Good afternoon and thank you for holding. My name is Stacy, and I will be your conference operator today. Welcome to Alight's Second Quarter 2023 Earnings Conference Call. At this time, all participants 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 Jeremy Cohen, Vice President of Investor Relations at Alight. Please go ahead.

Good afternoon and thank you for joining us. Earlier today, the company issued a press release with second quarter 2023 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 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, 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 the call up for questions. I will now hand the call over to Stephan.

Good afternoon and thank you all for joining us. Earlier today, we released our second quarter results and are pleased to close out the first half of 2023 with double-digit growth across revenue, adjusted EBITDA, and operating cash flow. We believe these results coupled with a consistent track record and increasing levels of visibility leave us well-positioned to achieve our 2023 and mid-term growth outlook. During the quarter, we delivered revenue and BPaaS growth of nearly 13% and 40%, respectively. As a result, recurring revenue represented nearly 85% of total revenue for the quarter. The mix towards tech-enabled revenue, coupled with investments to improve our operating model, are enhancing returns with adjusted EBITDA up almost 11% for the quarter. As we drive our profitable growth agenda forward, we're also generating stronger operating cash flow, which was up 37% for the first half. Our strong performance is led by the collective components of BPaaS and non-BPaaS solutions, which have created a resilient book of business and taken together allows us to sit here today with over 90% of our 2023 revenue under contract and already an unprecedented amount of backlog of $2.5 billion for 2024. Let me briefly explain our recipe and how each component contributes to the totality of our business. First, our non-BPaaS revenue led by professional services and standalone core administration represents nearly 80% of total revenue and is seeing higher than normal growth rates of 8% in the first half. Our recent growth was driven by one-time project work supporting the go-lives of large BPaaS deals. It is these mission-critical standalone solutions that are the foundation for our moat characterized as highly recurring and with long-term contracts. And they are the feeder enabling us to upgrade our customers into larger platform deals that are driving better outcomes. And the platform Alight Worklife is the backbone of BPaaS, which as a reminder, our tech-enabled solutions wrapped with our service capabilities that drive improved engagement and outcomes for our customers. Since 2020, bookings for these solutions have grown over 80% per year resulting in revenue up 45% during the first half of 2023. BPaaS bookings were $149 million for the second quarter, and as we have noted previously, there will be lumpiness in our sales cycle. To effectively evaluate our bookings, you need to take a longer-term view that isn't captured in a quarter-to-quarter movement. Cumulatively, we have sold $1.7 billion of BPaaS TCV bookings since 2021 well ahead of initial expectations and a key driver of higher sustainable growth. And speaking to the lumpiness, the total bookings exclude a large deal with a Fortune 10 company that we've already closed here in July. Once again, deal timing may fluctuate, but it's the totality of these great deals that drive the long-term performance of the business. The investments we have made and are continuing to make in our platform and products have resulted in a tremendous opportunity in our pipeline with a number of transformational deals. We also continue to monetize our offerings through a modernized pricing model that is being rapidly accepted by customers and provides upside going forward. This gives us confidence in our medium-term guidance of BPaaS growth of 15-plus percent coupled with the non-BPaaS growth of 2% to 4% with an improving margin profile. So with that important context, let me now turn to the strategic investments that are driving the success of our transformation and overall trajectory. At the center is an ongoing focus of executing on our platform strategy and engaging people in a truly personal way that eliminates complexity, drives better participant outcomes and yields better ROI for customers. To accomplish this, the Alight Worklife platform has been constructed as a recommendation engine of one by unlocking the value of data within our core administrative services and leveraging AI in a meaningful way. So let me talk more about how we're doing this. Starting with product, early in the quarter, we announced a major upgrade to our SmartSelect MD search engine and launched New Behavioral Health Services, both enhancing our navigation capabilities. In addition, yesterday, we announced our second major annual release of Alight Worklife. The latest release leverages Alight's robust proprietary data to deliver AI-driven personalization and automation capabilities across the Alight Worklife platform and provides customers with advanced tools to increase the ROI of their benefit programs. I'm particularly excited to share our improved virtual chatbot experience, which will offer users greater access to AI-based personalization and the ability to answer specific inquiries efficiently and in a digital environment. Improving the chatbot experience will allow us to continue reducing the need for participants to use the call center channel, an improvement that drives greater client satisfaction and underscores our long-term margin expansion by driving down our service costs. Though the advancement in our chatbot is exciting, Alight has been investing in and utilizing AI for years. AI has been core to powering individual benefit decisions and delivery automation. Our experienced models, highly leveraged data sets and established connections with data sources are driving better engagement and improving ROI for our customers. And this is the foundation for our BPaaS growth. Still, we're just scratching the surface of what is possible. We're unlocking concrete generative AI use cases by building internal applications. For example, given the many millions of interactions and hard-to-digitize PDF documents that we handle annually, generative AI provides the ability to at scale, ingest, comprehend, and answer questions about these documents in a faster self-service format. While we were busy this quarter improving our platform, we also were hard at work on the commercial side as our ongoing investments are translating to customer wins and new partnerships. In the case of Weis Markets, a Mid-Atlantic food retailer with nearly 23,000 employees, our new relationship has grown from an original remit of taking over a complex Workday deployment led by a competitor to a OneAlight engagement that includes benefits administration and services work. And with Siemens Healthineers, a multinational with nearly 70,000 employees, they were seeking a solution that prioritized employee health and wellbeing while also driving sustainable engagement. Through our OneAlight solution, Siemens will have the tools to address its objectives and positively impact wellbeing, retention, and cost. These wins underscore the continued strength in our commercial pipeline and the need for employers to drive better outcomes for their people and together serve as a powerful foundation for our new Chief Commercial Officer, Greg George. Greg joined us midway through the quarter and I'm excited for our organization as his background in driving growth for cloud-based systems and in the HCM space fits with our transformational initiatives and will serve as a catalyst to accelerate our momentum. Another lever for commercial growth is through our numerous partnerships across the globe. This quarter we announced an expanded partnership with Workday to help companies in various European countries source, manage, and pay their global workforce with a simple unified offering. This software partnership is in the early stages of its rollout with the joint teams focusing on sales enablement, account planning, and our collective go-to-market strategy. And finally, although much of our transformation is growth-oriented, we're also well along the path of improving the efficiency of our backend infrastructure; migration of our data centers to the cloud is progressing to plan with high-priority applications being moved in advance of annual enrollment and final applications migrating in the first half of 2024. The end result of this program will be significant cost savings, better delivery for our customers, and an accelerated pace of innovation. I also want to take a moment to share more on the leadership changes announced this afternoon. Katie Rooney will be expanding her responsibilities to take on the role of Chief Operating Officer focused on running Alight's Professional Services segment and our Global Payroll capabilities. Many of you have gotten to know Katie well and can attest to her strong leadership abilities built from her over 14 years with Alight and its predecessors. In addition to her new role, Katie will continue to serve as Global CFO, and Jeremy Heaton will move into the Operating CFO role accountable for many of the day-to-day responsibilities across the finance function. Jeremy was Executive Vice President of FP&A and has been part of Katie's team for over three years. Before Alight, he was a Divisional CFO for GE and spent over 20 years there. Many of you have had the opportunity to spend time with him and you'll be seeing much more of him in the future. Adding operational experience to Katie's skill set and elevating Jeremy's role will deepen the expertise of our executive leadership team and give our Board, colleagues, shareholders, and customers confidence in our long-term success. Additionally, Cesar Jelvez will be leaving Alight. I want to thank him for his contributions in moving the business forward and I wish him well. Before I hand it over to Katie, I also want to express my gratitude for our colleagues around the world who in just two years as a public company have made tremendous progress, transforming Alight, building upon our strong foundation and setting us up for sustainable long-term success. Katie, over to you.

Thank you, Stephan, and good afternoon, everyone. Our second quarter performance was highlighted by double-digit growth in total revenue, BPaaS revenue, adjusted EBITDA, and operating cash flow. In addition, the strength of our foundational non-BPaaS business is also driving increasing levels of long-term visibility. With Stephan noting earlier that we now have over 90% of 2023 revenue under contract and $2.5 billion of 2024 revenue under contract as well. The line of sight we have from our backlog is what enables us to confidently invest to sustain profitable growth. Let me now turn to our performance. Starting with our consolidated results, during the second quarter, we achieved revenue growth of 12.7% highlighted by BPaaS revenue growth of nearly 40% as prior bookings continue to translate into higher contracted revenue. This is resulting in an ongoing shift towards higher quality recurring revenues, which were up 13.6%. Recurring revenue comprised 84.7% of total revenue, a 70 basis point increase from the prior year. Adjusted EBITDA increased 10.6% to $157 million with an adjusted EBITDA margin of 19.5%. With strong growth across the Board, we are generating increasing levels of cash flow, which strengthens our balance sheet and funds our transformation. For the first half, we generated operating cash flow of $162 million with a conversion rate of 52% up significantly versus the prior year as we continue to make improvements in working capital. As a reminder, our second half cash flow tends to be seasonally stronger and we would expect the same this year. And as planned, both investments and restructuring activity are projected to slow compared to the first half, which will impact both profitability and cash flow. Let me now expand on our bookings performance, both for the quarter and more holistically. To start with the results, BPaaS bookings for the quarter were $149 million and cumulatively, we're pleased to report we have now achieved over $1.7 billion in total bookings since we began our transformation in 2021. As BPaaS revenue is long-term and recurring in nature, this foundational backlog will continue improving our overall quality of revenue as we leverage the Alight Worklife platform. For 2023, we now expect BPaaS bookings to be in the range of $700 million to $900 million, which implies a strong second half and well over $2 billion of cumulative bookings more than $500 million ahead of our original three-year plan. As you may recall, we will see lumpiness in our bookings from large deals, for example, the two we closed in the fourth quarter of 2022. The GE deal is a great example of this dynamic. Our engagement is designed to drive long-term BPaaS revenue starting in 2024 through our Alight Worklife platform and comprehensive payroll and benefit solutions. However, this year our team is hard at work implementing the core platform and systems across GE's three companies, and this work is driving higher non-BPaaS revenue in 2023. The closing of one Alight deals such as this are lucrative, but the size and complexity of finalizing these offerings typically means they take longer to close. Another case was for a deal closed in July as Stephan discussed, and as you evaluate Alight, it remains an important reason to take a longer-term view of bookings. We also continue to have a very strong pipeline across our business with over $2 billion in opportunity just within our install base. We're making progress with new logos and we've introduced our new pricing model, which is not yet contemplated in our total backlog. Our pricing model is being implemented in new deals and will enable us to monetize new products more effectively. Overall, the implications of building our platform and driving value-based pricing will be multi-fold. We'd expect increased revenue growth, improved margin potential, and faster cash collection as we prove out a better model for our customers. Overall, these levers taken collectively are driving growth for our business and position us well to achieve our mid-term outlook. With that, let me now turn to our segments. Starting with Employer Solutions, second quarter revenue was up 13.5% with recurring revenue up 14.3% and project revenue up 5.5%. Contributing to our growth was two months of Federal Thrift as well as increased net commercial activity volumes and the impact from the ReedGroup acquisition. Our strong growth, coupled with productivity savings, are driving better profitability with second quarter adjusted gross profit up 21.3% to $268 million. Adjusted gross margin increased by 250 basis points to 38.5%. Turning to our Professional Services segment. Second quarter revenue growth accelerated sequentially and was up almost 10% from the prior year to $100 million. This was driven by a 10% increase in project revenue and a 9% increase in recurring revenue building from a strong backlog. On a profitability basis, adjusted gross profit was slightly off from the prior year down $1 million. Turning to our balance sheet. Our quarter end cash and cash equivalents balance was $271 million and our total debt was $2.8 billion. We continue to actively manage our debt and our hedge portfolio is 84% fixed through 2024 and 60% through 2025. Our net leverage ratio at the end of the second quarter was 3.7x down from 3.8x at the end of the first quarter. And as a reminder, we are targeting mid-term net leverage of approximately 3x. Turning to our outlook. Our strong first half keeps us on track for another successful year with more than 90% of our revenue under contract; we are reaffirming our 2023 guidance with the exception of BPaaS bookings mentioned earlier. Our outlook includes revenue of $3.47 billion to $3.51 billion, or growth of 11% to 12%; adjusted EBITDA of $735 million to $750 million, or growth of 12% to 14%; adjusted EPS of $0.62 to $0.67, or growth of 9% to 18%; and an operating cash flow conversion rate of 45% to 55% up from 43% in 2022. From a phasing perspective, we expect second half adjusted EBITDA to follow historic trends with higher upfront costs in the third quarter, supporting growth in the fourth quarter. In closing, I'm so proud of what we've accomplished and continue to achieve with double-digit revenue adjusted EBITDA and operating cash flow growth. These results demonstrate the attractiveness of our long-term strategy as we pivot toward the higher growth and higher margin operating model positioning us to enhance long-term shareholder value. 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?

Thank you. We will now be conducting a question-and-answer session. Your first question comes from Kyle Peterson with Needham & Company. Please go ahead.

Great. Thanks. Good afternoon, guys. Katie and Jeremy congratulations on the new roles. Just wanted to start off, on the guidance revisions, particularly on the BPaaS bookings, understand and can appreciate there's some lumpiness there, but just wanted to see, is this just a few large deals shifting around here or there, or is there any hesitation or signs of slowdown from clients maybe one push off, some of these projects a little bit just given some of the macro uncertainty. Any color would be very helpful.

Sure. Thanks, Kyle. Appreciate it. And listen, you got to go back to what we said almost three years ago, right, when our original guidance was $1.5 billion and we all felt that was a big goal to achieve. And look where we sit, we're going to be call it, $0.5 billion ahead of that plan. So we've had some good success early days in the last couple of years on driving that book of business. You've all seen how that bookings performance has translated into starting 2023 with $2.9 billion of revenue under contract, which was the entire revenue book of business we did in 2022. And if you translate the success of our BPaaS bookings from the beginning of when we started in 2021, we started the year in 2023 with almost $800 million of revenue under contract more than we did in 2021. So over two years, almost $800 million of high quality valuable backlog. And then you heard Katie say $2.5 billion of revenue under contract for next year, which we've never at this point in time had that much as well. So that should give confidence looking into 2024 and mid-term. And then Katie also said 90% of 2023 revenue under contract. In terms of pipeline, we're looking at right now over 20 deals that are over $20 million in value each one of them, and some of them of course, significantly more than that as well. So pipeline is strong. We're seeing the same enthusiasm from clients, especially now heading into the second half where CFOs and CEOs are continuing to try and look at how to take costs out of their business. As you all know, during COVID, there was a lot of spend that happened on what I would call point solutions. We've come in with our platform capability and really stitched together an end-to-end front door kind of capability with our Alight Worklife platform. And that has resonated. So we are doing a lot of work around value engineering and process re-engineering for a lot of our largest clients, which could again as I said with our pipeline yield some pretty significant transactions for us moving into the outer quarters as well. But we feel really good about where we are. Again, as I said during my segment, it's very hard to look at this business in a 30, 60, 90, or even 6 to 12-month view; you have to take a multi-year long-term view. And again, as shareholders, I know the shareholders that I've talked to appreciate the long-term view of making sure that we drive a better quality book of business at higher margins and better contribution to the company. So we feel really good about where we are.

Yes. That makes sense. And it's good color. Maybe just a follow-up on capital allocation, specifically thinking about the back half of the year is cash flow seasonally typically tends to be better for you guys in the second half versus the first half. How are you guys thinking about whether it's kind of ramping up the buyback in the second half of the year or are there interesting M&A opportunities you guys would look to pursue? Any additional color on how you're looking to deploy capital in the back half of the year would be great.

Yes. Thanks, Kyle. Great question. Our capital allocation priorities have not necessarily changed. I think if anything they've kind of been elevated in this environment. First priority is the stability of the balance sheet, feeling good where we are from a hedge position maturity position. So we'll continue to naturally delever, which I think is important. So then really the priority has been investing in the business organically and inorganically. But we've said, listen, there is still a lot of frothiness in the market from a valuation standpoint. And if we don't see the right opportunities, then we'll absolutely consider stock buyback. So again, I'd say both are on the table, and we're continuing to evaluate them as we go forward.

Next question Kevin McVeigh with Credit Suisse. Please go ahead.

Great. Thanks so much, and let me add my congratulations as well to Katie and Jeremy, well deserved for sure.

Thank you.

Hey Stephan, I just wanted to clarify one thing you said to make sure I heard it correctly. You mentioned the Fortune 10 client. Are they still included in that bookings number, or did that relate to the adjustment in the bookings at all? I think you were clear, but I want to ensure that I understood it right. I know you talked about that big Fortune 10 client you won earlier in the year. Could you provide any additional context around that?

Yes, yes. Obviously, it gets so fresh still and as you can imagine with NDAs and all that stuff, it's kind of complicated to be able to announce the actual name. These deals are different. This is a different transaction, a different booking than the one that we announced previously. So hopefully that helps it.

And it's not included. Yes. Kevin.

Oh, sorry, Katie.

It's not in our Q2 number. Yes.

Oh, yes, thank you. Yes, it's not in Q2. That's correct. That's why I mentioned the July statement. That's right. Yes.

Understood, but that's Katie, it is in the full-year or Stephan, it's in the full-year guides, right?

Correct.

Great. And then Katie, it sounds like you're added responsibilities are international payroll and then Professional Services. Is that coincidental that one of the things we really encourage about is a Workday's partnership. Does that add additional focus on that or maybe just help us understand what that brings to bear because it's obviously a real nice part of the story as well.

Thanks, Kevin. Yes, I absolutely think that is part of it. As you know, we are also a large client. I have implemented Workday financials across the organization and think very highly of the company and the partnership the team has built. I believe this presents a good opportunity for us. Additionally, when we discuss our international focus, we come to Global Payroll from a position of strength, which offers a significant opportunity across OneAlight as we continue to provide solutions and execute our platform strategy for our clients. That is our main focus today, as we work with the leadership team to deliver these solutions to our clients through our platform approach.

Yes. The only thing I would add to that is listen, we all know Workday is one of the best software companies in the business and Neil and Carl and Dave just built something that's absolutely incredible to be a part of as a partner to have a software partnership speaks to kind of Kyle's earlier question around what we're seeing in the market, which is HR buying centers were left behind in this massive digital transformation to consolidation and simplification. And so what you see with Workday and this partnership is a view that I share and that they share, which is clients are looking for more consolidated solutions and on a platform kind of an approach. So that gives kind of credence to our kind of whole BPaaS playbook, which is how do you drive OneAlight in a lot of these accounts, because a lot of these clients have 30, 40, 50 up to 80 different point solutions. And so we're both seeing the same kind of trends, which is moving to a more integrated enterprise platform type of approach.

Next question Tien-Tsin Huang with J.P. Morgan. Please go ahead.

Hey, thanks, and my congrats to Katie and Jeremy as well. I want to just clarify one more time. Forgive me on the BPaaS bookings TCV revision here. Did anything fall out of the pipeline? Is that part of it or is it just a timing issue into next year? And then separately, I know revenue and all the headline figures didn't change, and I know that the bookings here are very long-term in nature, but are you making it up anywhere else in terms of revenue that you were expecting this year as released at the BPaaS piece? Or is it really just again timing?

Yes. Good question, Tien-Tsin. Thank you. A couple of things. I think, yes, it is timing, right? When we talk about some of the lumpiness, Stephan mentioned having over 20 deals, over $20 million. There's a really strong pipeline that the team is working. I think the strategy's resonating, but getting those deals over the line has taken longer. So that's really kind of where that revision comes in. Why we haven't changed the guidance is because that's obviously only one piece of the story. Going back to what we've done over the past three years and the impact that has going forward is obviously the most important driver coupled with obviously continued strong performance in the non-BPaaS areas, the new pricing model, right? All the other components we mentioned around it continues to support the guidance as well.

Very good.

Yes, I mean just we're not.

Sorry, go ahead. Go ahead, Stephan.

No, I just want to emphasize that we remain committed to our transformation agenda, and the BPaaS segment is performing well. As you can see from the numbers, shifting GE bookings from December 31 to January 1 significantly alters the discussion. We experienced this in the last quarter. Timing is a factor, but the overall health of the business and our transformation efforts remain strong. This is reflected in our mid-term guidance. Additionally, we've dedicated more time to address your questions regarding the non-BPaaS segment, as many of you have asked us about it. The combination of both segments contributes to a robust business portfolio for us. The GE example is a good illustration; it generated significant bookings last year, but there will be no BPaaS revenue until 2024. However, we do have a substantial amount of non-BPaaS revenue. As we mentioned, there has been notable growth in that area over the last couple of quarters and as we look ahead, it will help enhance our platform business in the coming years.

Very good. I understand. I just wanted to ensure that, considering the emphasis on some of the key performance indicators, there are no complaints from my side. For my quick follow-up regarding the second half, I know the headline revisions are limited to the TCV aspect that you just discussed. Are there any other changes in thought? I know there are questions about employment normalization, but I assume you’re not too affected by that. Are you observing anything regarding same-store growth for your larger clients? Additionally, while the pipeline is strong, I'm curious about visibility and conversion timing. We’ve heard of significant delays and push-outs from traditional IT service providers. Are you noticing any similar issues? Thanks for addressing my questions.

Yes. Thanks, Tien-Tsin. We're really not. When it comes to just the underlying performance, and again the team is doing an incredible job getting clients live on time, working through that on the kind of employment trends haven't had an impact on us. I think the only area we continue to monitor as you know Q3 and Q4 are higher project quarters for us that we do continue to monitor. So far, you saw it in the second quarter, we've done well. But that's the one area we have a little bit less visibility to at this point. But in terms of kind of the recurring book of business and where we sit today, we feel good.

Next question Pete Heckmann with D.A. Davidson. Please go ahead.

Hi, good afternoon. I have a few more questions. Regarding those two large clients, GE was one of them, and they were signed in the fourth quarter of 2022. Can we expect them to go live in the first half of 2024, the second half, or sometime in between? Both seem significant enough to potentially influence growth rates, so I’m trying to understand. You mentioned that you're achieving milestones, and the contracted backlog is moving toward going live. Do you have any additional insights about these major launches as we approach 2024?

Yes, thanks. What I would say is that they remain on track; the team has done a fantastic job with those contracts. We are not fully operational at the start of 2024 and won't reach a full run rate until 2025. However, you will see benefits beginning in early 2024 that will continue to grow throughout the year, and we will achieve a full run rate as we enter 2025.

Got it. Okay. And then any thoughts about ReedGroup and its relative fit and its integration, any surprises there?

Yes, Pete, I would say that when you consider what our customers are looking for, it aligns very well with the OneAlight perspective regarding their engagement with us. We have observed strong momentum in that area, and the team has delivered excellent results. There have been no surprises. I believe this could be an even larger opportunity than we initially expected, but we are still in the early stages of that pipeline.

Yes. I'd say it's in the small but mighty category. When you think of what that actually does in terms of leaves capability, we've seen some large deals get swayed by a very small component with leaves because it is such a key element to helping employees get them back to work earlier, which is a huge ROI around that. So as we unpack, especially in the Fortune 500, the cost base of somebody leaving work on a leaves program and then getting them back, the dollars are just so significant. And so when we attach it to our platform and integrate it into navigation and into our benefits administration and the rest of Worklife really kind of brings it to a much more cohesive conversation and has really helped us kind of tip the scales in our favor on some really nice deals for us.

Next question Peter Christiansen with Citi. Please go ahead.

Good evening. Thanks for the question. Glad to be a part of the call.

Thanks Peter.

Thanks Peter.

Thank you. I was just wondering if you could talk to the enterprise spending environment. I know you mentioned pipeline looks really strong, but it sounds like the life benefits when enterprises are perhaps a bit more cost conscious or maybe the inverse. I'm just trying to understand what dynamic do you see really driving that pipeline? Is it cost savings or is it just other kind of aspects? And then, just as my follow-up, look back to gross margin really outperform this quarter. Just wondering if we could dig into that a little bit. What drove some of the outperformance? Thank you.

Yes, thank you for your question. I'll keep this brief, as it’s a topic I could elaborate on extensively. We’ve been on a long journey, and during COVID, clients often turned to various point solutions for their employees. About three to three-and-a-half years ago, I recognized that this approach was merely a temporary fix. Employees seek simplicity and clarity to make better decisions, while many corporations inadvertently added complexity to maintaining health and financial security. We have demonstrated the value of our Alight Worklife platform, which integrates our data alongside our competitors' data to provide comprehensive information that supports better decision-making. My previous experience involved driving digital transformation for major companies like Ferrari and Nike. However, the employee engagement sector hasn’t seen similar progress over the past decade. We are applying a proven strategy from the SaaS world, labeling it as Business-Process-as-a-Service, which combines products, software, and services to create an effective platform. Clients, particularly large ones, are looking to consolidate and simplify their expenses from the past few years, and we are positioned to assist them in eliminating unnecessary point solutions while enhancing their campaigns to improve value. With employee engagement rates often in the low single digits, it’s clear that clients struggle to see returns on their investments. In contrast, our engagement rates significantly increase when data sets are integrated into Alight Worklife. We’re in an exciting phase, actively working with clients to reduce costs. I hope that provides clarity.

Yes, Peter, thank you for joining the call. Regarding gross margin, we have discussed the key investments made last year and continuing into this year. As we mentioned, we need to see a return on those investments, which will first reflect in gross margin through our go-to-market strategies and technology investments, enhancing how we serve our customers. This is what you are beginning to see in the gross margin.

Next question Heather Balsky with Bank of America. Please go ahead.

Hi, thank you so much. I'm going to ask first another bookings question. So I apologize, but we want to just kick the tires here. You talked about that some of the shifts in timing of the bookings just has to do with getting those deals, getting some of the deals over the line. I'm just curious where you might be, what might be causing some of that timing delay. Is it internally within the company? Is it just kind of selling the BPaaS strategy to the company? I'm just curious what the feedback you're getting from these customers, so.

Yes. I wouldn't put it as delays or timing. You have to put everything into context. And the context is, we said it would be a really heroic day if in three years, which we're coming up to the last two quarters of that. If we could on a new strategy deliver $1.5 billion of these BPaaS dollars. And so, on its own, we're going to hit hundreds of millions ahead of that, call it $0.5 billion ahead of that plan and we've hit our targets early, right? So I would look at it from that point of view. Our pipelines are strong. I would say the demand from clients to want us to come in. If anything, what's happening is the deals are getting bigger. And when you start doing, process re-engineering not to get too technical here, but it takes a lot of work to go into a major client and say, here are the 15 steps it takes to get to 20 different applications. And here's the experience an employee has on the left side of the ledger to now here's what it would look like in a consolidated integrated data set and one place to go for an experience on the right side of the ledger. Here's the ROI in savings, which is significant. I mean, we've seen some ROIs into the hundreds of millions of dollars of savings for our clients by going from left side to right side, again complex, broken, not being used, costly to integrated front door platform. So I would say, if anything, what you have to look at is the conversations we're having are with more senior people. The conversations are broadening from the HR department a lot now into the CFO department and into IT department. We're actually getting into a lot of conversations on front door ServiceNow versus Alight. It's great to see that conversation. We've all seen how well ServiceNow has done with their book of business, but they're very limited as ServiceNow is on their product side of things. We have the administrative data and platform, which I've always said for the last few years, really is a unique combination that nobody else has. And so that allows us to really be much more dynamic versus static. And so we've had a lot of workshops with a lot of the largest banks and a lot of the largest companies in the United States specifically. And it's great where we're winning the front door discussion when it pertains to how to keep employees healthy and financially secure because they see the value of platform and administrative data. So super exciting, the pipeline is stronger than ever. The deal sizes are great. But as I said just a few minutes ago, getting through these more complex sales cycles, which will benefit us in the longer-term just takes a bit more time.

That's really helpful. You mentioned that you recently launched your next platform. I'm interested in whether there are any pricing changes associated with it and how to view your pricing strategies moving forward.

Yes, Heather, maybe I'll take that one. So you're right. We have our semi-annual releases now of the Alight Worklife platform, which is great because it's a clear product roadmap driven with our clients that really continues to add value. What I'd say is how to think about it is actually more how we're pricing new deals now such that we get value for platform. So remember, we used to face price pressure. Right now we're looking at how do you build price into the contract going forward to account for those investments we're making in platform that clients can see by being rolled out twice a year. So it is kind of in essence baked in. I think it's a key element of the strategy given the investments we're making and we've been able to demonstrate to clients that there is value in those releases.

Next question Steve Dechert with KeyBanc. Please go ahead.

Hey, just want to know, have there been updates you can provide on Phase 2 of your migration to the cloud? And then has there been any feedback on your latest release of Worklife? Thank you.

Sure. Yes. Thank you.

Yes, thank you, Steve. Yes, go ahead, Stephan.

No, go ahead, Katie, please.

I was just going to start with just on the cloud migration, that is obviously a really important project for us. The team has done an incredible job. So we are really through kind of almost the first two phases of the rollout. The next kind of final piece will be completed in the first half of 2024. But again, the team has really done that in the right way with our clients. And now obviously we're kind of on a pause as we enter a really important time with annual enrollment here this fall.

Yes. On the product side, while AI and generative AI are currently trending topics, this has actually been our strategy for many years. With the hundreds of millions of interactions we have with nearly 40 million employees worldwide, that data is significant, and it is essential for us to integrate it into crucial moments. Our recent release focused on enhancing our software's ability to recognize PDF files, for instance, when someone inquires about whether a procedure is covered under their health plan. These documents are typically static PDFs, but generative AI allows us to develop the capability to analyze these PDF formats and connect questions with answers without the need to call our centers, which handle hundreds of thousands of calls each year. We are establishing a robust API library and creating a solid Ask Lisa feature, which incorporates AI to assist individuals in navigating the complexities of making informed decisions regarding health, wealth, and overall wellbeing. We are continuing to focus on enhancing the front door platform while also improving its appearance to make it more straightforward and accessible. Systems like DBDC navigation, retirement, payroll, and benefit management are notoriously complex, so we aim to simplify this experience into a cohesive front door capability. Additionally, one of the key aspects of our platform is its focus on personalization for each individual. Drawing from numerous examples in the digital realm, our approach is B2C-oriented, as we want people to feel as though they are our only client, similar to experiences with brands like Nike or Ferrari. We believe individuals should have wellbeing, benefits, and retirement plans tailored to their specific needs, rather than based solely on a job code, salary band, age, or any other generalized criteria. This individualized platform approach is a significant differentiator for us and will continue to facilitate our BPaaS transformation.

Thank you. I would like to turn the floor over to Stephan for closing remarks.

Great and thank you all for joining us today. I really appreciate all the time and the questions, and I look forward to Katie and Jeremy to meet all of you in many of the upcoming investor events. So thank you very much and have a great afternoon.

This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.