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AI

Alight, Inc. / Delaware (ALIT)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 revenue of $533M declined 4% YoY and modestly missed consensus ($539.4M*) as project revenue remained soft; adjusted EBITDA rose 17% to $138M with 460 bps margin expansion, and adjusted diluted EPS was $0.12, slightly below consensus ($0.130*) .
  • Management lowered FY2025 guidance: revenue to $2.252–$2.282B, adjusted EBITDA to $595–$620M, adjusted diluted EPS to $0.54–$0.58, and FCF to $225–$250M, citing weaker project pipeline and cautious client volumes .
  • A non-cash goodwill impairment of $1.338B drove a GAAP net loss of $1.055B for the quarter; operating cost reductions and productivity savings supported margin expansion .
  • Strategic catalysts: progress in partnerships (Goldman Sachs AM, Sword Health), conversational GenAI enrollment tool pilots, higher participant CSAT to ~90, and governance change proposal to declassify the Board by 2027 .

What Went Well and What Went Wrong

  • What Went Well

    • Adjusted EBITDA increased 17% ($138M) and adjusted gross margin expanded 260 bps YoY to 38.6% on compensation reductions and productivity gains .
    • Recurring revenue remained resilient at 91.7% of total; new wins or expansions with MetLife, Cintas, and Mass General Brigham, and incremental “revenue under contract” across 2026/2027 .
    • Management highlighted AI/automation benefits and rising participant satisfaction: “participant satisfaction at record levels since the end of our technology transformation,” with an AI-driven enrollment assistant now piloted; CSAT increased by 4 points to ~90% .

  • What Went Wrong

    • Top line missed expectations: revenue $533M vs consensus $539.4M*; adjusted EPS $0.12 vs $0.130*; project revenue fell 14% YoY .
    • Guidance cut at midpoints across revenue, adjusted EBITDA, adjusted EPS, and FCF as deals took longer to close and volumes were cautious in select areas .
    • Large non-cash goodwill impairment ($1.338B) reflecting market valuation trends, overshadowing otherwise improved operating profitability .

Financial Results

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$548 $528 $533
Adjusted EBITDA ($USD Millions)$118 $127 $138
Adjusted EBITDA Margin %21.5% 24.1% 25.9%
Adjusted Diluted EPS ($USD)$0.10 $0.10 $0.12
Gross Profit Margin % (GAAP)31.2% 33.3% 33.4%
Adjusted Gross Margin %36.5% 38.8% 38.6%

Segment/Revenue Mix

Metric ($USD Millions)Q1 2025Q2 2025Q3 2025
Recurring Revenue$520 $492 $489
Project Revenue$28 $36 $44
BPaaS Revenue$126 $124 $123
Total Revenue$548 $528 $533

Key KPIs

KPIValuePeriod
Revenue under contract (2025)$2.25B As of 9/30/25
Revenue under contract (2026)$1.8B As of 9/30/25
Revenue under contract (2027)$1.3B As of 9/30/25
Cash & Cash Equivalents$205M 9/30/25
Total Debt$2,010M 9/30/25
Net Debt$1,805M 9/30/25
Net Leverage Ratio (TTM Adj. EBITDA)3.0x 9/30/25
Free Cash Flow (YTD)$151M 9M 2025

Versus Wall Street Consensus (Q3 2025)

MetricConsensusActual
Revenue ($USD Millions)$539.4M*$533
Adjusted/Normalized EPS ($USD)$0.130*$0.12

*Values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious Guidance (Q2 2025)Current Guidance (Q3 2025)Change
RevenueFY2025$2,282–$2,329M $2,252–$2,282M Lowered
Adjusted EBITDAFY2025$620–$645M $595–$620M Lowered
Adjusted Diluted EPSFY2025$0.58–$0.64 $0.54–$0.58 Lowered
Free Cash FlowFY2025$250–$285M $225–$250M Lowered
DividendQuarterly$0.04 per share (initiated Q4’24; paid Q1–Q3’25) $0.04 per share (declared subsequent event) Maintained
Share RepurchasesFY2025 YTD$20M (Q1) + $40M (Q2) $25M (Q3); $216M remaining authorization at 9/30 Continued

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2025)Trend
AI/Technology & Service AutomationEmphasis on cloud migration, PSP restructuring to drive efficiency; AI in enrollment foundational Conversational GenAI enrollment assistant piloted; agent assist and call automation drove ~13% decline in call volumes; CSAT ~90% Increasing deployment and measurable customer impact
Partnerships & EcosystemGSAM partnership launched to expand wealth solutions; pipeline strong Sword Health joined network; first GSAM client signed; MetLife institutional income annuity in Worklife Expanding breadth; revenue impact expected more in 2026
Macro & Project RevenueRecurring resilient; project timing softer; reaffirmed outlook in Q1; refined in Q2 Project revenue softness drove guidance lower; cautious volumes, longer deal cycles Near-term headwind persists
Governance—Board to seek declassification; annual director elections from 2027 if approved Governance enhancements continue
Revenue Under Contract92% under contract for 2025 at Q1; 95% at Q2 $2.25B 2025; $1.8B 2026; $1.3B 2027 at 9/30 Solid forward visibility
Capital ReturnsDividend initiation announced in Q4’24; buybacks in Q1/Q2 Dividend maintained; buybacks continued; $216M authorization remaining Ongoing, balanced with deleveraging

Management Commentary

  • “I am pleased with our ability to deliver enhanced outcomes for clients and their people… Through our AI and automation investments and rapidly expanding partner collaborations, we are bringing immediate benefits to clients and strengthening our competitive advantages for the long run.” — CEO Dave Guilmette .
  • “Revenue under contract… $2.25 billion for 2025, $1.8 billion for 2026, and $1.3 billion for 2027.” — Earnings presentation .
  • “Adjusted EBITDA was $138 million… Free cash flow for the first nine months was $151 million… our profitability and cash flow results include a nonrecurring impact of lower variable and performance-based costs.” — CFO Jeremy Heaton .
  • “The Board… intends to ask stockholders to vote… to effectuate the phased declassification of the Board… directors elected at the Company’s 2027 annual meeting… will be elected to one-year terms.” — Chairman Russ Fradin .

Q&A Highlights

  • Guidance and revenue drivers: Management explained the revised FY2025 ranges reflect weaker project revenue and client caution, offset by resilient recurring streams and rising partner momentum .
  • Cost dynamics: CFO noted recent profitability benefited from lower variable/performance-based costs that may be nonrecurring, highlighting focus on durable margin levers from efficiency initiatives .
  • AI and customer experience: Deeper deployment of conversational AI and agent assist reduced call volumes and improved satisfaction; broader rollout expected in 2026 .
  • Capital allocation: Continued balanced approach—dividends and repurchases alongside deleveraging; $216M buyback authorization remains .

Estimates Context

  • Q3 2025 results modestly missed Street expectations: revenue $533M vs $539.4M* and adjusted/normalized EPS $0.12 vs $0.130*. Adjusted EBITDA outperformed YoY but consensus focus is on trajectory of project revenue and FY guide reset .
  • Implication: Sell-side models likely to trim FY revenue, EBITDA, EPS and FCF midpoints and push more contribution into 2026 from partner-led revenue streams and AI-enabled productivity gains.
    *Values retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term: Guidance cut and goodwill impairment are likely overhangs; watch Q4 project revenue cadence and FY FCF delivery against the lowered range .
  • Margin durability: Structural cost actions and automation should support sustained adjusted EBITDA margin gains even with muted project revenue .
  • Visibility: High recurring mix (~92%–95% in H1, 91.7% in Q3) and $2.25B of 2025 revenue under contract limit downside to core operations .
  • 2026 setup: Partnerships (GSAM, Sword Health, MetLife) and AI deployments point to incremental revenue streams and service efficiency; expect more tangible impact in 2026 .
  • Capital returns: Dividend maintained and buybacks ongoing with net leverage ~3.0x; balance sheet supports continued returns while preserving flexibility .
  • Execution watchpoints: Sales cycle length, renewal/pricing outcomes, and conversion of pipeline to ARR; monitor participant CSAT and digital adoption as leading indicators .
  • Catalyst map: Further partner announcements and AI rollouts vs project revenue softness and macro caution will likely drive stock narrative near term .