Good morning. Thank you for holding. My name is Paul. I will be your conference operator today. Welcome to Alight's fourth quarter and full year 2022 earnings conference call. At this time, all parties are in a listen-only mode. As a reminder, today's call is being recorded. A replay of the call will be available on the investor relations section of the company's website. Now I would like to turn the call over to Jeremy Heaton, Executive Vice President, Finance at Alight, to introduce today's speakers.
Good afternoon. Thank you for joining us. Earlier today, the company issued a press release with fourth quarter and full year 2022 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 subsequent filings with the SEC. The company does not undertake any obligation to update forward-looking statements.
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 for 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.
Thank you. Good afternoon, everyone. We are excited to share our Q4 results where we finished the year with great momentum, delivering another quarter ahead of expectations with revenue up 9% and Adjusted EBITDA up 27%. Our strong finish to 2022 completes year two of the three-year plan we outlined in 2021, ahead of expectations. Our consistent performance is a testament to the differentiated value we deliver for our clients and their employees and the attractive market opportunity that Alight is uniquely positioned to meet. Our BPaaS offerings have accelerated our strategy by connecting the power of data with our products and capabilities across the spectrum of human capital solutions to redefine the future of employee well-being. This strategy has culminated with transformational wins for Alight with PwC, Shell, and the Federal Thrift. This quarter is no different.
We signed company-defining long-term agreements with GE and another Fortune 10 company where our Alight Worklife platform serves as the front door to connecting high-value content and driving employee engagement. With these new wins, we are accelerating our investments while delivering double-digit growth in 2023. Since going public, we have met or exceeded expectations each quarter. More specifically, in 2022, full-year total revenue increased 7% to $3.1 billion, driven by 9% growth in recurring revenue, which now represents approximately 84% of total revenue. On a total contract basis, the bookings of our technology-led BPaaS solutions grew nearly 45% to $871 million, well ahead of our $680 million-$700 million annual target.
BPaaS revenue for 2022 was $564 million, up 45% versus prior year, and now comprises 18% of total revenue, up from 13% in 2021. Adjusted EBITDA increased 6% to $659 million, even with $38 million of incremental investments in the year. Finally, we achieved Operating Cash Flow conversion of 43%, up from 19% in 2021. I'm incredibly proud of the way our team continues to deliver on our commitments while making meaningful progress on our transformation. We have focused in three key areas: products and technology, our commercial go-to-market, and how we deliver for clients. First, in product and technology, we launched Alight Worklife and migrated all of our clients onto our enterprise-wide employee experience platform. This is the foundation for engagement.
Worklife has become the single resource from daily well-being to complex care, and the Alight Worklife mobile app is key to digital engagement. In 2022, the app was downloaded 1.2 million times. Our monthly active users increased 170%, and through annual enrollment, we saw a 200% increase in digital benefit enrollments with higher overall client satisfaction. Our commercial go-to-market. We've built out our new logo team as well as value engineering and solution architects to accelerate our growth. Since 2021, we have won over 700 new logos, including Navistar, PwC, Sartorius, Shell, Genuine Parts, Siemens Energy, and AutoZone, in addition to our great Q4 wins. We are just shy of our 3-year BPaaS bookings TCV target by the end of year two. We are delivering for our clients.
As I said before, we believe Alight is in a category of 1 when it comes to bringing our platform and content approach combined with decades of services expertise. In 2022, we onboarded the Federal Thrift, the largest transaction of its kind with over 6 million participants. Through annual enrollment this past quarter, our digital CSAT or customer satisfaction was up 10 points while reducing overall live call volumes. A significant factor in how we staff and manage while delivering for our clients moving forward. The momentum we have heading into 2023 is because of these focus areas that bring together the power of Alight and is the reason we are winning these transformational new deals that support both the employer and the employee.
For the employee, Alight Worklife simplifies and improves the experience and value they're able to derive from the complex ecosystem across employers' benefits and well-being investments. For the employer, these solutions help them achieve a higher ROI while improving employee satisfaction and engagement. A real-life example we come across often is family planning. In the traditional model of support, an employee needs to navigate multiple siloed applications to get support with medical or adoption planning, insurance coverage options and plan selection, HSA, FSA, and 401(k) decisions, and leave management. This places tremendous mental stress on the employee trying to manage it all in what is supposed to be an exciting time of life.
With our integrated Alight Worklife platform, one status change for the employee triggers a proactive, data-driven, personalized message with support and options to address all dimensions of family planning, even surfacing new well-being programs and resources they typically wouldn't have known existed, all in a seamless experience. Another example of a high impact life event is divorce and the connection between employees' financial stress and anxiety driving a need for mental illness support. This employee may have multiple 401(k) loans, no remaining holiday time. Typically, a company will not be able to connect all the dots on this specific employee unless they have the data on them in one connected Alight Worklife platform. Just two examples of many, this is the value of Alight Worklife engagement platform.
As we enter 2023, year three of our transformation, I am more confident than ever that we are focused in the right areas. As I said earlier, we will continue to accelerate our investments, strengthening our competitive advantage, and further developing our differentiated solutions, which are winning in the market. With our strong bookings growth and highly recurring revenue model, we ended the year with over $2.9 billion of revenue under contract for 2023, the highest starting point for Alight ever. For context, $2.9 billion was our entire revenue in 2021. This gives us confidence that we can continue to improve growth, margin, and Operating Cash Flow in 2023 while accelerating our technology roadmap despite what we and others believe will be a tougher macroeconomic backdrop. For 2023, we will complete our three-year plan ahead of the original outlook.
We expect total revenue growth of 11%-12%, Adjusted EBITDA growth of 12%-14%, and Operating Cash Flow conversion of 45%-55%. Importantly, when you look at the quality of the mix of our business in 2023 following the strong execution of our transformation in prior years, we expect the higher value BPaaS revenue dollars to grow over 25% for the year. Let's dive more into 2023 so I can share some key areas of focus. We believe that in a recessionary environment, employers are under increased pressure to hold the line on spending. Proving out the ROI on benefits spend is even more critical. We believe that companies with truly differentiated well-being programs will be those that retain top talent during challenging times and ultimately position themselves well for long-term success.
To continue to execute on our strategy, we are accelerating our investments across three priorities. First is the Alight Worklife platform. Our 2023 product roadmap kicks off with the first release date this month, where we will expand access of Alight Worklife to all family members, which we believe will make it the first corporate platform of its kind. The expanded access will allow us to move the needle in an even more meaningful way on caring for the well-being of the entire family unit. Additionally, we are seeing higher engagement through our Alight Worklife AI engine. Recent entrants have validated the importance of AI being at the center of our platform strategy. Last year, our engagement channels, such as our intelligent virtual assistant, were up 20%, and we are seeing significantly higher conversion rates on campaigns leveraging AI for clients.
Finally, we are accelerating the move to the cloud on our back office infrastructure. This will enable us to better manage seasonal peaks and demand while improving the employee experience for our customers. Second, we are strengthening our operating model to showcase the power of One Alight. By shifting our content aligned care and services model to be more standardized and automated, we can leverage our global capabilities and improve the customer experience while reducing the cost to serve for all our clients. Third, we are evolving our BPaaS solutions across well-being, driving more differentiation and increasing our revenue potential as we address a bigger need for our clients. Today, we have over $1 billion of upside in our installed base alone.
As we work towards having 90% of our sales team certified on One Alight and launch the next phase of our well-being and engagement solutions, we will capitalize on our growing total addressable market. I'll turn the call to Katie to dive more into our financial performance and provide our outlook for the new year.
Thank you, Stephan, good afternoon, everyone. We continue to drive positive results across our business as we closed out the second year of our transformation. I'm pleased to share our fourth quarter results, capping a year in which we beat the high end of our guidance range for revenue and achieved the high end of our guidance range for Adjusted EBITDA. Let me start first with our commercial results. We continue to exceed expectations and see strong adoption of our BPaaS offerings, highlighted by company defining new logo wins with GE, Chipotle, and a Fortune 10 client during the fourth quarter. On a total contract basis, BPaaS bookings for the full year grew nearly 45% to $871 million, well ahead of our $680 million-$700 million target. This bookings growth translates into higher contracted revenue and accelerating overall revenue growth.
Our BPaaS revenue for 2022 grew nearly 45% to $564 million and comprised 18% of total revenue at year-end, up from 13% at the end of 2021. With our strong execution, we ended the year with over $2.9 billion of 2023 revenue under contract, our highest ever and over $800 million higher than our starting point in 2021. Across our consolidated results, we continue to see progress as our investments pay off and the increasing quality of the mix of our business shows. Full year total revenue increased 7.4% to $3.13 billion, driven by 8.6% growth in recurring revenue, which now represents approximately 84% of total revenue.
Adjusted EBITDA increased 6.1% to $659 million, with an Adjusted EBITDA margin of 21%, in line with prior year despite $38 million of incremental investments in the year. While we continued to accelerate our investments in Alight Worklife and large new deals, we delivered Operating Cash Flow of $286 million for the year, with a free cash flow conversion of 43%, significantly ahead of last year. Next, I'm going to discuss the performance of our two primary segments. First, for Employer Solutions. Fourth quarter revenue was up 10% with recurring revenue up 9.3%. Project revenue was up 17.4% in the quarter, driven by several larger annual enrollment projects that we discussed investing in during our November call.
Fourth quarter gross margin increased 190 basis points, benefiting from seasonality and the positive return from some of the investments earlier in the year. Fourth quarter Adjusted EBITDA increased 24.4% to $240 million, and Adjusted EBITDA margin expanded 330 basis points to 28.7%. Turning to our Professional Services segment, fourth quarter revenue was up 2.2% to $95 million, driven by 3% growth in recurring revenue. Importantly, we continue to see strength in our sales pipeline and backlog heading into 2023. Gross margin was up 380 basis points in the fourth quarter to 25.3% as several larger deals went live. Fourth quarter Adjusted EBITDA was $1 million.
In addition to our focus areas driving transformation through technology and commercial, we know that connecting high-value content to our platform has the power to change the way that people interact with HR, their benefits, and their employer on some of the most important life decisions. To that end, in December, we closed on the Reed Group transaction for a net consideration of $87 million. This is an important bolt-on acquisition in leave management solutions that brings critical content to build upon Alight's strategy to support employees and their dependents from hire through retire. Turning to our balance sheet, our year-end cash and cash equivalents balance was $250 million, and our total debt was $2.8 billion.
Given the interest rate environment, we believe we are well positioned given our hedging strategy with over 70% of our debt portfolio fixed through 2024 and 50% fixed for 2025. In addition, we have no near term debt maturities of significant size until 2025. We did not make any share repurchases in the 4th quarter, but will continue to opportunistically evaluate stock buybacks against other attractive opportunities we have for investing in the business organically and inorganically through disciplined M&A. Let me provide you some color on our cash flow performance and our outlook going forward. In 2022, we invested an incremental $38 million in technology, commercial, and to support significant new logo wins, including the Federal Thrift. We made progress on improving our cash flow from operations by generating operating leverage on the investments we made and improving working capital metrics.
For the 12 months ended in December, we generated $286 million in Operating Cash Flow versus $115 million over the same period last year. Turning to our outlook, as Stephan highlighted, we continue to see the momentum building after year two of our transformation. We believe the mission-critical products we provide and our strong client relationships position us well to withstand economic challenges. A few stats worth keeping in mind. We have approximately 84% annual recurring revenue. We have 98% average annual revenue retention, up from 97% in 2021. Our average contract lengths are 3-5 years, and we serve a diverse client base, including approximately 70% of the Fortune 100.
With that, I'd like to turn to our 2023 outlook for the year, which is in line with our stated goals of improving revenue growth, margin expansion, higher Operating Cash Flow conversion. Our outlook is revenue of $3.47 billion-$3.51 billion or growth of 11%-12%. Adjusted EBITDA of $735 million-$750 million, or growth of 12%-14% with EBITDA margin expansion of 15-50 basis points, even with $50 million of investments, which I will discuss shortly. Adjusted EPS of $0.62-$0.67 or growth of 9%-18%. BPaaS TCV bookings of $900 million-$1 billion. An Operating Cash Flow conversion rate of 45%-55%, up from 43% in 2022. Let me share the key factors driving our outlook.
First, revenue growth is driven from new deals going live, including large Alight BPaaS wins. The full year effect of the Federal Thrift contract and the addition of ReedGroup. Second, given the commercial successes of the first 2 years of our transformation, we're continuing our investments in Worklife and our go-to-market strategy, as well as implementing the large new clients we mentioned earlier. We expect the spend tied to these initiatives to be approximately $50 million. As we enter the next phase of our transformation to drive margin expansion and higher cash flow, we're announcing a 2-year restructuring program in order to accelerate our back-office infrastructure into the cloud and transform our operating model with how we deliver for clients every day, leveraging technology and ultimately reducing our cost to serve. Total costs are estimated at $140 million for the program.
We did more towards year one with estimated savings over $100 million annually, making for a very strong payback over time. Even with this spend, we will increase our cash flow conversion each year and drive Employer Solutions gross margin expansion of 50 to 100 basis points in 2023, and 100 to 150 basis points in 2024. Finally, we are cautiously optimistic on impacts from the macro environment in 2023 and its potential impact on our commercial pipeline and project revenue. We expect the seasonality profile in 2023 will be largely consistent with 2022. As mentioned previously, we're hosting our Investor Day at the New York Stock Exchange on the afternoon of May 15th and look forward to sharing key updates and further details on the next phase of our ongoing transformation.
In closing, we are ahead of our initial plans with great momentum and are continuing to invest in our growth as we look to 2023 and beyond. We are confident that our transformation journey and dual-pronged engagement platform and content strategy will continue to succeed and position us as a leader in our industry. 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'll now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question is from Kyle Peterson with Needham & Company. Please proceed with your question.
Thanks for taking the questions. You know, wanted to dive a little bit into the restructuring program that you guys announced. Seems like you have good amount of savings and quite a bit of wood to chop. How should we be thinking about the cadence of these cost savings and how much is in that 23 outlook versus how much falls into 24?
Yeah. Kyle, thanks for the question. You'll see too, we did put out in the 8-K, you'll see some ranges on costs, which I think will be helpful for you as well. We said about two-thirds of the cost will hit in 2023, intentionally, as we accelerate the technology transformation, particularly to serve some of these big new client wins. From a margin perspective, as you think about the savings around that's factored into our guidance for 2023. I think importantly, that's why I mentioned some of the stats in 2024. You'll start to see improving Operating Cash Flow and a faster acceleration on margin improvement in 2024.
Okay. That's really helpful. And just a quick follow-up in the Professional Services outlook seems like that's coming in a bit stronger than expected. I know you guys kinda mentioned the better pipeline heading into 2023. Have you guys seen any pressure or impact from kinda some of the macro uncertainty or has it kinda been guns blazing and full speed ahead on the services front?
Guns blazing.
Yeah. A little bit of both. I'd say you're right, the team has done a great job in that business, really driving the strongest backlog we've had heading into 2023. I think some of that ties into some of the One Alight deals we're winning, where we can play a larger role from a Professional Services perspective as well. What I would say, Kyle, we've talked about it on some of the earlier calls as well. The one area where we have seen some slowdown is more on the international front, as we see a little bit of slowdown there. So far, we've been able to navigate through that.
A gain, as I look at the pipeline heading into 2023, it's still very strong.
All right. That's great color. Thanks, guys. Nice quarter.
Thank you.
Yeah.
Thank you. Our next question is from Kevin McVeigh with Credit Suisse. Please proceed with your question.
Great. Thanks so much. Not only a nice quarter, but really, really nice outlook. Congrats on that.
Thank you.
Thanks, Kevin.
Really well done. Hey, I don't know, either Stephan or Katie, can you deconstruct the revenue? Clearly you're seeing meaningful uptick in the revenue, 11%-12% up from the original 6%-7% when you set the 2022. Maybe just some of the detail on that, Katie, maybe pricing obviously the bookings stood out as well, maybe just pricing versus. Is there any macro impact? It's just really, really terrific outcome particularly given sometimes you see some client hesitancy to switch given macro uncertainty, which it feels like it's anything but that. Maybe just try to understand that a little bit. If there's a way to maybe think about what % BPaaS should be as a % of revenue in 2023.
Yeah, sure, Kevin. Maybe let me start and then Katie can give some more color to it. I think the one sentence that I articulated in the discussion earlier is $2.9 billion of backlog, which is the same that we had as revenue in total in 2021. It's that flight to quality of everything I've been talking about the last few years, building out more ARR subscription-based business, longer term contracts, higher value dollars. As you know, the gift that keeps giving is if you get these kinds of deals that are the ARR type deals, you can really sell and perform or rely on project-based type one-time business just becomes less and less as part of our recipe moving forward.
In 2023, we still have a big reliance on a lot of that project work, as you just heard Katie say a few minutes ago our backlog is the strongest in the one-time project-based business. We see resurgence in that. The focus really has been, to your question the last couple of years, is building out that strong recurring revenue stream. BPaaS is a big part of that. You saw 40+% growth on that last year, 25% growth on that baseline this year, 13%-20+% in 2023 when you think about it. That's a pretty big needle mover.
As a % of revenue.
As a % of revenue.
Yeah.
Sorry. Yeah.
Yeah.
As a % of revenue. Those are the big contributors to the consistent growth that we're seeing right now. What would you add, Katie?
No, I think that's well said. It's the right question, Kevin. I think, people have been waiting to see, can you really accelerate growth in this business? I think we're doing it in the right way, as Stephan said, through recurring subscription-based revenue that is stable, sticky, brings these One Alight deals together where we can help transform our clients, honestly, that helps our financial profile as well. You know, moving to 20% of our revenue in BPaaS in 23, I think is a big milestone for us.
It's big, and obviously off a higher base as well. Hey, Stephan, I think you mentioned like potential upwards of $1 billion of revenue off the existing installed base. Any sense, and it may be hard, but just how does that come in? Is that something that they see the success of the app, and then is that kind of additional modules? Is that upsell of the type of packages you're taking it? Just 'cause obviously a really big number even relative to kinda the current run rate of the revenue.
That's right. I f you think about the platform approach about what Worklife is, it is that front door. I f you think of the last two big wins I announced, GE and this large Fortune 10 company that'll allow us to say their name publicly once they announce it to their own employees, shortly. T hose are just transformational deals that take a lot of content plus third-party content and relegate it into our Worklife platform. The economics are just a much larger footprint. When you think about GE and this the size of content that we're touching from the HR side of the house, the benefits side of the house, it is a broad, sweeping content layer.
We were able to convince them to give us all that content because of the Worklife approach and the platform approach. As I said this for the last year, and you can see it in 2023 even more heightened. I did about, what? 20-25 client calls in the latter part into November, December of last year. Every single client on the HR side is looking to consolidate and simplify and take cost out. They are so fatigued with 30, 40, 50 and upwards, I said of 80 to 90 point solutions. They want 1 front door, 1 platform to integrate the data.
They're naturally coming to us to say, "You be the aggregator, you be the integrator. You have the strong service delivery capability." We've won some really good business with our partner, Workday, to help drive some consolidation of some of the old PeopleSoft type systems we've seen. All that is within our purview and our capability to connect the dots across a very vast siloed, not only on the application layer, but the data side into one common platform approach. That 's why I want to give you, if you look at the deck we sent out the family planning scenario, the starting a family one.
If you just look at that slide in our deck, I wanted to highlight that when you look at the disparate systems that are needed today, across multiple vendors, and you're able to come to one place with Alight Worklife, that's a powerful story that is really resonating in more of a recessionary type environment with our clients right now.
Makes a lot of sense. Congratulations again.
Thank you.
Thank you.
Thank you. Our next question is from Scott Schoenhaus with KeyBank. Please proceed with your question.
Hi, team. Congrats on the strong quarter and ongoing execution. I wanted to.
Thanks, Scott.
On the 22. Yeah. I wanted to dig in on the 23 revenue guidance. Your guidance range calls for 11%-12% growth, and just wanted to see if you could provide color on the breakout between Employer Solutions growth and Professional Services since you did note the project revenue rebounding with higher starting backlog on the Professional Services side.
Thanks for the question, Scott. You're right. We didn't give formal guidance broken down at those levels. What I'd say is Both Employer Solutions and Professional Services are going to see accelerating growth into 2023. We are expecting a nice rebound in Professional Services, both top and bottom line, as we see that backlog now really start to materialize into revenue.
Okay, that's helpful. Thanks, Katie. Then on the margin side, obviously, you've explained some of the investments, whether it be the back office or the investments in the Alight Worklife on the ongoing ramp up of new contracts. In this environment, are you also able to take up some pricing on contract renewals, as you demonstrate ROI? I know that's been always a pushback, and I just want to talk about the current environment, and how you're thinking about, renewals with contracts. Thanks.
Yeah. Thanks, Scott. Listen, it's a really important question. We're gonna spend more time on it too at our upcoming Analyst Day. We added a slide. Stephan mentioned the deck we posted to our earnings website today. There's a slide in there, slide 11, that starts to show we need to think about price differently. Price in the context of value for our customers is how we will, obviously be able to drive that. Yes, there's incremental solutions, and then there's incremental support in terms of how we help our clients and drive those outcomes.
I think that page is a good explanation of how do you actually think about the underlying value at all levels of the ecosystem, starting with the platform all the way down to the services we can provide. When you do get to a renewal, it's less about just price on existing. It's how do you actually solve a bigger need for that client, where you're adding in new solutions and you're able to drive more value for us and for them.
W e're aggressively rising above the transaction pricing model and getting more, as Katie just said, into the outcomes-based pricing. You need platform to do that. You need analytics, you need AI to help drive better decisions and better outcomes. That's again back to that starting a family or the divorce example I gave. Those are two really basic and simple that everybody can understand how complicated those worlds are. When you see how we used to do it to now how we do it through Worklife, it is a very different scenario that's much more complete, and that's worth a different economic profile in terms of helping clients take cost out and getting a different economic value for platform versus just transaction pricing.
Thanks so much for all that color.
Is that helpful, Scott?
congrats again.
Yep.
Yes, very much.
Yeah.
Great. Thanks.
Thank you. Our next question is from Tien-Tsin Huang with J.P. Morgan. Please proceed with your question.
Hi. Good afternoon. I wanted to ask on the on the revenue outlook as well. I heard you Katie, on the accelerating revenue growth for both segments, but is there timing that we need to pay attention to in terms of clients, converting to revenue? I don't know if that's front half, back half. Did you give the acquired revenue as well? Just trying to think about how much of it is new deal dependent versus organic. Thanks.
Yeah. Thanks, Tien-Tsin. In terms of the phasing of revenue, similar to last year, it will ramp, but not to the extent we saw last year. Remember, we didn't have, for instance, some of our larger contracts went live in the back half of last year. Now you have a more even profile. You won't see a ton of volatility. You do see, like Professional Services, that will again still have that ramp into the fourth quarter, just as you see more of those deals going live. In terms of the acquisition, what I'd say is, it didn't have a material impact on our 22 results. W e would've exceeded our expectations even without the acquisition.
We're accelerating top line margin and cash flow even without the acquisition, which I think is an important component to the story here.
Gotcha. Then just on my follow-up, just the two-year transformation program? Any risk here in terms of client delivery as you go through the transformation, shift to the cloud, standardization, that kind of thing? It makes sense in terms of how you described it, but just the risk profile of initiating the change. It sounds like there's gonna be some cash savings as well. Did you quantify the cash or capital savings from the deal? Thanks. From the program.
Tien-Tsin, maybe I'll address the risk piece. If you remember last year, I said there's always defining moments throughout the year, and one of them was getting Worklife adopted by all our clients. Industrializing, getting away from custom, standardizing all our clients, and that was accomplished in May. That has really set the floor, the foundation for lower risk because we're no longer dependent upon the whims of the client wanting to implement individual customized solutions. That was number one. Number two, as I said to you when we were together last time, which is how many companies would you put on the list that can implement a massive program for Thrift, the federal government at that size and scale? The names typically...
O riginally you wouldn't have put us in there, and we did that, successfully on time. and it's a tremendously successful program today. Given the backdrop of industrialized, standardized platform as a starting point for implementing these big end-to-end solutions, and then just our scale of delivery, capability, program management, staffing. Al l this stuff is still existing within Alight. I feel really good 'cause these two new wins are gonna contribute for us multiple points of growth for us in the future years. They're not big contributors at all in 23 to revenue 'cause we have to do, like with Thrift, big investments this year.
We feel really good about the programs, on these new mega projects that we have.
Yeah, I.
Very good.
I think that's well said. I think we've navigated the risk well. In terms of cash savings, Tien-Tsin, we did say it will result in $100 million of savings. I mean, that is cash. I think also another component of that is CapEx. Being able to accelerate this year into next year that will also then result in lower CapEx as a % of revenue after that as well.
Got it. If you don't mind me asking a third one, just on the $50 million-
No, of course.
Yeah, thank you. The $50 million investments versus the $38 that we saw in 2022, how much of that is incremental Worklife investments versus the new deal implementation? I'm assuming once you get through this transformation program, we should see less incremental investments as it relates to new deal implementation. Is that the byproduct of the program? Just to clarify. Thank you. That's all I had.
Yeah, I think that's a good way to look at it. I almost don't separate the two between Worklife and those specific clients because in essence, we're accelerating a lot of the technology to support those clients and others. It' s almost innovating with them. Remember, on some of those larger clients, we do defer some of those costs. Some of that is deferred. You have the upfront technology spend that we're obviously building out the platform and analytics capability to serve them. I think of that more broadly across our client base. We just need to accelerate it obviously to bring these key deals on.
I think that that last sentence Katie just said, Tien-Tsin, which is if it wasn't for these 2 deals, we could have streamlined and taken more time over the next 2 years. That's why we want to call it the $50 million. These 2 massive deals really help accelerate our platform playbook. We need the functionality and the features to go live with those 2 key clients. So it's all a good thing, but it accelerates it into a much shorter timeframe than we had originally planned, so.
Sorry, I'm just gonna say one last piece on that, Tien-Tsin, which I think is important. That's why we've been really thoughtful, though, and we're still doing this while being able to improve margin and Operating Cash Flow. I think that's the context to make sure we're doing this in a disciplined way.
As well as, I would think, benefit the install base with the improvements as well.
Correct.
I think I understand.
Right.
Yeah.
That's right.
Thank you.
Yeah, thank you.
Thank you.
Thank you. Our next question is from Heather Balsky with Bank of America. Please proceed with your question.
Hi, this is Emily Marzo on for Heather Balsky. Thank you for taking my question. Congrats first on the quarter. Second,
Similarly
... you previously laid out a long-term 30% EBITDA target. With this incremental spend and these new BPaaS client wins, how should we be thinking about that? Is that still the long-term target?
Absolutely. It's absolutely the long-term target. I think, that's why we've tried to be more intentional about showing the path forward and why we're making some of these investments, why we're doing the restructuring program. Emily, I mentioned too. There's a good slide in the deck, it's slide 19, that starts to show over the next couple of years, how can you measure us against that margin improvement? We're gonna continue to talk about that. I know there have been a number of questions on that front, but the whole intent of the investments we're making is obviously to drive a better outcome financially, but more importantly, to better serve our clients.
To have a roadmap we can move faster on from a technology standpoint to serve them better, to simplify the experience, to make it a better process for their employees. That's absolutely still the intent.
Okay, great. Just as a follow-up, how should we be thinking about your capital allocation strategy over the next few years? You have the repurchase plan, you have a successful acquisition and this investment program. How should we be thinking about that?
You know what? What I would say is our capital allocation priorities are front and center. W e've spent a lot of time on them, and we look at them every day. It has to drive a return on capital that makes sense for us and our clients. Our priority has been and continues to be investment into the business, organically and inorganically. What we've said is, if we don't see the right return on those opportunities and we can be opportunistic around buyback, that will be where we go next. So, in the fourth quarter, we didn't end up doing buyback, as I mentioned, because we found the right inorganic opportunity.
We will always be evaluating those against each other from a return on capital perspective.
Okay. Thank you. Thanks for taking the question.
Thanks, Emily.
Thanks, Emily.
Thank you. There are no further questions at this time. I'd like to hand the floor back over to Stephan Scholl for closing comments.
Great. Thanks, everybody, for joining us today. Really appreciate your time. O bviously, hopefully you can see we're executing on our strategy, expanding relationships with new and current clients, and delivering on our commitments. We look forward to seeing many of you in May at our Investor Day in New York City. Thank you and all the best.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.