Alight, Inc. (NYSE:ALIT) Q2 2025 Earnings Call Transcript

Alight, Inc. (NYSE:ALIT) Q2 2025 Earnings Call Transcript August 5, 2025

Alight, Inc. reports earnings inline with expectations. Reported EPS is $0.1 EPS, expectations were $0.1.

Operator: Good morning, and thank you for holding. My name is Judith van Riet, and I will be your conference operator today. Welcome to Alight’s Second Quarter 2025 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’d like to turn it over to Jeremy Cohen, Head of Investor Relations at Alight to introduce today’s speakers. Please go ahead.

Jeremy Cohen: Good morning, and thank you for joining us. Earlier today, the company issued a press release with its second quarter 2025 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. All year-over-year financial comparisons made on today’s call are on a pro forma basis, giving effect to the Payroll & Professional Services transaction completed in July of 2024 and are consistent with the presentation we have published on our Investor Relations website. On the call from management today are Dave Guilmette, 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.

David D. Guilmette: Thanks, Jeremy, and good morning, everyone. During the second quarter, we continued to advance our leadership position as a technology-enabled employee benefit services company. We delivered solid results in what is a transitional year for Alight. Revenue for the quarter was $528 million and adjusted EBITDA was $127 million, representing an 80 basis point margin increase over the prior year. Free cash flow for the first half was up over 30%. And taken together, these results position us to deliver strong profitability and robust cash flow over the long term. New deals are taking longer to close through the first half. And in response, we are taking actions to improve our commercial execution. We have updated our revenue outlook for 2025 and reaffirm the rest of our guidance, which we’ll discuss in more detail during today’s call.

Importantly, we are making strategic progress to accelerate our client management and delivery capabilities through AI, automation and partnerships. Our initiatives are designed to drive a better ROI for our clients and, in turn, enhance our retention and future growth. Now let me cover some of our key highlights from this past quarter. First, we are using natural language interactive voice response to create a large automation shift, resulting in more accurate and timely responses to participant questions. And with our enhancements to the Alight Worklife platform, we’ve seen a 17% reduction in call volumes during the first half of 2025 versus the prior year. Second, on the technology front, we made significant advancements this quarter and are using AI, not only for efficiency, but to redefine the user experience for clients, participants and our colleagues.

Within Alight, we are developing an AI-first culture, which will help us streamline our processes and provide a better colleague experience across all areas of the company. We’re intensifying this work through powerful collaborations with Microsoft and IBM to help us scale our AI capabilities and unlock the full value of our data. You can expect to hear more details in coming quarters as we co-innovate to deliver pilots that allow us to scale our solutions faster. Third, we continue to pursue partnerships that propel service excellence and value to our clients and their employees. I’m proud to share, as announced in this morning’s earnings release, we are partnering with Goldman Sachs Asset Management on an expansion of our wealth offerings.

Goldman Sachs Asset Management will bring its scalable technology and broad retirement experience to support our clients as part of our Alight Financial Advisors solution and our recently launched individual IRA product. We view this as a significant revenue growth opportunity over the next few years and is just one example of the type of differentiated revenue streams we are pursuing that will contribute to our long-term growth. These initiatives are positioning us well to retain clients. And as a result, our renewals are tracking in line to better than we saw in 2024. Notable renewals for the quarter include Target, Johnson & Johnson, Hyatt, the State of Georgia, Best Buy, Highmark Health and John Hancock. These wins further validate the trust our clients place in Alight to deliver better outcomes.

More importantly, combined with efforts from the renew everyday program, we are seeing a number of these renewals, including Target, lead to an expansion of services and growing our share of wallet with top clients. So we’re nailing the basics across delivery. Our technology and AI strategy are positioning us to unlock the full potential of our platform and our renewals are on track. And we recognize there is more work to be done. Last quarter, we talked about the market environment we’re operating in, and I want to give you an update on the elements that drive our revenue. The pace of ARR bookings was not at the level we expected coming into the quarter for 2 primary reasons: First, client expansion opportunities are taking longer to close in the current environment; and second, our commercial execution to get deals across the line has not been sufficient.

Overall, our solution competitiveness and positioning remained strong but the timing of deals impacts eventual start dates, and in this case, our expected second half 2025 revenue. To accelerate our commercial execution, we are building more domain expertise with specialty sales experience to balance with our enterprise sales team. We’ve recently made changes within our commercial organization and have a search underway for new Chief Commercial Officer. The success of the commercial team is a top priority of mine, and I’m pleased with the quality of talent who have expressed interest in Alight and the opportunity to advance our commercial capabilities. Our ARR pipeline remained strong, particularly for deals in later stages. Opportunities where we are finalists are up 35% versus this time last year, which should increase our conversion rates in the second half sales cycle.

For project revenue, we have not yet seen an uptick in our pipeline. Clients are still assessing their go-forward plan design strategies, while M&A and regulatory work remains at low levels. So given this backdrop, we are updating our expectations for second half revenue, which Jeremy will cover in more detail. As we doubled down on employee benefit services, we continue to build out a management team with internal and external talent who can extend our competitive advantages. During the quarter, Alight welcome David Essary is our Chief Strategy Officer; and Donna Dorsey as our Chief Human Resources Officer, 2 dynamic leaders who bring deep industry and functional expertise, respectively, and who have proven capabilities in progressing strategy.

Let me close by saying we have a set of solutions we need, our operational improvements are well on track, we are making significant progress in accelerating our strategy through AI and strategic partnerships and we are laser-focused on improving our commercial execution and top line growth. With that, let me turn it over to Jeremy.

Jeremy J. Heaton: Thanks, Dave, and good morning. Second quarter results reflect our strategic steps toward improving profitability and cash flow. Revenue was $528 million, with recurring revenue comprising over 93% of total revenue in the quarter. Recurring revenue was $492 million for the quarter, and reflects a slight impact from overall participant counts, which were flat versus our expectation of moderate growth. Nonrecurring project revenues were down $9 million or 20%. As a reminder, we entered the year cautious on project revenue, and this remains the case in the current environment. Adjusted gross profit was $205 million. Similar to prior quarters, this is impacted by cost to support the divested business, which are reimbursed through the TSA and other income.

Normalized for this, adjusted gross profit would be $8 million higher. Adjusted EBITDA was $127 million for the quarter, and adjusted EBITDA margin expanded 80 basis points as our prior transformational initiatives are delivering favorable results as expected. Free cash flow for the first half was $102 million, up 31% from the prior year and on track towards our annual target of $250 million to $285 million. While we continue to have strong confidence in the prospects of our health solutions reporting unit, the current market valuation of Alight as compared to the value when going public, combined with the current macro and industry conditions, requires us to take a noncash goodwill impairment charge of $983 million. This value is consistent with the long-term forecast as communicated at our 2025 Investor Day.

Finally, we returned $42 million to shareholders this quarter via our quarterly dividend and through the repurchase of $20 million worth of shares. We ended June with $241 million remaining on our share buyback authorization. Turning to the balance sheet. Our quarter end cash and cash equivalents balance was $227 million and total debt was $2 billion. Our net leverage ratio remained at 3.1x and we expect this to normalize below 3x as we build cash through seasonality and as profitability ramps through the year. We continue to actively manage our debt, which is 70% fixed through 2025 and 40% through 2026. During the quarter, we extended our corporate revolver and decreased pricing in line with our term loan. Now let me turn to our outlook. Dave mentioned a number of important clients who renewed long-term contracts with us, including expansions.

The momentum during this renewal cycle remains strong. With what we see today, the 2025 renewal cycle is in line with our original guidance and we continue to expect an improved retention rate in 2026. There are, however, factors that have made us more cautious in the second half. Our initial ARR bookings guidance was for double-digit growth and today, we’re expecting bookings that are closer to flat or slightly down year-over-year. This is not where we expected to be, and our in-year revenue resulting from first half bookings will be lower in the second half. Our pipeline remains strong, and we expect a higher conversion rate as we finish 2025 based on the number of late-stage deals in process as well as changes we have already made within the team.

Moving to project revenue. June and July are typically when we see the project pipeline build and have more transparency into our enrollment work for the remainder of the year. At this point, we are not seeing the second half pipeline build to levels that would drive an inflection in project revenue. Clients continue to assess how to move forward with their people strategies as they navigate the current environment, while M&A and regulatory changes remain low. And so we expect third quarter project revenue in line with the second quarter rate, which was down 20%. Finally, we have not seen growth in participant counts and expect volumes to remain flat this year. We now expect total revenue to be lower by roughly $45 million at the midpoint. In the categories of our growth model, which can be found on Slide 5 of our presentation, of the $45 million, the timing of new wins is $35 million, volumes is $10 million and retention is unchanged.

We expect sequential improvement in growth for each quarter in the second half. As it relates to other key metrics, we are reaffirming the remainder of our 2025 outlook, which reflects the initiatives we have already completed and operational levers that are independent of top line growth. Our expectations for adjusted EBITDA are $620 million to $645 million, adjusted EPS of $0.58 to $0.64, and free cash flow of $250 million to $285 million. In closing, we are intensely focused on execution and improving our top line performance while continuing to drive greater margin expansion and cash flow. 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.

Operator: [Operator Instructions] Our first question comes from Kyle Peterson of Needham & Company.

Q&A Session

Kyle David Peterson: I wanted to start off on the sales cycle. It does sound like things have gotten a little longer and I understand that that’s the reason for the drift down in revenue for this year. I wanted to ask a little bit about how those client conversations are going. Do you guys remain confident that you guys are going to be able to still hit on your target specifically for next year? Is it just that maybe these deals take an extra month or 2 here or there and that limits the in-year revenue and next year should be fine? Or is there a potential for like a longer-term or prolonged impact that we should be mindful of?

David D. Guilmette: Kyle, it’s Dave. Thank you for the question and for joining us this morning. Let me take a stab at that. So I think it’s important that we just break down kind of where we think the growth opportunities are going to be. And as I’ve said it in repeated meetings, we have a lot of opportunity for upsell and cross-sell with our existing client base. That process requires some demand generation as we’re talking about problems that need to be solved differently and the solutions that we have that can bring to bear on those problems. And that process and those discussions have been protracted. It’s just taking longer to reach those decisions. So we feel good about the opportunities that sit in the pipeline for that.

In fact, in my opening remarks, I said that we’re up 35% in deals that are in the final stages. So there’s some real timing headwind that we’ve experienced there through the first half of the year. We also, in the new business, new logo pursuit areas, have, in my view, finished second too often, and we have to improve upon our execution there. And there are a number of things that we’ve done to strengthen that. So we feel good about those changes that have been made as well, and also feel good about the pipeline related to that in the final stages that we’re in. So overall, we’ve made adjustments so that we can be better at commercial execution. And we’re going to continue to pursue the opportunities with our existing clients to bring those to close the second half of the year.

To your question around the longer-term view, we’ve got to execute in the second half. We execute in the second half, we’re going to feel good about ’26 and feel good about the mid-range.

Kyle David Peterson: Great. And then just as a follow-up, I wanted to ask about the Goldman Sachs partnership. It seems like a really good opportunity for you guys. I understand that’s probably more of an out-year contribution. But maybe a little more high level, like how do you guys see that evolving? And I guess, do you see like direct revenue synergies between that? Or is this something that you guys feel like makes you more competitive and makes deals easier to close or gives you more pricing power? I just wanted to see like the benefits that you guys see from that partnership over the next 2, 3, 4 years?

David D. Guilmette: Yes. Thanks, Kyle, it’s Dave. I’ll take a crack at that again. So we’re super excited about the partnership with Goldman Sachs Asset Management. We see that as generating significant revenue for us in the out years, as we’ve mentioned in the opening remarks. And just one example of a number of partnerships that we’re in the process of strengthening and deepening, we serve 35 million participants on our platform. And we’ve got over 120 like partners right now that we interact with in different capacity and more that are calling us every day to want to be a part of our system and our network, and we see opportunity to bring more value to each of those partners and, in turn, be able to share in that value creation.

So I would say Goldman is one very prominent one. It should strengthen our positioning relative to our wealth solution. So I think it’s going to help us in new business pursuits. And as importantly, it’s going to help us to continue to deliver more value for our current wealth clients.

Operator: The next question comes from Scott Schoenhaus of KeyBanc Capital Markets.

Scott Anthony Schoenhaus: And it’s kind of a follow-up from the first question here. But I guess, if we could get more color on this $35 million impact push out in revenue, was it — if you could give us color around it, was it several large clients that you were looking to close this year and it’s getting pushed out? Was it a collection of smaller or midsized clients? Just any more color you can give around the conversations, the types of deals and then the conversations that you had with these potential clients?

David D. Guilmette: Scott, it’s Dave. I’ll take that one. Thank you for the question. As you think about the opportunities that exist in the marketplace, those that we would sell in the year, so the first half of 2025 that would bear revenue in the second half tend to be smaller. So think about that as mid-market administration, think about that as smaller-sized execution relative to leaves or navigation or retiree health solutions, things of that nature. And if those decisions are getting delayed, it’s going to push the start dates. And in many cases, the push to the start date pushed us into 1/1/26 or the very, very end of Q4 of ’25. So we’re going to miss some of that early revenue that would have otherwise been picked up in the second half of the year.

And obviously, if the deals didn’t close in our favor, then that’s not revenue that’s coming across. So it was a combination of execution on some of the new business and new logos, and these deals getting protracted on the existing client relationships.

Scott Anthony Schoenhaus: That’s helpful, Dave. And then you mentioned sort of a change around the sales team, and you mentioned more domain expertise as a potential catalyst or a focus. Can you maybe talk about that? And what you saw with these in this current last 90 days that made you more focused on a commercial team with more domain expertise?

David D. Guilmette: Sure, Scott. Thank you for that question. I’m in the market a lot. I’m in front of our clients a lot. I’m in front of our PPEs a lot. There isn’t a week that goes by that I’m not in the market. And in many cases, in these pursuits directly with the sales team, in my observation over the last 90 days or so is that some of these sales require real deep domain expertise to be able to bring to life our value proposition. Like these things, we’re in every one of these deals, and that’s the feedback that we get from our PPEs. But if something doesn’t come our way, oftentimes, it’s on the margins, it’s not like the core positioning of the sales pursuit of the execution. And that’s where, in my opinion, we need real strong deep domain expertise.

In particular, when you look at some of the specialty opportunities that we’re talking about, navigation and leaves. Leaves is a complex space, and you need real expertise to be able to bring that to life. So I like what we’ve done in terms of building out our capacity on the enterprise sales front. We’ve got plenty of capacity, plenty of feet on the street, and we’ve got lots of good opportunities that are coming through the top of the pipeline, and we like our qualified pipeline. We’ve got to close more deals. And to close more deals, we need that subject matter expertise at the table.

Operator: The next question comes from Kevin McVeigh of UBS.

Kevin Damien McVeigh: So if I do the math right, you beat the first half to the year by about $10 million, and it looks like you cut the second half by $45 million, so it’s about $55 million in total. Is that right? Like is the math right there?

Jeremy J. Heaton: A bit less than that in terms of midpoint to midpoint is the math that we gave, Kevin, for the update is about $47 million, I think, is the change. So as we said, really, this is a dynamic largely from the in-year revenue that would come from bookings in the first half of the year. So as you think about the bigger portions of the change in revenue, about $35 million of that update is related to in-year revenue. Of that $35 million, I would say about $25 million to $30 million is from ARR bookings and the remainder is from the project side as we did update that midpoint on project, we had about down 6% for the year in the original guide, and then I look at that today is closer to 9% or 10% down for the year. And then there’s a balance of — again, we had a pretty cautious view already around participant counts and what we’ve call volumes that we brought down to flat. So that’s about a $10 million to $12 million update as well for the second half.

Kevin Damien McVeigh: Got it. And then you gave a pretty specific project number for Q3. Can you just give us one for Q4 to try to manage the cadence…

Jeremy J. Heaton: Sure. It’s likely still negative but closer to flat, Kevin, and that’s just built on the enrollment activity that, again, not seeing the inflection that we had hoped for and we’re looking at as we watch the pipeline build over the last couple of months, but we don’t expect that it will be down at the levels that we would see in the first 3 quarters. Some of that is the comp. Some of that is just the base activity that kind of rolls into the fourth quarter. So again, I think it’s probably closer to down single digits, closer to flat.

Operator: The next question comes from Andrew Polkowitz of JPMorgan.

Andrew David Polkowitz: I wanted to start by asking a follow-up on just a focus on the commercial organization. You mentioned that you have capacity. So given those comments, how should we think about sales force hiring plans and what’s embedded in the outlook for the second half and into 2026?

David D. Guilmette: It’s Dave. Andrew, thank you for the question. I would characterize the hiring plans is looking for that specialty expertise. We’ve already brought on a number of individuals in the second quarter to help in that regard. Navigation sales leadership, for example, beefing up what we’re doing on the lease side, beefing up what we’re doing in terms of how we tell our AI story. We’ve got a really impactful one that we’re proud of. So we’re making those changes as well by bringing in certain experts to really help bring that to life. So all of that, I think, has happened already in addition to our looking to bring in a new Chief Commercial Officer. We feel really good about the talent that has identified themselves to want to come here. So I’m confident we’re going to have the right person, the right fit in short order. And I think we’re going to be fine as we look at the second half of the year going into 2016 from a sales execution capacity standpoint.

Andrew David Polkowitz: Got it. Makes sense. And then for my follow-up, I wanted to know if you could talk through and give some color kind of on the composition of these late-stage deals and pipeline positivity you’re talking about, just anything to call out as far as client size or even mix of new logos versus upsells?

David D. Guilmette: Yes, I appreciate the question. So consider it to be off of a lot of existing client relationships, right? So that’s going to, by definition, just given the market that we are so substantially supporting these days, can be Fortune 500-type companies. And we’re looking at a lot of lead deals that are quite sizable, navigation support, retiree health solutions opportunities, Alight Financial Advisory. So think about some of the work that we talked about that will be enhanced by Goldman Sachs in terms of our partnership. So these are all extensions off of, in many cases, core ben-admin relationships that have been around for years.

Operator: Ladies and gentlemen, we have reached the end of our question-and-answer session. I will now hand over to the CEO, Dave Guilmette, for closing remarks.

David D. Guilmette: Thank you, operator. I’m excited by the ongoing work across our organization, with our partners to leverage our deep domain expertise, unmatched data and insights and relentless focus on service excellence, so we can deliver consistently exceptional experiences that help our clients and their people thrive and in the process to reignite our leadership position in long-term growth. Thank you for joining us today.

Operator: