Q1 2025 Alight Inc Earnings Call
Renju: Good morning and thank you for holding. My name is Renju and I will be your conference operator today.
Speaker Change: Welcome to a light first quarter, 2025 earnings conference call. At this time, all parties are in listen only mode. As a reminder, today's call is being recorded, and a replay of the call will be available on the investor relation section of the company's website.
Speaker Change: and now I would like to turn it over to Jeremy Cohen, Head of Immersed Relations, at the light to introduce today's speakers.
Speaker Change: Good morning, and thank you for joining us. Earlier today, the company issued a press release with its first quarter 2025 results. 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 four-looking statements. Such four-looking statements are not guarantees a 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, 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-looking statements.
Speaker Change: Also, during this conference call, the company will be presenting certain non-GAAP financial measures. Reconciliation 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: All-year-over-year financial comparisons made on today's call are on a pro-forma basis giving effect to the payroll and professional services transaction completed West July and are consistent with the presentation we have published on our Investor Relations website.
Speaker Change: On the call from management today are Dave Guilmette, CEO , and Jeremy Heaton, CFO . After the prepared remarks, we will open the call up for questions. I will now hand the call over today.
Dave Guilmette: Thanks, Jeremy, and good morning. We're off to a strong start to 2025 with first quarter results to reflect continued progress against the strategy we outlined back in March during our investor day.
Dave Guilmette: We shared that we are the market leader in the employee benefits delivery space and our strategies grounded in a client-centric focus.
Dave Guilmette: Our Integrated Alight Worklife platform paired with a deep data lake informs an enormous opportunity across AI and automation that enable us to innovate and bring additional value to our clients and efficiencies to a light.
Dave Guilmette: While we continue to watch the economy with a cautious view, we feel good about our revenue under contract, the momentum from our renewals and the operational initiatives underway that will continue to drive margin expansion and more free cash flow. As a result, we are reaffirming our financial outlook for the year.
Dave Guilmette: We talked at length about the importance of retention and to start the year our renewal trends remain on track with execution of our new everyday program.
Dave Guilmette: We have already renewed several top clients this year, including Starbucks, Baxter, US Foods, and Otis Elevator Company who have been important clients and we look forward to continuing to partner and innovate with them.
Dave Guilmette: These are examples of the confidence our clients have in our vision and the value we deliver.
Dave Guilmette: Retaining and then expanding upon those relationships is a critical element that powers the flywheel to accelerating financial performance and delivering long-term shareholder value.
Dave Guilmette: With technology, our team has been laser focused on delivering value for our clients and participants through accelerating innovation and AI enablement.
Dave Guilmette: This quarter we launched our self-service leaves administration reporting platform, which when couple with AI insights will deliver tremendous value for clients and simplify the complexity of absence management.
Dave Guilmette: Leaves continues to represent a large growth opportunity for us with only 10% penetration across our top 200 clients.
Dave Guilmette: At the same time, we are also working on similar modernized reporting platforms for health and wealth.
Dave Guilmette: At quarter and nearly 80% of our clients were already leveraging AI in some capacity, and our roadmap positions us to meet and anticipate the needs of participants and drive better outcomes.
Dave Guilmette: We are also making headway on how we nail the basics by enhancing the delivery operating model, which as a reminder is our initiative of moving from a solution centric approach to a balanced centers of excellence approach.
Dave Guilmette: One example of how this is coming to life is within our COE for strategic implementation services.
Dave Guilmette: Our work simplifying implementation routines is creating a standardized approach across our solution domains. For example, the way we implement an navigation solution should not differ materially from other offerings, whether it be leaves, health or wealth solutions. [inaudible]
Dave Guilmette: Building muscle around a more consistent and predictable implementation experience will reduce costs and the time to go live for our clients.
Dave Guilmette: On the customer care front, service levels have improved and we're proud that our NPS score related to annual enrollment increased 12 points this past year.
Dave Guilmette: We will have plenty more to share as the year progresses, but we're off to a strong start.
Dave Guilmette: The importance of the initiatives across technology and delivery cannot be understated.
Dave Guilmette: The value we're adding from these initiatives not only supports a better client experience But is a key element to driving stronger profitability and free cash flow Many of these initiatives are independent of the top line
So with that, let me cut you on the macro environment.
Dave Guilmette: The long cycle and recurring nature of our business helps to insulate us as we experience during the pandemic, but we are not completely immune from any impacts. We feel good about what is in our control, and like most companies, we are navigating current market conditions.
Dave Guilmette: There are really three areas we are watching closely. First, increasing market volatility can elongate the client decision making process for both project and ARR deals and how quickly we can close them and go live.
Dave Guilmette: As is our norm, we would expect to have more visibility on our 2025 project work in year revenue in our overall pipeline as we move through this quarter.
Dave Guilmette: Our view and that of clients I have recently met with is that amidst uncertainty, benefits programs aimed at helping employees to be healthy and financially secure are as important as ever.
Dave Guilmette: Helping clients navigate the current environment, provides an opportunity to add even more value and strengthen our deep relationships.
Dave Guilmette: and those clients are continuing to look at ways to simplify and drive down their costs, which plays well into our strategy. This is reflected in our strong pipeline, which is up roughly 30%.
Dave Guilmette: Second, assets we manage to our financial advisors generate fees that vary with financial market performance.
Dave Guilmette: While this is only a small portion of our wealth business, the fees can be pressured by a protracted market downturn.
Dave Guilmette: And finally, we enter 2025 cautious on volumes or participant counts within our guide.
Dave Guilmette: We continue to watch participant counts, but as we saw during COVID changes to employment levels did not impact our volumes materially over the short run and typically the impact would lag the market by six months or more.
Dave Guilmette: We remain grounded in being a trusted partner that delivers service excellence and competitive solutions, and we look forward to supporting our clients and helping their people every day. With that, let me now turn it over to Jeremy.
Jeremy: Thank you and good morning. As Dave mentioned, first quarter results were in line with expectations and were pleased with our team's execution around key initiatives underway that enable us to reaffirm our outlook.
Speaker Change: 2025 continues to be a transitional year during which we're taking steps forward both strategically and financially toward our midterm objectives.
Dave Guilmette: Turning to the results, revenue was $548 million, and at the midpoint of our guidance range. [inaudible]
Dave Guilmette: Recurring revenue comprised nearly 95% of total revenue in the quarter and performed as expected.
Dave Guilmette: Non-recurring project revenues were down 10 million or 26 percent in line with our expectations as well. We entered the year fairly cautious on project revenue and this continues to remain the case in the current market.
Dave Guilmette: With our progress through the first quarter, we now have 92% or 2.2 billion of projected 2025 revenue under contract. Our team is intensely focused on securing the remaining renewals in this cycle and commercial execution across both recurring and project revenue.
Dave Guilmette: Ajusted Gross Profit was 200 million for the quarter. Similar to prior quarters, this is impacted by cost to support the divested business, which are reimbursed for the TSA in other income. This amounted to 10 million in the quarter.
Dave Guilmette: Adjusted you, but that was 118 million for the quarter at the high end of our guided
Dave Guilmette: Free Cash Flow was 44 million for the quarter in line with our expectations with timing impacts of tax payments and divestiture-related items. We remain on track towards our annual target of 250 to 285 million of free cash flow.
Dave Guilmette: Finally, we returned 41 million to shareholders this quarter via share buybacks and our quarterly dividend.
Dave Guilmette: Turning to the balance sheet, our quarter end cash and cash equivalence balance was $223 million and total debt with $2 billion.
Dave Guilmette: Our net leverage ratio with 3.1 times and we expect this to normalize below three times again as we build cash through seasonality and as profitability ramps through the year. We continue to actively manage our debt which is 70% fixed through 2025 and 40% through 2026.
Dave Guilmette: In January , we reprised our term loan, lowering our interest rate by 50 basis points which will decrease our interest expense by 10 million dollars annually.
Dave Guilmette: We repurchase 20 million worth of shares during the quarter, and at the end of March had 261 million of share buyback authorization remaining.
Now let me turn to our outlook.
Dave Guilmette: We are seeing continued momentum during this renewal cycle, and in addition, while we navigate the current environment, we continue to execute on the day-to-day operations and value creating initiatives we kicked off last year.
Dave Guilmette: As Dave mentioned, while we benefit from a more stable business model, we are watching a few key areas closely given the market dynamics mostly around the demand environment and any longer term impacts to client participant counts.
Dave Guilmette: We are reaffirming our outlet for 2025 and this reflects our revenue and our contract and operational levers driving enhanced productivity.
Dave Guilmette: Our transformation initiatives are on track to deliver a better client experience, streamline processes, and drive margin expansion.
Dave Guilmette: Today, we disclose a 15 month restructuring program that supports these activities, importantly, with all cash investment and benefits already included in our 2025 guide and midterm financial framework from investor day.
Dave Guilmette: Full-year expectations include revenue of approximately 2.32 to 2.39 billion, or negative 1.5 to positive 1.5 percent growth. Adjusted EBITDA of 620 to 645 million,
Dave Guilmette: Adjusted EPS of 58 to 64 cents, which does not include any impacts from share buybacks, and free cash flow of 250 to 285 million, or growth of 13 to 29 percent.
Dave Guilmette: Our full year view reflects our visibility today and assumes the current market conditions prevail.
Dave Guilmette: To close out, our team's delivered on expectations for the first quarter, and we feel good about the operational work underway.
Dave Guilmette: Our business benefits from a highly recurring revenue base tied to long-term contracts delivering mission-critical services to the largest companies in the world, and we remain intensely focused on our execution while delivering exceptional value for our clients.
Dave Guilmette: 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?
Dave Guilmette: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press the style one on your telephone key pair. A confirmation tone will indicate your line is in the question queue.
Dave Guilmette: You may press start too, if you would like to remove your questions from the queue. For participants using speaker equipment it may be necessary to pick up your handset before pressing the start keys.
One moment, please, value poll for questions. Thank you.
Speaker Change: The first question comes on the line of Scott Schoenhaus with Keybank Capital Markets, please go ahead.
Scott Schoenhaus: Hey team, thanks for taking my questions. Congrats on the New England expansion. My question really on what's the focus on the project revenue, you know, you've got it for continued weakness for this year, but just kind of wanted to give your updated thoughts on the first quarter trend, the comps that you face in the back half of the year, and all the macro noise, obviously that maybe is a headwind.
Scott Schoenhaus: DuMNA, and what not. But just kind of get one of your updated thoughts on the project revenue as we look to the year. Thanks.
Thank you. Thank you. Thank you.
Scott Schoenhaus: Jacob Martin, Scott, and Dave, thank you for the question. I'll start and I think Jeremy will pepper in as well. So the first quarter kind of played out as we expected. You know, we didn't go into the year. Thank you very much.
Scott Schoenhaus: Thinking that we're going to see a significant uptick in the project work as we indicated.
Scott Schoenhaus: and you know, there continues to be softness in the M&A front and some of the things that
Wooden,
typically play out in the first quarter.
Scott Schoenhaus: What's important now is the second quarter. Our teams are deeply...
Scott Schoenhaus: in discussions with our large clients around their plans, strategy for business for benefit.
Scott Schoenhaus: Design changes for vendor reconfiguration, things of that nature that typically play through in the second half of the year, around the enrollment process.
Scott Schoenhaus: So we'll know more clearly over the next several weeks just how that's shaping up but all indications are that there's you know continuous discussion around the importance of those kinds of changes because they really get to the cost of these programs and [inaudible]
Scott Schoenhaus: healthcare costs, continue to inflate, and our clients are doing everything they can to try to keep that under control. Jeremy?
Jeremy: Yeah, what I might add, there Scott is, as we've talked about, the first half project work.
Scott Schoenhaus: which we had expected it to be really in line with where we ended up for the first quarter.
Speaker Change: Tens to be more discretionary projects or ad-hoc work that comes in from M&A and the regulatory changes Dave mentioned and so I think that was how we thought about the year and coming through and what we're seeing. So the pipeline really builds, I think the June , July timeframe in the large enterprise space.
Speaker Change: David Guilmette is where you really get full visibility into what, you know, the back half of the year will look like. And as Dave said, tends to be more stable. The comms change a little bit for us. So, we expect to see an improving profile there as we get into the back half of the year. But again, we'll get more visibility as we get through the quarter. And these are the teams working with our clients day to day. So, we'll get pretty up to date information as we progress here. Thank you.
Speaker Change: Thanks. Sorry for the background noise. And then I think you mentioned your pipelines up 30% to provide more color on that. Is that expansions? Is that kind of creating more into the middle markets? Just any more color on the pipeline update. Thanks.
Speaker Change: Yes, certainly Scott. So I would say it's kind of across the board, you know, we're seeing nice opportunities in the core admin space. We see a very robust pipeline related to our leaves solution and a similar amount of momentum related to our navigation solutions. So all in, we feel. Thank you very much.
Speaker Change: Good about that momentum. We feel good about the strength of the pipeline. And you know, we're going to continue to pursue that. Those opportunities pretty aggressively here through the second quarter. [inaudible]
Thanks, Dean.
Speaker Change: Thanks, Scott. Thank you. Thank you. Next question comes on the line of Kyle Peterson with Needham and Company, please go ahead.
Kyle Peterson: Great. Good morning. Thanks for taking the questions. Nice results, but just wanted to try to...
Kyle Peterson: Touch a little bit on the guide and kind of what you guys are seeing in the sales cycle. Sounds like you guys are...
Speaker Change: I might think that some of the deal cycles could get extended a bit, given the macro, I guess, is that?
Kyle Peterson: It's some of that commentary there just being cautious or has there been any change in client behavior and decision making like in the last like month or so given all the like trade warren and uncertainty?
Kyle Peterson: Today, it's much more about just the overall environment that we're all dealing with.
The, you know, the degree to which...
Kyle Peterson: There are changes that are happening coming from policy positions with the administration.
Kyle Peterson: It just makes our clients stop and think a little bit more about the types of projects that they may undertake or things that might be discretionary. But we've not seen anything that would be taken off the table. We'll see you next time.
Kyle Peterson: at this point. And the way that would typically play out is I would put into two categories. You've got
Kyle Peterson: The bigger kinds of moves that clients would make introducing a new program, such as a navigation solution, making a change relative to leave the administration or the core benefit administration offerings that we have.
Kyle Peterson: You know, those tend to follow typical cycles when contracts were new, et cetera, and I would say those are all very much underway. Thank you very much.
Kyle Peterson: It would be more, you know, related to things that might be a little bit more short term, so expansions perhaps where there might be another layer of decision making or a little bit more caution. Let's get started.
Kyle Peterson: And that might push a contract, you know, being executed out, you know, by a couple of weeks, that sort of thing. But we've really not seen anything protracted or anything that would give us in a serious concern at this point, relative to the buying patterns.
Speaker Change: Graff, that's really good color. And I guess a follow-up, you know, on capital allocation. I guess you're thinking, you know, about the buyback.
in particular, obviously.
Speaker Change: So, especially as cash builds this year, would you guys be willing to maybe be a little more tactical or aggressive to try to support the stock if there are dislocations and such.
Speaker Change: Sure, thanks, Kyle. Yeah, for sure. I mean, I think we talked about it a bit at investor day. We've got the, you know, we had the increase of 200 million. So now we have 261 million of available authorization. And so I think that's important for us and. [inaudible]
Speaker Change: just the flexibility for us on what we want to do and being opportunistic. And so you saw we were active in the first quarter, will continue to be. And again, in this type of environment, first, you know, order of around capital allocation is just strength of the balance sheet.
Speaker Change: and then we're also going to look at opportunities to continue, whether it's strategic partnerships or anything in organic but certainly capital return is there as a priority as well and so you saw that both with. Thank you.
Speaker Change: Again, the dividend and being active and shared by back. So we certainly have the benefit with the authorization available to be very opportunistic this year.
Speaker Change: Good. I'll appreciate your second questions. I'll hop back in.
Thanks, Kyle. Thank you, Kyle.
Speaker Change: Thank you. Next question comes from the line of Pete Christiansen with Citi Priscovaid.
Good morning. Thanks for the questions here.
Just two for me. Jeremy, can you talk through? I guess...
Speaker Change: Okay, I'm sorry, the pipeline so far 92% of 2025 so far, I guess it's...
Speaker Change: Hard to look back because of the pro-former and all that stuff. But how does that normally pace, I guess, with the benefits business looking on a pro-former basis versus previous years? Seems like it's in a pretty good position.
Speaker Change: It is, thanks for the question, Pete. Yeah, we feel good about the 92% you're right. We do start, you know, a normal year this year. We started at 89%, which was, you know, if you looked at the
Speaker Change: Previously, when we had the, you know, professional services in payroll business, we would start in the high 70s to low 80s, we had the benefit of starting this year at
Speaker Change: 89% but we made very good progress in the first quarter and building through so again I think that's what gives us you know a lot of you know the confidence that we've got in in the guide with the progress we made the results we delivered in the first quarter. Thank you very much.
Speaker Change: And what we, you know, again, there's still execution that's required and elements of that that we'll have in any given year, but we feel really good in terms of the progress. And of course, the renewal cycle, that's a big piece of. Thank you very much.
Speaker Change: What closes in on the revenue under contract, both for this year and as we look out to 2026 and 2027, which are both ahead of where we were at the same time last year looking out in kind of the one year and two year out views. So we feel very good in terms of the progress. Thank you very much.
That's all fun. Have there been any implementations that have been rescheduled?
I guess, lately, nothing, nothing, nothing.
Speaker Change: Nothing material that we've seen at this point. You typically might have something that moves month to month based on something that might happen within a particular project or a go-alive but we have not seen large shifts.
Speaker Change: in Implementation at this point. We maintain full capacity to be able to implement deals on time and really going back even to the, you know, the federal deal of the threat deal. We really had no issues in terms of implementations and go less. [inaudible]
Speaker Change: That's great. And then, sorry, last one from me, my phone cutaway for a bit. Dave, I think you were talking framing. [inaudible]
Speaker Change: Some of potential challenges in a weaker macro environment on the wealth side. Can you just reframe that for us at the exposure there and how we should think about that portion of the business. Sorry about that.
Speaker Change: Yeah, sure Pete, thank you. So maybe the way to think about this is, first of all, we have a team of financial advisors that for a fee manage assets on behalf of retirees. [inaudible]
Speaker Change: Order of Vanditude, they manage tens of billions of dollars out of our one and a half trillion dollars of assets that we cover. So kind of as we, as we sit here today, if we saw a really protracted. [inaudible]
Speaker Change: We can market with performance being down. You know, we're talking about exposure from our ever-to-stand point, well less of $10,000,000.
Correct. That's the script. Thank you very much.
Next page, welcome, Peter.
Speaker Change: Thank you. Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to Dave Guilmette for closing comments.
Dave Guilmette: Thank you, operator. And thank you everyone for joining us today. We feel good about our first quarter performance, which is a testament really to our colleagues and the support that they provide our clients every day. And I like to take a moment to thank them for everything that they do. We look forward to sharing our progress as we move through the rest of the year and seeing many of you in person over the next few weeks. Thank you. Thank you.
Dave Guilmette: Thank you. This concludes our today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Dave Guilmette: [inaudible] John Deere, John Deere, John
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