Alight, Inc.

Good morning and thank you for holding. My name is Ryan and I will be your conference operator today. Welcome to Alight's second quarter 2024 earnings conference call. At this time, all parties 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 it over to Jeremy Cohen, Head of Investor Relations at Alight, to introduce today's speakers. Please go ahead, sir.

Good morning, and thank you for joining us. Earlier today, the company issued a press release with second quarter 2024 results. A copy of the release can be found in the Investor Relations section of the company's website at InvestorDataLight.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 and Form 10-Q, 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, during this conference call, the company will be presenting certain 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 today's call, when we refer to ARR, we are speaking of annual recurring revenue, which is derived from long-term contracts with high retention. We see ARR as a key metric in understanding our top-line growth and will provide transparency to ARR bookings and ARR revenue. ARR revenue may vary based on overall client headcount, as our pricing includes revenue per employee. On the call from management today are Stefan Scholl, CEO, Jeremy Heaton, CFO, and Greg Goff, President. Dave Gilmatt, a Lights Vice Chair, is also with us today. After the prepared remarks, we will open the call up for questions. I will now hand the call over to Stefan.

Thanks, Jeremy, and good morning. Alight had a transformational quarter where we delivered on key strategic milestones. We continued to accelerate our go-to-market momentum, completed our two-year cloud migration program, and now begin a new chapter as a simplified company with higher margins, greater capital efficiency, and a stronger balance sheet. With the sale of our payroll and professional services business, we gain a new commercial partner and retain a superior financial model. Our adjusted gross margins are 350 basis points higher at over 40%, and adjusted EBITDA margins have increased from 21.7% to 25%. Our singular focus is on our differentiated, technology-rich, benefit services business with long-term annual recurring revenue, higher margins, and improved cash flow. We are an industry leader with four decades of experience, serving 70% of the Fortune 100 and half of the Fortune 500. And we have created a better experience for our clients and their employees with the Alight Work Life platform, creating a more valuable and durable enterprise. Deal proceeds were better than planned, and we retired $740 million in debt, reducing our net leverage to 2.8 times on last 12 months' adjusted EBITDA. We also announced $155 million of share buybacks, which will retire over 3% of our shares. Completing our cloud migration program has removed decades of tech debt and will generate $75 million of annual run rate cost savings, which is a key component of our additional gross margin and adjusted EBITDA margin expansion to 28%. We continue to win in the market with our transformed go-to-market strategy. We delivered 9% growth in ARR bookings in the first half of this year, including great wins this quarter from UPS, Wayfair, American Honda Motor Company, and the ADECO Group. We see strong demand for our high-value solutions and expect double-digit ARR bookings growth in the second half of 2024 and continued growth thereafter. Our second quarter results were in line with the expectations we laid out last quarter, and for our core ARR business, we expect sequential growth through the second half of 2024. We see increased cost consciousness and lower client demand for our non-recurring project-based work, which, as a reminder, is less than 10% of our revenue. This influences how we think about 2024 and have updated our revenue outlook accordingly. Within a Lightscore ARR business, we expect sequential revenue improvements quarterly through to the end of 2024. And ARR is over 90% of our revenue and comes from long-term contracts with relationships that span decades with some of the world's largest and most complex companies. As Jimmy will outline in more detail, we have billions of revenue under contract to 2026 and beyond. We are intensely focused on accelerating ARR with our transformed go-to-market model and by ensuring our clients and their employees have an extraordinary service experience. Our revenue under contract, focus on client retention, and high-quality ARR bookings growth will yield revenue growth of 4% to 6% annually over time. Our transformed business will generate adjusted EBITDA margin expansion from 21.7% in 2023 to 25% to 26% in 2024. We also reaffirm our midterm adjusted EBITDA target of 28%, over 600 basis points of margin improvement. And we are also reaffirming our midterm guidance on operating cashflow conversion of 65 to 80% and maintaining net leverage of less than three times. We are confident in this guidance, independent of top line growth. In line with the closing of the divestiture, And after almost five years in my role, it's the right time for a new leader to take the company forward in this exciting next chapter. I'm very proud of what we've accomplished during my time, including taking the company public, our cloud transformation with the Alight Work Life platform, and now with the sale, Alight is a new company simplified and focused with a tremendous opportunity ahead. The board and I have been succession planning for months, and we've announced today that I will step down when a new leader has been named. In the meantime, I will continue to lead the company alongside our highly experienced management team. Dave Gilmette, Vice Chairman of Alight's Board of Directors, will work closely with me to support an organized transition. I want to thank all of our colleagues around the world for their tireless efforts to deliver on these key milestones and delivering for our clients each and every day. Jeremy, over to you.