Good morning and thank you for holding. My name is Doug, and I will be your conference operator today. Welcome to Alight’s Third Quarter 2021 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 on the Investor Relations section of the company's website. And now, I would like to turn it over to Greg Faje, Head of Investor Relations at Alight to introduce today's speakers.

Thank you. And we appreciate everyone dialing in this morning. Earlier today, the company issued a press release with third quarter 2021 results. A copy of that release can also be found on 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 perspectives filed with the SEC on August 24, 2021 as factors may be updated from time to time in the company's periodic filings with the SEC. The company does not undertake any obligation to update forward-looking statements. Also throughout this conference call, the company will be presenting non-GAAP financial measures. Reconciliations of the company's historical non-GAAP financial measures to their most directly comparable GAAP financial measures to the extent available without unreasonable effort appear in today's earnings press release, which is available on the company's website at investor.alight.com. On the call from management today, are Stephan Scholl, CEO and Katie Rooney, CFO. After their prepared remarks, we will open the call up for questions. I will now hand the call over to Stephan.

Good morning. Thank you so much for joining us today. Before we get started, I want to say thank you to the Alight colleagues around the world. We have been on an incredible journey over the past 2 years and our colleagues have been at the center of helping us to transform the way companies think about their employee experience. Through our Alight Worklife platform, we are bringing together a holistic view across health, wealth, wellbeing and payroll to more than 30 million people at the world's most influential companies. We believe this unique capability set is generating positive momentum in the marketplace as company is fully embrace the differentiated experience and return on investment we can provide. Given the strong momentum in our business, we are raising our full year guidance for the second time this year to 5% to 6% revenue growth and adjusted EBITDA to $615 million to $625 million. Before we dive further into our results, I want to start with a number that shows how critical Alight Solutions are for today and tomorrow. 65%. That's the percentage of American adults who say they are planning to switch jobs in the next year. Think about that 65% Then there are millennial and Gen Z workers who make up more than half of the workforce and are even more likely to be searching for another job. The pandemic has accelerated a tightening of the labor market, it's a great resignation. I know you've all been reading about it and probably hearing about it as a risk on every earnings call you've been on. On top of this companies are grappling with their return to the workplace strategies, vaccine requirements, and keeping their workplace healthy and prepared. While never simple. The workplace, HR, benefits, regulation, all of it…

Thank you, Stephan. And good morning, everyone. As Stephan mentioned we continue to see positive trends across our business as we make progress against our transformation objectives. First, we continue to see strong growth in our tech-enabled BPaaS offerings. On a total contract basis, BPaaS bookings increased 42% to $179 million with year-to-date BPaaS bookings of $459 million now ahead of our original January full year forecast of $395 million Second, the strong bookings growth is leading to revenue growth and higher contracted revenue in the out years. Our BPaaS revenue increased 20% with continued progress across our subscription revenue. With our strong year-to-date bookings we now have over 95% of projected 2021 revenue of over 65% of projected 2022 revenue under contract, up from approximately 75% and 55% at the start of the year. Finally across Alight, we continue to see progress. On a year-over-year basis, total revenue increased 3.3% to $690 million and total revenue excluding our hosted business increased 4.3% to $680 million. Adjusted EBITDA increased 16% to $153 million driven by over 140 basis points of gross margin expansion and employer solutions. We continue to drive profitable growth, which is funded our technology and commercial investments and is also translating to higher free cash flow of $126 million in the quarter which was up 17%. Looking at our two primary segments, Employer Solutions revenue increased 5% from a year ago to $587 million, driven by growth in recurring revenues and higher project revenue. Employer Solutions’ gross margin improved to 140 basis points driven primarily by operating leverage and lower delivery expenses from our productivity initiatives. Employer Solutions adjusted EBITDA increased 26% and adjusted EBITDA margins improved over 400 basis points to 25.7%. Turning to our Professional Services segment. Revenue was flat for the quarter at $93…

Thank you. Ladies and gentlemen at this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Kevin McVeigh with Credit Suisse. Please proceed with your question.

Great, thanks so much. And really congratulations on the results. Fantastic outcome. Hey, you've seen really, really nice momentum in the BPaaS bookings kind of exceeding the full year guidance already. Katie, or Stephan any way to think about where that 395 will ultimately considered as we think about kind of 2021 overall? And any thoughts as to how that starts to come in into ’22? And you talked about the percentage of revenue, but if you could help us frame those expectations a little bit.

Yeah, thanks, Kevin. Great question. I mean as we've talked about, there will be kind of volatility quarter-over-quarter in some of the bookings numbers as we see some of the larger BPaaS deals really coming into the pipeline. So, for example, we had $40 million in bookings in Q1, 280 in Q2, and basically 180 this quarter. If you think about that, in the context of kind of a more normalized year, historically we've seen it build quarter-over-quarter kind of Q1 through Q4. So we see strong momentum going into the fourth quarter to continue kind of that trajectory following off Q3. So, again, we're already at 495, we'll be well ahead of that number by year end as well. And if you think about what that means for next year, I think importantly, we've been very focused, as you've seen us kind of here in the last couple of quarters on these higher value dollars and delivering these incremental benefits and outcomes to our client base. That's really where we're seeing the traction. And so we'll be out kind of at the end of -- once we get through our Q4 earnings with official 2022 guidance. But what I'd say is, I think the momentum continues. We continue to have kind of good pipeline, good bookings data that enable us to feel good about how we're entering 2022.

I think from a -- sorry, go ahead.

No. I was just going to say Stephan and just Katie, it sounds like the Aon Retiree Health Medical closed after the quarter. So that wouldn't have been any bookings it back that was all organic, if you would.

Correct. That's right.

Sorry, Stephan, I'm going to cut you off.

No. No worries, I was just going to add the customer lens to it. It continues to exceed my expectations how our one Alight approach to these BPaaS offerings is driving excitement in our install base and in the net new market. So that's what's exciting for us.

And then just any thoughts on the new mobile app? It seems like you're trending ahead there. And then any updates on Federal Thrift. And I'll get back in the queue. I just think those are 2 things that are super important.

Yeah. I think you heard the stats. I mean, we were really aggressively pursuing getting it in place for this annual enrollment. And to get hundreds of thousands of people downloading it before annual enrollment and to see the impact we already had with lower call volumes. And people logging in as many times as they did. Again, it's early days. We have a long way to go to get it to install base, but super exciting to see the first phase of how a lot of clients have adopted it. And as part of our Worklife platform is a mobile first strategy. When you think about the engagement of Worklife through a mobile phone, it's where clients want to be met the notion of the whole daily dynamic of, of health and wellness is something that you want to have on your phone on a daily basis. So just seeing the proof points come through so quickly is exciting for us and gives us excitement for looking ahead.

Yeah. I mean, the only thing I'd add, Kevin, we had over 200,000 installations just within the first 60 days. So I think there's also a lot of room for us to continue to build on that momentum, which was good. And then the second piece just on the Federal Thrift. We are on track. I just mean a huge thanks to our team. It is absolutely been an incredible team effort across the firm to ensure we're in a place by year end to launch our solutions next year. So we are on track and moving well.

Congrats.

Thank you.

Our next question comes from the line of Peter Heckmann with D.A. Davidson. Please proceed with your question.

Hey, good morning. Nice results. Thanks for taking the questions. Now. Yeah, great year-to-date results in BPaaS bookings. Can you provide any commentary on the total bookings number either for the quarter or year-to-date?

Yeah. Pete, thanks for the question. After a number of discussions with you and others, we've realized -- everyone's trying to kind of take the total bookings and translate it directly to revenue. And that's a really big leap. Because as you know, there's a number of factors impacting our business. And so we continue to make progress on total bookings, kind of across all of our solutions. But I think what we've realized and kind of working through with all of you guys is a more relevant metric to help you understand kind of our progress into next year. It's really more of the revenue that's under contract. So you probably heard it in my script, we have over 65% of our revenue under contract for next year, which again -- remember that was that was closer to 60% at Q2. So have made nice progress on bookings both in total and in BPaaS to continue to improve that metric.

And we've been very aggressive on the quality of bookings. That's why I think you hear us focusing on what we are, which is these BPaaS deals are driving just a high -- higher quality, higher technology framework for our business, which I think gives us a better sense of where the business is headed into ‘22 and ‘23.

Got it. And then just on the 2 acquisitions, the number in the cash flow statement, I assume that that is more for the closing up the actual DSPAC [ph] merger and not related to these transactions. What do we think --

That’s correct.

Okay. It's that kind of total consideration for these 2 deals and just think about where that might take leverage?

Yeah, thanks Pete. So remember in August, we’ve raised $525 million of incremental debt we said a portion of that would be used to fund the acquisitions and a portion for general corporate purposes. So, acquisitions obviously are kind of our less than that. You'll see even in our year end financials, we won't have pro formas because they’re not material to, to the numbers. So as you think about what that means on a pro forma leverage basis, again we ended the quarter, closer to 3.5 times, that will go up to closer to 3.7 on a run-rate basis. So we still have -- as you think about capacity and kind of how we think about just the leverage profile, obviously, the great free cash flow we generate. We still have significant financial flexibility for both organic and inorganic investments.

Okay, that's super. And then let me squeeze in one more if I could, just the Investments in Professional Services. Is that primarily around hiring? Did I hear you say that?

Yes. Yeah, that's right. 2 areas, I think in the Professional Services business. One is in just the go to market and kind of commercial teams. And then the second, if you think about that business, again it's the people business. And it has been one area where it’s highly competitive from a talent perspective. So it has been an area where we've been very focused on kind of retaining key talent as our pipeline continues to build into next year.

I appreciate it. Thanks so much.

Thanks, Pete.

Thanks, Pete.

Our next question comes from the line of Ramsey El Assal with Barclays. Please proceed with your question.

Hi, there. Thanks for taking my question this morning. Your guidance implies strong 4Q adjusted EBITDA margins. I’m clocking in around or 23%-ish margins. To what extent is that -- are these margins driven by recent BPaaS outperformance that you expect to continue versus other dynamics like I don't know, seasonality? And I guess, is there any reason to think that these levels won't prove sustainable in the full year ‘22? Or should we think about you potentially reinvesting in the business to bring those margins down a little bit?

Yeah. Thanks, Ramsey. I’d say a couple of things. I think you're right. The operating leverage, we're driving through the BPaaS solutions obviously helps. The other areas I'd suggest is remember, we talked honestly, back earlier this year about $90 million of productivity savings we're driving over the course of ’21 and ’22. We’ll honestly have visibility to two thirds of that by year end. So there is also kind of some nice leverage in Q4 from those initiatives. As you think about what that means going forward, what I'd say is, we're going to be disciplined about obviously continuing to drive efficiencies across the business, but also recognizing we're in this incredibly important time where we have to continue to invest both in our go-to-market and in our technology capabilities to continue to advance the one Alight strategy. So, as I said, we'll be out with formal guidance in Q4. But I think see opportunities for both driving operating efficiencies while also investing in the business.

Our next question comes from the line of Scott Schoenhaus with Stephens. Please proceed with your questions.

Thanks. Hi, Stephan and Katie, congrats on the quarter. I wanted to touch based on the impact of labor shortage that's having, obviously a positive demand on your product offerings. Can you give us a sense of what you're seeing in terms of existing and new customers are engaging with you? Is it -- whether it’d be across your health benefits, wealth benefits, payroll? And then secondly, does the current environmental Alight continue to accelerate the upsell of your BPaaS offering to existing customers? Thanks.

Sure. Yeah. There's a lot there, Scott. As you heard me say on my release, the names of clients. I just love giving the perspective from the voice of clients. So when you hear about, , Genworth and Randstad and Camping World and an Avatar these are all existing clients that have continued to expand into that whole Worklife One Alight platform. And it's all because they see the value of moving from a fragmented best of breed approach to a more integrated enterprise platform that drives a better outcome with higher engagements in their employees. And so I think that lens of uplift to what we've committed in January through our earnings calls -- through our Investor decks, I think is the proof points that we're seeing in the last couple of quarters of existing clients buying more from us and expanding their footprint with additional products in the name of solving for higher outcomes. So I think that's kind of number one to your middle part of the question. And then on the net new side, that's your demand point. For us to be able to announce PwC as a win is super exciting. That's after we just announced Navistar and Dell in previous quarters. So that trend continues of major corporations taking an aggressive look at how do we rethink the engagement with our employees in a broader one Alight playbook. And so that again, has been continued to be surprising for me across our pipeline, just to see the aggressiveness that major corporations are -- that they're taking an aggressive stance on rethinking how they engage their employees.

Great. Can I ask just one more follow up? I know, the big focus has been to move from project business to subscriptions, and obviously have the percentage of recurring revenue streams increase year-over-year. I think last quarter, you said you had over 84%, already towards recurring revenue from bookings. And that's above your previously committed guidance around 80% from recurring revenue. So with the strong the BPaaS bookings that you've had, should we continue to expect this number to continue to accelerate from here? Thanks.

Yeah, absolutely. I mean, what I'd say is as you'll see that particularly on an annual basis, that continued improvement. Remember Q3 and Q4 for us are higher project revenue quarters, just by definition. So like this quarter recurring revenue was closer to 82%. But again, if you look at that year-over-year, obviously that continues to improve. So on an annual basis, absolutely, you will continue to see improvement in that recurring portion of our business.

Thanks, guys.

Thanks, Scott.

Thanks, Scott.

There are no further questions in the queue? I'd like to hand the call back to management for closing remarks.

Great. Thank you, everyone. And appreciate you all joining us today. We look forward to continuing to update you on our progress at the year end. And we'll also provide updated ‘22 guidance at that time. Thanks. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.