David Ossip
Chairman, CEO at Dayforce

We also deal with CGI on that particular. But we have very strong Tier one SI partners that we use typically in the large enterprise space. When we go into the enterprise major markets and emerging spaces, we typically bring on a different set of SIs along the lines of groups like BDO and such, which are very well geared for delivering quantifiable value to that particular market set. The use of the SIs really allows us to scale the organization without building out a tremendously large services organization. It also helps us in terms of building out the pipeline, influence of the actual pipeline as well.

David Ossip
David Ossip
Chairman, CEO at Dayforce

And so we're encouraged with what we're actually seeing on the SI side.

Operator

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.

Jeremy Johnson
Jeremy Johnson
Executive VP & CFO at Dayforce

Just want to say thank you very much for attending the call today. We look forward to hosting you on the Q2 call and also just want to send a special thank you to all the Dayforce employees that are out there supporting this company as we continue to do really, really good work for our customers, existing customers and attracting new customers as well. Thank you very much.

Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Executives
    • David Niederman
      David Niederman
      VP - Investor Relations
    • David Ossip
      David Ossip
      Chairman, CEO
    • Jeremy Johnson
      Jeremy Johnson
      Executive VP & CFO
Analysts
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