Q4 2024 Alight Inc Earnings Call
Good morning and thank you for holding.
Paul: My name is Paul and I will be your conference operator today.
Paul: Welcome to a light's 4th quarter 2024 earnings conference call. At this time, all parties are in a listen-only mode.
Paul: As 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.
Speaker Change: And now I would like to turn it over to Jeremy Cohen. He head of investor relations at a light to introduce today's speakers.
Jeremy Cohen: Good morning and thank you for joining us.
Speaker Change: Earlier today, the company issued a press release with its 4th quarter and full year 2024 results.
Speaker Change: A copy of the release can be found in the investor relations section of the company's website at investor. alight.com.
Speaker Change: Before we get started, please note that some of the company's discussion today will include forward looking statements.
Speaker Change: Such forward looking statements are not guarantees of future performance.
Speaker Change: Actual results may differ materially from those expressed or implied in the forward looking statements due to a variety of factors.
Speaker Change: These factors are discussed in more detail in the company's filings with the SEC.
Speaker Change: Including the company's most recent Form 10K and Form 10Q, as such factors may be updated from time to time in the company's periodic filings.
Speaker Change: The company does not undertake any obligation to update forward booking statements.
Speaker Change: Also, during this conference call, the company will be presenting certain non-GAAP financial measures.
Speaker Change: 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.
Speaker Change: The results discussed on today's call relate to the GoForward company as we operate today and do not include results of the divested payroll and professional services business.
Speaker Change: All year over year financial comparisons made on today's call are on a pro forma basis, giving effect to the transaction and consistent with the presentation we have published on our investor relations website.
Dave Gilmet: On the call from management today our Dave Gilmet, CEO, and Jeremy Heaton, CFO.
Speaker Change: After the prepared remarks, we will open the call up for questions. I will now hand the call over to Dave.
Dave Gilmet: Thanks, Jeremy, and good morning.
Dave Gilmet: Let me begin by saying that 2024 was a year of transformation for light as we repositioned the company for long term success.
Dave Gilmet: We concluded our technology transformation journey with the completion of our cloud migration.
Dave Gilmet: Divested payroll and professional services to simplify our business model and evolved our leadership structure.
Dave Gilmet: Together, these milestones that collectively reset alights foundation, and we entered the new year with momentum as a tech-enabled employee benefits services company.
With a significant transformation of 2024 behind us, 2025 will be a transitional year.
Dave Gilmet: Marked by steady progress and execution as we continue to position a light for profitable, market leading and sustainable growth.
Dave Gilmet: Today we will focus on our near term progress toward this goal.
Dave Gilmet: We look forward to sharing more about our long term expectations and our upcoming investor day scheduled for March 20th.
Dave Gilmet: This morning we reported 4th quarter results that reflect increasing stability in our operations.
Performance was in line with expectations highlighted by growth and recurring revenue.
Dave Gilmet: Strong ARR bookings and robust cash flow.
Dave Gilmet: The health of our business and cash flow profile enabled us to initiate a dividend, and today we announced a $200 million increase to our share repurchase authorization.
Dave Gilmet: Turning to our expectations for 2025.
Dave Gilmet: First, we are committed to both simplifying the business and providing more transparency into the key metrics we measure ourselves against.
Dave Gilmet: You'll hear us focus on
Recurring revenue and the growth levers, including ARR bookings and our retention of existing clients.
Dave Gilmet: Adjusted even margin, including positive impacts from the cloud migration and productivity initiatives.
Dave Gilmet: And now free cash flow, which covers all aspects of our improving cost.
Dave Gilmet: And investment profile.
Dave Gilmet: Moving forward, B pass will not be one of those key metrics.
Dave Gilmet: Our 2025 outlook reflects an important step in the right direction with year over year improvement across key financial metrics.
Dave Gilmet: We expect recurring revenue to be on stronger footing.
Dave Gilmet: profit margin to expand independent of top line performance.
Dave Gilmet: And free cash flow to accelerate.
Dave Gilmet: This is a long cycle business and our outlook also includes a lag effect on revenue from historical losses in 2023.
Dave Gilmet: So the overall loss impact, while temporary, will be higher than last year.
Dave Gilmet: In contrast, our most recent renewal cycle for 2024 was vastly improved.
Dave Gilmet: From the prior year with retention rates up 8 points.
Dave Gilmet: Retention is a key component of our growth model and this performance is back near historical levels, which we expect to play out favorably in our results later this year and moving forward, including resumption of revenue growth in the second half.
Put another way, if our 2023 renewal cycle had been similar to the 2024 cycle, our revenue growth would be more than 2 points higher.
Dave Gilmet: We're also maintaining a cautious view of the non-recurring project environment.
Dave Gilmet: While demand is not improved, our client management and delivery teams are working closely with clients to advise them on program changes that drive value and advance their own initiatives.
Dave Gilmet: What gives me the most confidence in our long-term outlook is our current execution with ARR booking's growth and higher retention, which are both grounded in delivering service excellence and competitive solutions.
Dave Gilmet: Well Jeremy will cover the financials in more detail, I will focus today on what we need to do in 2025, just sustain momentum and enhance our value proposition.
Jeremy Cohen: Starting with the go to market strategy. I am pleased to report the team delivered double digit ARR bookings growth in the second half and ended 2024 up 18%.
Jeremy Cohen: This is an important step toward delivering sustainable recurring revenue, and we see strong demand for our mission critical solutions with the sales pipeline up 54% from the prior year.
Jeremy Cohen: We expect continued growth in our bookings at double digit levels again in 2025.
Jeremy Cohen: In our existing client base we have significant white space to drive share of wallet and many of the wins this quarter are of the land and expand nature.
Jeremy Cohen: We have a winning formula with a unified team of enterprise sellers and deep domain experts in delivering client management, supported by competitive solutions across the spectrum of employee benefits.
Jeremy Cohen: Great example is our leaf solution.
Jeremy Cohen: These administrations such as maternity leave or medical leave is a fragmented and underserved market.
Jeremy Cohen: A little more than 10% of our top 100 clients are penetrated and benefiting from an integrated approach for this highly complex offering.
Jeremy Cohen: Connecting leaves with health administration is a significant opportunity that is resonating with the market, and when combined can add up to 30% of value to an existing contract.
Jeremy Cohen: growing with existing clients also equates to better retention.
Jeremy Cohen: We use retention rate as a measuring stick for the value we bring, and again we saw considerable improvement in our most recent renewal cycle.
Jeremy Cohen: Driving strong retention starts with consistently nailing the basics and being a trusted partner, managing the day to day fundamentals. Our 4th quarter annual enrollment season is a great example of that execution as our team delivered outstanding support to 10 million participants.
Jeremy Cohen: Mobile enrollments were up 69% and call center volumes were down 6%, which together are delivering a better user experience, process efficiency and overall client satisfaction.
Jeremy Cohen: Annual enrollment was a direct beneficiary of the completed cloud migration where the benefits of operating in a more stabilized environment are enabling us to more efficiently serve our clients.
Jeremy Cohen: You'll hear much more in our upcoming investor today about how this comes to life through our AI and automation plans. And just this month, we delivered new AI features there are a like work-life software release that deepens our intelligence analytics, and automation for clients. The leverage as part of their people strategies.
Jeremy Cohen: Finally, I'll touch on the announcement we made this morning.
Jeremy Cohen: Effective March 1st, Bill Foley will step down from his chairman role, and will remain on our board of directors.
Speaker Change: Well, Erika Meinhardt, Dan Henson, and Regina Polio will each depart.
Speaker Change: Bill is a tremendous partner whose experience we will continue to benefit from, and he remains a champion for our company and mission.
Speaker Change: I want to thank Dan, Erica, and Regina in helping shape a light's path and wish them the best.
Speaker Change: In their place, we have refreshed and expanded our board with industry veterans Rob Freicheim.
Bob Los: Bob Los
Speaker Change: Mike Hayes and Russ Freon, who will serve as our new chairman.
Speaker Change: The parallels between our incoming board members and new executives are not coincidental.
Speaker Change: Those overseeing our strategy possessed deep domain expertise.
Speaker Change: Great leadership skills in our client centric stewards who will drive a light toward achieving its next phase of growth.
Speaker Change: In my short time in the light, I have had the opportunity to travel across the country and meet our wonderful colleagues and many of our clients.
Getting to know our key stakeholders in depth and understanding the needs has reinforced my enthusiasm for the opportunity ahead.
Speaker Change: And best in class services.
Jeremy Cohen: Jeremy, over to you.
Jeremy Cohen: Thank you, Dave, and good morning. We finished 2024 with improved results, including recurring revenue expansion.
Speaker Change: Robust bookings and strong cash flow.
Speaker Change: We are a more simplified business following our cloud migration and divestiture of the payroll and professional services business.
Speaker Change: And view 2025 as a transitional year that will take positive steps for both strategically and financially.
Speaker Change: Turning to our results,
Speaker Change: Revenue was 680 million and recurring revenue improved sequentially, returning to growth during the quarter.
Speaker Change: Recurring revenue comprised 91% of total revenue in the quarter.
Speaker Change: Non-recurring project revenues which represent less than 10% of total revenue we're down 13 million or 17%.
Speaker Change: Adjusted Eberta was 217 million in line with our outlook for the 4th quarter and margins expanded to 31.9%.
Speaker Change: Full year operating cash flow when adjusted for one-time transaction and separation costs was 342 million.
Speaker Change: This represents an operating cash flow conversion rate of 58%.
Speaker Change: Consistent with our annual guidance of 55 to 65%.
Speaker Change: In 2025, we will transition to a free cash flow disclosure, which more closely aligns with shareholder interests.
Speaker Change: Turning to our go to market momentum, we executed on our double digit bookings growth in the second half of 2024, and for the year achieved $114 million of total ARR bookings, and 18% improvement over 2023.
Speaker Change: Demand remains strong for both individual solutions and for our integrated offering.
Speaker Change: As a result, we expect to sustain double digit ARR bookings growth in 2025.
Speaker Change: This is a key factor in building long-term revenue under contract and driving sustainable revenue growth towards our target of 4 to 6%.
Speaker Change: We started the year with 89% or 2.1 billion of 2025 revenue under contract.
Speaker Change: Revenue under contract for 2026 is 1.5 billion, and we're introducing 2027 revenue under contract, which is already 1.2 billion.
Speaker Change: As always, the timing of renewals will play a factor in our quarterly reporting of revenue under contract.
Speaker Change: Turning to the balance sheet, our quarter in cash and cash equivalent balance was 343 million and total debt was $2 billion down from 2.8 billion at the start of 2024.
Speaker Change: Our net leverage ratio at year end was 2.8 times an improvement from 3.3 times to start 2024.
Speaker Change: We continue to actively manage our debt, which is 70% fixed through 2025 and 40% through 2026.
Subsequent to the end of the year, we repriced our term loan, lowering our interest rate by 50 basis points, which will decrease our interest expense by $10 million annually.
Speaker Change: Returning capital to shareholders remains a key priority.
Speaker Change: We repurchased $12 million worth of shares in the 4th quarter. For the year, we returned $167 million to shareholders via share buybacks, and today we announced a $200 million increase to our existing program.
Speaker Change: We now have $281 million of share buyback authorization.
Speaker Change: And we declared our 2nd quarterly cash dividend of 4 cents.
Speaker Change: Together, the balance of capital return and a stronger balance sheet reflects the focus on driving shareholder value.
Speaker Change: Turning to the outlook, we expect improvement across key financial metrics in 2025, which includes an improving growth rate.
Stronger profitability and increasing cash flow.
Speaker Change: While our revenue growth is bounded in the short term with loss impacts from 2023 and non-recurring project work.
Speaker Change: We are projecting over 150 basis points of adjusted even top margin expansion and double digit free cash flow growth as a result of the cloud migration and productivity efforts.
Speaker Change: We expect full year revenue of approximately 2.32 to 2.39 billion.
Speaker Change: Or -1.5 to 1.5% growth, with revenue growth rates ramping through the year.
Speaker Change: At the midpoint, this includes recurring revenue of approximately 1% and project revenue down 6%.
Speaker Change: We expect higher recurring revenue growth rates in every quarter of 2025 compared to the prior year.
Speaker Change: Given the first half dynamics of this year driven by historical losses and a cautious view on projects, I will be more specific on our seasonality and the ramp through 2025.
Speaker Change: For the first quarter, we expect total revenue to be down 3 to 4%, with recurring revenue down 1.5 to 2.5%.
Speaker Change: For the 2nd quarter, we expect total revenue to be down 1.5 to 3%, including recurring revenue of 1% to 0.5%.
Speaker Change: For the second half, we expect a return to low single digit to mid single digit growth driven by new ARR deal go live in the early benefits of a stronger 2024 renewal cycle.
Speaker Change: As Dave mentioned earlier, we've not seen an improvement in client demand for non-recurring projects.
Speaker Change: Our outlook for the year is based on the specific pipeline we see today with these clients and expect first half revenue to decline roughly 25% in each quarter.
Speaker Change: With mid single digit growth in the second half off of last year's lows.
Speaker Change: For the year, our revenue growth rate contemplates 5 to 7% of incremental revenue from new wins with current clients and new logos.
Speaker Change: 0 to 1% from participant volumes.
Speaker Change: And losses of over 6%.
Speaker Change: Without the historical loss impact, our growth would be more than 2 points higher this year.
Speaker Change: We share a modest view on participant counts and do not expect a material uplift this year.
Speaker Change: While we continue to monitor policy changes, the business impact related to tariffs and the Department of Government efficiency are expected to be immaterial based on the nature of our public sector work.
We expect full year adjusted Ebita of 620 to 645 million with margin expansion between 150 and 180 basis points.
Speaker Change: We are confident in the margin expansion, independent of the top line, given the operational improvements we've made.
Speaker Change: We will benefit from 55 million of cloud migration savings.
Speaker Change: The elimination of transaction disenergies.
Speaker Change: And from productivity initiatives underway on the path toward 28% plus adjusted even margins.
Speaker Change: We expect full year adjusted EPS of 58 to 64 cents, which does not include any impact from potential share buybacks.
Speaker Change: We are introducing our free cash flow outlook of 250 to 285 million, or growth of 13 to 29%.
Speaker Change: Free cash flow will benefit from stronger profitability as well as reduced capital expenditures.
Speaker Change: Finally, we expect annual AR bookings of 130 to 145 million, continuing a growth trajectory as we benefit from a strong pipeline and the ARR focused on employee benefits.
Speaker Change: Overall, our 4th quarter results were a positive step forward, and we believe that 2025 will be another step forward that positions us to achieve our longer term goals.
Speaker Change: We look forward to sharing more details on our strategic progress during our investor day next month.
Speaker Change: This concludes our prepared remarks, and we will now move into the question and answer session.
Speaker Change: Operator, would you please instruct participants on how to ask questions.
Speaker Change: We will now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press 2 if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys.
Speaker Change: One moment please while we pull her questions.
Speaker Change: Thank you. Our first question is from Kyle Peterson with Needham and Company. Please proceed with your question.
Kyle Peterson: Uh, great, good morning guys, uh, appreciate you guys taking the questions, uh.
Kyle Peterson: Yeah, good morning. I want to start off, uh, I appreciate the commentary that you guys uh provided on, on those, um, just wanted to see if you guys can provide more color and maybe remind us, um, you know, on some of the puts and takes, I know that like there's some offsets like if, if there are reductions, um, you know, in headcount at the government. Um, I, I know like there are some, you know, offsets and like contract structures and and that type of stuff but you know maybe at a high level if if you could remind us, you know, not with that contract.
Kyle Peterson: typically, but you know, some of the contracts in general like some of the offsets you guys have so it's not just a pure, you know, head count epha uh type fee that would be really helpful.
Kyle Peterson: Sharky Dave, thank you for the question. I really appreciate it and probably important just to kind of get the air cleared, uh, so to speak, relative to Doge and the impact that that could have on us, so I'll start with the tariffs, so tariffs don't really direct us directly impact us because we, you know, we're not in the in the manufacturing, um, import export type of a business, um, it could impact the economy in hiring more broadly, but as we said in our, our opening remarks, we're taking a very conservative view to begin with unemployment and an impact.
volumes.
Kyle Peterson: Uh, specific to the, the layoffs for, for Fed employees, um, again, we've, we've looked at this in a number of different ways. We don't have a very significant exposure to the public sector business. We do have a material contract is I think you know relative to 041k um the service line and as we've looked at that, even under a worst case scenario and I'm not gonna.
Kyle Peterson: You know, sort of
Kyle Peterson: Bracket that with how many people could get laid off, but everything that's been discussed so far, um, first of all, the impact is late in the year, um, and secondly, it, it really only impacts, um,
Kyle Peterson: A portion of the population because a lot of folks are already retired, um, and there would be uh balances that would remain, you know, in, in our business and, and so when you pull it all together, we think it would have a pretty immaterial impact on revenue and even smaller impact on um on on earnings in 2025.
Speaker Change: OK, um, appreciate, you know, the, the color and detail there. Uh, you know, maybe just a follow up, you know, on capital allocation, um, how you guys are, are thinking about it. Good to see, um, obviously you guys now have the dividend here for a couple of quarters, you kind of have the buyback, um, assuming you provide more at the analyst day, but any, you know, thoughts on how you guys are are kind of thinking about, you know, the balance between the two, especially, you know, with the stock at at current levels I think could be be really helpful for everybody in the.
Kyle Peterson: call
Speaker Change: Sure, Kyle I'll take that one. It, it, you know, certainly the, you know, we're pleased with the dividend and just paying the second dividend, uh, or, or approving the dividend with the board last week I think that obviously comes first, but we're gonna be very opportunistic in terms of where we view the value of the company and that was an important discussion we had and the reasoning behind the $200 million increase in the authorization, so I think expect us to be opportunistic there and and continue to, uh, you know, to leverage the authorization that we have in place.
Kyle Peterson: All right, I appreciate it and uh nice results.
Speaker Change: Thank you, thank you, appreciate it, Carl.
Speaker Change: Our next question from Kevin McVeigh with UBS. Please proceed with your question.
Kevin Mcveigh: Great, thanks so much and I'll add my congratulations as well, you know, obviously you folks had a lot going on at 4 and and delivered on that and really underscores the.
Speaker Change: Predictability of the model, um, I, I guess, you know, I think you talked about a 200 basis point headwind, you know, from runoffs in 23 if we think about that, the pacing over the course of 25 is that linear or is there anything you'd call out in terms of the more impactful in the first half of the year as opposed to the second half of the maybe we can start there.
Speaker Change: Sure, thanks, Kevin. uh, so the way to think of, I mean the the the impact hits January 1st in large part. So the driver of the ramp that we have in revenue on the recurring side for 2025 is really driven by the losses hit on January 1st and and those impacts the entire year, but what happens is you go through the years we begin to have the go lives of the new ARR wins, um, that, that build into the revenue profile as we go through the balance of the year, so that's why.
you start to see a tail off in terms of the impact of those losses in the first half and back to growth in the second half within the recurring revenue business and so it's just, it's just the timing of both the 23, you know, the historical losses as well as we'll start to benefit from the 24 renewal cycle later in the year plus the go lives uh within the business, so, so it's, it's just the timing aspect that you have that those those losses will hit January 1st.
Speaker Change: That's super helpful and then it, I think he gave some commentary on annual re-enrollment and efficiencies on that, um, it, I know this for for for day were you but um you talked about $100 million of cost savings, I think in 24, it starts to face in 25, is that still the right number or if you've been able to identify additional synergies over the course of this year because obviously uh we think the guidance looks really good. I think they even they even better.
Speaker Change: Sure, hey, Kevin, so, so let me, uh, Dave, let me start, um, so we feel really good about the renewal season. I think you made reference to that before, uh, getting into the, the cost savings opportunities so we're seeing.
Speaker Change: You know, uh, retention up significantly and um and we've returned a level of stabilization relative to service delivery and support for our clients, so really bullish as we enter 2025 relative to the retention aspects of what we're looking at for revenue. I'll let Jeremy talk to the specifics that we've got in mind relative to the the cost savings and the $100 million that you're asking about.
Jeremy Cohen: Sure, and Kevin, just a reminder, so that 100 million was on the basis of the of the business including payroll and professional services so that 100 was 75 million remaining with the GoForward business.
Jeremy Cohen: Of that 75 million we saw 20 million of that benefit come into the 4th quarter of 24, so the, the pick up in 2025 on the walk on Ibita is an increase of $55 million in savings, uh, in, in the Ibida guide for 2025. In addition to that, there's also a benefit from additional productivity efforts that we've been driving within the company, some of that impacts in the walk within 2025 and then going forward as well.
Jeremy Cohen: Thank you.
Jeremy Cohen: Thank thank you good.
Speaker Change: Our next question is from Scott Schoenhouse with Key Bank Capital Markets. Please proceed with your question.
Scott Schoenhouse: Hey team, thanks for taking my question. Um, most of my questions have been answered, but I wanted to drill or ask. I just wanted to drill in on the back half revenue growth, uh, assumptions for this year, you know, low to mid single digits. What's being implied on the bottom end of the range and what's being implied on the top end of that range for the back half of the year, Jeremy, I appreciate you, you giving out this, you know, revenue from new wins range and volumes, uh, epum range, um, but maybe kind of drill in what would what would be implied to get
Speaker Change: to the low single digits and what would be implied to get to the high single.
Speaker Change: Sure, uh, so I, I think Scott, the on the, you know, the, the what we'll watch this year is one we, we understand contractually already what's in line from the bookings in 2024, so, so that's contractual and, and, and again with is within the guide. There's also what we'll execute in 2025 and so we, you know, coming into a year, we've got 89% revenue under contract that other 11% comes from ARR wins in year that drive and have go live, so they.
Speaker Change: Not your larger, you know, benefits administration, but mid-market deals or navigation or lease deals that go live within years, so you start to drive revenue so it's really the timing in the mix.
Of those ARR bookings in 2025 is a driver that, you know, you know, creates a difference between what a the high end and the low end would look like. And then the other piece of it is project revenue. Again, you can, you know, we talked about the cautiousness we've got in looking at the project revenue within the business, uh, we will, you know, continue to watch that. Our teams are working very closely, you know, day to day on site with our clients and building that pipeline. What you typically expect to see is less volatility on project in the second half of the year because those
Speaker Change: projects are driven driven around the enrollment process, whereas in the first half of the year tend to be more one off projects related to regulatory changes or M&A work and so you start to get more of a solidified view of that pipeline as we get into the second half around project revenue, but certainly can create some variance between where that ends up being and, and coming through in the second half revenue and the last piece I would say it's just on participant counts, you know, we're again 0 to 1% is the view we've seen historic that's pretty low on the low.
Speaker Change: end of what we've seen historically on participant counts and that can also be a driver so that that's what I tell you that the kind of bigger factors for the back half. And Scott, maybe um it's save just I'll add a little color to it. So if we think about the mix of what we take to the marketplace, our products and solutions that it can range from small things that maybe are, you know, one off projects, say on communication support which we would see in the early part of the year, you know, to things that perhaps are, are going to be annual recurring revenue that could actually take effect sometime.
Scott Schoenhouse: in the year. So if we want to leave piece of business for example and we learned about that in the first quarter, we could be implementing that sometime in the 2nd half of the year, but when you get to the large things like the health administration contract that's multiyear if we win that in the beginning of the year, we're probably not going to see revenue flow from that till sometime in 2026 and then the project worked back to what Jeremy said it's going to be driven off of plan design changes, vendor reconfiguration, things of that nature, that our clients are thinking through right now.
Scott Schoenhouse: And so if they do make those significant changes that could lead to meaningful project work for us, but that would tee up some time in the 3rd, 4th quarter.
Hope that helps. That's all really, yeah, that's all really helpful caller. Thanks so much guys. I'll hop back in queue.
Speaker Change: Thanks Scott.
Speaker Change: Our next question is from TN Sin Huang with JP Morgan. Please proceed with your question.
Speaker Change: Uh thanks for the update, Dave. Is it worth going back to what happened in 23 and 24.
Speaker Change: And
Speaker Change: You know what drove those losses, the changes you put in place since then and
Speaker Change: And how you've improved retention and is there still more room for retention to improve based on what you see in the plan that you put in place.
Speaker Change: Yeah, Chen, thank you, appreciate the question, um, you know, I can't go back in detail relative to 2023. I can just say that we had losses.
Speaker Change: Back then that were um that were historically high relative to, you know, our patterns that we've seen over the course of many years, as I said in the opening remarks, Jeremy reiterated on this, this year's renewals, you know, we're up 8 points. Is there headroom for improvement there? Yes, uh, we believe there is, um, we're never going to be the 100%. I sure as hell would like that.
Speaker Change: But that's just not reality. We're gonna lose a client every once in a while, but the thing that drove, I think some of the um, you know, the, the, uh, unsettled renewals back in 2023, were, you know, focused on the, on the domain expertise, uh, some, some service disruptions things that we put behind us, you know, we were working through the cloud migration whenever you do something that's material like that, you're gonna have, you know, some that that might look at that, um, you know, with, with some angst and so, you know, I
Speaker Change: feel really good about the, the stability of our technology platform now. I feel really good about um the leadership changes that we've made in the focus on, on client management and the focus on um excellent service delivery, um, and, you know, we're making progress and, and I think we're effectively uh re-establishing that level of confidence that our clients, uh, should have in us that we've been able to demonstrate over the course of several decades.
Speaker Change: Yeah, that's great, great to hear. And then just my my quick follow up the.
Speaker Change: The ability and the time we go lives.
Speaker Change: I'm just taking that statement together with you haven't seen.
Speaker Change: Demand for project revenue picked up.
Speaker Change: Any
Speaker Change: Uh, between those two and how much upset could there be if the if the short term project work does come back.
Speaker Change: I mean, yeah, no, no tie between the two. I mean, the implementation work is not included in the project work tension so it's typically you know the project work is on behalf of clients that are already live and we're operating with today so.
Speaker Change: You know, think about it almost as an attachment rate, right? So the better we are on ARR bookings getting those live is a greater opportunity and absolute dollar value of the project opportunity that we've got in front of us, so I think that that's kind of piece one, so no connection there we feel confident we we're, you know, we've got the resources in place, uh, to get all the implementations done on the new bookings and and live on time, so, uh, the team feels good about, about that side of it on the project revenue side, you know, the 4th quarter tends from a dollar value.
Speaker Change: the second half.
Speaker Change: tends to be about 2/3 of the overall revenue, uh, within the project business and so I do think that, you know, again, we're not calling for a real recovery here. The comps get better just given the lows that we saw in 2024, um, but, but I mean it it could be impactful, um, if, if we start to see greater demand if there's more clarity maybe with some of the changes on the administration side in terms of regulatory requirements, uh, on behalf of our clients so like I said, said we're really close with our clients on this.
Speaker Change: Work and um but but we wanna remain cautious.
Speaker Change: Understood. No, thank you both.
Speaker Change: Thank you appreciate it.
Speaker Change: You
Speaker Change: Our next question is from Peter Heckman with DA Davidson. Please proceed with your question.
Peter Heckman: Hey, good morning everyone had a comment just in terms of of some of the new bookings, um.
Peter Heckman: That sounded like the back half. I, I did see the expected increase and if I saw correctly AR bookings are up about 18% for the year, um, can you talk about some of your success with with cross selling to current customers and.
Peter Heckman: And and increasing the penetration rate of the number of solutions and, and, and I guess is there any been any change in terms of the the relative attach rate or win rate of of some of the payroll solutions post divestiture.
Yeah, yeah, thank you, Steve. I'll, I'll, I'll start. So we, we, we have in our, our bookings a mix of, of, uh, of services to existing clients as well as new logos. We feel pretty good about the momentum that we're carrying into 2025 relative to the key areas of focus for us which are administration help both mid-market and large market as well, as well as the wealth business, um, and as I mentioned in my opening remarks, we've got significant opportunity relative to leaves in our leave solution.
Peter Heckman: and integrating that with our health administration, um, platform and the elite work life integrated capabilities, um, and there is massive upside there in terms of contract expansion on our existing clients and just the the overall penetration and we have some of that in the bookings for 2025 and what we uh what we reported out at the end of 2024, um, our pipeline in 2025 looks really promising relative to those key service areas.
Peter Heckman: Um, and so, you know, the combination of all of that, we feel pretty bullish about the momentum that we're carrying, you know, into the sale season.
Speaker Change: Maybe what I'd add on that one, Pete is, is, as we've said before, we, we have.
Dedicated teams that are out, you know, hunting new logos, and we have dedicated teams that are working with our existing client base on expansions, right, in, in similar to what Dave talked about within the leads opportunity we can meet our target growth objectives within this business.
Speaker Change: Really only from the white space in our existing client base now we we will still new logos are gonna be important to the growth, you know, perspective for us and the opportunity that we see, but there's a significant amount of white space here as well so that's a, you know, they went through the leaves opportunity across our products that there's a significant white space still that exists within our within our current clients.
Speaker Change: OK, great, great, and then just going back to the 4th quarter, um, uh.
Speaker Change: How would you characterize the activity around um the supplementary, uh, retiree health policies and and some of that, you know, last year there was a little bit of a a negative surprise that provided uh maybe a little bit easier comparison, but how would you characterize, you know, that business in terms of it's, you know, relative contributions to the 4th quarter and, and do you anticipate any changes in that business that would affect the 4th quarter of 2035.
Speaker Change: Sure, yeah, the business performed in line with our expectations be performed well, so it was certainly a contributor to us and in revenue within the 4th quarter as it always is, you know, last year's item with one particular client was, you know, again a a unique um impact given a regulatory loophole that is now closed. We expect this business to continue to be part of, you know, the, the products that that we offer to you know, clients and important within the retiree space. So, but performed well.
Speaker Change: we don't expect any additional kind of one time items as we think about that business moving forward and Jeremy I'll just add, I mean, as we look at our pipeline for 2025 we haven't broken it down specifically, but I've got a pretty good feel for it, um, you know, the retiree health solutions opportunities are, are nice. They look good. We feel good about that business. We feel good about our value proposition.
Speaker Change: Um, and we do think there'll be a lot, a number of large employers are gonna take a hard look at that, um, as part of their strategy as we look at the back half of this year.
All right, that's good to hear thank you.
Speaker Change: Our next question is from Pete Christiansen with City. Please proceed with your question.
Pete Christiansen: Uh, Dave, Jeremy, good morning. Thank you, thanks for the question. Nice to see.
Speaker Change: Yeah, nice to see uh some early signs of turnaround here, um, uh, on, on the renewal contract renewal rate of 88.0 over year. I, I know that's off of softcom.
Speaker Change: Uh, could you just benchmark that for us versus historical levels and and any color on uh contract renewal pricing in the direction that you're seeing there.
Speaker Change: Sure, Pete, let me, let me start with that. Maybe Jeremy can add add some color to it, so if you go back and look at the historical levels as I mentioned, you know, 2023 was a kind of a low water mark, you know, for us if, if you look back prior to that or what we would expect on a more normal basis we're approaching those levels, right? So the 8 point improvement feel good about, um, as I said, there's still a little bit of headroom there, you know, maybe a couple more points where we can get to, you know, historical high levels, and we feel good about.
Speaker Change: our trajectory relative to that, you know, as far as the pricing dynamics are concerned, you're always going to have a little bit of compression. We're not worried about it. I don't think we're seeing any, you know, like predatory pricing or anything that would be out of the ordinary, you know, relative to big contracts that we're looking to renew or or particular point solutions like our leisure and business that's pretty pretty important part of our portfolio, you know, so overall I think we're, we're feeling good about kind of a return to historical levels of performance on retention.
Speaker Change: And and Pete, maybe what I I'd add the if there's any compression from a pricing standpoint it's included in how we talk about losses and it's really losses and compression so as we go through that renewal cycle that overall retention percent is dri you know includes both price impacts on anything that we do retain.
Speaker Change: And just on, on, on the prospecting side.
Speaker Change: I, I don't know if you're seeing any, you know, given pre premiums are just going up and everything like that has has pricing become uh uh more of a priority.
Speaker Change: Uh, when trying to win new business or is it really still back to capabilities, uh, employee engagement like those types of things. I'm just trying to see if if the buyer checklist has changed at all.
Speaker Change: Yeah, it's a great question, Pete thank you. Let me, let me take a crack at it, so, um, it's important I think to put what we do in, in our fees relative to what we do in the context of the overall spend for the employer.
Speaker Change: For employee benefits and if you think you think more specifically about health and the importance of our value proposition around health administration, navigation, integration, and our ability to be able to help participants connect up with the programs that are available to them, utilize those programs, see the value on the outcome, better health, better well-being, etc. It's the value play that the employer cares about, because, you know, roughly 90 cents on the dollar is relative.
Speaker Change: to the actual benefit or the claim in the case of healthcare, that's going to get paid.
Speaker Change: And the extent to which we can be supportive of getting participants more lined up and more engaged with the programs that are available.
Speaker Change: We have a positive impact on that 90%.
Speaker Change: So while they look at what it costs for us to deliver the service, we're actually talking much more about what we can do to help impact the total cost.
Speaker Change: That, that, that's, that's helpful, thanks for uh reframing that for us. Thank you.
Speaker Change: You're welcome.
Speaker Change: Thank you. Our next question is from Josephoffy with Canaccor Genuity. Please proceed with your question.
Speaker Change: Hey guys, good morning and um thanks for all of the new metrics, uh, much appreciated. Just, just one more on, on renewals here if we look at um if we look at the ARR.
Speaker Change: Uh, growth guide for the year, um, it's a nice number just wondering if, if, you know, perhaps this year is a higher.
Speaker Change: Renewal year uh versus you know perhaps last year, um, or, you know, is it kind of a normalized kind of average renewal year.
Speaker Change: Um, on contracts and I have a quick follow up.
Speaker Change: Yeah, Joseph it's, let me start on that. So, um, actually 2024 probably was a bit of a bigger year relative to the total amount up for renewal. It's pretty even when you look at it year to year doesn't fluctuate too much, you know.
Speaker Change: Think about 3 to 5 year kind of contract durations and so you've got roughly a call it a 4th of the business that's gonna be up for renewal every year. Last year was a little bit higher. Uh, we feel good about our success on it this year's gonna be a little bit lower.
Speaker Change: Great. And then just one quick one.
Speaker Change: I like Capex, maybe a little lower here.
Speaker Change: In 2025, is that maybe a function of some of the spend on the cloud migration abating or is there anything else we should be aware of. Thanks a lot, guys.
Yeah
Speaker Change: Sure, Joe, I'll take that one, yeah, exactly right, and we did have elevated uh capex as we were working through the last two years on the cloud migration, so I think.
Speaker Change: What the benefits of being in the cloud stability around the technology infrastructure that we have today, uh, there's the real estate, you know, and anything that went with the data centers that we had, uh, you know, on site and so we are seeing the benefits of that and then I think the other part of it is the investment profile from a product standpoint, you know, we're looking at and in ensuring efficiency around the areas that are going to drive the growth within this business there's, there's been, you know, the spend on that side of it with the light work like over the past 4 years and so we.
Speaker Change: think there's continued opportunity to be more efficient as we think about that investment profile.
Speaker Change: Thanks very much.
Thanks, Joe.
Speaker Change: Appreciate you.
Speaker Change: Thank you. There are no further questions at this time. I'd like to hand the floor back over to Dave Gilmet for any closing comments.
Dave Gilmet: No thank you operator and thank you everyone for joining us today. We look forward to building upon our momentum and discussing our long-term strategy next month at our investor day. Take care everybody.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.