Good morning and thank you for holding. My name is Daryl and I will be your conference operator today. Welcome to Alight's Fourth Quarter and Full-Year 2021 Earnings Conference Call. At this time, all parties are in a 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 the call over to Greg Faje, Head of Investor Relations at Alight to introduce today's speakers.

Good morning. Thank you for joining us today. Earlier today, the company issued a press release for the fourth quarter and full-year 2021 results. A copy of the release can 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 such 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 appear in today's earnings press release. On the call from management today, are Stephan Scholl, CEO; and Katie Rooney, CFO. After their prepared remarks, we will open up the call up for questions. I will now hand the call over to Stephan.

Thanks, Greg, and good morning everyone. It's less than two years ago that we started on our journey to become a more tech-enabled company from the inside out. The pandemic and the tight talent market have highlighted that the current fragmented siloed approach to benefits and human capital management does not adequately address the two most important aspects of employee lives, keeping them financially secure, and healthy. Our mission is to fundamentally change the employee experience by providing people with one simple, seamless, innovative platform supported by robust health, wealth, payroll and wellbeing content to provide meaningful outcomes for companies and their people. In 2021, we made tremendous progress on our transformation to adopt a business process as a service model enabled by a platform strategy. First, in Q2, we announced the Alight Worklife platform. Alight Worklife a mobile first technology built on a modular cloud-based architecture has embedded AI and analytics that drives a personalized and unified experience to replace the siloed approach that is commonplace today. Second, we continue to focus on adding valuable content in the areas of healthcare navigation, wellbeing, health and wealth benefits, retiree benefits and payroll. And third, the Alight Worklife experience, combined with compelling content, will engage the over 30 million users we already have to drive differentiated outcomes for them, their family members and the organizations they are a part of. We've seen this platform approach drive success in both B2C and B2B enterprises. The progress we have made on this journey thus far contributed to our strong results in 2021 and gives us confidence as we look to 2022. We are well on our way to double-digit revenue growth in 2023. We secured $602 million in BPaaS bookings, which is 52% higher versus our original goal of $395 million. And we…

Thank you, Stephan, and good morning, everyone. We continue to see positive trends across our business, as we make progress against our transformation objectives. We exceeded our expectations with our tech-enabled Alight BPaaS offerings. On a total contract basis, BPaaS bookings for the full-year grew a 128% to $602 million, which is 52% ahead of our original January full-year forecasts of $395 million. This bookings growth has translated into revenue growth and higher contracted revenue. Our BPaaS revenue growth was nearly 17% for the full-year and now comprises 13.4% of revenue versus our prior expectation of 12%. With our strong bookings, we now have over 80% of projected 2022 revenue under contract at year-end ahead of historic levels of 75%, which gives us added confidence in our ongoing transformation. Finally, across our consolidated results, we continue to see progress. Full-year total revenue increased 6.9% to $2.91 billion and total revenue excluding our legacy Hosted business increased 8.2% to $2.87 billion. Adjusted EBITDA increased 10% to $621 million, driven by over 350 basis points of gross margin expansion in Employer Solutions, which achieved a 35.2% gross margin. They also continue to drive profitable growth, which has funded our technology and commercial investments and delivered free cash flow of $507 million for the year. Next, I'm going to discuss performance for our two primary segments. First, for Employer Solutions, full-year revenue for Employer Solutions grew 9.4% to $2.5 billion, driven by 10% growth in recurring revenue. Fourth quarter revenue grew approximately 25%, which reflects a combination of the Health Exchange acquisition, which is seasonally concentrated in the fourth quarter with annual Medicare enrollment and net commercial activity. Fourth quarter recurring revenue increased 29%, which was partially offset by an 8% decline in project revenue driven by softer demand for one-time services. Full-year…

Thank you. We will now 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 questions.

Great, thanks so much, and congratulations on the results. Really, really nice outcome for you, folks. Hey, Katie, how are you? Hey, you really continue to execute well on kind of the BPaaS bookings obviously significant upside to the original targets. And even in Q4 as well, can you maybe unpack that for us a little bit on that. And then as we're thinking about that into 2022, obviously, the bookings look pretty strong as well. Just maybe what's been driving some of the near-term outperformance and then logos versus existing clients, things like that, and logos rather versus existing clients?

Yes, thanks Kevin. Great question. You're right. I think as you see in the results, just in terms of BPaaS bookings and revenue, right, you're seeing bookings way outperform and you're also seeing the revenue growth outperform. I think a couple of points. First and we talked about it starting in the second quarter through to the fourth quarter, we've had some really nice new logo wins, I think ahead of our expectations, honestly, this really is resonating, as we're out there with new clients. And it's been a key area of focus from a commercial investment standpoint as well. I think the other piece is again, if you think about how we're talking with our existing client bases, we've kind of continued to add content, whether it be through acquisition, whether it be through the platform strategy, there's a way for us to in essence, kind of help move clients along in the journey. So we don't have to transform, fully transform and get them to for instance, a total health solution. We can help navigate them kind of step by step along the journey. And I think that's really resonating for folks, as they see the opportunity to start improving outcomes in the solutions that we're providing for their employees.

Super helpful.

So again, it's a mix of both, to be honest.

That's helpful. And then I was kind of flipping through the fourth quarter deck, even going back to Investor Day. And what really jumped out at me was your average revenue retentions up about 100 basis points and your recurring revenue is up almost 200 basis points in, I think a lot of that to the effort in terms of the shift in the model, but maybe just remind us a little bit in terms of what's driving that, because obviously, it's going to anchor a lot of the predictability in the model. And there's a lot of hard work around that?

Yes, you're right. I mean our average retention for the year was 97%. So I mean, it continues to strengthen, which I think is a testament to the stickiness of the revenue. And how again as you think about getting the employee population, leveraging the mobile app, right leveraging the platform, by definition, you're engaging with them more frequently, that revenue is stickier, because you're able to provide more content, right, you're able to retain kind of that relationship, and it helps the employer as well. I think the other piece, as you think about the subscription base, I mean that has been a focus for us, that is where we have really driven the discussions with our clients to ensure, we kind of have that lead time, right because the more as you think about our platform strategy, right, we're now into kind of semiannual upgrades, every upgrade, right, they're getting additional content, additional capabilities. And so by locking you into that contract, it gives you even more time to obviously show that that benefit, and I think that's resonating for clients as they're really seeing the roadmap and how quickly we can continue to enhance the experience for their employees.

Yes, Kevin, thanks for your earlier comments. I think just to double-click on Katie's subscription comment, we've also been really smart about taking what used to be some of the project-based type work and now make it more subscription-based as part of our Worklife strategy. So you're not only just seeing renewal rates higher, but you're also seeing us be very aggressive in our BPaaS strategy towards building out a longer-term more repeatable higher value revenue base, and that's a big shift that we started a couple years back and that's really an key element to our continued growth into this year and next.

That makes a ton of sense. Thanks again.

Thanks Kevin.

Thanks Kevin.

Thank you. Our next question is coming from the line of Peter Heckmann with D.A. Davidson. Please proceed with your questions.

Hey, good morning. Thanks for taking my question. I just had a question on the thrift savings, if I remember correctly, that was booked in the fourth quarter of last year, but it doesn't appear to be reflected in the year-over-year comp for BPaaS bookings. Was that part of total bookings last year? Or are you just excluding it for purposes of this comparison?

Yes, thanks, Pete. You're right. Just given the magnitude of it I mean, there, it really is kind of a one-time deal. We unfortunately, wish there were other 6 million live deals out there. But just given the magnitude of it, we did exclude it in the comparison.

Okay that's I just already thought it and remind me was it -- is this -- the 2 billion of -- what was the TCV for that?

Unfortunately, just given our contract with the thrift we can't disclose kind of the overall financials around it. But again, it's 6 million participants a 10-year deal. It was obviously substantial.

Got it. All right, that's helpful. And then just in terms of your adjusted EPS guidance, what should we be thinking about for? Or what are you using there for weighted average shares for the year?

Yes, if we think about the guidance, again, now that we've kind of cleaned up the warrant structure, I think it's a little more straightforward. So we've also posted a PowerPoint deck on our website that has a lot of detail in terms of kind of the current shares. So we've factored in basically, the basic shares, the non-controlling shares, the new warrants, and then the unvested RSUs. And so the number we're using right now is around $538 million.

Okay. And if I could sneak in one more.

Yes, please.

Is that good revenue upside in the quarter and it sounds like both strong organic growth, but as well, the seasonality of the retiree business. I'm just thinking about the contribution for the quarter or the contribution for your guidance for next year, those two acquisitions, how much we think about in run rate revenue?

Yes, good question. I mean, I think, we've said with both acquisitions, while they're not material, you're right. The retiree deal is more seasonally weighted to the fourth quarter. I think, what's important to keep in mind, as you think about kind of the overall transformation we're going through, you saw BPaaS revenue growth in the quarter 14%, for the year 17%. And today, if you think about that retiree business, that's not currently BPaaS revenue. I think there's an opportunity, as we kind of integrated in the platform and really driving outcome-based strategy around that solution, that will be an opportunity for us, but 17% annual BPaaS growth, kind of excluding acquisitions, and that's growing substantially, both in terms of dollars and growth rate into 2022, kind of even excluding that deal.

Thank you. Our next question is coming from the line of Scott Schoenhaus with Stephens. Please proceed with your questions.

Hi, team.

Hi, Scott.

Great quarter and two logos. Got a question on the margins. I know historically you guided to gross margin expansion pretty significantly, and we've seen some gross margin expansion. How do we think about that, in terms of your fiscal 2022 guidance? Katie, I guess this question is for you.

Yes, thanks, Scott. I mean, in terms of you're right. If you think about kind of the overall strategy, we said, we're going to absolutely finding the right balance of driving the top-line, but also investing to continue to drive the transformation. So we'll also show bottom-line growth and margin expansion, but you'll see that first in gross margin. And so, we continue to anticipate gross margin expansion in 2022. I think you've probably heard at the end of my comments, more of that will come in the back half of the year, given some of the first half investment. But I think importantly, if you think about the bookings, if you think about kind of where we're seeing demand in the growth, those investments are really starting to payoff. And so I do think, we're still finding the right balance in both of them. But, as you think about our guidance, we've kind of said EBITDA margins will be relatively flat, obviously, with dollar growth this year. And then some of the investments we've talked about become a tailwind in 2023. So you'll see gross margin expansion this year, and then that accelerating into 2023.

Great. And you have nice free cash flow, nice quarter again of generating nice cash flow. Can you tell us what opportunities are in the marketplace for you guys? Where you're looking to add to in terms of your capabilities and solutions?

Yes, sure, Scott. I think for us, you saw in Q4, the momentum we saw internationally. And I think it's an underserved market. When you see the people challenges that we talk a lot about the U.S., they definitely exist elsewhere. And they're just as a lack of capability and global support. So our size, our scale, our global footprint is a natural extension for us to continue to make great acquisitions in the international markets to support that whole notion of keeping employees healthy and financially secure. I think also, as you've seen in our recent announcements. We've won some of the biggest what we call hrX deals against, ADP and others. With Shell as an example, in this quarter, we had another seven key deals across some big companies that whole gig economy dynamic, which really started in Europe, more so than in the United States is continuing to be an aggressive footprint for us to double down on. So you'll see us in that particular hrX platform around payroll and well-being continue to make some investments there.

Thank you. [Operator Instructions]. There are no further questions at this time. I would like to turn the call back over to Stephan Scholl for any closing comments.

Great. Thank you. Thanks everyone for joining us today. We're exiting 2021 with strong momentum and are excited about the opportunities ahead in 2022 and beyond as we continue our transformation journey. We look forward to the chance to meet with many of you at a conference such as the Morgan Stanley TMT conference in March, and at other investor events in the months ahead and sharing our first quarter results in the spring. Have a great day everyone.

This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.