Alight, Inc.

Good morning and thank you for holding. My name is Paul and I will be your conference operator today. Welcome to Alight's fourth 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.

Good morning and thank you for joining us. Earlier today, the company issued a press release with its fourth quarter and full year 2024 results. A copy of the release can be found in the investor relations section of the company's website at .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 10K and Form 10Q, 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. The results discussed on today's call relate to the go-forward company as we operate today and do not include results of the divested payroll and professional services business. All -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 Invest Relations website. On the call for management today are Dave Gilmette, CEO, and Jeremy Heaton, CFO. After the prepared remarks, we will open the call up for questions. I will now hand the call over to Dave.

Thanks, Jeremy, and good morning. Let me begin by saying that 2024 was the year of transformation for Alight as we repositioned the company for long-term success. We concluded our technology transformation journey with the completion of our cloud migration, divested payroll and professional services to simplify our business model, and evolved our leadership structure. Together, these milestones have collectively reset Alight's foundation, and we entered the new year with Momentum as a tech-enabled employee benefit services company. With a significant transformation of 2024 behind us, 2025 will be a transitional year marked by steady progress and execution as we continue to position Alight for profitable, market-leading, and sustainable growth. Today, we will focus on our near-term progress toward this goal. We look forward to sharing more about our long-term expectations at our upcoming investor day, scheduled for March 20th. This morning, we reported fourth-quarter results that reflect increasing stability in our operations. Performance was in line with expectations highlighted by growth in recurring revenue, strong ARR bookings, and robust cash flow. 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. Turning to our expectations for 2025, first, we are committed to both simplifying the business and providing more transparency into the key metrics we measure ourselves against. You will hear us focus on recurring revenue and the growth levers, including ARR bookings and our retention of existing clients, adjusted EBITDA margin, including positive impacts from the cloud migration and productivity initiatives, and now free cash flow, which covers all aspects of our improving cost and investment profile. Moving forward, BPAS will not be one of those key metrics. Our 2025 outlook reflects an important step in the right direction with -over-year improvement across key financial metrics. We expect recurring revenue to be on stronger footing, profit margin to expand independent of top-line performance, and free cash flow to accelerate. This is a long-cycle business, and our outlook also includes a lag effect on revenue from historical losses in 2023. So the overall loss impact, while temporary, will be higher than last year. In contrast, our most recent renewal cycle for 2024 was vastly improved from the prior year, with retention rates up eight points. 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 two points higher. We're also maintaining a cautious view of the non-recurring project environment. While demand has 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. What gives me the most confidence in our long-term outlook is our current execution with ARR bookings growth and higher retention, which are both grounded in delivering service excellence and competitive solutions. While Jeremy will cover the financials in more detail, I will focus today on what we need to do in 2025 to sustain momentum and enhance our value proposition. Starting with the -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 percent. 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 percent from the prior year. We expect continued growth in ARR bookings at double-digit levels again in 2025. 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. 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. A great example is our leave solution. Leaves administration such as maternity leave or medical leave is a fragmented and underserved market. A little more than 10 percent of our top 100 clients are penetrated and benefiting from an integrated approach for this highly complex offering. Connecting leaves with health administration is a significant opportunity that is resonating with the market and when combined can add up to 30 percent of value to an existing contract. Growing with existing clients also equates to better retention. 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. Driving strong retention starts with consistently nailing the basics and being a trusted partner managing the -to-day fundamentals. Our fourth quarter annual enrollment season is a great example of that execution as our team delivered outstanding support to 10 million participants. Mobile enrollments were up 69 percent and call center volumes were down 6 percent, which together are delivering a better user experience, process efficiency and overall client satisfaction. 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. You'll hear much more at our upcoming investor day about how this comes to life through our AI and automation plans. And just this month we delivered new AI features through our work-life software release that deepens our intelligence, analytics and automation for clients to leverage as part of their people's strategies. Finally, I'll touch on the announcement we made this morning. Effective March 1st, Bill Foley will step down from his chairman role and will remain on our board of directors, while Erica Meinhart, Dan Henson and Regina Polillo will each depart. Bill is a tremendous partner whose experience we will continue to benefit from, and he remains a champion for our company and mission. I want to thank Dan, Erica and Regina in helping shape a light's path and wish them the best. In their place, we have refreshed and expanded our board with industry veterans Robert Freisham, Bob Lopes, Mike Hayes and Russ Frayden, who will serve as our new chairman. The parallels between our incoming board members and new executives are not coincidental. Those overseeing our strategy possess deep domain expertise, great leadership skills and our client-centric stewards who will drive a light toward achieving its next phase of growth. In my short time at a 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. With the backing of our talented team, the light is poised to lead the industry and our clients forward with innovative solutions and -in-class services. Jeremy, over to you.

Thank you, Dave, and good morning. We finished 2024 with improved results, including recurring revenue expansion, robust bookings and strong cash flow. We are a more simplified business following our cloud migration and divestiture of the payroll and professional services business, and view 2025 as a transitional year that will take positive steps forward, both strategically and financially. Turning to our results, revenue was $680 million, and recurring revenue improved sequentially, returning to growth during the quarter. Recurring revenue comprised 91 percent of total revenue in the quarter. Non-recurring project revenues, which represent less than 10 percent of total revenue, were down 13 million or 17 percent. Adjusted EBITDA was 217 million, in line with our outlook for the fourth quarter, and margins expanded to 31.9 percent. Full-year operating cash flow, when adjusted for one-time transaction and separation costs, was 342 million. This represents an operating cash flow conversion rate of 58 percent, consistent with our annual guidance of 55 to 65 percent. In 2025, we will transition to a free cash flow disclosure, which more closely aligns with shareholder interests. Turning to our -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 percent improvement over 2023. Demand remains strong for both individual solutions and for our integrated offering. As a result, we expect to sustain double-digit ARR bookings growth in 2025. This is a key factor in building long-term revenue under contract and driving sustainable revenue growth towards our target of 4 to 6 percent. We started the year with 89 percent, or 2.1 billion, of 2025 revenue under contract. Revenue under contract for 2026 is 1.5 billion, and we're introducing 2027 revenue under contract, which is already 1.2 billion. As always, the timing of renewals will play a factor in our quarterly reporting of revenue under contract. Turning to the balance sheet, our quarter-end cash and cash equivalence balance was 343 million, and total debt was 2 billion, down from 2.8 billion at the start of 2024. Our net leverage ratio at year-end was 2.8 times, and improvement from 3.3 times to start 2024. We continue to actively manage our debt, which is 70 percent fixed through 2025, and 40 percent 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. Returning capital to shareholders remains a key priority. We repurchased $12 million worth of shares in the fourth 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. We now have $281 million of share buyback authorization, and we declared our second quarterly cash dividend of 4 cents. Together, the balance of capital return and a stronger balance sheet reflects the focus on driving shareholder value. 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. While our revenue growth is bounded in the short term, with loss impacts from 2023 and non-recurring project work, we are projecting over 150 basis points of adjusted EBITDA margin expansion and double-digit free cash flow growth as a result of the cloud migration and productivity efforts. We expect full-year revenue of approximately 2.32 to 2.39 billion, or negative 1.5 to positive 1.5 percent growth, with revenue growth rates ramping through the year. At the midpoint, this includes recurring revenue of approximately 1 percent and project revenue down 6 percent. We expect higher recurring revenue growth rates in every quarter of 2025 compared to the prior year. 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. For the first quarter, we expect total revenue to be down 3 to 4 percent, with recurring revenue down 1.5 to 2.5 percent. For the second quarter, we expect total revenue to be down 1.5 to 3 percent, including recurring revenue of negative 1 percent to positive 0.5 percent. For the second half, we expect a return to low single-digit to -single-digit growth driven by new ARR DealGo lives and the early benefits of a stronger 2024 renewal cycle. As Dave mentioned earlier, we have not seen an improvement in client demand for non-recurring projects. 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 percent in each quarter, with -single-digit growth in the second half off of last year's lows. For the year, our revenue growth rate contemplates 5 to 7 percent of incremental revenue from new wins with current clients and new logos, 0 to 1 percent from participant volumes, and losses of over 6 percent. Without the historical loss impact, our growth would be more than two points higher this year. We share a modest view on participant counts and do not expect a material uplift this year. 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 EBITDA of 620 to 645 million, with margin expansion between 150 and 180 basis points. We are confident in the margin expansion independent of the top line, given the operational improvements we've made. We will benefit from 55 million of cloud migration savings, the elimination of transaction synergies, and from productivity initiatives underway on the path toward 28 percent plus adjusted EBITDA margins. We expect full-year adjusted EPS of 58 to 64 cents, which does not include any impact from potential share buybacks. We are introducing our free cash flow outlook of 250 to 285 million, or growth of 13 to 29 percent. Free cash flow will benefit from stronger profitability as well as reduced capital expenditures. Finally, we expect annual ARR bookings of 130 to 145 million, continuing a growth trajectory as we benefit from a strong pipeline and the ARR focus on employee benefits. Overall, our fourth 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. We look forward to sharing more details on our strategic progress during our Investor Day next month. 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?

We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handstep before pressing the star keys.

One moment please while we poll for questions. Thank you. Our first question is from Kyle Peterson with Needham and

Company. Please proceed with your question.

Great. Good morning, guys. Appreciate you guys taking the questions. Mark, I'm sorry. Yeah, morning. I wanted to start off. I appreciate the commentary that you guys provided on DOJ. I just wanted to see if you guys could provide more color and maybe remind us, you know, on some of the puts and takes, I know there's some offsets, like if there are reductions in headcount at the government. I know, like, there are some offsets in, like, contract structures and that type of stuff, but maybe at a high level, if you could remind us, you know, not with that contract specifically, 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, headcount, HEPM type fee, that would be really helpful.

Sure, Kyle. Thank you for the question. I really appreciate it and probably important just to kind of get the air cleared, so to speak, relative to DOJ and the impact that that could have on us. So I'll start with the tariffs. So tariffs don't really directly impact us because, you know, we're not in the manufacturing, import-export type of a business. They could impact the economy in hiring more broadly, but as we said in our opening remarks, we're taking a very conservative view to begin with on employment and impact of volumes. Specific to the layoffs for Fed employees, again, 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, as I think you know, relative to a 401K service line, and as we've looked at that, even under a worst-case scenario, and I'm not going to, you know, sort of bracket that with how many people could get laid off, but everything that's been discussed so far, first of all, the impact is late in the year, and secondly, it really only impacts a portion of the population because a lot of folks are already retired and there would be balances that would remain, you know, in our business, and so when you pull it all together, we think it would have a pretty immaterial impact on revenue and even smaller impact on earnings in 2025.

Okay, I appreciate, you know, the color and detail there. Maybe just a follow-up, you know, on capital allocation, how you guys are thinking about it. Good to see, obviously, you guys now have the dividend here for a couple quarters, you kind of upped the buyback. Assuming you provide more at the analyst day, but any thoughts on how you guys are kind of thinking about, you know, the balance between the two, especially, you know, with the stock at current levels, I think could be really helpful for everybody on the call.

Sure, Kyle, I'll take that one. You know, certainly, you know, we're pleased with the dividend and just paying the second dividend or approving the dividend with the board last week. I think that obviously comes first, but we're going to 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 continue to, you know, to leverage the authorization that we have in place.

All

right, appreciate it, and nice results.

Thank you. Thank you. Appreciate

it,

Carl.

Our next question is from Kevin McVeigh with UBS. Please proceed with your question.

Great, thanks so much, and I'll add my congratulations as well. You know, obviously, folks had a lot going on before and delivered on that and really underscores the predictability of the model. 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 is it more impactful in the first half of the year as opposed to the second half of the year? Maybe we can start there.

Sure. Thanks, Kevin. So, the way to think of it, I mean, 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 those impacts the entire year, but what happens as you go through the year is we begin to have the go lives of the new ARR wins 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 the timing of both the 23, you know, the historical losses, as well as you will start to benefit from the 24 renewal cycle later in the year plus the go lives within the business. So, it's just the timing aspect that you have that those losses will hit January 1st.

That's super helpful. And then, I think you gave some commentary on annual re-enrollment and efficiencies on that. I don't know if this is for Dave or you, but you talked about $100 million of cost savings, I think, in 24, it starts to pace in 25. Is that still the right number, or have you been able to identify additional synergies over the course of this year? Because obviously, we think the guidance looks really good. I think that even better.

Sure. Hey, Kevin, so let me, Dave, let me start. So, we feel really good about the renewal season. I think you made reference to that before getting into the cost savings opportunity. So, we're seeing, you know, retention up significantly, 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 cost savings and the $100 million that you're asking about.

Sure, Kevin, just a reminder. So, that $100 million was on the basis of the business, including payroll and professional services. So, that $100 million was $75 million remaining with the go-forward business. Of that $75 million, we saw $20 million of that benefit come into the fourth quarter of 2024. So, the pickup in 2025 on the walk on EBITDA is an increase of $55 million in savings in the EBITDA 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.

Very helpful. Thank you. Thank you, Kevin.

Our next question is from Scott Schoenhuis with KeyBank Capital Markets. Please proceed with your question.

Hey, team, thanks for taking my question. Most of my question has been answered, but I wanted to drill or ask, I just wanted to drill in on the back half revenue growth assumptions for this year, 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 giving out this revenue from new wins range and volumes, pep boom range, but maybe kind of drill in, what would be implied to get to the low single digits and what would be implied to get to the high single digits?

Sure. So I think Scott, what we'll watch this year is one, we understand contractually already what's in line from the bookings in 2024. So that's contractual and again, is within the guide. There's also what we'll execute in 2025. And so 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 think not your larger benefits administration, but mid market deals or navigation or lease deals that go live within year. So you start to drive revenue. So it's really the timing and the mix of those ARR bookings in 2025 is a driver that creates a difference between what the high end and the low end would look like. And then the other piece of it is project revenue. Again, we talked about the cautiousness we've got in looking at the project revenue within the business. We will continue to watch that. Our teams are working very closely 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 projects are 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 coming through in the second half revenue. And then the last piece I would say it's just on participant counts. You know, we're again, zero to 1% is the view. We've seen historic, that's pretty low on the low end of what we've seen historically on participant counts. And that can also be a driver. So that's what I tell you are the kind of bigger factors for the back half.

And Scott, maybe it's Dave, 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, 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 gonna be in your recurring revenue that could actually take effect sometime in the year. So if we went to leave piece of business, for example, and we learn about that in the first quarter, we could be implementing that sometime in the second half of the year. But when you get to the large things like a health administration contract, that's multi-year, if we win that in the beginning of the year, we're probably not gonna see revenue flow from that till sometime in 2026. And then the project work back to what Jeremy said is gonna be driven off of plan design changes, vendor reconfiguration, things of that nature that our clients are thinking through right now. And so if they do make those significant changes, that could lead to meaningful project work for us, but that would tee up sometime in the third, fourth quarter. Hope that helps.

That's all really, yeah, that's all really helpful, Coller. Thanks so much, guys. I'll

hop back in queue. Thanks, Scott. Our next question is from Tien Sin Hoang with JP Morgan. Please proceed with your question.

Hi, thanks for the update. Dave, is it worth going back to what happened in 23 and 24? And what drove those losses, the changes you've put in place since then 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?

Yeah, Tien, thank you, appreciate the question. I can't go back in detail relative to 2023. I can just say that we had losses back then that were historically high relative to our patterns that we've seen over the course of many years. As I said in the opening remarks, and Jeremy reiterated on this, this year's renewals, we're up eight points. Is there headroom for improvement there? Yes, we believe there is. We're never gonna beat 100%. I sure as hell would like that, but that's just not reality. We're gonna lose the client every once in a while. But the thing that drove, I think some of the, the unsettled renewals back in 2023, were focus on the domain expertise, some service disruptions, things that we've put behind us. We were working through the cloud migration. Whenever you do something that's material like that, you're gonna have some that might look at that with some angst. And so, I feel really good about the stability of our technology platform now. I feel really good about the leadership changes that we've made and the focus on client management and the focus on excellent service delivery. And we're making progress, and I think we're effectively reestablishing that level of confidence that our clients should have in us that we've been able to demonstrate over the course of several decades.

Yeah, that's great, great to hear. And then just my quick follow up, the stability and the timely go lives. I'm just taking that statement together with you haven't seen demand for project revenue pick up. Any tie between those two and how much upside could there be if the short-term project work does come back?

I think, yeah, no tie between the two. I mean, the implementation work is not included in the project work tension. So it's typically, the project work is on behalf of clients that are already live and we're operating with today. So 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's kind of piece one. So no connection there, we feel confident. We've got the resources in place to get all the implementations done on the new bookings and live on time. So the team feels good about that side of it. On the project revenue side, the fourth quarter tends from a dollar value. The second half tends to be about two thirds of the overall revenue within the project business. And so I do think that, again, we're not calling for a real recovery here. The comps get better just given the lows that we saw in 2024, but I mean, it could be impactful 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 on behalf of our clients. So like I said, we're really close with our clients on this work, but we want to remain cautious.

Understood. No, thank you both. Thank you. Thank you, Jensen. Appreciate it. Our next question is from Peter Heckman with DA Davidson.

Please proceed with your question.

Hey, good morning, everyone. Had to comment just in terms of some of the new bookings. It sounded like the back half, I did see the expected increase. And if I saw correctly, AR bookings were up by 18% for the year. Can you talk about some of your success with cross-selling to current customers and increasing the penetration rate of the number of solutions? And I guess, has there any been any change in terms of the relative attach rate or win rate of some of the payroll solutions post divestiture?

Yeah, thank you. It's Dave. I'll start. So we have in our bookings a mix 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, health, both mid-market and large market as well as the wealth business. And as I mentioned in my opening remarks, we've got significant opportunity relative to leaves in our leave solution and integrating that with our health administration platform and the elite work-life integrated capabilities. And there is a massive upside there in terms of contract expansion on our existing clients and just the overall penetration. And we have some of that in the bookings for 2025 and what we reported out at the end of 2024. Our pipeline in 2025 looks really promising relative to those key service areas. And so the combination of all of that, we feel pretty bullish about the momentum that we're carrying into the sale season.

And maybe what I'd add on that one, Pete, is as we've said before, we have dedicated teams that are out hunting new logos and we have dedicated teams that are working with our existing client base on expansions, right? Similar to what Dave talked about within the leaves opportunity. We can meet our target growth objectives within this business, really only from the white space in our existing client base. Now, we will still, new logos are gonna be important to the growth perspective for us and the opportunity that we see, but there is a significant amount of white space here as well. So that's, Dave went through the leaves opportunity across our product set, there's a significant white space still that exists within our current clients.

Okay, great, great. And then just going back to the fourth quarter, how would you characterize the activity around the supplementary retiree health policies and some of that, last year there was a little bit of a negative surprise that provided maybe a little bit easier comparison, but how would you characterize that business in terms of its relative contributions to the fourth quarter and do you anticipate any changes in that business that would affect the fourth quarter of 2025?

Sure, yeah, the business performed in line with our expectations, we performed well. So it was certainly a contributor to us and revenue within the fourth quarter as it always is. Last year's item with one particular client was, again, a unique impact given a regulatory loophole. That is now closed, we expect this business to continue to be part of the product set that we offer to clients and important within the retiree space. But performed well and 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. The retiree health solutions opportunities are nice. They look good, we feel good about that business, we feel good about our value proposition. And we do think there'll be a number of large employers that are gonna take a hard look at that as part of their strategy as we look at the back half of this year.

All right, that's good to hear, thank you. Our next question is from Pete Christensen with Citi. Please

proceed with your question.

Dave, Jeremy, good morning, thank you. Thanks for the question. Nice to see

you. Good morning, Pete.

Yep, nice to see some early signs of turnaround here. On the contract renewal rate up 8.0 over a year, I know that's off of soft comp. Can you just benchmark that for us versus historical levels and any color on contract renewal pricing in the direction that you're seeing there?

Sure, Pete, let me start with that. Maybe Jeremy can add some color to it. So if you go back and look at the historical levels, as I mentioned, 2023 was a kind of a low water mark for us. If you look back prior to that or what we would expect on a more normal basis, we're approaching those levels. So the eight point improvement, we feel good about. As I said, there's still a bit of headroom there, maybe a couple more points where we can get to historical high levels. And we feel good about our trajectory relative to that. As far as the pricing dynamics are concerned, you're always gonna have a little bit of compression. We're not worried about it. I don't think we're seeing any predatory pricing or anything that would be out of the ordinary relative to big contracts that we're looking to renew or particular point solutions like our Lease or NAP business. That's a pretty important part of our portfolio. So overall, I think we're feeling good about kind of a return to historical levels of performance on retention.

And Pete, maybe what I'd add, 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 includes both price impacts on anything that we do retain.

And just on the prospecting side, I don't know if you're seeing any given premiums or just going up and everything like that. Has pricing become more of a priority when trying to win new business or is it really still back to capabilities, employee engagement, like those types of things? I'm just trying to see if the buyer checklist has changed at all.

Yeah, it's a great question, Pete. Thank you, let me take a crack at it. So it's important, I think, to put what we do in our fees relative to what we do in the context of the overall spend for the employer for employee benefits. And if 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 wellbeing, et cetera, it's the value play that the employer cares about because roughly 90 cents on the dollar is relative to the actual benefit or the claim in the case of healthcare that's gonna get paid. And the extent to which we can be supportive of getting participants more lined up and more engaged with the programs that are available, we have a positive impact on that 90%. 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.

That's helpful. Thanks for

reframing that for us. Thank you. You're welcome. Thank you. Our next question is from Joseph Voffey with Canaccord

Genuity. Please proceed with your question.

Hey guys, good morning. And thanks for all of the new metrics. Much appreciated. Just one more on renewables here. If we look at the AR growth guide for the year, it's a nice number. Just wondering if perhaps this year is a higher renewal year versus perhaps last year, or is it kind of a normalized kind of average renewal year on contracts? I'll have a quick follow up.

Yeah, Joseph, it's Dave. Let me start on that. So 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. Think about three to five year kind of contract durations. And so you've got roughly, call it a fourth of the business that's gonna be up for renewal every year. Last year was a little bit higher. We feel good about our success on it. This year is gonna be a little bit lower.

Great, and then just one quick one. Sound like CapEx may be a little lower here 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. Sure, Joe, I'll take that one. Yeah, exactly right. We did have elevated CapEx as we were working through the last two years on the cloud migration. So I think what the benefits of being in the cloud, stability around the technology infrastructure that we have today, there's the real estate and anything that went with the data centers that we had 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. We're looking at ensuring efficiency around the areas that are gonna drive the growth within this business. There's been the spend on that side of it with the light work like over the past four years. And so we do think there's continued opportunity to be more efficient as we think about that investment

profile. Thanks very much. Thanks, Joe. Appreciate it,

Joe. Thank

you. There are

no further questions at this time. I'd like to hand the floor back over to Dave Gilmatt for any closing comments.

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.