HCM provider Alight, Inc. (NYSE: ALIT), reported results for the third quarter ended September 30, 2023.
“Alight delivered high single-digit revenue growth and double-digit profitability expansion as our successful transformation into a platform company is enabling consistent and durable financial performance,” said Chief Executive Officer Stephan Scholl. “With the platform as our foundation, we are seeing broad-based demand for our solutions, underscored by robust BPaaS bookings that grew 26% over the prior year. Our continued strong financial performance, along with $2.7 billion of revenue already under contract for 2024, enables us to reaffirm our 2023 and mid-term guidance.”
Third Quarter 2023 Highlights
- Revenue increased 8.4% over the prior year period to $813 million
- Over 95% of projected 2023 revenue under contract at the end of the third quarter
- Business Process as a Service (BPaaS) revenue grew 21.9% to $184 million, representing 22.6% of total revenue
- BPaaS bookings on a total contract value (TCV) basis were $262 million, representing growth of 26.0% compared to the prior year period. Since the start of 2021, we have delivered BPaaS TCV bookings of nearly $2 billion, ahead of our goal of $1.5 billion by the end of 2023
- Gross profit of $257 million and gross profit margin of 31.6% compared to $212 million and 28.3% in the prior year period, respectively, and adjusted gross profit of $287 million and adjusted gross profit margin of 35.3% compared to $239 million and 31.9%, in the prior year period, respectively
- Net loss of $46 million compared to net loss of $45 million in the prior year period
- Adjusted EBITDA grew 18.8% over the prior year period to $158 million
- Cash from operations of $251 million year-to-date in 2023, up $50 million or 25.0% from the prior year period
- New wins or expanded relationships with companies including FedEx, NielsenIQ, and Royal BAM Group
- The Company repurchased $26 million of Common Stock under the share repurchase program
Third Quarter 2023 Results
Consolidated Results
Revenue grew 8.4% to $813 million, as compared to $750 million in the prior year period. The improvement was driven by an 8.7% increase in Employer Solutions revenue due to increased net commercial activity, project revenue, and volumes as well as the impact of our 2022 acquisition, and 10.5% growth in Professional Services revenue. Recurring revenues, which comprised 83.3% of total revenue, grew 8.3% to $677 million mainly due to growth in Employer Solutions revenue.
Gross profit was $257 million, or 31.6% of revenue, compared to $212 million, or 28.3% of revenue in the prior year period. The increase in gross profit was primarily driven by revenue growth as noted above and productivity savings, partially offset by additional costs associated with the rise in revenues.
Selling, general and administrative expenses were $177 million, compared to $178 million in the prior year period. The decrease was primarily driven by compensation expenses related to share-based awards, partially offset by the inclusion of expenses from our 2022 acquisition and costs incurred from our previously announced restructuring program.
Interest expense was $34 million as compared to $31 million in the prior year period. The change in expense was primarily due to higher interest expense on our term loan borrowings due to movement in market interest rates.
The Company’s loss before income tax expense was $15 million compared to loss before income tax benefit of $65 million in the prior year period. The change was primarily due to non-operating fair value remeasurements of financial instruments and the tax receivable agreement.
Third Quarter 2023 Segment Results
Employer Solutions
Employer Solutions is driven by Alight’s digital, software and AI-led capabilities and spans total employee wellbeing and engagement, including integrated benefits administration, healthcare navigation, financial health, employee wellness and payroll.
Employer Solutions revenues grew 8.7% to $701 million, as compared to $645 million in the prior year period, as a result of increased net commercial activity, project revenue, and volumes as well as the impact of our 2022 acquisition. Recurring revenue grew 8.7% to $634 million, while project revenue was up 8.1% to $67 million.
Employer Solutions gross profit was $231 million, as compared to $189 million in the prior year period, up 22.2%, driven by revenue growth and productivity savings, partially offset by employee compensation costs and additional costs associated with funding growth of current and future revenues. Employer Solutions adjusted gross profit was $260 million, as compared to $214 million in the prior year period, up 21.5% or $46 million, primarily due to the factors impacting gross profit above.
Professional Services
Professional Services revenues were up 10.5% to $105 million as compared to $95 million in the prior year period as a result of higher recurring revenue and higher project revenue. Recurring revenue and project revenue rose by $4 million and $6 million, respectively.
Professional Services gross profit was $26 million and adjusted gross profit was $27 million, representing an increase of $3 million and $2 million, respectively, compared to the prior year period.
Balance Sheet Highlights
As of September 30, 2023, the Company’s cash and cash equivalents balance was $276 million, total debt was $2,801 million and total debt net of cash and cash equivalents was $2,525 million.
During the quarter, the Company completed a repricing of its 2028 term loan that decreased its interest rate by 25 basis points for $6 million of anticipated annualized interest expense savings.
The interest rates on the Company’s debt are 84% fixed through 2024 and 60% through 2025.
Business Outlook
The Company’s 2023 outlook includes:
- Revenue of $3.47 billion to $3.51 billion (growth of 11% to 12%).
- Adjusted EBITDA of $735 million to $750 million.
- Adjusted diluted EPS of $0.65 to $0.69 (versus $0.62 to $0.67 prior).
- BPaaS total contract value bookings of $700 million to $900 million.
- Operating Cash Flow Conversion rate of 45-55%.
Reconciliations of the historical financial measures used in this press release that are not recognized under U.S. generally accepted accounting principles (“GAAP”) are included below. Because GAAP financial measures on a forward-looking basis are not accessible, and reconciling information is not available without unreasonable effort, we have not provided reconciliations for forward-looking non-GAAP measures. For the same reasons, we are unable to address the probable significance of the unavailable information, which could be material to future results.
Earnings Conference Call and Webcast Information
A conference call to discuss the Company’s third-quarter financial results is scheduled for today, November 1, 2023 at 7:30 a.m. Central Time (8:30 a.m. Eastern Time). Interested parties can access the live webcast and accompanying presentation materials by logging on to the Investor Relations section on the Company’s website at http://investor.alight.com. A replay of the conference call and the accompanying presentation materials will be available on the investor relations website for approximately 90 days.
About Alight Solutions
Alight is a leading cloud-based human capital technology and services provider that powers confident health, wealth and wellbeing decisions for 36 million people and dependents. Our Alight Worklife® platform combines data and analytics with a simple, seamless user experience. Supported by our global delivery capabilities, Alight Worklife is transforming the employee experience for people around the world. With personalized, data-driven health, wealth, pay and wellbeing insights, Alight brings people the security of better outcomes and peace of mind throughout life’s big moments and most important decisions. Learn how Alight unlocks growth for organizations of all sizes at alight.com.
For more information, please visit www.alight.com.
