Jeremy Cohen; Head of Investor Relations; Alight Inc
Dave Gilmet; Chief Executive Officer; Alight Inc
Jeremy Heaton; Chief Financial Officer; Alight Inc
Scott Schoenhaus; Analyst; KeyBank Capital Markets
Kyle Peterson; Senior Analyst; Needham & Company LLC
Peter Christiansen; Analyst; Citi
Operator
Good morning and thank you for holding. My name is Ranju 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.alite.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-gap financial measures, reconciliations of the company's historical non-gap 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 Gilmet, 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.
Dave Gilmet
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 strategies grounded in a client-centric focus.
Our integrated light work life 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 alike.
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 IEDA 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 new 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 Les 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 TOP200 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 roadmap 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 for 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 impacts. 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 your revenue in our overall pipeline as we move through this quarter.
Our view and that of clients I have recently met with is that amidst 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 advisors 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 enter 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've 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 mid-term 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.
Non-recurring 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 through 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 costs to support the divested business which are reimbursed for the TSA in other income. This amounted to $10 million in the quarter.
Adjusted EIA 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 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 in cash and cash equivalent balance was $223 million and total debt was $2 billion.
Our net leverage ratio was 3.1 times, and we expect this to normalize below 3 times 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 the client participant counts.
We are reaffirming our outlook for 2025, and this reflects our revenue and our 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 mid-term financial framework from investor day.
Full year expectations include revenue of approximately 2.32 to 2.39 billion or negative 1.5 to 1.5% growth. Adjusted IBETA of 620 to 645 million.
Adjusted EPS of 58 to $0.64, which does not include any impact from share buybacks, and free cash flow of 250 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 1st 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) Scott Schonhaus, KeyBank Capital Markets.
Scott Schoenhaus
Hey team, thanks for taking my questions. Congrats on the, new liens and expansions. My question really, wanted to focus on the project revenue, you got it for continued weakness for this year, but just kind of wanted to give your updated thoughts, given the first quarter trends, the comps that you face in the back half of the year, and all the macro, noise, obviously that maybe is a headwind.
To M&A and and whatnot, but just kind of get one of your updated thoughts on project revenue as we look to the year thanks.
Dave Gilmet
Hey, good morning, Scott. It's Dave.
Thank you for the question. I'll start, I think Jeremy will pepper 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 this is the 2nd 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 annual 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, cause they really get to the cost of these programs and healthcare costs continue to inflate, and our clients are doing everything they can to TRY to keep that, under control. Jeremy? Yeah.
Jeremy Heaton
What I might add there, Scott, is, as we 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 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 time frame and 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
Thanks. Sorry for the background noise. And then I think you mentioned your pipelines up 30%. Can you provide more color on that? Is that expansion? Is that penetrating more into the middle markets? Just any more color on the pipeline update. Thanks.
Dave Gilmet
Yeah, 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 lead 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 2nd quarter.
Thanks, Jim.
Thanks, Scott.
Thank you.
Operator
Kyle Peterson, Needham and Company.
Kyle Peterson
Great. Good morning. Thanks for taking the questions. Nice results, but just wanted to, TRY to Touch a little bit on the guide and kind of what you guys are seeing in the sales cycle. Sounds like you guys are.
Might think that some of 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 and uncertainty?
Dave Gilmet
Yeah, Kyle, it's Dave. Thank thanks for your question. We, we've not really seen any material shift in the buying patterns to date. It, 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, we've not seen anything that would be taken off the table, at this point. And the way that would typically play out is I would put it into two categories. You've got the bigger kinds of moves that clients would make introducing a new program such as a 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, etc.
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, serious concern at this point relative to buying patterns.
Kyle Peterson
Okay, that, that's really good color, and I guess, a follow up, in capital allocation, how 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, especially as cash builds this year, would you guys be willing to, maybe be a little more tactical or or aggressive to TRY to support the stock if, there are, dislocations and such.
Jeremy Heaton
Sure. Thanks, Kyle. Yeah, 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 of around capital allocation is just strength of the balance sheet. And then we're also going to look at, opportunities to continue, whether it's part 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 buyback. So we certainly have the benefit with the authorization available to be very opportunistic this year.
Kyle Peterson
Okay, awesome, I appreciate you guys taking the questions. I'll hop back in.
Dave Gilmet
Thanks, thank you.
Operator
Pete Christiansen, Citi.
Peter Christiansen
Good morning. Thanks for the questions here. Just 2 for me, Jeremy, can you talk through, I guess, okay, I'm sorry, the pipeline so far 92% of 2025 so far. I guess it's hard to look back because of the 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? Seems like it's in a pretty good position.
Jeremy Heaton
It is. Thanks for the question, Pete. We, yeah, 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 at. 89%, but we made very good progress in the first quarter and 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 and elements of that that we'll have in any given year, but we feel. 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 the same time last year looking out in kind of the one year and two year out views. So we feel very good in terms of the progress.
Peter Christiansen
Yeah, that's helpful. Have there been any implementations that have been rescheduled?
I guess lately.
Jeremy Heaton
Nothing 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 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 live.
Peter Christiansen
That that that's great. And then sorry last one from me, so my phone cut away for a bit, Dave. I think you were talking framing some of potential challenges in in in 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.
Dave Gilmet
Yeah, sure, Pete, thank you. So, maybe the way to think about this is, first of all, we have a team of financial advisors that for a fee manage assets on behalf of retirees.
Or of magnitude, they managed tens of billions of dollars out of our $1.5 trillion of assets that we cover. So kind of as we as we sit here today, if we saw a really protracted Weakened market with performance being down, we're talking about exposure here from revenue standpoint, well less of $10 million.
Peter Christiansen
Okay, that's great.
Thank you very much.
Dave Gilmet
Thanks Pete. Welcome, Pete.
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 Kilmet for closing comments.
Dave Gilmet
I thank you, operator and 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 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 at today's teleconference. You may disconnect your lines at this time.
Thank you for your participation.
