Alight, Inc. Price & Performance (ALIT)

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. The results discussed on today's call relate to the Go Forward Company as we operate today and do not include results of the divested payroll and professional services business. All year over year financial comparisons made on today's call are on a pro form a basis giving effect to the transaction and consistent with the presentation we have published on our Investor Relations website, On the call from management today are Dave Gilmett, CEO, Jeremy Heaton. CFO, After the prepared remarks, we will open the call up for questions. I will now hand the call over to Dave.

Thanks, Jeremy, and good morning.

Let me begin by saying that 2024 was a year of transformation, for Light as we repositioned the company for long term success. We concluded our technology transformation journey with the completion of our cloud migration divested payroll and professional services to simplify our business model, and evolved our leadership structure. Together, these milestones have collectively reset Elite's Alight, and we entered the new year with momentum as a tech enabled employee benefits services With the significant transformation of 2024 behind us, 2025 will be a transitional year. Marked by steady progress and execution as we continue to position Alight for profitable market leading and sustainable growth. Today, we will focus on our near term progress toward this goal. We look forward to sharing more about our long term expectations at our upcoming Investor Day scheduled for March 20. This morning, we reported fourth quarter results that reflect increasing stability in our operations. Performance was in line with expectations, strong ARR bookings and robust cash flow. The health of our business and cash flow profile enabled us to initiate a dividend and today we announced a $200,000,000 increase to our share repurchase authorization. Turning to our expectations for 2025. First, we are committed to both simplifying the business and providing more transparency into the key metrics we measure ourselves against.

You will hear us focus on recurring revenue and the growth levers including ARR bookings, and our retention of existing clients. Adjusted EBITDA margin including positive impacts from the cloud migration and productivity initiatives. And now free cash flow, which covers all aspects of our improving cost and investment profile. Moving forward, BPAS will not be one of those key metrics. Our 2025 outlook reflects an important step in the right direction with year over year improvement across key financial metrics. We expect recurring revenue to be on stronger footing profit margin to expand independent of top line performance and free cash flow to accelerate. This is a long cycle business and our outlook also includes a lag effect on revenue from historical losses in 2023. So the overall loss impact while temporary will be higher than last year.

In contrast, our most recent renewal cycle for 2024 was vast from the prior year with retention rates up eight points. Retention is a key component of our growth model and this performance is back near historical levels which we expect to play out favorably in our results later this year and moving forward including resumption of revenue growth in the second half, Put another way, if our 2023 renewal cycle had been similar to the 2024 cycle, our revenue growth would be more than two points higher. We're also maintaining a cautious view of the non recurring project environment While demand has not improved, our client management and delivery teams are working closely with clients to advise them on program changes at dry value, and advance their own initiatives. What gives me the most confidence in our long term outlook is our current execution with ARR bookings growth and higher retention, which are both grounded in delivering service excellence and competitive solutions. While Jeremy will cover the financials in more detail, I will focus today on what we need to do in 2025 the sustained momentum and enhance our value proposition. Starting with the go to market strategy, I am pleased to report the team delivered double digit ARR bookings growth in the and ended 2024 up 18%.

This is an important step toward delivering sustainable recurring revenue and we see strong demand for our mission critical solutions with the sales pipeline up 54% from the prior year. We expect continued growth in ARR bookings at double digit levels again in 2025. In our existing client base, we have significant white space to drive share of wallet and many of the wins this quarter are of the land and expand nature. We have a winning formula with a unified team of enterprise sellers and deep domain experts and delivering client management, supported by competitive solutions across the spectrum of employee benefits. A great example is our leave solution. Leaves administration such as maternity leave, or medical leave is a fragmented and underserved market. A little more than 10% of our top 100 clients are penetrated and benefiting from an integrated approach for this highly complex offering. Connecting leaves with health administration is a significant opportunity that is resonating with the market and when combined can add up to 30% of value to an existing contract. Growing with existing clients also equates to better retention. We use retention rate as a measuring stick for the value we bring and again we saw considerable improvement in our most recent renewal cycle.

Driving strong retention starts with consistently nailing the basics and being a trusted partner managing the day to day fundamentals. Our fourth quarter annual enrollment season is a great example of that execution as our team delivered outstanding support to 10,000,000 participants. Mobile enrollments were up 69% and call center volumes were down 6%. Which together are delivering a better user experience, process efficiency and overall client satisfaction. Enroll enrollment was a direct beneficiary of the complete where the benefits of operating in a more stabilized environment are enabling us to more efficiently serve clients You'll hear much more at our upcoming Investor Day about how this comes to life through our AI and automation plans. And just this month, we delivered new AI features through our WorkLife software release that deepens our intelligence, analytics and automation for clients to leverage as part of their people strategies. Finally, I'll touch on the announcement we made this morning.

Effective March 1, Bill Foley will step down from his Chairman role and will remain on our Board of Directors. While Erica Meinhardt, Dan Henson and Regina Paglielow will each depart, Bill is a tremendous partner whose experience we will continue to benefit from and he remains a champion for our company and mission. I want to thank Dan, Erica and Regina in helping shape Alight's path and wish them the best. In their place, we have refreshed and expanded our Board, industry veterans, Rob Freishaim Bob Lopes, Mike Hayes and Russ Fraton, who will serve as our new Chairman. The parallels between our incoming Board members and new executives are not Those overseeing our strategy possess deep domain expertise great leadership skills and our client centric stewards will drive a light toward achieving its next phase of growth. In my short time at Alight, I have had the opportunity to travel across the country, and meet our wonderful colleagues and many of our Alight, Getting to know our key stakeholders in-depth and understanding the needs has reinforced my enthusiasm the opportunity ahead. With the backing of our talented team, Elite is poised to lead the industry and our clients forward with innovative solutions and best in class services.

Jeremy, over to you. Thank you, Dave, and good morning. We finished 2024 with improved results, including recurring revenue robust bookings and strong cash flow. We are a more simplified business following our cloud migration and divestiture of the payroll and professional services business, and view 2025 as a transitional year that will take positive steps forward both strategically and financially. Turning to our results. Revenue was $680,000,000 and recurring revenue improved sequentially. Returning to growth during the quarter.

Recurring revenue comprised 91% of total revenue in the quarter. Non recurring project revenues, which represent less than 10% of total revenue, were down $13,000,000 or 17%. Adjusted EBITDA was $217,000,000 in line with our outlook for the fourth quarter margins expanded to 31.9%.

Full year operating cash flow when adjusted for one time transaction separation costs was $342,000,000 This represents an operating cash flow conversion rate of 58% consistent with our annual guidance of 55% to 65%.

In 2025, we will transition to a free cash flow disclosure, which more closely aligns with shareholder interests. Turning to our go to market momentum, we executed on our double digit bookings growth in the second half of twenty twenty four and for the year achieved $114,000,000 of total ARR bookings. An 18% improvement over 2023. Demand remains strong for both individual solutions and for our integrated offering As a result, we expect to sustain double digit ARR bookings growth in 2025. This is a key factor in building long term revenue under contract and driving sustainable revenue growth Contract for 2026 is $1,500,000,000 and we're introducing 2027 revenue under contract which is already $1,200,000,000 As always, the timing of renewals will play a factor in our quarterly reporting of revenue under contract. Turning to the balance sheet. Our quarter end cash and cash equivalents balance was $343,000,000 and total debt was 2,000,000,000 down from $2,800,000,000 at the start of 2024. Our net leverage ratio at year end was 2.8 times an improvement from 3.3 times to start 2024. We continue to actively manage our debt which is 70% fixed through 2025 and forty percent through 2026. Subsequent to the end of the year, we repriced our term loan lowering our interest rate by 50 basis points, which will decrease our interest expense by $10,000,000 annually.

Returning capital to shareholders remains a key priority We repurchased $12,000,000 worth of shares in the fourth quarter. For the year, returned $167,000,000 to shareholders via share buybacks and today we announced a $200,000,000 increase to our existing program. We now have $281,000,000 of share buyback authorization. And we declared our second quarterly cash dividend of $0.04 Together, the balance of capital return and a stronger balance Turning to the outlook, we expect improvement across key financial metrics in 2025 which includes an improving growth rate, stronger profitability and increasing cash flow. While our revenue growth is bounded in the short term with loss impact from 2023, and non recurring project work we are projecting over 150 basis points of adjusted EBITDA margin expansion and double digit free cash flow growth as a result of the cloud migration and productivity efforts. We expect full year revenue of approximately $2,320,000,000 to $2,390,000,000 or negative 1.5% to positive 1.5% growth with revenue growth rates ramping through the year. At the midpoint, this includes recurring revenue of approximately 1% and project revenue down 6%. We expect higher recurring revenue growth rates in every quarter of 2025 compared to the prior year. Given the first half dynamics of this year driven by historical loss I will be more specific on our seasonality and the ramp through 2025.

For the first quarter, we expect total revenue to be down 3% to 4% with recurring revenue down 1.5% to 2.5%. For the second quarter, we expect total revenue to be down 1.5% to 3% including recurring revenue of negative 1% to positive 0.5%. For the second half, we expect a return to low single digit to mid single digit growth driven by new ARR deal go lives, and the early benefits of a stronger 2024 renewal cycle. As Dave mentioned earlier, we have not seen an improvement in client demand for non recurring projects. Our outlook for the year is based on the specific pipeline we see today with these clients and expect first half revenue to decline roughly 25% in each quarter. With mid single digits growth in the second half off of last year's lows. For the year, our revenue growth rate contemplates 5% to 7% of incremental revenue from new wins with current clients and new logos, 0% to 1% from participant volumes and losses of over 6%. Without the historical loss impact, our growth would be more than two points higher this year. We share a modest view on participant counts and do not expect a material uplift this year.

While we continue to monitor policy changes, the business impact related to tariffs and the Department of Government Efficiency are expected to be immaterial based on the nature of our public sector work. We expect full year adjusted EBITDA of $620,000,000 to $645,000,000 with margin expansion between 150 basis points and 180 basis points. We are confident in the margin expansion independent of the top line given the operational improvements we've made. We will benefit from $55,000,000 of cloud migration savings, the elimination of transaction dis synergies and from productivity initiatives underway on the path toward 28% plus adjusted EBITDA margins. We expect full year adjusted EPS of $0.58 to $0.64 which does not include any impact from potential share buybacks. We are introducing our free cash flow outlook of $250,000,000 to $285,000,000 or growth of 13% to 29%. Free cash flow will benefit from stronger profitability as well as reduced capital [indiscernible] Finally, expect annual ARR bookings of $130,000,000 to $145,000,000 continuing a growth trajectory as we benefit from a strong pipeline and the ARR focus on employee benefits. Overall, our fourth quarter results were a positive step forward we believe that 2025 will be another step forward that positions us to achieve our longer term goals.

We look forward to sharing more details on our strategic progress during our Investor Day next month. 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. Our first question is from Kyle Peterson with Needham and Company. Please proceed with your question. Great. Good morning, guys. Appreciate you guys taking the questions, Jones. Yes, good morning. I wanted to start off, appreciate the commentary that you guys provided on Doge.

Just wanted to see if you guys could provide more color and maybe remind us on some of the puts and takes. I know there are some offsets like if there are reductions and headcount at the government. I know Alight there are some offsets in like contract structures and that type of stuff, but maybe at a high level, if you could remind us not with that contract specifically, but some of the contracts in general, like some of the offsets you guys have. So it's not just a pure headcount PEPM type fee, that would be really helpful.

Sure Kyle, it's Dave. Thank you for the question. I really appreciate it. And probably important just to kind of get the year cleared, so to speak relative to Doge and the impact that that could have on us. So I'll start with the tariffs. So tariffs don't really direct us directly impact us because we're not in the manufacturing import export type of a business. It could impact the economy in hiring more broadly, but as we said in our opening remarks, we're taking a very conservative view to begin with on unemployment and impact of volumes. Specific to the layoffs for Fed employees. Again, we've looked at this in a number of different ways. We don't have a very significant exposure to the public sector business. We do have material contract as I think relative to four zero one service Alight. And as we've looked at that, even under a worst case scenario, and I'm not going to sort of bracket that with how many people could get laid off, but everything that's been discussed so far, first of all, the impact is late in the year. And secondly, it really only impacts a portion of the population because a lot of folks are already retired.

And there would be balances that would remain in our business. And so when you pull it all together, we think it would have a pretty immaterial impact on revenue and even smaller impact on on earnings in 2025.

Okay. Appreciate the color and detail there. Maybe just a follow-up on capital allocation, how you guys are thinking about it. Good to see obviously, you guys now have the dividend here for a couple of quarters. You kind of up the buyback. Assuming you've provided more at the Analyst Day, but any thoughts on how you guys are are kind of thinking about the balance between the two, especially with the stock at current levels, I think could be really helpful for everybody on the call. Sure. Kyle, I'll take that one. Certainly, we're pleased with the dividend and just paying the second dividend or or approving the dividend with the Board last week. I think that obviously comes first, but we're going to be very opportunistic in terms of where we view the value of the company and that was an important discussion we had had and the reasoning behind the $200,000,000 increase in the authorization. So I think expect us to be opportunistic there and continue to leverage the authorization that we have in place.

All right. Appreciate it and nice results.

Thank you. Appreciate it, Karl.

Our next question is from Kevin McVeigh with UBS.

Please proceed with your question.

Great. Thanks so much. And I'll add my congratulations as well a lot going on at the end of the quarter and delivered on that. [indiscernible] really underscores the predictability of the model I guess I think you talked about a 200 basis point headwind from runoffs in 2023. If we think about that the pacing over the course of '25, is that linear or is there anything you'd call out in terms of is it more impactful in the first half of the year as opposed to the second half of the Maybe we can start there. Sure. Thanks, Kevin. So the way to think about it, I mean, the impact hits January 1. In large part. So driver of the ramp that we have in revenue on the recurring side for 2025 is really driven by the losses hit on January 1 and those impacts the entire year. But what happened as you go through the year is we begin to have the go lives of the new ARR wins that build into the revenue profile as we go through the balance of the year. So that's why you start to see a tail off in terms of the impact of those losses in the first half and back to growth in the second half within the recurring revenue business.

And so it's just it's just the timing of both the '23 the historical losses as well as we'll start to benefit from the '24 renewal cycle later the year plus the go lives. Within the business. So it's just the timing aspect aspect that you have that those losses will hit January 1.

That's super helpful. And then it's like you gave some commentary on annual reenrollment and efficiencies on that. I don't know if this is for Dave or you, but talked about $100,000,000 of cost savings, I think in 2024. It starts to pace in 2025. Is that still the right number or have you been able to identify additional synergies over the course of this year because obviously we think the guidance looks really good. I think the EBITDA even better.

Sure. Hey, Kevin, it's Dave. Let me start. We feel really good about the renewal season. I think you made reference to that before getting into the the cost savings opportunity. So we're seeing retention up significantly and we've returned to a level of stabilization relative to service delivery and support for our clients. So really bullish as we enter 2025 relative to the retention aspects. Of what we're looking at for revenue. I'll let Jeremy talk to the specifics that we've got in mind relative to the cost savings and the $100,000,000 that you're asking Sure. And Kevin, just a reminder. So that $100,000,000 was on the basis of of the business including payroll and professional services. So that $100,000,000 was $75,000,000 remaining with the go forward business.

Of that $75,000,000 we saw $20,000,000 of that benefit come into the fourth quarter of twenty twenty four. So the pickup in 2025 on the walk on EBITDA is an increase of $55,000,000 in savings in the EBITDA guide for 2025. In addition to that, there's also a benefit from additional productivity efforts that we've been driving within the company. Some of that impacts in the walk within 2025 and then going forward as well.

Very helpful. Thank you. Thank you, Kevin.

Our next question is from Scott Schoenhaus with KeyBanc Capital Markets.

Hey, team. Thanks for taking my question. Most of my questions have been answered, but I wanted to drill or ask, I just wanted to drill in on the back half revenue growth assumptions for this year, low to mid single digits. What's being implied on the bottom end of the range and what's being implied on the top end of that range for the back half of the year, Jeremy? I appreciate you giving up this revenue from new wins range and volumes. Peppem range. But maybe kind of drill in what would what would be implied to get to the low single digits and what would be implied to get to the high single digits?

Sure. So I think Scott, the on the what we'll watch this year is one, we understand contractually already what's in line from the bookings in 2024. So that's contractual and again is within the guide. There's also what we'll execute in 2025. And so we coming into a year, we've got 89% revenue under contract. That other 11% comes from ARR wins in year that drive and have go live. So think not your larger benefits administration, but mid market deals or navigation or lease deals that go live within year. So you start to drive revenue. So it's really the timing and the mix of those ARR bookings in 2025 is a driver that creates a difference between what the high end and the low end would look like. And then the other piece of it is project revenue. Again, you can we talked about the cautiousness we've got in looking at the project revenue within the business. We will continue to watch that. Our teams are working very closely day to day on-site with our Alight. And building that pipeline. What you typically expect to see is less volatility on projects in the second half of the year because those projects are driven around the enrollment process, whereas in the first half of the year tend to be more one off projects related to regulatory changes or M and A work.

And so you start to get more of a solidified view of that pipeline as we get into the second half around project [indiscernible] that ends up being and coming through in the second half revenue. And then the last piece I would say is just on [indiscernible] Again, 0% to 1% is the view. We've seen historic that's pretty on the low end of what we've seen historically on participant counts and that can also be a driver. So that's what I tell you, the kind of bigger factors for the back half.

Scott, maybe if it's Dave, just I'll add a little color to So if we think about the mix of what we take to the marketplace, our products and solutions, it can range from small things that maybe are one off projects, say, on communication support which we would see in the early part of the year. To things that perhaps are going to be annual recurring revenue that could actually take effect sometime in the year. So if we went to leave piece of business, for example, and we learn about that in the first quarter, we could be implementing that sometime in the second half of the year. But when you get to the large things like health administration contract, that's multiyear. If we win that in the beginning of the year, we're probably not going to see revenue flow from that till sometime in 2026.

And then the project work back to what Jeremy said is going to be driven off of planned design changes, vendor reconfiguration, things of that nature. That our clients are thinking through right now. And so if they do make those significant changes, that lead to meaningful project work for us, but that would tee up sometime in the third, fourth quarter.

Hope that helps.

That's all really helpful color. Thanks so much guys. I'll hop Thanks, Scott. Our next question is from Tian Shen Huang with JPMorgan.

Please proceed with your question. Thanks for the update.

David, it worth going back to what happened in 2023 and 2024, and what drove those losses the changes you put into place since then and and how you've improved retention? And is there still more room for retention to improve based on what you see in the plan that you put in place?

Yes, Jen, thank you. Appreciate the question. I can't go back in detail relative to 2023. I can just say that we had losses back then that were that were historically Alight. Relative to our patterns that we've seen over the course of many years. As I said in the opening remarks and Jeremy reiterated on this, this year's renewals were up eight points Is there headroom for improvement there? Yes. We believe there is. We're never going to beat 100%. I sure as hell would like that. But that's just not reality. We're going to lose the client every once in a while. But the thing that drove, I think, some of the the unsettled renewals back in 2023 We're focused on the domain expertise some service disruptions, things that we've put behind us. We were working through the cloud migration. Whenever you do something that's material like that, you're going to have some that might look at that. With some angst. And so I feel really good about the stability of our technology platform now. I feel really good about the leadership changes that we've made and the focus on client management and the focus on excellent service delivery.

And we're making progress and I think we're effectively reestablishing that level of confidence that our clients should have in us that we've been able to demonstrate over the course of several decades.

Yes, that's great to hear. And then just my quick follow-up [indiscernible] stability on the time we go live I'm just taking that statement together with you haven't seen demand for projects revenue pickup Any high between those two? And how much upside could there be if the short term project work does come back?

I think, yes, no tie between the two. I mean, we see implementation work is not included in the project work tension. So it's typically the other project work is on behalf of clients that are already live and we're operating with today. So think about it almost as an attachment rate Alight? So the better we are on ARR bookings, getting those live is a greater opportunity and absolute dollar value of the project opportunity that we've got in front of us. So I think that's kind of piece one. So no connection there. We feel confident We've got the resources in place to get all the implementation [indiscernible] the team feels good about that side of it. On the project revenue side, the fourth quarter tends from a dollar value, the second half tends to be about two thirds of the overall revenue. Within the project business. And so I do think that again, we're not calling for a real recovery here. The comps get better just given the lows that we saw in 2024. But I mean, it could be impactful if we start to see greater demand, if there's more clarity, maybe with some of the changes on the administration side in terms of regulatory requirements on behalf of our clients.

So like I said, we're really close with our clients on this. Work and but we want to remain cautious.

Understood.

No, thank you both.

Thank you. Thank you, Tien Tsin. Appreciate it.

Our next question is from Peter Heckmann with D. A. Davidson.

Hey, good morning, everyone. I had a comment just in terms of some of the new bookings. It sounded like the back half, I did see the expected increase. And if I saw correctly, AR bookings were up by 18% for the year. Can you talk about some of your success with cross selling to current customers? And and increasing the penetration rate of the number of solutions. And And I guess has there been any change in terms of the relative attach rate or win rate of of the payroll solutions post divestiture. [indiscernible] It's Dave. I'll start. So have in our bookings a mix of services to existing clients as well as new logos. We feel pretty good about momentum that we're carrying into 2025 relative to the key areas of focus for us, which are administration, health both mid market and large market as well as the wealth business. And as I mentioned in my opening remarks, we've got significant opportunity relative to leaves in our leaves solution and integrating that health administration platform in the Alight WorkLife integrated capabilities. And there is massive upside there in terms of contract expansion, on our existing clients and just the overall penetration.

And we have some of that in the bookings for 2025 and what we reported out at the end of twenty twenty four. Our pipeline in 2025 looks really promising relative to those key service areas. And so the combination of all we feel pretty bullish about momentum that we're carrying into the sales season. And maybe what I'd add on that one Pete is, as we've said before, we have dedicated teams that are out hunting new logos and we have dedicated teams that are working with our existing client base on expansions, right, and similar to what Dave talked about within the lease opportunity. We can meet our target growth objectives within this business really only from the white space in our existing client base. Now we will still new logos are going to be important to the growth perspective for us and the opportunity that we see, but there is a significant amount of white here as well. So that's a Dave went through the LEAFS opportunity across our product there's a significant white space still that exists within our current clients. Okay, great. And then just going back to the fourth quarter, How would you characterize the activity around the sub battery retiree health policies and some of that Last year, there was a little bit of a negative surprise and that provided maybe a little bit comparison, but how would you characterize that business in terms of its relative contributions in the fourth quarter?

And do you anticipate any changes in that business that would affect the fourth quarter of twenty twenty five?

Sure.

Yes, the business performed in line with our expectations people. Performed well. So it was certainly a contributor to us in revenue within the fourth quarter as it always is. Last year's item with one particular client was again a unique impact given a regulatory loophole. That is now closed. We expect this business to continue to be part of the product set that we offer to clients and important within the retiree space. So but performed well and we don't expect any additional kind of one time items as we think about that business moving forward.

Jeremy, I'll just add. I mean, as we look at our pipeline for 2025, we haven't broken it down specific but I've got a pretty good feel for it. The retiree health solutions opportunities are are nice. They look good. We feel good about that business. We feel good about our value proposition. And we do think there'll be a number of large employers who are going to take a hard look at that as part of their strategy as we look at the back half of this year.

Alight. That's good to hear.

Thank you.

Our next question is from Pete Christensen with Citi.

Dave, [indiscernible] Nice to see some early signs of turnaround here. On the renewal contract renewal rate up eight eight points year over year, I know that's off of soft comp. Could you just benchmark that for us versus historical levels? And And any color on contract renewal pricing and direction that you're seeing there?

Sure, Pete. Let me start with that. Maybe Jeremy can add some color to it. So if you go back and look at historical levels, as I mentioned, 2023 was a kind of a low watermark for us. If you look back prior to that or what we would expect on a more normal basis, We're approaching those levels, Alight? So the eight point improvement feel good Alight. As I said, there's still a little bit of headroom there, maybe a couple more points where we can get to historical high levels. And we've good about our trajectory relative to that.

As far as the pricing dynamics are concerned, you're always going to have a little bit of compression. We're not worried about it. I don't think we're seeing any like predatory price or anything that would be out of the ordinary relative to big contracts that we're looking to renew or particular point solutions like our lead lease or NAV business. That's pretty important part of our portfolio. So overall, I think we're feeling good about kind of a return to historical levels of performance on retention.

And Pete, maybe what I'd add, if there's any compression from a pricing standpoint, it's included in how we talk about loss losses. It's really losses and compression. So as we go through that renewal cycle, that overall retention percent includes both price impacts on anything that we do retain.

And just on the prospecting side, I don't know if you're seeing any given premiums are just going up and everything like that. Has pricing become more of a priority when trying to win new business? Or is it really still back to capabilities, employee engagement Alight those types of things. I'm just trying to see if the buyer checklist has changed at all?

Yes, it's a great question, Pete. Thank you. Let me take a crack at it. So, it's important I think to put what we do in our fees relative to what we do in the context of the overall spend for the employer. For employee benefits. And if you think more specific the importance of value proposition around health administration, navigation, integration and our ability to be able to help participants connect up with the programs that are available to them, utilize those programs, see the value on the outcome, better health, better well-being, etcetera. It's the value play that the employer cares about.

Because roughly $0.9 on the dollar is relative to the actual benefit or the claim in the case of healthcare that's going to get paid. And the extent to which we can be supportive of getting participants more lined up and more engaged with the programs that are available we have a positive impact on that 90%. So while they look at what it costs for us to deliver the service, we're actually talking much more about what we can do to help impact the total cost. [indiscernible] That's helpful. Thanks for Reframing that for us. Thank you. You're welcome.

Thank you. Our next question is from Joseph Baughy with Canaccord Genuity.

Hey, guys. Good morning and thanks for all the new metrics much appreciated. Just Just one more on renewals here. If we look at If we look at the ARR growth guide for the year. It's a nice number. Just wondering if perhaps this year is a higher renewal year versus perhaps last year. Or is it kind of a normalized kind of average renewal year contracts, then I have a quick follow-up. Yes, Joseph, it's Dave. Let me start on that. So actually 2024 probably was a bit of a bigger year relative to the total amount. For renewal. It's pretty even you look at it year to year, it doesn't fluctuate too much. Think about three to five year kind of contract durations. And so you've got roughly a call it a fourth of the business that's going to be up for renewal every year. Last year was a little bit higher We feel good about our success on it. This year is going to be a little bit lower. Great. And then just one quick one. Unlike CapEx maybe a little lower here, in 2025, is that maybe a function of some of the spend on the cloud migration abating or is there anything else we should be aware of?

Thanks a lot guys.

Sure, Joe. I'll take that one. Yes, exactly right. And we did have elevated cash CapEx as we were working through the last two years on the cloud migration. So I think the benefits of being in the cloud, stability around the technology infrastructure that we have there's the real estate and anything that went with the data centers that we had on-site. And so we are seeing the benefits of that. And then I think the other part of it is the investment profile from a product standpoint. We're looking at and ensuring efficiency [indiscernible] the spend on that side of it with the Alight work like over the past four years.

And so we do think there's continued opportunity to be more efficient as we think about that investment profile.

Thanks very much. Thanks, Joe. Appreciate it, Joe.

Thank you. There are no further questions at this time.

I'd like to hand the floor back over to Dave Gilmatt for any closing comments.

Thank you, operator, and thank you everyone for joining us today. Look forward to building upon our momentum and discussing our long term strategy next month at our Investor Day. Take care, everybody.

This concludes today's conference. May disconnect your lines at this time.