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Good morning, and thank you for holding. My name is Kate and I will be your conference operator today. Welcome to Alight's Third Quarter 2022 Earnings Conference Call. [Operator Instructions] 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 Greg Faje, Head of Investor Relations at Alight to introduce today's speakers.
Good morning. Thank you for joining us. Earlier today, the company issued a press release with third quarter 2022 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 filed with the SEC, as such factors may be updated from time-to-time in the company's periodic filings with the SEC. The company does not undertake any obligation to update forward-looking statements.
Also, throughout this call, the company will be presenting non-GAAP financial measures. Reconciliations of the company's historical non-GAAP financial measures to the 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 up the call for questions. I will now hand the call over to Stephan.
Thanks, Greg, and good morning, everyone. The third quarter marked our 1-year anniversary of going public on the New York Stock Exchange and our fifth public quarter of meeting or exceeding expectations on revenue and adjusted EBITDA. We have also continued to see positive client momentum, securing new wins with United Steel and expanding relationships with BMO and AmRest among others.
Given this performance, we are reaffirming our full year revenue growth projection of 6% to 7% and adjusted EBITDA guidance of $650 million to $662 million, putting us on track to achieve year 2 of our 3-year plan. And our Q3 results demonstrate our ability to consistently deliver.
In the third quarter, we recorded total revenue growth of 8.7%, driven by 9.9% growth in Employer Solutions and have over 98% of 2022 revenue under contract. We signed $208 million in BPaaS bookings, which puts our first 9 months total at $564 million, more than 80% of the way to our full year goal of $680 million to $700 million.
Finally, we recognized $151 million in BPaaS revenue, up 55.7% from last year, with BPaaS now accounting for over 20% of revenue, up from 14% a year earlier. This was achieved while we self-funded $38 million in investments over the first 9 months of 2022 to drive long-term growth.
I'm incredibly proud of the way in which our team continues to deliver on our commitments while making meaningful progress on our transformation. While we talk a lot about wins, it is as important to talk about execution and delivering value for our clients through our BPaaS strategy.
Our BPaaS solutions are powered by the Alight Worklife platform, which brings together all aspects of physical, mental and financial well-being, positioning Alight to be one of a few enterprise-wide platforms that companies can rely on and the platform that we believe is best positioned to drive outcomes for employers and their people.
Last quarter, I talked about the go-live of the Federal Thrift Savings Plan. And as I said then, Alight is just one of a few companies in any industry that can deliver on a contract of this scale and level of complexity. This is a clear example of how we are executing for clients.
We are also seeing the benefit of our platform strategy on the annual enrollment experience, of which we are 30% of the way through. We are serving a larger population than last year while experiencing lower overall call volume, largely driven by a better enrollment experience through Alight Worklife.
More than 95% of enrollments are fully digital and mobile sessions have more than doubled from the same period last year, albeit from a low base. And when it comes to delivering value for our clients through our BPaaS strategy, we've generated $50 million in claim savings for 5 of our biggest clients with outcomes-based contracts through our Alight Worklife platform and our health care navigation capabilities.
These outcomes have been driven by higher engagement that can have a meaningful impact on employees' lives. Take, for example, 1 employee who shared that they went through a major surgery and suffered pain and mobility issues for years. After another surgery was recommended, the individual turned to a medical ally at Alight, who worked with other health care professionals to determine that the person had been misdiagnosed. Think about all the unnecessary medical costs that were incurred over the years, both by this individual and their employer.
The good news is we were able to work with the person to help get them the care they needed and they are now on the path to a better outcome. In another example, Becton, Dickinson, a leading global medical technology company was looking for ways to make the benefits experience more accessible and affordable for its employees. Combining the Alight Worklife platform with our full one Alight approach, we are helping Becton, Dickinson create a culture of health and total well-being and they are seeing results.
The company is trending towards over 93% benefits utilization for the year, a marked increase from previous years, employee satisfaction of more than 80% and average savings of nearly $580 per household that utilize the products.
A third example is Boeing. As an employer focused on helping its employees to have a great life and great career, Boeing partnered with Alight to provide a centralized solution for accessing personalized information for health and well-being benefits, financial and retirement benefits, compensation and incentives for its employees by using technology and AI.
Boeing recently celebrated 1 year live with Boeing Total Rewards on the Alight Worklife platform, leveraging the personalized experience of the platform and providing content relevant to their unique situations allows Boeing employees to now have greater visibility to programs that support them and their families.
As you can see, we're delivering on our transformation for our clients and their people. So why is it more important than ever to deliver outcomes for companies? And why is Alight uniquely positioned in the market?
As you've heard me talk about before, the benefits and well-being ecosystem is highly fragmented. Vendors are often specialized, which means employers need to have many different relationships to cobble together all their benefits and well-being needs. And often, these programs go unused by employees.
Companies are spending significant dollars on these programs. And in a recessionary environment, all spend will be under even greater scrutiny, and this is the opportunity for the Alight Worklife platform.
We are helping clients maximize the investments that are making on these benefits by helping them drive utilization, reduce costs and increase engagement. This allows clients to realize an ROI and make better spending decisions.
So how are we doing this? Through focus and investment in product development. With the next release of Alight Worklife coming in early 2023 and our 2 latest products, The Wellbeing Marketplace and Alight's indexing and benchmarking product called Program Optimization, we are continuing to solve for these challenges.
Our Wellbeing Marketplace takes the vast array of benefits and wellbeing vendors and curates them into 1 simple experience on Alight Worklife. The Wellbeing Marketplace provides employers with access to 150-plus services and experiences in over 50 countries to meet the specific needs of employees. This allows employers to provide a comprehensive and personalized benefits experience for their employees, while removing the complexity of vendor management.
Program Optimization leverages the Alight Worklife platform to aggregate our data combined with clients' other vendor programs to deliver actionable insights that help employers determine whether they are investing their benefit spend to align with the needs of their employees. This is a clear differentiator, and we have already taken our first major client live on this product.
In our first year as a public company, we have also committed to formalizing our ESG strategy. We are proud to announce the inaugural publication of our Global Impact Report, which is available on our website. The report is anchored around 3 pillars: culture of wellbeing, social innovation and responsible business practices.
Our commitment to social innovation extends through our people, our communities and our clients. Recently, we announced a collaboration to create a consortium of workplace retirement plan record keepers to accelerate the nationwide adoption of auto portability to help underserved and undersaved workers improve their retirement outcomes.
The consortium will make it easier for workers to move their employer-sponsored retirement savings automatically from job to job, which we believe will help mitigate the cashing out of account balances and preserve trillions of dollars in the U.S. retirement system. We are proud to have been the first in the industry to offer auto portability as part of our commitment to helping employees be more financially secure.
As we look to the macro environment, the mission-critical products we provide and our strong client relationships position us well to withstand economic challenges. A few stats worth keeping in mind. We have over 83% annual recurring revenue, 97% average annual revenue retention. Our average contract lengths are 3 to 5 years, and we serve a diverse client base including 70% of the Fortune 100.
We believe this strong foundation, our consistent results and our view into the balance of the year puts us on the pathway to double-digit growth in 2023.
Katie, over to you.
Thank you, Stephan, and good morning, everyone. We continue to drive our transformation agenda, and I'm pleased to share our third quarter results, which included revenue at the high end of our outlook and adjusted EBITDA that was ahead of our guidance.
As Stephan noted, we continue to deliver and have met or exceeded expectations in our first year as a public company and are on the path to achieving our second year targets outlined in our 3-year road map. On a year-over-year basis, third quarter total revenue increased 8.7% to $750 million, and total revenue, excluding our legacy hosted business, increased 8.8% to $740 million.
Recurring revenue, which comprises over 83% of our total revenue, increased 11%. Revenue growth has been driven by a combination of increased volumes, new customer additions, including from our BPaaS bookings, and acquisitions, which further supplemented our content offerings on the Alight Worklife platform.
Adjusted EBITDA was $133 million in the quarter, ahead of guidance, even with our strategic investments and previously disclosed seasonal headwinds. This progress is supported by the growth in our BPaaS solutions. On a total contract basis, BPaaS bookings for the third quarter were $208 million, and for the first 9 months of the year totaled $564 million, which is well on track for our $680 million to $700 million target for 2022.
BPaaS bookings growth has translated into revenue growth and higher contracted revenue. Our BPaaS revenue growth was 55.7% for the third quarter and now comprises over 20% of revenue. With our strong bookings as of September, we have over 98% of projected 2022 revenue under contract.
Next, I'm going to discuss performance for our 2 primary segments. Employer Solutions third quarter revenue grew 9.9%, which reflects a combination of acquisitions, increased volumes and net commercial activity. Recurring revenue increased 11.7%, while project revenue declined 4.6%. Gross profit was $189 million, while gross margin was 29.3% and adjusted EBITDA was $130 million, while adjusted EBITDA margin was 20.2%. This anticipated decline reflects a $15 million headwind from higher project demand linked to annual enrollment and the normal seasonality associated with the ramp of our commission business acquired late last year.
In addition, the margins also incorporate the remaining $15 million of our $38 million investment program, focusing on key investments we are making in the business.
Turning to our Professional Services segment. Third quarter revenue increased by 2.2% to $95 million, driven by a 3.3% growth in project revenue and recurring revenue was unchanged. Our Professional Services business is poised for continued project revenue improvement, as we head into 2023. Gross profit declined by $1 million to $23 million, while gross margin was 24.2%. Adjusted EBITDA was $3 million and adjusted EBITDA margin was 3.2%. We are reaffirming our full year guidance of $3.09 billion to $3.12 billion or 6% to 7% revenue growth. Adjusted EBITDA of $650 million to $662 million and adjusted diluted EPS of $0.54 to $0.60.
We have good visibility to the remainder of 2022, given our third quarter results and with over 98% of revenue under contract. In the third quarter, we were able to recognize $5 million in project revenue across Employer Solutions and Professional Services earlier than anticipated, which provides us with more certainty for the full year revenue outlook.
Second, we also benefited by $4 million in delayed vendor spend, which we expect to reverse in the fourth quarter.
Turning to our balance sheet. On September 30, our cash and cash equivalents were $304 million, and our total debt was $2.8 billion. Given the rising rate environment, we thought it would be helpful to provide some context. As Stephan noted earlier, our business has a high degree of stability with its recurring revenue base of over 83% that we believe supports our capital structure. We believe we are well positioned for a rising rate environment given our interest rate hedging strategy with over 70% of our debt portfolio fixed for 2022 through 2024 and 50% fixed for 2025.
In addition, we have no near-term debt maturities of significant size until 2025. During the quarter, we repurchased 12 million of shares under our $100 million authorization. We will continue to opportunistically evaluate share repurchases, balanced against investing in the business and inorganic opportunities to drive progress on our transformation.
Now let me provide you some color on our cash flow performance in the quarter and our outlook going forward. We continue to invest in our business with $36 million of capital expenditures in the quarter and $15 million of investments in technology, commercial and to support the thrift contract.
We made progress on improving our cash flow from operations by generating operating leverage on the investments we have made and improving working capital metrics. This all occurred against the backdrop of the successful conversion of our international business onto a unified workday finance system in the quarter.
For the 9 months ended in September, we generated $201 million in operating cash flow versus $51 million over the same period last year. We believe that our business will generate an operating cash flow conversion ratio of 40% to 50% in 2022, moving to 60% to 80% in the future.
Looking ahead to 2023, we already have $2.5 billion of 2023 revenue under contract. We are tracking with our goals of double-digit revenue growth and margin expansion in 2023 and look forward to sharing our formal '23 guidance with our fourth quarter results in February.
In addition, we're pleased to announce our intention of hosting an Investor Day in New York City in the second quarter of 2023 and will provide additional details on our fourth quarter call.
This concludes our prepared remarks, and we will now move into our Q&A session. Operator, would you please instruct participants on how to ask questions?
[Operator Instructions] The first question is from Peter Heckmann of D.A. Davidson.
How are you thinking about inflation on the cost base and any adjustments that you might be looking to do for 2023? Can you remind us how that works?
Yes, sure. Thanks, Pete. A couple of things. I think it's obviously a key area of focus for us in this environment. I think one thing that helps, as you think about kind of the structure of our contracts, is that kind of on an annual basis, we can increase the fees for majority of our contracts based on the ECI provisions. And so if you think about what that was here at the end of September, it was 5.2%. In essence, we passed along the difference between that and the 3% that we cover kind of annually.
So we'll pass on that 2% here at the start of the year, which will help offset some of the pressures we're facing on inflation. But -- that being said, obviously, there's still a lot of work we're doing to continue to manage that, obviously, internally. A big focus for us as we've talked about has been also how do we kind of streamline and standardize the way we're delivering so that we can continue to leverage the platform to drive automation through things like, we talked about last quarter, checking the status of tickets. Now that we have everyone on a unified kind of front end of our platform, that's something we'll be working towards as well.
Great. That's helpful. And then any changes in the market for the Aon retirement business that would either be headwinds or tailwinds for the first quarter where that business falls into the organic calculation?
No. I mean as I think about -- obviously, you're right, the fourth quarter is an important quarter for us with that business. But right now, given where we sit today, we're tracking well in terms of our expectations for delivering on that business.
The next question is from Scott Schoenhaus of KeyBanc.
Congrats on the quarter. So you reiterated your fiscal year guidance, implying a nice fourth quarter ramp on the margin side, suggesting the rollout of the large Federal Thrift contract on track and being executed as we stand here in early November. Just provide any more color on how things are going with the rollout there and how we should think about the contribution into next year, as we stand here on November 3.
Scott, thanks very much. Yes, we've been live for now over 3 months or so in the last quarter. And so it's part of the revenue profile today, and it's running and going very well for us. So nothing more to add than that.
Yes. And as you think about it, Scott, into next year -- I mean, again, I think we're kind of tracking to our expectations. We've said, obviously, the revenue comes online immediately, and we've had obviously some key investments to get it to kind of a run rate profitability. But we'll see that -- we'll kind of be in a better place as we head into next year from that perspective.
[Operator Instructions] There are no other questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Stephan Scholl for closing remarks.
Thanks, Kate. Thank you, everyone, for joining us today. We're executing on our strategy, expanding relationships with new and current clients and delivering on our commitments. We look forward to meeting with many of you at the upcoming investor conferences in the following weeks. Thanks, everybody.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.