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Operator: Good morning, and thank you for holding. My name is Venju and I will be your conference operator today. Welcome to Alight First 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 would like to turn it over to Jeremy Cohen, Head of Investor Relations at Alight to introduce today’s speakers.

Jeremy Cohen : Good morning, and thank you for joining us. Earlier today, the company issued a press release with its first 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 and professional services transaction completed last July 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 Guilmette: Thanks, Jeremy, and good morning. We’re off to a strong start to 2025 with first quarter results that reflect continued progress against the strategy we outlined back in March during our Investor Day. We shared that we are the market leader in the employee benefits delivery space and our strategy is grounded in a client-centric focus. Our integrated Alight Worklife platform paired with a deep data lake informs an enormous opportunity across AI and automation that enable us to innovate and bring additional value to our clients and efficiencies to Alight. As we focus every day on the execution of the strategy, we’re also delivering financial results in line with our commitments with total revenue of $548 million and adjusted EBITDA of $118 million.

While we continue to watch the economy with a cautious view, we feel good about our revenue under contract, the momentum from our renewals and the operational initiatives underway that will continue to drive margin expansion and more free cash flow. As a result, we are reaffirming our financial outlook for the year. We talked at length about the importance of retention. And to start the year, our renewal trends remain on track with execution of our renew everyday program. We have already renewed several top clients this year, including Starbucks, Baxter, US Foods and Otis Elevator Company, who have been important clients, and we look forward to continuing to partner and innovate with them. These are examples of the confidence our clients have in our vision and the value we deliver, retaining and then expanding upon those relationships is a critical element that powers the flywheel to accelerating financial performance and delivering long-term shareholder value.

Two key components of this are leveraging our technology transformation and delivering service excellence. Within technology, our team has been laser-focused on delivering value for our clients and participants through accelerating innovation and AI enablement. This quarter, we launched our self-service leaves administration reporting platform, which when coupled with AI insights, will deliver tremendous value for clients and simplify the complexity of absence management. Leaves continues to represent a large growth opportunity for us with only 10% penetration across our top 200 clients. At the same time, we are also working on similar modernized reporting platforms for health and wealth. At quarter end, nearly 80% of our clients were already leveraging AI in some capacity and our road map positions us to meet and anticipate the needs of participants and drive better outcomes.

We are also making headway on how we nail the basics, by enhancing the delivery operating model, which as a reminder, is our initiative of moving from a solution-centric approach to a balanced centers of excellence approach. One example of how this is coming to life is within our COE or strategic implementation services. Our work simplifying implementation routines is creating a standardized approach across our solution domains. For example, the way we implement a navigation solution should not differ materially from other offerings, whether it be leaves, health or wealth solutions, building muscle around a more consistent and predictable implementation experience will reduce costs and the time to go live for our clients. On the customer care front, service levels have improved, and we’re proud that our NPS score related to annual enrollment increased 12 points this past year.

We will have plenty more to share as the year progresses, but we’re off to a strong start. The importance of the initiatives across technology and delivery cannot be understated. The value we’re adding from these initiatives not only supports a better client experience, but is a key element to driving stronger profitability and free cash flow. Many of these initiatives are independent of the top line. So with that, let me touch on the macro environment. The long cycle and recurring nature of our business helps to insulate us as we experience during the pandemic, but we are not completely immune from any impact. We feel good about what is in our control. And like most companies, we are navigating current market conditions. There are really 3 areas we are watching closely: First, increasing market volatility can elongate the client decision-making process for both project and ARR deals and how quickly we can close them and go live.

As is our norm, we would expect to have more visibility on our 2025 project work in year revenue in our overall pipeline as we move through this quarter. Our view, and that of clients I have recently met with, is that amid uncertainty benefits programs aimed at helping employees to be healthy and financially secure are as important as ever. Helping clients navigate the current environment provides an opportunity to add even more value and strengthen our deep relationships. And those clients are continuing to look at ways to simplify and drive down their costs, which plays well into our strategy. This is reflected in our strong pipeline, which is up roughly 30%. Second, assets we manage through our financial advisers generate fees that vary with financial market performance.

While this is only a small portion of our wealth business, the fees can be pressured by a protracted market downturn. And finally, we entered 2025 cautious on volumes or participant counts within our guide. We continue to watch participant counts. But as we saw during COVID, changes to employment levels did not impact our volumes materially over the short run and typically the impact would lag the market by 6 months or more. Every day, our teams continue to execute in areas we can control. We performed as expected in Q1, and our work to renew and improve services is progressing and gives us confidence that the business is on track. We remain grounded in being a trusted partner that delivers service excellence and competitive solutions, and we look forward to supporting our clients and helping their people every day.

With that, let me now turn it over to Jeremy.

Jeremy Heaton: Thank you, and good morning. As Dave mentioned, first quarter results were in line with expectations, and we’re pleased with our team’s execution around key initiatives underway that enable us to reaffirm our outlook. 2025 continues to be a transitional year during which we’re taking steps forward, both strategically and financially toward our midterm objectives. Turning to the results. Revenue was $548 million and at the midpoint of our guidance range. Recurring revenue comprised nearly 95% of total revenue in the quarter and performed as expected. Nonrecurring project revenues were down $10 million or 26%, in line with our expectations as well. We entered the year fairly cautious on project revenue, and this continues to remain the case in the current market.

With our progress in the first quarter, we now have 92% or $2.2 billion of projected 2025 revenue under contract. Our team is intensely focused on securing the remaining renewals in this cycle and commercial execution across both recurring and project revenue. Adjusted gross profit was $200 million for the quarter. Similar to prior quarters, this is impacted by cost to support the divested business, which are reimbursed for the TSA and other income. This amounted to $10 million in the quarter. Adjusted EBITDA was $118 million for the quarter at the high end of our guidance range. Free cash flow was $44 million for the quarter, in line with our expectations with timing impacts of tax payments and divestiture-related items. We remain on track towards our annual target of $250 million to $285 million of free cash flow.

Finally, we returned $41 million to shareholders this quarter via share buybacks and our quarterly dividend. Turning to the balance sheet. Our quarter end cash and cash equivalents balance was $223 million and total debt was $2 billion. Our net leverage ratio was 3.1x, and we expect this to normalize below 3x again 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. In January, we repriced our term loan, lowering our interest rate by 50 basis points, which will decrease our interest expense by $10 million annually. We repurchased $20 million worth of shares during the quarter and at the end of March, had $261 million of share buyback authorization remaining.

Now let me turn to our outlook. We are seeing continued momentum during this renewal cycle. And in addition, while we navigate the current environment, we continue to execute on the day-to-day operations and value-creating initiatives we kicked off last year. As Dave mentioned, while we benefit from a more stable business model, we are watching a few key areas closely given the market dynamics, mostly around the demand environment and any longer-term impacts to client participant accounts. We are reaffirming our outlook for 2025, and this reflects our revenue under contract and operational levers driving enhanced productivity. Our transformation initiatives are on track to deliver a better client experience, streamline processes and drive margin expansion.

Today, we disclosed a 15-month restructuring program that supports these activities. Importantly, with all cash investment and benefits already included in our 2025 guide and midterm financial framework from Investor Day. Full year expectations include revenue of approximately $2.32 billion to $2.39 billion or negative 1.5% to positive 1.5% growth. Adjusted EBITDA of $620 million to $645 million, adjusted EPS of $0.58 to $0.64, which does not include any impact from share buybacks, and free cash flow of $250 million to $285 million or growth of 13% to 29%. Our full year view reflects our visibility today and assumes the current market conditions prevail. To close out, our teams delivered on expectations for the first quarter, and we feel good about the operational work underway.

Our business benefits from a highly recurring revenue base tied to long-term contracts, delivering mission-critical services to the largest companies in the world, and we remain intensely focused on our execution while delivering exceptional value for our clients. 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] The first question comes from the line of Scott Schoenhaus with KeyBanc Capital Markets.

Scott Schoenhaus : Congrats on the moving into expansion. My question really, I want to focus on the project revenue. You guided for continued weakness for this year, but just kind of wanted to give your updated thoughts on the first quarter trends, the comps that you faced in the back half of the year and all the macro noise, obviously, that maybe is a headwind to m&A and whatnot. But just kind of get one of your updated thoughts on the project revenue as we look through the year.

David Guilmette: Scott, it’s Dave. Thank you for the question. I’ll start, and I think Jeremy will cover in as well. So the first quarter kind of played out as we expected. We didn’t go into the year thinking that we’re going to see a significant uptick in the project work, as we indicated, and there continues to be softness in the M&A front and some of the things that would typically play out in the first quarter. What’s important now is the second quarter. Our teams are deeply in discussions with our large clients around their plans, strategy for business — for benefit design, changes for vendor reconfiguration, things of that nature that typically play through in the second half of the year around the enrollment process.

So we’ll know more clearly over the next several weeks, just how that’s shaping up. But all indications are that there’s continuous discussion around the importance of those kinds of changes because they really get to the cost of these programs and health care costs continue to inflate and our clients are doing everything they can to try to keep that under control. Jeremy?

Jeremy Heaton: Yes. What I might add there, Scott, is as we’ve talked about, the first half project work, which we had expected it to be really in line with where we ended up for the first quarter, tends to be more discretionary projects or ad hoc work that comes in from M&A and the regulatory changes that Dave mentioned. And so I think that was how we thought about the year and coming through and what we’re seeing. So the pipeline really builds. I think the June, July timeframe in the large enterprise space is where you really get full visibility into what the back half of the year will look like, and as Dave said, tends to be more stable. The comps change a little bit for us. So we expect to see an improving profile there as we get into the back half of the year. But again, we’ll get more visibility as we get through the quarter. And these are the teams working with our clients day to day. So we’ll get pretty up-to-date information as we progress here.

Scott Schoenhaus : Sorry for the background noise. And then Dave, I think you mentioned your pipeline is up 30%. Can you provide more color on that? Is that expansion, was that penetrating into the middle markets? Just any more color on the pipeline update.

David Guilmette: Yes. Certainly, Scott. So I would say it’s kind of across the board. We’re seeing nice opportunities in the core admin space. We see a very robust pipeline related to our leave solution and a similar amount of momentum related to our navigation solution. So all in, we feel good about that momentum. We feel good about the strength of the pipeline, and we’re going to continue to pursue that those opportunities pretty aggressively here through the second quarter.

Operator: Next question comes from the line of Kyle Peterson with Needham & Company.

Kyle Peterson : Great. Nice results. But I just wanted to sort of touch a little bit on the guide and kind of what you guys are seeing in the sales cycle. It sounds like you guys are — might think that the deal cycles could get extended a bit given the macro. I guess, is that — is some of that commentary there just being cautious? Or has there been any change in client behavior and decision-making like in the last like month or so, given all the like trade war and uncertainty?

David Guilmette: Yes. Kyle, it’s Dave. Thanks for your question. We’ve not really seen any material shift in the buying patterns to date. It’s much more about just the overall environment that we’re all dealing with. The degree to which there are changes that are happening coming from policy positions with the administration, it just makes our clients stop and think a little bit more about the types of projects that they may undertake or things that might be discretionary. But we’ve not seen anything that would be taken off the table at this point. And the way that would typically play out is how we put it into 2 categories. You’ve got — the bigger kinds of moves that clients would make introducing on new programs such as the navigation solution, making a change relative to leaves administration or the core benefit administration offerings that we have.

Those tend to follow typical cycles when contracts renew, et cetera. And I would say those are all very much underway. It would be more related to things that might be a little bit more short term, so expansions perhaps where there might be another layer of decision-making or a little bit more caution, and that might push a contract being executed out by a couple of weeks, that sort of thing. But we’ve really not seen anything protracted or anything that would give us a serious concern at this point relative to buying patterns.

Kyle Peterson : Okay. That’s really good color. And I guess a follow-up on capital allocation, you guys are thinking about the buyback, in particular, obviously, it seems like we’re in just a more volatile market environment in general. But I guess, let’s just say, if cash builds this year, would you guys be willing to maybe be a little more tactical or aggressive to try to support the stock if there are dislocations and such?

Jeremy Heaton: Sure. Thanks, Kyle. Yes, for sure. I mean, I think we talked about it a bit at Investor Day. We’ve got the — we had the increase of $200 million. So now we have $261 million of available authorization. And so I think that’s important for us and just the flexibility for us on what we want to do and being opportunistic. And so you saw we were active in the first quarter. We’ll continue to be. And again, in this type of environment, first, order around capital allocation is to strengthen the balance sheet. And then we’re also going to look at opportunities to — whether it’s a strategic partnerships or anything inorganic. But certainly, capital return is there as a priority as well. And so you saw that both with, again, the dividend and being active in share buybacks. So we certainly have the benefit with the authorization available to be very opportunistic this year.

Operator: Next question comes from the line of Pete Christiansen with Citi.

Pete Christiansen : Thanks for the questions here. Just two for me. Jeremy, can you talk through, I guess looking — sorry, the pipeline is so far 92% of 2025 so far. I guess it’s hard to look back as a pro forma and all that stuff. But how does that normally pace, I guess, with the benefits business looking on a pro forma basis versus previous years. It seems like it’s in a pretty good position.

Jeremy Heaton: It is. Thanks for the question, Pete. We feel good about the 92%. You’re right. We do start a normal year. This year, we started at 89%, which was — if you looked at the — previously when we had the professional services and payroll business, we would start in the high 70s to low 80s. We had the benefit of starting this year 89%, but we made very good progress in the first quarter in building through. So again, I think that’s what gives us a lot of the confidence that we’ve got in the guide with the progress we made, the results we delivered in the first quarter. And what we — again, there’s still execution that’s required and elements of that, that we’ll have in any given year, but we feel really good in terms of the progress.

And of course, the renewal cycle, that’s a big piece of what closes in on the revenue under contract, both for this year and as we look out to 2026 and 2027, which are both ahead of where we were at this same time last year, looking out in kind of the 1-year and 2-year out view. So we feel very good in terms of the progress.

Pete Christiansen : That’s helpful. And have there been any implementations that have been rescheduled, I guess, lately?

Jeremy Heaton: Nothing material that we’ve seen at this point. You typically might have something that moves month-to-month based on something that might happen within a particular project or a go-live, but we have not seen large shifts in implementations at this point. We maintain full capacity to be able to implement deals on time and really going back even to the federal deal or the Thrift deal, we’ve really had no issues in terms of implementation and go-lives.

Pete Christiansen : That’s great. And then — sorry, last one for me. Sorry, my phone cut away for a bit. Dave, I think you were talking framing some of potential challenges and a weaker macro environment on the wealth side, can you just reframe that for us, the exposure there? And how we should think about that portion of the business? Sorry about that.

David Guilmette: Yes, sure, Pete. Thank you. So maybe the way to think about this is, first of all, we have a team of financial advisers that for fee managed assets on behalf of retirees, order of magnitude, they manage tens of billions of dollars out of our $1.5 trillion of assets that we cover. So kind of as we sit here today, if we saw a really protracted weakened market with performance being down, we’re talking about exposure here from a revenue standpoint, well less of $10 million.

Operator: Thank you. Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to Dave Guilmette for closing comments.

David Guilmette: Thank you, operator, and thank you, everyone, for joining us today. We feel good about our first quarter performance, which is a testament really to our colleagues and the support that they provide our clients every day, and I’d like to take a moment to thank them for everything that they do. We look forward to sharing our progress as we move through the rest of the year and seeing many of you in person over the next few weeks. Thank you.

Operator: Thank you. This concludes our today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.