Alight, Inc. (NYSE:ALIT) Q4 2023 Earnings Conference Call February 21, 2024 8:30 AM ET

Company Participants

Stephan Scholl - Chef Executive Officer

Katie Rooney - Global CFO, COO

Jeremy Heaton - Operating CFO

Jeremy Cohen - Head of Investor Relations

Conference Call Participants

Scott Schoenhaus - KeyBanc Capital Markets

Peter Heckmann - DA Davidson

Kevin McVeigh - UBS

Kyle Peterson - Needham and Company

Tien-tsin Huang - J.P. Morgan

Pete Christiansen - Citi

Heather Balsky - Bank of America

Joseph Vafi - Canaccord Genuity

Operator

Good morning, and thank you for holding. My name is Ryan and I will be your conference operator today. Welcome to Alight’s Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all parties are in listen-only mode. As a reminder, today's call is being recorded and a replay of the call will be available in the Investor Relations section of the company's website.

And now, I would now like to turn it over to Jeremy Cohen, Vice President of Investor Relations at Alight. Please go ahead.

Jeremy Cohen

Good morning, and thank you for joining us. Earlier today, the Company issued a press release with fourth quarter and full year 2023 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 guaranteed to 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, 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.

On the call from management today are Stephan Scholl, CEO; Katie Rooney, Global CFO and COO; and Jeremy Heaton, Operating CFO. After their prepared remarks, we will open the call up for questions.

I will now hand the call over to Stephan.

Stephan Scholl

Thanks, Jeremy, and good morning. Today marks the end of our initial three year plan. Our aggressive technology and product transformation is delivering a first-of-its-kind integrated HR platform capability that supports employees staying healthy and financially secure. We have upgraded all of our clients from over 6,000 custom solutions to a common SaaS-based platform and taken over 200 million interactions a year out of a private data center and into the cloud.

Because of this, we were able to deliver a better experience for 10 million people by tripling the mobile usage through annual enrollment. This capability did not exist 18 months ago.

Within the platform, we have built over a thousand AI content modules, which have taken our engagement rates from 10% to over 50% This means employees are engaging with us on average 22 times per year and because of this our AI decision support is driving $500 in savings on average per participant.

This is the foundation for the future of that has allowed us to add millions of people, while reducing calls per participant by 20% and still achieving record customer satisfaction, all attributable to our product enhancements and better AI capabilities. It is these investments that have allowed us to enter 2024 with a record backlog of revenue under contract of $3 billion, which is up $900 million from three years ago.

This is being driven by our high-growth BPaaS solutions that have delivered over 2.2 billion of cumulative bookings and included win such as Nielsen IQ, MasterBrand and Siemens Health and Ears to name a few this year, and has also generated a 30% BPaaS revenue CAGR over our three-year plan.

Our strategy has enabled Alight to move from a low single-digit grower to mid-single-digits and we've added hundreds of millions of dollars in profit, while increasing our operating cash flow conversion from 19% in 2021 to 52% 2023. It is this Track record that gives us the confidence to reaffirm our midterm financial outlook.

In fact, we believe there are opportunities to advance our platform and well-being strategy. We have hired financial advisers who have been conducting a strategic portfolio review to accelerate our midterm financial and strategic objectives of becoming a higher margin and more recurring revenue business. In doing this review, we believe we can move even faster to deliver value for our clients, colleagues and shareholders.

As you can see, while we're excited about the long-term, we also have to deliver in the short-term. In late December, we experienced an isolated impact from a significant retiree health client, which resulted in revenue growth of 9% for the year short of our expectations. Mitigation efforts in this business and renewal activity of Medicare plans did not offset this impact and represented the majority of our revenue shortfall for the quarter and for the year.

This is a specific non-recurring event. Absent the retiree business, Alight’s annual growth was nearly 11%. For the quarter, both adjusted gross margin and adjusted EBITDA margins expanded over 200 basis points with double-digit adjusted EBITDA growth. We also grew BPaaS revenues nearly 30%. Sales momentum continued with BPaaS bookings of 261 million and combined with 3Q, the second half of 2023. Re finished ahead of the comparable period in 2022, even without the benefit of an extraordinary new win like GE.

Turning to our 2024 financial outlook, we expect BPaaS revenue growth of over 15% and adjusted EBITDA growth between 8% and 10%. Revenue growth of 4% to 6% reflects the impacts from the timing of our 2023 bookings, the exit of the hosted business and the year-over-year Comparative Federal Thrift.

As Katie and Jeremy will discuss, with our record backlog and strong pipeline, we are on track to achieve our midterm revenue growth guidance of 6% to 8%. All told, I'm incredibly proud of the way our team has executed on our transformation, not just in 2023, but over the past few years. To become the leader in this space, it took us 40 years to build the infrastructure to support the most complex organizations globally and in less than four years we have extended our leadership position by building a cloud-based platform with the most comprehensive collection of content to transform the HR function.

For clients, the output is a one-stop shop that helps them bend the cost curve and deliver a better employee experience with enhanced productivity. Let me give an example of a client where we're helping solve for costs experience and productivity. Siemens has been an Alight client since 1996 and is focused on the health and well-being of its employees. Siemens chose Alight to provide high touch, tech-enabled health navigation services to its employees, helping employees manage and navigate the complexity of the healthcare ecosystem is an opportunity to not only improve health outcomes, but to improve employee satisfaction.

Upon rollout, employees and eligible dependents may choose with confidence top doctors and facilities or to receive expert medical opinions, surgery decision support and even medical bill, review all while optimizing the value of Siemens Benefits Program.

I've spoken at length about driving outcomes for companies and their people and believe that the only way to get the results that client seek is through engaging employees at an enterprise platform level. And is the central hub the Alight Worklife platform is leveraging AI-based technology to drive better engagements and decisions.

To that end, I am excited to introduce our recently launched next-generation AI engine, Alight LumenAI. LumenAI will merge novel and existing AI capabilities into a new unified ecosystem that deliver product innovation and facilitate an interconnected experience for clients across all our solutions. We believe the tools currently being piloted will be a catalyst that drives value for clients by better engaging their employees across their benefits such as personalized HR campaigns, health guidance, virtual assistant interactions and intelligent document processing.

This will complement the amazing proof points we see today, including helping a large client realized nearly $50 million in verified healthcare savings through our insights and automation engines by directing better health care choices.

Coping and other organization realized five point four times lower new higher turnover through our personalization engine and use of financial counselors by creating a personalized digital onboarding experience for all their new hires. And lastly, helping a large retailer reduce overpayment spend in payroll by nearly $200 million.

Examples like these are growing everyday and represent real measurable outcomes attributable to our platform strategy. And while great for clients, the outcomes are also great for Alight. These outcomes only happen if employees trust our platform to guide them and that's why we've been focused on the importance of a mobile-based platform.

To give some perspective this quarter, we had nearly 0.5 million monthly average mobile users, an 80% increase over the prior year and 32% sequentially. Total mobile interactions for the entire year nearly doubled to over 19 million. This matters because first it means more product penetration and second it means users are seeing real value when they do engage.

That's the foundation to drive these client outcomes I just laid out and is driving value for our company. Developing LumenAi and executing on our product roadmap would not be possible without our cloud migration, which is on track for completion in mid-year. We will start seeing the benefits of this program financially in the second half.

Overall, I'm more excited than ever that the work we've done will continue to support our clients in solving the most complex decisions, impacting their employees health and financial security.

With that, I'll turn it over to Katie and Jeremy to discuss the financial performance and our outlook. Katie, over to you.

Katie Rooney

Thank you, Stephan and good morning, everyone. We finished the third year of our plan with robust bookings and a record backlog of revenue under contract of $3 billion. As Stephan noted, we're starting 2024 with a great foundation with a high quality and predictable revenue base, meaningful margin expansion potential and improved cash flow that has strengthened our balance sheet flexibility.

This has positioned us to reaffirm our midterm outlook and as discussed, we believe there's great potential to accelerate the achievement of these objectives and the strategic roadmap of the company.

Turning to our Q4 consolidated results. Our high-growth category of BPaaS solutions advanced almost 30% and we achieved record revenue from our professional services business. As Stephan mentioned, employer solutions’ recurring revenue growth was impacted this quarter by a retiree health client.

For contact the Alight Retiree Health Exchange is a solution that supports employers and the retirees in securing Medicare coverage. As we said the majority of this revenue occurs in December, and this year's significant client defaulted retirees from the exchange into a group plan, which has a different revenue profile.

Our retirees can opt out of the group plan. We also undertook a number of mitigation efforts to drive higher Medicare coverage renewal activity do they fell short of expectations. This is a unique circumstance isolated to 2023 and they remain a significant client. This resulted in total revenue growth for the company of roughly 2%.

In parallel, we continued our productivity efforts to drive margin expansion and offset much of the revenue impact from a profitability perspective.

Adjusted gross profit was up nearly 9% with significant margin expansion of 260 basis points to 41.9%. Adjusted EBITDA increased nearly 12% to $270 million with a margin of 28.1% This represents a 240 basis point increase from the prior year. Our increasing level of profitability, coupled with working capital improvements are generating stronger cash flow, even as we simultaneously execute on a restructuring program.

We generated operating cash flow of $386 million in 2023, 35% or $100 million more than the prior year. This represents a conversion rate of 52% compared with 43% last year. Spending on a restructuring program resumes in the first quarter of 2024, following the planned slow down during annual enrollment last year.

We continue to target mid-year for completing the cloud migration and expect to start seeing financial benefits in late 2024 with full annual runrate of $100 million of savings in 2025. Turning to our booking performance. We delivered strong results with BPaaS bookings of 261 million. Together with the third quarter, our second half bookings were $523 million, nearly two percent better than the 2022 results that included an outsided client win.

We are experiencing broad-based secular demand for our solutions and have a proven ability to win both large and mid-market clients. We are also continuing to invest in building out a world-class commercial team, which combined with our pipeline drives increased confidence in our growth plan.

With that, let me now turn to our segments, starting with Employer Solutions. Fourth quarter revenue was up roughly 1% with recurring revenue nearly flat as a result of the Retiree Health impact. Projects were strengthened and grew 9.9%. Our profitability benefited from our productivity initiatives with quarterly adjusted gross profit of nearly 3% and adjusted gross margin 90 basis points higher at 42.2%.

Turning to our Professional Services segment. Quarterly revenue growth accelerated sequentially once again, and was up 24.2% to a record $118 million. This was driven by a 31% increase in project revenue due in part to the implementation of large new deals and a nearly 12% increase in recurring revenue. On a profitability basis, adjusted gross profit was up 88% from the prior year with margins growing 13.5 percentage points.

Turning to our balance sheet, our quarter end cash and cash equivalents balance was $358 million and total debt was $2.8 billion. We continue to actively manage our debt, which is 84% fixed through 2024 and 60% through 2025.

Our interest expense came in near the bottom of our range as a result of our prior hedging activity, our opportunistic repricing of the 2028 term loan and higher interest income. Our net leverage ratio improved to 3.3 times, down from 3.6 times at the end of the third quarter. We expect to achieve our net leverage ratio target of less than three times ahead of our midterm outlook.

We bought back 40 million of shares in 2023 with no repurchase activity in the fourth quarter, given the strategic portfolio review we discussed earlier.

I'll now turn it over to Jeremy to provide a view of Alight’s financial outlook.

Jeremy Heaton

Thank you, Katie. Good morning. After delivering on our transformation over the past three years, we begin our next three years from a position of strength. We have our highest backlog of revenue under contract at $3 billion with strong commercial momentum, and at the same time, we have expanded both margins and cash flow conversion.

This is being driven by our technology-led solutions in infrastructure upgrades that Stephan discussed earlier. And today, we are reaffirming our midterm outlook across all metrics and looking at ways we can accelerate even further through our strategic portfolio review.

Now let me share the key factors driving our 2024 outlook. First off, we expect BPaaS will continue to be our high revenue growth category at over 15% and the driver of our overall trajectory as it continues to become a larger proportion of Alight, while total annual revenue growth is expected to be 6% to 8% through the midterm, we expect 2024 to be slightly lower at 4% to 6% that ramps throughout the year driven by the timing of our 2023 bookings, our exit from the hosted business and our first half, compared with the Federal Thrift.

Our initial three-year plan is now successfully complete, providing an opportune time to relook at our disclosures on revenue growth moving forward. We believe our revenue under contracts captures a more complete view of all aspects to our growth model over the midterm versus a BPaaS ECB bookings metric which created volatility that did not reflect the stability of the overall business and as such, we will no longer disclose.

In addition to our record 2024 revenue under contract, we will now share a longer-term, three-year view and updated quarterly to provide a greater level of transparency to our book of revenue. We will also continue to disclose BPaaS revenue to demonstrate progress our transformation. As we begin 2024, the business has $3 billion of revenue under contract, for 2025, we have $2.1 billion and for 2026 we have 1.5 billion.

Next we had a successful first year executing on our restructuring program and are well on our way to a more efficient infrastructure that drives over $100 million of annual run rate savings. We expect to complete the program later this year with some margin benefit in the second half.

As this program winds down, there is also a cash flow benefit that is factored into our increased operating cash flow conversion guidance. We expect the seasonality profile in 2024 to be second half weighted as new deals go live and we see the efficiency benefits from the restructuring program.

Our 2024 outlook includes, BPaaS revenue of at least $870 million or growth of over 15%. Total revenue of $3.55 billion to $3.61 billion or growth of 4% to 6%, adjusted EBITDA of $800 million to $815 million or 8% to 10% growth with an adjusted EBITDA margin expansion of 50 to 100 basis points.

Adjusted EPS of $0.72 to $0.77, operating cash flow conversion of 55% to 65%, and finally, as Katie mentioned, we expect to achieve our net leverage ratio target of lower than three times, well ahead of the midterm outlook. After three years, we are confident that our transformation journey has created a strong Foundation that will enable us to sustainably deliver value for all of our stakeholders.

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?

Question-And-Answer Session

Operator

[Operator Instructions]

Our first question is from the line of Scott Schoenhaus with KeyBanc Capital Markets. Please go ahead.

Scott Schoenhaus

Hi, team. Thanks for the question. Just curious are we still expecting sort of a 12 month time frame for when BPaaS book converts to revenue follow up. What are you seeing from your Enterprise clients? Is it taking longer? I know last quarter, we mentioned that’s the long sales process. What are we seeing with large enterprise customer behavior now on closing deals? Thanks.

Jeremy Heaton

Thanks, Scott. Good morning. I'll take the first one and then maybe Stephan will take the second portion. So just I think 12 months is the right timing as you know, depending on the solution and the size and the complexity of the client it can be anywhere from 6 to 18 months. You think of the larger deals we talked about last year that in the fourth quarter, that don't go fully live till 2025.

So there is about a one year timing that that's the right way to model it. And that is part of as you think about the forward guide for us and the timing and the good momentum we had in the second half of this past year around bookings and how that impacts revenue coming through the business.

Stephan Scholl

Yeah. Hey Scott. Good to see you again. The momentum in the marketplace is clear around what we’ve talked about for the last couple of quarters which is clients are trying to find ways to take cost out. And this whole platform approach around employee engagement in one front door is really helping drive the consolidation discussion and we are leading that charge.

And as you saw in the bookings just in the last half of the year, if you take out GE, one deal last year really helped drive a big book of business for us. This last year, this last six months, it was really broad-based across a very broad spectrum of clients all along the same theme and they're all asking us to help them really drive a better employee experience platform, but also take out costs.

Katie Rooney

And Scott, hey, it’s Katie. The only thing I’d add to Jeremy’s point to your question on the conversion I mean, that's really why we're giving you greater insight into revenue under contracts given the variability of bookings. So I think being able to see that quarter-over-quarter will also give you confidence in the traction we're making in the market.

Scott Schoenhaus

Exactly. Thank you so much for that – all that clarity. I’ll hop back into queue.

Katie Rooney

Thanks, Scott.

Stephan Scholl

Thanks, Scott.

Operator

Thank you. Our next question is from the line of Peter Heckmann with D.A. Davidson. Please go ahead.

Peter Heckmann

Hey, good morning, everyone. Busy morning and so I just wanted to circle back to the fourth quarter issue with retiree health. I missed a portion of your explanation there and then how you are able to offset some of that revenue shortfall with lower costs.

Katie Rooney

Yeah. Thanks, Steve. It’s Katie. So in terms of the fourth quarter, I think what we articulated was, there was a single client in the retiree business that defaulted the retirees back to a group plan. Where those retirees would then need to opt out to continue with their Medicare coverage. So result in a different revenue model for us. As you know that business is really December loaded and so, that impacted us in December.

What we then were working on obviously was kind of offsetting the potential risk around that client which fell short of our expectation. So, as part of that from a revenue perspective, we were also very conscious on ensuring we had a profitability plan to continue to stay on track. So, one of the efficiencies we’ve been driving across the business, some coming out of the restructuring program as we’ve talked about and I think making sure we retained accountability for our leadership teams for the miss that variability in compensation obviously plays a role here. But I think the important pieces when you think about that revenue component it is, one time in nature. So it provides a baseline kind of now for how to think about growth going forward. We don't see it as a recurring event. Does that help?

Peter Heckmann

It does. It does. Thank you. And then, just and I am sure it’s very difficult for you to comment on any detail on the strategic review. But I am just trying to figure out like, it is an open ended review that is including potential acquisitions, potential divestitures, potential financing, potential sales company, is it very broad or should we infer it to be more focused on kind of divestitures profitable pruning as the business is?

Stephan Scholl

I think, Pete, thanks for that. It’s doubling down on what’s been working for us on our platform strategy. And as you’ve seen in the last the last midterm of last three years, we've gotten 30% growth out of our platform approach and we know it's working. And if you get if you look at the next midterm guidance, this is a book of business that's going to be about $1 billion in business for us and we want to double down on the front door employee engagement experience.

And we want to really move towards a recurring revenue base with that higher margin contribution capability. So if you take those ingredients, we’re taking a review in that context. We don't have to own all the systems of record potentially. We had - no we can look at different areas where we can partner with people around contents. But the battleground really for us is, really doubling down on the platform piece.

And listen, it's no secret. I've said it before, we're not getting credit in the market for the work that we're doing today, alright? So when you think about where we sit on our transformation agenda, it's, how do we continue to unlock that value.

Katie Rooney

Yeah and Pete, the only thing I'd add is, in the context of that review, right there's an opportunity to enhance value for our clients. So as you think about that review, right, it's how do we double down in certain areas? How do we drive additional investment in certain areas, that will all play into this to ensure we're continuing to again maintain our leadership position and how we support our clients.

Peter Heckmann

That is helpful. And any time frame there that we should think about?

Katie Rooney

Not at this point. We're well underway with it. But as soon as kind of we have those outcome of that obviously, we will come back to the market with the results.

Peter Heckmann

All right. I appreciate it.

Stephan Scholl

Thanks Pete.

Jeremy Heaton

Thank you, Pete.

Operator

Thank you. Our next question is from Kevin McVeigh with UBS. Please go ahead.

Kevin McVeigh

Great. Thank you. Hey. I just wanted to circle back on the ’24 guidance. Try to frame the 4 to 6 relative to 6 to 8. The hosting business, did that impact, it feels like giving that, I don’t know if that was in the guidance or not, but that feels like a 100 basis points. And then, if you don’t have $63 million of revenue that you expect in Q4, how does that now have an impact in ’24? And it just seems like a really big number like $63 million in Q4 that I am just wondering why you didn’t have a better sense of that and how it could have been so back half loaded in December?

Jeremy Heaton

Sure. Good morning, Kevin. It’s Jeremy. I’ll start with the first part of your question. Just in terms of the guide, yes, the hosted business is about a point of impact on revenue for the year and is included in the 4% to 6%. And so that is a big piece of it. The second big piece is really just the timing of the bookings in the second half last year and the timing of those go live and then contribution to revenue for the year.

So those are the two biggest drivers. We obviously also have a bigger grow over just in terms of the size of what the thrift was in comparison to kind of growth rates coming out to begin the year versus where we were last year. So that's really the larger components in terms of the revenue guide, again, which is why where as Katie mentioned giving the three years of a guide around revenue under contracts, because that's for us what gives us a view into more than out through the midterm in our in our comfort level in terms of the 6% to 8%. The …

Katie Rooney

Yeah, and I think, Kevin, good question on the retiree business. We've said that business is really all driven in December. And what happened with this client is unique in the industry. And so, it's very hard to predict, right, in December how many will opt out or not? So the contingency planning we were doing in the fourth quarter was around right accelerating renewals of other areas, ensuring kind of we were working to, minimize the potential risk of that.

But I think when it came through in December in terms of the number of people that chose to default into the group plan that drove the majority of that miss.

Jeremy Heaton

Getting thousands of interactions that happened during that month of December and it's not like it's a bookings to revenue delivery issue or anything like that Kevin. It's a different book of business that in terms of how it gets executed. We really don't have a lot of visibility into some of those dynamics and it really was one-off. We haven't seen that before in our book of business. And as Katie said earlier, the new baseline is set. So, we don't see it happening again.

Kevin McVeigh

Stephan just so or Katie, thinking 2% of annual revenue, should that my math was right, it was a $63 million impact in the fourth quarter?

Katie Rooney

The – I just want to be clear. Our point was the miss in - of the $63 million, the majority of that miss was tied to that client in the retiree business, which drove the total 2% down in revenue versus our 11% guide.

Kevin McVeigh

For the full year, right? So, Katie, 2%...

Katie Rooney

Correct.

Kevin McVeigh

And that got to the $63 million mark.

Katie Rooney

Exactly, right.

Kevin McVeigh

And again, it would have been 5 to 7 if not – as opposed to 4% to 6% if not for the hosted business, right?

Katie Rooney

Exactly right. Yeah, on ‘24 growth, we'd did 5 to 7 x the runoff of that hosted business. Okay?

Kevin McVeigh

Yes, thank you.

Katie Rooney

Thanks, Kevin.

Jeremy Heaton

Thanks Kevin.

Operator

Thank you. Our next question is from Kyle Peterson with Needham and Company. Please go ahead.

Kyle Peterson

Great. Thanks guys and good morning. I wanted to touch - start on how can client conversations with both kind of existing and prospective clients are going? I realized you were only six of them weeks in the year, but just want to get a sense as to how some of those conversations are going. How deals are progressing and kind of what the pipeline looks like as we head into ‘24?

Katie Rooney

Yeah, thanks, Kyle. Maybe I'll start. I think one - the pipeline is very strong. Right? When you think about how the momentum we generated in the back half of last year as you saw, right, from a bookings perspective how that’s translating into revenue under contract. We're continuing to see kind of good velocity in the first half of this year.

I think, a couple of there's been some learnings along the way too. Right, you saw Rosen in the Professional Services segment, right, tied to some of our bigger deals, right, tied to the partnerships with working and others.

So, I think one we've also learned, right, continuing to build those partnerships is an asset for us, while also bringing our total book of business to our clients, we can solve cost productivity and experience challenges that honestly all of them are facing today that is resonating in the market. And I think you know with the Investments we've made in the commercial teams and really kind of bringing that those use cases to our clients, I think that's helping drive the pipeline we see today.

Stephan Scholl

And we're seeing a continued - as I said a few minutes ago, Kyle, continued close to what we've seen in every other industry best-of-breed to Enterprise in terms of consolidation, simplification, all centered around staying healthy and financially secure. If anything the pressure now around economics, it was easy to three years ago during COVID to spend more money on employee engagements.

Every CEO approved everything. HR Executives have said around spend rate on employees that has changed. I've seen a dramatic shift with a lot of see it arose under a tremendous amount of pressure and not being able to spend what they want to spend. And so what you have to do you have to look at where the current spend is. What's the value of that spend. Engagement rates are still very, very low in terms of usage of a lot of these, powerful systems.

And the reason is because you have to go to multiple places to get access to these things and they're complicated. So, we've been on this, now into our year for of our transformation journey to platform consolidation of a lot of these data sources, providing a mobile experience as you seen some of the data, it's amazing to see how many interactions are happening on a mobile phone, all in the name of providing a better easier, consumer-grade experience like we experience everything else in our life, right?

And I think clients are looking for us to be a supporter in driving that kind of consolidation and simplification. By the way, here is the other good news, look at the ecosystem at large, whether it's Microsoft or ServiceNow, great companies out there all trying to drive towards integration platform kind of an approach.

And so, we are right along for the right action leading the charge in the specific category around HR. So, I think it's an exciting time for us.

Katie Rooney

And we named, you saw Siemens. Oppo, also - all of those are the proof points of what Stephan just said. One in global payroll, right, one across the benefit landscape bringing that integrated ecosystem and experience together for clients is helping us win.

Stephan Scholl

And the ROIs are big. Now those bills are big dollars. I talked about in the calls, and there's other ones that I wish I could talk more about, but it's very sensitive data unfortunately. But there's some big, big impacts that we're having for a lot of big clients around the world.

Kyle Peterson

That’s really helpful. Just as a follow-up, and want to touch on kind of your priorities for capital allocation while this portfolio review is ongoing you guys mentioned that you didn't repurchase any stock in the fourth quarter kind of in conjunction with this, but I guess, how should we think about kind of your priorities for what you're going to effectively do with the cash you guys are generating outside of organic initiatives while this review process is ongoing?

Jeremy Heaton

Sure. Let me take that one Kyle. Good morning. It’s Jeremy. So, I think unchanged for us in terms of our Capital allocation priorities. I mean certainly proceeds would give us the benefit and accelerate some of those activities, but it's always going to be strengthen the balance sheet and you know where the balance sheet is leverage levels as Katie talked about and I talked about, as well as well. And then looking at both organic and inorganic opportunities for us a lot of that will be tied into what we're doing with the strategic portfolio review.

And then finally, it's capital return to shareholders and looking at the buyback. And as Katie mentioned tied to the strategic review, we did not have a share repurchase in the fourth quarter, but we certainly look to do that.

Operator

Kyle, are you there? Thank you. Our next question is from the line of Tien-tsin Huang with JP Morgan. Please go ahead.

Tien-tsin Huang

Hi. Good morning. Just wanted to clarify on the isolated impact on the retiree health. Was there any offsetting revenue that came in on the Professional Services side? Because that was quite strong especially on gross profit. So I just want to make sure there wasn't anything unusual there?

Katie Rooney

No, I mean, our professional services business is really I think headed right in the second half, particularly in North America, we did still see some softness in Europe that has kind of continued through the year. But again, kudos to the team I think one in terms of first co-sell partnership with also with Workday, two, obviously tied to some of our bigger wins like GE. They saw a benefit. And three, I think just continuing to build on the momentum in the market has helped them – helped their business.

Tien-tsin Huang

Got it. Thanks for that Katie. And just my follow-up on the - just bridging the 9% growth and EBITDA at the midpoint against the 5% growth at the midpoint of revenue. Can you maybe talk to gross profit versus OpEx outlook for the year in 24? I know that you got the clock conversion piece and that's more savings in fiscal ’25. I just want to make sure we get the cadence of all that, right?

Jeremy Heaton

Sure. I’ll take that. good morning, Tien-tsin, it’s Jeremy. Yes, so 50 to 100 basis points on the EBITDA line, it’ll be greater than 100 basis points on the gross margin line. As you saw strong performance in the second half for us, the continuation around many of the productivity initiatives that are underway. And then in that, really kind of late into the third and the fourth quarter start to see the benefits of completion of our restructuring program. And again, that helps in the acceleration in terms of what we laid out at Investor Day last year and we're kind of continuing on that path.

Katie Rooney

And the only thing I'd add Tien-tsin on an OpEx is, right, as you saw right, some of the key investments we've made this year in commercial and products, right, from an OpEx standpoint wrap around into next year. So, you have kind of that run rate first, I think some of the efficiencies we’re driving hitting for us at first.

Tien-tsin Huang

Thanks. That’s helpful from the view. So, OpEx in the second half versus the first half, anything to underlined there?

Katie Rooney

I mean, I think what we kind of have Jeremy phrased it is, you're going to see a ramp in margin, both gross margin and and in EBITDA through the course of the year, because you will see more of the benefit in terms of the savings coming in Q3 and Q4.

Tien-tsin Huang

Okay. So just a same event is the preliminary view. Okay. Thank you.

Katie Rooney

That’s right.

Tien-tsin Huang

Thanks for clarifying

Operator

Thank you. Our next question is from Pete Christiansen with Citi. Please go ahead.

Pete Christiansen

Good morning. Thanks for your question for the opportunity to ask questions. Stephan and Katie, I'm just curious on the timing of the strategic review. I mean, just considering your - you are reiterating your medium-term outlook last quarter I’ve seen an upbeat on a number of aspects granted. There's been some prop holder rotation and in recent weeks. I'm just trying to understand how we got to this point.

And then, just as a follow-up, hopefully the last question on this Retiree Client Act change. Is there any aspect of the revenue profile for that contract that now work deferred? Is it the timing of revenues being different or is it just the bulk of the message is really just realized here at this point? Thank you.

Katie Rooney

Yeah, thanks, Pete. think I'll start with your last question, which is exactly how you ended it, right? It's kind of a one-time reduction in revenue as those participants have moved to the group plan. So we won't see that, revenue return next year, but we also won't see additional decline. That's the new baseline as I said.

From a strategic review portfolio portfolio, I think what I said Stephan kind of said it earlier, which is we do believe in our strategy and I think we have made progress for our clients for our colleagues for our shareholders, but I aren’t necessarily seeing the return in the market and I think should always be evaluating are there ways to accelerate our strategy, right? In terms of, as we look at the next three years. So we've executed on what we said for the past three and now it's time to take a look and make sure we're evaluating all options to continue to accelerate our strategy and in the best way possible.

Stephan Scholl

When you look at where we started with this journey, just three years ago, $300 million now going to a billion over this last midterm in this one. That by itself, between 30% CAGR in the first midterm going to 15% CAGR in this midterm. That's pretty - we think it's exciting and we see the impact of that book of business being a recurring book of business, better profitable book of business. And as we said now a few times, the impact of that to our clients, I mean at the end of the day the north star of what a light is all about is, if we have 40 million people looking to a light to be the front door will keep them healthy and financially secure, the TAM of that opportunity puts us into one of the most important opportunities in the marketplace. Period and I've been doing this for long enough across different segments and I have never seen an opportunity at this large-scale. So, it's always you know, but it's all wrapped up in this larger company with high growth and low growth and different segments of the business that I've talked about for the last few years. So how do we recast the recipe and as Katie just said and I’ve said it earlier, and we're just and we're not getting value as a total company or as an entity within the rest of the light for what we're doing as you can see, right? And so we're trying to figure out how to unlock that. How to double down on that. How to get a better capital structure to support the continued investments in driving towards a platform company, because whoever arrives at that station will become one of the most important companies in this industry, because that's the sheer size of the opportunity in front of us and the other good news is as crowded as the tech world is there's no will be doing this today effectively at our size and scale like nobody and I think that’s the opportunity. So we have to move quickly at base to take advantage of that and that’s the other piece of this which is how do we actually accelerate the success we had in that category.

Pete Christiansen

Thank you both. I think there is some fair comments in that. Thank you.

Stephan Scholl

Thank you.

Operator

Thank you. Our next question is from Heather Balsky with Bank of America. Please go ahead.

Heather Balsky

On the strategic review, you talked about moving to a more recurring book of business your focus on our recurring book of business. And I know we spend a lot of time talking about the BPaaS forum and its growth. And I think our understanding of sort of the legacy business in the broader portfolio. I think there's a lot kind of maybe we felt analyst or investors don't fully appreciate and can you just kind of walk us through the portfolio at a high level? How much of your revenues are recurring what outside of project revenues? What else it is there that's more transactional in your business? Just this kind of like a high level of what the portfolio looks like today?

Katie Rooney

Yeah, thanks Heather and I think I mean you see a little bit of it obviously in our financials. So we're 83% recurring today, 82 to 83, 84. Sorry 84% recurring today is Jeremy, correct me, right which is great. But I think there's still when you think about how we enter the year in terms of revenue under contracts, there's still a, you know, an opportunity to continue to enhance that. And so within I mean within the portfolio again, we love all our assets that. We're not saying there's an asset that doesn't necessarily make sense. It's how do we optimize, how we're utilizing those assets to best serve our clients. And are there other ways to continue to do that in a form of partnerships right, where there can be additional investment into you know different parts of the business to accelerate that trajectory. So, again, from a portfolio perspective, we've talked about it length. You've got Employer Solutions, you have Professional Services. Within that there's obviously a number of assets that comprise both but the recurring revenue nature today is about 84% if that helps.

Jeremy Heaton

And that’s only one set of perspectives, Heather, right? The other piece is not every dollar is created equally even within the recurring landscape. Some of them have higher profits. As you move up the food chain on value around Ai and platform. Those are driving higher gross margin contribution. So we're also focused on not just a recurring equation, but the margin contribution equation and the value of what that drives in terms of just giving us capital light capability to go after from other investments. So it's not just a recurring it's also, you know the margin contribution profile of it.

Katie Rooney

Does that help?

Heather Balsky

Yeah, it does. Thank you. And a follow-up another other big picture question. But as you look to 2025, and I realized we are a long way from there. But as you think about the bookings you have to-date especially with the GE contracts coming in, it sounds like later in the year, I guess what do you need to accomplish this year to be back at that 60% range as you exit the year? How much visibility do you have to the acceleration? Especially it when you think of your guidance range, low end, high end just kind of help us think that through.

Jeremy Heaton

Hi Heather, it’s Jeremy. I'll take that one. It's I think that's exactly why we're now showing this three-year of you. Right I mean you can look and see two point 1 billion dollars already under contract in 2025 that does include some of those larger deals right, as in you can talk in the shorter term period you don't quite get the visibility into what that looks like. So, that's a starting point for us today. If you look at continued commercial momentum that we had in the second half for our teams to deliver on, that - those are the bigger pieces of what we need to deliver on. So we're on the way already with the momentum that we had in the last two quarters in build in continuing to build that revenue under contract. Those are the biggest pieces that we look at today in terms of just the overall execution plan.

Stephan Scholl

I mean in three years Heather in ‘21, we had $2.1 billion of revenue under contract and in the ‘24 we have $3 billion. That $900 million delta is a collection of just the sales momentum, the quality of the book of business. And I think that's pretty powerful in terms of getting visibility into what the future revenue architecture looks like. That's a big swing from 2.1 to 3 and then as Jeremy said in our midterm in 2026, we already have $1.5 billion in place three years out. That's pretty powerful for us to consider as a baseline three years out to have that much already under contracts.

Heather Balsky

Got it. Thank you.

Katie Rooney

Thanks, Heather.

Operator

Thank you. Our next question is from the line of Joseph Vafi with Canaccord Genuity. Please go ahead.

Joseph Vafi

Hey guys. Good morning. Thanks for taking my questions. Just maybe on some of that momentum in the go-to-market and the potential for share gains, new logo wins, I think a lot of a lot of large enterprises today clearly have best-of-breed capability and all the services you provide, but they're all siloed a little bit more with different vendors. And so, I'm just kind of thinking about almost even from my own personal experience, the cost to deliver for you for - a single holistic, you know approach for employees of large Enterprises versus the kind of best-of-breed siloed approach. Just trying to get a little bit more understanding on one, overall cost to provide for you versus those others. And then, a quick follow-up.

Jeremy Heaton

Yeah, this is the I've talked about that just to be on this call a couple times right, around and I'm lucky to have been part of the probably the biggest technology transformation wave with that to breach Enterprise across European supply chains. We've all lived it right, when best there were hundreds and hundreds of vendors across GLA, BPO and financials and that world largely collapsed with Oracle and SAP and a few handful of vendors and for where I was as well. Owning that move from best-of-breed enterprise, that never happened over the last 20 years in HCM, right, and in the space that we're in. So, four years ago when I came here, I saw exactly the point you just said which is there's got to be a better way employees engaged today with between 20 and 50 different systems, the engagement rates, I mean, are between 1% and 5%. The fact that these companies get away with that for their employees is staggering. You would never have those kind of statistics in a world of ERP or supply chain or revenue type systems. You would never survive that. And so I always have to ask myself why do companies survive that today and it's just lack of focus, lack of the fact that there is somebody out there who's built this end-to-end platform. So that's what we started four years ago. Because the ROI the cost take out you talk to a CIO in Fortune 500 and the world how they've changed their world the last couple of years. They were 90% focused all around driving ERP Revenue systems clients consolidation work. They've all flipped over now to the HR side and saying wow, what a what a mess and what an opportunity at the same time and that's the void we've been trying to fill. And we've given some great use cases. Katie wants to talk about the Siemens one as an example.

Katie Rooney

Yeah, Joe, I mean even we discussed Siemens on the call today, right? I mean, part of the reason because we you know own the underlying administration right, and then you can add you add some of the guidance those capabilities as Stephan said, you increase engagement you can guarantee an improved outcome for not only the client, but their people. And so I think that's really powerful. So when your question on underlying cost I'd almost turn it around a little bit. It's almost more like underlying outcomes that reduce cost right, and improve the experience. That's the Power of what we do.

Stephan Scholl

And the reason why I'm here just to be super blunt about it is not because I want to drive consolidation on the ERP and revenue systems. There's a higher calling opportunity I've talked about before years. It makes me so frustrated how many people make the wrong decisions on back surgery, knee surgery, clinical decisions. How many people can't save enough for retirement because they just make the wrong decisions. I mean, half the employees make wrong decisions around benefits.

I mean, it's staggering to see the mistakes that happen across our employee population. And these are the biggest most important companies in the world. So I sit here and say, we can do better. And how do we help our clients do better by their employees. You got to use systems of record powerful data sets like we have access to trillions of data sets not billions, we have trillions of datasets that we have access to across people's money and people's health decisions. And if we use that the right way through a consolidated mobile experience and Worklife I know and we have shown it we can make a big impact in how you know employees make better decisions in the most important area of life. And there's nothing more important than being healthy first and then having enough money to retire when you when you want.

Joseph Vafi

Sure. That's great. That's great commentary. It was a busy morning. So I apologize if this was asked, but on the strategic review, should we be looking for kind of different data points or different pieces of news coming out of the strategic review, or do you think it would be kind of a all at once outcome there? Thanks a lot.

Katie Rooney

Yeah, I think what I did is, we're well underway as I've said with the review. So our intent is, as we have kind of outcomes to share we will we will obviously bring into the market. So tough to say given where we are in the process. But I think that the key in that pieces, the idea is to accelerate our strategy from where we are today and we'll be back with as soon as we have an update on our next steps.

Joseph Vafi

Great. Thank you very much,

Stephan Scholl

Thanks, Joe. We appreciate it.

Operator

Thank you. As there are no further questions, I would now hand the conference over to Stephan Scholl for closing comments.

Stephan Scholl

Thank you everyone for joining us. Really appreciate the time you took with us today. We look forward to seeing many of you with upcoming conferences in the next few weeks and months. Thanks for the time.

Operator

Thank you. The conference of Alight has now concluded. Thank you for your participation. You may now disconnect your lines.