Q4 2023 Alight Inc Earnings Call
Participants
Peter Heckmann; Analyst; D.A. Davidson & Company.
Kevin McVeigh; Analyst; UBS Securities LLC
Kyle Peterson; Analyst; Needham & Company, LLC
Tien-Tsin Huang; Analyst; J.P. Morgan Securities LLC
Peter Christiansen; Analyst; Citigroup Inc.
Heather Balsky; Analyst; BofA Securities, Inc.
Joseph Vafi; Analyst; Canaccord Genuity
Presentation
Operator
My name is Ryan and I will be your conference operator today. Welcome to Alight Fourth Quarter and Full Year 2023 earnings conference call. At this time, all parties are in listen-only mode as a reminder, today's call is being recorded and a replay of the call will be available in 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 morning, and thank you for joining us. Earlier today the Company issued a press release with Fourth Quarter and Full Year 2023 Results. A copy of the release can be found in the Investor Relations section of the Company's website at investor dot aligntech.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 during this conference call, the Company will be presenting certain 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, Katie Rooney, Global CFO and COO, and Jeremy Heaton, Operating CFO. After their prepared remarks, we will open the call up for questions. I will now hand the call over to Stephan.
Thanks, Jeremy, and good morning. Today marks the end of our initial three-year plan, our aggressive technology and product transformation, delivering a first-of-its-kind integrated HR platform capability that supports employees staying healthy and financially secure. We have upgraded all of our clients from over 6,000 customer solutions to a common SaaS-based platform and taking over [200 million] interactions a year out of a private data center and into the cloud. Because of this, we were able to deliver a better experience for 10 million people by tripling the mobile usage through annual enrollment.
This capability did not exist 18 months ago within the platform, we have built over 1,000 AI content modules, which have taken our engagement rates from 10% to over 50%. This means employees are engaging with us on average 22 times per year and because of this, our AI decision support is driving $500 in savings on average per participant.
This is the foundation for the future that has allowed us to add millions of people while reducing calls per participant by 20% and still achieving record customer satisfaction. All attributable to our product enhancements and better AI capabilities is these investments that have allowed us to enter 2024 with a record backlog of revenue under contract of $3 billion, which is up $900 million from three years ago.
This is being driven by our high growth. The past solutions that have delivered over $2.2 billion of cumulative bookings and included wins such as Nielsen IQ master brand and Siemens Healthineers to name a few this year. It has also generated a 30% fee-based revenue kegger over our three-year plan.
Our strategy has enabled a light to move from a low single digit grower to mid-single digits. And we've added hundreds of millions of dollars in profit while increasing our operating cash flow conversion from 19% in 2021 to 52% in 2023. It is this track record that gives us the confidence to reaffirm our midterm financial outlook.
In fact, we believe there are opportunities to advance our platform and well-being strategy, we have hired financial advisors who have been conducting a strategic portfolio review to accelerate our midterm financial and strategic objectives of becoming a higher margin and more recurring revenue business. And doing this review, we believe we can move even faster to deliver value for our clients, colleagues and shareholders. As you can see, while we're excited about the long term, we also have to deliver in the short term.
In late December, we experienced an isolated impact from a significant retiree health client, which resulted in revenue growth of 9% for the year short of our expectations. Mitigation efforts in this business and renewal activity of Medicare plans did not offset this impact and represented the majority of our revenue shortfall for the quarter and for the year.
This is a specific nonrecurring event. Absent the retiree business highlights, annual growth was nearly 11% for the quarter. Both adjusted gross margin and adjusted EBITDA margins expanded over 200 basis points with double digit adjusted EBITDA growth.
We also grew the past revenues nearly 30%. Sales momentum continued with the best bookings of $261 million. And combined with 3Q, the second half of 2023 finished ahead of the comparable period in 2022, even without the benefit of an extraordinary new win like GE.
Turning to our 2024 financial outlook, we expect BPS revenue growth of over 15% and adjusted EBITDA growth between 8% and 10%. Revenue growth of 4% to 6% reflects the impact from the timing of our 2023 bookings, the exit of the hosted business and the year-over-year comparative federal thrift as Katy and Jeremy will discuss with our record backlog and strong pipeline.
We are on track to achieve our midterm revenue growth guidance of 6% to 8%. All told, I'm incredibly proud of the way our team has executed on our transformation, not just in 2023, but over the past few years to become the leader in this space it took us 40 years to build the infrastructure to support the most complex organizations globally.
And in less than four years, we have extended our leadership position by building a cloud-based platform with the most comprehensive collection of content to transform the HR function for clients, the output as a one-stop shop that helps them bend the cost curve and deliver a better employee experience with enhanced productivity.
Let me give an example of a client where we're helping solve for costs, experience and productivity. Siemens has been a light client since 1996 and is focused on the health and well-being of its employees. Siemens shows a light to provide high-touch, tech-enabled health navigation services to its employees, helping employers manage and navigate the complexity of the health care ecosystem is an opportunity to not only improve health outcomes but to improve improve employee satisfaction upon rollout employees and eligible dependents may choose with confidence, top doctors and facilities or to receive expert medical opinions, surgery decision support and even medical bill review all while optimizing the value of Siemens benefits program.
I've spoken at length about driving outcomes for companies and their people and believe that the only way to get the results that clients seek is through engaging employees at an enterprise platform level as the central hub, the Alight work like platform is leveraging AI based technology to drive better engagement and decisions.
To that end, I'm excited to introduce our recently launched next-generation AI engine, a light Lumen AI. Illumina will merge novel and existing AI capabilities into a new unified ecosystem to deliver product innovation and facilitate an interconnected experience for clients across all our solutions. We believe the tools currently being piloted will be a catalyst that drives value for clients by better engaging their employees across their benefits such as personalized HR campaigns, health guidance, virtual assistant interactions and intelligent document processing this will complement the amazing proof points we see today, including helping a large client realize nearly [50 million] in verified health care savings through our insights and automation engines by directing better health care choices, helping another organization realize 5.4 times lower new, higher turnover through our personalization engine and use of financial counselors by creating a personalized digital onboarding experience for all their new hires.
And lastly, helping a large retailer reduce overpayments spend and payroll by nearly 200 million. Examples like these are growing every day and represent real measurable outcomes attributable to our platform strategy. And while great for clients, the outcomes are also great for Allied is outcomes only happen if employees trust our platform to guide them. And that's why we've been focused on the importance of a mobile-based platform. To give some perspective, this quarter, we have nearly half a million monthly average mobile users, an 80% increase from the prior year and 32% sequentially.
Total mobile interactions for the entire year nearly doubled to over [19 million]. This matters because first it means more product penetration. And second it means users are seeing real value when they do engage. That's the foundation to drive these client outcomes I just laid out and is driving value for our company, developing luminal AI and executing on our product road map would not be possible without our cloud migration, which is on track for completion midyear. We'll start seeing the benefits of this program financially in the second half. Overall, I'm more excited than ever that the work we've done will continue to support our clients in solving the most complex decisions impacting their employees' health and financial security.
With that, I'll turn it over to Katie and Jeremy to discuss the financial performance and our outlook. Katie, over to you.
Thank you, Stephan, and good morning, everyone. We finished the third year of our plan with robust bookings and a record backlog of revenue under contract of $3 billion. As Stephan noted, we're starting 2024 with a great foundation with a high-quality and predictable revenue base, meaningful margin expansion potential and improved cash flow that has strengthened our balance sheet flexibility. This has positioned us to reaffirm our midterm outlook. And as discussed, we believe there is great potential to accelerate the achievement of these objectives and the strategic roadmap of the Company.
Turning to our Q4 consolidated results, our high-growth category of bypass solutions advanced almost 30%. And we achieved record revenue from our professional services business. As Stephan mentioned, employer solutions recurring revenue growth was impacted this quarter by retiree health clients. For context, the late retiree health exchange is a solution that supports employers and retirees in securing Medicare coverage. As we've said, the majority of this revenue occurs in December and this year, a significant client defaulted retirees from the exchange into a group plan, which has a different revenue profile.
While retirees can opt out of the group plan, we also undertook a number of mitigation efforts to drive higher Medicare coverage renewal activity. So they fell short of expectations. This is a unique circumstance isolated to 2023, and they remain a significant client. This resulted in total revenue growth for the Company of roughly 2%. In parallel, we continued our productivity efforts to drive margin expansion and offset much of the revenue impact.
From a profitability perspective, adjusted gross profit was up nearly 9% with significant margin expansion of 260 basis points to 41.9%. Adjusted EBITDA increased nearly 12% to $270 million with a margin of 28.1%. This represents a 240 basis point increase from the prior year.
Our increasing level of profitability, coupled with working capital improvements are generating stronger cash flow, even as we simultaneously execute on our restructuring program, we generated operating cash flow of $386 million in 2023, 35% or $100 million more than the prior year.
This represents a conversion rate of 52% compared with 43% last year. Spending on our restructuring program resumes in the first quarter of 2024, following the planned slowdown during annual enrollment last year, we continue to target midyear for completing the cloud migration and expect to start seeing financial benefits in late 2024 with full annual run rate of $100 million of savings in 2025.
Turning to our bookings performance. We delivered strong results with the past bookings of $261 million. Together with the third quarter, our second half bookings were $523 million, nearly 2% better than the 2022 results that included an outsized client win.
We are experiencing broad-based secular demand for our solutions and have a proven ability to win both large and mid-market clients. We're also continuing to invest in building out a world-class commercial team, which combined with our pipeline drives increased confidence in our growth plan.
For that, let me now turn to our segments, starting with employer solutions. Q4 revenue was up roughly 1% with recurring revenue nearly flat as a result of the retiree health impact project were strengthened and grew 9.9%. Our profitability benefited from our productivity initiatives with quarterly adjusted gross profit up nearly 3% and adjusted gross margin, 90 basis points higher at 42.2%.
Turning to our Professional Services segment, quarterly revenue growth accelerated sequentially. Once again, it was up 24.2% to a record $118 million. This was driven by a 31% increase in project revenue due in part to the implementation of large new deals and a nearly 12% increase in recurring revenue.
On a profitability basis, adjusted gross profit was up 88% from the prior year, with margins growing 13.5% points.
Turning to our balance sheet, our quarter end cash and cash equivalents balance was $358 million and total debt was $2.8 billion. We continue to actively manage our debt, which is 84% fixed through 2024 and 60% through 2025.
Our interest expense came in near the bottom of our range as a result of our prior hedging activity, our opportunistic repricing of the 2028 term loan and higher interest income, our net leverage ratio improved to 3.3 times, down from 3.6 times at the end of the third quarter.
We expect to achieve our net leverage ratio target of less than three times ahead of our midterm outlook. We bought back 40 million of shares in 2023 with no repurchase activity in the fourth quarter. Given the strategic portfolio review we discussed earlier I'll now turn it over to Jeremy to provide a view of Light's financial outlook.
Thank you, Katie. Good morning. After delivering our transformation over the past three years, we begin our next three years from a position of strength. We have our highest backlog of revenue under contract at $3 billion with strong commercial momentum.
At the same time, we have expanded both margins and cash flow conversion. This is being driven by our technology-led solutions and infrastructure upgrades that Stephan discussed earlier. And today, we are reaffirming our midterm outlook across all metrics and looking at ways we can accelerate even further through our strategic portfolio review.
Now let me share the key factors driving our 2024 outlook. First off, we expect the Pass will continue to be our high revenue growth category at over 15% and the driver of our overall trajectory as it continues to become a larger proportion of life. While total annual revenue growth is expected to be 6% to 8%. Through the mid term, we expect 2024 to be slightly lower at 4% to 6%.
That ramps throughout the year, driven by the timing of our 2023 bookings, our exit from the hosted business and our first half compare with the federal thrift, our initial three-year plan is now successfully complete, providing an opportune time to re-look at our disclosures on revenue growth moving forward, we believe our revenue under contract captures a more complete view of all aspects to our growth model over the mid term versus a B past TCV bookings metric, which created volatility that did not reflect the stability of the overall business.
And as such, we will no longer disclose. In addition to our record 2024 revenue under contract, we will now share a longer-term three year view and updated quarterly to provide a greater level of transparency to our book of revenue. We will also continue to disclose the past revenue to demonstrate progress on our transformation.
As we begin 2024, the business has $3 billion of revenue under contract. For 2025, we have $2.1 billion. And for 2026, we have $1.5 billion. Next, we had a successful 1st year, executing on our restructuring program and are well on our way to a more efficient infrastructure that drives over $100 million of annual run rate savings.
We expect to complete the program later this year with some margin benefit in the second half. As this program winds down, there is also a cash flow benefit that is factored into our increased operating cash flow conversion guidance.
We expect the seasonality profile in 2024 to be second-half weighted as new deals go live and we see the efficiency benefits from the restructuring program. Our 2024 outlook includes C-BASS revenue of at least $870 million or growth of over 15%, total revenue of $3.55 billion to $3.61 billion or growth of 4% to 6%, adjusted EBITDA of $800 million to $815 million or 8% to 10% growth with an adjusted EBITDA margin expansion of 50 to 100 basis points.
Adjusted EPS of $0.72 to $0.77, operating cash flow conversion of 55% to 65% and finally, as Katie mentioned, we expect to achieve our net leverage ratio target of lower than three times well ahead of the midterm outlook after three years. We are confident that our transformation journey has created a strong foundation that will enable us to sustainably deliver value for all of our stakeholders.
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.
Question and Answer Session
Operator
Thank you. (Operator Instructions)
Scott Schoenhaus, KeyBanc Capital Markets.
Hi, think thanks for the question. I'm just curious is, are we still expecting sort of a 12 month timeframe for when be passbook converts to revenue follow up on? What are you seeing from your enterprise clients on it taking longer. I know last quarter we mentioned that the elongated sales process. What are we seeing with the large enterprise customer behavior now on closing deals? Thanks.
Morning. I'll take the first one and then maybe Stephan will take the second portion. So I think 12 months is the right timing. As you know, depending on the solution and the size and the complexity of the client, it can be anywhere from 6 to 18 months.
You think the larger deals we talked about last year that you know, in the fourth quarter that don't go fully live till 2025. So there is about a one year timing that that's the right way to model it. And that is part of you know, as you think about the forward guide for us and the timing and the good momentum we had in the second half of this past year around bookings and how that impacts revenue coming through the business.
Yes, describe it to you again or hear from you again, you know, the the momentum in the marketplace is clear around what we've talked about for the last couple of quarters, which is clients are trying to find ways to take cost out and this whole platform approach around employee engagement and one front door is really helping drive the consolidation discussion, and we're leading that charge.
And as you saw, the bookings just in the last half year and you take out GE. one deal last year really helped drive a big book of book of business for us this last year, this last six months, it was really broad-based across a very broad spectrum of clients all along the same theme. And I'm asking us to help them really drive a better employee experience platform, but also take out costs.
And Scott, we have Katie, the only thing I'd add to Jeremy's point your question on the conversion. I mean, that's really why we're giving you greater insight into revenue under contract, given the variability of bookings. So I think being able to see that quarter over quarter will also give you confidence in the traction we're making in the market.
Yes, exactly. Thank you much so much for all that clarity. I'll hop back in the queue.
Thanks, John.
Operator
Peter Heckmann, D.A. Davidson.
Peter Heckmann
A good morning, everyone. Busy busy morning. And so I just wanted to circle back to the fourth quarter issue with retiree health. I missed a portion of your explanation there and then how you were able to offset some of that revenue shortfall? It was lower.
Yes. Thanks, Peter. It's Katie. I'm still on in terms of the fourth quarter, I think what we articulated was there was a single client in the retiree business that defaulted the retirees back to a group plan where those retirees would then need to opt out to continue with their Medicare coverage. So it results in a different revenue model for us.
As you know, that business is really December loaded. And so that impacted us in December. What we then we're working on, obviously, was kind of offsetting the potential risk around that, that client, which fell short of our expectations. So as part of that, from a revenue perspective, we were also very conscious on ensuring we had a profitability plan to continue to stay on track.
So one of the efficiencies we've been driving across the business, some coming out of the restructuring program as we've talked about, and I think to making sure we retained accountability for our leadership teams for the miss that variability and compensation obviously plays a role here.
But I think the important piece is when you think about that revenue component is, you know, some onetime in nature. So it provides a baseline kind of now for how to think about growth going forward we don't see it as a recurring event because I hope it does.
Peter Heckmann
It does. Thank you. And then just I'm sure it's very difficult for you to comment anything real detail on the strategic review, but just I'm just trying to figure out like is this an open-ended review that is including potential acquisitions, potential divestitures, your potential financing or sale of the company? Is it very broad or should we infer it's maybe more focused on kind of divestitures, profitable pruning of some businesses?
So I think thanks for that. I know it's doubling down on what's been working for us on our platform strategy. And as you've seen the last in the last midterm of last three years, we've gotten 30% growth out of our platform approach and we know it's working.
And if you get if you look at the next midterm guidance, this is a book of business that's going to be about $1 billion business for us. And we want to double down on the front door employee engagement experience, and we want to really move towards a recurring revenue base with that higher margin contribution capability.
So if you take those ingredients, we're taking a review in that context. We don't have to own all the systems of record potentially. We know we can look at different areas where we can partner with people around content. But the battle ground really for us is really doubling down on the platform piece.
And listen, it's no secret. I've said it before, we're not getting credit in the market for the work that we're doing today, right? So when you think about where we sit on our transformation agenda, it's how do we continue to unlock that value.
Yes, Andy, the only thing I'd add is in the context of that queue, right? There's an opportunity to enhance value for our clients. So if you think about that review, right, it's how do we double down in certain areas? How do we drive additional investment in certain areas that will all play into this to ensure we're continuing to, again maintain a leadership position in how we support our clients.
Peter Heckmann
That is helpful in any timeframe there that we should think of you.
Not at this point we're well underway with it. But as soon as kind of we have the outcome of that, obviously, we'll we'll come back to the market with the results.
Appreciated.
Thank you, Pete.
Operator
Kevin McVeigh with UBS. Please go ahead.
Kevin McVeigh
Great. Thank you. Hey, I just wanted to circle back on the 24 guidance. Trying to frame, the 46 relative to six to eight was the hosting business. Did that you'd like getting that? I don't know if that was in the guidance or not, but that feels like 100 basis points in there don't have$ 63 million revenue that you expected in Q4. How does that not? And it just it seems like a really big number like $63 million in Q4. That was just wondering why you didn't have a better sense of that and how it could have been so back loaded.
Sam, good morning. Kevin is Jeremy here. I'll start with the first part of your question. Just in terms of the guide, excuse me, the yes, the hosted business is about a point of impact on revenue for the year, it is included in the 4% to 6%. And so that is a big piece of it.
The second big piece is really just the timing of the bookings in the second half last year and the timing of those go-lives and then contribution to revenue for the year. So those are the two biggest drivers. We obviously also have a bigger grow over just in terms of the size of what the thrift was in comparison to kind of growth rates coming out to begin the year versus where we were last year. And so that so that's really the larger components.
In terms of the revenue guide again, which is why we're, as Katie mentioned, giving the three years of a guide around revenue under contract because that's for us what gives us a view into more of them out through the mid term in our in our comfort level in terms of the 6% to 8%.
And I think, Kevin, good question. On the retiree business. We've said that business is really all driven in December. And what happened with this client is unique in the industry. And so it's very hard to predict right in December, how many will opt out or not.
So the contingency planning we were doing in the fourth quarter was around right, accelerating renewals of other areas, ensuring kind of we were working to minimize the potential risk of that. But I think when it came through in December in terms of the number of people that chose to default into the group plan that drove the majority of of that miss.
It's thousands of interactions that happened during that month of December, and it's not like it's a bookings to revenue delivery issue or anything like that, Kevin, that's a different book of business that in terms of how it gets executed really don't have a lot of visibility into some of those dynamics, and it really was one-off. We haven't seen that before in our book of business. And as Katie said, earlier that the new baseline is set so that we don't see it happening again.
Kevin McVeigh
And this will have an opportunity percentage of annual revenue. So that my math right that it was a $63 million impact in the quarter?
The I just want to be clear, our point was the miss in the $63 million. The majority of that miss was tied to that client in the retiree business, which drove the total 2% down in revenue versus our 11% guidance.
Kevin McVeigh
For the full year, right.
Correct. Exactly. Right.
Kevin McVeigh
Right. [And again, it would have been five to seven as opposed to 46, if not for the hosted business, right]
[Exactly that on. Yes, on 24 growth, we'd be at five to seven and the runoff of that hosting business].
Kevin McVeigh
Thank you.
Thanks, Kevin.
Operator
Kyle Peterson, Needham & Company.
Kyle Peterson
Great. Thanks, guys, and good morning. I wanted to touch a start on how kind of some of your client conversations with both kind of existing and prospective clients are going realized. Similarly, you have six, seven weeks into the year, but just wanted to get a sense as to kind of how some of those conversations are going on, how deals are progressing and kind of what the pipeline looks like as we it into '24?
Yes. I think Kyle, maybe I'll start from. I think one of the pipeline is very strong, right? When you think about how the momentum we generated in the back half of last year, as you saw right from a bookings perspective, how that's translating into revenue under contract. We're continuing to see some kind of good velocity in the first half of this year.
I think, yes, a couple of there's been some learnings along the way to right. You saw growth in the professional services segment, right, tied to some of our bigger deals, right tied to the partnerships with Workday and others.
So I think one, we've also learned, right continuing to build those partnerships is an asset for us while also bringing our total book of business to our clients, we can solve cost productivity and experience challenges that honestly, all of them are facing today that is resonating in the market. And I think with the investments we've made in the commercial teams and really kind of bringing that those use cases to our clients. I think that's helping drive the pipeline we see today.
We're seeing a continued as I said a few minutes ago, call a continued push towards we've seen in every other industry best-of-breed to enterprise in terms of consolidation simplification, all centered around doing better by the employee around driving better employee engagement. There's no secret I've said it for the last four years.
Employees need a lot more help. That hasn't changed in terms of the help they need around staying healthy and financially secure, if anything, the pressure now around economics, you know, it was easy to three years ago during COVID to spend more money on employee engagement.
Every CEO approved everything HR executives have said around spend rate on employees that has changed. I've seen a dramatic shift with a lot of CHRO.'s under a tremendous amount of pressure and not being able to spend what they want to spend. And so what you have to do is you have to look at where the current spend is. What's the value of that spend. Engagement rates are still very, very low in terms of usage of a lot of these powerful systems.
And the reason is because you have to go to multiple places to get access to these things and they're complicated. So we've been on this, you know, now into our year four, our transformation journey to platform consolidation of a lot of these data sources providing a mobile experience.
As you've seen some of the data, it's amazing to see how many interactions are happening on a mobile phone, all in the name of providing a better easier, you know, consumer-grade experience like we experienced everything else in our life, right.
And I think clients are looking for us to be supporter in driving that kind of consolidation and simplification, by the way, here's the other good news. Look at the ecosystem at large, whether it's Microsoft or ServiceNow, great companies out there all trying to drive towards integration platform and kind of an approach. And so we're right along for the ride actually leading the charge in this specific category around HR So I think it's an exciting time for us.
And we named how you saw Siemens Opel. Also, all of those are the proof points of what Stefan just said, one in global payroll, right, one across the benefits landscape, bringing that integrated ecosystem and experience together for clients is helping us win.
Of your larger, big logos, but those are big dollars. I talked about the calls you know, and there's other ones that I wish I could talk more about, but it's very sensitive data, unfortunately. But there's some big, big impacts that we're having for a lot of big clients around the world.
Kyle Peterson
So that's really helpful. And just as a follow-up, I wanted to touch on kind of your priorities for capital allocation. While this portfolio review is ongoing as you guys mentioned that you didn't repurchase any stock in the fourth quarter, kind of in conjunction with this. But I guess how should we think about kind of your priorities for what you're going to effectively do with some of the cash you guys generate outside of organic initiatives? Walter review process is ongoing.
Let me take that one categories, Jeremy, so I think unchanged for us in terms of our capital allocation priorities. I mean, certainly proceeds would give us the benefit and accelerate some of those activities. But it's always going to be strength of the balance sheet and where the balance sheet is leverage levels, as Katie talked about, and I talked about as well as what AO And then looking at both organic and or inorganic opportunities for us on a lot of that will be tied in to what we're doing with the strategic portfolio review.
And then finally, it's capital return to shareholders in looking at the buyback. And yes, as Katie mentioned, tied to the strategic review, we did not we have a share repurchase in the fourth quarter, but we'd certainly look to do that.
Kyle Peterson
Okay, thanks.
Thanks, Kyle.
Operator
Tien-Tsin Huang, JPMorgan.
Tien-Tsin Huang
Good morning. Just want to clarify on the data. So the impact on the retiree health, was there any offsetting revenue that came in on the professional services side because because that was quite strong especially on gross profit. So just wanted to make sure there wasn't anything unusual there.
No. I mean, the professional services businesses has really, I think, hit stride in the second half particularly in North America. We did still see some softness in Europe that has kind of continued through the year. But again, kudos to the team, I think one in terms of the first co-sell partnership with also with Workday to obviously tied to some of our bigger wins like GE., they saw a benefit and three, I think just continuing to build on the momentum in the market has helped them of that business kind of nothing for the kidney.
Tien-Tsin Huang
And just my follow-up on the just bridging the 9% growth in EBITDA at the midpoint against the 5% growth at the midpoint for revenue, can you maybe talk to gross profit versus OpEx outlook for the year and 24? I know that you've got the cloud conversion piece and that's more savings fiscal '25. We just want to make sure we get the cadence of all that right?
Sure. I'll take that money. Attention, Jeremy. So yes, so 50 to 100 basis points on the EBITDA line, there will be greater than 100 basis points on the gross margin line with sales as you saw a strong performance in the second half for us, the continuation around many of the productivity initiatives that are underway. And then in that really kind of late into the third and the fourth quarter start to see the benefits of completion of our restructuring program. And again, that helps in the acceleration in terms of what we laid out at Investor Day last year, and we're kind of continuing on that path.
And the only thing I'd add pension and OpEx is right, as you saw, right, some of the key investments we've made this year in commercial and product, right from an OpEx standpoint, wrap around into next year. So you have you have kind of that run rate versus I think some of the efficiencies we're driving hitting risks but first.
Tien-Tsin Huang
I just want to clarify both helpful review of OpEx in the second half versus the first half. Anything to underline there.
I mean, I think what we kind of how Jeremy phrased it is, you're going to see a ramp in margin, both gross margin and an EBITDA through the course of the year because you will see more of the benefit in terms of the savings coming in Q3 and Q4.
Tien-Tsin Huang
Okay. So just to sort of read the preliminary view. Okay, got it. Thanks for clarifying.
Operator
Pete Christiansen with Citi.
Peter Christiansen
Good morning. Thanks for the opportunity to ask questions of the parent. Katie, I'm just curious on the timing of the strategic review. I mean, just considering you're reiterating your medium term outlook, last quarter seemed upbeat on a number of aspects. Granted there's been some top holder rotation in recent weeks. I'm just trying to understand how we got got to this to this point.
And then just as a follow up, hopefully last question on this retiree client act change it. Is there any aspect of the revenue profile for that contract? Is that now were deferred? Is timing of revenue is a different or is it just the bulk of the of the miss is really just realized here at this point. Thank you.
Yes, I think, Pete, I'll start with your last question, which is exactly how you ended it right it's kind of a one-time reduction in revenue as those participants have moved to a group plan. So we won't see that, you know, and revenue return next year, but we also won't see an additional decline. That's the new baseline.
As I said, from the strategic review portfolio, I mean, I think what I said Japan kind of said it earlier, which is we do believe in our strategy, and I think we have made progress and for our clients for our colleagues for our shareholders.
But they aren't necessarily seeing the return in the market and I think should always be evaluating are there ways to accelerate our strategy right in terms of as we look at the next three years. So we've executed on what we said for the past three and now it's time to take a look and make sure we're we're evaluating all options to continue to to to accelerate our strategy in the best way possible.
And when you look at where we started this journey three years ago, a company of [$300 million now going to $1 billion] over this last midterm in this one that by itself, between 30% cater the first midterm going to 15% kegger.
And this midterm, that's pretty pretty I mean, we think it's exciting and we see the impact of that book of business being a recurring book of business, better, profitable book of business. And as we've said now, a few times the impact of that to our clients. I mean, at the end of the day, the North Star of what a light is all about is if we have 40 million people looking to a light to be the front door to keep them healthy and financially secure.
The TAM of that opportunity puts us into one of the most important opportunities in the marketplace period. And I've been doing this for long enough across different segments. And I have never seen an opportunity at this large scale. So it's always, you know, but it's all wrapped up in this larger company with high growth and low growth in different segments of the business that I've talked about for the last few years.
So how do we recast the recipe and as Katie just said, and I said it earlier, we're just and we're not getting value as a total company or as a as an entity within the rest of a light for what we're doing, as you can see, right? And so we're trying to figure out how to unlock that, how to double down on that, how to get a better capital structure to support the continued investments and driving towards a platform company because Weber arrives at that station will become one of the most important companies in this industry because that's the sheer size of the opportunity in front of us.
And the other good news is as crowded as the tech world is, there's nobody doing this today effectively at our size and scale like nobody else. And I think that's the opportunity. So we have to move quickly at pace to take advantage of that. And that's the other piece of this, which is how do we actually accelerate the success we've had in that category.
Peter Christiansen
Thank you both and I think there's some fair comments and Thank you.
Thank you.
Operator
Heather Balsky, Bank of America.
Heather Balsky
Hi. Thank you for taking my question. Um, on a strategic strategic review, you talked about moving to a more recurring book of business or your focus on our current book of business. And I know we spend a lot of time talking about the BPS platform and its growth, but I think there are, I think our understanding of sort of the legacy business and the broader portfolio?
Yes, there's a lot kind of maybe we sell-side analysts or investors don't fully appreciate and can you just can you kind of walk us through the portfolio at a high level, how much of your revenues are recurring on a what is outside of project revenues? What else is there that's more transactional in your business? It's kind of like a high-level of what the portfolio looks like today?
Yes. Thanks, Heather. And I think I mean, you see a little bit of it, obviously in our financials. So we're 83% recurring today, 82, 83, 84 sorry, 84% recurring today is Jeremy. Correct me right. Which is great. But I think there's still when you think about how we enter the year in terms of revenue under contract, there's still have an opportunity to continue to enhance that until within I mean, within the portfolio, again, we love all our assets, but we're not saying there's an asset that's doesn't necessarily make sense. It's how do we optimize how we're utilizing those assets to best serve our clients.
And are there other ways to continue to do that in the form of partnerships, right, where there can be additional investment into you know, different different parts of the business to accelerate that trajectory. So again, from a portfolio perspective, and we've talked about at length, you've got employer solutions, you have professional services within that, there's obviously a number of assets that you know comprise both and but the recurring revenue nature. And today it's about 84%, if that helps.
And both of us only one set of perspectives, Heather, right? The other pieces, not every dollar is treated equally, even within the recurring landscape, some of them have higher profits as you move up the food chain on value around AI and platform, those are driving higher gross margin contribution.
So we're also focused on not just the recurring equation, but the margin contribution equation and the value of what that drives in terms of just giving us capital light capability and to go after for other investments. So it's not just recurring. It's also the margin contribution profile of it.
Does that help get us.
Heather Balsky
Thank you. And have a follow-up another other big picture question. But as you as you look to 2025 and I realize we are a long way from there, but you think about the bookings you have to date and especially with the GE contracts coming in, it sounds like later in the year. I guess what do you need to accomplish this year to be back at that 6% to 8% range as you exit the year? How much visibility do you have to the acceleration, especially when you think of your guidance range, low end high end kind of help us think that through?
Hi, Jeremy, I'll take that one. I think that's exactly why we're now showing this three year view. Rami, you can look and see $2.1 billion already under contract in 2025. That does include some of those larger deals, right? As you're talking to shorter term period, you don't quite get the visibility into what that looks like. So that's a starting point for us today.
If you look at continued commercial momentum that we have in the second half for our teams to deliver on and that those are the bigger pieces of what we need to deliver on. So we're on the way already with the momentum that we had in the last two quarters in building and continuing to build that revenue under contract. Those are the biggest pieces that we look at today in terms of just the overall execution plan.
I mean, in three years, Heather, in '21, we had $2.1 billion of revenue under contract and '24, we have three that $900 million delta is a collection of just the sales momentum, the quality of the book of business. And I think that's pretty powerful in terms of giving visibility into what the future revenue architecture looks like.
That's a big swing from [$2.1 to three. And then as Jeremy said, in our midterm in 2026. We already have 1.5 in place, three years out. That's pretty powerful for us to consider as a baseline, three years out to have that much already under contract].
Heather Balsky
Got it. Thank you.
Thank you.
Operator
Joseph Vafi, Canaccord Genuity.
Joseph Vafi
Hey, guys, good morning. Thanks for taking my question, just maybe on some of that momentum in the go to market and you know, the potential for share gains, new logo wins, I think a lot of a lot of large enterprises today clearly have best-of-breed capability and all the services you provide. But you know, they're all siloed a little bit more with different vendors.
And so I'm just kind of thinking by almost even from my own personal experience, the cost to deliver for you first in a single holistic approach for employees of large enterprises versus the kind of best-of-breed siloed approach. Just trying to get a little bit more understanding on one overall cost to provide for you versus those others? And then a quick follow-up.
Yes. Listen, it's great it's the, um, I guess I'll talk about that just on this call, a couple of times right around a you're not lucky to have been part of the probably the biggest technology transformation wave with best-of-breed enterprise across European supply chains.
We've all lived it right when there were hundreds and hundreds of vendors across GLAPPO. and financials. And that world largely collapsed with Oracle and SAP and a few handful of vendors and four where I was as well owning that moved from best-of-breed enterprise splitting, it never happened over the last 20 years in HCM, right. And in the space that we're in.
So four years ago when I came here, I saw exactly the point you just said which is there's got to be a better way employees engaged today with between 20 and 50 different systems. The engagement rates, I mean are between 1% and 5%.
The fact that the companies get away with that for their employees is staggering. You would never have those kinds of statistics in the world of ERP or supply chain or revenue type systems. You would never survive that way.
So I always ask myself why do companies survive that today? It's just lack of focus, lack of the fact that there is somebody out there who's built this end to end platform. So that's what we started four years ago because the ROY the cost takeout, you talk to ICIO in [400 to 500] and the world, how they've changed their world in the last couple of years, they were 90% focused all around driving ERP revenue systems, client, no consolidation work. They've all flipped over now to the HR side and saying, wow, what a what a mess and what an opportunity at the same time. And that's the void we've been trying to fill and we've given some great use cases. Okay. Do you want to talk about the Siemens one as an example?
Yes, Joe. I mean, even even we discussed Siemens, I'm on the call today, right? I mean, part of the reason because we own the underlying administration, right, then you can and you add some of the guidance, those capabilities, this demand side, you increase engagement, you can guarantee an improved outcome for not only the client but their people. And so I think that's really powerful.
So when your question on underlying cost, I'd almost turn it around a little bit. It's almost more like underlying outcomes that reduce costs, right and improve the experience. That's that's the power of what we do.
And the reason why I'm here, just just to be super blunt about it is not because I want to drive consolidation on the European revenue systems. There's a higher calling opportunity of over four years it makes me so frustrated how many people make the wrong decisions on back surgery, knee surgery, clinical decisions and people can't save enough for retirement because they just make the wrong decisions made happy employees make wrong decisions around benefits. I mean, it's staggering to see the mistakes that happen across our employee population and these are the biggest most important companies in the world.
So I sit here and say we can do better. We have and how do we help our clients do better by their employees. You've got to use systems of record powerful data sets like we have access to trillions of datasets, not billions.
We have trillions of data sets that we have access to across people's money and people's health decisions and if we use that the right way through a consolidated mobile experience and work life, I know and we have shown it, we can make a big impact in how employees make better decisions in the most important area of life. And there's nothing more important than being healthy first and then having enough money to retire when you when you want.
Joseph Vafi
Sure that's great. That's great commentary. It was a busy morning, so I apologize if this was asked, but on the strategic review, should we be looking for kind of a different different different data points or different pieces of news coming out of the strategic review? Or do you think it would be kind of a all at once outcome there? Thanks a lot.
Yes. I think what I'd say, Joe, is we're well underway, as I said with the review. So our intent is, you know, as we have kind of outcomes to share, we will obviously bring into the market. So tough to say, given given where we are in the process. But I think that the key in that pieces, you know, the idea is to accelerate our strategy from where we are today, and we'll be back with you as soon as soon as we have an update on our next steps.
Joseph Vafi
Great. Thanks very much.
Thanks, Joe. Appreciate it.
Operator
Thank you. As there are no further questions, I would now hand the conference over to Stephan Scholl for closing comments.
Thank you, everyone, for joining us really appreciate the time you take with us today. We look forward to seeing many of you with upcoming conferences in the next few weeks and months. Thanks for the time here.
Operator
The conference of Alight has now concluded. Thank you for your participation. You may now disconnect your lines.
