Alight(ALIT)2024-05-09 07:02Financial Data and Key Metrics - Total revenue for Q1 2024 was $816 million, a decline of less than 1% excluding the impact of the hosted business [20] - BPaaS revenue increased by almost 22% and represented more than 1/4 of total company revenue [20] - Adjusted gross profit was $278 million with margins nearly flat at 34.1% [22] - Adjusted EBITDA was $150 million, $4 million lower than the previous year [22] - Operating cash flow was $100 million, reflecting a 39% growth compared to the prior year, with a conversion rate of 67% [22] - Capital expenditures decreased by 20% in the quarter, leading to significantly improved free cash flow [23] Business Line Performance - Employer Solutions revenue declined by 1% year-over-year, while Professional Services revenue increased by 2% [35] - Project revenue in Employer Solutions was down 11%, and in Professional Services, it was down 3% [35] - BPaaS revenue growth was a key driver, with large expansions with existing clients and a $50 million public sector contract secured [11] Market Performance - The company expects 2024 to be a tale of two halves, with the first half impacted by lower nonrecurring project revenue and the exit from the Hosted business, while the second half will benefit from new deal go-lives [8] - Revenue under contract for 2024 is $3.1 billion, for 2025 is $2.2 billion, and for 2026 is $1.6 billion [25] Company Strategy and Industry Competition - The company is focused on simplifying its operations by divesting its Professional Services segment and HCM & Payroll Outsourcing businesses, expected to close midyear 2024 [5] - The company is targeting a midterm revenue growth of 4% to 6%, BPaaS revenue growth of at least 15%, and an adjusted EBITDA margin of 28% [6] - The company is advancing its technology roadmap, with ongoing product innovation, including the latest release of Alight Worklife, which focuses on AI-driven support, health navigation, and financial wellbeing tools [12] Management Commentary on Operating Environment and Future Outlook - Management reaffirmed the midterm outlook, expecting revenue growth to ramp through the second half of 2024, with continuing operations revenue growth in line with the midterm outlook of 4% to 6% [26] - The company expects profitability to improve through multiple levers, including an immediate uplift of margins upon closing the transaction and completing the back-end cloud migration in the second half of 2024 [9] Other Important Information - The company announced leadership changes, including Katie Rooney stepping down as CFO to focus on the COO role and Jeremy Heaton taking over as CFO [4][13] - Greg Goff was promoted to President of Alight, overseeing product, technology, and delivery [14] - The company reached a constructive settlement with Starboard and added two new Board members, Dave Guilmette and Coretha Rushing [15] Q&A Session Summary Question: Revenue guidance for 2024 and customer reactions to the divestiture [29] - The company expects growth to ramp in the second half of 2024, with revenue under contract building and sales momentum continuing [30] - Customers have been supportive of the divestiture, with the company maintaining commercial partnerships and delivery execution [31] Question: Share buyback plans [32] - The company is focused on closing the transaction midyear and will assess portfolio composition and strategic alternatives to maximize shareholder value [33] Question: Revenue impact and Q2 guidance [34] - Project revenue was the main driver of the $15 million revenue impact, split evenly between Employer Solutions and Professional Services [35] - Q2 is expected to have a similar growth rate and EBITDA margin as Q1 [39] Question: First quarter results and discontinued operations [41] - The revenue shortfall was driven by lower project revenue, with about half of the impact related to the divested business and half to the remaining business [42] - The company expects a better path for project revenue later in the year, particularly around annual enrollment [36] Question: Client reception post-Great Resignation and wage inflation [50] - Clients are increasingly focused on cost reduction and employee engagement, with the company's platform-based approach resonating well [51][53] - The company continues to see demand for BPaaS solutions, with BPaaS revenue up over 20% [71] Question: Bookings momentum post-divestiture [60] - The company is seeing continued momentum in bookings, with revenue under contract growing for 2024, 2025, and 2026 [61] - The divestiture simplifies the business and is expected to improve deal conversion rates [63] Question: Macro environment and BPaaS deal cadence [69] - The macro environment remains challenging, with clients focused on cost reduction and employee engagement [70] - BPaaS demand remains strong, with BPaaS revenue up over 20% [71] Question: Board composition and strategy [72] - The Board has been refreshed with a focus on long-term profitable growth, with half of the Board replaced over the past two years [73][74] Question: Q1 sales performance and opportunities [75] - Q1 sales were in line with expectations, except for lower nonrecurring project revenue [76] - The company continues to build revenue under contract and expects growth to ramp in the second half of the year [76] Question: Free cash flow and operating cash flow conversion [80] - Operating cash flow was $100 million in Q1, with a conversion rate of 67%, and the company expects to maintain a conversion rate of 55% to 65% for the year [81] - Transaction expenses may impact Q2 cash flow, but the company expects cash flow to improve in Q3 and Q4 [82] Question: Cloud conversion and best-of-breed vs. best-of-suite [83] - The company sees an opportunity to consolidate point solutions into a single platform, leveraging its data and AI capabilities to drive better outcomes for clients [84][86] - The company is well-positioned to compete with best-of-breed solutions by offering a comprehensive platform that integrates health, wealth, and wellbeing services [84][86]