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 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 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. 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 year-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 Investor Relations website. On the call from 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 a 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 benefits 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 a light 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 year-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 Booking's 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 go-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%. 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% 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. Leave's administration, such as maternity leave or medical leave, is a fragmented and underserved market. A little more than 10% 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% of value to an existing contract. Growing with existing clients also equates to better retention. We used 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 day-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%, and call center volumes were down 6%. 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 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 Alight's path and wish them the best. In their place, we have refreshed and expanded our board with industry veterans Robert Freischheim, 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 are client-centric stewards who will drive Alight toward achieving its next phase of growth. In my short time at Alight, 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 their needs has reinforced my enthusiasm for the opportunity ahead. With the backing of our talented team, Alight is poised to lead the industry and our clients forward with innovative solutions and best-in-class services. Jeremy, over to you.