Dayforce Aims for $1B Free Cash Flow by 2031 with AI and Sales Growth

Strong Performance and Strategic Focus

Dayforce Inc. (DAY) delivered impressive results during its Q2 2025 earnings call, with CEO David D. Ossip highlighting the company's strong performance across all metrics. The company exceeded expectations, with Dayforce recurring revenue excluding float growing 14% on a constant currency basis. Adjusted EBITDA margin improved by 420 basis points to 31.7%, and free cash flow reached $87.1 million for the quarter.

Ossip emphasized the company’s strategic focus on consolidating multiple HR systems into one, which is driving efficiencies and enhancing customer value. He also announced an increase in free cash flow margin guidance from 12% to between 13.5%-14%, aiming to achieve $1 billion of free cash flow by 2031.

Sales Momentum and Customer Wins

The company reported robust sales momentum, with bookings growing over 40% year-to-date. Sales to existing customers grew over 50% in the second quarter, representing 40% of total bookings. Ossip noted that system integrator-led sales growth outpaced overall sales growth, with the back-to-base sales strategy gaining traction.

Key customer wins included a global apparel leader replacing eight software vendors, a U.S. infrastructure provider, a large multinational industrial company, an energy service company, and the government of Canada. Dayforce also took live its largest customer to date, with over 300,000 employees.

Product Innovation and AI Integration

Product innovation was a central theme during the call, with Ossip describing the launch of new AI-driven features such as AI skills-based learning, advanced analytics, and the Dayforce AI Assistant. These features were included in over half of new business wins, and nearly all new business wins included the AI people platform. More than 80% of new business wins also included AI analytics.

Financial Highlights

CFO Jeremy R. Johnson provided financial details, stating that total revenue was $465 million, up 10%. Excluding float, total revenue increased 12%, with Dayforce recurring revenue excluding float reaching $315.5 million, up 14%. Operating profit was $42.3 million compared to $14.1 million last year. Adjusted EBITDA was $147.2 million, up 27% or a 31.7% margin, expanding 420 basis points.

Outlook and Guidance

For the full year 2025, the company guided total revenue of $1.935 billion to $1.955 billion, Dayforce recurring revenue excluding float of $1.324 billion to $1.344 billion, adjusted EBITDA margin of 32%, and free cash flow margin of 13.5% to 14%. This reflects an increase from previous guidance of 12%, attributed in part to legislative changes affecting tax deductibility on domestic R&D costs.

For Q3 2025, guidance includes total revenue of $476 million to $486 million, Dayforce recurring revenue excluding float of $329 million to $339 million, and adjusted EBITDA margin of 30% to 30.5%. Johnson indicated that the company expects Dayforce recurring revenue, excluding float growth rate in the fourth quarter of between 16% to 19%.

Financial Results and Stock Repurchases

The company reported $465 million in total revenue, with professional services revenue at $71.6 million, up 23%. Operating profit was $42.3 million. Year-to-date net cash provided by operating activities was $162.3 million, and free cash flow was $106.6 million, with margins expanding by 500 basis points year-over-year. The company repurchased $20.8 million of common stock in Q2, totaling $51.2 million year-to-date.

The company expects a $30 million cash charge and a $205 million noncash expense in Q3 related to the termination of a legacy pension plan, with all charges included in free cash flow guidance.

Analyst Questions and Management Responses

Analysts focused on several key areas, including SI partner-led sales, deal characteristics, translating bookings to revenue, go-lives, AI monetization, and the impact of legislative tax changes. Ossip and Johnson provided detailed numerical responses, addressing concerns about revenue conversion and guidance ranges.

Sentiment and Confidence

Analysts maintained a generally positive tone, congratulating management and focusing on momentum while pressing for clarity on revenue conversion, guidance ranges, and AI monetization. Management's tone was confident and data-driven, using phrases such as "we are confident," "feeling bullish," and "very, very happy with that."

Quarter-over-Quarter Comparison

Guidance for free cash flow margin increased from 12% in Q1 to 13.5%-14% in Q2, with the company targeting $1 billion in free cash flow by 2031. Q2 emphasized AI product launches, deeper SI-partner integration, and accelerating back-to-base sales, compared to Q1's focus on foundational sales momentum and efficiency initiatives.

Risks and Concerns

Ossip noted that employment levels are up about 1% year-over-year, below historical averages, but stated demand remains strong in key verticals. Johnson discussed expected charges related to pension plan terminations, which are included in guidance. Analysts questioned the predictability of revenue conversion from bookings and the wider guidance range for Q3, with management attributing this to larger deal sizes and seasonality.

Final Takeaway

Dayforce management reinforced confidence in its long-term trajectory, raising free cash flow margin guidance for 2025 and reaffirming its goal to achieve $1 billion in free cash flow by 2031. Strong year-to-date bookings growth, rapid adoption of AI features, and continued success in large enterprise deals position the company to capitalize on both operational efficiencies and expanding market demand, with management emphasizing visibility into growth drivers and sustained momentum into the second half of the year.