Welcome everyone. Thanks for attending day two of our healthcare forum. I'm Scott Schoenhaus, the Healthcare Tech Analyst here at KeyBank. Pleased to have Rohit Verma, CEO of Alight. Rohit's been on the job since January first. Maybe Rohit, I'll give you some time to introduce yourself, give us some background, and then we'll jump into the-
Sure.
Q&A.
Sure. So, Rohit Verma, as Scott mentioned, CEO. Thank you, Scott, for hosting me, and excited to be here. Been with the company now, I guess 75 days. Before that I was the CEO for Crawford & Company, which is the largest public company doing claims globally. I was the CEO there for 6 years, and before that I was with Zurich Insurance. Had multiple roles ranging from strategy, finance, underwriting, distribution, and then general management. Prior to that I was with McKinsey in consulting. That's sort of a quick background. Always been in services space, always been in space where, which was intermediated, always been in space where it was a B2B or a B2B2C kind of a setup.
Great. Rohit, can you discuss, you know, the strategic initiatives, you know, we've seen over the last couple of years with previous CEOs, you know, a trying change to stabilize the business. Maybe talk about what your strategic initiatives are to bring back stabilization first, more importantly, and then bring back growth.
Growth. Yeah.
to the platform.
Yeah. Obviously, we believe that there is significant opportunity for us to grow. The challenge that we've had has been in what I call execution. As I've spent time with clients, and I think at this point I've spent probably, you know, 50 to 60 clients that I've gone and met with, and almost consistently the feedback has been that, "Look, we wanna continue with Alight. We don't wanna move business from Alight. Moving the business from Alight is very disruptive." You know, our average client is about 15 years with us, so we've got, you know, pretty big, pretty good sort of tenure of clients.
The consistent feedback has been, "We wanna see a higher level of customer excellence and a higher level of service excellence." Those are the two sort of consistent messages that come through. As a result of that, the operating priorities, which I think I mentioned on the earnings call as well, for me are. I'm pretty clear-eyed about them. First and foremost being, you know, driving service excellence. Second being driving innovation in our products, which creates a different level of customer excellence. And then the third being, you know, building partnerships that building relationships that create enduring partnerships, right? Those are the three key initiatives, for me, that we're pushing.
Great. When we think about renewals, you know, that's typically been an area of weakness over the last two years prior to your
Mm-hmm
prior to your start at the company. How are you tackling renewal season in this next upcoming renewal selling season?
The biggest thing is spending time with clients, right? If you think about our book of business, we have close to 2,000 clients. There are about 600 clients that make up 80%-90% of the revenue, right? There is you know, quite a lot of concentration from that standpoint, although 600 is a pretty big base. We need to make sure that we are providing coverage to all 600 of those clients in a forum that is allowing us to really understand whether the clients are feeling that they're being serviced well or they're not being serviced well. They're getting that level of transparency before the actual renewal starts.
One of the things that we did was I had the team speak with every single client, call every single client that we have in a very short period of time, and kinda classify them into red, yellow, and green, and then make sure that our action plan was consistent with what we had to do in terms of the feedback that we were hearing from our client base. That's why I said that, you know, meeting with our clients, it's made me very clear-eyed about the initiatives that we need to have. Everything that we're doing is geared towards driving that client success and client satisfaction through customer excellence and service excellence.
In that triage-based model, if they were in the red bucket, would you say the vast overwhelming was on service quality? Was it a mixture of tech?
It's a mix of tech and s-
It's a mix.
It's a mix. I wouldn't say it's one or the other. You know, at the end of the day, different organizations have different priorities. There are parts of the organization that are saying, "Look, we are trying to transform ourselves, and part of that transformation is making sure that we're giving the greatest experience to our customers. But if our employees don't feel that they're getting that same level of customer experience, then it's hard for them to deliver that for our clients' customers." For them, as an example, the priority is, "Hey, get the customer excellence piece right," right?
Get the user experience piece right." There are other clients who are saying, "Look, we wanna drive operational excellence for our, for our customers, and if we feel that for our internal customers, which is our employees, we're not driving that, then it becomes hard for us to drive that initiative staying outside when they feel like, well, any service that they're being provided to is not delivering on that operational excellence." That's the reason why I would say that it's a combination. It's not one or the other.
As we think about AI, you've mentioned deploying AI across your platform. What products do you expect to roll out in terms of AI over the next 12-24 months?
I think you have to think about AI in three ways, right? One is, what are we doing with AI for our sort of back office kind of work, right? Which is, I mean, we have a lot of complexity that we handle for our clients, right? I always say that we offer our clients infinite dimensions of flexibility, and when we offer that kind of flexibility, because of the client base that we have, it creates backend complexity for us, right? The iPhone is easy to use, but it's pretty complicated to make. What we're looking at is how do we use AI to reduce that complication and complexity with that AI approach? That's on the back-end side.
We have AI, which is truly on the front-end side, where let's say that someone's trying to start a family and you know, you talked about you cover a company called Progyny, and that is you know, one of the providers. How do we make sure that from an AI perspective, instead of them knowing that Progyny is a benefit that we have, right? Us sort of navigating them to that in a seamless experience. It's less like we're not trying to anticipate what they're doing, we're not trying to react to what they're doing, we're actually navigating them to the right to what they need to do. Or for that matter, let's say that we say to someone that we understand they've just enrolled a dependent, right? And a new newborn.
What we would look at that, and we would say, "You've just put a newborn in." We typically see that people who have a newborn, they take, you know, 2% of their paycheck, and they put into their dependent care FSA account because that helps them get tax advantage on childcare. Do you want me to do that for you? If they say yes, then we can actually go in, actually make the update instead of them picking up the phone, calling a service center agent or logging into their payroll system and doing that. That's sort of, you know, second kind of use of AI. The third kind of use of AI is really what I'm most excited about, which is the aggregation of the ecosystem. Like, basically who we are, we are the nerve center for benefits management, right?
We know when an employee has joined, we know when an employee has quit, we know when an employee is about to retire, we know when an employee got married, we know when an employee got a baby. We have all that. How can we bring the ecosystem together? Today, the biggest complaint that I hear from benefit managers and administrators is that we have all these benefits that we provide, but we have underutilization of that benefit because our people don't even know that we provide that benefit. Again, it's because most people don't remember what benefits they have until they actually need it, and that's the time when they start looking for it. If we can be in that situation where they don't have to look for it, right?
We are actually bringing the ecosystem to them in a way that is already curated. I think that's where AI can play a pretty big role, and I'm super excited about that. As we think about building that agentic layer that I'm talking about, it'll allow us to very seamlessly integrate the ecosystem of benefits, and that's what is gonna help us create really differentiated outcomes that I don't believe anybody else can.
In your conversations with customers, are they coming to you trying to test out the AI to do this internally themselves, right? That's the great fear is that they, you know, use Anthropic and Claude to develop their own software applications.
Yeah. Look, I've heard this multiple times now, and no, I can tell you in all my client meetings, they're not, right. I mean, you think about the largest airlines in America that are our customers, or you think about the largest, you know, package and logistics company that is our customer, or you think about the largest aircraft manufacturer that is our customer, or the largest telecom provider who's our customer. I mean, they're not sitting there trying to think about, "How do I take my 100,000 workforce and have an AI agent doing that?" If we were serving a client base which was on average 1,000 employees, I think you could imagine that.
When we serve clients of that size, magnitude, and complexity that have unions and that have, you know, grandfather plans, that have pension and 401(k), and that have an employee base that, with a very diverse demographic and very diverse income, the benefits that are provided are very different. To think that you've got one AI agent that someone codes and builds, and that can just do that is. Look, I'm working with clients that they're telling me that for them to make a change to their HCM, ERP system is a real problem, and they cannot get that prioritized inside the company.
We have to make changes on our end so that when we get a feed, which we know has errors in it, that we have to fix those errors manually because they don't have the attention of their IT organization to make those changes. It's hard for me. These are big companies. I'm talking like, you know, I'm not talking middle market or small to mid-sized companies. These are large, you know, multi-billion dollar companies with, you know, tens of thousands of employees. It's just hard to imagine that.
Rohit, how are you thinking about your balance sheet? You know, part of this story was you had debt, you were leveraged-
Mm-hmm.
You were going to expand margins, pay down debt with the cash generated.
Yeah.
Are we still on track for that? Obviously, if your margin profile deteriorates, that means your EBITDA to offset your leverage ratio.
Yep.
Also goes out of whack.
Yeah.
Walk us through your capital allocation program here?
Yep.
how you're thinking about that.
You know, that's a great question, right? First and foremost, the main reason why I wanted to cancel dividend is that I felt that there are multiple capital allocations that should be capital allocation options that should be available to us as board and management, and we had sort of locked ourselves or shackled ourselves into a TRA and a dividend structure, right? Those were, like, locked in. Now that we had the flexibility to not have the TRA payment, at least for the next two years, that means that we were sort of unshackled on that, and I wanted to use the same time to rip the Band-Aid on the dividend as well.
That alone, you know, we were doing about $84 million in dividend, anywhere from $60 million-$70 million on a run rate basis on TRA. That alone gives us another $145 million of cash to be able to put in and deploy that any way that we want. We believe that it's a combination of deleveraging and buyback, which is what I said on the call. I'm not really fussed about our liquidity, only because we had $270 million in our balance sheet that we disclosed. We have $330 million of a revolver that is available to us. We're still generating significant cash. Our cash velocity is actually pretty good. We get, you know, monthly cash in. We don't have a big working capital need.
Our maturity is still two and a half years away. I still feel that, right, we are taking the right actions that we need to take, and we're on the right track. I just wanna have all of the capital allocations opportunities available to us, including investing back in the company, M&A. I would say the focus in the near term will be deleveraging and buybacks.
On the M&A front, what areas are, you know, generally speaking, you don't have to go into specific companies?
You know, it's more opportunistic M&A. It's not big. If we look at it, I mean, we are always looking at a pipeline of M&A, but most of it is tuck-ins that give us certain capability that we can take to our clients and expand. You know, what we bring to the table is we're seeing some interesting assets in the market right now that have some challenges because of what's happened in the macro market. As a result of that, their ability to continue to fund themselves is limited. If you know, we brought them on our platform, that could give us the ability to scale them almost instantaneously with a larger client base.
That's the lens that we're looking at as opposed to, you know, trying to make a footprint moving acquisition.
Rohit, we have two questions that just came in from the audience. I'm just gonna read it.
Mm-hmm. Sure.
First one. Rohit, can you confirm if your BPaaS offering allows for co-sourcing, i.e., where a customer wants to use its own internal call center staff instead of your own?
Yes, we can.
Okay, great.
Yeah.
I guess that's the reason that this is being asked. It's been cited for competition purposes, a lot of competition around this area. Okay. Second question: Did your divested Strada business, that's for people that are new to the story, that's the payroll business.
Yep
... that you guys, sold off, what was it, two years ago now? I cannot even keep track.
Yeah, almost two years ago.
Did the divested Strada business meet the 2025 performance obligation on the $150 million seller note?
We don't believe that they are close to that from our perspective.
Okay. Remind us what the implications are that if that's the case.
You know, honestly, I don't recall that. I'll probably have to go back and speak with Greg about it. As you know, this was a transaction done well before my time, so I don't really recall. I did look at the note, and it didn't seem like they were gonna come good on the note based on where they were.
I guess taking a step back here, we're right-sizing the ship. You're having all hands on deck.
Mm-hmm.
You've hired, right?
Yep
We've seen in the last quarter you've done a great job in hiring of a team to be more focused on service. You know, it's interesting, when I take a step back looking at this company, I think there was a focus to get away from service.
Correct
to be more of a tech platform.
Correct
That was the reason why we're driving margin expansion.
Mm-hmm.
At the same time, it was killing revenues.
That is correct.
I think the idea here is that you're trying to right-size for stabilization first and foremost.
Mm-hmm.
Maybe talk about what's embedded in your guidance, Rohit, and like what the worst case scenario and the best case scenario and if you could like what would allow you to come in a higher than the range?
Yeah. A couple of things, right? Thank you on noticing on the hiring. We have made a lot of hires, and I continue to do that. We are in the final phases of making announcement on our CFO, that should be here imminent, coming out imminently. We have hired someone to do transformation of our delivery offering, which is essentially our back office, right? To transform our back office. That includes the call center, and then some of the file processing. We're insourcing work that we had outsourced to a provider in India that is being insourced back. There's a whole bunch of things that we're doing from a service perspective. I do believe that, you know, going trying to be a software company was not bad strategy.
It was the execution, right? It was kind of changing the DNA of the company as opposed to creating a separate company and kind of growing that and then subsuming the service as part of that. Which is a classic innovator's dilemma approach to handling something like this. Look, we saw a 27% drop in our project revenue in Q4, which had quite a lot of volatility in it all through the year. It's the part of revenue that is probably the only part which is pretty significantly difficult to predict. I would say that's an element, right? If that comes in better than expectations, that there's a possibility that you know that high single digit gap that I talked about, right?
We narrow some of that down. There are some point solutions that have the potential to move things within a year as opposed to the multi-year thing that we see with our typical repeatable revenue. Those are the kind of things that can change. Look, like I said before, when I had issued the guidance, I was 30 days, 35 days into the company and still trying to better understand the patterns. We'll be in a much better position to have a more educated conversation at the Q1 earnings call.
That's some good color. Yeah, it must be very difficult from your position coming on January first to try to provide some sort of full year guidance. Hopefully, you know, we've set the bar, and we can just execute. Well, I think that does it, Rohit. There's no other questions from the audience. You know, best of luck. This is an uphill challenge.
Thank you.
We're all rooting for you.
Thank you.
Thank you so much for doing this fireside chat.
Thank you so much. Thank you for hosting us, and thank you everybody for joining. I look forward to connecting. Bye.