Alight, Inc.

Good afternoon, and thank you for holding. My name is Stacey, and I will be your conference operator today. Welcome to All Light's 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 recorded, and a replay of the call will be available on the investor relations section of the company's website. And now, I would like to turn the call over to Jeremy Cohen, Vice President of Investor Relations at All Light. 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 website at investor.alight.com. Before we get started, please note that some of the company's discussion today will include forward-looking statements. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are discussed in more detail in the company's filings with the SEC, including the company's most recent Form 10-K, as such factors may be 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 most directly comparable GAAP financial measures appear in today's earnings press release. On the call from management today are Stephan Scholl, 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 Stephan.

Good afternoon, and thank you all for joining us. Earlier today, we released our second quarter results. and are 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 us well positioned to achieve our 2023 and midterm growth outlook. During the quarter, we delivered revenue and BPAS 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 is led by the collective components of BPAS, and non-b-pass solutions which have created a resilient book of business and taken together allows us to sit here today with over 90 percent of our 2023 revenue under contract and already an unprecedented amount of backlog of 2.5 billion for 2024. let me briefly explain our recipe and how each component contributes to the totality of our business first Our non-BPAS revenue, led by professional services and standalone core administration, represents nearly 80% of total revenue and is seeing higher than normal growth rates of 8% in the first half. Our recent growth was driven by one-time project work supporting the go-lives of large BPAS deals. It is these mission-critical, standalone solutions that are the foundation for our moat, characterized as highly recurring and with long-term contracts. and they are the feeder enabling us to upgrade our customers into larger platform deals that are driving better outcomes. And the platform, Alight Work Life, is the backbone of BPaaS, which as a reminder, are 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. BPAS 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 of BPAS TCV 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 it's 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 BPAS growth of 15 plus percent coupled with the non-BPAS 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 Alight Work Life platform has been constructed as a recommendation engine of one by unlocking the value of data within our core administrative services and leveraging AI in a meaningful way. So 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 addition, yesterday we announced our second major annual release of Alight Work Life. The latest release leverages Alight's robust proprietary data to deliver AI-driven personalization and automation capabilities across the Alight 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 call center channel, an improvement that drives greater client satisfaction and underscores our long-term margin expansion by driving down our service costs. Though the advancement in our chatbot is exciting, Aled 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 data sets, and established connections with data sources are driving better engagement and improving ROI for our customers. And this is the foundation for our BPaaS growth. Still, we're just scratching the surface of what is possible. We're unlocking 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, at scale, ingest, comprehend, and answer questions about these documents in 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 Weiss Markets, a mid-Atlantic food retailer with nearly 23,000 employees, our new relationship has grown from an original remit of taking over a complex workday deployment led by a competitor to a one-on-one engagement that includes benefits administration and services work. And with Siemens Healthineers, a multinational with nearly 70,000 employees, they were seeking a solution that prioritized employee health and well-being while also driving sustainable engagement. Through our One Alight solution, Siemens will have the tools to address its objectives and positively impact well-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 joined us midway through the quarter, and I'm excited for our organization as its 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 backend 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. 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. Katie Rooney will be expanding her responsibilities to take on the role of Chief Operating Officer, focused on running Alight's professional services segment and our global payroll capabilities. Many of you have gotten to know Katie well and can attest to her strong leadership abilities built from her over 14 years with Alight and its predecessors. In addition to her new role, Katie will continue to serve as Global CFO, and Jeremy Heaton will move into the Operating CFO role, accountable for many of the day-to-day responsibilities across the finance functions. Jeremy was executive vice president of FP&A and has been part of Katie's team for over three years. Before Alight, he was a divisional CFO for GE and spent over 20 years there. Many of you have had the opportunity to spend time with him, and you'll be seeing much more of him in the future. Adding operational experience to Katie's skill set and elevating Jeremy's 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, Cesar Helves will be leading Alight. I want to thank him for his contributions in 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 Alight, building upon our strong foundation, and setting us up for sustainable long-term success. Katie, over to you.