Q2 2023 Alight Inc Earnings Call
Good afternoon, and thank you for holding my name is Stacey and I will be your conference operator today welcome to all light second quarter 2023 earnings conference call. At this time all participants are in a listen only mode. As a reminder, today's call is being a record.
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 Cohen, Vice President of Investor Relations at all like please go ahead.
Good afternoon, and thank you for joining us earlier today the company issued a press release with second quarter 2023 results.
A copy of the release can be found on the Investor Relations section of the company's web site at Investor data light dotcom.
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 actually.
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 updated from time to time in the company's periodic filings.
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 more most directly comparable GAAP financial measures appear in today's earnings press release.
On the call from management today are substantial 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.
Good afternoon, and thank you all for joining US earlier today, we released our second quarter results and.
And were pleased to close out the first half of 2023 with double digit growth across revenue adjusted EBITDA and operating cash flow.
We believe these results coupled with a consistent track record and increasing levels of visibility leave.
Leave us well positioned to achieve our 2023 and midterm growth outlook.
During the quarter, we delivered revenue and be past growth of nearly 13% and 40% respectively.
As a result recurring revenue represented nearly 85% of total revenue for the quarter.
The mix towards tech enabled revenue coupled with investments to improve our operating model are enhancing returns with adjusted EBITDA up almost 11% for the quarter.
As we drive our profitable growth agenda forward, we're also generating stronger operating cash flow, which was up 37% for the first half.
Our strong performance was led by the collective components of B pass and non be past solutions, which have created a resilient book of business and taken together allows us to sit here today with over 90% of our 2023 revenue under contract and already an unprecedented amount of backlog of $2 five.
Billion for 2024.
Let me briefly explain a recipe and how each component contributes to the totality of our business.
First our non <unk> revenue led by professional services and Standalone core administration represents nearly 80% of total revenue and is seeing higher than normal growth rates up 8% in the first half hour.
Our recent growth was driven by one time project work supporting the go lives of large be past deals. It is these mission critical Standalone solutions that are the foundation for our moat characterized is highly recurring and with long term contracts and they are the feeder enabling us to upgrade our customers.
<unk> into larger platform deals that are driving better outcomes.
And the platform a light work life is the backbone of bypass which as a reminder, our tech enabled solutions wrapped with our service capabilities that drive improved engagement and outcomes for our customers. Since 2020 bookings for these solutions have grown over 80% per year, resulting in revenue.
Up 45% during the first half of 2023.
<unk> bookings were $149 million for the second quarter and as we have noted previously there will be lumpiness in our sales cycle to effectively evaluate our bookings you need to take a longer term view that isn't captured in a quarter to quarter movement cumulatively. We have sold $1 7 billion to be passed D. C V.
Bookings since 2021, well ahead of initial expectations and a key driver of higher sustainable growth.
And speaking to the Lumpiness the total bookings exclude a large deal with a fortune 10 company that we've already closed here in July .
Once again deal timing may fluctuate, but its the totality of these great deals that drive the long term performance of the business.
The investments we have made and are continuing to make in our platform and products have resulted in a tremendous opportunity in our pipeline with a number of transformational deals.
We also continue to monetize our offerings through a modernized pricing model that is being rapidly accepted by customers and provides upside going forward.
This gives us confidence in our medium term guidance of be past growth of 15 plus percent.
Coupled with the non <unk> growth of 2% to 4% with an improving margin profile.
So with that important context, let me now turn to the strategic investments that are driving the success of our transformation and overall trajectory.
At the center is an ongoing focus of executing on our platform strategy and engaging people in a truly personal way that eliminates complexity drives better participant outcomes and yields better ROI for customers to accomplish this the light work like platform has been constructed as a recommendation engine of one by unlock.
<unk> the value of data within our core administrative services and leveraging AI in a meaningful way.
Let me talk more about how we're doing this starting with product early in the quarter, we announced a major upgrade to our smart select MD search engine and launched new behavioral health services, both enhancing our navigation capabilities in.
In addition, yesterday, we announced our second major annual release of a light work life.
The latest release Leverages, the lights robust proprietary data to deliver AI, driven personalization and automation capabilities across the light work life platform and provides customers with advanced tools to increase the ROI of their benefit programs.
I am, particularly excited to share our improved virtual chatbot experience, which will offer users greater access to AI based personalization and the ability to answer specific inquiries efficiently and in a digital environment, improving the chatbot experience will allow us to continue reducing the need for participants to use the.
Our call Center channel and improvement that drives greater client satisfaction and underscores our long term margin expansion by driving down our service costs.
So the advancement in our chatbot as exciting a light has been investing in and utilizing AI for years AI has been core to powering individual benefit decisions and delivery automation.
Our experienced models highly leveraged datasets and established connections with data sources are driving better engagement and improving ROI for our customers and this is the foundation for RV past growth.
Still we're just scratching the surface of what is possible when locking concrete generative AI use cases by building internal applications. For example, given the many millions of interactions and hard to digitize PDF documents that we handle annually generative AI provides the ability to add scale ingest comprehend.
And answer questions about these documents and a faster self service format.
While we were busy this quarter improving our platform. We also were hard at work on the commercial side as our ongoing investments are translating to customer wins and new partnerships in the case of waste markets, a mid Atlantic food retailer with nearly 23000 employees. Our new relationship has grown from an original remit of taking over a complex work.
A deployment led by a competitor to a 100 light engagement that includes benefits administration and services work.
And with Siemens health in years, a multinational with nearly 70000 employees. They were seeking a solution that prioritized employee health and well being while also driving sustainable engagement through our <unk> solution Siemens will have the tools to address its objectives and positively impact while being retention and.
Cost.
These wins underscore the continued strength in our commercial pipeline and the need for employers to drive better outcomes for their people and together serve as a powerful foundation for our new Chief Commercial Officer, Greg George Greg.
Greg joined Us midway through the quarter and I'm excited for our organization as his background in driving growth for cloud based systems and in the HCM space fits with our transformational initiatives and will serve as a catalyst to accelerate our momentum.
Another lever for commercial growth is through our numerous partnerships across the globe. This quarter, we announced an expanded partnership with workday to help companies in various European countries source manage and pay their global workforce with a simple unified offering.
This software partnership is in the early stages of its rollout with the joint teams focusing on sales enablement account planning and our collective go to market strategy.
And finally.
Although much of our transformation is growth oriented we're also well along the path of improving the efficiency of our back end infrastructure migration of our data centers to the cloud is progressing to plan with high priority applications being moved in advance of annual enrollment and final applications migrating in the first half of 2024 at the end result of this program will.
Be significant cost savings better delivery for our customers and an accelerated pace of innovation.
I also want to take a moment to share more on the leadership changes announced this afternoon.
Katy Rooney will be expanding her responsibilities to take on the role of Chief operating officer focus on running our lights professional services segment and our global payroll capabilities. Many of you have gotten to know kt well and can attest to his strong leadership abilities built from our over 14 years with a light and its predecessors.
In addition to her new role Kt will continue to serve as global CFO and Jeremy heating will move into the operating CFO role accountable for many of the day to day responsibilities across the finance function.
Jeremy was executive Vice President of <unk> and has been part of Katie's team for over three years before a light he was a divisional CFO for GE and spent over 20 years there.
Many of you have had the opportunity to spend time with them and you'll be seeing much more of them in the future.
Adding operational experience to katie's skill set and elevating Jeremy his role will deepen the expertise of our executive leadership team and give our board colleagues shareholders and customers confidence in our long term success. Additionally, CS are held us will be leaving a light I want to thank him for his contributions and moving the business forward and I wish him well.
Before I hand, it over to Katie I also want to express my gratitude for our colleagues around the world who in just two years as a public company have made tremendous progress transforming our light building upon our strong foundation and setting us up for sustainable long term success Katie over to you.
Thank you stfan and good afternoon, everyone. Our second quarter performance was highlighted by double digit growth in total revenue B pass revenue adjusted EBITDA and operating cash flow.
In addition, the strength of our foundational non B pack business is also driving increasing levels long term visibility with the fan, noting earlier that we now have over 90% of 2023 revenue under contract and $2 5 billion of 2024 revenue under contract as well.
Your line of sight, we have from our backlog is what enables us to confidently invest to sustained profitable growth.
Let me now turn to our performance.
With our consolidated results during the second quarter, we achieved revenue growth of 12, 7% highlighted by <unk> revenue growth of nearly 40% as prior bookings continue to translate into higher contracted revenue.
This is resulting in an ongoing shift towards higher quality recurring revenues, which were up 13, 6% recurring revenue comprised 84, 7% of total revenue a 70 basis point increase from the prior year.
Adjusted EBITDA increased 10, 6% to $157 million with an adjusted EBITDA margin of 19, 5%.
With strong growth across the board, we are generating increasing levels of cash flow, which strengthens our balance sheet and fund our transformation.
For the first half we generated operating cash flow of $162 million with a conversion rate of 52% up significantly versus prior year as we continue to make improvements in working capital.
As a reminder, our second half cash flow tends to be seasonally stronger and we would expect the same this year and as planned both investments in restructuring activity are projected to slow compared to the first half, which will impact both profitability and cash flow.
Let me now expand on our bookings performance both for the quarter in more Holistically, let's start with the results <unk> bookings for the quarter were $149 million and cumulatively. We're pleased to report we have now achieved over $1 7 billion in total bookings since we began our transformation in 'twenty one.
As we pass revenue is long term and recurring in nature. The foundational backlog will continue improving our overall quality of revenue as we leverage the light work life platform.
For 2023, we now expect the paas bookings to be in the range of 700 to 900 million, which implies a strong second half and well over $2 billion of cumulative bookings more than $500 million ahead of our original three year plan.
As you May recall, we will see lumpiness in our bookings from large deals for example, the two we closed in the fourth quarter of 2022.
<unk> is a great example of this dynamic.
Engagement is designed to drive long term B pass revenue starting in 2024 through our light work life platform and comprehensive payroll and benefit solutions. However, this year. Our team is hard at work implementing the core platform and systems across GE three companies and this work is driving higher non <unk> revenue in 2023.
The closing of 100 light deals such as they start a lucrative but the size and complexity of finalizing these offerings typically means they take longer to close.
Another case was for a deal closed in July and discussed and as you evaluate a light. It remains an important reason to take a longer term view of bookings.
We also continue to have a very strong pipeline across our business with over $2 billion in opportunity just within our installed base. We're.
We're making progress with new logos and we've introduced our new pricing model, which is not yet contemplated in our total backlog.
Our pricing model is being implemented in new deals and will enable us to monetize new products more effectively.
Overall, the implications of building our platform and driving value based pricing will be multifold with.
We would expect increased revenue growth improved margin potential and faster cash collection as we prove out a better model for our customers.
Overall these levers taken collectively are driving growth for our business and position us well to achieve our mid term outlook.
With that let me now turn to our segments, starting with employer solutions.
Second quarter revenue was up 13, 5% with recurring revenue up 14, 3% and project revenue up five 5%.
Contributing to our growth with two months of federal threat as well as increased net commercial activity volumes and the impact from the <unk> group acquisition.
Our strong growth coupled with productivity savings are driving better profitability with second quarter adjusted gross profit of 21, 3% to $268 million.
Adjusted gross margin increased by 250 basis points to 38, 5%.
Turning to our professional services segment.
Second quarter revenue growth accelerated sequentially and was up almost 10% from the prior year to $100 million. This was driven by a 10% increase in project revenue and a 9% increase in recurring revenue building from a strong backlog.
On a profitability basis adjusted gross profit was slightly off from the prior year down $1 million.
Turning to our balance sheet, our quarter end cash and cash equivalents balance was $271 million and our total debt was $2 8 billion.
We continue to actively manage our debt and our hedge portfolio is 84% fixed through 2024 and 60% through 2025.
Our net leverage ratio at the end of the second quarter was three seven times down from $3 eight at the end of the first quarter and as a reminder, we are targeting mid term net leverage of approximately three times.
Turning to our outlook, our strong first half keeps us on track for another successful year with more than 90% of our revenue under contract. We are reaffirming our 2023 guidance with the exception of bypass bookings mentioned earlier.
Our outlook includes revenue of $3, four 7% to 351 billion or growth of 11%, 12% adjust.
Adjusted EBITDA of 735% to $750 million or growth of 12% to 14%.
Adjusted EPS of <unk>, 62 to 67 or growth of 9% to 18% and an operating cash flow conversion rate of 45% to 55% up from 43% in 2022.
From a phasing perspective, we expect second half adjusted EBITDA to follow historic trends with higher upfront costs in the third quarter supporting growth in the fourth quarter.
In closing I am so proud of what we've accomplished and continue to achieve with double digit revenue adjusted EBITDA and operating cash flow growth. These results demonstrate the attractiveness of our long term strategy as we pivot towards the higher growth and higher margin operating model positioning us to enhance long term shareholder value.
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 we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is that the question queue. You May press star two if you would like to remove your question from the queue for.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Your first question comes from Kyle Peterson with Needham <unk> Company. Please go ahead.
Great. Thanks, Good afternoon guys.
And Jeremy congratulations on the new roles.
Just wanted to start off on the guidance.
Revision is particularly on the <unk> bookings.
Understand and can.
I appreciate there's some some lumpiness there, but just wanted to see is this just a few large deals shifting around here or there or is there any hesitation or signs of slowdown from clients.
Maybe one push off some of these projects a little bit just given some of the macro uncertainty any color would be very helpful.
Sure. Thanks, Kyle I appreciate it.
Listen.
You got to go back to what we said almost three years ago right. When our original guidance was was $1 5 billion and we all felt that was a big goal to achieve.
And look where we said we're going to be call. It half a billion dollars ahead of that plan. So we've had some good success early days.
In the last couple of years on driving that book of business you have all seen how that bookings performance has translated into.
Starting 'twenty three with $2 $9 billion of revenue under contract, which was the entire revenue book of business, We did in 2002 and.
And if you translate the success of our <unk> bookings from the beginning of when we started in 'twenty. One we started the year and 'twenty three with almost $800 million of revenue under contract more than we did in 'twenty. One so over two years almost $800 million of high quality valuable backlog.
And then you heard Katie say.
$2 $5 billion of revenue under contract for next year, which we've never at this point in time had that much as well so that should give confidence looking into 'twenty four and midterm.
And then you also said 90% of 'twenty three revenue under contract in terms of pipeline. We're looking at right now over 20 deals that are over $20 million in value each one of them and some of them of course significantly more than that as well. So pipeline is strong we're seeing the same enthusiasm from.
Clients, especially now heading into the second half were <unk>.
Cfos and Ceos are continuing to try and look at how to take cost out of their business. As you. All know during Covid. There was a lot of spend that happened on what I would call point solutions, we've come in with our platform capability and really stitch together and end to end front door kind of capability with our <unk>.
Work life platform and that has resonated. So we are doing a lot of work around value engineering and process reengineering for a lot of our largest clients, which could again as I said with our pipeline yield some pretty significant transactions for us moving.
Into the outer quarters as well, but we feel really good about where we are again as I said during my segment, it's very hard to look at this business and a 30 60 90 or even six months to 12 months view you have to take a multi year long term view and again as shareholders I know the shareholders that I've talked.
To appreciate the long term view of making sure that we drive a better quality book of business at higher margins and better contribution to the company. So we feel really good about where we are.
Yes.
That makes it makes sense and it's good color, maybe just a follow up on capital allocation you specifically thinking about the back half of the year as cash flow seasonally typically tends to be better for you guys and in the.
Second half versus first half how are you guys thinking about.
Whether it's kind of ramping up the buyback in the second half of the year or are there interesting M&A opportunities you guys would look to pursue any additional color on how you're looking to deploy capital in the back half there would be great.
Yeah. Thanks, Kyle Great question.
Our capital allocation priorities have not necessarily changed I think if anything they've kind of been elevated in this environment first priority is the stability of the balance sheet feeling good where we are from a hedge position maturity position. So we'll continue to naturally delever, which I think is important. So then really the priority has been investing in the business organically.
Inorganically, but we've said less than.
There is still a lot of frothiness in the market from a valuation standpoint, and if we don't see the right opportunities. Then then we'll absolutely consider.
Stock buyback so.
Both are on the table and we're continuing to evaluate them.
As we go forward.
Next question, Kevin Mcveigh with Credit Suisse. Please go ahead.
Great. Thanks, so much and let me add my congratulations as well to.
Katy and Jeremy will deserve for sure Hey campus to finish one of you.
Welcome Stefan I just wanted to clarify one thing you said I just want to make sure to rate.
You had mentioned the fortune 10 client or are they still in that bookings number or did that relate to the adjustment in the bookings at all.
I think you were clear I, just want to make sure that I picked it up right I know you'd mentioned that big Fortune 10 client one earlier in the year was there any context.
Just could clarify for us around that.
Yes, yes, obviously, so fresh still and as you can imagine with NDA and all that stuff, it's kind of complicated to be able to announce.
Now to the actual name. These deals are different this is a different transaction a different booking than the one that we announced previously so hopefully that helps it.
And because of.
Ed.
Yes, Kevin I'm, sorry, Keith.
Your number.
Oh, yes. Thank you, yes, Q2, that's correct. That's why I mentioned the July statement, that's right yes.
But thats it Katy it is in the full year or Stefan its in the full year guidance right.
Correct.
Great and then it sounds like Youre added responsibilities are.
International payroll and then professional services.
Is that coincidental that one of the things that we're really encouraged about is a workday partnership does that add additional focus on that or maybe just help us understand what that brings to bear because that's obviously a real nice fortunate story as well.
Thanks, Kevin Yeah, I, absolutely think that is a part of it I mean as you know we were also a large client right as I've deployed workday financials across the organization. So you know.
I think very highly of of the company and the partnership that the team has built so I do think that is a good opportunity for US I think also I mean.
We've talked a lot about international in general when you think about just that the position we come at global payroll from.
A significant position of strength there is a huge opportunity across one of light.
We continued to bring our solutions to platform strategy to bear for our clients. So that is that is kind of the focus today and continuing to really work across the leadership team to bring those solutions to our clients and with our platform approach.
Yes, the only thing I would add to that is listen we all know workday as one of the best software companies in the business and Neil and Carl and Dave just built something Thats absolutely.
Incredible to be a part of as a partner to have a software partnership speaks to kind of calls earlier question around what we're seeing in the market, which is HR buying centers were left behind in this massive digital transformation to consolidation and simplification and so.
What you see with Workday and this partnership is a view that I share and that they share which is clients are looking for more consolidated solutions.
<unk> solutions and <unk> on.
On a platform kind of an approach.
So that gives credence to our kind of.
The <unk> playbook, which is how do you drive one of light and a lot of these accounts because a lot of these clients have 30, 40 50 up to 80 different point solutions and so we're both seeing the same kind of trends, which is moving to a more integrated enterprise platform type of an approach.
That makes sense. Thank.
Thank you.
Youre welcome Kevin.
Next question Tien Tsin Huang with Jpmorgan. Please go ahead.
Okay, Thanks, and my congrats the Cade and Jeremy as well.
To just clarify one more time forgive me on the <unk> bookings.
TCP revision here did anything Paul.
The.
The pipeline is that part of it or is it just a timing issue into next year and then separately I know revenue in all of the headline figures didn't change.
No the bookings here, a very long term in nature, but are you, making it up anywhere else in terms of revenue that you were expecting this year as it relates to the <unk> piece or is it really just again timing.
Yeah. Good question Tien tsin. Thank you.
A couple of things I think yes. It is timing right. When we talk about some of the Lumpiness Stfan mentioned, having over 20 deals over $20 million Theres, a really strong pipeline that the team is working and I think the strategy is resonating, but getting those deals over the line has taken longer.
So that's really kind of where that revision comes in why we haven't changed the guidance is because that's obviously only one piece of the story.
Going back to what we've done over the past three years and the impact that has going for it is obviously the most important driver coupled with obviously continued strong performance in the non B pass areas, the new pricing model right. All the other components, we mentioned around it continues to support the guidance as well.
Very good yes.
Sorry, Greg go ahead Stephanie.
No I was just going to say, we're not wavering at all from the transformation agenda in the <unk> piece is healthy and as you've seen from the numbers. If you changed GE bookings from December 31 to January 1st it's a different conversation we've had that in the last quarter so timing.
It is one thing, but the health of the business. The health of transformation all of that is still very strong and thats why it shows up in terms of still our mid term guidance, but as you can see we all spend a lot more time, because there's a lot of you as investors and analysts asked that asked us that which is what is the non beef best book of business. The two together really drive.
A resilient book of business for Us and so the GE I think example, Tien tsin is I think a great one which is there is no <unk> revenue, even though was a major booking last year at the end of the year. There is no revenue until 'twenty four but theres a lot of non be passed type revenue and as you heard us say.
There are some.
Impactful growth in the last couple of quarters in moving forward on some of that not be past that revenue, but all in the name of helping drive more towards our platform book of business in the outer years.
Very good no I understand I think just wanted to.
Make sure make sure given some of the maybe.
Too much focus on some of the Kpis, but yeah no no complaints here. So my quick follow up just thinking about second half I know.
Again, the headline revisions.
With just limited to TCP piece, which you just went through but any other change in thinking I know, there's some questions around unemployment normalization doesn't.
Assuming youre not too influenced by that are you seeing anything there amongst same store growth for your for your larger clients and then same thing on the pipeline is strong, but just visibility in the conversion timing that kind of thing we heard a lot of delays and push outs with some of the traditional it services providers I'm curious, if you're seeing any signs of that as well.
Thanks for taking my questions.
Yeah. Thanks, Tien Tsin, we're really not when it comes to just the underlying performance and again the team is doing an incredible job getting clients live on time working through that.
The kind of employment trends Havent had.
Packed on us.
The only area. We continue to monitor as you know Q3, and Q4 are higher project quarters for us that we do continue to monitor.
So far you saw it in the second quarter, we've we've done well.
But that's the one area, we have a little bit less visibility to at this point, but in terms of kind of the recurring book of business and where we sit today, we feel good.
Sure.
Great. Thank you.
Our next question Pete Heckman with D. A Davidson. Please go ahead.
Hi, Good afternoon, I had a few more questions thinking about those two large clients G was one of them that were signed in the fourth quarter of 'twenty two.
Would we expect those to go live.
In 24 first half second half midway through just thinking about kind of the.
Both of those seem like they are big enough to influence.
The growth rates, a little bit so just trying to feel like you just said that you're hitting milestones the contracted backlog is tracking.
That pipeline is tracking towards going live.
But any additional thoughts in terms of going into 2024.
Some of those big Big go lives.
Yeah. Thanks.
What I'd say is they remain on track again the team has just done a fantastic job with with those contracts. So it how it works.
We're not fully live at the start of 'twenty four we're actually not fully through kind of like Gee, we're not at a full run rate until 'twenty. Five so you will see a benefit at the start of 'twenty four.
That continues to grow through the year and then we're at a full run rate actually as we enter 2005.
Got it Okay, and then any thoughts about regroup and its relative fit and its integration any surprises there.
Yes.
Honestly, what I'd say is.
When you think about the landscape of what our customers are asking for it just fits really well within.
The 100 light view in terms of their interaction with us. So we've seen really good traction in the pipeline there.
And the team has performed well so so no surprises I think it's potentially even a bigger opportunity than we had anticipated but.
We're still I would say we're still early.
In the pipeline there.
Yeah, I'd say, it's in the small, but mighty category. When you think of what that actually does.
Beliefs capability, we've seen some large deals get swayed by a very small component with leaves because it is such a key element to helping employees get them back to work earlier, which is a huge ROI around that so as we unpack.
Especially in the Fortune 500, the cost base of somebody leading work on our lease program and then getting them back. The dollars are just so significant and so when we attach it to our platform and integrated into navigation and into our benefits administration as the rest of the work life. It really kind of brings it to.
A much more cohesive conversation.
And it has really helped us kind of tip the scales in our favor on some really nice deals for us.
Alright, thats good to hear thank you.
Thank you.
Next question Peter Christiansen with Citi. Please go ahead.
Good evening, Thanks for the question, but to be a part of the call.
Thanks Mark.
Thank you.
I was just wondering if you could talk to the enterprise spending environment.
You mentioned pipeline looks really strong, but it sounds like.
Life benefits with enterprises, or perhaps a bit more cost conscious or maybe the inverse I'm just trying to understand what dynamic you see really driving that pipeline is it cost savings or is it just.
Are there other aspects and then and then just as my follow up it looks like the gross margin really outperformed this quarter. Just wondering if we could dig into that a little bit what drove some of the outperformance. Thank you.
Yes sure. Thanks for the question.
I'll try and keep this very concise because I could talk a lot about this we've been on this.
Multiyear journey and Covid as you saw clients just threw everything.
Employees around these point solutions, and we knew three years ago, three and a half years ago. When I got here that was a bandaid right. What employees want is more simplicity more clarity and helping make better decisions and in fact all of that most corporations did is add more complexity.
To the whole process of making the right decisions around keeping them healthy and financially secure and so we've continued to prove out the value of a front door, which is a light work life platform.
Integrating not only our data I think that was a big shift culturally for us, but even for the market was willing to integrate our own our own data with our competitors' data in order in the name of of platform to give the best set of information for people to make better decisions and by the way in my last company you mean, everybody knows my background, we did it.
The same thing for how to how to drive digital transformation in the business world, whether it be Ferrari or Nike or other major corporations. We've all seen how digital disruption has really impacted the beta seaworld in that sense, none of that happened in the last decade really on the employee engagement side of things. So we're just taking an old playbook.
That has worked really really well as we've seen with all the SaaS providers and we didn't put a label of SaaS on it because it's too complex, we put a label to be pass on business process as a service and that's a strong combination of products and software together with services that really help us drive a platform play and so every client we talk to in the large.
Scale is looking to now consolidate and simplify that big spend they've had over the last four years and we're the beneficiary of that right. So the good news is we're in the decision room.
Helping clients get rid of point solutions, where they're not needed help them drive more campaigns and capability to get better value for their spend I mean, when you think of it's not it's not a mystery. When you think of the rates of engagement in the low single digit percentage points. It doesn't look very far to see how.
Difficult it has been for clients to get value for their investments because employees just arent using it so our engagement engagement rates are double triple quadruple in many cases when you integrate the data sets in a light work life. So we're right in the middle of an exciting chapter by being on the front lines with clients, helping take out some of those costs.
Hopefully that.
And Peter I, just can address first thanks glad to have you on the call.
And just on the on the gross margin front.
We talked a lot about some of the key investments we made last year and we continue to make into this year, but I think.
As we said we have to see a return on those investments and they will come through first in gross margin.
In terms of our go to market in terms of technology investments right, how we're delivering for our customers and so that's really what youre starting to see play through the gross margin.
That's great pretty compelling there. Thank you.
Thank you. Thank you.
Next question Heather <unk> with Bank of America. Please go ahead.
Hi, Thank you so much I'm going to ask versus another bookings question. So I apologize, but we wanted to just kick the tires here.
You talked about.
That some of the shift in timing of the bookings just has to do with getting those deals you are getting some of the deals over the line I'm, just curious where you might be what might be causing some of that timing delay is it internally within the company.
Is it just kind of selling the pass strategy to the company I'm just curious what the feedback you're getting from these customers.
Yeah, I wouldn't put it as delays or timing you have to put everything into context and the context is we said it would be a really heroic day, if in three years, which we're coming up to the last two quarters of that.
If we could on our new strategy deliver a 1 billion and a half dollars of these be past dollars.
So on its own we're going to hit hundreds of millions ahead of that call. It 5 billion ahead of that plan and we've hit our targets early alright, So I would look at it from that point of view.
Our pipelines are strong I would say the demand from clients to want us to come in.
If anything what's happening is the deals are getting bigger.
When you start doing process reengineering not to get too technical here, but it takes a lot of work to go into a major client and say here are the 15 steps it takes to get to 20 different applications and here's the experienced an employee has on the left side of the ledger to now here's what it would look like in a can.
Solidago integrated dataset and one place to go for an experience on the right side of the ledger, here's the from to here's the ROI and savings which is significant.
We've seen we've seen some rois into the one hundreds of millions of dollars of savings for our clients by going from left side to right side again.
Complex broken not being used costly to integrated front door platform. So I would say if anything what you have to look at is the conversations we're having we're having are with more senior people. The conversations are broadening from the HR Department a lot now into the CFO Department.
And into it department.
We're actually getting into a lot of conversations on a front door service now versus a light it's great to see that conversation. We've all seen how well service now has done with their book of business, but Theyre very limited service now is on their product side of things, we have the administrative data and platform, which I've always said for the last few years.
Really is a unique combination that nobody else has and so that allows us to really be much more dynamic versus static and so we've had a lot of workshops with a lot of the largest banks and a lot of the largest companies in the United States, specifically and it's great where we're winning the front door discussion when it when it pretty.
<unk>, two how to keep employees healthy and financially secure because they see the value of our platform and administrative data so.
Super exciting the pipeline is is is stronger than ever the deal sizes are great.
But as I said, just a few minutes ago getting through these more complex sales cycles, which will benefit us in the longer term just takes a bit more time.
Okay, that's really helpful.
And you talked about the.
That you just re launched.
<unk> launched your next sort of platform.
I'm curious if there's any pricing that you're taking on the back of it and how to think about your pricing efforts going forward.
Yeah, maybe I'll take that one so you are right. We have our semi annual releases now of daylight work life platform, which is great because it's a clear product roadmap driven with our clients that really continues to add value. What I'd say is how to think about it is actually more how were pricing new deals now such that.
We get value for our platform. So remember we used to face price pressure right now we're looking at how do you build price into the contract going forward to account for those investments, we're making in platform that clients can see being rolled out twice a year. So it is kind of in essence baked in I think it is a key element of this strategy given.
The investments, we're making and we've we've been able to demonstrate to clients that there is value.
In those releases.
Thank you I appreciate the color.
Thanks, Hi, Thank you.
Next question, Steve Dechert with Keybanc. Please go ahead.
Hey, just.
Just wanted to know have there been any update you can provide on phase two of their migration to the cloud.
Has there been any feedback on your latest release of work life. Thank you.
Sure. Thank you.
Go ahead.
So go ahead Katy please.
I was just going to start with just on the.
The.
Rollout and then Stfan I'll, let you talk about the release, which we just rolled out yesterday, so I would say it's early but.
Just on on the cloud migration.
That is obviously, a really important projects for us the team has done an incredible job. So we are really through kind of almost the first two phases of of the rollout. The next kind of final piece will be completed in the first half of 2024.
But again the team has really done that in the right way with our clients.
Now obviously, we're kind of on a pause as we enter a really important time with with annual enrollment here. This fall.
Yeah and on the product side again.
While AI and generative AI or the topic of the day, we've been that's been our strategy for years, but when you look at the hundreds of millions of interactions that we already undertake with 40 with almost 40 million employees around the world.
That data is powerful and that's what is important for us to integrate into moments that matter. So that's the work we've been under this last release is really building out capability.
In our in our software to be able to recognize PDF files. For example, when somebody calls in and says is a procedure covered under my health plan. Those documents usually are static PDF type documents regenerative AI you can really build the capability.
To be able to look at the PDF format, and really synced to the question together with the answer without having to call. Our call centers. Those are hundreds of thousands of calls that we get every single year. So we are building out a really strong API library integration points.
We're building a very robust ask lease up type capability, which is the AIP really helping people navigate the complexity of making better decisions across health and wealth and well being in general and so we're just continuing to double down on the front door platform and then the look and feel just making it look easier simpler.
Kind of the iceberg phenomenon as we all know these DB DC navigation retirement payroll.
Benefits systems are just so complicated and so the world of bringing that into a much more simplified front door capability in an integrated fashion and then maybe the last piece I'll say is the value of our platform is about really making it personalized to the individual I went back to numerous examples on the digital side for us.
We're all B to C.
Focus people in terms of how we live every day and many of US feel like we're the only client at Nike or the Ferrari. The example, I gave earlier and we want people to feel the same way here when it comes to their wellbeing plants, why should I be stuck with a well being plan our benefits plan or a retirement plan that's stuck to a job code.
Good or to a salary band or to an age or to something why is this specific to my individual needs based on health and family situation in financial situations. So the platform approach really is.
Big difference maker for us in terms of impact and that's what's going to help continue to drive the <unk> transformation for us.
Thank you I would like to turn the floor over to stfan for closing remarks.
Great and thank you all for joining us today really appreciate all the time and the questions and I look forward to with Katie and Jeremy to meet all of you and many of the upcoming investor events. So thank you very much and have a great afternoon.
This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
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