03. Alight, Inc. (NYSE:ALIT)
Number of Hedge Fund Holders: 42
Share Price as of September 27: $7.27
Alight, Inc. (NYSE:ALIT) is a leading provider of cloud-based integrated digital human capital and business solutions, serving a global clientele through its Employer Solutions and Professional Services segments. The company offers a variety of services including employee wellbeing, benefits administration, healthcare navigation, and consulting. The company’s Alight Worklife platform enhances employee engagement, helping organizations create a high-performance culture. As of Q2 2024, Alight was held by 42 hedge funds, a slight decline from 44 hedge funds in the previous quarter, indicating sustained institutional interest in the stock.
During its Q2 2024 earnings call, Alight, Inc. (NYSE:ALIT) reported solid financial performance, highlighting transformational achievements. Alight’s divestiture of its payroll and professional services business has enhanced its financial profile, boosting gross margins by 350 basis points to over 40% and raising adjusted EBITDA margins from 21.7% to 25%. The company also completed its two-year cloud migration program, expected to generate $75 million in annual run rate cost savings, contributing to margin expansion.
A key highlight from the earnings call was the reduction of Alight, Inc. (NYSE:ALIT) net leverage to 2.8x on a trailing twelve months adjusted EBITDA basis, thanks to the retirement of $740 million in debt. This reduction positions the company with greater financial flexibility. The company also announced $155 million in share repurchases, which will retire over 3% of its outstanding shares, indicating management’s confidence in Alight’s future growth.
Financial metrics underscore Alight, Inc. (NYSE:ALIT) strength. Total revenue for Q2 2024 was $550 million, and adjusted gross profit stood at $219 million with an adjusted gross margin of 39.8%. Adjusted EBITDA came in at $128 million, reflecting a margin of 23.3%, which improved sequentially. Additionally, the company’s annual recurring revenue (ARR) bookings increased by 9% in the first half of 2024, supported by new contracts with large clients like UPS, Wayfair, and American Honda Motor Company.
With long-term contracts representing over 90% of total revenue, Alight, Inc. (NYSE:ALIT) expects stable revenue growth of 4% to 6% annually. The company’s robust revenue model, strong margins, and cost efficiencies make Alight, Inc. (NYSE:ALIT) an attractive stock under $10 to consider for long-term investment.
Polen U.S. Small Company Growth Strategy stated the following regarding Alight, Inc. (NYSE:ALIT) in its Q2 2024 investor letter:
“Alight, Inc. (NYSE:ALIT) is a benefits administration outsourcing business serving large enterprise companies, including 70% of the Fortune 100.3 Based on our analysis, the core business is a stable, low-churn, and generally sticky business, albeit more slowly growing. That said, over the last several years, this has evolved as the company has adopted a faster-growing software-enabled cloud strategy. Overall, we think the business is performing well despite headwinds from slower demand given the macro environment uncertainty. Earlier this year, the company announced the decision to sell its payroll and professional services business. While initially well received by the markets, this has ultimately created some uncertainty about the profile and growth of the core business. We trimmed our position while we continue to review the investment.”
