Q4 2022 Alight Inc Earnings Call
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Good morning, and thank you for holding my name is Paul and I will be your conference operator today welcome to our lives fourth quarter and full year 2022 earnings conference call. At this time all parties are in a listen only mode.
A reminder, today's call is being recorded and a replay of the call will be available on the Investor Relations section of the company's website.
And now I would like to turn the call over to Jeremy Hayden Executive Vice President Finance to finance at all like to introduce today's speakers.
Good afternoon. Thank you for joining us earlier today the company issued a press release with fourth quarter and full year 2022 results a copy of the release can be found on the Investor Relations section of the company's web site at Investor Day, the light Dot Com before we get started please note that some of the company's discussion today will include forward looking.
Statements such forward looking statements are not guarantees of future performance actual results may differ materially from those expressed or implied in the forward looking statements due to a variety of factors. These factors are discussed in more detail in the company's filings with the SEC, including the company's most recent Form 10-K as such factors may be update.
From time to time in the company's subsequent filings with the SEC. The company does not undertake any obligation to update forward looking statements.
Also throughout this conference call the company will be presenting non-GAAP financial measures reconciliations of the company's historical non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's earnings press release on.
On the call from management today are Stefan Schulte, CEO and Katie Rooney CFO . After their prepared remarks, we will open the call up for questions I will now hand, the call over to stfan.
Thank you and good afternoon, everyone. We are excited to share our Q4 results, where we finished the year with great momentum delivering another quarter ahead of expectations with revenue up 9% and adjusted EBITDA of 27%.
Our strong finish to 2022 completes year two of the three year plan, we outlined in 2021 ahead of expectations.
Our consistent performance is a testament to the differentiated value, we deliver for our clients and their employees and the attractive market opportunity that a light is uniquely positioned to meet.
RB pass offerings have accelerated our strategy by connecting the power of data with our products and capabilities across the spectrum of human capital solutions to redefine the future of employee wellbeing.
This strategy has culminated with transformational wins for our light with Pwc shell and the federal Thrift and this quarter is no different we signed a company defining the long term agreements with GE and another Fortune 10 company, where are our light work life platform serves as the front door to connecting <unk>.
High value content and driving employee engagement.
With these new wins, we are accelerating our investments while delivering double digit growth in 2023.
Since going public we have met or exceeded expectations each quarter more.
More specifically in 2022 full year total revenue increased 7% to $3 1 billion driven by 9% growth in recurring revenue, which now represents approximately 84% of total revenue.
On a total contract basis, the bookings up our technology led B pass solutions grew nearly 45% to 871 million well ahead of our 680 to 700 million annual target.
And B pass revenue for 2022 was $564 million.
Up 45% versus prior year and now comprises 18% of total revenue up from 13% in 2021.
Adjusted EBITDA increased 6% to $659 million, even with $38 million of incremental investments in the year and finally, we achieved operating cash flow conversion of 43% up from 19% in 2021.
I'm incredibly proud of the way our team continues to deliver on our commitments, while making meaningful progress on our transformation.
We have focused in three key areas products and technology.
Our commercial go to market and how we deliver for clients.
First in product and technology, we have launched a light work life and migrated all of our clients onto our enterprise wide employee experience platform.
This is the foundation for engagement work life has become the single resource from daily Wellbeing to complex care Ambulate work like mobile App is key to digital engagement.
In 2022, the App was downloaded 1.2 million times.
Our monthly active users increased to 170% and through annual enrollment we saw a 200% increase in digital benefit enrollments with higher overall client satisfaction.
Next our commercial go to market.
We've built out our new logo team as well as value engineering and solution architects to accelerate our growth.
Since 2021, we have won over 700, new logos, including Navistar Pwc Sartorius shell genuine parts, Siemens energy and Autozone. In addition to our great Q4 wins.
We are just shy of our three year be best bookings T. C V target by the end of year two.
Finally, we are delivering for our clients as I've said before we believe it light isn't a category of one when it comes to bringing our platform and content approach combined with decades of services expertise.
In 2022, we on boarded the federal thrift, the largest transaction of its kind with over 6 million participants.
And through annual enrollment this past quarter, our digital <unk> or customer satisfaction was up 10 points, while reducing overall live call volumes a significant factor in how we staff and manage while delivering for our clients moving forward.
The momentum we have heading into 2023 is because of these focus areas that bring together the power of one the light and is the reason we are winning these transformation of new deals that support both the employer and the employee.
For the employer light work life simplifies and improves the experience and value, they're able to derive from the complex ecosystem across employers benefits and well being investments.
For the employer these solutions help them achieve a higher ROI, while improving employee satisfaction and engagement.
A real life example, we come across often is family planning in the traditional model of support and employee needs to navigate multiple siloed applications to get support with medical or adoption planning.
Insurance coverage options and plan selection, HSA, FSA and 401k decisions and leave management. This.
This places tremendous mental stress on the employee trying to manage it all and what is supposed to be an exciting time of life now with our integrated a light work life platform one status change for the employee triggers a proactive data driven personalized message with support and options to address all dimensions of family.
Planning, even surfacing, new well being programs and resources. They typically wouldn't have known existed.
All in a seamless experience.
Another example of a high impact like the vendors divorce and the connection between employees financial stress and anxiety driving a need for mental illness support this.
This employee may have multiple four one K loans no remaining holiday time, typically a company will not be able to connect all the dots on this specific employee unless they have the data on them in one connected a light work life platform.
Just two examples of many but this is the value of a light work life engagement platform.
As we enter 2023 year three of our transformation I am more confident than ever that we are focused in the right areas and as I said earlier, we will continue to accelerate our investments strengthening our competitive advantage and further developing our differentiated solutions, which are winning in the market with our strong bookings growth and highly recurring revenue model.
We ended the year with over $2 9 billion of revenue under contract for 2023, the highest starting point for a light ever for context, $2 9 billion was our entire revenue in 2021.
This gives us confidence that we can continue to improve gross margin and operating cash flow in 2023, while accelerating our technology roadmap.
Despite what we and others believe will be a tougher macroeconomic backdrop.
We're 2023 we'll complete our three year plan ahead of the original outlook. We expect total revenue growth of 11% to 12% adjusted EBITDA growth of 12% to 14% and operating cash flow conversion of 45% to 55% importantly, when you look at the quality of the mix of our business in twenty-three following the strong.
Execution of our transformation in prior years.
We expect a higher value be best revenue dollars to grow over 25% for the year.
Now, let's dive more into 2023, so I can share some key areas of focus we believe that in a recessionary environment employers are under increased pressure to hold the line on spending proving out the ROI on benefits spend is even more critical. Additionally, we believe that companies with truly differentiated wellbeing programs will be those that retained top.
Talent during challenging times, and ultimately positioned themselves well for long term success.
To continue to execute on our strategy, we are accelerating our investments across three priorities first is your light work life platform.
Our 2023 product roadmap kicks off with the first release date this month.
Where we will expand access of a light work life to all family members, which we believe will make it the first corporate platform of its kind.
The expanded access will allow us to move the needle and an even more meaningful way on carrying for the well being of the entire family unit. Additionally, we are seeing higher engagement through our late work like AI engine recent entrants have validated the importance of AI being at the center of our platform strategy.
Last year, our engagement channels, such as our intelligent virtual assistant we're up 20% and we are seeing significantly higher conversion rates on campaigns leveraging AI for clients.
Finally, we are accelerating the move to the cloud on our back office infrastructure.
This will enable us to better manage seasonal peaks in demand, while improving the employee experience for our customers.
We are strengthening our operating model to showcase the power of one of the lights by shifting our content aligned care and services model to be more standardized and automated we can leverage our global capabilities and improve the customer experience, while reducing the cost to serve for all our clients.
Third we are evolving our <unk> solutions across while being driving more differentiation and increasing our revenue potential as we address a bigger need for our clients today, we have over $1 billion of upside in our installed base alone as we work towards having 90% of our sales team certified on when a light and launched the next phase of our world.
Being an engagement solutions, we will capitalize on our growing total addressable market now I'll turn the call to Katie to dive more into our financial performance and provide our outlook for the new year.
Thank you Suzanne and good afternoon, everyone. We continued to drive positive results across our business as we closed out the second year of our transformation I am pleased to share our fourth quarter results capping a year in which we beat the high end of our guidance range for revenue and achieved the high end of our guidance range for adjusted EBITDA.
Let me start first with our commercial results, we continue to exceed expectations and see strong adoption of our <unk> paas offerings.
By company defining new logo win with GE Chipotle in a fortune 10 client during the fourth quarter.
On a total contract basis be paas bookings for the full year grew nearly 45% to 871 million well ahead of our $680 to $700 million target.
This bookings growth translates into higher contracted revenue and accelerating overall revenue growth.
<unk> revenue for 2022 grew nearly 45% to 564 million and comprised 18% of total revenue at year end up from 13% at the end of 2021.
With our strong execution, we ended the year with over $2 9 billion of 2023 revenue under contract, our highest ever and over $800 million higher than our starting point in 2021.
Across our consolidated results, we continue to see progress as our investments pay off and the increasing quality of the mix of our business shows.
Full year total revenue increased seven 4% to $3, one 3 billion driven by eight 6% growth in recurring revenue, which now represents approximately 84% of total revenue adjust.
Adjusted EBITDA increased six 1% to $659 million with an adjusted EBITDA margin of 21% in line with prior year, Despite 38 million of incremental investments in the year.
Well, we continue to accelerate our investments in our light work life and large new deals we delivered operating cash flow of 286 million for the year with a free cash flow conversion of 43% significantly ahead of last year.
Next I'm going to discuss the performance of our two primary segments.
First for employer solutions fourth quarter revenue was up 10% with recurring revenue up nine 3%.
Project revenue was up 17, 4% in the quarter driven by several larger annual enrollment projects that we discussed investing in during our November call.
Fourth quarter gross margin increased 190 basis points benefiting from seasonality and a positive return from some of the investments earlier in the year.
Fourth quarter, adjusted EBITDA increased 24, 4% to $240 million and adjusted EBITDA margin expanded 330 basis points to 28, 7%.
Turning to our professional services segment fourth quarter revenue was up two 2% to $95 million driven by 3% growth in recurring revenue.
Importantly, we continue to see strength in our sales pipeline and backlog heading into 2023.
Margin was up 380 basis points in the fourth quarter to 25, 3% as several larger deals went live.
Fourth quarter, adjusted EBITDA was $1 million.
In addition to our focus areas driving transformation through technology and commercial we know that connecting high value content to our platform has the power to change the way that people interact with HR their benefits and their employer and some of the most important life decisions to.
To that end in December we closed on the regroup transaction for a net consideration of $87 million.
This is an important bolt on acquisition in lead management solution that brings critical content to build upon a light strategy to support employees and their dependents from higher through retire.
Turning to our balance sheet, our year end cash and cash equivalent balance was $250 million and our total debt was $2 8 billion given the interest rate environment. We believe we are well positioned given our hedging strategy with over 70% of our debt portfolio fixed through 2024, and 50% fixed for 2025.
In addition, we have no near term debt maturities of significant size until 2025.
We did not make any share repurchases in the fourth quarter, but we'll continue to opportunistically evaluate stock buybacks against other attractive opportunities we have for investing in the business organically and inorganically through disciplined M&A.
Now let me provide you some color on our cash flow performance and our outlook going forward.
In 2022, we invested an incremental $38 million in technology commercial and to support significant new logo wins, including the federal threats.
We made progress in improving our cash flow from operations by generating operating leverage on the investments we made in improving working capital metrics.
For the 12 months ended in December we generated $286 million in operating cash flow versus 115 million over the same period last year.
Turning to our outlook. It's the Fam highlighted we continue to see the momentum building after a year or two of our transformation. We believe the mission critical products, we provide and our strong client relationships position us well to withstand economic challenges a few stats were keeping in mind we.
We have approximately 84% annual recurring revenue.
With 98% average annual revenue retention up from 97% in 2021, our average contract lengths are three to five years and we serve a diverse client base, including approximately 70% of the fortune 100.
With that I'd like to turn to our 2023 outlook for the year, which is in line with our stated goals of improving revenue growth margin expansion and higher operating cash flow conversion.
Our outlook is revenue of 3.47 to $3, five 1 billion or growth of 11% to 12%.
Adjusted EBITDA of 735% to $750 million or growth of 12% to 14% with EBITDA margin expansion of 15% to 50 basis points, even with $50 million of investments, which I will discuss shortly.
Adjusted EPS of <unk>, 62 to 67 or growth of 9% to 18%.
The path P. C D bookings of $900 million to $1 billion and an operating cash flow conversion rate of 45% to 55% up from 43% in 2022.
Let me share the key factors driving our outlook.
First revenue growth is driven from new deals going lives, including large one or might be passed when the full year effect of the federal thrift contract and the addition of Red grip.
Second given the commercial successes of the first two years of our transformation, we're continuing our investments and work life and our go to market strategy as well as implementing the large new clients. We mentioned earlier, we expect the spend tied to these initiatives to be approximately $50 million.
Next as we enter the next phase of our transformation to drive margin expansion and higher cash flow, we're announcing a two year restructuring program in order to accelerate our back office infrastructure into the cloud and transform our operating model with how we deliver for clients every day, leveraging technology and ultimately reducing our cost to serve.
Total costs are estimated at $140 million for the program weighted more towards year, one with estimated savings over $100 million annually, making for a very strong payback over time.
Even with this spend we will increase our cash flow conversion each year and drive employer solutions gross margin expansion of 50 to 100 basis points in 2023, and 100 to 150 basis points in 2024.
Finally, we are cautiously optimistic on impacts from the macro environment in 2023, and its potential impact on our commercial pipeline and project revenue we.
We expect the seasonality profile in 2023 will be largely consistent with 2022.
As mentioned previously we're hosting our Investor day at the New York Stock Exchange on the afternoon of May 15th and look forward to sharing key updates and further detailed on the next phase of our ongoing transformation.
In closing we are ahead of our initial plans with great momentum and are continuing to invest in our growth as we look to 2023 and beyond.
We are confident that our transformation journey and dual pronged engagement platform and content strategy will continue to succeed and position us as the leader in our industry.
This concludes our prepared remarks, and we will now move into the question and answer session.
Operator would you please instruct participants on how to ask questions.
Thank you well now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Thank you. Our first question is from Kyle Peterson with Needham <unk> Company. Please proceed with your question.
For taking the questions and wanted to dive a little bit into the restructuring program that you guys announced seems like you have good amount of savings in quite a bit of wood to chop out how should we thinking about the cadence of that.
These cost savings and how much is in kind of that 23 outflow of course, you know what how much falls into 'twenty four.
Yeah, Kyle Thanks for the question.
And Youll see two we we did put out in the 8-K Youll see some ranges on costs, which I think will be helpful. For you as well, but we said you know about two thirds of the costs will hit in 'twenty. Three you know intentionally as we accelerate the technology transformation, particularly to serve some of these you know big big and new client wins.
From a margin perspective, as you think about the savings around that that's factored into our guidance for 2020 three and then I think importantly, that's why I mentioned some of the stats and 24, you'll start to see improving operating cash flow and a faster acceleration on margin improvement in 'twenty four.
Yeah.
Okay. That's that's really helpful. And then I guess, just a quick follow up.
You know in the professional services outlook.
Seems like that.
In a bit stronger than expected I know you guys kind of mentioned the better pipeline heading into 'twenty three.
Have you guys seen any pressure or impact from kind of some of the macro uncertainty or or is it kind of been guns blazing in full speed ahead on the services front.
[laughter] tons of oil yeah.
Little bit of both.
I'd say, you're right that the team has done a great job in that business really driving the strongest backlog we've had heading into 'twenty three.
And I think some of that ties into some of them want a light deals, we're winning where we can play a larger role them from a professional services perspective as well.
What I would take how we you know we've talked about it and some of the earlier calls as well you know the one area, where we have seen some slowdown it is more on the international front.
As we see you know a little bit of a slowdown there, but so far we've been able to navigate through that.
And you know again as I look at the pipeline heading into 'twenty three it's.
Still very strong.
Alright, that's great color, thanks, guys nice quarter.
Thank you.
Thank you. Our next question is from Kevin Mcveigh with Credit Suisse. Please proceed with your question.
Great. Thanks, so much not only a nice quarter, but really really nice outlook.
So congrats on that thank you thanks, Kevin.
Really well done he.
Stfan of Kt can you deconstruct the revenue because clearly you're seeing you know meaningful uptick in the revenue kind of 11% to 12%.
From kind of the original six to seven when you set the 'twenty two.
Maybe just some the.
Delta on that kidney, maybe pricing obviously, the that the bookings kind of stood out as well maybe just.
Racing verses and is there any kind of macro impact because it's just really really terrific outcome, particularly given sometimes you see some client hesitancy to switch given macro uncertainty, which feels like it's anything but that but maybe just try to understand that a little bit and then if if there's a way to maybe think about what percentage be pass should be as a <unk>.
<unk> revenue in 'twenty three.
Yeah.
Yeah sure Kevin maybe let me start and then Katie can give some more color to it I mean, I think the one sentence that I articulated in the discussion earlier is $2 $9 billion of backlog, which is the same that we had as revenue in total in 'twenty. One so that's that flight to quality of everything ive been talking with the last few years.
<unk> out more a or our subscription based business longer term contracts higher value dollars.
And as you know the the gift that keeps giving as if you you'll get these kinds of deals that are the E. R. R type deals.
Really selling perform or reliance on project based type one time business, just becomes less and less as part of our recipe moving forward now in 'twenty three we still have a big reliance on a lot of that project work and as we just as you've just heard Katie say a few minutes ago.
Our backlog is the strongest and the one time project based business, we see resurgence in that but the focus really has been to your question in the last couple of years is building out that strong recurring revenue stream and <unk> is a big part of that you saw 40 plus percent growth you know on that last year.
25% growth on that baseline this year 13 to 20 plus percent in 'twenty three when do you think about it. So that's a pretty big needle mover is a percent of revenue as a percent of as a percent of revenue sorry, yes, as a percent of revenue. So those are the big contributors to to the consistent growth that we're seeing right now what would you add Katy.
No I mean, I think that's well said it it's the right question, Kevin and I think you know we've.
I think people have been waiting to see can you really accelerate growth in this business and I think we're doing it in a right way as defense, adding through recurring subscription based revenue that is and you know.
They've all sticky and bring the states want to like deals together, where we can help transform our clients and honestly that that helps our financial profile as well. So you know moving to 20% of our revenue and be passed in 'twenty. Three I think is a big milestone for us.
What's baked in obviously off a higher base as well Hey, Stephen I think you mentioned like a potential upwards of $1 billion of revenue off the existing installed base.
Any sense and it may be hard, but just how does that come in is that something that kind of you know they see the success of the App and then.
Is that kind of additional modules is that upsell of kind of the type of packages or taking it just because obviously a really big number even relative to the current run rate of the revenue.
Yeah.
That's right I mean, if you think about the platform approach about what work life is it is that front door.
If you think of the last two big wins I announced GE in this large fortune 10 company that'll allow us to say their name publicly once they announced to their own employees.
Shortly.
Those are just transformational deals that take a lot of content plus third party content and relegate it in to our work life platform. So the economics are just a much larger footprint. So when you think about G E and this the size of content that we're touching from the.
The HR side of the house the benefit side of the house I mean, it is a broad sweeping content layer and we were able to convince them to give us all of that content because of the work life approach and the platform approach and as I said this for the last year and you can see it in 'twenty three even more heightened and I did about what 'twenty twenty-five client calls and kind of the latter.
Part into November December of last year every single client on the HR side is looking to consolidate and simplify and take cost out. They are so fatigued with 30, 40, 50 and upwards I set up 80 to 190 <unk>.
Point solutions and they want one front door one platform to integrate the data so theyre naturally coming to us to say you'd be the aggregator you be the integrator you have you have the strong service delivery capability.
We've won some really good business with our partner Workday to help drive some consolidation of some of the old Peoplesoft type systems. We've seen so all of that is within our purview and our capability to connect the dots across a very vast siloed not only on the application later, but the data side into one common.
Not from approach and that's why I wanted to give you. If you look at the deck, we sent out you know the family planning.
Scenario the sharing starting a family one if you just look at that slide in our deck I wanted to highlight that when you look at the disparate systems that are needed today across multiple vendors and you you're able to come to one place with a light and work life. That's a powerful story that is really resonating in more of a restaurant.
Recessionary type of environment with our clients right now.
A lot of sense congratulations again.
Thank you.
Thank you. Our next question is from Scott show in House with Keybanc. Please proceed with your question.
Hi team congrats on the strong quarter and ongoing execution.
So I wanted to go into 'twenty two.
Yeah, So I wanted to dig in on the 23 revenue guidance.
Guidance range calls for 11% to 12% growth and just wanted to see if you could provide color on the breakout between employer solutions growth in professional services.
Since you didn't know the project revenue rebounding with higher starting backlog on the professional services side.
Yeah. Thanks for that question, Scott, So you're right, we didn't get formal guidance kind of broken down at those levels, but what I'd say is.
Both.
Both employer solutions and professional services are going to see accelerating growth into 'twenty. Three so we are expecting a nice rebound in professional services, both top and bottom line and as we see that backlog now really start to materialize into revenue.
Okay. That's helpful. Thanks, Katie and then on the margin side, obviously, you've you've explained some of the investments whether it be the back office or the investments in their work life on the ongoing ramp up ramp up of new contracts, but in this environment are you also able to take up some pricing on contract renewals.
Demonstrate ROI I know that's been always a pushback.
And I just want to kind of talk about the current environment.
How you're thinking about renewals with contracts. Thanks.
Yeah. Thanks, Scott listen, it's it's a really important question.
And we're going to spend more time on it to you at our upcoming analyst day, we added a slide stfan mentioned in the deck. We posted two two our earnings website today, there's there's a slide in there slide 11 that starts to show.
We need to think about price differently right price in the context of value for our customers.
It is how we will obviously be able to drive that so yes, there's there's incremental solutions and then there's incremental support in terms of how we help our clients and drive those outcome. So I think that pages that you know kind of a good explanation of how how do you actually think about the underlying value at all levels of the ecosystem.
With the platform all the way down to that the services. We can provide so that when you do get to a renewal it's less about just price on existing or how do you actually solve a bigger need for that clients, where you're adding a new solutions and you're able to drive more value for us and for them.
We're aggressively rising above the transaction pricing model and getting more as Katie just said into the outcomes based pricing that you need a platform to do that you need analytics, you need AI to help drive better decisions and better outcomes and that's again back to that starting a family or the divorce example, I gave those are two really basic and simple that everybody can understand how complicated.
Weighted those worlds are and when you see how we used to do it to know how we do it through work life. It is a you know a very different scenario, that's much more complete and that's worth a different economic profile in terms of helping clients take cost out and getting a different economic value for platform versus just transaction pricing.
Thanks, so much for all that got almost got dropped again.
Yes very much.
Great. Thanks.
Thank you. Our next question is from Tien and hung with J P. Morgan. Please proceed with your question.
Hi, Good afternoon, I wanted to ask on the on the revenue outlook as well I heard you on the Katy on the accelerating revenue growth for both segments, but.
It is their timing that we need to pay attention to in terms of clients.
Turning to revenue.
If it's front half back half and did you give the acquired revenue. That's what I was just trying to think about how much of his new deal dependent versus.
Okay, Mike Thanks.
Yeah, Thanks, Tien tsin.
So maybe a couple of things in terms of the phasing of revenue.
Similar to last year, it will it will ramp but not not to the extent. We saw we saw last year right. Because remember we didn't have for instance, some of our larger contracts went live in the back half of last year and now you're having more kind of even profile. So so you won't see a ton of volatility.
Do see you know like professional services and that will again still have that ramp into the fourth quarter. Just as you see more of those those deals going live in terms of the acquisition what I'd say is.
It didn't have a material impact on our 22 results I mean, we would've exceeded our expectations even without the acquisition. So we're accelerating top line margin and cash flow, even without the acquisition, which I think is it's an important component to the story here.
Gotcha.
My follow up to the to your transformation program.
Any risk here in terms of client delivery as you go through the transformation shift to the cloud standardization that kind of thing. It makes sense in terms of how you described it but just the risk profile of.
Of of initiating the change and it sounds like there's going to be some cash savings as well so.
Did you did you quantify the cash go capital savings from the deal.
Programs.
The intention maybe I'll I'll I'll address the risk piece. If you remember last year I said, you know theres always defining moments throughout the year and one of them was getting work life adopted by all of our clients. So industrializing getting away from custom standardizing all our clients and that was accomplished in may So that has really set the floor of the foundation for lower risk because we're no longer dependent.
Upon the Windsor the client wanting to implement individual customized solution. So that was number one and number two if it is as I said to you. When we were together last time, which is.
How many companies would you put on the list that can implement a massive program for thrift the federal government at that size and scale and the name is typically you know originally you wouldn't have put us in there and we did that right successfully on time.
And it's it's a tremendously successful program today, so given the backdrop of Industrialised standardized platform as a starting point for implementing these these big end to end solutions and then just our scale of delivery capability program management staffing Cape but you know all of this stuff is still.
Existing within our like I feel really good because these two new wins.
Are going to contribute for us.
Multiple points of growth for us in the future years Theyre not big contributors at all in 'twenty three to revenue because we have to do like with thrift Big investments this year. So.
But we feel really good about the programs on these new Mega Mega projects that we have.
Yeah.
I think that's well said I think we've navigated the rest of all in terms of cash savings Tien Tsin. We we did say it will result in a $100 million of savings I mean that is that is cash.
I think also another component of that is is our capex.
Right being able to accelerate that this year into next year.
Now that that will also then result in kind of lower capex as a percentage of revenue after that as well.
Got it if you don't mind me asking a third one just on the first question.
Yeah. Thank you the $50 million of investments versus the 38 that we saw in 'twenty two.
How much of that is incremental work life.
Investments versus the new deal and implementation and I'm assuming.
Once you get through this transformation program, we should see less.
Incremental investments as it relates to new deals limitation is that sort of the byproduct of the program just to clarify. Thank you that's all I have.
Yeah, I think that's a good way to look at it.
I almost don't separate the two between work life and those specific clients because in essence, we're accelerating a lot of the technology to support those clients and others right. If it's almost kind of innovating with them so and remember some of those larger clients. We do the first time of that was cost. So so some of some of that is deferred but then you have the upfront technology.
Spend that we're obviously building out the you know some of the platform and analytics capability to serve them I think of that more broadly across our client base and we just need to accelerate it obviously does to bring these deals and I think that's that last sentence. Katie just said Tien tsin, which as you know if it wasn't for these two deals we could have streamed.
Aligned and taken more time over the next two years and that's why you why do you want to call. It the $50 million. These two massive deals really help accelerate our.
Our platform playbook, and we need the functionality and the features to go live with those two key clients and so it's all a good thing, but it accelerates it into a much shorter time frame than we had originally planned so.
And sorry, I understand say one last piece on that Tien tsin, which I think is important that's why we've been really thoughtful, though and we're still doing this wow.
Being able to improve margin and operating cash flow I mean, I think that's the context and make sure. We you know we're doing this in a disciplined way.
As well as I would think benefit the installed base with the improvements as well I think I understand right.
Alright, thank you.
Yes. Thank you.
Thank you. Our next question is from Heather <unk> with Bank of America. Please proceed with your question.
Hi, This is Mike Meyers on for Heather Belsky. Thank you for taking my question. Congrats first on the quarter second Emily.
You laid out a long term, 30% EBITDA target with this incremental spend or.
Yeah, but this incremental spend.
And the new B pass client wins, how should we be thinking about that and is that still the long term target.
Absolutely. It is absolutely the long term target I think that's why we've tried to be more intentional about showing the path forward and why we're making some of these investments why we're doing the restructuring program. So.
And when I mentioned to you on there there's a I'm going to try it in the deck and slide 19 that starts to show right why do over the next couple of years, how how can you measure us against that margin improvement and we're going to continue to talk about that I know there've been a number of questions on that front, but the whole intent of the investments, we're making is obviously to drive.
A better outcome financially, but more importantly to better serve our clients right to have a more a roadmap we can move faster on from a technology standpoint to serve them better to simplify the experience to make it.
A better process for their employees so.
That's that's absolutely still the intent.
Okay, Great and just as a follow up how should we be thinking about your capital allocation strategy over the next few years you know the repurchase plan you have a successful acquisition and this investment program. So how should we be thinking about that.
Yeah, I you know what I, what I would say is our capital allocation priorities are front and center I mean, we've we spent a lot of time on them and we look at them every day right and it has to drive a return on capital that makes sense for us and our clients and in our priority has been and continues to be investment into the business.
Organically and Inorganically.
And what we've said is and if we don't see the right return on those opportunities and we can be opportunistic around buyback that will be where we go next and so you know in the fourth quarter. We didn't end up doing buyback as I mentioned, because we found kind of the right inorganic opportunity, but we will always be evaluating those kind of against each.
From a return on capital perspective.
Okay. Thank you thanks for taking the question.
Thanks, Emily Thanks Emily.
Thank you there are no further questions at this time I'd like to hand, the floor back over to Stefan Schulte for closing comments.
Great. Thanks, everybody for joining us today really appreciate your time.
Obviously, you hope hopefully you can see we're executing on our strategy expanding relationships with new and current clients and delivering on our commitments and we look forward to seeing many of you in may at our Investor Day in New York City. Thank you and all the best.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Okay.